In Re: Passarelli Family Trust , 206 A.3d 1188 ( 2019 )

J-E02005-18
2019 PA Super 95IN RE: PASSARELLI FAMILY TRUST : IN THE SUPERIOR COURT OF
: PENNSYLVANIA
:
APPEAL OF: JOSEPH PASSARELLI :
:
:
:
:
: No. 3150 EDA 2016
Appeal from the Decree September 19, 2016
In the Court of Common Pleas of Chester County Orphans' Court at
No(s): 1516-0101
BEFORE: GANTMAN, P.J., BENDER, P.J.E., PANELLA, J., SHOGAN, J.,
LAZARUS, J., STABILE, J., DUBOW, J., NICHOLS, J., and
McLAUGHLIN, J.
OPINION BY LAZARUS, J.: FILED MARCH 28, 2019
Joseph Passarelli (“Joseph”) appeals from the decree, entered in the
Orphans’ Court Division of the Court of Common Pleas of Chester County,
granting the petition of Appellee, Margaret Passarelli (“Margaret”), to
terminate an irrevocable trust (“Trust”). Upon careful review, we reverse.
The following facts and procedural history have been adopted from the
findings of fact contained in the Decision of the Orphans’ Court filed September
16, 2016, as well as our own review of the record. Joseph and Margaret
Passarelli were married on November 27, 1998, and have two minor children.1
In the Spring of 2015, Margaret agreed with Joseph to meet with an attorney,
Michael Perna, Esquire, to discuss estate planning. Margaret was unaware
____________________________________________
1The Passarelli children are represented in this appeal by a guardian ad litem,
who filed a participant’s brief advocating for vacatur of the Orphans’ Court’s
order.
J-E02005-18
that Joseph had previously met with Attorney Perna and only learned of their
pre-existing relationship shortly before the execution of the estate planning
documents. During this time period, Margaret was facing a possible cancer
diagnosis and was emotionally upset.
Attorney Perna prepared various documents, including powers of
attorney and wills, as well as the Trust, at Joseph’s direction. On May 21,
2015, Margaret and Joseph met with Attorney Perna to execute the
documents. The irrevocable trust agreement included a schedule of assets,
compiled by Joseph, to be conveyed to the Trust. The schedule included two
property companies known as Japen Holdings, LLC, and Japen Properties, LLP
(collectively, “Japen”).2 See Trust, 5/21/15, Schedule A. Prior to execution,
Margaret did not ask about the inventory of assets, nor did she read the trust
documents. Margaret did, however, inquire as to the disposition of trust
assets in the event of divorce and was informed by Attorney Perna that the
Trust would survive a dissolution of the couple’s marriage.
The Trust named Joseph and Margaret as Settlors and Joseph as
Trustee. The document named Settlors and their two minor children as
discretionary income beneficiaries during the lifetime of the Settlors. The
Trust also authorized discretionary distributions of principal to Settlors and/or
their children for support, health, comfortable maintenance, education, and
____________________________________________
2These businesses were acquired during the marriage with marital property,
and were titled in Joseph’s name. The businesses were valued at a combined
amount of $4,200,000.00. See Trust, 5/21/15, Schedule “A.”
-2-
J-E02005-18
general welfare. The Trust further provided that, at the death of Settlors, the
Trust would continue for the benefit of the children and their living issue.
Sometime after executing the Trust, Margaret discovered that Joseph,
through Japen, had purchased two properties in Florida (the “Properties”)
without her knowledge and had included these properties in the corpus of the
trust, via Japen. In September 2015, Margaret discovered Joseph was having
an extra-marital affair and filed for divorce. She also discovered that Joseph’s
girlfriend was living in one of the Properties. In October 2015, Margaret filed,
in the divorce action, an emergency petition for special relief to prevent
dissipation of marital assets. In December 2015, the divorce court froze fifty
percent of certain accounts included in the corpus of the trust.
On January 19, 2016, Margaret filed, in the Orphans’ Court, a petition
to terminate the Trust pursuant to 20 Pa.C.S.A. §§ 7736 and 7740.6. The
court held an evidentiary hearing and subsequently issued findings of fact and
conclusions of law. The court found that Joseph had concealed the fact that
he purchased the Properties with marital assets and had failed to disclose that
fact at the time of the Trust’s execution. The court further found that Margaret
would not have agreed to execute the Trust had she known about the
existence of the Properties. As a result, the court concluded that Margaret
had met her burden of proving fraudulent conduct by Joseph and dissolved
the Trust.
Joseph timely appealed and a divided three-judge panel of this Court
reversed. On November 29, 2017, Margaret filed an application for
-3-
J-E02005-18
reargument en banc, which this Court granted on January 12, 2018. Joseph
raises the following questions for our review:
1. Whether a finding of fraud may be premised upon a failure to
identify each asset contributed to a trust?
2. Whether non-disclosure of an asset conveyed to a trust can be
construed as fraudulent misrepresentation where[:] (a) the
complaining party had no present interest in the asset conveyed
to [the] trust[;] (b) the asset became part of the trust[;] and (c)
the complaining party received a benefit from the asset conveyed
to the trust[?]
3. Whether non-disclosure of $470,000 of assets conveyed to a
trust is material where the assets made part of the trust total
$14,600,000[?]
4. Whether a trust agreement should be terminated premised
upon fraud where the alleged victim professes to have never read
the instrument but it conferred upon the alleged victim a tangible
benefit consistent with the estate planning goals she sought to
achieve?
Substituted Brief of Appellant, at 3-4.
Joseph first asserts that the Orphans’ Court erred in finding Margaret
proved Joseph fraudulently induced her to execute the trust agreement
because he failed to disclose the existence of the Properties. The Orphans’
Court found that Joseph concealed the fact that he was having a long-term
extra-marital affair and had used marital assets to purchase and maintain a
Florida home for his girlfriend. The court concluded that Margaret would not
have executed the trust if she had been aware of those facts. Joseph argues
that trust law imposes no duty to disclose each and every asset contributed
-4-
J-E02005-18
to a trust and that Margaret failed to establish the requisite elements of fraud.
For the following reasons, we agree.
“A trust arises when, by a sufficient declaration of its terms, the three
following elements concur: sufficient words to create it, a definite subject
matter, and a certain or ascertained object.” Pugh v. Gaines, 41 A.2d 287,
288 (Pa. Super. 1945).
Generally, a trust executed without reservation of power by a
settlor to revoke or reform the trust is irrevocable. See Harding
v. Harding, 158 A. 253 ([Pa.] 1932). An irrevocable trust may
be rescinded by the settlor, however, if it is demonstrated that the
trust was created through fraud, duress, undue influence, or
mistake. Id.Rebidas v. Murasko, 677 A.2d 331, 333 (Pa. Super. 1996). The evidence
required to substantiate a request for rescission must be clear, precise, and
convincing. In re Trust Estate of LaRocca, 192 A.2d 409, 412 (Pa. 1963).
The credibility and weight accorded to the testimony and witnesses will not be
disturbed except for clear error. Id. at 413, citing Harbison Estate, 76 A.2d
187 (Pa. 1950). Where the rules of law on which the Orphans' Court relied
are palpably wrong or clearly inapplicable, we will reverse the court’s decree.
In re Estate of Zeevering, 78 A.3d 1106, 1108 (Pa. Super. 2013).
Here, Margaret sought recission of the Trust on the basis that its
creation was fraudulently induced by Joseph because he failed to include the
Properties in Schedule A.3 In reaching its decision to rescind the Trust, the
____________________________________________
3 In her petition to terminate the trust, Margaret also alleged claims of duress,
undue influence and mistake. She subsequently abandoned those claims in
the Orphans’ Court, which grounded its ruling solely on the issue of fraud.
-5-
J-E02005-18
Orphans’ Court adopted the definition of fraud applied by this Court in In re
Estate of Glover, 669 A.2d 1011 (Pa. Super. 1996). The Orphans’ Court
characterized this definition as requiring proof that: (1) the testator had no
knowledge of the concealed or misstated fact, and (2) the testator would not
have made the same bequest had she known the truth. See Orphans’ Court
Decision, 9/16/16, at 4. Applying this standard to the evidence presented in
the instant matter, the Orphans’ Court concluded as follows:
[Margaret] testified credibly that she had no knowledge of the
purchase of the [Properties] with marital assets on May 1, 2015.
[Joseph] admitted that at the relevant time, the date [Margaret]
executed the Trust, [Margaret] had no knowledge of his purchase
of the [Properties]. [Joseph] suppressed the existence of the
[Properties] to [Margaret]; the list of real property identified on
Schedule A omits these properties as well. [Margaret], however,
understood the Trust to encompass all of their marital property at
the time. By failing to disclose the information [to] [Margaret,]
she did not, and could not[,] know[] exactly what assets or issues
were really on the table as part of the transaction.
[Joseph’s] failure to disclose the purchase, and existence, of the
[Properties] was an act of fraud intended to induce [Margaret] to
execute the Trust document he wanted and created. Whether one
labels his action a suppression of the truth or a suggestion of what
is false by silence, the result is the same—the fraudulent
inducement of [Margaret] to execute the Trust. As the Supreme
Court has explained, “[t]he concealment of a material fact can
amount to culpable misrepresentation no less than does an
intentional false statement.” Moser v. DeSetta, [589 A.2d 679,
682 (Pa. 1991)].
Orphans’ Court Decision, 9/16/16, at 5-6.
We find the court’s application of the two-part test for fraud set forth in
Glover to be misplaced. As Glover’s definition of fraud is grounded in the
-6-
J-E02005-18
Supreme Court’s decision in In re Paul’s Estate, 180 A.2d 254 (Pa. 1962),
a review of each case is in order.
Paul, a 1962 decision of our Supreme Court, involved an appeal from
probate by residuary legatees, who alleged that the scrivener of the testatrix’s
will, also a beneficiary thereunder, had exerted undue influence upon the
testatrix. See id., 180 A.2d at 256 (“The sole issue in the court below was
whether [scrivener] had exerted undue influence upon the testatrix[.]”). The
legatees contended that the scrivener, “occupying a confidential relationship
to testatrix, by the exercise of fraud, misrepresentation and concealment,
unduly influenced the testatrix” to make a bequest of stock to him, by leading
her to believe that the stock was worth substantially less than its actual value.
Id. The Court noted that, as the testatrix suffered from no mental infirmity
but a large part of her estate was left to someone in a confidential relationship
to her, the burden rested with contestants to prove undue influence.4 See id.
____________________________________________
4 We note that this test for undue influence somewhat conflicts with both
earlier and subsequent precedent of the Court addressing this issue. That
standard, employed to this day, requires the application of a three-part test
to determine whether a presumption of undue influence arises. Specifically,
a contestant is required to prove, by clear and convincing evidence, that: (1)
the proponent of the will was in a confidential relationship with the testator;
(2) at or around the time of execution, the testator had a “weakened intellect”;
and (3) the proponent receives a substantial benefit under the will. See
Estate of Clark, 334 A.2d 628 (Pa. 1975). Similarly, earlier cases applied a
nearly identical test. In Boyd v. Boyd, 66 Pa. 283, 293 (1871), the Court
characterized the undue influence inquiry as follows:
[W]here, . . . an entire stranger—having no claims from lawful
relationship—, . . . derives a very considerable benefit from the
-7-
J-E02005-18
at 257. There being no dispute that the scrivener enjoyed a confidential
relationship with the testatrix and received a large part of her estate, the Court
distilled the legatees’ remaining burden to the following:
Appellants’ argument requires that four propositions be sustained:
(a) that the true value of the stock was $800, not $50, per share;
(b) that [scrivener] knew this true value; (c) that, by fraud and
misrepresentation, [scrivener] concealed the true value from
testatrix and lulled her into believing that, on the basis of a $50
per share value, she was bequeathing [scrivener] less than 3% of
her estate; (d) that had testatrix known the true value of the . . .
stock which represented approximately 33% of her gross estate
she would not have made this bequest.
Id. at 261.
After examining the record, the Court concluded that the legatees had
established the first three propositions, i.e., that (1) the stock had a value of
approximately $800 per share during the relevant period; (2) the scrivener
was aware of the true value of the stock; and (3) there was, in the record,
____________________________________________
act, . . . direct proof ought not to be, and is not required. . . .
General evidence of power exercised over the testator, especially
if he be of comparatively weak mind from age or bodily infirmity,
though not to such an extent as to destroy testamentary capacity,
will be enough to raise a presumption, which ought to be met and
overcome before such a will can be established. Particularly ought
this to be the rule when the party to be benefited stands in a
confidential relation to the testator.
Id. at 293 (emphasis added). Thus, the test employed in Paul, which omitted
any requirement that a contestant demonstrate that the testator suffered from
a weakened intellect, is not in harmony with the law as it existed for nearly
one hundred years prior to the date Paul was issued by the Court, and as it
has existed in the years since.
-8-
J-E02005-18
evidence that the scrivener provided misinformation to the testatrix as to the
value of the stock. However, the Court ultimately concluded that the legatees
had failed to prove that but for the scrivener’s misrepresentations, the
testatrix would not have bequeathed to him the stock.
In Glover, this Court purported to apply the teaching of Paul to address
a claim of fraudulent inducement to make a will. Glover involved a will
contest in which the contestants alleged the testatrix’s will was invalid due to
fraudulent inducement exercised by a friend.5 It was established in the trial
court that the friend, with the assistance of a financial advisor, had
“unscrupulously misappropriated” $1.6 million dollars from the testatrix over
the last few years of her life. In her will, which had been procured by the
friend on testatrix’s behalf from a law firm, testatrix left $50,000 each to the
friend and the financial advisor. Family members challenged the will, which
the trial court upheld. On appeal, this Court held that the friend had
fraudulently induced testatrix to execute her will.
The Court began by noting that its “research has indicated that scant
little case law exists in our Commonwealth regarding fraud in the inducement
of executing a will.” Glover, 669 A.2d at 1016. The Court identified Paul as
the sole published opinion within the prior 80 years to address the issue of
fraudulent inducement and cited the following language from that case:
“[T]he court held that ‘there is no evidence that testatrix did not know the
____________________________________________
5 Contestants also raised claims of forgery and undue influence, which were
rejected by this Court.
-9-
J-E02005-18
true value of this stock and there is no evidence that . . . she would not have
made this bequest had she known of its true value.’” Glover, 669 A.2d at
1016, quoting Paul, 180 A.2d at 262. From this, the Glover Court
extrapolated that a claim of fraudulent inducement to make a will requires
proof merely that: (1) the testatrix had no knowledge of the concealed or
misstated fact, and (2) the testatrix would not have made the same bequest
had she known the truth. Glover, 669 A.2d at 1016. Applying that test, the
Court concluded that the testatrix was unaware of the misappropriation of
funds by her friend, and that she would not have made the bequest had she
known of the theft.
The Orphans’ Court’s reliance on Glover is problematic on multiple
fronts. First, as noted above, Paul—upon which the Glover court based its
holding—was a case ultimately involving undue influence, a similar yet distinct
legal theory.6 Thus, the Paul Court did not engage in a pure fraud analysis.
For this reason, the Paul court’s fact-specific distillation of the appellant’s
burden in that case is not directly applicable to a case rooted squarely in fraud.
____________________________________________
6 The Glover Court itself acknowledged this distinction, noting that:
Theoretically, fraud is separate and distinct from undue influence,
since, when the former is exercised the testator acts as a free
agent but is deceived into acting by false data, and when the latter
is exercised the mind of the testator is so overmastered that
another will is substituted for his own.
Glover, 669 A.2d at 1016, quoting P.L.E. Wills § 114.
- 10 -
J-E02005-18
As such, the subsequent adoption by the Glover court of the factors
enumerated in Paul as a definitive test for fraud was, in our opinion, in error.
Second, the Glover court misstated the Paul “test,” omitting entirely
Paul’s requirement that there be “fraud and misrepresentation” in the
concealment of a material fact from the testator.7 Thus, in relying on Glover
rather than the Supreme Court’s case from which it purported to glean its
analytical framework, the Orphans’ Court relied on an incomplete
characterization of the law. Indeed, the Glover framework entirely omits the
____________________________________________
7 Paul states that
[a]ppellants’ argument requires that four propositions be
sustained: (a) that the true value of the stock was $800, not $50,
per share; (b) that [appellee] knew this true value; (c) that, by
fraud and misrepresentation, [appellee] concealed the true value
from testatrix and lulled her into believing that, on the basis of a
$50 per share value, she was bequeathing [appellee] less than
3% of her estate; [and] (d) that had testatrix known the true
value of the . . . stock which represented approximately 33% of
her gross estate she would not have made this bequest.
Paul, 180 A.2d at 261.
In purporting to adopt Paul’s factors as a test for fraud, the Glover court
characterized the requirements as follows:
Paul requires that, before a contestant can establish that the
execution of a will was fraudulently induced, the contestant must
prove that: (1) the testatrix had no knowledge of the concealed
or misstated fact, and (2) the testatrix would not have made the
same bequest had she known the truth.
Glover, 669 A.2d at 1016. The Glover court plainly omitted key elements of
the Paul court’s inquiry.
- 11 -
J-E02005-18
concepts of knowledge/recklessness, justifiable reliance and injury, all of
which are key elements any fraud inquiry. See Eigen, supra. Accordingly,
in relying on Glover, the Orphans’ Court essentially failed to engage in a fraud
analysis.
This matter is distinguishable from Glover and Paul for another reason.
Unlike those cases, which addressed the fraudulent inducement of wills, this
matter involves an irrevocable trust. Unlike a will, which is ambulatory and
does not “speak” until the death of the testator, an irrevocable trust is just
that—irrevocable—from the moment of its execution. While a will may be
amended by codicil or revoked in its entirety, the transfer of property to
an irrevocable trust is an immediate and final transfer of ownership. Because
it is not easily modified or rescinded, an irrevocable trust provides stability
and security for both the settlor and beneficiaries.8 Assuming, arguendo, that
Paul and/or Glover provide the proper framework for a fraud analysis in the
context of wills, we conclude that, where an irrevocable trust is at issue, a
stricter standard should apply. Thus, we hold that it is appropriate to apply,
in the instant matter, the test for fraud as expressed in the case law
concerning common-law fraud, as well as in the Restatement of Trusts and
the Restatement of Property, which incorporate elements of knowing or
reckless misrepresentation; intention to mislead another into reliance; and
____________________________________________
8 In this case, Margaret’s purpose in executing the trust document was to
ensure that the Passarelli family money stayed within the Passarelli family and
would not be accessible to any future wife or children of Joseph. See N.T.
Hearing, 6/23/16, at 51-52.
- 12 -
J-E02005-18
resulting injury caused by reliance. With this in mind, we turn to an
application of those principles to the instant matter.
In Pennsylvania, the definition of fraud in the inducement is well-settled.
A party must demonstrate:
(1) a representation; (2) which is material to the transaction at
hand; (3) made falsely, with knowledge of its falsity or
recklessness as to whether it is true or false; (4) with the intent
of misleading another into relying on it; (5) justifiable reliance on
the misrepresentation; and (6) the resulting injury was
proximately caused by the reliance.
Eigen v. Textron Lycoming Reciprocating Engine Div., 874 A.2d 1179,
1185 (Pa. Super. 2005).
In addition, the Uniform Law Comment to 20 Pa.C.S.A. § 7736,
regarding setting aside a trust, notes that the section is a specific application
of the Restatement (Second) and (Third) of Trusts, which provides that:
a trust can be set aside or reformed on the same grounds as those
which apply to a transfer of property not in trust, among which
include undue influence, duress, and fraud, and mistake. This
section addresses undue influence, duress, and fraud. For
reformation of a trust on grounds of mistake, see Section 415.
See also Restatement (Third) of Property: Wills and Other
Donative Transfers Section 8.3 (Tentative Draft No. 3, approved
2001), which closely tracks the language above. Similar to a will,
the invalidity of a trust on grounds of undue influence, duress, or
fraud may be in whole or in part.
20 Pa.C.S.A. § 7736, comment.
As cited in the foregoing comment to section 7736, the Restatement
(Third) of Property provides guidance regarding the definition of fraud as
applied to a donative transfer:
- 13 -
J-E02005-18
(d) A donative transfer is procured by fraud if the wrongdoer
knowingly or recklessly made a false representation to the donor
about a material fact that was intended to and did lead the donor
to make a donative transfer that the donor would not otherwise
have made.
Restatement (Third) of Property (Wills & Don. Trans.) § 8.3 (2003).
As noted in Eigen, supra, there are six elements that must be proven
in order to establish a claim of fraud in the inducement. Each of these
elements must be present to warrant rescission of a Trust. See Porreco v.
Porreco, 811 A.2d 566, 570–71 (Pa. 2002). First, a petitioner must
demonstrate that there was a representation. Here, Margaret argues that this
element is satisfied by Joseph’s non-disclosure of Japen’s ownership of the
Properties. We disagree.
To be actionable, a misrepresentation need not be in the form of
a positive assertion but is any artifice by which a person is
deceived to his disadvantage and may be by false or misleading
allegations or by concealment of that which should have been
disclosed, which deceives or is intended to deceive another to act
upon it to his detriment. Delahanty v. First Pennsylvania
Bank, N.A., [] 464 A.2d 1243 ([Pa. Super.] 1983). Concealment
can be a sufficient basis for finding that a party engaged in
fraudulent conduct, provided that the other requisite elements of
fraud are established. Mancini v. Morrow, [] 458 A.2d 580 ([Pa.
Super.] 1983). While concealment may constitute fraud,
however, mere silence is not sufficient in the absence of a duty to
speak. Smith v. Renaut, [] 564 A.2d 188, 192 ([Pa. Super.]
1989).
Wilson v. Donegal Mut. Ins. Co., 598 A.2d 1310, 1315–16 (Pa. Super.
1991) (emphasis added).
Here, Margaret has failed to demonstrate that Joseph, having disclosed
Japen and its aggregate valuation, also had a duty to disclose each and every
- 14 -
J-E02005-18
asset owned by Japen. Margaret cites to nothing in the law of trusts—and our
research has disclosed nothing—requiring that each and every asset
composing the res of a trust be specifically identified by a settlor. While a
trust is invalid unless the subject matter is definite or definitely ascertainable,
trust property need not be segregated, designated or specifically described; a
valid trust is created where the identity of the res is clear and the description
sufficient. DiLucia v. Clemens, 541 A.2d 765, 767 (Pa. Super. 1988). “It is
the identity of the fund, not of the pieces of coin or bank notes, that controls.”
In re Vosburgh's Estate, 123 A. 813, 815 (Pa. 1924).
Here, Japen and its total value were identified in Schedule “A” to the
Trust. The description provided was sufficient to describe and identify the
particular asset contributed to the Trust. DiLucia, supra. Indeed, it would
be patently absurd to require that each and every asset of a corporate entity
be identified upon the entity’s contribution to a trust in order to constitute a
valid transfer. A corporation is, itself, an identifiable asset and can be
sufficiently described by its corporate name.
In light of the foregoing, we conclude that Joseph had no duty to disclose
every individual asset owned by Japen and, as such, Margaret cannot prove
the existence of a misrepresentation. Wilson, supra. Accordingly, the
Orphans’ Court erred in concluding that Margaret’s execution of the Trust
- 15 -
J-E02005-18
agreement was the product of fraudulent inducement. Porreco, supra (each
element of fraud must be present to warrant rescission of trust).9
Decree reversed.
Judgment Entered.
Joseph D. Seletyn, Esq.
Prothonotary
Date: 3/28/19
____________________________________________
9Because we conclude that a finding of fraud in the inducement of a trust may
not be premised upon a failure to identify each and every asset contributed to
a trust, and reverse on that basis, we need not consider the remaining issues
Joseph raises in his statement of questions involved.
- 16 -