In re: Trust Agreement dated June 6, 1974

452 P.3d 297, 145 Haw. 300

• Court: Hawaii Supreme Court
• Decided: October 24, 2019
• Docket: SCWC-15-0000632
• Status: Published

Opinion

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Electronically Filed Supreme Court SCWC-XX-XXXXXXX 24-OCT-2019 08:02 AM

IN THE SUPREME COURT OF THE STATE OF HAWAI#I

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IN THE MATTER OF THE TRUST AGREEMENT DATED JUNE 6, 1974, AS AMENDED

SCWC-XX-XXXXXXX

CERTIORARI TO THE INTERMEDIATE COURT OF APPEALS (CAAP-XX-XXXXXXX, CAAP-XX-XXXXXXX, CAAP-XX-XXXXXXX, CAAP-XX-XXXXXXX, CAAP-XX-XXXXXXX; TRUST NOS. 14-1-0019 and 14-1-0097)

OCTOBER 24, 2019

NAKAYAMA, ACTING C.J., POLLACK, AND WILSON, JJ., CIRCUIT JUDGE ASHFORD IN PLACE OF RECKTENWALD, C.J., RECUSED, AND CIRCUIT JUDGE TO#OTO#O, IN PLACE OF McKENNA, J., RECUSED

OPINION OF THE COURT BY NAKAYAMA, J.

This appeal arises from a 2014 petition by

Respondent/Petitioner-Appellee Bank of Hawai#i (BOH) to resign as

trustee for a trust comprised of several parcels of land

underlying the Discovery Bay condominium complex in Waikîkî

(Trust). Petitioners/Respondents-Appellants Michael David Bruser *** FOR PUBLICATION IN WEST’S HAWAI#I REPORTS AND PACIFIC REPORTER ***

and Lynn Bruser (collectively, “the Brusers”), who hold the

leasehold commercial unit in the condominium, and several Trust

beneficiaries objected to BOH’s petition to resign as trustee.

In the subsequent litigation in the Probate Court of

the First Circuit (probate court), the probate court entered

several orders that determined that a monthly trustee’s fee of

$9,850 was reasonable, permitted BOH to reform the trust

agreement, and awarded attorneys’ fees and costs to BOH. The

probate court, however, specifically declined to determine

whether the Brusers were liable to pay the trustee’s fees.

Thereafter, the Brusers filed two appeals in the Intermediate

Court of Appeals (ICA) challenging these orders.

After their appeals were consolidated with the appeals

of other beneficiaries, the Brusers filed an opening brief

alleging that the probate court erred when it determined that the

$9,850 trustee’s fee was reasonable and when it awarded an

unreasonable amount of attorneys’ fees and costs to BOH. The

Brusers also stated that the probate court erred in exercising

jurisdiction over the Brusers, who are not parties to the Trust

Agreement, and holding them responsible for the increased

trustee’s fee.

The ICA determined that under the language of the Trust

Agreement and the condominium conveyance document for the

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commercial unit, the Brusers were responsible for paying the

trustee’s fees. The ICA also concluded that the $9,850 monthly

trustee’s fee was reasonable. Accordingly, it affirmed the

probate court’s orders denying the Brusers’ motion for

reconsideration and granting in part the petition for

resignation. Additionally, the ICA rejected the Brusers’

specific objections to the probate court’s attorneys’ fees and

costs order, but vacated and remanded the order on other grounds.

On certiorari, the Brusers contend that the ICA erred

when it concluded that they are liable for the trustee’s fees

even when the probate court made no such determination, and when

the probate court did not allow the Brusers discovery to

determine the reasonableness of the trustee’s fee. They also

challenge the ICA’s failure to address their specific objections

to the probate court’s attorneys’ fees and costs order, even if

the ICA vacated and remanded the order on other grounds.

On review of the record and the orders entered by the

probate court in this case, we first agree with the Brusers to

the extent that the probate court did not make any determination

regarding their liability for the trustee’s fees. Therefore, the

ICA erred in concluding, in the first instance, that the Brusers

are liable for the trustee’s fees when the probate court did not

address the issue. We vacate the ICA’s judgment on appeal to the

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extent that it holds the Brusers liable for the trustee’s fees.

However, for the reasons set forth herein, we affirm

the ICA’s judgment on appeal that affirmed the probate court’s

conclusion that a $9,850 monthly trustee’s fee is reasonable. We

also affirm the ICA’s judgment on appeal vacating and remanding

the probate court’s attorneys’ fees and costs order.

I. BACKGROUND

A. The Formation of the Trust

On June 6, 1974, various parties who owned thirteen

adjacent parcels of land under what is now the Discovery Bay

condominium complex (Discovery Bay) at 1778 Ala Moana Boulevard

in Waikîkî entered into a trust agreement with Mainline-MEPC

Properties (Hawai#i), Inc. (MEPC Properties), a construction

company that wished to build a condominium at the site, and

Hawaiian Trust Company, Limited (Hawaiian Trust Company), as

trustee, to construct a condominium on the property.

The purposes of the Trust, as described in the Trust

Agreement, were to (1) construct a condominium on the property;

(2) provide efficient and uniform administration of the Settlors’

interests; (3) determine the value of the leases created by

condominium conveyance documents (CCD); (4) distribute rental

income under the CCDs to the Settlors; and (5) administer the

property on the termination of the leases created under the CCDs.

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As defined by paragraph 2 of the Trust Agreement, the

trustee’s powers were limited to the powers expressly granted by

the Trust Agreement.1 The Trust Agreement provided other

provisions with respect to trustee’s fees and the resignation of

the trustee: 11. Trustee’s Fees. The Trustee shall be entitled to such reasonable fees as from time to time may be mutually agreed upon. In addition to said reasonable fees, the Trustee shall have the right to incur such expenses and to be reimbursed by the Lessee as provided for by the leases; and to incur such expenses and be reimbursed for extraordinary services. The Lessee or its assigns will pay the Trustee’s fee and expenses until December 31, 2039 or the earlier termination of this trust.[ 2]

. . . .

17. Resignation, Removal and Substitution of Trustee.

(a) Resignation of Trustee. The Trustee may resign its duties hereunder by filing with each person designated as a representative its written resignation. No such resignation shall take effect until sixty (60) days from the date thereof unless prior thereto a successor Trustee shall have been appointed.

(c) Appointment of Successor Trustee. A successor Trustee hereunder may be appointed hereunder upon the majority vote of representatives of Settlors having an interest in the majority in square footage in the jointly developed parcel and shall take effect

1 These express powers included the power to join in a petition for consolidation in order to develop the adjacent parcels as a single parcel of real estate, to execute condominium conveyance documents and to collect rents from those condominiums, to grant easements over the trust estate, to employ administrative assistants, to file tax returns on behalf of the Trust, and “[t]o care for and protect the trust estate for the Settlors and to incur such costs and expenses on behalf of the trust as may be reasonably necessary to protect the trust estate and to administer the trust.” 2 MEPC Properties was defined as the “lessee” in the Trust Agreement.

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upon the delivery to the resigning or removed Trustee, as the case may be, of (i) an instrument in writing appointing such successor Trustee, and (ii) an acceptance in writing of the successor Trustee hereunder executed by the successor so appointed.

Any successor Trustee hereunder shall be a corporation authorized and empowered to exercise trust powers within the State of Hawaii. . . .

Pursuant to an agreement with MEPC Properties in 1974,

Hawaiian Trust Company, the original trustee, received an annual

trustee’s fee of $800.00.

B. The Brusers and the Commercial Unit

Discovery Bay consists of 665 leasehold residential

units and one leasehold commercial unit (Commercial Unit).

Title to the leasehold interests is held by an “Apartment Owner”

under the terms and conditions of a CCD for that unit.

On December 1, 1976, the Commercial Unit CCD was

executed between Hawaiian Trust Company, as trustee and lessor,

and MEPC Properties, as the “Apartment Owner.” Therein, Hawaiian

Trust Company conveyed the Commercial Unit to MEPC Properties for

a term “commencing on the 1st day of December 1976, and

terminating at midnight on the 31st day of December, 2039.” The

Commercial Unit CCD contains a provision stating that “[t]he

Apartment Owner shall also pay to the Lessor all fees and

expenses charged or incurred by the Lessor as Trustee under the

terms of the said Trust Agreement[.]”

On or about December 14, 1984, the Brusers acquired the

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Commercial Unit from MEPC Properties by a deed (Apartment Deed).

Pursuant to the Apartment Deed, the Brusers stated that for ten

years, they “paid all monthly rents, costs, expenses,

assessments, and charges required and demanded of them in a

timely manner, and continue to do so.”

In February 1994, BOH, which had previously acquired

Hawaiian Trust Company (and thus had become the trustee of the

Trust), requested a monthly trustee’s fee of $500 for its efforts

on behalf of the trust beneficiaries. While the Brusers

questioned the validity and reasonableness of the trustee’s fee,

they nevertheless agreed to pay the $500 monthly fee.

In 2001, after being notified that BOH intended to

increase the monthly trustee’s fee from $500 to $2,586, the

Brusers filed a complaint for declaratory judgment in the United

States District Court for the District of Hawai#i (U.S. District

Court) requesting that the U.S. District Court find that they

were not liable for any alleged trustee’s fees. The Brusers

later settled with BOH and agreed to pay a monthly trustee’s fee

of $1,100 until December 31, 2002.

The Brusers appear to have continued to pay the monthly

trustee’s fee of $1,100 until BOH filed its petition to resign as

trustee in January 2014.

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C. Probate Court Proceedings

On January 28, 2014, BOH filed a “Petition for

Resignation of Trustee, Appointment of Successor Trustee,

Reformation of Trust and Approval of Trustee’s Accounts Covering

the Period from January 1, 2008 through December 31, 2013”

(Petition for Resignation) in the probate court.3 While BOH did

not explain why it wished to resign, it informed the probate

court that the beneficiaries had not yet selected a successor

trustee, that Central Pacific Bank and First Hawaiian Bank were

the only corporations authorized to exercise trust powers in the

state, and that pursuant to paragraph 17(c) of the Trust

Agreement, they were the only entities that could become a

“successor trustee.” BOH also stated that Central Pacific Bank

and First Hawaiian Bank had declined to serve as the successor

trustee, and therefore BOH requested that the probate court

approve a reformation of paragraph 17(c) that struck language

requiring a corporation to be a successor trustee.

Respondent/Respondent-Appellant Association of

Apartment Owners of Discovery Bay (AOAO), the majority owner of

the beneficial interests in the Trust, objected to BOH’s Petition

for Resignation. It claimed that BOH’s resignation would be

“highly detrimental to the Trust assets and the Beneficiaries’

3 The Honorable Derrick H.M. Chan presided.

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interest in the Trust.” Several of the non-AOAO beneficiaries

also filed objections to BOH’s Petition for Resignation and

requested that the probate court deny its petition.4

As an interested party, the Brusers also filed a

position statement wherein they stated that they paid a monthly

trustee’s fee of $1,100 to BOH, and requested that any approval

of the Petition for Resignation should be accompanied by an order

that the successor trustee be bound to a $1,100 monthly trustee’s

fee pursuant to the provisions of the Commercial Unit CCD.

1. Interim Order

In preparation for a hearing in the probate court, BOH

filed a Supplement to Petition for Resignation of Trustee.

Therein, BOH informed the probate court that it had met with the

beneficiaries and had proposed several reformations to the Trust

Agreement. BOH further stated that because the beneficiaries had

rejected its proposed trust reformations, it had informed the

beneficiaries that it would seek compensation as provided by HRS

§ 607-18.5 BOH argued that under the statute, a corporate

4 These beneficiaries included Respondent/Respondent-Appellee Kevin I. Yokoyama, Respondents/Respondents-Appellees Susan Sheetz and Patricia Sheetz Bow, and Respondent/Respondent-Appellee Julia G. Henderson. 5 HRS § 607-18 (Supp. 2014) became effective on January 1, 2015, and provides:

Compensation of trustees. (a) Unless the trust instrument otherwise provides, or the settlor and trustee otherwise agree, or, after the settlor’s (continued...)

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trustee is entitled to fees as set forth in its fee schedule.

BOH’s standard fee schedule for “[i]ncome producing properties

[m]anaged with [a] third-party property manager” called for an

annual fee of 6% of the gross rental income collected. Applying

BOH’s standard 6% fee to the annual rent of $3,378,840.00, BOH

concluded that it was entitled to an annual trustee’s fee of

$202,730.40, or $16,894.20 per month.

The AOAO opposed the request for a trustee’s fee of

$16,800 as unreasonable. The Brusers joined the AOAO’s position

regarding BOH’s request to resign as trustee. Additionally,

regarding BOH’s request to reform the trust, the Brusers

explained that they support[ed] any reformation of the Trust that is in accordance with the amendments that are agreed to by [BOH] and the beneficiaries, except for any attempt to have it as the Commercial Owner of the Commercial Unit (or as the “CU Lessee”) continue to pay the amount [previously agreed to in the Settlement] if the Bruser Trust is also going to have to pay for some portion (its percentage of common interest) of the Trustee’s fees as a member of the AOAO. It is not equitable for

5 (...continued) death, all the beneficiaries and the trustee otherwise agree, the trustee shall be entitled to the compensation set forth in this section and the compensation shall be deemed to be reasonable. For good cause shown, the court may also approve any other fee arrangement that it deems reasonable. (b) Banks and trust companies serving as trustees shall be entitled to reasonable compensation, which may be set forth in their published fee schedules and may be amended from time to time; provided that advance written notice of any amendment to the fee schedule is provided to the settlor or, after the settlor’s death, to all beneficiaries.

(Emphases added.)

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the Bruser Trust to pay for both amounts if that is what the Petitioner and the beneficiaries are attempting to structure.

(emphasis in original).

Before the probate court entered an order on BOH’s

Petition for Resignation, on August 28, 2014, the Brusers

initiated proceedings for declaratory relief in the U.S. District

Court requesting that the U.S. District Court order the Brusers

not liable to pay trustee’s fees. See infra Section I.D.

On September 8, 2014, BOH reported that it had arranged

a compromise agreement with the non-AOAO beneficiaries regarding

the amount of the trustee’s fee. This Outline Agreement proposed

a trustee’s fee of 3.5% of the rental income, or $9,850 per

month.

At a September 11, 2014 hearing before the probate

court, BOH argued that the Outline Agreement as reached by BOH

and the non-AOAO beneficiaries should be adopted. In response,

the AOAO argued that the trustee’s fee was “high” and

unreasonable. It also contended that the Brusers were required

to pay the trustee’s fees under the provisions of the Trust.

The Brusers stated that they could not be liable for paying the

trustee’s fees, but did not take any position with respect to the

reasonableness of the amount of the trustee’s fee: We’re not taking a position today as to what the fees should be because that’s between - that’s under the trust. And this court has jurisdiction under the trust. And we can’t take a position because we’re not

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one of the beneficiaries. We’re just simply here to protect the Brusers’ rights and to ask this court to not overstep its jurisdiction as we’ve laid out.

At the conclusion of the hearing, the circuit court

stated it would preliminarily approve a monthly sum of $9,850 as

a reasonable trustee’s fee, and approve the withholding of the

monthly fee from the distributions to the beneficiaries for the

five-year period as stated in the Outline Agreement.

On November 6, 2014, the Brusers filed an Ex Parte

Motion for Leave to Take Depositions in the probate court. In

their ex parte motion, the Brusers appeared to take a contrary

position from the position they held at the September 11, 2014

hearing, and argued that the $9,850 monthly fee was “excessive

and cannot be justified[.]” In support of their motion, the

Brusers noted that they had already conducted an investigation

into the work performed by BOH, “and their findings confirm that,

contrary to BoH’s title as Trustee on behalf of Discovery Bay,

BoH has few, if any, substantive responsibilities with respect to

the management of the subject trust.” The probate court denied

the Brusers’ motion.

The probate court entered an “Interim Order Relating to

Petition for Resignation of Trustee” (Interim Order) on December

24, 2014. Therein, the probate court ordered: A. A monthly sum of $9,850 is approved as a “reasonable fee” under Trust paragraph 11, for the five-year period commencing October 1, 2014, which approval is effective September 11, 2014.

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B. The withholding of this monthly fee from distributions to the beneficiaries for the five-year period commencing October 1, 2014 is approved, which approval is effective September 11, 2014.

C. The balance of the agreement in principle as set forth in the Non-Binding Outline of Agreement, attached as Exhibit A to [BOH’s] Statement of Position, is approved, subject to final documentation and review by the Court.

E. At this time, the Court will not address the issue of the liability of interested parties Michael David Bruser and Lynn Bruser, as Trustees under Revocable Living Trust Agreement dated July 11, 1988, as amended, dba Discovery Bay Center, and any party may file a Petition with respect to such issue.

No final judgment was entered.

2. Second Order Granting in Part Petition for Resignation

On January 6, 2015, the Brusers filed a “Petition Under

HPR Rule 36 for Relief from Order and Reconsideration of Interim

Order Relating to Petition for Resignation of Trustee” (Petition

for Reconsideration). Therein, the Brusers contended, inter

alia, that BOH should not be entitled to $9,850 in trustee’s

fees. Specifically, the Brusers argued: 14. Again, while we have no quarrel with what the Bank of Hawaii may think that it is worth . . . the reasonableness of its fees surely must be measured not by its own big bank standards, but by what other organizations, accounting and not trustee wise, are willing to do and can do the identical work for, given what it is actually doing, especially so as not to financially burden the Brusers in what is still a very difficult economy and markedly so for any commercial center today.

On March 5, 2015, the probate court held a hearing on

the Brusers’ Petition for Reconsideration, and further considered

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BOH’s Petition for Resignation. During the hearing, the Brusers

renewed their request for discovery to determine BOH’s actual

duties as the trustee but acknowledged that they may not have

followed correct probate procedures in requesting discovery.

The Brusers argued that the reasonableness of the trustee’s fee

was a factual issue, and that the probate court should wait to

determine the reasonableness of the $9,850 trustee’s fee until it

could determine what BOH actually did.

On April 17, 2015, the probate court entered an Order

Denying the Brusers’ Petition for Reconsideration of the Interim

Order (Order Denying Petition for Reconsideration) and Judgment.

It also entered a “Second Order Granting in Part and Continuing

in Part Petition for Resignation of Trustee, Appointment of

Successor Trustee, Reformation of Trust and Approval of Trustee’s

Accounts Covering the Period from January 1, 2008 Through

December 31, 2013” (Second Order Granting in Part Petition for

Resignation). That order approved the agreement between BOH and

the non-AOAO beneficiaries on trustee’s fees and ordered that a

monthly sum of $9,850 be approved as a “reasonable fee.” The

order continued BOH’s Petition for Resignation with respect to

the trust reformations it sought and attorneys’ fees and costs.

Judgment was also entered on April 17, 2015.

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3. Attorneys’ Fees and Costs Order

On April 17 and May 22, 2015, BOH filed two affidavits

in support of attorneys’ fees and costs. In its affidavits, BOH

stated that at the usual and customary billing rates of the

persons providing trustees’ services for the period of May 12,

2014 through March 31, 2015, and April 1, 2015 through May 14,

2015, BOH requested a total of $154,826.75 in attorneys’ fees and

costs.

On April 30, 2015, the probate court held a hearing to

resolve the issues that were continued in its Second Order

Granting in Part Petition for Resignation. With respect to

attorneys’ fees and costs, the Brusers argued that they should

not be responsible for paying attorneys’ fees and joined the

AOAO’s argument that the attorneys’ fees were unreasonable.

The probate court then orally adopted the Trust

reformations that BOH had proposed.6 The probate court allowed

any party that had objections to BOH’s affidavits regarding

attorneys’ fees and costs to file specific objections to the fees

and costs within thirty days.

On June 1, 2015, the AOAO filed Objections to BOH’s

affidavits in support of attorneys’ fees and costs. Therein, the

6 These reformations are referred to in the proceedings as the “Base Case Plus” reformations, which amended paragraphs 2, 3, 4, and 5 of the Trust Agreement. They are not relevant for the purposes of the Brusers’ application for writ of certiorari.

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AOAO noted that much of the work done by BOH’s counsel was in

preparation to resign or to reform the trust provisions for BOH’s

own benefit. The AOAO contended that “[w]here the trustee

expends legal fees to protect its own personal interests such

fees should not be charged to the trust.”

On June 1, 2015, the Brusers also filed Objections to

BOH’s affidavits in support of attorneys’ fees and costs.

Therein, the Brusers provided six reasons why they believed that

BOH should not be awarded attorneys’ fees and costs. Among the

reasons provided were that counsel engaged in impermissible block

billing, that counsel did not attach receipts and invoices, that

counsel’s work was impermissibly duplicative, and that counsel

did not allocate fees and costs “based upon whose arguments and

whose papers they actually responded to.”

On August 13, 2015, the probate court entered an Order

Granting Petition for Resignation of Trustee, Appointment of

Successor Trustee, Reformation of Trust and Approval of Trustee’s

December 31, 2013 as to Last Pending Issue Regarding Attorneys’

Fees and Costs (Attorneys’ Fees and Costs Order). Therein, the

probate court granted reduced fees and costs to BOH’s attorneys

in the amount of $152,605.10. The award was approximately $2,000

less than the amount that BOH had actually requested (i.e.,

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$154,826.75). The probate court did not explain how it had

arrived at the reduced amount. The probate court also entered

its Judgment on Attorneys’ Fees and Costs Order on August 13,

2015.

D. Proceedings in the U.S. District Court

Meanwhile, on July 21, 2015, the U.S. District Court

concluded that under the terms of the Commercial Unit CCD, the

Brusers, as apartment owners of the Commercial Unit, were liable

for the trustee’s fees. The U.S. District Court concluded that

“the plain and ordinary meaning of the terms of the Apartment

Deed and the [Commercial Unit] CCD require the Brusers to pay

‘all fees and expenses’ as provided by the Trust Agreement. One

such fee is the Trustee Fee.”

However, the U.S. District Court also clarified that it

would not determine what the trustee’s fee should be: The Court here clarifies the limits on its ruling. It simply finds that the [Commercial Unit] CCD requires the Brusers to pay all fees under the Trust Agreement and that one such fee is the Trustee Fee. This is the sum total of the ruling. In short, this Court makes no judgment as to what the Trustee Fee should be, who must mutually agree to it, and what is reasonable.

The Brusers appealed the U.S. District Court’s order to the Ninth

Circuit Court of Appeals; that appeal is currently pending.

E. ICA Proceedings

The Brusers and the AOAO filed five separate appeals to

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the ICA from the probate court’s various orders arising out of

these proceedings. Four appeals are pertinent to the issues

raised in the Brusers’ application for writ of certiorari.

In CAAP-XX-XXXXXXX, the AOAO appealed from the probate

court’s April 17, 2015 Second Order Granting in Part Petition for

Resignation, and challenged the probate court’s determination

that a trustee’s fee of $9,850 was reasonable when there was no

substantial evidence to support that fee amount. In CAAP-15-

0000414, the Brusers appealed from the probate court’s April 17,

2015 Order Denying Petition for Reconsideration and similarly

challenged the probate court’s Second Order Granting in Part

Petition for Resignation.

court’s August 13, 2015 Attorneys’ Fees and Costs Order and

Judgment. In CAAP-XX-XXXXXXX, the Brusers also appealed from the

probate court’s Attorneys’ Fees and Costs Order and Judgment.7

The ICA consolidated the five cases for appeal.

In its opening brief, the AOAO argued, inter alia, that

the probate court improperly imposed a monthly trustee’s fee of

7 In the fifth appeal, CAAP-XX-XXXXXXX, the AOAO appealed the probate court’s July 13, 2015 “Order Granting Petition for Resignation of Trustee, Appointment of Successor Trustee, Reformation of Trust and Approval of Trustee’s Accounts Covering the Period from January 1, 2008 through December 31, 2013 as to All Pending Issues,” which had adopted the “Base Case Plus” reformations. The ICA vacated and remanded the order. It is not challenged by the Brusers on certiorari.

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$9,850 because that amount was not mutually agreed upon as

required by paragraph 11 of the Trust Agreement. The AOAO also

contended that the probate court erred in awarding attorneys’

fees to BOH because the litigation was not in advancement of the

interests of all the beneficiaries of the trust. (Citing In re

Estate of Campbell, 46 Haw. 475, 522, 382 P.2d 920, 953 (1963)).

The Brusers raised several points of error in their

opening brief. The Brusers argued that the probate court erred:

(1) “by exercising jurisdiction over the Brusers who were not

parties to the Trust Agreement . . . holding them responsible for

increased fiduciary Trustee’s Fees;” (2) “wrongly applying a

discretionary fee schedule, thereby prejudicing them despite

nondisclosures otherwise by the Trustee when they purchased the

commercial units concerning increases in the Trustee’s Fees;” (3)

“by failing to correctly interpret the plain meaning of the

contractual language agreed upon between the Brusers and the

Trustee;” and (4) “by refusing to permit discovery to determine

what exactly the Trustee actually does so as to determine a

reasonable fee[.]”

The Brusers’ fifth point of error involved the probate

court’s award of attorneys’ fees and costs. The Brusers argued

that the award was not reasonable because the request was riddled

with block billing and did not submit “any evidence that the

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claimed billing rates and charges were both customary and

reasonable.”

In BOH’s answer, BOH first argued that the probate

court “did not exercise jurisdiction over the Brusers’ contract

claims under the Commercial Unit CCD.” BOH noted that in the

Interim Order, the probate court specifically stated that it

“will not address the issue of the liability of interested

parties [the Brusers] . . . and any party may file a Petition

with respect to such issue.”

With respect to the reasonableness of the trustee’s

fee, BOH noted that HRS § 607-18 provided that “the public fee

schedule of a bank or trust company establishes a benchmark of

reasonable compensation for trust services,”8 and that under

BOH’s standard fee schedule, it was entitled to 6% of gross

rental income as its trustee’s fee. Because the fee as approved

by the probate court was only 3.5% of the annual trust income,

BOH argued that the trustee’s fee was reasonable.

Finally, with respect to attorneys’ fees and costs, BOH

argued that the probate court did not abuse its discretion in

concluding that BOH’s fees and costs were reasonable.

On June 29, 2018, the ICA entered a memorandum opinion

which, inter alia, affirmed the probate court’s Order Denying

8 See supra note 5.

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Petition for Reconsideration and the probate court’s Second Order

Granting in Part Petition for Resignation, but vacated the

probate court’s Attorneys’ Fees and Costs Order and accompanying

Judgment and remanded to the probate court. In the Matter of

Trust Agreement dated June 6, 1974, Nos. CAAP-XX-XXXXXXX, CAAP-

XX-XXXXXXX, CAAP-XX-XXXXXXX, CAAP-XX-XXXXXXX & CAAP-XX-XXXXXXX,

2018 WL 3199232 (App. June 29, 2018) (mem.).

The ICA concluded that, “as measured by the statute,

the [trustee’s] fee amount was authorized and reasonable.”

However, with respect to the probate court’s Attorneys’ Fees and

Costs Order, the ICA vacated and remanded the order because the

probate court did not make any findings as to whether the

litigation was in the interest of all beneficiaries. (Citing In

re Campbell’s Estate, 46 Haw. at 522, 382 P.2d at 953.)

With respect to the Brusers’ appeal, the ICA concluded

that the Brusers’ point of error alleging that the probate court

erred in interpreting the meaning of the Commercial Unit CCD was

raised for the first time on appeal and therefore waived.

Notwithstanding its waiver conclusion, the ICA further determined

that under the plain meaning of the Commercial Unit CCD “[t]he

expenses charged or incurred by the Lessor as Trustee under the

terms of said Trust Agreement dated June 16, 1974, as amended, as

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the same become due or are incurred.” (Emphases omitted).

Because the Brusers were the Apartment Owners of the Commercial

Unit, the ICA stated that the plain language of the Commercial

Unit CCD required the Brusers to pay the trustee’s fees.

Additionally, the ICA determined that because the

Brusers did not comply with proper HPR procedures in their

request for discovery to determine the reasonableness of the

trustee’s fee, the Brusers’ argument that the probate court erred

in denying them discovery was without merit.

As noted previously, the ICA vacated and remanded the

probate court’s Attorneys’ Fees and Costs Order. However, with

respect to the Brusers’ specific allegation of block billing, the

ICA concluded that their opening brief “fail[ed] to provide any

citation to the alleged block billing in the BOH’s requests for

fees and costs.” Accordingly, the ICA deemed their argument

waived.

The ICA entered its judgment on appeal on July 31,

2018.

The Brusers filed an application for writ of certiorari

that challenged the ICA’s memorandum opinion affirming the

probate court’s Order Denying Petition for Reconsideration and

Judgment and Second Order Granting in Part Petition for

Resignation and Judgment and vacating the probate court’s

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Attorneys’ Fees and Costs Order and Judgment.

II. STANDARDS OF REVIEW

A. Reasonableness of Trustee’s Fees

HRS § 607-18 (Supp. 2014) “[e]ntitles corporate

trustees to fees under their published fee schedules instead of

the fee schedule under [the previous] statute.” See S. Stand.

Comm. Rep. No. 275, in 2013 Senate Journal, at 992. Accordingly, [u]nless the trust instrument otherwise provides, or the settlor and trustee otherwise agree, or, after the settlor’s death, all the beneficiaries and the trustee otherwise agree, the trustee shall be entitled to the compensation set forth in this section and the compensation shall be deemed to be reasonable. For good cause shown, the court may also approve any other fee arrangement that it deems reasonable.

HRS § 607-18(a).

Recognizing that the Legislature reformed the trustee’s

compensation statute to “reduc[e] the need for court

intervention,” see S. Stand. Comm. Rep. No. 275, in 2013 Senate

Journal, at 992, a court’s approval of compensation to a

corporate trustee as set forth in its published fee schedule is

“deemed to be reasonable[,]” HRS § 607-18(a), and reviewed on

appeal only for an abuse of discretion. Similarly, a court’s

decision to approve “any other fee arrangement[,]” HRS § 607-

18(a), for trustee compensation is also reviewed for an abuse of

discretion. See Iwamoto v. Hirata, 49 Haw. 514, 515, 422 P.2d

99, 100 (1966) (“The determination of good cause rests largely in

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the discretion of the trial court and what constitutes good cause

will depend mainly on the facts of the case.”).

An abuse of discretion occurs when a trial court “has

clearly exceeded the bounds of reason or has disregarded rules or

principles of law or practice to the substantial detriment of a

party litigant.” Chun v. Bd. of Tr. of Emp. Ret. Sys., 106

Hawai#i 416, 431, 106 P.3d 339, 354 (2005).

B. Attorneys’ Fees and Costs

This court reviews a lower court’s award of attorneys’ fees for abuse of discretion. Allstate Ins. Co. v. Pruett, 118 Hawai#i 174, 179, 186 P.3d 609, 614 (2008). “The trial court abuses its discretion if it bases its ruling on an erroneous view of the law or on a clearly erroneous assessment of the evidence.” Id. In other words, “[a]n abuse of discretion occurs where the trial court has clearly exceeded the bounds of reason or disregarded rules or principles of law or practice to the substantial detriment of a party litigant.” Id.

Hart v. Ticor Title Ins. Co., 126 Hawai#i 448, 455, 272 P.3d

1215, 1222 (2012) (citations omitted).

III. DISCUSSION

On certiorari, the Brusers renew their objections to

the probate court’s orders approving trustee’s fees and

attorneys’ fees and costs. We construe their arguments to raise

three general questions: (1) whether the ICA erred in deciding

that the Brusers were required to pay the trustee’s fees when the

probate court made no determination of liability; (2) whether the

ICA erred in affirming the probate court’s decision to deny the

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Brusers any discovery to determine the reasonableness of the

trustee’s fee; and (3) whether the ICA erred in ignoring the

Brusers’ attorneys’ fees and costs objections.

A. The ICA erred in considering whether the Brusers were liable for trustee’s fees.

The Brusers contend that the probate court lacked

jurisdiction to adjudicate any financial obligations which

stemmed from the Commercial Unit CCD. The Brusers therefore

argue that the ICA erred when it concluded that the Brusers had

an obligation to pay the trustee’s fees, even when the probate

court made no such determination as to liability.

We agree with the Brusers on this point. The probate

court did not make any finding or determination that the Brusers

were liable for the trustee’s fee. At the September 11, 2014

hearing, the probate court acknowledged that the issue of the

liability for trustee’s fees was currently being litigated in the

U.S. District Court. Accordingly, in its December 24, 2014

Interim Order, the probate court specifically noted, “[a]t this

time, the Court will not address the issue of the liability of

[the Brusers], and any party may file a Petition with respect to

such issue.” (Emphasis added.) The probate court’s subsequent

orders in these proceedings do not indicate that it made any

further rulings regarding the Brusers’ liability for trustee’s

fees. Moreover, there is nothing in the record to indicate that

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the Brusers filed a petition in the probate court on such issue.

In their opening brief, the Brusers appealed the

reasonableness of the trustee’s fee. The Brusers also stated

that the probate court erred when it exercised jurisdiction over

them and “[held] the Brusers liable for increased Trustee’s

Fees,” even when the probate court made no such determination.

The ICA acknowledged that the Brusers’ argument on this point had

been waived, but then addressed the issue of liability in the

first instance.9 It should not have done so, especially when the

Brusers had also noted in their opening brief that the liability

issue had been litigated in the U.S. District Court.

Therefore, the issue of liability for the trustee’s fee

was not properly before the ICA because the probate court

explicitly declined to rule on that matter. The ICA erred when

it resolved, in the first instance, whether the Brusers were

liable for the trustee’s fee.

B. The probate court did not err in denying the Brusers’ request for discovery or determining that the trustee’s fee was reasonable.

The Brusers also contend that the probate court erred

when it “decided the reasonableness of the fee increase in a

vacuum.” On this specific point, the ICA did not err in

9 The Brusers’ opening brief could certainly have been clearer on the issue. We caution counsel for the Brusers to ensure, pursuant to HRAP Rule 28(b)(4) and (7), that the argument “contain[s] the contentions of the appellant on the points [of error] presented and the reasons therefor[.]”

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concluding that the Brusers’ argument was without merit.

Under Hawai#i probate court rules, “contested matters

in probate do not clearly give rise to the right to discovery,

and it is rare for the court to specifically address the issue.”

Hawai#i Probate Rules (HPR) Rule 20(d) cmt. (2010).10 To seek

discovery, a party must file an objection, which characterizes

the probate court proceeding as a “contested matter.” HPR 19

(2006).11 Once the proceeding becomes a contested matter, the

probate court must then determine, pursuant to HPR Rule 20(a),

whether to retain the proceeding on the probate calendar or to

assign it to the civil trial calendar. After the designation of

assignment, if the party wishes to conduct discovery, it must

request that discovery be taken. See HPR Rule 20(d).

After the Brusers filed their Ex Parte Motion for Leave

to Take Depositions, the probate court denied the motion. The

10 HPR Rule 20(d) provides:

(d) Procedures in retained contested matters. Whenever the court retains jurisdiction of a contested matter as a probate proceeding, the court in the order of assignment may, at the request of the parties, designate and order that any one or more of the Hawai#i Rules of Civil Procedure and/or the Rules of the Circuit Courts shall be applicable in such matter. 11 HPR Rule 19 provides:

A contested matter is any one in which an objection has been filed. The contested matter shall be limited to facts and issues in dispute, and shall not affect other issues or pleadings before the court with respect to the same proceeding that are not in dispute, provided that no party is prejudiced thereby.

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Brusers later conceded that they did not follow the correct

probate court procedure in requesting discovery when they did so

through an ex parte motion.12 There is no evidence in the record

to suggest that the Brusers requested discovery pursuant to HPR

Rule 20(d) after their ex parte motion was denied. Because the

Brusers did not adhere to proper probate procedures in requesting

discovery, the probate court did not err in denying the Brusers

discovery.

To the extent that the Brusers argue on certiorari that

the probate court’s award of trustee’s fees was unreasonable, we

disagree. The probate court did not abuse its discretion in

concluding that a trustee’s fee of $9,850 per month for a trust

that generated approximately $3,000,000 per year in revenue was a

“reasonable fee.”

12 According to HPR Rule 23, the Brusers’ ex parte motion was not appropriate. HPR Rule 23 (2003) provides:

Proceedings may be conducted on an ex parte basis (without notice or hearing) when: (a) All interested parties who are entitled by statute to notice of the petition join in the petition; or (b) An emergency exists such that delay for a hearing would cause irreparable harm and the basis for the emergency is supported by affidavit; or (c) There is no controversy and the relief requested is automatic under statute or rule; or (d) Other situations exist in the court’s discretion that warrant action without notice or hearing. The party presenting a petition under paragraph (b) of this Rule 23 requiring immediate action of the court shall title the petition “Emergency Ex Parte Petition for . . .” to distinguish it from any other form of ex parte petition.

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In 2014, the Legislature, intending to clarify the law

relating to trustee compensation, changed the statutory scheme to

“[entitle] corporate trustees to fees under their published fee

schedules instead of the fee schedule under statute[.]” See S.

Stand. Comm. Rep. No. 275, in 2013 Senate Journal, at 992. HRS §

607-18 (Supp. 2014) therefore provides:

Compensation of trustees. (a) Unless the trust instrument otherwise provides, or the settlor and trustee otherwise agree, or, after the settlor’s death, all the beneficiaries and the trustee otherwise agree, the trustee shall be entitled to the compensation set forth in this section and the compensation shall be deemed to be reasonable. For good cause shown, the court may also approve any other fee arrangement that it deems reasonable. (b) Banks and trust companies serving as trustees shall be entitled to reasonable compensation, which may be set forth in their published fee schedules and may be amended from time to time; provided that advance written notice of any amendment to the fee schedule is provided to the settlor or, after the settlor’s death, to all beneficiaries.

HRS § 607-18 (emphases added).

In other words, unless otherwise agreed upon, the

trustee’s fee may be determined by HRS § 607-18. Under HRS §

607-18(b), a bank serving as a trustee may rely on its published

fee schedules to set a reasonable trustee’s fee.13

13 Legislative history indicates that the fees charged under a corporate trustee’s published fee schedule are deemed reasonable. As noted in the Senate Standing Committee Report,

[T]he statutory fee schedule under existing law may not be appropriate for a corporate trustee that has various departments and staff providing trust services. Because there is competition in the marketplace, the reasonableness of a corporate trustee’s fees can be determined by the market where the consumer is able to use another trust company if (continued...)

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Here, while the non-AOAO beneficiaries and BOH had

agreed to a $9,850 trustee’s fee, the AOAO did not. Therefore,

the beneficiaries and the trustee did not mutually agree to BOH’s

proposed trustee’s fee, and the reasonableness of the trustee’s

fee may be determined by the compensation set forth in HRS § 607-

18.

According to BOH’s published fee schedule (effective

November 2012), BOH may collect 6% of the gross rental income

from an income-producing property managed with a third-party

property manager. In a letter to the trustees on May 9, 2014,

BOH requested such compensation. BOH stated, “[a]pplying

Trustee’s standard 6% fee to the arbitrated annual rent of

$3,378,840 results in an annual fee of $202,730.40 - or

$16,894.20 per month.” Based upon that calculation, BOH

requested a monthly trustee’s fee of $16,800.

After further negotiations between the parties, BOH and

the non-AOAO beneficiaries agreed to a compromise trustee’s fee

which reduced the trustee’s fee to 3.5% of Trust income,

resulting in a monthly trustee’s fee of $9,850.

13 (...continued) the consumer determines that a corporate trustee’s charge for services is too high. This measure entitles corporate trustees to fees under their published fee schedules instead of the fee schedule under statute.

S. Stand. Comm. Rep. No. 275, in 2013 Senate Journal, at 992.

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The Brusers did not allege that BOH had failed to

fulfill the duties delegated to it by the Trust Agreement. It

was not disputed that BOH was generally exercising its

responsibilities under the Trust, i.e., executing condominium

conveyance documents and collecting rents from those

condominiums, granting easements over the trust estate, filing

tax returns on behalf of the trust, and protecting the trust

estate.

Accordingly, while the probate court could have ordered

a different fee for good cause, the probate court did not abuse

its discretion by approving a monthly trustee’s fee of $9,850.

C. The ICA did not err in rejecting the Brusers’ specific objection to the probate court’s award of attorneys’ fees and costs.

The probate court granted reduced attorneys’ fees and

costs to BOH. However, the ICA vacated and remanded the order

because it determined that the probate court “did not make any

findings regarding whether and to what extent this litigation was

for the benefit of all beneficiaries.” Neither did the order

“include, nor does the record reveal, any reasons for the

reduction of the fees and costs requested[,]” as is required by

Ranger Ins. Co. v. Hinshaw, 103 Hawai#i 26, 33, 79 P.3d 119, 126

(2003).

The ICA therefore remanded “for a determination of

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which portions, if any, of this litigation were in the

advancement of, and not in opposition to, the interests of all

the beneficiaries under the Trust Agreement and to state its

reasons for reducing the amount of attorneys fees awarded.”

On certiorari, the Brusers contend, for the first time,

that the probate court exceeded its statutory authority to award

attorneys’ fees and costs against them. Because this argument

was first raised on certiorari, it is waived in this proceeding

pursuant to HRAP Rule 40.1(d), and we will not address the merits

of this particular argument.14

Finally, the Brusers continue to argue that BOH’s

affidavits requesting attorneys’ fees and costs were riddled with

block billing, which is generally disfavored as a method of

documenting time spent for the purposes of supporting a motion

for attorneys’ fees. Gurrobat v. HTH Corp., 135 Hawai#i 128,

135, 346 P.3d 197, 204 (2015). However, BOH’s counsels’

affidavits in support of its request for attorneys’ fees and

costs were not riddled with block billing. Because BOH’s

affidavits further delineate specific times spent on each

activity within the titled work descriptions, it is not

14 On remand, the probate court should consider any renewed argument by the Brusers that they are not liable for attorneys’ fees and costs because the probate court has “no ability to award fees and costs against the Brusers.” See In re Estate of Campbell, 46 Haw. 475, 522, 382 P.2d 920, 953 (1963).

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“impossible for the court to determine the reasonableness of the

hours spent on each task.” Id. We therefore conclude that BOH’s

requests for attorneys’ fees and costs were not impermissibly

block billed.

Accordingly, the ICA did not err when it determined

that the Brusers’ specific objection is without merit.

IV. CONCLUSION

The ICA erred when it decided that the Brusers were

liable for the trustee’s fees. The probate court specifically

declined to address that issue, and the issue was therefore not

before the ICA. Because the ICA erred in determining the issue

of liability, we vacate the ICA’s judgment on appeal to the

extent that it holds the Brusers liable for the trustee’s fees.

We affirm the part of the ICA’s judgment on appeal

which affirmed the probate court’s (1) April 17, 2015 “Order

Denying Interested Parties Michael David Bruser and Lynn Bruser,

Trustees Under Revocable Living Trust Agreement Dated July 11,

1988, as Amended, Doing Business as Discovery Bay Center’s

Petition Under HPR Rule 36 for Relief from Order and

Reconsideration of Interim Order Relating to Petition for

Reformation of Trust and Approval of Trustee’s Accounts Covering

the Period from January 1, 2008 Through December 31, 2013” and

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corresponding “Judgment,” and (2) April 17, 2015 “Second Order

Granting in Part and Continuing in Part Petition for Resignation

of Trustee, Appointment of Successor Trustee, Reformation of

Trust and Approval of Trustee’s Accounts Covering the Period from

January 1, 2008 Through December 31, 2013” and corresponding

“Judgment,” on the specific issue of the reasonableness of the

We also affirm the ICA’s judgment on appeal vacating

and remanding the probate court’s August 13, 2015 “Order Granting

Petition for Resignation of Trustee, Appointment of Successor

Trustee, Reformation of Trust and Approval of Trustee’s Accounts

Covering the Period from January 1, 2008, Through December 31,

2013 as to Last Pending Issue Regarding Attorneys’ Fees and

Costs” as it pertains to the issues raised in the Brusers’

appeal.

On remand, in addition to determining “which portions,

if any, of this litigation were in the advancement of, and not in

opposition to, the interests of all the beneficiaries . . . and

to state its reasons for reducing the amount of attorneys fees

awarded,” the probate court should consider any renewed motion by

the Brusers that the probate court cannot award attorneys’ fees

and costs against them.

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Gary Victor Dubin and /s/ Paula A. Nakayama Frederick J. Arensmeyer for petitioners /s/ Richard W. Pollack

Vincent A. Piekarski, /s/ Michael D. Wilson Raymond K. Okada, Judy Y. Lee, Johnathan C. Bolton and /s/ James H. Ashford Deirdre Marie-Iha for respondent Bank of Hawaii /s/ Fa#auuga To#oto#o

Robert Bruce Graham, Jr., James K. Mee and H. Shan Wirt for respondent Susan Sheetz and Patricia Sheetz

Blake W. Bushnell for respondents Julie G. Henderson, Trustee of the Julie G. Henderson Irrevocable Trust, the Jean K. Gowans Irrevocable Trust and the Louis L. Gowans, Jr. Irrevocable Trust; and Richard L. Gowans, Trustee of the Richard L. Gowans Irrevocable Trust

Douglas C. Smith and Christopher J.I. Leong for respondent Kevin I. Yokoyama, as Trustee of the Kevin I. Yokoyama Trust and the Irvine K. Yokoyama, Jr. Trust