Estate of: Grace, C. Appeal of: Grace, E.

• Court: Superior Court of Pennsylvania
• Decided: November 26, 2014
• Docket: 3298 EDA 2013
• Status: Unpublished

Opinion

J-A20038-14

NON-PRECEDENTIAL DECISION - SEE SUPERIOR COURT I.O.P. 65.37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, : : : : : : APPEAL OF: EUGENE G. GRACE, III, : EUGENE GRACE, ANDREA GRACE AND : ALEXANDRA GRACE, : : 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. J-A20038-14

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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