The Vincent J. Fumo Irrevocable Children's Trust , 104 A.3d 535 ( 2014 )

J-A15046-14
2014 PA Super 235THE VINCENT J. FUMO IRREVOCABLE IN THE SUPERIOR COURT OF
CHILDREN’S TRUST FOR THE BENEFIT PENNSYLVANIA
OF ALLISON FUMO
APPEAL OF: VINCENT J. FUMO
No. 2459 EDA 2013
Appeal from the Decree August 1, 2013
In the Court of Common Pleas of Philadelphia County Orphans’ Court
At No. 1557(IV) of 2012
BEFORE: PANELLA, LAZARUS AND JENKINS, JJ.
OPINION BY JENKINS, J. FILED OCTOBER 17, 2014
Vincent J. Fumo (“Father”) appeals from a decree removing Anthony
Repici, M.D. as trustee of a trust Father created for his daughter, Allison
Fumo (“Daughter”), and appointing Sylvia DiBona as successor trustee of
Daughter’s trust. After careful review, we affirm.
I.
Through a Trust Agreement created in 2006, Father created inter vivos
irrevocable trusts for two of his children, Vincent E. Fumo, Jr. (“Son”) and
Allison Fumo (“Daughter”), so that they and their children could live
comfortably. Under the Trust Agreement, Son’s and Daughter’s trusts each
became a 49.5% owner of the assets in the Fumo Family Limited Partnership
("FFLP"). Father named Roseanne Pauciello as the trustee of both trusts.
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In 2009, Father was convicted of mail fraud and other offenses. In
early 2010, shortly before going to federal prison, and faced with dwindling
finances, Father obtained a $1.4 million loan from the FFLP with a
repayment date of 2013. In 2011 and 2012, he modified the loan to extend
the repayment date to 2040, when he will be 97 years old, and he then
defaulted on the loan in its modified form.
On September 8, 2011, Pauciello announced that she was resigning as
trustee. No one performed the duties of trustee between September 2011
and October 23, 2012, when, despite her prior resignation, Pauciello
purported to appoint Samuel Bennett, the brother-in-law of Father’s fiancé,
as successor trustee.
On October 23, 2012, fearing that Bennett would not enforce
repayment of the $1.4 million loan to the FFLP, Daughter filed a petition
opposing Bennett’s appointment as successor trustee and requesting
termination of the trust. Daughter amended her petition twice in October
and November of 2012. In response, Father and Bennett each appointed
Anthony Repici, Father’s longtime friend and personal physician, as
successor trustee in place of Bennett.
On August 1, 2013, following an evidentiary hearing, the Orphans’
Court entered a decree declaring Bennett’s appointment of Repici null and
void; declaring Father’s appointment of Repici null and void; denying
Father’s motion to keep the record open so that he could testify in court
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following his release from prison; and appointing Daughter’s nominee, Sylvia
DiBona, as successor trustee1. On August 29, 2013, Father filed a timely
notice of appeal2. Without ordering Father to file a statement of matters
complained of on appeal, the court filed a detailed opinion articulating its
findings of fact and conclusions of law.
Father raises four arguments on appeal: (1) the Orphans’ Court
abused its discretion in nullifying Repici’s appointment as successor trustee;
(2) Daughter had no right to seek Repici’s removal because her petitions
only sought Bennett’s removal as trustee; (3) the Orphans’ Court improperly
refused to keep the record open so that Father could testify in court
following his release from prison; and (4) the court improperly overruled
Father’s preliminary objections to Daughter’s second amended petition.
We hold that the Orphans’ Court properly decreed Bennett’s
appointment of Repici null and void. The Trust Agreement required Pauciello
to appoint a successor trustee within sixty days after she became unwilling
to serve as trustee. Pauciello did not appoint Bennett as successor trustee
until 13 months after she became unwilling to serve. Thus, Pauciello’s
1
The court also denied Daughter’s request to terminate the trust. Neither
Father nor Daughter has appealed this component of the decree.
2
Orphans’ Court Rule 7.1(a) permits, but does not require, the filing of
exceptions “to any order, decree or adjudication which would become a final
appealable order under Pa.R.A.P. 341(b) or Pa.R.A.P. 342 following
disposition of the exceptions.” Father elected not to file exceptions to the
August 1, 2013 decree.
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appointment of Bennett was a nullity, which in turn nullified Bennett’s
appointment of Repici.
Furthermore, the Orphans’ Court properly decreed Father’s
appointment of Repici null and void. The Trust Agreement prohibits Father
from serving as successor trustee. The Orphans’ Court’s opinion makes
clear that it regards Repici as Father’s alter ego due to their close, longtime
friendship. It therefore was necessary to decree Repici’s appointment a
nullity to enforce the Trust Agreement’s plain language and intent.
In addition, the Orphans’ Court properly nullified Father’s appointment
of Repici under the doctrine of unclean hands. The Orphans’ Court found,
and the record confirms, that Father appointed Repici as part of his plan to
thwart repayment of his loan to the FFLP. Although the Orphans’ Court did
not use the term “unclean hands,” it obviously regarded Father as acting in
this fashion. We do as well, since the evidence shows that Father appointed
Repici to exalt his own interests over Daughter’s.
Alternatively, the Orphans’ Court properly removed Repici and
appointed DiBona as successor trustee based on clear and convincing
evidence of a “substantial change in circumstances.” 20 Pa.C.S. §
7766(b)(4). Daughter proved that Repici’s appointment was part of Father’s
plan to stymie repayment of his $1.4 million loan to the FFLP, and Repici is
unqualified to serve as trustee due to his close ties with Father and his lack
of expertise in trust administration. Conversely, DiBona, a CPA and
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insurance broker as well as Daughter’s godmother, is well qualified to
administer the trust and can be counted on to protect Daughter’s interests.
Finally, for the reasons provided below, we find no merit in the other
arguments that Father raises on appeal.
II.
In an appeal from an Orphans’ Court decree,
[we] must determine whether the record is free from
legal error and the court's factual findings are
supported by the evidence. Because the Orphans'
Court sits as the fact-finder, it determines the
credibility of the witnesses and, on review, we will
not reverse its credibility determinations absent an
abuse of that discretion. However, we are not
constrained to give the same deference to any
resulting legal conclusions. Where the rules of law on
which the court relied are palpably wrong or clearly
inapplicable, we will reverse the court's decree.
In re Estate of Brown, 30 A.3d 1200, 1206 (Pa.Super.2011) (citation
omitted).
The Orphans’ Court’s decision to appoint or remove a trustee is subject
to review for abuse of discretion. In re Croessant's Estate, 393 A.2d 443,
446 (Pa.1978); Holmes Trust, 139 A.2d 548, 551 (Pa.1958) ("the court
may remove a trustee if his continuing to act as trustee would be
detrimental to the interests of the beneficiary. The matter is one for the
exercise of a reasonable discretion by the court"); In Re Taylor’s Estate,
181 A. 482, 483 (Pa.1935) (appointment of successor trustee would not be
disturbed on appeal in absence of abuse of discretion).
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Moreover, the Orphans’ Court may invoke the doctrine of unclean
hands when considering whether to appoint or remove a trustee. In Re
Bosley, 26 A.3d 1104, 1114 (Pa.Super.2011) (citing Stauffer v. Stauffer,
351 A.2d 236, 245 (Pa.1976)). The decision to apply the unclean hands
doctrine against a party is subject to review for abuse of discretion. Id.In addition, the Orphans’ Court’s decision to deny a continuance or to
keep the record open is also subject to review for abuse of discretion. In Re
B.M.D., 424 A.2d 1278, 1280 n. * (Pa.1980) (reviewing Orphans’ Court’s
decision to deny continuance for abuse of discretion).
III.
The evidence credited by the Orphans’ Court is as follows. Father is
over seventy years old and is in poor health, having suffered multiple heart
attacks, including one in the past several years3. On June 23, 2006, Father
executed the Vincent J. Fumo Irrevocable Children's Trust Agreement (“Trust
Agreement”), which created two inter vivos, irrevocable trusts, one for Son
and one for Daughter4. Father’s intent was to gift money in trust to Son and
Daughter for their children “so that [they] would never have to suffer what
he had suffered as a child”5. Under the Trust Agreement, each trust became
owner of a 49.5% limited partnership interest in the Fumo Family Limited
3
R. 513, 516 (Daughter’s testimony).
4
R.R. 563-585 (Trust Agreement).
5
R.R. 511 (Daughter’s testimony).
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Partnership ("FFLP")6. The FFLP’s general partner, Vincent J. Fumo General
Partnership, Inc. (“VJFGP”), became owner of the remaining one percent7.
Father is the sole shareholder and first president of VJFGP8. Father
was succeeded as president by Andrew Cosenza, who in turn was replaced
by Tom Myers, Father’s friend9. Myers remains president today.
In 2007, the FFLP held approximately $3.2 million 10, giving Daughter’s
trust an interest of approximately $1.6 million.
Each child’s trust was to dissolve on the child’s 40th birthday. At the
time of the creation of the Trust Agreement, Son was 37 years old, and
Daughter was 16. When Son turned 40, his trust dissolved, and he received
$533,000 in trust assets and personally took possession of his 49.5 percent
interest in the FFLP11. Daughter’s trust, however, did not receive a matching
amount of $533,000. The FFLP’s 2009-10 tax returns show only a payable
to Daughter’s trust in that amount12.
In Paragraph 14 of the Trust Agreement, Father appointed Roseanne
Pauciello, a longtime friend, as trustee of Son’s and Daughter’s trusts.
Paragraph 14 continues:
6
R.R. 563-585 (Trust Agreement).
7
Id.8
R.R. 460 (Son’s testimony).
9
R.R. 463-64 (Son’s testimony).
10
R.R. 796 (exhibit entitled “topside summary of movement between
accounts”).
11
R.R. 525 (testimony of Kirsten Flanagan, CPA).
12
R.R. 525-26, 819 (2009 tax return), 900 (2010 tax return).
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In the event ROSANNE PAUCIELLO shall be unable or
unwilling to act or to continue to act as a Trustee of
any Trust hereunder, MITCHELL RUBIN, by signifying
his acceptance in writing, shall become a Trustee
hereunder in her place. If neither ROSANNE
PAUCIELLO nor MITCHELL RUBIN shall be able and
willing to serve as Trustee of any Trust hereunder at
any time, he or she shall be succeeded by such one
or more individuals, or such series of one or more
individuals, to serve as Trustees in consecutive
order, as the last of them to serve shall designate in
his or her Will or other written instrument delivered
to the Settlor, if he is then living, or if he is not, to
the adult beneficiary or beneficiaries of the Trust
hereunder. If such Trustees fail so to designate a
successor for a period of sixty (60) days following
their inability or unwillingness to serve, or if all of
their designees die, resign or are unable to serve,
the vacancy may be filled by such individual or
individuals as may be designated by the Settlor, if he
is then living, or if he is not, by a majority of the
beneficiaries under this Agreement who are sui juris;
provided, however, that under no circumstances
shall the Settlor, the Settlor's spouse if he should be
married, either of the Settlor's former wives, the
Settlor's Issue, or the spouses of any of the Settlor's
Issue, be eligible to serve as successor Trustees
hereunder. The Settlor specifically authorizes the
selection of different Trustees for different trusts13.
In 2009, Father was convicted of 137 counts of mail fraud, tax evasion
and obstruction of justice and was sentenced to 55 months' imprisonment, a
$411,000 fine, and $2,340,839 in restitution 14. In August 2009, Father
signed a durable power of attorney appointing Son and Myers as co-agents.
13
R.R. 578-79 (Trust Agreement).
14
United States v. Fumo, 655 F.3d 288, 294 (3d Cir. 2011).
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In 2009, the FFLP made distributions to Father in the amount of $333,56115.
There was no equalizing payment to Daughter’s trust.
Over and above the distributions to Father, on January 22, 2010,
Father, acting through Son and Myers, borrowed $1,400,000 from the FFLP.
The terms of the loan required Father to pay interest at the rate of 5%, or
$5,833.33 every month, beginning March 1, 2010, and, to pay all sums due
on or before the maturity date of January 31, 201316. The loan was secured
by a mortgage on the premises at 2220 Green Street in Philadelphia17. Two
days later, Father received the loan proceeds18. The record does not
indicate that Daughter’s trustee, Pauciello, participated in this transaction or
consented to the loan.
In October 2010, the loan was amended to make the terms more
favorable to Father. The amendment extended the original maturity date by
two years to February 1, 201519. Thereafter, the principal balance was to be
amortized over twenty years at a fixed rate of 4.5%, thus extending the
repayment date to 203520. In return, Father agreed to a first mortgage on a
home located on Kenyon Avenue in Margate City, New Jersey as additional
15
R.R. 525 (testimony of Kirsten Flanagan, CPA), 804 (disbursement
summary).
16
R.R. 654 (equity line of credit agreement), 682 (amendment to equity line
of credit loan).
17
Id.18
R.R. 466, 525, 804 (disbursement summary).
19
R.R. 662 (amendment to equity line of credit loan).
20
Id.9
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security21. He also agreed, in the event of a change of ownership of either
the Kenyon Avenue or Green Street properties, to pay not less than
$250,000 to the FFLP towards reduction of the principal balance owed 22. In
the event title to both properties changed, the entire loan was to become
immediately due and payable23. Upon Father’s death, the entire unpaid
balance of the principal and interest under the loan was to become
immediately due and payable24. Once again, the record does not indicate
that Pauciello participated in this transaction or consented to the loan.
In a letter dated October 24, 2010, Father wrote to Jane Scaccetti,
Daughter’s mother: "My goal is to become as judgment proof as possible. l
want to own nothing but control everything. . . I never want to be this
vulnerable to the Government or any creditors again in my life25!”
In an e-mail dated September 8, 2011, Pauciello notified Cosanzo,
then president of the FFLP, that she was resigning as trustee 26. After
submitting her notice of resignation, Pauciello abandoned her duties as
trustee27. Moreover, on October 14, 2011, Mitchell Rubin, whom the trust
21
Id.22
Id.23
Id.24
Id.25
R.R. 1040 (letter from Father to Scaccetti).
26
R.R. 461 (Son’s testimony).
27
Father argues that Pauciello subsequently agreed to continue serving as
trustee. Father’s Brief, p. 8 (citing R.R. 637) (exhibit AF-6; e-mail from
Cosanzo to Son stating that Pauciello agreed to continue serving until “the
tax returns were filed”). The Orphans’ Court, however, did not make a
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designated as successor trustee, renounced his appointment as trustee
without naming a successor28. Paragraph 14 of the Trust Agreement
authorized Pauciello and/or Rubin to appoint a successor trustee within 60
days of their unwillingness to serve as trustee29, but neither of them
appointed a trustee within the 60 day window. Moreover, paragraph 14
authorized Father to appoint a successor trustee if Pauciello and Rubin failed
to appoint one30, but Father did not make any appointment. As a result, the
position of trustee effectively remained vacant from September 2011 until
October 2012.
While the trusteeship remained vacant, Father changed the title to
both the Kenyon Avenue and Green Street properties. On October 12, 2011,
Father conveyed the Kenyon Avenue property from himself to himself and
Carolyn Zinni, his fiancé, as joint owners31. Father did not make the
required payment of $250,000 to the FFLP when he changed ownership of
the Kenyon Street property. On February 21, 2012, Father conveyed the
Green Street property from himself to himself and Son as joint owners32.
Under the terms of the amended line of credit agreement, the loan became
factual finding that Pauciello agreed to continue serving as trustee.
Therefore, neither can this Court. Brown, supra.28
R.R. 643 (October 14, 2011 e-mail from Rubin).
29
R.R. 578-79 (Trust Agreement).
30
Id.31
R.R. 470 (Son’s testimony), 512-13 (Daughter’s testimony), 983
(Bennett’s deposition testimony); Orphans’ Court Opinion, p. 6.
32
R.R. 739 (reference in modification to equity line of credit).
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immediately due and payable when he changed ownership of the Green
Street property, and the failure to repay left the loan in default33.
Beginning in August 2012, Son asked that the loan be repaid and
requested an accounting of FFLP assets34. At that point, Father revoked
Son’s durable power of attorney.
On October 23, 2012, Pauciello appointed Bennett as successor
trustee35, even though she had announced her resignation as trustee more
than one year before and failed to appoint a trustee within 60 days of her
unwillingness to serve. Bennett has two close ties with Father: he is Zinni’s
brother-in-law36, and Father, a former state senator, obtained a job for him
at the Pennsylvania Turnpike Commission in 200837.
On October 26, 2012, Daughter filed a petition to terminate the trust,
or, in the alternative, to nullify Bennett’s appointment as trustee and appoint
a successor trustee. Daughter subsequently filed two amended petitions in
October and November of 201238.
33
R.R. 662 (amendment to equity line of credit loan).
34
R.R. 469-71 (Son’s testimony), 695 (August 2, 2012 letter from Son to
FFLP’s president, Myers), 699 (August 13, 2012 letter from Son to Myers).
35
R.R. 491 (testimony of Samuel Bennett), 493 (testimony of Bennett). On
December 28, 2012, Bennett signed a document accepting his position as
successor trustee.
36
R.R. 463, 490.
37
R.R. 491.
38
R.R. 66 (second amended petition filed on November 21, 2012).
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On November 10, 2012, Son, Daughter and Scaccetti met with Myers,
who had succeeded Cosanzo as president of FFLP, and demanded that Myers
declare the loan in default and demand repayment39. Myers refused40.
On November 28, 2012, Daughter filed an emergency petition seeking
the immediate appointment of an interim successor trustee. The Honorable
Matthew Carrafiello signed a Rule To Show Cause scheduling a hearing for
December 3, 201241. The Rule stated: “All proceedings to stay in the
meantime42.”
One day later, on November 29, 2012, despite the Rule’s directive to
stay all proceedings, Myers signed a modification to the loan which voided
the November 2010 amendment and cured or waived all defaults43. The
modification required Father to pay interest only at the rate of 2.38%, or
$2,776.66 every month, beginning December 1, 2012, until January 22,
2020, at which time the principal balance would be determined and
amortized over twenty years at an annual rate not in excess of 4.5%44. This
modification extended the date of repayment to 2040, when Father will be
97 years old and Daughter will be 50. Myers knew at the time he signed this
modification that Son and Daughter “begged” that he take action to obtain
39
R.R. 471-72 (Son’s testimony), 512-13 (Daughter’s testimony), 521-22
(Scaccetti’s testimony).
40
R.R. 471-72 (Son’s testimony), 521-22 (Scaccetti’s testimony).
41
R.R. 771 (exhibit AF-26).
42
Id.43
R.R. 739 (November 29, 2012 modification of equity line of credit loan).
44
Id.13
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repayment of the loan instead of modifying it45, and that Daughter had
already filed a petition to appoint another trustee.
In April 2013, Son met with Father in federal prison. Son testified that
Father stated:
[I]t was our moral obligation to give [Father]
everything in the Trust, all the assets, because he
was broke. He needed the money and we should give
it to him, he also said that there will never be an
independent trustee for [Daughter’s] trust. And he
also said that he was going to win at all costs. The
thing that sticks in my mind the most is he said, 'if it
comes down to it, I'll hire a bunch of lawyers to just
charge the FFLP until there's zero money left in it
and you guys will have nothing46.’
Based on Son’s testimony, the court wrote: “I find that [Father] believes
that his children have a moral obligation to give him all of the assets in the
[FFLP]. I find that [Father] will never consent to the appointment of any
successor trustee who will take actions contrary to his interests47.”
On June 19, 2013, just two weeks before the evidentiary hearing on
Daughter’s second amended petition, Father signed a “contingent” document
appointing Repici as successor trustee of Daughter’s trust in the event any
person challenged Bennett’s authority to appoint a successor trustee or the
45
R.R. 471-72 (Son’s testimony), 512-13 (Daughter’s testimony that “we
begged Tommy Myers to please. . .call the note”), 521-22 (Scaccetti’s
testimony); see also exhibit AF-19 (Son’s letter to Cosanzo dated
November 29, 2012 demanding that loan be “called” immediately due to the
change of ownership in the Green and Kenyon Street properties).
46
R.R. 473-74 (Son’s testimony).
47
Orphans’ Court Opinion, p. 10.
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court determined that Bennett lacked authority to appoint a successor
trustee48. Three days later, on June 22, 2013, Bennett resigned as trustee
and appointed Repici as successor trustee49. On June 25, 2013, Repici
accepted his appointment as successor trustee50.
Repici has been Father’s friend for over 50 years and was his personal
physician for 25 years prior to Father’s imprisonment51. Repici is also an
attorney52, but he never served as a trustee prior to this appointment53.
Bennett admitted nominating Repici as successor trustee but claimed it
was not his idea54. At first, Bennett insisted that he had no idea who
suggested appointing Repici as trustee or when, and that he did not consult
Daughter or her counsel before making the nomination55. Subsequently,
Bennett admitted nominating Repici on advice of counsel but would not say
how his attorney came up with Repici’s name56. The court found Bennett
untruthful and found as a fact that Father “orchestrated and directed
48
R.R. 1095-96 (Settlor’s Contingent Designation Of Successor Trustee For
The Trust Established For the Benefit Of Allison Fumo Pursuant To the
Vincent J. Fumo Irrevocable Children’s Trust Agreement).
49
R.R. 651 (Bennett’s resignation).
50
R.R. 1094 (Acceptance Of Nomination As Successor Trustee).
51
R.R. 1051 (Repici’s testimony), 1056 (Repici’s testimony).
52
R.R. 1047 (Repici’s testimony).
53
R.R. 1051 (Repici’s testimony).
54
R.R. 501-05 (Bennett’s testimony).
55
Id.56
Id.15
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[Bennett’s] resignation. . .as successor trustee and [Repici’s] appointment
as successor trustee57.”
Son testified that Repici’s relationship with Father would interfere with
taking actions that were in the best interests of Daughter’s trust58.
The Orphans’ Court found Daughter’s and Son’s testimony “credible
and convincing59.” The court credited Daughter’s testimony that Father is “a
very manipulative man and will push and pull people to get his way60.”
Conversely, the court found Bennett untruthful, unreliable and lacking in
knowledge about Daughter’s trust61. The court found incredible Repici’s
claim that he would protect Daughter’s trust against Father and would sue
him if necessary62. Repici, the court concluded, would protect Father’s
interest to the detriment of the trust’s63.
The court also heard testimony from Daughter’s nominee for trustee,
Sylvia DiBona, a CPA and insurance broker as well as Daughter’s
godmother64. DiBona currently serves as a trustee of her own family’s trust
and on the Board of Directors of three non-profit organizations65. She
understood the duties of a trustee, and she agreed to serve as successor
57
Orphans’ Court Opinion, p. 13.
58
R.R. 474 (Son’s testimony).
59
Id., pp. 9-10, 13.
60
Orphans’ Court Opinion, p. 13 (citing N.T., 7/9/13, p. 245) (R.R. 515).
61
Id., pp. 12-13.
62
Orphan’s Court Opinion, p. 17.
63
Id.
64
R.R. 528-29 (DiBona’s testimony).
65
Id.
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trustee for Daughter’s benefit without charging a fee 66. Although she
previously had ill will towards Father arising from his divorce from Scaccetti,
she no longer held any grudge67.
The court gave the following reasons for nullifying Repici’s
appointment as successor trustee and for appointing DiBona to this position:
I do not believe Mr. Repici's statements that he will
protect the interests of the beneficiary of the Trust
against [Father], and, that he will sue [Father] if
necessary. I believe that Mr. Repici was appointed
by [Father] because [Father] expects Mr. Repici to
protect the interests of [Father] against the Trust. I
find that Mr. Repici will do so to the detriment of the
Trust.
Upon consideration of the record made by the parties
in this matter, I voided the appointment of Anthony
Repici to serve as successor trustee because it was
made by [Father], and because it was inconsistent
with material purposes of the trust.
Because [Father] has borrowed $ 1,400,000.00 from
the Fumo Family Limited Partnership, his interests
are directly contrary to those of the Limited Partners
who are his Son and the Trust for the benefit of his
Daughter. The Modification dated November 29,
2012 is patently favorable to Vincent J. Fumo and
detrimental to the Limited Partnership. On November
29, 2012, [Father] was sixty-nine years old with a
history of heart attacks and a stated goal of being as
judgment proof as possible; an incarcerated convict
who claimed to be broke and in financial jeopardy;
and, in default under the terms of the Loan
Amendment of November of 2010. The Modification
was signed on the day before a Hearing before Judge
Carrafiello, and, in defiance of the vehement
66
R.R. 529-30 (DiBona’s testimony).
67
Id.
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objections of [Son], and [Daughter]. The
Modification cures or waives all defaults; lowers the
interest rate; deletes the additional security of the
Margate property; deletes the requirement of
payment in full on death; and, extends the mortgage
to the year 2040 when, if he is alive, [Son] will be
seventy-seven years old, and, Allison Fumo will be
fifty years old.
I have found that Anthony Repici was appointed
Successor Trustee by [Father], a debtor of the Trust,
because [Father] expects Mr. Repici to protect the
interests of [Father] against the Trust, and, that Mr.
Repici will do so to the detriment of the Trust. Such
an appointment would make [Father] the de facto
Trustee of the Trust which would be inconsistent with
the material purpose of the Trust that [Father] is not
eligible to serve as Successor Trustee [and] would
enable [Father] to defeat collection of the debt,
which is in default, and, would be inconsistent with
the material purpose of the Trust that the Trust
should be irrevocable.
I appointed Sylvia DiBona to serve as Successor
Trustee because she is qualified to do so, and,
because she can be relied upon to protect the
interests of the Trust against [Father]68.
IV.
A. The Orphans’ Court properly decreed Bennett’s appointment of
Repici null under the express terms of the Trust Agreement. Moreover,
given the express terms of the Trust Agreement and the doctrine of unclean
hands, the Orphans’ Court properly decreed Father’s appointment of Repici a
nullity. Since these decrees created a vacancy in the office of successor
68
Orphans’ Court Opinion, pp. 17-19.
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trustee, the Orphans’ Court properly appointed DiBona to fill the vacancy.
See 20 Pa.C.S. § 7764.
In general, the Orphans’ Court must enforce the express directives of
a trust. As we recently observed:
‘A trust is a fiduciary relationship with respect to
property, subjecting the person by whom the title to the
property is held to equitable duties to deal with the
property for the benefit of another person....’ In re
Trust of Hirt, 832 A.2d 438, 447-48 (Pa.Super.2003)
(citing Restatement (Second) of Trusts, § 2). The
settled law in Pennsylvania is that ‘the pole star in every
trust ... is the settlor's ... intent and that intent must
prevail.’ Estate of Pew, 440 Pa.Super. 195, 655 A.2d
521, 533 (1994) … (quoting In re Trust Estate of
Pew, 411 Pa. 96, 106, 191 A.2d 399, 405 (1963)). The
settlor's intent may be divined by considering the trust
document as a whole. Farmers Trust Co. v. Bashore,
498 Pa. 146, 150, 445 A.2d 492, 494 (1982) (‘A
settlor's intent is to be determined from all the language
within the four corners of the trust instrument, the
scheme of distribution and the circumstances
surrounding the execution of the instrument. Only if a
settlor's intent cannot be ascertained with reasonable
certainty will a court apply canons of construction, to
attribute a reasonable intention to the settlor in the
circumstances.’); In re Walton's Estate, 409 Pa. 225,
231, 186 A.2d 32, 36 (1962) (stating that the testator's
intentions ‘must be ascertained from the language and
scheme of his [entire] will [together with the
surrounding facts and circumstances]’ (alteration in the
original)).
The trust's specific provisions govern the trust's
operation. 20 Pa.C.S. § 7705(a)69 (‘Except as provided
69
Section 7705 is part the Uniform Trust Code (“UTC”), which Pennsylvania
codified in 2006. The common law of trusts and principles of equity
supplement the UTC’s statutory provisions. 20 Pa.C.S. § 7706. Therefore,
19
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in subsection (b) [listing certain mandatory rules], the
provisions of a trust instrument prevail over any
contrary provisions of [Pennsylvania law].’); In re
Estate of Niessen, 489 Pa. 135, 139, 413 A.2d 1050,
1052 (1980) (‘The nature and extent of the duties of a
corporate trustee are primarily to be ascertained from
the trust instrument.’).
In Re Estate of Warden, 2 A.3d 565, 572 (Pa.Super.2010) (emphasis
added).
The Orphans’ Court, however, is a court of equity. In Re I.L.P., 965
A.2d 251, 256 (Pa.Super.2009) (citing In re Gibson's Estate, 34 A.2d 159,
161 (1943). In its exercise of equitable powers, the Orphans’ Court may
decline to enforce express provisions of a trust when the party seeking
enforcement has unclean hands. The unclean hands doctrine derives “from
the unwillingness of a court to give relief to a suitor who has so conducted
himself as to shock the moral sensibilities of the judge, and it has nothing to
do with the rights or liabilities of the parties.” Bosley, supra, 26 A.3d at1114 (citing Estate of Pedrick, 482 A.2d 215, 222 (Pa.1984)). This
doctrine applies “where the wrongdoing directly affects the relationship
subsisting between the parties and is directly connected with the matter in
controversy.” Id. (citing Pedrick, 482 A.2d at 223)70.
we rely on Pennsylvania common law to the extent it is consistent with the
UTC. Id.
70
Defendants who act unconscionably in equity matters are subject to the
unclean hands doctrine as well as plaintiffs. See, e.g., Jacobs v. Halloran,
710 A.2d 1098, 1103-04 (Pa.1998) (defendant in motor vehicle accident
case was not entitled to equitable remedy of judgment of non pros for
20
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In this case, Paragraph 14 of the Trust Agreement provides the
following procedure for selecting a successor trustee:
(1) Pauciello and Rubin have the authority to designate a successor
if they become unwilling to act or to continue to act as trustee;
(2) The settlor (Father) may fill the vacancy if Pauciello and Rubin
fail to designate a successor within 60 days after becoming
unwilling to serve;
(3) The settlor cannot appoint himself as successor trustee; and
(4) If the settlor is not living, “a majority of the beneficiaries under
[the] agreement who are sui juris” may fill the vacancy71.
Under paragraph 14’s express terms, the Orphans’ Court properly
declared Bennett’s appointment of Repici a nullity. Pauciello became
unwilling to continue to serve as trustee on September 8, 2011, the date she
submitted her notice of resignation, so she had 60 days from this date to
appoint a successor trustee. Her appointment of Bennett on October 23,
2012, almost one year after the 60 day window expired, was a nullity. And
plaintiff’s delay in prosecuting action, where defendant waited more than
two years after filing of complaint before admitting that she was passenger
in vehicle instead of driver; defendant “came before the court with unclean
hands. . .[her] dishonesty regarding the identity of the driver of the vehicle
constitutes bad faith which is directly relevant to the delay in prosecution
from which she seeks relief. To allow her to benefit from a delay which she
in part created is inequitable and will not be permitted”).
71
R.R. 578.
21
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since Bennett’s appointment was null, Bennett’s attempt to appoint Repici as
successor trustee was null as well.
In addition, the Orphans’ Court properly declared Father’s appointment
of Repici a nullity. Since paragraph 14 expressly proscribes Father from
appointing himself as successor trustee, this provision implicitly prohibits the
appointment of Father’s alter egos to this position. The Orphans’ Court
clearly (and correctly) regarded Repici as Father’s alter ego:
I do not believe Mr. Repici's statements that he will
protect the interests of the beneficiary of the Trust
against [Father], and, that he will sue [Father] if
necessary. I believe that Mr. Repici was appointed
by [Father] because [Father] expects Mr. Repici to
protect the interests of [Father] against the Trust. I
find that Mr. Repici will do so to the detriment of the
Trust72.
Thus, to enforce the intent of the Trust Agreement, the Orphans’ Court
properly nullified Father’s appointment of Repici. Warden, supra, 2 A.3d at
572 (“the pole star in every trust is the settlor's intent and that intent must
prevail”). Appointment of an alter ego such as Repici would frustrate the
purpose of the Trust Agreement by exalting Father’s interests over
Daughter’s.
The doctrine of unclean hands provides additional justification for the
Orphans’ Court’s decree. The court credited evidence that Father (1) is a
“very manipulative man” who will stop at nothing to “get his way”; (2) is a
72
Orphans’ Court Opinion, p. 17.
22
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federal convict with a stated goal of being as judgment proof as possible; (3)
regards his children as having a moral obligation to give him all of the assets
in the trust; (4) borrowed $1,400,000 from the FFLP but then failed to repay
the loan; (5) modified the loan to extend the repayment date from 2013 to
2040, when he will be 97 years old and Daughter will be 50; and (6)
defaulted on the loan by changing the ownership of the properties that
secured the loan. Moreover, the court concluded that Father appointed
Repici for the purpose of protecting Father’s interests “against the Trust,”
and that Repici would “protect the interests of [Father] against the Trust.”
The court conveyed its deep sense of repugnance over Father’s conduct,
particularly Father’s determination to appoint a successor trustee who would
exalt Father’s interests over his fiduciary duties as trustee. Without invoking
the phrase “unclean hands”, the court found, in so many words, that Father
acted with unclean hands through a course of “wrongdoing [which] directly
affects the relationship subsisting between the parties and is directly
connected with the matter in controversy.” Bosley, supra, 26 A.3d at
1114. We find no abuse of discretion in this determination or in the decision
to nullify Father’s appointment of Repici.
Having decreed Repici’s appointment a nullity, the Orphans’ Court
properly filled the vacancy by appointing DiBona as successor trustee. The
UTC provides the following procedure for filling vacancies in trusteeships:
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A vacancy in a trusteeship of a noncharitable trust
that is required to be filled shall be filled in the
following order of priority:
(1) by a person designated in or pursuant to the
provisions of the trust instrument to act as successor
trustee;
(2) by a person appointed by unanimous written
agreement of the qualified beneficiaries; or
(3) by a person appointed by the court.
20 Pa.C.S. § 7764(c) (emphasis added). Under section 7764(c)(1), the
vacancy must be filled in accordance with paragraph 14 of the Trust
Agreement. As explained above, Pauciello and Rubin failed to appoint a
successor in compliance with paragraph 14, and Father is incapable of
choosing a responsible successor due to unclean hands. Thus, the Trust
Agreement authorizes “a majority of the beneficiaries under [the] agreement
who are sui juris73” to fill the vacancy. Daughter, the only remaining
beneficiary under the Trust Agreement, selected DiBona as successor
trustee.
The Orphans’ Court acted within its discretion by appointing DiBona as
successor. Taylor’s Estate, supra. DiBona is a CPA and insurance broker
with considerable experience in trust administration and the stewardship of
non-profit organizations. She will administer the trust without charge, and
73
R.R. 578.
24
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she has no ties to Father which would create any conflict of interest in the
administration of Daughter’s trust.
B. As an independent ground for affirming the decree, we hold that
the Orphans’ Court acted within its discretion by ordering Repici’s removal
and substituting DiBona as trustee under 20 Pa.C.S. § 7766(b)(4) due to a
“substantial change in circumstances” in the management of Daughter’s
trust.
Section 7766 provides in relevant part:
(a) The settlor, a cotrustee or a beneficiary may
request the court to remove a trustee or a trustee
may be removed by the court on its own initiative.
(b) When court may remove trustee.--The court
may remove a trustee if it finds that removal of the
trustee best serves the interests of the beneficiaries
of the trust and is not inconsistent with a material
purpose of the trust, a suitable cotrustee or
successor trustee is available and:
(1) the trustee has committed a serious breach of
trust;
(2) lack of cooperation among cotrustees
substantially impairs the administration of the trust;
(3) the trustee has not effectively administered the
trust because of the trustee's unfitness,
unwillingness or persistent failures; or
(4) there has been a substantial change of
circumstances. A corporate reorganization of an
institutional trustee, including a plan of merger or
consolidation, is not itself a substantial change of
circumstances.
25
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Id. (emphasis added).
Recently, in In re McKinney, 67 A.3d 824 (Pa.Super.2013), this
Court held that a trust beneficiary has standing to seek removal of a trustee
under section 7766(b)(4) due to a material change in circumstances. The
beneficiary must show by clear and convincing evidence that: (1) the
removal serves the beneficiary's best interests; (2) the removal is not
inconsistent with a material purpose of the trust; (3) a suitable successor
trustee is available; and (4) a substantial change in circumstances has
occurred. Id., 67 A.3d at 830. Section 7766(b)(4) is a “no fault” provision.
While the trust beneficiary has the option to submit evidence that the
current trustee has administered the trust in a way that “undermined” or
“harmed” the beneficiaries' interests, such proof is not mandatory. Id.The best interests analysis implicitly requires a comparison of whether
the current trustee or the proposed successor trustee best serves the
beneficiary’s interests. McKinney, 67 A.3d at 832-33 (citations omitted).
In making this comparison, the Orphans’ Court should consider the
personalization of service; cost of administration; convenience to the
beneficiary; efficiency of service; personal knowledge of trusts and the
beneficiary's financial situation; the location of the trustee as it affects trust
income tax; experience; qualifications; personal relationship with
beneficiaries; settlor's intent as expressed in the trust document; and any
other material circumstances. Id. at 833 (citations omitted). No one factor
26
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in this nonexhaustive list outweighs the others. Instead, the court must
consider these factors, if the parties present evidence thereof, on a case-by-
case basis. Id. at 833-34.
Applying these standards, we held in McKinney that the Orphans’
Court abused its discretion by determining that the no-fault removal of a
Pennsylvania trustee (PNC Bank) under section 7766(b)(4) and its
replacement by a successor trustee was not in the best interests of the
beneficiaries of a testamentary trust and a descendants' trust. We explained
that substantial changes in circumstances warranted PNC’s removal, namely
the family's relocation to Virginia and multiple corporate mergers of the
original Pennsylvania trust institution, which resulted in the loss of trusted
bank personnel and administration of the trust by different bank officers.
The proposed successor trustee, another financial institution (SunTrust
Delaware), offered the beneficiaries personalized service, greater
convenience due to its location in Virginia, more efficient service due to its
administration of several family trusts, and greater personal knowledge of
the overall financial service needs of the beneficiaries. Id. at 834, 836.
PNC’s removal was not inconsistent with a material purpose of the trust,
since the settlor did not specify in the trust that it was material for a
Pennsylvania trustee to administer the trust, and since the proposed
successor trustee was amply qualified to administer the trust. Id. at 836.
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While we reversed the lower court’s order denying PNC’s removal as
trustee, we stopped short of holding that SunTrust Delaware must be the
successor trustee despite praising its abilities. Instead, we remanded for a
“definitive finding as to the suitability of SunTrust Delaware as a successor
trustee,” Id. at 837 – a prudent decision, since the Orphans’ Court should
select the successor trustee in the first instance instead of an appellate
panel.
McKinney also observed that “where a settlor personally chooses an
individual to act as trustee, the selection represents an expression of trust
and confidence, and removal of a personally chosen individual is thus
considered to be a drastic remedy.” Id. at 835. This point was not central
to McKinney’s holding, since the settlor in that case chose a financial
institution to act as trustee instead of an individual. In the present case,
however, this issue is relevant due to Father’s selection of individuals such
as Pauciello and Rubin to serve as trustees in the Trust Agreement.
The Orphans’ Court did not expressly mention McKinney in its August
1, 2013 decree or October 28, 2013 opinion. But because McKinney sets
forth the controlling principles with regard to removal of trustees under
section 7766(b)(4), we will apply McKinney’s four-part test to determine
whether the Orphans’ Court’s decision to remove Repici and substitute
DiBona as successor trustee was proper.
28
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McKinney first directs us to analyze whether there is clear and
convincing evidence that Repici’s removal is in Daughter’s best interests.
Id., 67 A.3d at 830. In making this determination, we defer to the Orphans’
Court’s factual findings that are supported by the evidence and to its
credibility determinations absent an abuse of discretion. Brown, supra, 30
A.3d at 1206. Here, the record furnishes more than adequate support for
the Orphans’ Court’s factual findings and credibility determinations. Ample
evidence buttresses the court’s finding that Father engineered Repici’s
appointment as trustee in order to serve Father’s ends instead of to protect
Daughter’s interests. Not only is Repici a doctor with no apparent expertise
in financial matters or in handling trusts, but he is Father’s close, longtime
friend. Father arranged for Repici’s installment so that Father could both
control and use trust assets for his own benefit and guarantee that
Daughter’s trust will not object to Father’s attempt to modify the terms of
repayment of the January 22, 2010 loan. Thus, there is clear and convincing
evidence that Repici’s appointment is antithetical to Daughter’s interests and
requires his removal as trustee.
McKinney’s second criterion requires us to examine whether removal
of the trustee is consistent with a material purpose of the trust. McKinney,
67 A.3d at 830. The record demonstrates that Father created Daughter’s
trust to benefit her financial interests and ease her burden in raising her own
children. For the reasons given in the preceding paragraph, there is clear
29
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and convincing evidence that Repici’s removal is consistent with the purpose
of Daughter’s trust.
McKinney next instructs that we assess whether DiBona is a suitable
successor trustee. As we explained above, there is clear and convincing
evidence that DiBona is a suitable successor trustee.
Finally, McKinney directs us to examine whether there has been a
material change in circumstances that requires Repici’s dismissal and
DiBona’s appointment as trustee. The Orphans’ Court found, and the record
demonstrates, that Father created Daughter’s trust in 2006, when he was
affluent and wanted to provide for Daughter’s financial comfort. Several
years later, however, Father went to federal prison, leaving him in
substantially worse financial condition. This downturn has substantially
changed his attitude towards the trust assets. Instead of desiring to provide
for Daughter’s well-being, he now asserts that he is morally entitled to all
money in the trust and has attempted to exercise control over the trust by
inserting persons with allegiance to him, such as Repici, as trustees. In his
own words, he wants to “own nothing yet control everything.” His actions
are consistent with this manipulative goal. In the same year that he went to
prison, he received distributions from the FFLP in the amount of $333,561
without making an equalizing payment to Daughter’s trust. In 2010, he
borrowed $1.4 million from the FFLP, but he has amended the loan twice in
order to lower its interest rate and extend its repayment date 27 years from
30
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2013 to 2040, a date well past his life expectancy. Furthermore, he placed
the loan in default by changing the ownership of the Kenyon Street and
Green Street properties without paying the balance of the loan, and he has
refused to cure the default.
These events provide clear and convincing evidence of a substantial
change in circumstances that compels Repici’s removal and DiBona’s
substitution as successor trustee. The trust has been without effective,
independent leadership for years and is manifestly in need of a trustee who
is able and willing to protect Daughter’s interests. The Orphans’ Court
concluded, and the record confirms, that Repici is not suitable for this
purpose; he will simply stand by and allow Father to take whatever action he
wants. Conversely, the Orphans’ Court determined, and the record
confirms, that DiBona will take all necessary measures to protect Daughter’s
interests.
We hold that the Orphans’ Court’s decree removing Repici as trustee
and installing DiBona as successor trustee satisfies all of McKinney’s criteria
and therefore is proper under section 7766(b)(4).
V.
Finally, we address several procedural arguments. Father argues that
Daughter has no right to seek Repici’s removal because her petitions only
sought Bennett’s removal as trustee. We disagree. Daughter’s petition and
amended petitions sought Bennett’s removal because Bennett was trustee in
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October and November 2012, when Daughter filed her original and amended
petitions seeking a successor trustee. Repici was not appointed until 8
months later, in June 2013, just two weeks before the first day of
evidentiary hearings. Since Repici was not appointed as trustee until the
eleventh hour, we do not find fault with Daughter’s failure to amend her
second amended petition to contest Repici’s appointment.
In any event, Father has waived his objection to Daughter’s failure to
amend, since we see no objection to Daughter’s failure to amend either in
the trial transcript or in Father’s post-hearing brief74. Pa.R.A.P. 302(a)
(“issues not raised in the lower court are waived and cannot be raised for
the first time on appeal”). Furthermore, Father suffered no prejudice from
Daughter’s failure to amend, since he was able to mount a vigorous defense
during the evidentiary hearings in support of Repici’s appointment.
In his next argument, Father contends that the Orphans’ Court abused
its discretion by not continuing the case or keeping the record open for him
to testify himself. Father was in prison at the time of the hearings but was
released shortly thereafter in August 2013.
The court acted within its discretion in refusing to keep the record
open. Father could easily have testified via deposition from prison, see
Pa.R.Civ.P. 4020(b) (permitting use at trial of depositions for unavailable
74
Nor do Father’s appellate briefs identify where he raised this objection
during Orphans’ Court proceedings. See Father’s Opening Brief, p. 20
(statement of place raising or preserving issues).
32
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witnesses), but failed to exercise this right. Alternatively, Father could have
requested that the Orphans’ Court order his production in court and then
submitted this order to the United States Marshal for review. See United
States Marshals Service Policy Directive 9.13(B)(3) (“If provided with a
properly executed court order, the [United States Marshal] may honor
requests for producing federal prisoners in state civil cases”). Father did not
exercise this option.
Father has only himself to blame for his failure to present in-court or
deposition testimony. Moreover, his claim of prejudice is speculative,
because he fails to explain how his in-court testimony would have changed
the outcome of this case.
Lastly, Father argues that the court erred by not sustaining his
preliminary objections to the second amended petition for failure to state
sufficient grounds to remove the trustee. Father suffered no prejudice from
the court’s decision to overrule his preliminary objections, because the case
proceeded to two days of hearings and post-hearing briefing, where Father
had a full and fair opportunity to raise the same objections that he raised in
his preliminary objections.
Decree affirmed.
Judge Lazarus joins in the Opinion.
Judge Panella files a Dissenting Opinion.
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Judgment Entered.
Joseph D. Seletyn, Esq.
Prothonotary
Date: 10/17/2014
34