Zarlenga v. Zarlenga , 2020 Ohio 6947 ( 2020 )

[Cite as Zarlenga v. Zarlenga, 2020-Ohio-6947.]
STATE OF OHIO ) IN THE COURT OF APPEALS
)ss: NINTH JUDICIAL DISTRICT
COUNTY OF MAHONING )
CARMINE R. ZARLENGA III, TRUSTEE, C.A. No. 2019 MA 89
et al.
Appellees
APPEAL FROM JUDGMENT
v. ENTERED IN THE
COURT OF COMMON PLEAS
DANIEL J. ZARLENGA, TRUSTEE COUNTY OF MAHONING, OHIO
CASE No. 2018 CI 0003
Appellant
DECISION AND JOURNAL ENTRY
Dated: December 24, 2020
TEODOSIO, Judge.
{¶1} Defendant-Appellant, Daniel Zarlenga (“Daniel”), appeals from the judgment of
the Mahoning County Court of Common Pleas, Probate Division, removing him as co-trustee and
trust advisor of his father’s trusts and ordering him to pay the trusts more than $2.8 million. This
Court affirms.
I.
{¶2} Daniel is the son of Carmine R. Zarlenga, Jr. (“Father”). Father and Daniel’s
grandfather established three companies during their lifetimes: The Acme Company (“Acme”), C-
Z Trucking Company, Inc. (“C-Z Trucking”), and C-Z Construction and Development Company
(“C-Z Construction”). Father eventually took control of all three companies as both president and
majority shareholder. He also married and had seven children. As he grew older and his health
declined, he sought to ensure that his companies would remain family owned and operated
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businesses. He also sought to ensure that his wife, Martha Zarlenga (“Mother”), would be provided
for if he predeceased her.
{¶3} Father’s desire to protect the companies, minimize his potential estate tax liabilities,
and provide for Mother resulted in him constructing a comprehensive estate plan in 1995. He
called upon two of his sons, Daniel and Carmine R. Zarlenga, III (“Carmine”), to help carry out
his plan. Father established irrevocable trusts for Daniel and Carmine and executed a buy/sell
agreement between himself, Acme, C-Z Trucking, and his son’s trusts. Around the same time,
Daniel and Carmine executed the Zarlenga Family Partnership Agreement (“the Partnership”),
which was an agreement between their respective trusts. The buy/sell agreement and the
Partnership incorporated one another and placed restrictions on the sale and purchase of Father’s
shares in the family companies, as well as the eventual sale of any shares owned by Daniel or
Carmine. The documents also provided that the Partnership would serve as the beneficiary of
Father’s and Mother’s life insurance policies. Both documents indicated that the insurance was
“intended to be in an amount sufficient to provide the funds necessary to purchase [Father’s] shares
of stock in the [family companies].” After the foregoing documents were executed, Father
executed his will and a declaration of trust.
{¶4} Father bequeathed his tangible personal property and interest in his residential real
estate to Mother and bequeathed the remainder of his estate to his trust. Upon his death, his trust
provided for the creation of both a Marital Deduction Trust (“the Marital Trust”) and a Family
Trust (“the Family Trust”). A designated fraction of his estate would fund the Marital Trust, and
the remainder would fund the Family Trust. Mother would receive an income from both trusts on
an installment basis and their principals would remain intact unless needed “for her health, support
and maintenance.” A restrictive covenant in the Family Trust further provided that its principal
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could not be distributed for Mother’s care until the funds in the Marital Trust had been exhausted.
Upon Mother’s death, the residue of Father’s trust would be divided equally among their seven
children.
{¶5} Father designated Daniel and Carmine co-trustees of his trust. He also designated
Daniel trust advisor “for the purpose of approving of all trust investments, sales and purchases”
and for “vot[ing] all shares of any closely-held corporation stock, other than that of [C-Z
Construction], held in the Trust.” When Father died in 2003, his controlling interest in each of the
family companies transferred to his trust. Daniel became president of each company and owned
approximately 20% of their shares, but the trust held the remaining 80%. Father’s trust also had
limited liquidity because a significant portion of its assets were Father’s shares in the companies.
Father’s original estate plan called for those shares to be held by the trust until Mother died. At
that point, the shares could be purchased by the surviving shareholder(s).
{¶6} In 2005, Daniel and Carmine decided to expedite the sale of stock in the companies
that was set to occur upon Mother’s death. They planned for each company to purchase its stock
from the Marital Trust and/or Family Trust. Their plan meant that Daniel would essentially be
able to control 100% of the stock (i.e., by owning 20% and running the companies that owned
80%) and the trusts would increase their liquidity to better provide for Mother during her lifetime.
To execute their plan, the companies and the trusts entered into a series of agreements:
 Acme signed a promissory note with the Family Trust, as well as a stock redemption
agreement and stock pledge agreement. Acme agreed to pay the Family Trust
$132,561, plus 6% interest, over 120 monthly installments to purchase its stock and
pledged stock certificates as security for its payment obligation.
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 Acme signed a promissory note with the Marital Trust, as well as a stock
redemption agreement and stock pledge agreement. Acme agreed to pay the
Marital Trust $252,315, plus 6% interest, over 120 monthly installments to
purchase of its stock and pledged stock certificates as security for its payment
obligation.
 C-Z Trucking signed a promissory note with the Marital Trust, as well as a stock
redemption agreement. C-Z Trucking agreed to pay the Marital Trust $128,506,
plus 6% interest, over 120 monthly installments to purchase its stock.
 C-Z Construction signed a promissory note with the Family Trust, as well as a stock
redemption agreement. C-Z Construction agreed to pay the Family Trust $926,618,
plus 6% interest, over 120 monthly installments to purchase its stock.
As part of their respective agreements, each company tendered a down payment on the purchase
of its stock. The down payments were in addition to the amounts each company promised to pay
by way of promissory note.
{¶7} Although all three companies promised to make installment payments to the trusts
on their respective promissory notes, they did not follow through on their obligations. C-Z
Construction failed to make a single payment on its note, Acme stopped paying on its notes by
2008, and C-Z Trucking stopped paying on its note in 2009. Each of the promissory notes
contained default provisions, but neither Daniel, nor Carmine invoked those provisions when the
companies failed to pay. Daniel informed Carmine that the companies were struggling financially,
and neither brother wanted to see them to fail. It was Carmine’s understanding that the companies
would resume (or, in the case of C-Z Construction, begin) paying on the notes when they were
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financially able to do so. Moreover, he believed the Partnership would eventually be able to use
Mother’s life insurance proceeds to help pay off the notes.
{¶8} While both Carmine and Daniel enjoyed the title of co-trustee, Daniel possessed
certain information that Carmine lacked. Carmine was a partner in a large law firm, lived out-of-
state, and only visited about twice a year. Because he was not involved in the family business, he
lacked the financial insight Daniel enjoyed as both the president of all three companies and their
controlling shareholder. Carmine also had far less contact with Mother than Daniel. Daniel and
his family moved in with Mother when Father died. He, therefore, saw her regularly, had access
to her financials, and was the one who counseled her regarding any important decisions. For years,
Carmine essentially accepted Daniel’s representations about the financial status of the companies
and had limited involvement with Mother’s financials or the Marital Trust and Family Trust.
{¶9} Sometime during the last half of 2015, Carmine received a credit card offer from
the same bank that handled the Marital Trust. He created an individual account with the bank and,
when he did so, the bank automatically provided him with online access to the Marital Trust
account as co-trustee. Carmine then surveyed the Marital Trust account and observed a great
number of distributions of which he previously had not been aware. His observations caused him
to worry that Daniel had been making trust distributions of his own accord and misusing the trust
assets. To confirm his suspicions and identify the extent of the misuse, Carmine hired a forensic
accounting firm to investigate.
{¶10} Mother died while the accounting investigation was still underway. Though her
life insurance proceeds were paid to the Partnership, they were not used to compensate the Marital
Trust or the Family Trust for the sale of Father’s stock (i.e., by paying down the outstanding
balances on the promissory notes). Instead, Daniel used the majority of the funds to issue checks
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to the family companies. He also used a portion of the funds to pay his rent on a condo in Florida
and to make a significant down payment on a house he purchased in California.
{¶11} The accounting investigation concluded in August 2017 and identified numerous
issues, suggesting that Daniel had mishandled funds in the Marital Trust and Family Trust, as well
as Mother’s personal accounts. A family meeting was held, excluding Daniel, and Carmine
ultimately confronted Daniel with the information he and the forensic accounting firm had
discovered. Carmine demanded that Daniel join him in declaring the promissory notes in default.
He also demanded that Daniel resign as co-trustee and trust advisor. Because Daniel refused to
take any of the foregoing actions, the co-trustees deadlocked. To resolve their impasse, Carmine
sought judicial intervention.
{¶12} Carmine filed suit against Daniel, seeking to remove him as co-trustee and trust
advisor and to have him account for the funds held in trust. He also moved for an interim order,
pending final disposition, to remove Daniel as co-trustee and trust advisor. Carmine alleged that
Daniel had allowed the family companies to default on their monthly obligations to the trusts and
had wrongfully disposed of trust funds. He further alleged that Daniel had failed to initiate default
proceedings against the family companies and had refused to join him in issuing notices of default,
thereby creating a deadlock among the co-trustees. Carmine maintained that Daniel had breached
his duties of loyalty and impartiality by protecting his personal interests rather than honoring his
obligations as co-trustee. Apart from asking the court to remove Daniel as co-trustee and trust
advisor and have him account for the trust funds, he asked that Daniel be ordered to reimburse the
trust and/or him (Carmine) for any wrongfully disposed funds, the costs of the investigation and
suit, and attorney fees.
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{¶13} Daniel answered the complaint, opposed the motion to remove him as co-trustee
and trust advisor, and moved the court to join his remaining siblings to the suit as persons needed
for a just adjudication. It was his position that he had been forced to use personal and/or company
funds to provide for Mother at numerous points and that any distributions he made from the trusts
or the Partnership were in the nature of reimbursements for monies previously expended on her
care, support, or maintenance. Before the court responded to Daniel’s motion for joinder, Carmine
filed an amended complaint along with his and Daniel’s five other siblings. Two of those siblings
settled with Daniel before trial and assigned him their interests in Father’s trust. Consequently,
the suit proceeded with Carmine and three of his siblings as named plaintiffs and Daniel as the
named defendant.
{¶14} The trial court held a hearing on the motion to remove Daniel as co-trustee and trust
advisor. As a result of the hearing, the assets of the trust were frozen, and Daniel was ordered to
prepare an accounting of the Martial Trust and the Family Trust and any payments he made from
his personal account to benefit Mother. Additionally, the court ordered him and Carmine to issue
notices of default on the promissory notes so that the trust could prepare to collect sums owed on
the notes from the family companies. The court temporarily suspended Daniel as trust advisor and
enjoined him from selling or disposing of any company assets without order of the court.
{¶15} Daniel provided an accounting of the Family Trust and the Martial Trust, and the
court scheduled the matter for a bench trial. Following the trial, both parties submitted post-trial
briefs, and the trial court issued its decision. The court determined that Daniel had breached his
fiduciary duties as co-trustee in several respects, by failing to administer the trust, failing to remain
impartial and loyal to the trust, failing to enforce claims on behalf of the trust, and failing to keep
the trust beneficiaries informed. The court removed him as co-trustee and trust advisor.
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Additionally, it ordered him to redress his breaches of trust by: (1) repaying the Marital Trust
$140,000 for monies improperly distributed; (2) repaying the Family Trust $41,000 for monies
improperly distributed; and (3) paying the Marital Trust $2,712,834 for the monies due and owing
on the promissory notes he signed on behalf of the family companies. The court denied Carmine’s
request to have Daniel pay his reasonable attorney fees or the cost of the forensic accounting
investigation.
{¶16} Daniel now appeals from the judgment of the trial court and raises six assignments
of error for our review. Because several of his assignments of error are interrelated, we consolidate
them for purposes of our decision. Further, for ease of analysis, we reorder several of the
assignments of error.
II.
ASSIGNMENT OF ERROR IV
THE TRIAL COURT ABUSED ITS DISCRETION WHEN IT REMOVED
DANIEL ZARLENGA AS CO-TRUSTEE OF THE CARMINE R. ZARLENGA,
JR. REVOCABLE LIVING TRUST.
ASSIGNMENT OF ERROR V
THE TRIAL COURT ERRED AS A MATTER OF LAW WHEN IT
CONCLUDED THAT DANIEL ZARLENGA ACTED IN HIS OWN BEST
INTERESTS BY NOT TAKING THE STEPS NECESSARY TO PROTECT AND
COLLECT THE MONIES DUE TO THE TRUSTS ALL WHILE STILL
ENJOYING THE USE AND BENEFITS THAT CAME FROM OWNING AND
OPERATING THE BUSINESSES.
{¶17} In his fourth and fifth assignments of error, Daniel challenges the trial court’s
finding that he acted in his own best interest and its ultimate decision to remove him as co-trustee
and trust advisor of Father’s trust. For the following reasons, we reject his arguments.
{¶18} “Probate Courts have a wide discretion in the appointment and removal of trustees
* * *.” In re Labold’s Will, 148 Ohio St. 332, 339 (1947). As such, appellate courts review a
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probate court’s decision to remove a trustee for an abuse of discretion. See In re the Trust Created
Under Item IV of the Last Will and Testament of Watson (“In re Watson”), 7th Dist. Mahoning No.
03 MA 154, 2004-Ohio-7063, ¶ 19. Accord Gorby v. Aberth, 9th Dist. Summit No. 28021, 2017-
Ohio-274, ¶ 31. An abuse of discretion means that the trial court’s decision was arbitrary,
unconscionable, or unreasonable. Blakemore v. Blakemore, 5 Ohio St.3d 217, 219 (1983). In
applying the abuse of discretion standard, “[t]he appellate court cannot substitute its judgment for
that of the trial court * * *.” Hanick v. Ferrara, 7th Dist. Mahoning No. 19 MA 0074, 2020-Ohio-
5019, ¶ 30.
{¶19} A court may remove a trustee for any “serious breach of trust” or because of any
“unfitness, unwillingness, or persistent failure of the trustee to administer the trust effectively” if
removal of the trustee would best serve the interests of the beneficiaries. R.C. 5807.06(B)(1), (3).
Additionally, a court may remove a trustee if a “[l]ack of cooperation among co[-]trustees
substantially impairs the administration of the trust * * *.” R.C. 5807.06(B)(2). The removal of
a trustee appointed by a will “‘is a drastic action * * * [that] should be taken only where
intervention is necessary to protect the [trust’s] assets.’” In re Watson at ¶ 22, quoting Manchester
v. Cleveland Trust Co., 8168 N.E.2d 745, 752 (8th Dist.1960). Nevertheless, “[t]rustees must
always act in good faith and always act fairly and reasonably, and a court of equity will and can
require such [behavior].” Tomazic v. Rapoport, 8th Dist. Cuyahoga No. 97937, 2012-Ohio-4402,
¶ 23, quoting In re Ternansky’s Estate, 141 N.E.2d 189, 192 (9th Dist.1957). Removal is
appropriate if there exists clear and convincing evidence that it is required to protect the trust. See
In re Watson at ¶ 20. Accord Gorby at ¶ 31.
{¶20} The trial court determined that Daniel breached several of his duties as co-trustee,
including his duty of impartiality, his duty of loyalty, his duty to administer the trust in good faith
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for the benefit of the beneficiaries, his duty to enforce claims on behalf of the trust, and his duty
to keep the beneficiaries informed. Because Daniel was both a co-trustee and the president of the
family companies, the court found that he was in a unique position to know whether the companies
were financially able to abide by the terms of the notes and stock redemption agreements they
signed with the Martial Trust and the Family Trust. The court determined that Daniel acted in his
own best interest when he allowed the agreements to proceed and withheld information about the
companies from Carmine, Mother, and his other siblings. Further, the court found that he acted in
his own best interest when he allowed the companies to default on their agreements and
simultaneously failed (and later refused) to issue them notices of default to begin collection
proceedings.
{¶21} The court rejected any claim on Daniel’s part that payments he made or approved
to benefit Mother outside the terms of Father’s trust ought to have been credited as payments on
the notes. The court found that Father’s trust explicitly set forth how the assets in the Martial Trust
and the Family trust were to be used. Nevertheless, Daniel repeatedly used the funds for other
purposes. Further, the court noted that Daniel never sought to execute any type of addendum,
allowing the notes to be paid by other means. The beneficiaries, therefore, never had an
opportunity to approve that arrangement. In fact, the court determined, the evidence showed that
Mother and the other beneficiaries were oblivious to the manner in which the trusts were being
administered, as Daniel never provided them with accountings or otherwise kept them informed.
The court concluded that Daniel’s numerous breaches of duty warranted his removal as co-trustee
and trust advisor.
{¶22} Daniel argues that the trial court abused its discretion when it removed him as co-
trustee and trust advisor because the record reflects that he always acted in Mother’s best interest,
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thereby substantially complying with his duties to the trust. He claims that he set forth substantial
evidence, showing that he and the companies spent more than $1.2 million of their own money to
benefit Mother. He also claims that there was no evidence Mother ever questioned his
management of the trust, lacked for any necessities, or failed to receive income she was due.
Because the sum he and the companies expended caring for Mother exceeded the debt due and
owing on the promissory notes, Daniel argues, it was unreasonable for the court to conclude that
he acted in his own best interest or breached his fiduciary duties.
{¶23} Daniel further argues that the trial court’s decision was unreasonable, arbitrary, or
unconscionable because it did not account for his recent actions or Carmine’s failure to fulfill his
own duties as co-trustee. As to his recent actions, he notes that he agreed to execute notices of
default to commence collection proceedings against the family companies. Though his doing so
effectively cured the deadlock between the two co-trustees, Daniel claims that his actions went
unnoticed by the trial court in its decision. As to Carmine’s failings, Daniel notes that Carmine
approved the agreements between the family companies and the trusts and was aware that the
family companies had stopped paying on the notes. He also notes that Carmine never provided
any trust reports or actively managed the trust assets. According to Daniel, if he violated his duties
to Father’s trust, then Carmine violated those same duties by ratifying his actions and/or failing to
independently administer the trust. He argues that the trial court lost its way when it blamed him
for the state of the trust and ignored Carmine’s failings.
{¶24} Carmine testified that, of his six siblings, Daniel was the only one who pursued a
career with the family companies. After Father died and his stock transferred to his trust, it was
Carmine’s idea to expedite the sale of his stock to the companies. He testified that Daniel was
“very interested” in that idea because he “felt like he had money[ and] the companies were doing
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well * * *.” Accordingly, the stock was valued and, under Daniel’s direction, Acme, C-Z
Trucking, and C-Z construction entered into several agreements with the Marital Trust and/or
Family Trust for the purpose of purchasing Father’s stock.
{¶25} Carmine testified that, around 2009 or 2010, Daniel spoke to him about the family
companies struggling financially due to the recession. Carmine agreed that the companies should
suspend payment on the notes because he knew it was Father’s wish that they survive. He testified
that he came to town at least twice a year and would speak to Daniel each time about the businesses.
According to Carmine, Daniel always told him the companies were doing poorly and it was not
possible for them to resume payment without causing “extreme financial hardship[.]” Carmine
indicated that he disliked leaving the notes unpaid, but was comforted by the fact that Mother’s
life insurance could eventually be used to satisfy the notes. He described the insurance as a
“backstop” that had always been earmarked “to purchase the stock from the trusts so that the
beneficiaries * * * would get compensation or some value for the stock * * *.”
{¶26} Carmine testified that, until he discovered otherwise, he believed only small
disbursements were being made from the Marital Trust and the Family Trust. Those disbursements
related to Mother’s income payments and other small expenses such as tax return preparation.
Carmine described “being horrified” when he examined the Marital Trust account sometime in
2015 and saw that many large disbursements had issued from the account. He testified that those
disbursements had been made without his knowledge, and he recognized Daniel’s signature on the
checks that had been written.
{¶27} A certified fraud examiner from the company Carmine hired to conduct a forensic
accounting investigation testified about the results of the investigation. He testified that, including
accrued interest, the family companies owed a total of $2,712,834 on the promissory notes they
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signed with the trusts. Although the trusts were owed significant sums and their assets were only
to be used for Mother’s support or maintenance, the investigation revealed that several
disbursements had been made to Acme from the Martial Trust. Specifically, the investigation
revealed (1) a check written to Acme in 2008 for $45,000; (2) a check written to Acme in 2009 for
$75,000; and (3) a check written to Acme in 2011 for $20,000. The investigation also uncovered
numerous points of concern with respect to Mother’s personal accounts.
{¶28} The examiner testified that Mother had a personal account at Farmers Bank as well
as a checking and savings account at Chase Bank. In 2015, someone withdrew more than $17,000
from her Farmers Bank account at the bank counter. Because the withdrawal was made at the
counter, no payee was identified. Even so, the examiner was unable to locate a deposit in that
amount in any of Mother’s other accounts. Beginning in 2008, Mother’s Chase Bank accounts
reflected regular payments to Chase Finance. The examiner confirmed that there was no evidence
Mother had any long-term obligation with Chase Finance. Further, he testified, there was evidence
Daniel had written numerous checks from Mother’s Chase Bank account between 2008 and 2012.
Those checks were for items such as a tuition payment to Youngstown State University, multiple
payments to Acme and an affiliated company, multiple payments to the United States Treasury on
behalf of Daniel and his children, and a condo association fee payment in the amount of almost
$4,000. Daniel later confirmed that the condo belonged to him.
{¶29} The examiner noted that Mother received a salary from Acme, but that her salary
had remained relatively consistent from the time the promissory notes had been signed (i.e., 2005)
until her death. Accordingly, Mother did not receive more money after the family companies
stopped paying on their notes. Further, while Mother was being paid a salary by Acme, checks
back to Acme were routinely being issued from her personal account. The examiner also testified
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that her bank records showed her taxes being paid from her personal accounts instead of the trusts.
The examiner confirmed that Mother incurred a larger tax penalty as a result of receiving wages
from Acme rather than larger trust payments.
{¶30} Carmine testified that he held a family meeting after he received the results of the
accounting investigation. He then contacted Daniel and demanded that he agree to declare the
promissory notes in default and/or resign as co-trustee. Carmine testified that Daniel refused to
do so and essentially “stonewall[ed]” him when he asked about the irregularities the accounting
investigation had identified. Additionally, Daniel refused to provide him with information about
the life insurance proceeds that were paid to the Partnership when Mother died. Carmine fervently
denied that he ever agreed the insurance proceeds could be used to support the family companies.
He testified that the insurance money had always been earmarked to compensate the trusts for the
purchase of Father’s stock. Nevertheless, he discovered that Daniel had used that money, without
his knowledge, to loan more than $1.3 million to the companies. Carmine indicated that he did
not even understand how the funds had been withdrawn from the Partnership account without his
approval.
{¶31} The controller/bookkeeper for the family companies testified that they began
struggling around 2008 and were in poor financial condition. He described how they had difficulty
obtaining financing and how suppliers refused to extend them credit. He also testified that he was
unfamiliar with the Martial Trust and Family Trust. In fact, up until Carmine filed suit, he was
unaware that the companies had any obligations to the trusts.
{¶32} The vice president of the family companies, who was also Daniel’s son, agreed that
Daniel “call[ed] the shots” at the companies and decided which bills to pay. At trial, Carmine and
the other plaintiffs produced a copy of an email that the vice president sent to Daniel about his
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spending habits. The vice president shared the email with Carmine in the wake of the family
meeting. In the email, the vice president outlined how Daniel’s spending habits were “off the
charts” and financially ruining Acme. He accused Daniel of using the company “as [his] own
personal piggy bank” to the detriment of its employees and business model. Finally, he demanded
that Daniel either retire or agree to a series of demands, including shared control of the finances
and prior authorization for any expenditures.
{¶33} At numerous points during the trial, Carmine and the other plaintiffs set forth more
detailed evidence about expenditures Daniel made while he served as co-trustee. There was
evidence that he expended more than $100,0001 for home improvements to Mother’s home after
he and his family moved in, which included the addition of an attached three-car garage. There
also was evidence that either the Marital Trust or Mother’s personal accounts were used to issue
almost $275,000 in college tuition payments for Daniel’s children, as well as a few of the other
grandchildren. There was evidence that, multiple times, Daniel used the life insurance money
from the Partnership to pay rent on his condo in Florida. Moreover, there was evidence that he
used more than $326,000 of that money for a down payment on a house he purchased in California.
{¶34} When Daniel testified, it was essentially his position that he and/or the family
companies had satisfied their respective obligations to the trusts by taking care of Mother and
expending their own money on her behalf. He noted that, between the time Father died and the
time the promissory notes were executed, Father’s trust had few liquid assets. He estimated that
he spent about $160,000 of his own money supporting Mother during that time. He further
estimated that, between the time the promissory notes were executed and Mother’s death, she had
1
It is not clear from the record whether Daniel used company funds, funds from the trusts, funds
from Mother’s personal accounts, or some combination of those funds to pay for the home
improvements.
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almost $1.26 million in expenses. Though the family companies stopped paying directly on their
notes, Daniel claimed that he and the companies eventually paid even more than the amounts due
on the notes caring for Mother. He explained that the three-car garage he had installed at her home
was for her benefit, so that she could park inside and not have to worry about hitting the sides of
the garage. He further explained that he made college tuition payments for her grandchildren at
her direction, as she and Father always wished to be able to provide the children with an education.
To the extent the trusts or Mother’s personal accounts were used to make payments to Acme,
Daniel indicated that those payments were to reimburse the company for money expended on
Mother. Likewise, it was his understanding that his parents intended their insurance proceeds be
used to reimburse the person or entity who purchased Father’s stock, not to fund the trust. Daniel
maintained that the funds he transferred from the Partnership and/or trusts were used either directly
for Mother’s benefit or to reimburse himself or the companies for monies they expended for her
benefit.
{¶35} To the extent Daniel challenges the trial court’s finding that he acted in his own
best interest, we must conclude that the record contains competent, credible evidence in support
of its finding. See Eddy v. Eddy, 7th Dist. Mahoning No. 19 MA 0094, 2020-Ohio-5020, ¶ 26 (“A
trial court’s findings of fact must be given due deference if supported by competent, credible
evidence.”). Carmine and the other plaintiffs produced significant evidence that Daniel routinely
took money from the trusts, Mother’s personal accounts, and the Partnership to fund either the
family companies or his lifestyle. At the same time, the family companies were significantly
indebted to the trusts. Daniel sanctioned the arrangement between the companies and the trusts to
gain control of Father’s remaining shares, despite having knowledge that it would be difficult, if
not impossible, for the companies to honor their debts. Moreover, when the companies did default,
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he refused to hold them accountable. Because the record contains ample evidence in support of
the trial court’s finding that Daniel acted in his own best interest, we reject his argument that the
court erred in reaching that determination. See id.{¶36} We likewise reject Daniel’s argument that the trial court abused its discretion when
it removed him as co-trustee and trust advisor. See In re Watson, 2004-Ohio-7063, at ¶ 19.
Father’s trust and the buy/sell agreement expressly set out the manner in which funds from the
Martial Trust, the Family Trust, and the Partnership were to be used. Despite those express terms,
Daniel routinely expended funds for reasons other than Mother’s “health, support and
maintenance.” He also failed to ensure that her life insurance proceeds were used “to purchase
[Father’s] shares of stock in the [family companies]” (i.e., by paying down the obligations on the
promissory notes). Though Daniel claimed to have expended more money on Mother than was
due on the promissory notes, neither Mother, nor any of the other beneficiaries ever agreed those
expenditures would serve as credits to the trusts. In fact, Carmine recalled “being horrified” when
he discovered how many expenditures Daniel had made. The trial court also was in the best
position to judge Daniel’s credibility on that point and reasonably could have determined that
many of the expenditures he made were for his own benefit rather than Mother’s. See Delp v.
Delp, 6th Dist. Lucas No. L-16-1242, 2017-Ohio-7774, ¶27.
{¶37} As previously noted, a trial court may remove a trustee for a number of reasons,
including any “serious breach of trust.” R.C. 5807.06(B)(1). “[A] serious breach can consist of a
single act which causes significant harm or involves flagrant misconduct, or a serious breach can
consist of a series of smaller acts which, while not individually justifying a trustee’s removal when
standing alone, when viewed collectively warrant removal.” Nichols v. Bixler, 5th Dist. Stark No.
2017CA00152, 2018-Ohio-3234, ¶ 19, citing Kidd v. Alfano, 2d Dist. Montgomery No. 26598,
18
2016-Ohio-7519, ¶ 37. The record supports the trial court’s conclusion that Daniel routinely acted
in his own best interest to the detriment of Father’s trust. Even if none of his individual acts
amounted to a serious breach of trust, the court reasonably could have concluded that his actions,
when viewed collectively, warranted his removal. See id., citing Kidd at ¶ 37.
{¶38} To the extent the trial court failed to discuss Carmine’s alleged failure to fulfill his
fiduciary duties, the court did not have before it a motion to remove Carmine as co-trustee. The
only question before the court was whether Daniel ought to be removed. Moreover, Daniel has
not explained why any breach of duty on the part of Carmine would have absolved him of the
breaches he committed. See App.R. 16(A)(7). Carmine’s actions notwithstanding, Daniel had an
independent duty to act in good faith and to act fairly and reasonably on behalf of the trust. See
Tomazic, 2012-Ohio-4402, at ¶ 23, quoting In re Ternansky’s Estate, 141 N.E.2d at 192. The trial
court reasonably determined that he breached his duties. Even if Daniel eventually agreed to issue
notices of default to the family companies, he did not do so until trial. By then, significant assets
held by either the trusts or the Partnership had been depleted. Upon review, we cannot conclude
that the trial court abused its discretion when it removed Daniel as co-trustee and trust advisor.
Accordingly, Daniel’s fourth and fifth assignments of error are overruled.
ASSIGNMENT OF ERROR II
THE TRIAL COURT ERRED AS A MATTER OF LAW WHEN IT RULED
THAT THE STATUTE OF LIMITATIONS DID NOT APPLY BECAUSE
DANIEL ZARLENGA CAUSED THE SITUATION OF NON-PAYMENT AND
SHOULD NOT BENEFIT FROM IT.
{¶39} In his second assignment of error, Daniel argues that the trial court erred when it
failed to conclude that any claims against him for breach of fiduciary duty were subject to a four-
year statute of limitations. Because Carmine knew payments on the promissory notes had stopped
19
by 2009, but waited until 2018 to file suit, Daniel argues that the entire action against him was
time-barred. For the following reasons, we reject his assignment of error.
{¶40} “It is a general rule that an appellate court will not consider any error which [an
aggrieved litigant] * * * could have called but did not call to the trial court’s attention at a time
when such error could have been avoided or corrected by the trial court * * *.” City of Youngstown
v. Peavy, 7th Dist. Mahoning No. 83 C.A. 37, 1984 WL 6528, *2 (Jan. 27, 1984). “A failure to
preserve an issue in the trial court waives the issue for purposes of appeal.” Mauldin v.
Youngstown Water, Dept., 7th Dist. Mahoning No. 19 MA 0010, 2019-Ohio-5065, ¶ 11. “There
is no second chance to raise arguments on appeal that should have been raised before the trial
court.” Jacobs v. Dye Oil, LLC, 7th Dist. Monroe No. 18 MO 0020, 2019-Ohio-4085, ¶ 57. See
also Taylor v. Belmont Community Hosp., 7th Dist. Belmont No. 09 BE 30, 2010-Ohio-3986, ¶
32-33.
{¶41} In the lower court, Daniel argued that this action was barred by the six-year statute
of limitations contained in R.C. 1303.16. See R.C. 1303.16 (containing statute of limitations for
actions on promissory notes). He also argued that Carmine waived his right to enforce the notes
or his suit was barred by the doctrine of laches. At no point did Daniel argue that the action was
barred by a different statute of limitations.
{¶42} On appeal, Daniel now claims that Carmine’s suit was subject to a four-year statute
of limitations. He relies on Cundall v. U.S. Bank, 122 Ohio St.3d 188, 2009-Ohio-2523, wherein
the Ohio Supreme Court held that a four-year statute of limitations applied to fraud and breach of
fiduciary duty claims brought by the beneficiaries of a constructive trust. Daniel never cited to
Cundall in the lower court or claimed that R.C. 2305.09 applied. See R.C. 2305.09 (setting forth
a four-year statute of limitations for certain torts, including fraud). Nor has he addressed the
20
application of R.C. 5810.10,2 which outlines the time periods within which a beneficiary must
commence a proceeding against a trustee for breach of trust. See R.C. 5810.05 (providing for a
two-year statute of limitations in certain instances and a four-year statute of limitations in other
instances).
{¶43} This Court will not consider Daniel’s argument that Carmine’s suit was subject to
a four-year statute of limitations. That is because he waived his argument by failing to raise it in
the lower court. Mauldin, 2019-Ohio-5065, at ¶ 11. The trial court never had the opportunity to
consider the application of a four-year statute of limitations, and this Court will not decide the
matter for the first time on appeal. Jacobs, 2019-Ohio-4085, at ¶ 57. See also Taylor, 2010-Ohio-
3986, at ¶ 32-33. Accordingly, Daniel’s second assignment of error is overruled.
ASSIGNMENT OF ERROR I
THE TRIAL COURT ERRED AS A MATTER OF LAW WHEN IT RENDERED
JUDGMENT AGAINST DANIEL ZARLENGA PERSONALLY FOR UNPAID
AMOUNTS DUE ON THE PROMISSORY NOTES EXECUTED BY THE
FAMILY COMPANIES.
{¶44} In his first assignment of error, Daniel argues that the trial court erred when it
ordered him to repay the amounts due on each of the promissory notes. Because the notes were
executed by the family companies rather than by him as an individual, Daniel argues, he was not
personally liable on the notes. He further argues that the court’s judgment is invalid because the
statute of limitations on each of the notes expired before Carmine filed suit. This Court rejects his
arguments.
2
Daniel’s reply brief contains a brief reference to R.C. 5810.05(C). Yet, “a reply brief is not the
proper place for assigning a new error or raising a new reason for reversing a judgment * * *.”
Oxford Mining Co., LLC v. Ohio Gathering Co., LLC, 7th Dist. Belmont No. 19 BE 0016, 2020-
Ohio-1363, ¶ 73.
21
{¶45} “The probate court has plenary power at law and in equity to dispose fully of any
matter that is properly before the court, unless the power is expressly otherwise limited or denied
by a section of the Revised Code.” R.C. 2101.24(C). R.C. 5810.01(B)(3) expressly allows a
probate court to “[c]ompel [a] trustee to redress a breach of trust by paying money, restoring
property, or other means * * *.” Further, the Revised Code provides that
[a] trustee who commits a breach of trust is liable to the beneficiaries affected for
the greater of the following:
(1) The amount required to restore the value of the trust property and trust
distributions to what they would have been had the breach not occurred;
(2) The profit the trustee made by reason of the breach.
R.C. 5810.02(A)(1), (2). A probate court’s decision “relative to an assessment of damages” is a
discretionary one that a reviewing court will uphold absent an abuse of discretion. In re Estate of
Pizzoferrato, 190 Ohio App.3d 123, 2010-Ohio-4848, ¶ 37 (7th Dist.).
{¶46} Daniel’s argument that he cannot be held personally responsible for payments due
on the promissory notes consists of a single paragraph. He has failed to cite to any law or offer
any reasoned analysis, demonstrating that the probate court erred when it ordered him to pay the
amounts due on the notes. See App.R. 16(A)(7). The Revised Code expressly allows probate
courts to compel trustees to redress breaches of trust and restore trust assets impaired by their
breaches. See R.C. 5810.01(B)(3) and 5810.02(A)(1), (2). Absent any meaningful argument from
Daniel, this Court will not conclude that the trial court lacked the ability to render judgment against
him for the same amount due on the notes. See App.R. 16(A)(7); Vari v. Coppola, 7th Dist.
Mahoning No. 18 MA 0114, 2019-Ohio-3475, ¶ 8-10.
{¶47} To the extent Daniel argues that the statute of limitations on each note has expired,
he relies on R.C. 1303.16. That statute sets forth the six-year statute of limitations that applies to
actions to enforce a negotiable instrument (e.g., a breach of contract suit). See R.C. 1303.16. See
22
also Hudson & Keyse, LLC. v. Yarnevic-Rudolph, 7th Dist. Jefferson No. 09 JE 4, 2010-Ohio-
5938, ¶ 25. Yet, Carmine and his siblings did not file suit against Daniel to enforce a negotiable
instrument. Their suit asked the probate court to determine whether Daniel breached his fiduciaries
duties, whether he ought to be removed as co-trustee and trust advisor, and whether he should be
compelled to redress his breaches of trust by repaying certain monies due to the trusts. Daniel has
not attempted to explain why their suit was subject to the six-year statute of limitations set forth in
R.C. 1303.16. See App.R. 16(A)(7); Vari at ¶ 8-10. As such, we reject his argument that the trial
court erred when it failed to apply that statute. Daniel’s first assignment of error is overruled.
ASSIGNMENT OF ERROR III
THE TRIAL COURT ERRED AS A MATTER OF LAW WHEN IT FAILED TO
APPLY PAYMENTS MADE BY DANIEL ZARLENGA TO THE
PROMISSORY NOTES AT ISSUE.
{¶48} In his third assignment of error, Daniel argues that the trial court erred when it
refused to apply payments he made on behalf of Mother as credits toward the balances due on the
promissory notes. We do not agree.
{¶49} As previously noted, a probate court’s decision “relative to an assessment of
damages” is a discretionary one that a reviewing court will uphold absent an abuse of discretion.
In re Estate of Pizzoferrato, 2010-Ohio-4848, at ¶ 37. An abuse of discretion means that the trial
court’s decision was arbitrary, unconscionable, or unreasonable. Blakemore, 5 Ohio St.3d at 219.
In applying the abuse of discretion standard, “[t]he appellate court cannot substitute its judgment
for that of the trial court * * *.” Hanick, 2020-Ohio-5019, at ¶ 30.
{¶50} The trial court found that Daniel never secured the permission of the beneficiaries
or legally effectuated any changes to the binding instruments herein to allow him to pay Mother
outside the terms of the note, but receive credits on the notes for those payments. The court found
23
that Father’s trust and the agreements between the companies, the Marital Trust, and the Family
Trust specified how money in the trusts was to be expended, what money was due the trusts, and
how that money was to be paid. Even if Daniel believed he was acting in Mother’s best interest,
the court reasoned, his actions demonstrated that he routinely acted in his own best interest and
failed to administer the trust in good faith for the benefit of all its beneficiaries. Thus, the court
determined that Daniel was not entitled to credit for payments he allegedly made in Mother’s best
interest.
{¶51} Daniel argues that the court erred when it refused to apply payments he made on
Mother’s behalf toward the balance due on the promissory notes. Even if his actions technically
violated the terms of Father’s trust and/or the agreements between the companies and the trusts,
Daniel argues, the “substance” of how he handled the funds was consistent with his fiduciary
duties. He also claims that Carmine knew he was making payments on Mother’s behalf in lieu of
making payments on the notes and was satisfied with that arrangement. Finally, he notes that there
was no language in Father’s trust, requiring him to preserve trust assets for anyone other than
Mother.
{¶52} Many of Daniel’s arguments in support of this assignment of error mirror the
arguments he raised in support of his fourth and fifth assignments of error. See Discussion, supra.
In reviewing those assignments of error, this Court rejected the notion that Daniel substantively
complied with the terms of Father’s trust. We also rejected his arguments that he acted strictly in
Mother’s best interest and that Carmine ratified his actions. We determined that the trial court
acted within its sound discretion when it decided that Daniel breached multiple fiduciary duties
and removed him as co-trustee and trust advisor. In addressing this assignment of error, we
incorporate and bear in mind our prior discussion, determinations, and conclusions. See id.
24
{¶53} Upon review, we cannot conclude that the trial court abused its discretion when it
refused to apply payments Daniel allegedly made on behalf of Mother as credits toward the
balances due on the promissory notes. See In re Estate of Pizzoferrato, 2010-Ohio-4848, at ¶ 37.
The trial court reasonably could have determined that many of the expenditures Daniel made were
for his own benefit rather than Mother’s. See Discussion, supra. Further, while Carmine was
aware that the family companies had stopped paying on their notes, he specifically testified that
the intention was always for those payments to resume at some point. It was not his understanding
that future payments were unnecessary because those payment obligations were otherwise being
satisfied. Moreover, there was no evidence that Mother or the other siblings ever agreed to that
arrangement. Father’s trust and the buy/sell agreement expressly set out the manner in which
funds from the Martial Trust, the Family Trust, and the Partnership were to be used. Despite those
express terms, Daniel routinely expended funds for reasons other than Mother’s “health, support
and maintenance.” He also failed to ensure that her life insurance proceeds were used “to purchase
[Father’s] shares of stock in the [family companies]” (i.e., by paying down the obligations on the
promissory notes). The trial court, therefore, reasonably could have determined that he was liable
for the full “amount required to restore the value of the trust property and trust distributions to
what they would have been had [his] breach[es] not occurred * * *.” R.C. 5810.02(A)(1). His
third assignment of error is overruled.
ASSIGNMENT OF ERROR VI
THE TRIAL COURT ERRED AS A MATTER OF LAW BECAUSE IT EITHER
DID NOT HAVE JURISDICTION OR EXCEEDED ITS OWN JURISDICTION
BY GRANTING A JUDGMENT THAT EXCEEDED THE PRAYED-FOR
RELIEF CONTAINED IN THE MOTION TO REMOVE CO-TRUSTEE AND
TRUST ADVISOR FILED JANUARY 22, 2018 AND THE COMPLAINT FOR
REMOVAL OF TRUSTEE AND ACCOUNTING ALSO FILED ON JANUARY
22, 2018.
25
{¶54} In his sixth assignment of error, Daniel argues that the trial court erred as a matter
of law when it ordered him to repay the Marital Trust more than $2.7 million (i.e., the amount due
and owing on the promissory notes with accrued interest). According to Daniel, the court’s
judgment in that respect exceeded the scope of relief prayed for by Carmine and his siblings. He
argues that the family companies owed the debts on the promissory notes, not him as an individual,
and the family companies were never named in either the complaint or motion to remove him as
co-trustee and trust advisor. We reject his argument.
{¶55} The record reflects that Carmine and his siblings specifically included in their
demand for judgment an order that Daniel “redress any breach of trust by reimbursing the Marital
Trust and/or the Family Trust for all sums wrongfully disposed * * *.” (Emphasis added.) As
previously noted, a probate court has “plenary power at law and in equity to dispose fully of any
matter that is properly before [it] * * *.” R.C. 2101.24(C). Once the court determined that Daniel
breached his fiduciary duties, it was statutorily authorized to compel him to redress his breaches
of trust and restore any trust assets impaired by his breaches. See R.C. 5810.01(B)(3) and
5810.02(A)(1), (2). Because Daniel essentially prevented the trusts from collecting on the
promissory notes, first by stopping payment as president of the family companies and later by
refusing to enforce the notes as co-trustee, we cannot conclude that the trial court erred or exceeded
the scope of prayed-for relief when it ordered him to pay the amount due and owing on the notes,
plus accrued interest.
{¶56} Daniel also has included in his reply brief an argument that his obligation to the
trusts should be reduced by 3/7. That is because two of his siblings settled with him before trial
and assigned him their interest in Father’s trust. Daniel argues that he should not be responsible
for repaying trust assets that will be distributed to him and the two siblings who assigned him their
26
interest. We need not address the merits of his argument, however, as “a reply brief is not the
proper place for assigning a new error or raising a new reason for reversing a judgment * * *.”
Oxford Mining Co., LLC v. Ohio Gathering Co., LLC, 7th Dist. Belmont No. 19 BE 0016, 2020-
Ohio-1363, ¶ 73. Daniel’s sixth assignment of error is overruled.
III.
{¶57} Daniel’s assignments of error are overruled. The judgment of the Mahoning
County Court of Common Pleas, Probate Division, is affirmed.
Judgment affirmed.
There were reasonable grounds for this appeal.
We order that a special mandate issue out of this Court, directing the Court of Common
Pleas, County of Mahoning, State of Ohio, to carry this judgment into execution. A certified copy
of this journal entry shall constitute the mandate, pursuant to App.R. 27.
Immediately upon the filing hereof, this document shall constitute the journal entry of
judgment, and it shall be file stamped by the Clerk of the Court of Appeals at which time the period
for review shall begin to run. App.R. 22(C). The Clerk of the Court of Appeals is instructed to
mail a notice of entry of this judgment to the parties and to make a notation of the mailing in the
docket, pursuant to App.R. 30.
Costs taxed to Appellant.
JENNIFER HENSAL, P. J.
JULIE A. SCHAFER, J.
CONCUR.
27
(Hensal, P. J., Teodosio, J., and Schafer, J., of the Ninth District Court of Appeals, sitting by
assignment.)
APPEARANCES:
RICHARD L. GOODMAN, Attorney at Law, for Appellant.
WILLIAM M. FLEVARES, Attorney at Law, for Appellant.
DAVID S. BARBEE, Attorney at Law, for Appellees.