Dardovitch v. Haltzman

Opinions of the United
1999 Decisions States Court of Appeals
for the Third Circuit

9-7-1999

Dardovitch v. Haltzman
Precedential or Non-Precedential:

Docket 98-1421, 98-1422, 98-1452

Follow this and additional works at: http://digitalcommons.law.villanova.edu/thirdcircuit_1999

Recommended Citation
"Dardovitch v. Haltzman" (1999). 1999 Decisions. Paper 250.
http://digitalcommons.law.villanova.edu/thirdcircuit_1999/250

This decision is brought to you for free and open access by the Opinions of the United States Court of Appeals for the Third Circuit at Villanova
University School of Law Digital Repository. It has been accepted for inclusion in 1999 Decisions by an authorized administrator of Villanova
University School of Law Digital Repository. For more information, please contact Benjamin.Carlson@law.villanova.edu.
Filed September 7, 1999

UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT

NOS. 98-1421, 98-1422, and 98-1452

NICK DARDOVITCH

v.

MARK S. HALTZMAN, ESQUIRE; CATHERINE A. BACKOS,
as trustees of GLENN EAGLE SQUARE EQUITY ASSOC.
TRUST; GLENN EAGLE SQUARE EQUITY
ASSOCIATES, INC.

Mark S. Haltzman,
Appellant in No. 98-1421

NICK DARDOVITCH

v.

MARK S. HALTZMAN, ESQUIRE; CATHERINE A. BACKOS,
as trustees of GLENN EAGLE SQUARE EQUITY ASSOC.
TRUST; GLENN EAGLE SQUARE EQUITY
ASSOCIATES, INC.

Mark S. Haltzman,
Appellant in No. 98-1422

NICK DARDOVITCH
Appellant in No. 98-1452

v.

MARK S. HALTZMAN, ESQUIRE; CATHERINE A. BACKOS,
as trustees of GLENN EAGLE SQUARE EQUITY ASSOC.
TRUST; GLENN EAGLE SQUARE EQUITY
ASSOCIATES, INC.
On Appeal From the United States District Court
For the Eastern District of Pennsylvania
(D.C. Civ. No. 97-cv-00052)
District Judge: Honorable Stewart Dalzell

Argued: January 28, 1999

Before: BECKER, Chief Judge, SCIRICA and ROSENN
Circuit Judges.

(Filed: September 7, 1999)

JOSEPH M. DONLEY, ESQUIRE
(ARGUED)
PATRICK W. KITTREDGE, ESQUIRE
GLENN E. DAVIS, ESQUIRE
Kittredge, Donley, Elson, Fullem
& Embrick
421 Chestnut Street, 5th Floor
Philadelphia, PA 19106

Counsel for Mark S. Haltzman

CLETUS P. LYMAN, ESQUIRE
(ARGUED)
MICHAEL S. FETTNER, ESQUIRE
Lyman & Ash
1612 Latimer Street
Philadelphia, PA 19103

Counsel for Nick Dardovitch

2
 STEVEN R. SPARKS, ESQUIRE
(ARGUED)
Eckell, Sparks, Levy, Auerbach
& Monte
A Professional Corporation
344 West Front Street
Media, PA 19063

Counsel for Catherine A. Backos, as
trustees of Glenn Eagle Square
Equity Associates Trust and Glenn
Eagle Square Equity Associates, Inc.

OPINION OF THE COURT

BECKER, Chief Judge.

These cross-appeals present interesting questions
concerning the amount-in-controversy requirement for
diversity jurisdiction, the extent to which an attorney
holding a contingent-fee agreement may charge additional
fees for collecting the proceeds of a settlement or judgment,
and the proper administration of trusts by trustees and the
beneficiaries' remedies for errors therein under
Pennsylvania law. The principal appellant is defendant
Mark S. Haltzman, a member of the Pennsylvania bar and
a trustee of the Glen Eagle Square Equity Associates Trust
(the "Trust"). Haltzman successfully represented Catherine
A. Backos, a codefendant and co trustee, in a separate civil
RICO claim brought by her and Glen Eagle Square Equity
Associates ("GESEA"), in which she was a major
shareholder, on a contingent fee basis. In order to
administer and distribute the proceeds of settlement of the
RICO claim, Haltzman and Backos established the Trust,
naming themselves as trustees. There were numerous
beneficiaries, including two shareholders and creditors of
GESEA -- Nick Dardovitch, the plaintiff and cross-
appellant, and Backos -- and also Haltzman himself, whose
interest sprang from his contingent fee. As part of his
efforts in administering the Trust, Haltzman took steps to
collect on the notes that constituted the trust corpus. He
paid himself an attorney's fee for this action out of the

3
Trust's funds, and this case centers on the propriety of
Haltzman's acceptance of these additional fees.

As always, the threshold question is one of jurisdiction.
Dardovitch alleged, and the District Court found, that his
claim fell within the District Court's diversity jurisdiction.
Haltzman argues that this subject-matter jurisdiction is
lacking because Dardovitch's claim fails to meet the
amount-in-controversy requirement. Haltzman contends
that the amount in controversy is determined by payments
presently due. That is ordinarily the case. But where, as
here, the plaintiff had good cause to believe that he needed
to bring suit to establish his right to receive any funds
under the trust, the entire amount of the plaintiff 's interest
in the trust can become the amount in controversy. Since
this amount substantially exceeded the jurisdictional
amount, the District Court had subject-matter jurisdiction.

Both Haltzman and Dardovitch raise numerous issues
relating to the District Court's decision on the merits. The
central issue is whether an attorney who enters into a
contingent-fee agreement that is not specific on the point is
entitled to additional fees for collecting the proceeds of the
settlement or judgment. The District Court concluded that
Haltzman's fee under the original contingent fee agreement
included both his actions in securing a settlement and any
steps necessary to collect the proceeds of the settlement,
and that he was therefore not entitled to additional fees for
the collection actions. The District Court thus held that
Haltzman had breached his fiduciary duty to the Trust by
accepting legal fees for collecting on the notes that were the
Trust's sole assets.

Haltzman challenges this reading of the Trust and
contingent fee agreement, arguing that they were limited to
his prosecution of the action to judgment, and did not
include his collection efforts. In analyzing the fee
agreement, the District Court looked at a variety of factors,
including the fact that Haltzman himself drafted the
agreement; the terms of the agreement; and the general
understanding of contingent-fee agreements. It also
considered, but rejected as self-serving, Backos's testimony
concerning her intent in entering into the agreement. We
conclude that the District Court's findings of fact and

4
conclusions of law as to the meaning of the retainer
agreement and the Trust must be upheld.

Haltzman also challenges the District Court's award of
attorney's fees to Dardovitch. The court ordered Haltzman
to pay part of Dardovitch's attorney's fees based on general
equitable principles applicable in trust cases. Without
holding a hearing, the court ordered Haltzman to pay most
of Dardovitch's accrued fees from the beginning of the suit
until the court granted Dardovitch partial summary
judgment and ordered an accounting. This award was
based on the conclusion that most of this work was
necessitated by Haltzman's continued refusal to admit that
Dardovitch was a beneficiary of the Trust. The court also
ordered Haltzman to pay one-quarter of the fees Dardovitch
had paid for his attorneys' work subsequent to the
accounting. This latter award was based on the fact that
some of Dardovitch's objections to Haltzman and Backos's
accounting were sustained, although many were not.

We agree with the general propriety of directing Haltzman
to pay Dardovitch's fees. However, because the District
Court held no hearing, did not adequately explain the basis
of its fee calculation, and in particular did not sufficiently
tie the award to the factors warranting the award, we will
vacate the district court's order and remand with
instructions to hold a hearing to recalculate the attorney's
fee award based on the reasonableness of the claimed fees.
On remand, the court should examine the claims carefully
to ensure that the claimed fees are sufficiently related to
the justifications for the fee award.

In his cross-appeal, Dardovitch challenges the District
Court's conclusion that Backos should not be jointly liable
for Haltzman's breach of his fiduciary duty. The District
Court relieved Backos of liability because it concluded that
she relied on Haltzman to such an extent in legal matters
that his breach cannot fairly be attributed to her. Under
Pennsylvania law, a trustee is obligated to exercise
reasonable care to ensure that her co-trustees do not
breach their fiduciary duties. A trustee who breaches this
duty may become jointly liable for the breaches of the co-
trustee. Furthermore, reliance on the advice of counsel is
only one factor to be considered in determining whether a

5
trustee acted reasonably, and even then the reliance itself
must be reasonable. The Court's decision, which seems to
have applied at most a subjective reasonableness standard,
appears to be contrary to the objective reasonableness
standard of Pennsylvania law. Accordingly, we will vacate
the District Court's order and remand Dardovitch's claim
against Backos so that the court can evaluate her liability
under the correct standard, i.e., whether she exercised
reasonable care to ensure that Haltzman did not breach his
fiduciary duty. The orders of the District Court will thus be
affirmed in part and vacated in part, and the case
remanded for further proceedings consistent with this
opinion.

I. Facts and Procedural History

This case originated in the settlement of a civil RICO suit
brought by Backos and GESEA. GESEA was organized to
purchase and operate a shopping center. Its shareholders
included Backos (55%), Dardovitch (15%) and two of
Backos's siblings (15% each). GESEA obtained
commitments from various financing companies, but these
firms backed away from their commitments. As a result,
the shopping center was sold to another entity, and in 1993
Backos and GESEA filed a civil RICO suit against the
various financing companies. This suit was the sole
business of GESEA at that time and subsequently. Backos
retained Haltzman to represent her and GESEA. Haltzman
initially proposed that he would do the work for a 30%
contingent fee plus expenses to be paid promptly, with a
retainer which was paid up front. See App. at 1774-77. In
May 1993, GESEA adopted a shareholder resolution
providing that Haltzman's fee, including expenses, would be
capped at 30% of the recovery. See App. at 1530-34. This
shareholder resolution was subsequently amended in
August 1993 to reflect that the fee was to be a 30%
contingent fee, not including expenses.

In January 1994, when Backos was unable to keep
current with her payments to Haltzman for litigation
expenses, the representation agreement was again amended
to provide a priority for Haltzman in the proceeds of the
litigation. See App. at 1778-79. Under the amended

6
agreement, Haltzman was to receive the entire first
$150,000 of any sums received as a result of the litigation;
Backos and GESEA were to receive the next $150,000; and
Haltzman was to be entitled to 30% of the next $1.7 million
and 15% of any recovery over $2 million. Shortly thereafter,
the suit settled for $994,000. The settlement agreement
provided that Backos and GESEA would be paid via long-
term, non-interest-bearing notes in this amount.

Apparently out of concern that GESEA's creditors would
immediately claim all of the money, Backos and GESEA set
up a trust -- the GESEA Trust -- for the receipt and
distribution of the proceeds of the settlement. Haltzman
and Backos were named trustees. The proceeds were to be
distributed in accordance with the representation
agreement, along with certain payments to GESEA's
creditors. The remaining money due GESEA was to be
distributed to the shareholders in proportion to their
interests. See App. at 1574-79. Dardovitch's share of the
$994,000 settlement was $104,000, although it was only
due and payable as the Trust received it. Prior to the filing
of the complaint in this case, Haltzman informed
Dardovitch by letter that only about $30,000 was due to
him at that time.

It became clear after the settlement that it would be
difficult to collect on the notes. Accordingly, Haltzman took
legal measures. See, e.g., Glen Eagle Square Equity Assocs.
Trust v. DSL Capital Corp., No. CIV. A. 95-7939, 1996 WL
689113 (E.D. Pa. Nov. 26, 1996) (entering judgment in
favor of plaintiff on action confessing judgment on one of
the aforementioned promissory notes). Ultimately, Haltzman
conducted work for which he billed the Trust approximately
$63,000 on an hourly basis. As of May 1997, the Trust had
received $335,000, of which $172,000 was paid out as legal
fees and $44,000 as litigation costs, to Haltzman. Thus,
64.5% of the money thus far received has gone to pay legal
fees and costs.

Although Dardovitch was informed of the creation of the
Trust and received a copy of the distribution schedule of
funds from it, he received little additional information from
Haltzman or Backos concerning the status or nature of the
Trust. Accordingly, he asked them about the income and

7
expenditures of the Trust in order to determine whether
they were managing it properly, and whether any money
was due him. Haltzman and Backos, however, gave him no
information; indeed, by August 1996, Dardovitch still had
not received any information on or money from the Trust.
Although Backos subsequently provided him with some
information, it was incomplete and inaccurate, and
Dardovitch again requested information from Haltzman.

Haltzman finally responded on December 10, 1996, by
sending a letter containing the following language to
Dardovitch's lawyer:

Please be advised that Nick Dardovitch is not a
beneficiary of the Trust Agreement, as the beneficiaries
of the Trust are Glen Eagle Square Equity Associates,
Inc. and Catherine Backos. Accordingly, even if the
information you requested in your letter was
appropriate (which it is not), he is not entitled to an
accounting. Further, the Trust document itself does
not require that the Trustee provide an accounting to
the beneficiaries.

Please also be advised that Mr. Dardovitch has, in
the past, acted detrimentally to the best interests of
Glen Eagle Square Equity Associates, Inc. I suggest
that Mr. Dardovitch consider his prior action and his
possible liability as to same before he elects to take
actions which will expose himself to potential liability.

Please be further advised that to the extent that your
office decides to bring litigation, which would be
improper based on the fact that Mr. Dardovitch is not
a beneficiary of the Trust, the Trust will seek to hold
your firm, as well as Mr. Dardovitch, liable for all of its
costs and expenses and will seek damages for
malicious prosecution and abuse of process. Your letter
is apparently a continuation of Mr. Dardovitch's past
guerilla tactics in attempting to extort money to which
he was not entitled.

App. at 58 (emphasis added).

On January 6, 1997, Dardovitch filed suit against
Haltzman, Backos, and the Trust for amounts due him and

8
for an accounting. Haltzman and Backos defended by
challenging jurisdiction and denying that Dardovitch was a
beneficiary of the Trust. The District Court initially
determined that it had subject-matter jurisdiction, see App.
at 84-85, and that Haltzman was not entitled to a jury trial,
see App. at 820. It then granted partial summary judgment
in favor of Dardovitch, concluding that he was clearly a
beneficiary, and ordered an accounting. See Dist. Ct. Order,
App. at 812-19.

Dardovitch then challenged certain aspects of the
accounting, and the Court held a hearing. See Dardovitch v.
Haltzman, Civ. A. No. 97-52, 1998 WL 13271 (E.D. Pa. Jan.
13, 1998). The Court concluded that Dardovitch could not
challenge pre-Trust transactions, see 1998 WL 13271, at
*2-*3, and that Backos had not breached her fiduciary
duty, see 1998 WL 13271, at *8 n.28. It also found that
Haltzman had breached his fiduciary duty by claiming
attorney's fees for the collection costs, and ordered him to
refund the fees to the Trust. See 1998 WL 13271, at *4-*7.
Because of certain setoffs, however, the Court ultimately
found that Haltzman had to pay about $14,000 back to the
Trust. See Appellant's Brf. App. 2, at 6-7. The District
Court also ordered Haltzman to pay most of Dardovitch's
attorney's fees from before the accounting, as well as one-
quarter of his post-Accounting fees, for a total of
approximately $64,000. See Appellant's Brf. App. 1.

Haltzman appeals from the District Court's orders
making a variety of challenges, some of which we dispose of
summarily in the margin. In particular, he challenges the
District Court's decisions finding subject-matter
jurisdiction, denying his request for a jury trial; 1 imposition
_________________________________________________________________

1. We agree with the District Court that Haltzman was not entitled to a
jury trial with respect to the accounting. A party ordinarily does not
have
a right to a jury trial in an equitable proceeding. The Supreme Court has
recognized that an accounting must be tried to a jury in certain
circumstances, i.e., where the accounting is sought merely because of
the complicated nature of the accounts, or where the accounting is
ancillary to an equitable claim and is in essence a claim for repayment
of a debt. See Dairy Queen, Inc. v. Wood, 369 U.S. 469 (1962) (holding
that an accounting must be tried to a jury where it is in actuality a
claim

9
of a surcharge on him;2 and awarding Dardovitch attorney's
fees. Dardovitch cross-appeals, challenging the District
Court's denial of his claims regarding pre-Trust transactions,3
_________________________________________________________________

for repayment of a debt); 9 Charles Alan Wright & Arthur R. Miller,
Federal Practice & Procedure S 2310, at 87-91 (2d ed. 1994). Where the
duty to account is itself equitable, however, no right to a jury trial
arises.
See United States v. Louisiana, 339 U.S. 699, 706 (1950) ("The Seventh
Amendment . . . [is] applicable only to actions at law," not "an equity
action for an injunction and accounting." (citation and footnote
omitted));
9 Wright & Miller, supra, S 2310, at 90. An action for an accounting of
a trust is quintessentially equitable. See Restatement (Second) of Trusts
S 197 (all remedies of a beneficiary against a trustee are equitable,
except
for a claim for money immediately and unconditionally due to the
beneficiary or a claim to transfer chattel that the trustee is under an
immediate and unconditional duty to transfer to the beneficiary).
Accordingly, a party to a trust accounting has no right to a jury trial;
that is the situation here.

2. Haltzman challenges several aspects of the District Court's calculation
of the amount of the surcharge he had to pay, in addition to his
challenge to the District Court's conclusion that he was not entitled to
additional hourly fees for the collection actions. We find no error in the
District Court's reasoning rejecting these claims. See Dist. Ct. Order,
Appellant's Brf. App. 2, at 4 n.2, 5 & n.3.

Dardovitch challenges different aspects of the District Court's
calculation of the surcharge. He argues that the District Court erred in
allowing Haltzman to receive attorney's fees from the Trust for litigation
against the Hanaway group of creditors. In particular, he contends that
Haltzman should not be permitted to recover these fees from the Trust
because his actions in defense of the Hanaway's claims were in breach
of his fiduciary duty to the Trust. The District Court rejected
Dardovitch's objection to this payment, concluding that Haltzman's work
was, in this case, not covered by the contingent fee agreement and
resulted in a benefit to the Trust. See App. at 1398-99; Appellant's Brf.
App. 2, at 5-6. We see no clear error in the District Court's conclusion,
and will affirm its order on this point.

3. In his cross-appeal, Dardovitch disputes inter alia the District
Court's
conclusion that he has no standing to challenge certain actions Backos
and Haltzman took before the Trust was executed and, in any case, that
the challenge was barred by laches. Dardovitch contends that Backos
and Haltzman breached their duties to the other shareholders of GESEA
by entering into the contingent-fee agreement. The District Court held
that Dardovitch lacked standing as either a shareholder -- since he did
10
and Backos's own conduct and potential liability for the
surcharge. Since this is a diversity case arising in the
Commonwealth of Pennsylvania, we apply Pennsylvania
law.

II. Subject-Matter Jurisdiction

Dardovitch brought his claim under the District Court's
diversity jurisdiction. See 28 U.S.C. S 1332.4 Dardovitch
_________________________________________________________________

not bring a proper shareholder derivative suit -- or a beneficiary of the
Trust -- since the Trust had not yet taken effect. Dardovitch now argues
that he has standing to challenge the pre-Trust transactions as a
creditor of GESEA under either the "trust fund doctrine" or the
Pennsylvania Uniform Fraudulent Transfer Act, 12 Pa. Cons. Stat.
SS 5101-10 (1998 Supp.) (applicable to transactions after February 1,
1994), and the Pennsylvania Uniform Fraudulent Transfer Act, 39 Pa.
Cons. Stat. SS 351-63 (repealed 1993) (applicable to transactions before
that date) [hereinafter collectively "PUFT/CA"]. Neither of these applies
to
this case, however. The "trust fund doctrine" makes the creditors of a
corporation the beneficiaries of a trust consisting of the corporate
assets,
but only after a court order creating the trust, which did not occur in
this case. PUFT/CA only applies to certain kinds of transactions, and
only prohibits them if they are not for fair consideration and will render
the corporation insolvent. See 12 Pa. Cons. Stat. SS 5101, 5105. Since
the transactions that Dardovitch challenges do not meet some or all of
these requirements, he cannot challenge them under PUFT/CA either.
Accordingly, we will affirm the District Court's rejection of Dardovitch's
objections to pre-Trust transactions. We need not and do not decide
whether the District Court erred in concluding that Dardovitch was
barred from asserting these challenges by laches.

4. "The district courts shall have original jurisdiction of all civil
actions
where the matter in controversy exceeds the sum of $50,000, exclusive
of interest and costs, and is between citizens of different States."
S 1332(a)(1). Section 1332(a) was amended in 1996 to require that the
amount in controversy exceed $75,000. See Pub. L. No. 104-317,
S 205(a)(1), 110 Stat. 3850 (1996). This amendment took effect on
January 14, 1997. See S 295(b). Accordingly, since Dardovitch filed suit
on January 6, 1997, the required amount in controversy was $50,000,
as Dardovitch alleged in his complaint. The precise amount-in-
controversy requirement is not terribly important in this case, however,
since it either exceeded $75,000 or was less than $50,000. The District
Court purported to apply the new $75,000 requirement. See Dardovitch,
1998 WL 13271, at *1 n.1.

11
alleged, and Backos and Haltzman did not contest, that he
is a citizen of Florida and that they were citizens of
Pennsylvania. The only question before us is, whether the
amount in controversy exceeds $50,000. At the time he
filed the complaint, Dardovitch was only due about $34,000
from the Trust. His entire interest in the Trust, however,
was $104,000. We must determine which of these two
sums represents the amount in controversy.

The amount in controversy is determined from the good
faith allegations in the complaint. See Spectacor Mgt. Group
v. Brown, 131 F.3d 120, 122 (3d Cir. 1997), cert. denied,
118 S. Ct. 1799 (1998). "The sum claimed by the plaintiff
controls if the claim is apparently made in good faith. It
must appear to a legal certainty that the claim is really for
less than the jurisdictional amount to justify dismissal." St.
Paul Mercury Indem. Co. v. Red Cab Co., 303 U.S. 283, 288-
89 (1938). Where a plaintiff brings a suit for payment of
money as part of an ongoing and continually accruing
obligation, such as an installment contract, the amount in
controversy is generally limited to the amount then due and
owing, even if a judgment would have collateral estoppel
effects on liability for future payments. See Aetna Cas. &
Sur. Co. v. Flowers, 330 U.S. 464, 467 (1947) ("If this case
were one where judgment could be entered only for the
installments due at the time of the commencement of the
suit, future installments could not be considered in
determining whether the jurisdictional amount was
involved, even though the judgment would be determinative
of liability for future installments as they accrued."). Where,
by contrast, a suit is brought to establish directly the right
to receive any payments because the putative defendant
has repudiated that right entirely, and not just with respect
to current payments, the amount in controversy is the
entire amount that may ever come due. See Aetna , 330 U.S.
at 469 (finding jurisdiction where a statute permitted a
single action to establish the right to workers'
compensation insurance installment payments, even
though currently due payments did not exceed the
jurisdictional amount; amount in controversy included
future payments where the right to all the payments was in
issue).

12
Haltzman submits that Dardovitch's complaint only put
the currently due and owing payments in issue.
643>Specifically, Haltzman notes that, in his complaint,

Dardovitch only requests payment of amounts presently
due, not a determination of amounts that might come due
in the future. See App. at 22. At the time he filed his
complaint, Dardovitch had been informed that the amount
then due would be at most slightly more than $30,000. See
App. at 1805-14. Accordingly, Haltzman submits that
Dardovitch could not allege in good faith that the amount
in controversy exceeded $50,000.

We disagree. The District Court correctly concluded that
the entire amount to which Dardovitch would ever be
entitled under the Trust was in controversy, because one of
the issues in this case -- one that was in fact heavily
contested -- was whether Dardovitch was a beneficiary of
the Trust. See Restatement (Second) of Trusts S 3(4) ("The
person for whose benefit property is held in trust is the
beneficiary."). An allegation or claim that a person is not a
beneficiary of a trust is an allegation or claim that the
person is not entitled to receive any of the proceeds of the
trust. Accordingly, a suit to establish one's status as a
beneficiary puts the entire amount of one's alleged interest
in the trust in controversy.

Haltzman concedes that he denied that Dardovitch was a
beneficiary. He attempts to justify this by saying this he
intended only to deny that Dardovitch was entitled to
demand an accounting or any other information concerning
the Trust. The evidence in the record supports this
contention. See App. at 56 (December 10, 1996 letter). This
does not, however, imply that Dardovitch did not
reasonably and in good faith believe that he needed to bring
suit to establish his right as a beneficiary to receive his
share of the proceeds of the Trust. To the contrary, an
examination of the evidence, including that set forth in the
margin,5 shows that it was eminently reasonable for
_________________________________________________________________

5. Haltzman has consistently denied that Dardovitch was a beneficiary of
the Trust. Haltzman begins the December 10, 1996, letter by asserting
that "Nick Dardovitch is not a beneficiary of the Trust Agreement." App.
at 56. In his answer to the complaint, Haltzman again denied that
Dardovitch "is a named `beneficiary' of the trust as the named
beneficiaries are Catherine Backos and Glen Eagle Square Equity
Associates, Inc." App. at 99.

13
Dardovitch to think that he needed to do so. Furthermore,
Haltzman litigated the issue of Dardovitch's status as a
beneficiary extensively, and perhaps even excessively.6

Based on the foregoing facts, Dardovitch had good cause
to believe that Haltzman had no intention of ever paying
him any money out of the Trust; Haltzman's own
statements apparently to that effect provide a strong basis
for such a belief. Furthermore, it appears that Dardovitch
in fact believed at the time he filed the complaint that he
needed to bring suit to establish his right to receive any
money from the Trust.7 In sum, Dardovitch alleged in good
faith -- based on Haltzman's repeated statements to that
effect -- that Haltzman had repudiated any obligation he
had as a trustee to pay the proceeds of the Trust to
Dardovitch as a beneficiary. Since it is not disputed here
that Dardovitch's interest in the Trust was approximately
$104,000, and this amount exceeds the jurisdictional
_________________________________________________________________

6. See Dardovitch, 1998 WL 12371, at *7 ("Backos and Haltzman spent
the better part of this long, acrimonious litigation resisting
Dardovitch's
demand to provide an account or even a copy of the Trust instrument,
insisting from the beginning that he was not a beneficiary of the
Trust.").
Even after the District Court granted Dardovitch's motion for partial
summary judgment and ordered an accounting on the sole ground that
Dardovitch was, in fact, a beneficiary of the Trust, Haltzman continued
to deny it. See 1998 WL 12371, at *7; see also App. at 899, 955.
Although Haltzman now concedes that Dardovitch is a beneficiary of the
Trust, and does not challenge the District Court's conclusion to that
effect on appeal, this late concession cannot change the result.

7. Dardovitch alleged in his complaint that Haltzman denied that
Dardovitch was a beneficiary of the Trust, and further alleged that as a
beneficiary he was entitled to receive distributions from the Trust. See
App. at 21-22. In his response to Haltzman's motion to dismiss for lack
of subject-matter jurisdiction, Dardovitch again referred to Haltzman's
December 10, 1996, letter -- as well as Backos's answer to the
complaint and Haltzman's affidavit in support of his motion to dismiss
-- denying that Dardovitch was a beneficiary of the Trust. He specifically
stated: "Whether plaintiff was entitled to distribution in excess of
$50,000 on January 6, 1997, is immaterial, because Mr. Haltzman
absolutely repudiated Mr. Dardovitch's entire claimed interests in the
trust on December 10, 1996." App. at 64.

14
requirement under S 1332, the District Court properly
concluded it had subject-matter jurisdiction.8

III. Haltzman Acceptance of Attorney's Fees for the
Collection Actions

A. Background

Haltzman next argues that the District Court erred in
concluding that he breached his fiduciary duty to the Trust.
The District Court reasoned that by paying himself fees for
collecting on the notes held by the Trust, Haltzman did so
because his fees for the prior litigation included fees for the
collection actions. Haltzman submits that he was legally
entitled to such fees.

Dardovitch contends that the Trust and the retainer
agreement provided that Haltzman's fees for undertaking
the RICO litigation would also cover any steps he took to
collect on the notes received in settlement of the litigation.
He notes that the Trust provided for two categories of
payments to Haltzman. First, it directed that expenses
incurred by Haltzman in connection with the prosecution of
the RICO litigation be paid out of the Trust. Second, it
directed that the legal fees owed to Haltzman be paid "in
strict accordance with the engagement agreement entered
into" between Haltzman, Backos and GESEA. App. at 1766.
Since the Trust incorporates the retainer agreement by
reference, we must consider the language of the
representation agreement itself.

Initially, in his proposal for representation, Haltzman
agreed to the representation "on a contingency fee basis of
30% of any amount recovered . . . . [M]ajor out-of-pocket
expenses for such things as deposition transcripts and
filing fees will be payable currently on a 30 day basis." App.
_________________________________________________________________

8. Dardovitch claimed, and the District Court appears to have agreed,
that he met the jurisdictional amount requirement by an alternative
method: in a claim for an accounting, the amount in controversy is the
claimants' entire interest in the trust. Since we conclude that the
amount-in-controversy requirement was otherwise met, we need not
decide this question.

15
at 1775. Thereafter, GESEA adopted a shareholder
agreement providing that "[t]he total of litigation fees and
expenses (including reimbursements of shareholders) shall
not exceed thirty percent (30%) of any recovery." App. at
1530-31. This agreement was subsequently amended to
permit payment of expenses in addition to the fee of thirty
percent of any recovery. App. at 1094. Still later, the
representation agreement was amended, in a document
signed by Haltzman and Backos, to provide that in addition
to payment of expenses, "Mark S. Haltzman will receive, as
a fee, the first $150,000 of any recovery received in the
lawsuit," along with thirty percent of any recovery in excess
of $300,000. App. at 1778. Dardovitch contends that this
language covers not only the RICO litigation itself, but also
any collateral steps taken to collect on the judgment.

Haltzman contends, however, that a different provision of
the Trust governs the payment of attorney's fees for
collecting on the notes:

In the administration of the Trust, the Trustees shall
have the following powers, all of which shall be
exercised in a fiduciary capacity, primarily in the
interest of the Glen Eagle Square Equity Associates,
Inc. and Catherine Backos;

. . . .

. . . . [T]o enforce any Notes, bonds, mortgages,
security agreements, or other obligations; . . . .

To incur and pay the ordinary and necessary
expenses of administration including (but not by way of
limitation) reasonable attorneys' fees, accountants'
fees, investment counsel fees, and the like.

App. at 1767-68. Haltzman submits that, pursuant to this
provision, he had the power to undertake actions to enforce
and collect on the notes, and further to pay himself
attorney's fees for those actions if he chose to use his own
professional services for such purposes. Also, as set forth in
the margin, Backos testified that it was her intent that

16
Haltzman would be paid additional fees out of the Trust for
his professional services in collecting on the notes.9

The District Court determined that Haltzman should not
have accepted payments separate from those he received
under the retainer agreement for work he undertook in
collecting on the notes when the payors went into default,
because the agreement, as incorporated into the Trust,
already required him to do this work. The court based this
conclusion on several grounds, including that ordinary
rules of contract construction and interpretation dictated
this reading of the retainer agreement, and that contingent
fee agreements generally require the attorney to undertake
efforts to collect the proceeds of the suit. We will discuss
these factors in turn.10
_________________________________________________________________

9. Backos testified as follows:

Q: My first question to you is: What was your understanding in
connection with the Fee Agreement you had with Mark S. Haltzman
Associates, as to whether that firm was obligated to go out and
collect the judgment that they were going to try to get for you in
the
litigation?

A: My understanding was that the collection process, if we had to
undertake that, was a separate matter, it was a separate
litigation.

App. at 1255-56.

Q: O.K. Now, with respect to the collection, it's your testimony
that you have an understanding with Mr. Haltzman that his efforts
in that direction are on top of what he has already received?

A. Yes.

App. at 1295-96.

10. Some of the factors on which the District Court relied, however, do
not support its conclusion that the fee agreement did not permit
Haltzman to take additional fees for his work in the collection actions.
First, the District Court concluded that Haltzman's interpretation should
be rejected because it would amount to impermissible self-dealing by a
trustee. The court noted that trust law prohibits a trustee from engaging
in transactions between the trust property and himself individually, and
concluded that Haltzman's paying himself for the collection actions out
of the Trust's funds violated this prohibition. The prohibition on self-
dealing, however, is limited to transactions in property. See Restatement
(Second) of Trusts S 170 cmts. b-n; see also 2A Austin Wakeman Scott &
17
Before we may do so, however, we must determine the
proper nature and scope of our review. This question turns
on whether the District Court's interpretation of the
agreement turned on findings of fact, or rather was a
construction of the contract as a matter of law. We believe
that the former is true. At the outset of its opinion and
order, the court stated that it had held a hearing and was
making "findings of fact and conclusions of law under Fed.
R. Civ. P. 52(a)." See Dardovitch, 1998 WL 13271, at *1.
Furthermore, in interpreting the agreement, the court
weighed evidence and reached conclusions based on
witness's credibility. See, e.g., Dardovitch, 1998 WL 13271,
at *4 n.15. Finally, the court considered factors, such as
Backos's testimony as to her own intent, that would only be
relevant in the context of fact-finding as to the meaning of
the contract, not in construing it as a matter of law.11
_________________________________________________________________

William Franklin Fratcher, The Law of TrustsSS 170.2-.13, at 320-64 (4th
ed. 1987). The per se prohibition against self-dealing does not apply to
transactions in services. A trustee's choice to use his own special
services -- beyond those usually rendered by a trustee -- where the
trust requires them ordinarily does not violate the prohibition on self-
dealing. See 3 Scott & Fratcher,supra, S 242.2, at 281-87; see also
Restatement (Second) of Trusts S 242 cmt. d. The only limits on such
transactions are the trustee's fiduciary duties of good faith and
reasonable care. See id.; 3 Scott & Fratcher, supra, S 242.2, at 286.
Accordingly, Haltzman's acceptance of additional fees did not violate the
rule against self-dealing by a trustee.

The District Court also decided that, if the agreement were construed
as Haltzman proposed, then his acceptance of the additional fees would
have violated his duties under the Pennsylvania Rules of Professional
Conduct. In particular, the court determined that Haltzman would have
violated the rule requiring that contingent-fee agreements be in writing
and that attorneys provide written statements concerning the outcome of
such representation. See Pa. R. Prof. Conduct 1.5(c). Haltzman raises
serious objections to both of the District Court's premises, i.e., whether
his conduct would have violated the Rules of Professional Conduct and
whether such a potential violation should guide the interpretation of a
contract. Since we need not decide this difficult issue, we will not rely
on
this aspect of the District Court's reasoning in affirming its judgment.
Even leaving this point aside, we think there is ample support in the
record for the District Court's conclusion.

11. Admittedly, several other factors the court considered do fall within
the ambit of legal construction of a contract, including the contra

18
Although it is a close question, we believe that the court's

interpretation of the retainer agreement, as well as the
Trust, rested on its findings of fact, and were not
conclusions of law.

Furthermore, we think that fact-finding concerning the
meaning of the agreement was appropriate and necessary,

as the agreement was ambiguous on its face. Where a
contract is ambiguous, the trier of fact must makefindings
as to the parties' intent and the meaning of the contact. See

In re Tutu Wells Contamination Litig., 120 F.3d 368, 389-90
(3d Cir. 1997). "A contract is ambiguous if it is reasonably
susceptible of different constructions and capable of being

understood in more than one sense." Hutchison v. Sunbeam
Coal Corp., 519 A.2d 385, 390 (Pa. 1990). Here, the
agreement made no mention of how the proceeds of any
judgment or settlement would be collected; it mentioned at

most the contingent-fee percentage and the payment
method for litigation expenses. It would be reasonable to
conclude either that the contingent fee included work done

collecting on the settlement or judgment, or that it did not
include such work. Accordingly, presently before us are the
District Court's finding of facts interpreting the contract,

which we review for clear error only.12
_________________________________________________________________

preferentem principle (that a document should be interpreted against its
drafter), whether the agreement violated the Rules of Professional
Conduct, and the rule against self-dealing. But these factors can also be
important in the factual interpretation of a contract. See, e.g.,
Restatement (Second) of Contracts S 203 cmt. a ("The rules of this
section [concerning interpretation of contracts] . . . apply only in
choosing among reasonable interpretations."); id. S 206 cmt. a ("[The rule
of contra preferentem] is in strictness a rule of legal effect . . . as
well as
interpretation.").

12. See In re Tutu Wells Contamination Litig. , 120 F.3d 368, 389-90 (3d
Cir. 1997). "In order to reject a district court's findings of fact, the
reviewing court, after examining all the evidence, must be left with a
definite and firm conviction that a mistake has been committed." Durham
Life Ins. Co. v. Evans, 166 F.3d 139, 147 (3d Cir. 1999).

19
B. Factors Considered by the District Court

1. Contract Interpretation

The District Court first concluded that, since Haltzman
had drafted the representation agreement, ambiguities
therein should be construed against him. Second, although
it recognized the principle that contracts (as well as trusts)
should be construed in accord with the intent of the parties
(or the settlor), it rejected as self-serving Backos's testimony
that she intended that Haltzman would be entitled to
additional fees for collecting on the notes. We address the
latter issue first, as it is the one upon which Haltzman
primarily focuses.

a. Parties'/Settlor's Intent: It is beyond cavil that the
touchstone of contract interpretation is the intent of the
parties. See Brokers Title Co., Inc. v. St. Paul Fire & Marine
Ins. Co., 610 F.2d 1174, 1181 (3d Cir. 1979). Likewise, the
settlor's intent is the primary guide to interpreting a trust
instrument. See Estate of Wolters, 59 A.2d 147, 149 (Pa.
1948); In re Benson, 615 A.2d 792, 794-95 (Pa. Super. Ct.
1992) ("The polestar in every trust is the settlor's intent and
that intent must prevail." (citation omitted)). Haltzman
therefore argues that, since Backos -- a party to the
retainer agreement and the settlor of the Trust-- testified
to her intent to permit Haltzman additional fees, the
District Court had no choice but to accept her testimony
and interpret the Trust and representation agreement in
accord therewith. We disagree.

A party's testimony as to her intent concerning the
meaning and effect of a contract can, of course, be
significant evidence of the meaning of the contract. It is not,
however, conclusive evidence to that effect. Often, a writing
itself is the best evidence of the parties' or settlor's intent.
Delaware County v. Delaware County Prison Employees
Indep. Union, 713 A.2d 1135, 1137 (Pa. 1998) ("The intent
of the parties to a written contract is deemed to be
embodied in the writing itself . . . ."); Volunteer Firemen's
Ins. Services, Inc. v. CIGNA Prop. & Cas. Ins. Agency, 693
A.2d 1330, 1339 (Pa. Super. Ct. 1997) ("To determine the
intent of contracting parties, we look to language contained

20
in the written contract."); Benson, 615 A.2d at 795 ("[T]he
writing itself must be considered to be the best and
controlling evidence of the settlor's intent." (quoting In re
Girard Trust Corn Exch. Bank, 208 A.2d 857, 859 (Pa.
1965))). Both the testimony of the parties or settlor and the
writing itself are evidence of the meaning of the contract;
the weight due each depends on the usual factors,
including credibility.

The District Court considered Backos's testimony
concerning her intent in entering into the fee agreement
and settling the Trust, but rejected it on credibility
grounds. Backos testified before the District Court
concerning her intent in entering into the representation
agreement and settling the Trust. As noted previously, she
testified that she intended that Haltzman would be paid
additional fees out of the Trust for collecting on the notes.
The District Court found that Backos's testimony was
simply not credible:

Although defendant Backos testified at length
regarding her understanding of the agreements made
between GESEA and Haltzman, we do not accord that
aspect of her testimony much weight. We do not
question Ms. Backos's level of sophistication in
business affairs -- quite to the contrary, her testimony
showed her to be an intelligent and very capable
businesswoman -- but it is evident from these
proceedings that in legal matters she relied exclusively
on Haltzman and his firm. Indeed, Haltzman's firm
represented her even in this litigation. Thus, it is
perhaps not surprising that Ms. Backos's testimony
proceeded in virtual lockstep to support defendant
Haltzman's various arguments before us.

Furthermore, to the extent that Ms. Backos's
testimony is derived from her own understanding--
rather than Haltzman's influence on that
understanding of legal matters -- we also reject it as
self-serving. At the time that Ms. Backos entered into
representation agreements with Haltzman, she was
most influenced by financial pressures which
eventually forced her to file bankruptcy. Accordingly,
we find that her construction of these agreements

21
 arose almost wholly out of her own individual financial
interests, and improperly ignored the interests of
GESEA, which she as majority shareholder is required
to consider.

Dardovitch, 1998 WL 13271, at *4 n.15.

The credibility of witnesses is quintessentially the
province of the trial court, not the appellate court.
"Credibility determinations are the unique province of a fact
finder, be it a jury, or a judge sitting without a jury." United
States v. Kole, 164 F.3d 164, 177 (3d Cir. 1998), cert.
denied, 119 S. Ct. 1484 (1999); see also Anderson v. City of
Bessemer City, 470 U.S. 564, 575 (1985); Newark Branch,
NAACP v. City of Bayonne, 134 F.3d 113, 120 (3d Cir.
1998) ("[Clearly erroneous] review is more deferential with
respect to determinations about the credibility of witnesses
. . . ." (citation omitted)). Accordingly, we may only reject a
District Court's finding concerning a witness's credibility in
rare circumstances. Such circumstances are not present
here, as the record, as well as common sense, amply
supports the District Court's conclusion as to the weight to
be accorded to Backos's testimony.

The District Court observed that Backos's testimony was
undoubtedly influenced by her close relationship with
Haltzman, who had represented her throughout the
underlying RICO litigation and through much of the present
case. Accordingly, the court's conclusion that Backos's
testimony can be discounted because of Haltzman's
influence over it is reasonable. More importantly, we think
that the District Court had good reason to believe that
Backos's testimony was influenced by her own biases. The
court noted that Backos was subject to financial pressures
that influenced her actions and her testimony. Additionally,
Backos's testimony was not only helpful to Haltzman, but,
at least from an ex ante perspective, was directly beneficial
to Backos herself. Backos was no doubt aware at the time
she testified that she herself could be held liable for her co-
trustee's breach in taking fees from the Trust to pay for the
collection actions. Thus, at least until the District Court
excused her from liability for Haltzman's breach, Backos
had her own reason for testifying that Haltzman's actions
were in accord with her intent in entering into the retainer

22
agreement and settling the Trust. In sum, we perceive no
clear error in the District Court's decision not to credit
Backos's testimony.

b. Contra Preferentem: In addition to disc ounting
Backos's testimony as to her intent, the District Court also
found it significant, for the purpose of interpreting the
Trust and retainer agreement, that both documents were
drafted by Haltzman. It cannot be doubted that "[i]n
choosing among the reasonable meanings of a promise or
agreement or a term thereof, that meaning is generally
preferred which operates against the party who supplies the
words or from whom a writing otherwise proceeds."
Restatement (Second) of Contracts S 206. The District Court
concluded that this traditional canon of contractual
interpretation supported Dardovitch's reading of the
retainer agreement and Trust:

Among other things which Haltzman omitted from his
contingent fee agreement with GESEA is an explicit
statement of the scope of the representation that the
fee agreement embraces. As a matter of contract law,
Haltzman's status as drafter of the document requires
that all ambiguities be construed against him. All-Pak,
Inc. v. Johnson, 694 A.2d 347, 351 n.7 (Pa. Super. Ct.
1997) (citing Gallagher v. Fidelcor, Inc., 657 A.2d 31
(Pa. Super. Ct. 1995)).

Dardovitch, 1998 WL 13271, at * 4. The court was correct
that -- if it applied -- this canon suggests that Haltzman's
interpretation of the contract should not be adopted.

Haltzman urges that we not apply this canon in favor of
Dardovitch because Dardovitch was not a party to the fee
agreement. In particular, he notes that the retainer
agreement at most was between Haltzman and Backos and
GESEA, and that GESEA and Backos were the settlors of
the Trust. Although this is technically true, we think that
Dardovitch's involvement with the contracts-- as a
shareholder of GESEA and a beneficiary of the trust -- was
sufficient that the District Court did not err in relying on
the fact that Haltzman drafted the agreement and the Trust
in determining the appropriate interpretation thereof.
Furthermore, the rule of contra preferentem is based

23
primarily on the idea that the party drafting an agreement
should bear responsibility for any ambiguities in it, as "he
is likely to provide more carefully for the protection of his
own interests than for those of the other party." See
Restatement (Second) of Contracts S 206 cmt. a. Given this
focus, it was permissible to focus on Haltzman's position as
drafter in declining to interpret the agreement in his favor.
Accordingly, we think that the District Court did not err in
considering the fact that Haltzman drafted the retainer
agreement in interpreting it.

2. The Meaning of Contingent Fee Agreements

The other basis on which the District Court rested its
interpretation of the retainer agreement was its
understanding of contingent fee agreements of the sort
entered into here. Relying on common-sense and
straightforward reasoning about lawyers' incentives, as well
as the language of the retainer agreement, the court
concluded that the most reasonable reading of the
agreement was one that permitted no additional payment to
Haltzman for the collection actions.

[A]s a matter of common sense the contingent fee
cannot be read to exclude collection of the settlement
proceeds. We suspect that few lawyers would rest with
the hope of 30% of a paper settlement, but not
promptly seek collection of the real money that will
turn that paper into cash. Indeed, the documents upon
which Haltzman seeks to rely notably confirm our
suspicion, stating that Haltzman is to receive his fees
only on moneys actually "recovered" or "received."

Dardovitch, 1998 WL 13271, at *5. Based on our review of
the general law governing the responsibilities of contingent
fee representation, we agree with the District Court.

While the extant case law in this area supports the
proposition that a contingent-fee attorney is not entitled to
additional fees for collecting on a judgment, absent
substantial indications to the contrary, it is sparse.13 This
_________________________________________________________________

13. The case law on a related issue -- the responsibility of a contingent-
fee attorney with respect to services to be rendered on appeal -- is much

24
issue is most extensively discussed in L.A. Bradshaw,
Annotation, Construction of Contingent Fee Contract as
Regards Compensation for Services After Judgment or on
Appeal, 13 A.L.R.3d 673 (1968). This annotation discusses
a number of cases in which attorneys have attempted to
recover additional fees beyond an established contingent fee
for collection efforts. These cases establish that, absent
some significant evidence that the collection efforts were
not within the contemplation of the parties at the time they
entered into the contingent fee agreement, no additional
fees will be permitted.

Those cases in which additional fees have been permitted
have involved collection efforts far beyond those which the
parties anticipated at the time the representation began. In
Barcus v. Gates, 130 F. 364 (E.D. Va.), affd., 136 F. 184
(4th Cir. 1904), for example, parol evidence established
that, when the parties entered into a ten-percent contingent
fee agreement, they expected the case to settle quickly
without even filing a suit. When instead a highly contested
suit was required, and the attorney was required to spend
an additional month after trial determining what, if
anything, could be recovered from the various defendants,
the court concluded that the attorney should be entitled to
additional fees for these collection efforts. See Barcus, 130
F. at 369-70; see also Serat v. Smith, 15 N.Y.S. 330 (Sup.
Ct. 1891) (additional fee permitted where parties did not
contemplate that collection would be difficult). Similarly, in
Judah v. Trustees of Vincennes Univ., 16 Ind. 56 (1861),
discussed in 13 A.L.R.3d at _____, the court permitted
_________________________________________________________________

more developed. See, e.g., Quarture v. Allegheny County, 14 A.2d 575
(Pa. Super. Ct. 1940) (attorney working for contingent fee was not
entitled to additional fee for prosecuting appeal, even where attorney
believed that appeal was unlikely to result in an increased damages
award). Other courts have cited this case law without analysis in support
of the proposition that contingent fee attorneys may not recover
additional fees for collection actions. See, e.g., Goldstein & Price v.
Tonkin
& Mondl, 974 S.W.2d 543, 548 (Mo. Ct. App. 1998); Mrozinski v.
Marinello, 260 N.Y.S.2d 199 (Sup. Ct. 1965). Although it provides some
support for the result we reach, we do not find the analogy to Quarture
terribly convincing, as prosecuting an appeal involves the same course of
representation as the underlying litigation in a more obvious sense than
an action to collect on the proceeds of a settlement or judgment.

25
additional fees for collection where the attorney's efforts
involved lobbying the state legislature to release funds to
pay the judgment. In contrast, where the record reveals
that the parties had no reason to believe that collection
would require more than minimal effort, attorneys have
been permitted no additional fee for collection actions. See,
e.g., Mrozinski v. Marinello, 260 N.Y.S.2d 199 (Sup. Ct.
1965); Ellis v. Mitchell, 85 N.Y.S.2d 398 (Sup. Ct. 1948),
affd., 88 N.Y.S.2d 903 (Sup. Ct. App. Div. 1949); Emil
Nathan & Co. v Halsell, 45 So. 856 (Miss. 1908).

This understanding of the responsibility of attorneys in
contingent fee cases is, as the District Court pointed out,
consonant with the incentives confronting such an
attorney. "We suspect that few lawyers would rest with the
hope of 30% of a paper settlement, but not promptly seek
collection of real money that will turn that paper into cash."
Dardovitch, 1998 WL 13271, at *5. The attorney has just as
much of an interest in collecting on the judgment as the
client, and thus should need no extra incentive in the form
of additional fees for doing so. We believe that this reading
comports with the general understanding of the community
of attorneys.

This conclusion is also supported by the reasoning of the
court in Goldstein & Price v. Tonkin & Mondl, 974 S.W.2d
543 (Mo. Ct. App. 1998). In that case, the court concluded
that, since the fee agreement permitted a fee of"1/3 of all
monies recovered by judgment or settlement," Goldstein &
Price, 974 S.W.2d at 546 -- as opposed to"1/3 of any
recovery of judgment or settlement" -- the attorney was
only entitled to a contingent fee from money actually
received. See 974 S.W.2d at 548. The language of the fee
agreement in the present case is similar: the original
agreement permitted Haltzman a fee of "30% of any amount
recovered," and later versions permitted a fee out of "any
recovery received" or "any amount received." We believe
that if an attorney wishes to protect himself, and provide
for attorney's fees in the event additional collection efforts
are necessary, he should do so explicitly in the retainer
agreement. We agree with the District Court that this
is the common-sense understanding of contingent-fee
agreements.

26
The two pieces of record evidence that Haltzman cites to
support his contention that collection efforts were not
contemplated as part of the retainer agreement do not alter
our conclusion. First, he contends that, at the time of
settlement, he did not think that collection efforts would be
difficult, as reflected by the fact that he was willing to
accept notes from the defendants. But he testified that he
accepted notes because the defendants did not have a lot of
money; given this concern, one might expect that they
would have difficulty paying off the notes as well, and that
collection efforts might be necessary. Second, Haltzman
points out that Backos wrote to Dardovitch after the
settlement indicating that collection efforts might be
necessary and that Haltzman would be paid additional fees
for them. Both of these submissions share an additional
fundamental flaw: they say nothing about what the parties
contemplated at the time they entered into the retainer
agreement. There is simply no evidence in the record that
the parties had any reason to think, or actually did think,
that collection efforts following judgment in the RICO
litigation would be minimal. Accordingly, we conclude the
District Court was correct to conclude that the retainer
agreement in this case, as with most contingent fee
agreements, permitted no additional fee for collateral
collection activities.

C. Summary

The District Court identified several reasons why the
retainer agreement should be interpreted to cover
Haltzman's efforts to collect on the notes, thereby
preventing him from collecting additional fees for these
efforts from the Trust. In particular, the District Court was
correct to note that ordinary rules of contract
interpretation, as well as a common-sense understanding of
the typical duties of an attorney working for a contingent
fee, support this reading. Although Haltzman has raised
some questions about some other aspects of the court's
reasoning, see supra note 10, we are not,"after examining
all the evidence, . . . left with a definite andfirm conviction
that a mistake has been committed" in interpreting the
retainer agreement, Durham Life, 166 F.3d at 147, and thus

27
do not believe that the District Court's conclusion was
clearly erroneous. Accordingly, we will affirm the District
Court's order to the extent that it found that Haltzman
breached his fiduciary duty by accepting the additional fees
from the Trust.

IV. Haltzman's Liability for Attorney's Fees

A. District Court Decision

Haltzman also appeals from the District Court's decision
to require him to pay Dardovitch's attorney's fees in this
litigation. The court ordered Haltzman to pay $59,000 in
attorney's fees to Dardovitch, as well as $4,735.52 in costs.

The District Court based its decision to award attorney's
fees primarily on Haltzman's actions in refusing to provide
Dardovitch with an accounting of the Trust's funds. See
Dardovitch, 1998 WL 13271, at *7. It noted that"Backos
and Haltzman spent the better part of this long,
acrimonious litigation resisting Dardovitch's demand to
provide an account or even a copy of the Trust instrument,
insisting from the beginning that he was not a beneficiary
of the Trust." 1998 WL 13271, at *7. It also observed that
the defendants continued to deny that Dardovitch was a
beneficiary of the Trust entitled to an accounting even after
the court granted Dardovitch summary judgment on the
ground that it was incontrovertible that he was a
beneficiary. See 1998 WL 13271, at *7. Concluding that
"the trustees' failure to recognize basic principles of trust
law [wa]s a breach of fiduciary duty that can only have
resulted from bad faith or, at a minimum, gross
negligence," the court found Haltzman liable for
Dardovitch's attorney's fees. 1998 WL 13271, at *7. The
court also noted, however, that Haltzman should be liable
for Dardovitch's fees because he blatantly breached his
fiduciary duty in accepting additional fees from the Trust
for the collection actions.

In calculating the fees owed, the District Court divided
the litigation into two phases, before and after the
accounting. The pre-Accounting litigation revolved primarily
around determining whether Dardovitch was in fact a

28
beneficiary entitled to demand an accounting, although it
included some other matters, such as discovery disputes
and litigation of subject-matter jurisdiction and Haltzman's
right to demand a jury trial. After the District Court granted
Dardovitch's motion for partial summary judgment and
Backos and Haltzman provided an accounting, the parties
litigated and held a hearing concerning a number of
substantive issues. This post-Accounting litigation focused
on resolving Dardovitch's objections to the accounting itself,
along with his more general claims against Haltzman and
Backos, but it also included collateral matters, such as the
determination of the attorney's fee award.

The court took Dardovitch's request for approximately
$60,000 in pre-Accounting fees, and reduced it to $50,000
"to (1) account for activity unrelated to the trustees'
malfeasances and (2) reflect more accurately the value
conferred to the Trust as a result of the account."
Appellant's Brf. App. 1, at 7. With respect to the post-
Accounting fees, the District Court substantially reduced
these from the amount Dardovitch requested. In so doing,
it noted that he had not prevailed on his non-trust claims,
as well as on a majority of his objections and exceptions to
the accounting. On the other hand, it recognized that he
did prevail in significant part in his objections to the
accounting, which resulted in the return of substantial
funds to the Trust corpus. Accordingly, it awarded him
about 25% of the amount he had requested, or $9,000. In
addition, the court awarded Dardovitch his costs in full.

B. Is Haltzman Liable for Dardovitch's Attorney's Fees?

Haltzman contends that the District Court had no power
to direct him to pay Dardovitch's attorney's fees at all.
Dardovitch responds that the court has the power under
trust law to award attorney's fees. In particular, a court
deciding a trust case can grant a beneficiary attorney's fees
from the trustee where the beneficiary's legal action results
in the creation or preservation of the trust in general, and
where the trustee breaches his fiduciary duty with more
than ordinary fault. We begin by explicating these general
principles in greater detail; we then apply them to analyze

29
the District Court's attorney's fee awards for the two phases
of the litigation.

1. General Principles Governing Award of Attorney's Fees
Awards in Trust Actions

Although Dardovitch suggested a number of bases for the
award of attorney's fees, the District Court relied on general
common-law equity principles in granting the request.
Pennsylvania follows the so-called American Rule regarding
the award of attorney's fees: "[T]here can be no recovery for
counsel fees from the adverse party to a cause, in the
absence of express statutory allowance of the same, or clear
agreement by the parties, or some other established
exception." First State Underwriters Agency of New England
Reins. Co. v. Travelers Ins. Co., 803 F.2d 1308, 1318 (3d
Cir. 1986).14 One of the more common exceptions to the
American Rule is that attorney's fees are available at the
discretion of the court in cases involving trusts. See Estate
of Tose, 393 A.2d 629 (Pa. 1978).

A prominent treatise best summarizes the principles
behind this exception:

In suits to enforce the rights of trust beneficiaries the
court exercises its discretion as to the allowance of
attorney fees and costs, either from the trust estate or
from other sources. . . .

In exercising its discretion in these matters the court
will consider whether the plaintiff or other party was
successful in obtaining the relief requested or in
defending or conserving the trust estate, for example,
by protecting the trust against an unjust claim. The
court may also consider whether the successful party
benefitted or enhanced the trust estate in deciding
whether his attorneys' fees should be awarded from the
trust estate. These considerations are sometimes
expressed as the common fund doctrine or the
_________________________________________________________________

14. Because this is a diversity case, the relevant state law concerning
attorney's fees applies. See Security Mut. Life Ins. Co. v. Contemporary
Real Estate Assocs., 979 F.2d 329, 331-32 (3d Cir. 1992).

30
 substantial benefit rule, either of which allows the
successful party reasonable attorneys' fees.

In exercising its discretion the court may consider
other factors such as the nature and extent of the
defendant's wrongful conduct, and whether there was
good faith on the part of the defendant.

A further question relates to the source from which
the costs and fees should be paid. In some cases the
courts have held that the fees of the successful plaintiff
should be paid from the principal of the trust estate
because the trust had been protected or enhanced. In
other cases the trustee or other party defendant has
been held personally liable for the plaintiff 's costs and
fees.

16 George Gleason Bogert et al., The Law of Trusts and
Trustees S 871, at 184-97 (rev. 2d ed. 1998) (footnotes
omitted); see also Annotation, Allowance of Attorneys' Fees
in, or Other Costs of, Litigation by Beneficiary Respecting
Trust, 9 A.L.R.2d 1132 (1950). Pennsylvania courts have
adopted these principles. See Estate of Trimble , 140 A.2d
609 (Pa. 1958) (beneficiary may be entitled to a fee award
where action results in preservation of funds of trust);
Estate of Kline, 124 A. 280 (Pa. 1924) (trustee may be
required to pay fees incurred as a result of his actions);
Estate of Wescott, 72 Pa. D. & C. 519 (Orph. Ct. 1951)
(beneficiary may be entitled to a fee award in an action
brought to establish the validity of a trust).

Most importantly for our review, the District Court's
discretion in deciding whether to grant attorney's fees in an
equity case is exceedingly broad. "The allowance of counsel
fees, where recoverable, rests largely in the discretion of the
trial court which heard the principal action." Williams v.
Williams, 540 A.2d 563, 572 (Pa. Super. Ct. 1988) (citing
Estate of Ward, 38 A.2d 50, 52 (Pa. 1944))." `The allowance
or disallowance of counsel fees rests generally in the
judgment of the court of the first instance and its decision
will not be interfered with except for palpable error.' "
Trimble, 140 A.2d at 615 (quoting Ward)."The
determination of the award of attorneys' fees is within the
sound discretion of the trial judge, and will not be

31
overturned absent an abuse of discretion." Security Mut.
Life Ins. Co. v. Contemporary Real Estate Assocs. , 979 F.2d
329, 331-32 (3d Cir. 1992). Accordingly, we must determine
whether the District Court abused its discretion in
determining that Haltzman should be liable for some of
Dardovitch's attorney's fees. "An abuse of discretion may be
found when the district court's decision rests upon a clearly
erroneous finding of fact, an errant conclusion of law or an
improper application of law to fact." Reform Party v.
Allegheny County Dept. of Elections, 174 F.3d 305, 311 (3d
Cir. 1999) (en banc).

2. Fees for Pre-Accounting Litigation

The District Court awarded Dardovitch most of the
requested fees for litigation during the period prior to the
court's decision requiring the trustees to account. It based
this decision on Haltzman's continued refusal -- both when
Dardovitch requested such information and after this
litigation was instituted -- to recognize Dardovitch's status
as a beneficiary entitled to information about the Trust,
particularly given that he was specifically named in the
Trust as someone entitled to receive funds. The court
concluded that the only possible explanation for this
conduct was bad faith, and accordingly ordered Haltzman
to pay most of Dardovitch's attorney's fees expended in
establishing his right to demand an accounting. We
perceive no abuse of discretion in the District Court's
decision.

As noted above, a trustee may be found liable for a
beneficiary's attorney's fees when the trustee has acted
wrongfully, especially where the litigation itself is made
necessary by the trustee's defalcation. See Kline. For
example, in In re Catell's Estate, 38 A.2d 466 (Del. Ch. Ct.
1944), the trustee failed to give a bond as required by the
settlor. The beneficiaries of the trust brought an action to
have the trustee removed, but the court refused to remove
the trustee because he gave the bond after the suit was
filed and the trust suffered no loss. In spite of the fact that
the beneficiaries did not receive the relief they sought, the
court ordered the trustee to pay their attorney's fees as the
suit was made necessary only because of the trustee's

32
failure to observe the clear terms of the trust. See also
Tucker v. Brown, 150 P.2d 604 (Wisc. 1944) (where a
trustee repudiated the trust and refused to account, a
beneficiary who successfully sues him to enforce the trust
is entitled to costs from the personal funds of the trustee).

We think it clear that the lengthy pre-Accounting
litigation was necessitated by Haltzman's persistent refusal
to provide Dardovitch with an accounting. This refusal
began in letters sent to Dardovitch denying him any
information about the Trust and threatening him with
litigation. It continued through the lengthy proceedings
before the District Court granted Dardovitch's motion for
partial summary judgment. The District Court also noted
that, even after it determined as a matter of law that
Dardovitch was a beneficiary entitled to an accounting,
Haltzman continued to deny that Dardovitch was a
beneficiary of the Trust. See Dardovitch, 1998 WL 13271, at
*7 ("Moreover, to this day the trustees continue to deny
that plaintiff is entitled to an accounting . . . despite our
Order . . . in which we stated that `[i]t would be hard to
imagine a clearer example' of a trust beneficiary than one
in plaintiff 's position.").

Furthermore, the litigation provided a benefit to the
Trust, as it brought about an accounting of the Trust that
exposed breaches of fiduciary duty. Under the trustees'
apparent understanding of the term "beneficiary," no one
was entitled to seek an accounting. Thus, by bringing the
litigation, Dardovitch forced the trustees to give an account
for their actions, which they otherwise would not have
done. This was undoubtedly of benefit to the Trust. In
addition, aside from the intrinsic benefit of having an
accounting performed, the accounting here exposed the
breach of fiduciary duty discussed above. As a result of this
exposure, a substantial amount of funds will be preserved
for the beneficiaries. Accordingly, we do not believe that the
District Court abused its discretion in awarding Dardovitch
attorney's fees for the pre-Accounting litigation to be paid
by Haltzman.

3. Fees for Post-Accounting Litigation

The District Court also awarded Dardovitch a portion of
the attorney's fees he requested for work done after the

33
court called the trustees to account. It based this award on
the fact that Dardovitch's litigation of his objections to the
accounting resulted in a benefit to the Trust to the extent
that it resulted in the return of funds to the Trust, as well
as a reduction in the potential liabilities of the Trust, i.e.,
it would not in the future need to pay Haltzman for
collecting on the notes. In addition, it required Haltzman to
pay these fees because it found he breached hisfiduciary
duty in a way that resulted in a direct benefit to himself,
i.e., the additional fees themselves.

The District Court did not abuse its discretion here
either. One of the situations in which a court may award
attorney's fees is where the litigation results in a benefit to
the trust as whole. See Trimble. Here, as a result of
Dardovitch's objections to the account, Haltzman was
ordered to return certain fees to the Trust, and will not be
permitted in the future to withdraw additional fees.
Furthermore, the District Court appropriately ordered the
trustee himself, as opposed to the Trust, to pay the fees. By
accepting the additional fees for the collection actions,
Haltzman, an attorney, not only breached his fiduciary
duty, but did so in a way that resulted in a direct benefit
to himself. This case is thus unlike those in which a trustee
breaches his duty by making an improper investment,
which causes a loss to the trust estate but no
corresponding gain to the trustee. Although, as discussed
above, Haltzman did not engage in per se impermissible
self-dealing, his breach of trust resulting in a direct profit
to him justifies the District Court's award of attorney's fees
in favor Dardovitch to be paid by Haltzman. Accordingly, we
will affirm the District Court's decision that Haltzman
should be liable for Dardovitch's attorney's fees, at least in
part.

C. Calculation of the Fee Award Amount

Although we will affirm the District Court's decision to
award attorney's fees, we will vacate the order and remand
the matter because the District Court did not properly
determine the amount of attorney's fees to be awarded.
Dardovitch requested $60,712.78 in pre-Accounting fees,
and $35,649 in post-Accounting fees. Without holding a

34
hearing, the District Court found that the hourly rates were
reasonable, but reduced the awards to $50,000 and $9,000
respectively. It calculated these amounts as follows: the
$50,000 pre-Accounting award was reduced from the
$60,000 Dardovitch requested based on the fact that
Dardovitch's attorneys had performed some work before the
accounting unrelated to establishing Dardovitch's status as
a beneficiary, and so as to reflect more accurately the value
conferred on the Trust by the accounting. It based the
$9,000 post-Accounting award on a roughly 75% reduction
of the requested fee, which it derived from Dardovitch's lack
of success on his pre-Trust claims and several of his
objections to the accounting, along with his substantial
success on a major objection to the accounting.

We think that our recent decision in Security Mutual Life
Insurance Co. of New York v. Contemporary Real Estate
Associates, 979 F.2d 329 (3d Cir. 1992), controls. There, in
an action for collection on a mortgage note that included a
provision for attorney's fees, the district court ordered the
debtor to pay the lender's attorney's fees without holding a
hearing, making a finding as to the reasonableness of the
fees, and without explaining the rationale for the award. We
vacated the award:

Defendant requested discovery regarding attorney's
fees. The district court implicitly denied this request by
approving the second proposed form of judgment
submitted by Security Mutual. . . . [I]t conducted no
hearing and made no findings of fact as to the
reasonableness of the fees requested and gave no
statement as to the standard governing its award.
Thus, we cannot adequately review the reasonableness
of the action of the district court in awarding counsel
fees under the circumstances. We conclude that its
action was not consistent with a sound exercise of
discretion under Pennsylvania law.

Security Mut., 979 F.2d at 332; see also Estate of
Brockerman, 480 A.2d 1199, 1204 (Pa. Super. Ct. 1984)
(remanding fee award where record did not indicate"what
hourly rate the firm charged, what the prevailing rate in the
general area was at the time, what services were performed,
or how much time those services consumed"); cf. Estate of

35
Baker, 401 A.2d 737 (Pa. 1979) (no remand necessary
where trial court heard lengthy testimony and made
extensive findings regarding the services rendered by the
attorney, the difficulty of the actions undertaken, and the
reasonableness of the fee request as a whole); Sewak v.
Lockhart, 699 A.2d 755 (Pa. Super. Ct. 1997).

The District Court's fee award in this case is like that in
Security Mutual. In determining the fee award, the District
Court relied only upon Dardovitch's submission, which
included statements from the attorneys and their time
records. The court held no hearing on this issue, and
Haltzman had no opportunity to challenge on a factual
basis the fee requested. Haltzman in fact identifies several
contested factual issues concerning the attorney's fee
award, including whether the fees were incurred in
response to abusive conduct, whether Dardovitch presented
adequate documentation for the fees, and whether
Dardovitch is entitled to fees for preparation of the fee
petition.15

Furthermore, the reasoning supporting the District
Court's decision to reduce the fee awarded below that
requested is sketchy. For instance, the court reduced the
fee award for pre-Accounting litigation by $10,000"to
account for activity unrelated to the trustees' malfeasances
and [to] reflect more accurately the value conferred to the
Trust as a result of the account." We cannot determine
from the record whether this reduction was supported.
Likewise, the District Court awarded Dardovitch only 25%
of his request for post-Accounting fees, because many of
his objections to the account failed. But we cannot
determine from the record whether the 25% figure
accurately represents the amount of work expended on the
successful claim. The District Court was fully familiar with
the record and perhaps instinctively reached the correct
result; because it did not hold a hearing and set forth an
adequate explanation of its calculations, however, we
cannot be sure that its award of attorney's fees was
_________________________________________________________________

15. In identifying these issues, we express no opinion whether and the
extent to which they are significant in the determination of attorney's
fees.

36
consistent with the exercise of sound discretion.
Accordingly, we will vacate the attorney's fee award and
remand this matter to the District Court for further
proceedings.

V. Backos's Liability

Dardovitch cross-appeals from the District Court's order
excusing Backos from liability for the repayment of the
attorney's fees improperly paid to Haltzman for the
collection actions. He contends that Backos was negligent
in failing to prevent Haltzman from breaching the Trust,
and therefore should be jointly liable with Haltzman.
Dardovitch further submits that Backos should not be
excused from liability because she relied on the advice of
her attorney, i.e., Haltzman.

The District Court's holding concerning Backos's liability
is somewhat murky. Its discussion of the issue occurs
mainly in the context of liability for Dardovitch's attorney's
fees. During its explanation of why Backos would not be
jointly liable with Haltzman for Dardovitch's attorney's fees,
the court inserted a footnote stating that it would not hold
Backos liable for the underlying breach of fiduciary duty.
"While there is ample evidence of Ms. Backos's neglect as
trustee which might be construed to support [a claim
against her for imputed breach of fiduciary duty], for the
reasons stated supra . . . we think that her co-trustee's
malfeasance should not be imputed to Ms. Backos."
Dardovitch, 1998 WL 13271, at *8 n.28. In the referenced
portion of the opinion, the court stated as follows:

We do not question Ms. Backos's level of sophistication
in business affairs -- quite to the contrary, her
testimony showed her to be an intelligent and very
capable businesswoman -- but it is evident from these
proceedings that in legal matters she relied exclusively
on Haltzman and his firm. Indeed, Haltzman's firm
represented her even in this litigation.

1998 WL 13271, at *4 n.15. Because of Backos's reliance

37
on counsel, and Haltzman in particular, the District Court
excused her from liability.16

A trustee must exercise reasonable care to ensure that
his or her co-trustees do not breach their fiduciary duties.
In general, of course, "[a] trustee is not liable to the
beneficiary for a breach of trust committed by a co-trustee."
Herr v. United States Cas. Co., 31 A.2d 533, 534 (Pa. 1943)
(quoting Restatement (First) of Trusts S 224(1)); see also
Restatement (Second) of Trusts S 224(1); 3 Scott & Fratcher,
supra, S 224, at 401. This is not an absolute rule, however:

A trustee is liable to the beneficiary, if he (a)
participates in a breach of trust committed by his co-
trustee; or (b) improperly delegates the administration
of the trust to his co-trustee; or (c) approves or
acquiesces in or conceals a breach of trust committed
by his co-trustee; or (d) by his failure to exercise
reasonable care in the administration of the trust has
enabled his co-trustee to commit a breach of trust; or
(e) neglects to take proper steps to compel his co-
trustee to redress a breach of trust.

Restatement (Second) of Trusts S 224(2); accord 3 Scott &
Fratcher, supra, S 224, at 401 (same); see also Herr, 31
A.2d at 534 (quoting in part Restatement (First) of Trusts
S 224(2)).

These exceptions flow out of the general duty of each co-
trustee with respect to the action of his or her fellows. "If
there are several trustees, each trustee is under a duty to
the beneficiary to participate in the administration of the
trust and to use reasonable care to prevent a co-trustee
from committing a breach of trust or to compel a co-trustee
to redress a breach of trust." Restatement (Second) of
Trusts S 184. "A fiduciary is required to use such common
skill, prudence and caution as a prudent man, under
similar circumstances, would exercise in connection with
_________________________________________________________________

16. We apply plenary review to this question, since it concerns whether
the District Court applied the proper legal standard-- subjective
reasonableness in relying on advice of counsel versus objective
reasonableness. See In re Assets of Martin, 1 F.3d 1351, 1357 (3d Cir.
1993).

38
the management of his own estate." Estate of Lohm, 269
A.2d 451, 454 (Pa. 1970); see also Estate of Lerch, 159 A.2d
506, 509 (Pa. 1960). This duty of care is not reduced even
if the specific trustee lacks skill in some respects. See
Restatement (Second) of Trusts S 174 cmt. a ("A trustee is
liable for a loss resulting from his failure to use the care
and skill of a man of ordinary prudence, although he may
have exercised all the care and skill of which he was
capable.").

Pennsylvania case law demonstrates the extent to which
simple, passive negligence can give rise to liability for the
breaches of a co-trustee. In Estate of Adams, 70 A. 436 (Pa.
1908), the court held a trustee liable for his negligent
failure to prevent a breach by a co-trustee, even where he
had previously taken some steps to present such a breach.
The trust corpus in Adams included some bonds that were
held in a safe deposit box that the trustees had agreed they
would not open unless both were present. One trustee, who
was aware that the other was in financial distress,
discovered that the bonds were missing in 1896. He then
confronted the other trustee, who returned the bonds and
agreed not to open the box in the first's absence. The first
trustee did not inform the bank of this arrangement. He
became an invalid in 1904, shortly after the trustees' last
joint visit to the safety deposit box. The second trustee died
in 1906, at which time it was discovered that the bonds
were missing. The court in Adams affirmed the Orphan's
Court's conclusion that the first trustee had acted
negligently and should be held liable for the missing bonds.

In Estate of Reyburn, 43 Pa. D. & C. 85 (Orph. Ct. 1942),
the court held a trustee liable for the breach of his co-
trustee where he relied on his co-trustee's expertise to the
trust's detriment. The co-trustee in Reyburn, a trust
company, invested certain trust funds in assets in which
the settlor had indicated trust funds could not be invested.
The individual trustee knew nothing about the terms of the
will limiting the possible investments, nor was he aware of
those facts that indicated that the assets were not proper
investments. He simply assumed that they were appropriate
because he presumed that the trust company would not
have purchased them if they were not appropriate. The

39
court found that the individual trustee was liable for the
trust company's breach because he was negligent in failing
to oversee the company's actions. Furthermore, since the
trust company had not actively misstated material facts
relating to the investment, he was not excused from liability
for relying on its expertise. In particular, the court stated
that "there is no presumption of greater competence in a
trust company than in an individual." 43 Pa. D. &. C. at
90.

Furthermore, advice of counsel is not an absolute defense
to liability for a breach of fiduciary duty, including liability
for the defalcation of a co-trustee. "Although the court will
consider that the executor acted upon the advice of counsel
in determining whether he acted in good faith, this does not
provide the executor with complete immunity to a
surcharge." Estate of Geniviva, 675 A.2d 306, 310 (Pa.
Super. Ct. 1996) (citing Lohm, 269 A.2d at 455); see also
Lohm, 269 A.2d at 455 ("Where a fiduciary acts upon the
advice of counsel, such fact is a factor to be considered in
determining good faith, but is not a blanket of immunity in
all circumstances." (citations and quotations omitted)). "The
initial choice of counsel must have been prudent under all
the circumstances then existing, and the subsequent
decision to rely upon this counsel must also have been a
reasonably wise and prudent choice." Lohm, 269 A.2d at
455; see also Geniviva, 675 A.2d at 310.

The District Court did not analyze Backos's liability
under the principles set forth above. Essentially, the court
required of Backos only subjective good faith; it excused
Backos from liability solely because she relied on
Haltzman's advice and counsel in performing her duties as
trustee. But, as is clear from the preceding discussion,
subjective good faith is only the beginning of the inquiry. If
Backos relied on counsel, she must have done so
reasonably, i.e., making a prudent choice of counsel and
taking reasonable care to ensure that counsel performed
effectively. Furthermore, even if she relied reasonably on
counsel, Backos must have acted reasonably in performing
her duties as a whole in order to avoid liability. The District
Court reached none of these issues; hence, we will vacate
the District Court's order to the extent it relieved Backos

40
from liability for Haltzman's breach, and remand for further
proceedings in this regard.17

VI.

For the foregoing reasons, the orders of the District Court
will be affirmed in part and vacated in part, and the case
remanded for further proceedings consistent with this
opinion. The parties will bear their own costs.

A True Copy:
Teste:

Clerk of the United States Court of Appeals
for the Third Circuit
_________________________________________________________________

17. We note that this does not necessarily leave Backos potentially liable
for the entire amount of the surcharge, because rights of indemnity and
contribution exist in trust cases. See Restatement (Second) of Trusts
S 258(1). Furthermore, although the District Court erred in excusing
Backos without additional inquiry from liability for the breach of trust
itself, we do not think it erred in placing the burden of paying
Dardovitch's attorney's fees solely on Haltzman. Unlike liability for a
breach of trust, which is based only on a reasonable care test, an award
of attorney's fees against a trustee, as discussed above, turns on the
defendant's active culpability. The District Court found that Backos's
conduct arose from "excusable neglect," and not bad faith, especially in
comparison with Haltzman, Dardovitch, 1998 WL 13271, at *8, and
excused her from liability for the attorney's fees. We find no error in
this
conclusion.

41