Estate Of Stevenson

46 Cal.Rptr.3d 573 (2006)

Facts

Stevenson killed himself. P was appointed administrator. P, an attorney, chose the firm of Goodson & Wachtel (Goodson), where he worked, to represent the estate. The trial court approved a stipulation providing that P would not share in Goodson's attorney fees, and Goodson would not share in P's commissions. Creditors filed claims, totaling more than $12 million. Stevenson had been insolvent for 20 years and was merely (doing what our governments now do) borrowing money to repay funds borrowed from other lenders. Stevenson purchased life insurance policies naming lenders as beneficiaries and who took the benefits on Stevenson’s death. P sought to recover the insurance proceeds as well as double damages. P explained to the court that the lenders had charged usurious interest on the loans, and some of the lenders had defrauded other creditors through the receipt of life insurance proceeds. P argued that the lenders, collectively, constituted a single joint venture or partnership. P also sought the trial court's approval of three agreements related to Goodson's compensation as counsel for the estate. The petition recited that the estate had no assets to inventory; the estate's primary asset was a claim against the lenders for the recovery of insurance proceeds and a potential recovery of usurious interest; the estate also had a claim against Prudential Insurance Company of America (Prudential) for wrongfully paying proceeds to certain lenders under two life insurance policies and wrongfully withholding proceeds from the estate under a third policy; the lenders' claims against the estate exceeded $12 million; and the estate was without resources to defend itself against the lenders and to pursue its own claims. P sought to dispense with notice of the petition to the lenders, other creditors, and Prudential on the ground that knowledge of the “details and structure” of the agreements would put the estate “at a disadvantage in the litigation.” Barbara, the decedent's surviving spouse, sole beneficiary, and trustee of the Stevenson Family Trust, agreed to loan the estate $50,000 for litigation costs, with the remaining costs to be advanced by Goodson. The estate agreed that Goodson would be paid on a contingency fee basis in bringing suit against Prudential; Goodson was entitled to 33 1/3 percent of any recovery obtained before a trial became probable, 40 percent thereafter. The third proposed agreement, the “Lodestar Fee Agreement,” stated that Goodson would be paid its normal hourly rates “multiplied by a … factor of … two hundred percent” for work on claims involving the lenders, plus reimbursement of costs. The trial court dispensed with notice of the petition, approved the three agreements, and ordered the petition to be sealed until all litigation matters had been resolved. Wilks (D) filed a creditor's claim against the estate, seeking $1.34 million in unpaid loans and interest. He had also requested special notice. D reduced his claim to $627,725. At the time, he did not know about the existence or approval of the Lodestar Fee Agreement. The estate accepted D's compromise, agreeing not to contest it or seek to increase or decrease the amount. The trial court approved the settlement. The trial court approved the settlements with these lenders, around 38 in all. P then filed a petition for the payment of attorney fees pursuant to the Lodestar Fee Agreement. Goodson had spent 2,127.1 hours on the lenders' claims, which had initially totaled about $ 12.2 million. Through settlement, Goodson had reduced that amount to around $ 1.7 million. In addition, certain lenders had agreed to pay money to the estate, totaling $698,585. The estate, therefore, had a negative net worth of about $ 1 million. P requested fees of $1.25 million, plus $70,870 in costs. D filed objections to the petition. The court awarded $ 200,000 in fees and $ 73,144 in costs. P appealed.