Estate of: Grace, C. Appeal of: Grace, E. ( 2014 )

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NON-PRECEDENTIAL DECISION - SEE SUPERIOR COURT I.O.P. 65.37
ESTATE OF: CHARLES B. GRACE, : IN THE SUPERIOR COURT OF
DECEASED RESIDUARY TRUST OF : PENNSYLVANIA
CHARLES B. GRACE, Deceased, :
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APPEAL OF: EUGENE G. GRACE, III, :
EUGENE GRACE, ANDREA GRACE AND :
ALEXANDRA GRACE, :
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Appellants : No. 3298 EDA 2013
Appeal from the Order entered on October 31, 2013
in the Court of Common Pleas of Chester County,
Civil Division, No. 1569-0115
BEFORE: FORD ELLIOTT, P.J.E., MUNDY and MUSMANNO, JJ.
MEMORANDUM BY MUSMANNO, J.: FILED NOVEMBER 26, 2014
Eugene G. Grace, III, Eugene Grace, Andrea Grace and Alexandra
Grace (collectively “Beneficiaries”), beneficiaries under the Residuary Trust
of Charles B. Grace, Deceased (“Residuary Trust”), appeal the Order denying
their request to lift the stay on certain of their Objections to two Accounts of
Trust filed by co-trustees Charles B. Grace, Jr. (“Charles”), BNY Mellon, N.A.
(“BNY Mellon”), and Michael D.G. Grace (collectively “Co-Trustees”), and
denying their request for leave to file Amended Objections to the Accounts of
Trust. We affirm.
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The Orphans’ Court set forth the relevant factual and procedural
background in its Opinion, which we adopt herein by reference. See
Orphans’ Court Opinion, 12/23/13, at 1-4.1
On appeal, Beneficiaries raise the following issues for our review:
1. Did the Orphans’ Court err in denying Beneficiaries leave to
file Amended Objections asserting claims of breach of
fiduciary duty against certain [C]o-[T]rustees of the
Residuary Trust [], solely in their capacity as such, which
[amended] objections are within the mandatory and exclusive
jurisdiction of the Orphans’ Court?
2. Did the Orphans’ Court err in denying Beneficiaries leave to
file Amended Objections where none of the [C]o-[T]rustees
claimed, and the Orphans’ Court did not find, (a) prejudice;
(b) that the amendment would violate a positive rule of law[;]
and/or (c) that the amendment would be futile?
3. Did the Orphans’ Court err in refusing to lift the stay of
Objections entered by the June 21, 2013 Order which,
pursuant to the [O]rder and without leave of court, continues
unless and until Beneficiaries assert certain other claims in a
“more” appropriate forum, or waive those claims, where the
only appropriate and permitted forum for Beneficiaries’
Amended Objections is the Orphans’ Court?
Brief for Appellants at 7-8.
We will address Beneficiaries’ first and second claims together, as they
1
This Court issued a Rule to Show Cause Order requiring Beneficiaries to
respond as to the basis of this Court’s jurisdiction over this matter. Upon
review of Beneficiaries’ Statement of Jurisdiction, we conclude that the
Orphans’ Court October 30, 2013 Order constitutes an appealable order, and
that this Court has jurisdiction over this matter. See Fried v. Fried, 501
A.2d 211, 213 (Pa. 1985) (holding that an order is not interlocutory if it
precludes a party from presenting the merits of his claim to the lower court).
Accordingly, we will address the merits of Beneficiaries’ issues on appeal.
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are related. Beneficiaries claim that, pursuant to 20 Pa.C.S.A. § 711,2 the
Orphans’ Court has exclusive jurisdiction over the administration and
distribution of trusts and their fiduciaries. Brief for Appellants at 20.
Beneficiaries assert that such jurisdiction includes actions to surcharge a
trustee and contested ancillary questions concerning the propriety of the
trustee in question and the integrity, disposition and rights to the asset in
2
Section 711 provides, in relevant part, as follows:
Except as provided in section 712 (relating to nonmandatory
exercise of jurisdiction through the orphans’ court division) and
section 713 (relating to special provisions for Philadelphia
County), the jurisdiction of the court of common pleas over the
following shall be exercised through its orphans’ court division:
***
(2) Testamentary trusts. --The administration and distribution of
the real and personal property of testamentary trusts, and the
reformation and setting aside of any such trusts, whether
created before or after the effective date of this chapter, except
any testamentary trust created before the effective date of the
Fiduciaries Act of 1917, jurisdiction of which was acquired by the
court of common pleas prior to January 1, 1969 unless the
president judge of such court orders the jurisdiction of the trust
to be exercised through the orphans’ court division.
***
(12) Fiduciaries. --The appointment, control, settlement of the
accounts of, removal and discharge of, and allowance to and
allocation of compensation among, all fiduciaries of estates and
trusts, jurisdiction of which is exercised through the orphans’
court division, except that the register shall continue to grant
letters testamentary and of administration to personal
representatives as heretofore.
20 Pa.C.S.A. § 711 (2), (12).
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question. Id. at 21-22. Further, Beneficiaries claim that the Orphans’ Court
has the authority to adjudicate claims that, if not associated with a trust or
estate, would find independent jurisdiction in another court division. Id. at
22. Beneficiaries contend that because their Amended Objections seek to
surcharge the Co-Trustees for their breaches of fiduciary duties, resulting in
a diminution of value of a substantial trust asset (i.e., stock in Ashbridge
Corporation (“Ashbridge”)), the Orphans’ Court is vested with jurisdiction
over the matter. Id. at 25.
Beneficiaries further claim that the Orphans’ Court abdicated its
jurisdiction over the proposed Amended Objections “due to its misdirected
belief that the Beneficiaries’ claims required it to assume jurisdiction over
the internal affairs of [Ashbridge].” Id. Beneficiaries emphasize that they
are not asking the Orphans’ Court to intervene in Ashbridge’s corporate
affairs, determine corporate profits, or remove corporate officers or
directors. Id. at 27. Rather, Beneficiaries contend, they are merely
requesting the Orphans’ Court to adjudicate the conduct of the Co-Trustees
with respect to the Ashbridge asset, and to award a surcharge against the
Co-Trustees and disgorgement of fees paid to BNY Mellon. Id. Beneficiaries
assert that the issue before the Orphans’ Court is the conduct of the Co-
Trustees in voting to retain Co-Trustee Charles, as a Director of Ashbridge,
in the face of overwhelming evidence of his self-dealing, breaches of loyalty,
conflicts of interest, and breaches of fiduciary duty. Id. at 29. Beneficiaries
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contend that the Co-Trustees’ actions and inactions, with respect to the
Ashbridge asset, can and must be adjudicated by the Orphans’ Court. Id. at
30.
Beneficiaries claim that the Orphans’ Court superficially classified their
proposed Amended Objections as concerning the same issues that were
raised in their Objections, namely, those relating to Co-Trustee Charles’s
management of Ashbridge and Ashbridge Investment Management, LLC
(“AIM”). Id. at 34. Beneficiaries contend that the Orphans’ Court
improperly relied on the averments and theories set forth in the Objections
to the exclusion of the revised theories and claims set forth in the Amended
Objections. Id. at 34-36; see also id. at 35 (identifying specific averments
set forth in the Objections, as included in the Orphans’ Court Opinion, which
were omitted from the Amended Objections). Beneficiaries assert that
references to Charles’s management of Ashbridge and AIM, as stated in the
Amended Objections, were merely “background material” and not separate
legal issues. Id. at 36. Instead, Beneficiaries claim, the Amended
Objections detailed thirteen failures and refusals of the Co-Trustees with
regard to their fiduciary responsibilities for the benefit of Beneficiaries. Id.
at 37.
Further, Beneficiaries assert that the Orphans’ Court should have
permitted them leave to file the Amended Objections because no party
claimed that they would be unfairly prejudiced by the amendment or that
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such amendment would violate a positive rule of law. Id. at 39. Finally,
Beneficiaries contend that the Orphans’ Court was required to permit the
amendment pursuant to the liberal standard governing their request to
amend. Id.
Before addressing whether the Orphans’ Court improperly denied
Beneficiaries’ Petition for Leave to File Amended Objections, we first address
the Orphans’ Court’s concern over subject matter jurisdiction. The question
of whether a court has subject matter jurisdiction over an action is a
fundamental issue of law which may be raised at any time in the course of
the proceedings. Blount v. Phila. Parking Auth., 965 A.2d 226, 229 (Pa.
2009).
The test for whether a court has subject matter jurisdiction
inquires into the competency of the court to determine
controversies of the general class to which the case presented
for consideration belongs. Thus, as a pure question of law, the
standard of review in determining whether a court has subject
matter jurisdiction is de novo and the scope of review is plenary.
Id.
Actions for surcharge and/or divestment of compensation of trustees
are within the exclusive jurisdiction of the Orphans’ Court. See Horner v.
First Penna. Banking & Trust Co., 194 A.2d 335, 338 (Pa. 1963) (stating
that that the Orphans’ Court has jurisdiction and power over the
administration and distribution of the estate of a decedent and that
necessarily includes the determination of all questions involving
compensation and surcharge of fiduciaries); see also 20 Pa.C.S.A. §
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711(12) (conferring jurisdiction upon the Orphans’ Court over, inter alia, the
allowance to and allocation of compensation among all fiduciaries of estates
and trusts). Thus, the Orphans’ Court had subject matter jurisdiction over
the Beneficiaries’ action against the Co-Trustees.
“A motion to amend a pleading is addressed to the sound discretion of
the trial court and the trial court’s determination is not to be disturbed on
appeal absent an abuse of discretion.” Sejpal v. Corson, Mitchell,
Tomhave & McKinley, M.D.'s, Inc., 665 A.2d 1198, 1200 (Pa. Super.
1995). While the right to amend should not be withheld where there is
some reasonable possibility that amendment can be accomplished
successfully, “where allowance of an amendment would . . . be a futile
exercise, the [objections] may be properly dismissed without allowance for
amendment.” Carlino v. Whitpain Investors, 453 A.2d 1385, 1388 (Pa.
1982) (citations omitted). Further, where appellants seek to amend their
objections, but “it is unclear to us how the amendment would in any way
overcome our conclusions[,]” we will not reverse the decision of the court
below. Bell v. Irace, 619 A.2d 365, 370 (Pa. Super. 1993).
We next determine whether granting Beneficiaries leave to file their
Amended Objections would be a futile exercise. See Carlino, 453 A.2d at
1388. Our review of the record discloses that, in their Amended Objections,
Beneficiaries objected to the Co-Trustees’ failure to remove Charles as
Chairman and Director of the Board of Directors of Ashbridge for (a) its
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approval of AIM; (b) losses generated by AIM; (c) unreasonable and
unwarranted increases in Charles’s compensation, bonuses and benefits,
premised upon the continuously unprofitable AIM; (d) authorizing the
operation of AIM in violation of federal and Pennsylvania law; and (e)
approving payment of Ashbridge assets to settle claims asserted against
AIM. See Petition to Lift Stay and for Leave to File Amended Objections,
10/2/13, Exhibit A at 7. Additionally, in their Amended Objections,
Beneficiaries objected to the Co-Trustees’ failure to (a) elect independent,
non-family directors of Ashbridge to prevent the continuation of AIM and
Charles’s self-dealing; (b) seek Orphans’ Court approval for the
commencement of AIM; (c) bring a shareholders derivative action on behalf
of Ashbridge to recover for AIM’s losses and Charles’s excessive and
unreasonable compensation; (d) refrain from voting for Charles’s retention
as Chairman and Director of the Board of Directors of Ashbridge in light of
his commencement of AIM and receipt of excessive and unreasonable
compensation; (e) exercise independent and fiduciary responsibility in a
family voting arrangement intended to conceal Charles’s wrongful acts; (f)
ensure that AIM’s management was proper and protected from self-dealing;
(g) implement checklists for safeguards to protect against Charles’s
imprudent and unreasonable business decisions and self-dealing; and (h)
prevent the use of other trust assets in support of AIM and Charles’s
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excessive and unreasonable compensation.3 Id. at 7-8. As a remedy for
their proposed Amended Objections, beneficiaries sought the Orphans’ Court
to surcharge the Co-Trustees for the diminution in the value of Ashbridge
stock and divest BNY Mellon of its fees and commissions.4 See id. at 9.
A surcharge is permitted when a fiduciary fails to exercise due care
and loss is incurred. See In re Warden, 2 A.3d 565, 577 (Pa. Super.
2010). In a surcharge action, the propriety of a trustee’s investment is
judged as it appeared at the time of investment and not in light of
subsequent changes. Id. at 577. Hindsight is not the test of liability for
surcharge. Id. Investments are viewed based on their long-term, rather
than short-term, performance. Id. No loss occurs where a trust asset
increases in value over the entire period of investment, despite occasional
fluctuations in value throughout the trust’s life. Id.
In their proposed Amended Objections, Beneficiaries have not alleged
a loss to the Residuary Trust. The Amended Objections do not state the
value of the Residuary Trust assets, including the Ashbridge stock, either at
the time it was created in 1969 or at the commencement of this action. See
3
Beneficiaries aver that, at all times relevant to this action, the Residuary
Trust held a controlling interest in the voting shares of Ashbridge. See
Petition to Lift Stay and for Leave to File Amended Objections, 10/2/13,
Exhibit A at 2.
4
Beneficiaries also sought an award of punitive damages against Charles
and surcharge of Charles for their attorneys’ fees. However, on appeal
Beneficiaries do not contest the Orphans’ Court refusal to grant these
remedies.
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In re Warden, 2 A.3d at 578 (holding that the presence or absence of a
loss is determined by comparing the value of an asset at the time the trust
is created with the value of the asset at the commencement of an action for
surcharge). Beneficiaries’ generally alleged loss (i.e., a “precipitous decline”
in the value of the Ashbridge stock) is insufficient to plead a case for
surcharge. See Petition to Lift Stay and for Leave to File Amended
Objections, 10/2/13, Exhibit A at 5, 8. Thus, even if the Co-Trustees
breached their fiduciary duties, no surcharge can be imposed because there
is no allegation establishing the loss sustained by the Residuary Trust. 5 See
In re Warden, 2 A.3d at 578 (stating that “[e]ven if there is a breach of
duty, however, where there is no loss, there is no basis for a surcharge.”).
Accordingly, we conclude that the Orphans’ Court did not err by denying
Beneficiaries leave to file the Amended Objections.6
In their final claim, Beneficiaries contend that the Orphans’ Court erred
by implementing an indefinite stay of their case against Co-Trustees. Brief
for Appellants at 39. Beneficiaries claim that the Orphans’ Court failed to
5
We note that, even if Beneficiaries averred a loss to the Residuary Trust, in
order to recover, they must further aver that the conduct of the Co-Trustees
fell outside the standard of care set forth in the trust instrument. See Trust
Agreement, 7/9/52, Article ELEVENTH(B); see also In re Warden, 2 A.3d
at 574-75 (stating that if an trust instrument is explicit as to the duty of care
owed by the trustee, those terms should govern because the nature and
extent of the duties of a trustee are primarily to be ascertained from the
trust instrument).
6
We may affirm a trial court’s ruling on any basis supported by the record
on appeal. See Lynn v. Nationwide Ins. Co., 70 A.3d 814, 823 (Pa.
Super. 2013).
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“identify a pressing need to implement the indefinite stay of claim in this
matter.” Id. at 42. Beneficiaries assert that the Orphans’ Court directive
that they file their corporate claims in another court is “unprecedented and
without any legal support.” Id. Beneficiaries further assert that their claims
have been “hijacked” by the Orphans’ Court, which continues to hold their
Objections in permanent abeyance. Id.
Here, the Orphans’ Court concluded that Beneficiaries’ Objections
sought regulation of the internal affairs of Ashbridge, over which the
Orphans’ Court had no jurisdiction. Orphans’ Court Opinion, 12/23/13, at 6-
8. The Orphans’ Court directed Beneficiaries to seek redress of their
corporate claims in an alternate forum (i.e., through a shareholder derivative
action) and stayed Beneficiaries’ Objections pertaining to (1) the conduct of
Charles solely in his capacity as Co-Trustee (as opposed to an officer and/or
director of Ashbridge and/or AIM); and (2) the fees and commissions
received by BNY Mellon as corporate Co-Trustee of the Residuary Trust,
“pending disposition of the corporate objections in a more appropriate
forum, waiver of those claims, or by leave of court.” See Orphans’ Court
Opinion, 6/21/13, at 2; see also Objections to the First Account of Trust,
9/4/12, at 5-6; Objections to the Second Account of Trust, 9/4/12, at 5-6.
When examining an order to stay proceedings in Pennsylvania, our
standard of review is de novo and our scope of review is plenary. See
S.K.C. v. J.L.C., 2014 Pa. Super. LEXIS 1191 at *11-12 (Pa. Super. 2014).
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Beneficiaries’ final claim fails for the same reasons expressed above.
In their Objections, Beneficiaries failed to identify any actual loss to the
Residuary Trust that would entitle them to their requested relief against Co-
Trustees. See In re Warden, 2 A.3d at 578. Accordingly, we conclude that
the Orphans’ Court did not err by denying Beneficiaries’ request to lift the
stay of their Objections concerning Charles’s conduct solely in his capacity as
Co-Trustee and BNY Mellon’s fees and commissions as corporate Co-Trustee.
Order affirmed.
Judgment Entered.
Joseph D. Seletyn, Esq.
Prothonotary
Date: 11/26/2014
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