Although a personal representative in North Dakota is entitled to reasonable compensation from the estate, the fees and expenses incurred must be for the benefit of the estate, not just for the benefit of the personal representative. In Sande v. Sande (In re Estate of Sande), the Supreme Court of North Dakota upheld the district court’s decision finding breach of fiduciary duty and denying a personal representative’s fees request for personal representative’s fees and attorney’s fees.
The Facts of In re Estate of Sande
Geraldine and her son Phillip owned Sande Music Company. Geraldine owned 55% of the partnership, and Phillip owned the remaining 45% of the partnership. They sold the company in 2010 for $800,000. $600,000 was paid shortly after the sale, and the remaining amounts were to be paid in installments. Phillip executed a promissory note for $55,000 in favor of Geraldine.
Geraldine died in 2012, and in November 2012 her son Fred was appointed as personal representative of her estate. Phillip died in August 2014.
In 2016, Fred filed an inventory and appraisement of Geraldine’s estate. The inventory and appraisement included real property, Geraldine’s share of the Sande Music proceeds, the $55,000 promissory note from Phillip, and other assets. Phillip’s estate objected to the inventory and appraisement. Phillip’s estate alleged that:
- The real property was undervalued;
- Fred removed assets from the real property
- Fred conveyed the real property to himself and deprived Phillip of his interest in the property
- Fred failed to pay rent for use of the real property while conducting business out of it
- The value of the promissory note did not reflect payments that had been made
- There were no assets from the sale of Sande Music at the time of Geraldine’s death.
The Personal Representative Seeks Attorney’s Fees and Personal Representative Fees Under North Dakota Law
In October 2017, Fred petitioned for confirmation of the distribution plan. Fred asked for attorney’s fees, personal representative fees, and fees for forensic accounting services.
Fred claimed that the forensic accounting services were necessary and showed that Phillip received more than his share of the funds from the sale of Sande Music, and that no payments were ever made on the promissory note. Fred alleged that Philip had possession of more than $466,950.26 of estate assets, and that any distribution from the estate “must reflect the disproportionate share Philip Sande received from Sande Music and the unpaid promissory note.”
Philip’s estate counterclaimed and alleged that Fred breached his fiduciary duty to the estate and to the beneficiaries.
The North Dakota District Court Denied Fees And Found The Personal Representative Breached His Fiduciary Duties
The North Dakota district court ordered distribution, but not pursuant to Fred’s petition. The court found that Fred breached his fiduciary duties to Philip, and awarded Philip damages for the breach. The court further found that all funds owed from Philip to Geraldine had been paid in full. The court also found a $90,000 check Philip Sande issued to Fred Sande after Geraldine Sande’s death constituted payment in settlement of Fred Sande’s interest in Geraldine Sande’s estate.
The district court found Fred Sande’s actions as personal representative and his expenditure of attorney’s fees did not benefit the Estate and were done primarily to benefit himself. The court found Fred Sande breached his fiduciary duty as personal representative, and Philip Sande was entitled to damages in the amount of half of the value of the real property. The court denied Fred’s request for personal representative’s fees and attorney’s fees.
How Do You Establish Breach of Fiduciary Duty In North Dakota?
To establish a breach of fiduciary duty in North Dakota, the person bringing the claim must prove:
- A fiduciary relationship between the plaintiff and defendant.
- A duty by the defendant to the plaintiffs arising from that relationship.
- The defendant[‘s] breach of that duty.
- Damage to the plaintiffs proximately caused by that breach of duty.
Pursuant to N.D.C.C. § 30.1-18-03(1):
A personal representative is a fiduciary who shall observe the standards of care applicable to trustees….The personal representative shall use the authority conferred upon the personal representative by [N.D.C.C. tit. 30.1], the terms of the will, if any, and any order in proceedings to which the personal representative is party for the best interests of successors to the estate.
Here, the North Dakota district court found that Fred understood that Geraldine’s real property was to be conveyed to Philip Sande and himself, yet Fred executed and recorded a personal representative’s deed transferring the property solely to himself.
Fred also breached his fiduciary duty because he did not file a timely and correct inventory and appraisement, and his retention petition against Philip was for his personal benefit.
Actions As Personal Representative And Expenditure of Fees Must Benefit Estate, Not Personal Representative Individually
A personal representative is entitled to reasonable compensation for his services. N.D.C.C. § 30.1-18-19.
Under N.D.C.C. § 30.1-18-20:
If any personal representative or person nominated as personal representative defends or prosecutes any proceeding in good faith, whether successful or not, the personal representative or nominee is entitled to receive from the estate necessary expenses and disbursements, including reasonable attorney’s fees incurred.
Attorney’s fees are “frequently disallowed if the legal services are performed ‘primarily for the personal interest of the personal representative and not for the benefit of the estate as a whole.'”
Here, the North Dakota district court found that most of the claimed personal representative’s fees were for efforts related to the real property Fred transferred to himself. The litigation costs and a substantial portion of the attorney’s fees were more in pursuit of Fred’s own personal interests than the Estate’s interests. Therefore, the district court did not abuse its discretion in denying Fred’s request for fees.
It should be obvious that when a personal representative takes property from an estate that rightfully belongs to the beneficiaries, and then engages in litigation defending those actions and advancing other unsupported claims, that fees will not be awarded to the personal representative. These actions harm rather than benefit the estate. The North Dakota courts will not reward such conduct by awarding personal representative fees and attorney fees to the badly behaving personal representative.