Cadden v. Welch (298 F.2d 343, 1962)

O’SULLIVAN, Circuit Judge.

This appeal involves the disallowance, as a deduction for Federal Estate Tax purposes, of fees, paid by an executrix to attorneys for their successful defense of a will contest. A resulting tax deficiency of $3,421.00 was paid by the executrix and the instant suit was brought for its recovery. The District Judge dismissed the complaint.

Appellant, Mary Lee Cadden, was executrix and a general and the sole residuary legatee under the will of George A. Burnett, deceased. The estate exceeded $100,000.00. In addition to the general and residuary legacies of Mary Cadden, other general legacies provided in the will totalled $6,500.00. The will was contested in the Court of Common Pleas for Montgomery County, Ohio, by heirs at law of the deceased. Mary Lee Cadden, individually, and as executrix, together with the other legatees were named as defendants. Mary Lee Cadden, as executrix, undertook the defense of the will, and employed counsel for that purpose. Upon trial to a jury, the will was sustained.

Thereafter, and in the course of administration of the estate, an application was made to the Probate Court of Montgomery County, Ohio, by appellant executrix, for authority to pay her attorneys the sum of $2,500.00 for their ordinary services in settling the estate, and the sum of $15,000.00 for their services in successfully defending the will. On January 17, 1959, the Probate Court entered an order which, after reciting the facts concerning the will contest and the attorneys’ services rendered therein, contained, inter alia, the following:

“The Court finds the reasonable value of the services of counsel to the Executrix in successfully defending the Will contest suit to be $15,000.00.

“The Court further finds that the reasonable value of the services of the attorneys for the Executrix in the settlement of the Estate to be worth the sum of $2,500.00. ******

“It is, therefore, ordered that the Executrix be, and she is hereby, authorized and ordered to pay to said attorneys, from funds in her hands, the total amount of $17,500.00 in full of all services in the settlement of this Estate and the defense of the Will contest action and to charge the same as an expense of administration of this Estate.”

All of the attorney fees were payable out of Mary Lee Cadden’s residuary share of the estate and took nothing from benefits accruing to other legatees, even though their legacies were protected by her successful defense of the will. The District Judge dismissed the complaint upon his holding, as a matter of law, that the attorneys’ fees for successfully defending the will were, under the agreed facts and under Ohio law, not properly allowable as an expense of administration. In his conclusions of law, the District Judge recognized the deductibility from a decedent’s gross estate of such administration expenses, “as are allowable by the laws of the jurisdiction * * * un(jer which the estate is being administered.” Title 26 U.S.C.A. § 2053 (a) (2) I.R.C.1954. He likewise held that “where a state court of competent jurisdiction has allowed a deduction from a decedent’s estate as an expense of administration, this court is bound by the state court’s decision.” Schmalstig v. Conner, Collector of Internal Revenue, 46 F.Supp. 531 (1942); Treasury Regulations (1954 Code) § 20.2053.1.

He was of the opinion, however, that the Probate Court’s allowance of the attorney fees in question did not accord with Ohio law. He relied upon three Ohio cases, Andrews’ Executors v. Andrews’ Administrators, 7 Ohio St. 143 (1857); Weir v. Weir, Executrix, 7 Ohio Cir.Ct.R.,N.S., 289, 18 Ohio Cir.Dec. 199 (1906); and In re Estate of Spidel, Ohio App., 110 N.E.2d 718 (1952). In Andrews the Supreme Court of Ohio held that, under the then statutes of Ohio, an executor was not bound to defend a contested will, but could leave it to the will’s beneficiaries to do so; that if the executor chose to undertake such defense and the will was defeated, he could not charge his attorneys’ fees against the estate. That is not the case before us. After observing that an executor could throw the burden of sustaining a contested will up-