Attorney fees for breach of trustee duty – Colorado law

Posted by: Mar 20, 2016By Brian Stutheit

Colorado follows the general rule that parties to a lawsuit must pay their own attorney fees.  To get attorney fees as damages, a party must have a contract which provides for fees,  there must be a statute or court rule which grants fees, or the case must fit within a special category created by case law.

Colorado case law does allow a beneficiary who successfully sues a trustee for mismanagement of funds to recover the beneficiary’s attorney fees.  This case law probably does not allow the trustee who successfully defends a lawsuit for mismanagement of the trust fund to recover attorney fees.  This so-called “breach of trust exception” to the rule that attorney fees shall not be awarded only applies where the trustee is under a duty to manage property and abuses that duty.  The breach of trust exception does not apply to lawsuits where a person uses undue influence to gain control of assets. It only applies to actions that involve protection of the trust fund from breach of duty or mismanagement by the trustee.  So, where a niece snake charmed her incapacitated uncle to transfer property out of his trust fund and to her, the court set aside the transfer, but the rightful beneficiary of the uncle’s trust who sued the niece was not allowed attorney fees from the niece. Delluomo v. Cedarblade (2014).

Attorney fees cannot be awarded on a lawsuit which involves breach of a fiduciary duty, but not mismanagement of a trust fund.  For example, in a lawsuit where a client sued his realtors for breaching their duty to tell the client about potential tenants for the client’s property, attorney fees were not recoverable. In simple terms, a “fiduciary relationship” exists whenever one person is entrusted to act for the benefit or interests of another person, and has the legal authority to act for the other person.

Other situations in which attorney fees may be recovered as damages include (1) lawsuits for slander of title; (2) lawsuits against agents who violate Colorado’s Power of Attorney Act; (3)  surcharge proceedings pursuant to the Colorado Probate Code.  If a court, after a hearing, determines that a breach of fiduciary duty has occurred or an exercise of power by a fiduciary has been improper, the court may surcharge the fiduciary for any damage or loss to the estate, beneficiaries, or interested persons. Such damages may include compensatory damages, interest, and attorney fees and costs.

Costs of litigation are usually awarded to the prevailing party.  Costs are not attorney fees, but include things such as court filing fees, charges for depositions, charges for service of process and other litigation expenses.