Stepp v. Foster

Present: All the Justices

GAIL STEPP, ET AL.
OPINION BY
v. Record No. 990404 JUSTICE LAWRENCE L. KOONTZ, JR.
January 14, 2000
JAMES A. FOSTER, ET AL.

FROM THE CIRCUIT COURT OF FAIRFAX COUNTY
Kathleen H. MacKay, Judge

In this appeal, the principal issue we consider is whether

the trustees of a trust who successfully defended an action by

beneficiaries of the trust are entitled to recover an award of

attorney’s fees and expenses from the beneficiaries rather than

from the trust corpus.

BACKGROUND

The Belmont Park Estates subdivision was created by

recorded plat in 1956 and consists of 140 residential lots

located in Fairfax County. Marketing of the subdivision by the

owner/developer included reference to an adjoining 6.8-acre

parcel (hereafter Parcel A) as the site of a future clubhouse,

marina, dock, and other recreational facilities on Belmont Bay

in Occoquan Creek near its outlet into the Potomac River.

A Declaration of Covenants for Belmont Park Estates was

recorded on September 1, 1960. The covenants, which deal

primarily with restrictions on lot use and easements, do not

reference Parcel A or any other common property. No provision

for a community association, either voluntary or mandatory, is
contained in these covenants. Sometime after the covenants were

recorded, the owner/developer abandoned the project leaving the

majority of the lots in the subdivision unsold.

On February 24, 1973, the new owner of Parcel A transferred

it to a trust, naming James A. Foster, Marvin E. Lear, and

Marshall L. Ware, three resident lot owners, as trustees. 1 The

trust is for the benefit of all lot owners in Belmont Park

Estates. The trust deed recites various powers of the trustees,

but imposes upon them no express duties to enforce those powers.

Among the powers given to the trustees is the power to appoint

successor trustees, to restrict access to Parcel A to those lot

owners in the subdivision who pay “a uniform charge as

determined by the trustees . . . to pay expenses incurred in the

ownership, maintenance and improvement of the property,” and to

create a governing board of lot owners. The deed further

provides that the trustees are “to have no personal liability as

a trustee for any act or omission in connection with said

property, except for . . . acts committed with malice or in bad

faith.”

1
When Foster sought to acquire title to a vacant lot
adjoining his home, he learned that Parcel A and the unsold lots
in the subdivision had been acquired by the new owner some time
after the owner/developer had abandoned the project. Foster and
the new owner subsequently entered into a joint venture to
market the unsold lots.

2
 Pursuant to the terms of the trust deed referencing a

governing board, the trustees called a meeting of the lot owners

and established Belmont Bay Community Associates (Associates),

an unincorporated association. Gail Stepp, a resident lot

owner, was elected as Associates’ first president. The minutes

and other records of Associates indicate that it was initially

and principally concerned with the maintenance and improvement

of Parcel A, frequently referred to as “the park,” and the

imposition of a maintenance fee for that purpose. Over time,

however, Associates expanded the scope of its activities to

include enforcement of the covenants, sponsoring civic and

social functions, involvement in local planning and land use

issues, and cooperation and encouragement of efforts by Foster

and others to market the unsold lots in the subdivision. The

widening scope of the activities of Associates caused some

friction among resident and nonresident lot owners.

In November 1986, Stepp was named a successor trustee after

Ware moved out of the subdivision. The deed in the record to

this effect appears to have been filed on April 23, 1987. On

September 29, 1993, apparently related to the growing discord

among lot owners over the role and authority of Associates,

Stepp and Marie Stepp, his wife, submitted a letter of

resignation from Associates.

3
 In 1994, the Belmont Bay Community Association, Inc. (the

Association), a Virginia non-stock corporation, was chartered

and assumed the duties of the governing board called for in the

trust deed. Marie Stepp became treasurer and a board member of

the Association. Associates’ assets were transferred to the

Association on May 22, 1994.

Disputes over the role and authority of the Association

continued and a controversy developed over the selection of

candidates for election to the Association’s board in 1995.

Apparently in connection with this controversy, some members of

the Association asserted that there was no record of Stepp’s

selection as a substitute trustee. Ware was asked by the

Association to submit a letter of resignation as trustee, which

he did on May 31, 1995. A notation in the minutes of the

December 15, 1995 board meeting indicates that “Carol Ann Wright

has accepted the position of Trustee.” 2

On February 4, 1997, Stepp, both individually as a lot

owner and as a trustee, Marie Stepp as a lot owner, and Ralph

Edwards, both individually as a lot owner and “for the use and

benefit of Belmont Bay Community Associates,” and Patricia

2
No formal action to record Wright’s selection as a trustee
was taken at this time. Subsequent to the initiation of the
suit from which this appeal arises, a deed was filed naming
Wright as successor trustee replacing Ware and naming Polifko as
successor trustee replacing Lear.
4
Edwards as a lot owner, filed an amended bill of complaint

against the Association, Foster and Lear, both individually and

as trustees, and seven individual lot owners including Wright

and Michael Polifko. 3 In essence, the Stepps and the Edwardses

sought a declaration that the Association was not the governing

board of the trust called for by the February 24, 1973 trust

deed, and that it lacked the power to enforce the collection of

dues from lot owners. They further sought a declaration that

Wright was “not a duly appointed Trustee.” In addition, they

sought an accounting of the funds collected by the Association

and Associates, the removal of Foster and Lear as trustees, and

damages from Foster and Lear for alleged breaches of their

fiduciary duties. 4

Characterized by the chancellor in her final opinion letter

as a “firestorm,” the proceedings in the trial court,

culminating in a six and one-half day ore tenus hearing, reveal

the extent to which the dispute over conflicting interpretations

3
The original bill of complaint had been filed on October 3,
1996. The amended bill of complaint was filed in order to add
additional lot owners as respondents in order to provide
adequate notice to the beneficiaries of the trust.
4
On April 11, 1997, in a preliminary hearing, the trial
court granted partial summary judgment to Foster, Lear, and
Wright, finding that the trustees did not have to act
unanimously, but could act by majority vote. The chancellor
also found that the trust in question is “a charitable trust.”

5
of the trust deed, the duties of the trustees under that deed,

the authority of the community associations, and the rights of

the individual lot owners had devolved into a bitter and

acrimonious community feud. For purposes of our resolution of

this appeal, however, it is unnecessary to recount the full

extent of the accusations and counter-accusations of the

principal parties. It will suffice to say that the Stepps, the

Edwardses, and their supporters opposed the efforts to expand

the role of the Association beyond the maintenance and use of

Parcel A as a “park” and viewed these efforts as intended to

primarily benefit Foster and Lear individually. Foster, Lear,

and their supporters maintained that these efforts were

altruistic and were intended to benefit the entire community.

After the chancellor issued preliminary findings in their

favor, Foster, Lear, and Wright (the trustees) filed a motion to

recover the attorney’s fees and expenses expended by them in

defending the suit. The trustees specifically sought to recover

these fees and expenses personally from the Stepps and the

Edwardses (the beneficiaries).

After receiving briefs from the parties, the chancellor

issued a preliminary ruling. In a letter opinion dated June 5,

1998, the chancellor recognized that, as an exception to the

“American Rule” that attorney’s fees and costs generally are not

recoverable by a prevailing litigant, a trustee who is required

6
to defend in his capacity as trustee “without his own fault” is

entitled to be reimbursed for attorney’s fees and expenses

incurred in the litigation. Willson v. Whitehead, 181 Va. 960,

965, 27 S.E.2d 213, 216 (1943). The chancellor, relying on

Willson, accepted the trustees’ argument that because “there is

no trust fund within the control of the court but, rather, the

trust is non-liquid realty,” the burden of reimbursing the

trustees should fall on the cestuis que trust, i.e., the

beneficiaries who sued the trustees, personally.

After receiving briefs and exhibits from the parties, the

chancellor held an ore tenus hearing to determine the

reasonableness of the attorney’s fees and “expenses” claimed by

the trustees. In an opinion letter dated November 23, 1998, the

chancellor found that the attorney’s fees were reasonable and,

after making minor adjustments to their claim for expenses and

rejecting the beneficiaries’ claim for offset for reimbursement

received by Foster under his homeowner’s liability policy, the

chancellor awarded the trustees $158,343.50 in attorney’s fees

and $14,153.71 in “costs” against the beneficiaries personally.

Incorporating by reference the opinion letter dated the

same day, a final decree dated November 23, 1998, confirmed the

7
award of attorney’s fees and “expenses.” 5 In addition, the

chancellor memorialized the findings of fact and conclusions of

law made earlier in the proceedings. Relevant to this appeal,

the chancellor held that Stepp had been properly named as a

substitute trustee, but had been removed and replaced by Wright,

and that the current trustees are Foster, Wright, and Polifko.

The chancellor further held that no evidence supported a finding

that Foster and Lear had breached their fiduciary duties as

trustees or acted in bad faith. Although the decree makes no

express reference to the request for an accounting, it is clear

by implication that this relief was denied. We awarded the

Stepps this appeal.

DISCUSSION

The parties concentrated the majority of their argument on

brief and the entirety of their oral argument on the issue

whether an award of attorney’s fees and expenses could be made

against an unsuccessful beneficiary/litigant personally.

However, because a judgment in favor of the beneficiaries on the

other assigned errors would necessarily render moot the

5
Throughout the proceedings the parties and the chancellor
use the terms “expenses” and “costs” interchangeably. For
reasons that we will subsequently address, the proper term in
the context of this case is “expenses.”

8
trustees’ claim for attorney’s fees and expenses, we will first

address these assigned errors.

The Stepps have assigned error to the chancellor’s findings

that Mr. Stepp is no longer a trustee, that the trustees were

not required to act unanimously, and that Foster and Lear had

not breached their fiduciary duties as trustees. Additionally,

the Stepps assign error to the chancellor’s failure to order an

accounting of Associates and the Association. Each of these

challenges to the chancellor’s judgment involves and is

determined by a disputed issue of fact. When the chancellor

hears evidence ore tenus, her decree is entitled to the same

weight as a jury verdict, and we are bound by the chancellor’s

findings of fact unless they are plainly wrong or without

evidence to support them. Rash v. Hilb, Rogal & Hamilton Co.,

251 Va. 281, 283, 467 S.E.2d 791, 793 (1996). The record

adequately supports the chancellor’s findings of fact in favor

of the trustees on each of these issues, and, accordingly, we

will affirm the chancellor’s judgment on them.

As framed by the Stepps, the remaining issue to be resolved

is whether “[t]he trial court erred in entering a personal

judgment against the Stepps in the amount of $172,497.21 as

attorney’s fees and costs awarded to Foster, Lear and Wright.”

For the reasons that follow, we hold that the award was proper,

9
but that the chancellor erred in not assessing that award

against the trust.

The trustees’ premise for seeking to have the chancellor

assess the award against the beneficiaries rather than the trust

is that assessing the award against the trust would require

mortgaging or liquidation of the only trust asset, Parcel A,

and, thus cause undue hardship on the other beneficiaries.

Accordingly, they assert that “under the circumstances of this

case, that right and entitlement requires that the reimbursement

come personally from the Stepps.” In support of this assertion,

the trustees cite Willson and Cooper v. Brodie, 253 Va. 38, 480

S.E.2d 101 (1997). In neither case, however, was the award to

the trustee charged to the beneficiary/litigant personally.

Indeed, we expressly held in Cooper that “the trial court erred

in charging a portion of Cooper’s attorney’s fees and [expenses]

to her individual interest. . . . [T]hat portion should be

charged to the trust.” 253 Va. at 44, 480 S.E.2d at 104.

(Emphasis added).

The trustees contend, however, that because the corpus of

the trust is real property, there is no fund from which the

chancellor could have ordered payment of the attorney’s fees and

expenses. They contend that this is so because the chancellor

is without power to force the termination of the trust by

ordering the sale of the real property as this would frustrate

10
the purpose of the trust. Accordingly, they conclude that “the

proper source of reimbursement is the Stepps.” We disagree.

Unquestionably, in Willson we recognized an exception to

the “American Rule” that litigants bear the burden of their own

expenses in litigation. However, as we explained in Ward v.

NationsBank, 256 Va. 427, 441, 507 S.E.2d 616, 624 (1998),

“[t]he correct application of Willson is that a trustee, who has

the duty to defend the actions challenged as detrimental to the

trust, is entitled to attorney’s fees when he has been called on

to defend himself against a charge of dereliction of duty and

there is neither substantial evidence that the trustee wasted or

mismanaged the trust nor evidence of any conduct warranting the

removal of the trustee. . . . [W]here a trustee has a good faith

basis for defending a suit challenging his actions as trustee,

attorney’s fees and [expenses] incurred in the defense of the

suit should be charged against the trust.” (Emphasis added.)

See also Cooper, 253 Va. at 44, 480 S.E.2d at 104.

That the corpus of a trust consists of real property rather

than liquid assets does not remove those assets from the control

of the chancellor. Nor is it controlling that an award of

attorney’s fees and expenses to a trustee who has successfully

defended the interests of the trust might result in diminution

of the corpus and thereby frustrate the grantor’s intention.

Nothing in our prior case law suggests such limitations on the

11
ability of the chancellor to make an award from the corpus of a

trust, charitable or otherwise, reimbursing a trustee for

expenses incurred in representing the trust. Moreover, in the

present case the record does not establish that making an award

of the trustees’ expenses from the trust corpus would

necessarily terminate the trust as the trustees suggest.

There is no dispute here that because the trustees had a

duty to defend the suit and the chancellor found no breach of

their fiduciary duties, they are entitled to recover their

expenses incurred in the defense of the suit. As we previously

noted in footnote 5, supra, the parties and the chancellor use

the terms “expenses” and “costs” interchangeably. To the extent

that it might appear we draw no distinction between these terms

in this case, a further discussion of the nature of the

chancellor’s judgment is necessary.

In this case, we are not concerned with an award of costs

as contemplated by Code § 17.1-601, which provides, in part,

that “the party for whom final judgment is given in an action or

motion shall recover his costs against the opposite party.” Nor

are we concerned with the distinctions we necessarily draw

between costs essential for the prosecution of a suit, such as

filing fees or charges for service of process, and incidental

expenses incurred in an attorney’s representation of clients in

the form of expert witness fees, express mail service,

12
messengers, meals, law clerk temporaries, computer-based legal

research, library research, photocopies, parking, taxicabs,

telephone calls, and transcript preparation in appropriate

cases. See Advanced Marine Enterprises v. PRC Inc., 256 Va.

106, 126, 501 S.E.2d 148, 160 (1998); see also Lansdowne

Development Company v. Xerox Realty Corp., 257 Va. 392, 403, 514

S.E.2d 157, 163 (1999)(discussing award of “all litigation

expenses” under contract).

While a portion of the chancellor’s award in the present

case reimburses the trustees for some of the items of expense

listed above that we rejected in Advanced Marine, here we are

not concerned with an award of what are commonly referred to as

“court costs.” Rather, we are concerned with “expenses” of

trustees incurred in defending a suit brought against them by

beneficiaries of the trust. In that context, we apply our

holding in Willson as requiring that the trustees be held

financially harmless in that “they ought not in justice and good

conscience to be put to any expense out of their own moneys

. . . [and] if it appears . . . that they have sustained charges

and expenses beyond the costs of the suit, as between solicitor

and client, the court will order such further expenses properly

incurred to be paid to them.” Willson, 181 Va. at 965, 27

S.E.2d at 216. Accordingly, here we are concerned with any

reasonable expense of the trustees beyond and above their

13
attorney’s fees, that they may have incurred as a result of

being required to defend this suit. In short, here the

chancellor properly awarded expenses in the unique context of

trustees defending a suit brought by beneficiaries of the trust

so as to hold them financially harmless. 6

CONCLUSION

For these reasons, we will reverse that portion of the

chancellor’s judgment making the beneficiaries personally liable

for the attorney’s fees and expenses awarded to the trustees,

modify the judgment to place the liability for that award on the

trust, and enter final judgment for the trustees.

Affirmed in part,
reversed and modified in part,
and final judgment.

6
Moreover, because the amount of their expenses is not
challenged on appeal, the trustees are entitled to recover those
expenses as awarded by the chancellor’s judgment. We stress
that our affirmance of the judgment in this case should not be
interpreted as permitting an award of similar incidental
expenses in a different litigation context.
14