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NON-PRECEDENTIAL DECISION - SEE SUPERIOR COURT I.O.P. 65.37
IN RE: TRUSTS UNDER THE WILL OF : IN THE SUPERIOR COURT OF
ROBERT L. MONTGOMERY, JR., DEC. : PENNSYLVANIA
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APPEAL OF: H. BEATTY CHADWICK :
: No. 1453 EDA 2016
Appeal from the Order Entered May 4, 2016
In the Court of Common Pleas of Montgomery County
Orphans’ Court at No(s): No. 1977-X0448
BEFORE: DUBOW, RANSOM AND PLATT*, JJ.
MEMORANDUM BY DUBOW, J.: FILED FEBRUARY 28, 2017
Appellant, H. Beatty Chadwick, appeals from the May 4, 2016 Order
entered in the Montgomery County Orphans’ Court denying Appellant’s
Exceptions to the Adjudications of two testamentary trusts (“Trust 6” and
“Trust 7”), of which Appellant is the lifetime beneficiary. We affirm.
The full factual and procedural history in the instant case is long,
torturous, and infamous.1 Appellant’s instant averments are merely “the
*
Retired Senior Judge Assigned to the Superior Court.
1
After moving millions of dollars overseas during the pendency of his
divorce, and refusing to comply with orders to return the funds, Appellant
served 14 years in prison for “what [is] believed to be the longest
imprisonment on a civil contempt charge in United States History.” Lawyer
is Released After Serving Over 14 Years on Civil Contempt Charge,
N.Y. Times, July 11, 2009, available at
http://www.nytimes.com/2009/07/12/us/12contempt.html.
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latest installment of a decades-old divorce proceeding that has attracted
national attention and has spawned litigation in the Pennsylvania, Maine,
Delaware, and federal courts.” Chadwick v. Chadwick, No. 3275 EDA
2009, unpublished memorandum at 1 (Pa. Super. filed May 1, 2012)
(Shogan, J., dissenting) (quotation omitted). The parties are well versed in
the intimate details and we, therefore, briefly summarize as follows.
Appellant is the lifetime beneficiary of Trust 6 and Trust 7. Since
1994, both trusts have been subject to an attachment Order issued by the
Delaware County Court of Common Pleas (“DCCCP”) to satisfy Appellant’s
substantial outstanding alimony pendente lite (“APL”) obligation to his now
ex-wife (“Ex-Wife”).
On June 27, 2014, Appellees, PNC Bank, N.A., and Neil E. Cass, then
acting as trustees of Trust 6 and Trust 7, filed accountings of the trusts
(“Accounts”). Appellant responded to Appellees’ accountings by filing
Objections, in which he disputed Appellees’ claims for attorney’s fees and
sought an Order surcharging Appellees for (i) overpaying Appellant’s
outstanding APL obligation to his former wife out of income from the trusts;
and (ii) failing to produce adequate income through the investment and
management of the trusts.
On February 24, 2016, after a hearing, the Orphans’ Court confirmed
the Accounts and dismissed Appellant’s Objections. Appellant timely-filed
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Exceptions. In an Order filed on May 4, 2016, the Orphans Court, sitting en
banc, denied Appellant’s exceptions.
Appellant timely appealed. Both Appellant and the Orphans’ Court
complied with Pa.R.A.P. 1925.
Appellant presents the following three issues on appeal:
1. Whether the court below erred by omitting to surcharge the
trustees for the failure to distribute income from the trusts to the
income beneficiary once the income beneficiary’s obligation to
pay support had been satisfied?
2. Whether the court below erred by dismissing a claim to
surcharge the trustees for the failure to invest the funds of the
trusts, or to so account for income and principal, as to produce
annual income equal to the unitrust amounts specified in the
provisions of the trusts?
3. Whether the court below erred by allowing the trustees to
recover expenses from the trusts?
Appellant’s Brief at 37.
“Our standard of review is well-settled in cases involving [] an
[O]rphans’ [C]ourt decision.” In re Estate of Cherwinski, 856 A.2d 165,
167 (Pa. Super. 2004). As we have explained:
The findings of a judge of the [O]rphans’ [C]ourt division, sitting
without a jury, must be accorded the same weight and effect as
the verdict of a jury, and will not be reversed by an appellate
court in the absence of an abuse of discretion or a lack of
evidentiary support. This rule is particularly applicable to findings
of fact which are predicated upon the credibility of the witnesses,
whom the judge has had the opportunity to hear and observe,
and upon the weight given to their testimony. In reviewing the
Orphans’ Court’s findings, our task is to ensure that the record is
free from legal error and to determine if the Orphans’ Court's
findings are supported by competent and adequate evidence and
are not predicated upon capricious disbelief of competent and
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credible evidence. However, we are not limited when we review
the legal conclusions that Orphans’ Court has derived from those
facts.
Id. (citation omitted).
APL Payments
In his first issue, Appellant avers that Appellees violated their fiduciary
duty by failing to make income distributions to him as required. He asserts
that Appellees improperly continued to divert income from the trusts to Ex-
Wife even after his outstanding APL support obligation had been satisfied,
and that the Orphans’ Court erred in not surcharging the trustees for so
doing. Appellant’s Brief at 42-46.
At the heart of the instant claim is a disagreement between Appellant
and the Courts of this Commonwealth regarding the total sum of his APL
support obligation to Ex-Wife. Specifically, Appellant avers that an October
27, 2004 Order did not set an amount due in arrears. Rather, he contends,
the Order set the full amount of his APL obligation to Ex-Wife at
$125,820.00, and not at $125,820.00 more than what had already been
paid.
This exact claim was previously raised by Appellant and addressed by
this Court as follows:
On February 26, 1993, [Appellant] was ordered to pay $5,500
per month for APL to [Ex-Wife]. The APL obligation was made
retroactive to January 27, 1993. This amount was reiterated in
a court order of January 5, 1994. [On October 21, 1994, upon
Appellant’s refusal to make APL payments, an Attachment Order
was issued directing the trustees of Trust 6 and Trust 7 to divert
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all income otherwise payable to Appellant into an escrow account
for the benefit of Ex-Wife.] On October 27, 2004, another order
was entered that acknowledged [Appellant’s] prior APL payments
of more than $300,000 and set his arrearage for failure to pay at
$125,820.00.
***
[Appellant] claims the trial court erred in determining the
amount of APL he owed. He claims the October 24, 2004
[O]rder set the total amount of APL owed to [Ex-Wife] at
$125,820.00. He argues he has already paid more than
$300,000.00, so he is owed money rather than owing. We find
no error in the trial court’s interpretation of that [O]rder.
[Appellant] is correct that the [O]rder in question sets his
arrearage at $125,820.00. The trial court interpreted this to
mean that [Appellant] still owed that amount [in addition to the
more than $300,000.00 already paid]. In the conclusions of law
of the October 24, 2004 [O]rder, Paragraph 19 stated in relevant
part: “[Appellant] is, therefore, liable to [Ex-Wife] for unpaid
alimony pendente lite in the amount of $165,820, less $40,000,
or a remaining balance of $125,820.” Conclusions of Law,
10/24/04, ¶ 19. This conclusion of law is clear and we see no
other interpretation of “[Appellant] . . . liable to [Ex-Wife]” and
“remaining balance” than the plain meaning of “money still
owed” by [Appellant] to [Ex-Wife].
PNC Bank, N.A. v. Applegate, No. 929 EDA 2012, unpublished
memorandum at 7-8 (Pa. Super. filed May 7, 2013).2
Therefore, because Appellant predicates his entire argument
supporting his first issue on the incorrect assertion that his total APL
obligation was $125,820.00, we readily conclude that the trial court did not
err or abuse its discretion in denying Appellant’s request to surcharge
Appellees for the payments to Ex-Wife.
2
Our Supreme Court denied Appellant’s Petition for Allowance of Appeal.
PNC Bank, N.A. v. Applegate, 84 A.3d 665 (Pa. 2014).
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Investment Strategy
In his second issue, Appellant avers that the Orphans’ Court erred by
not surcharging Appellees for violating their “duty to produce reasonable
income to accomplish the purposes of the trusts[.]” Appellant’s Brief at 46.
The Orphans’ Court found that Appellant had “failed to present any credible
testimony or evidence supporting his claim that [Appellees] breached their
duty to treat all beneficiaries equally or invest trust assets prudently.”
Opinion re Trust No. 6, filed 2/24/16, at 5-6. See also Opinion re Trust No.
7, filed 2/24/16, at 6.
Appellant is the lifetime beneficiary of two trusts that, upon Appellant’s
death, are distributable to certain enumerated charities. As trustees,
Appellees owe certain duties to Appellant and the named charities. Primary
among them being “the preservation of the assets of the trust and the safety
of the trust principal.” Estate of Pew, 655 A.2d 521, 542 (Pa. Super.
1994). A trustee must “invest and manage property held in a trust as a
prudent investor would, by considering the purposes, terms and other
circumstances of the trust and by pursuing an overall investment strategy
reasonably suited to the trust.” 20 Pa.C.S. § 7203(a). Where, as here,
there are two or more beneficiaries to a trust, “the trustee shall act
impartially in investing, managing and distributing the trust property, giving
due regard to the beneficiaries' respective interests in light of the purposes
of the trust.” 20 Pa.C.S. § 7773. “The duty to act impartially does not
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mean that the trustee must treat the beneficiaries equally. Rather, the
trustee must treat the beneficiaries equitably in light of the purposes of the
trust.” Id.
Where a trustee fails “to exercise common prudence, skill and caution
in the performance of its fiduciary duty,” a surcharge may be imposed as a
penalty. Estate of Pew, supra at 541. When evaluating whether a trustee
has violated the duty to act as a prudent investor would, courts are
instructed to focus on “standards of conduct and not of outcome or
performance.” 20 Pa.C.S. § 7213. “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.” In re Estate of Warden, 2 A.3d
565, 578 (Pa. Super. 2010) (emphasis in original) (citation omitted).
Finally, “[o]ne who seeks to surcharge the trustee for breach of [duty] must
bear the burden of proving the particulars of the trustee's wrongful conduct.”
Estate of Pew, supra at 543.
The Orphans’ Court neatly summarized the evidence adduced at the
hearing on Appellant’s claim that Appellees breached the fiduciary duty owed
to him as follows.
[Appellant’s] sole witness, Wick Hollingshead, who was not
offered as an expert witness in investment performance, failed
to establish that the investment strategy [Appellees] utilized,
over the account periods, constituted a breach of duty.
[Appellees] utilized a ‘total return investment objective’ to invest
the funds of [the trusts]; an investment strategy [that]
Hollingshead testified he has used all of his life. Mr.
Hollingshead reviewed the securities in which [Appellees]
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invested and testified that “he had no objection to any of them.
They’re all very good or excellent.” His testimony largely
centered around what other types of investment strategies
[Appellees] could have utilized that may have generated a larger
amount of income for [Appellant]. He further stated that his
analysis related to what the investments could have paid to the
income beneficiary.
Opinion re Trust No. 6, filed 2/24/16, at 6 (citations omitted). See also
Opinion re Trust No. 7, filed 2/24/16, at 6.
The Orphans’ Court explained how this evidence fell short of meeting
Appellant’s burden of proof.
Mr. Hollingshead failed to provide any concrete analysis to
support a finding that there existed some other investment
strategy that would have yielded higher income distributions for
[Appellant] without negatively impacting the charitable
remainder beneficiaries’ interest in the trust[s]. He also failed to
offer any evidentiary support, in the form of a market analysis or
otherwise, or to opine about the state of the financial markets
and their fluidity over the account periods and the impact this
may or may not have had on the trust income distributions.
[The Orphans’ Court] found Mr. Hollingshead’s testimony lacking
in substance and based upon a review of investments in
hindsight and therefore insufficient to provide any basis for
[Appellant’s] objection.
***
[Appellant] did not establish that there was any superior
investment mix that would have improved performance of the
[trusts] and permitted [Appellees] to meet their obligation of
impartiality between the income beneficiary and the remainder
beneficiaries; nor did he establish that [Appellees][,] by
investing prudently and consistently in a balanced portfolio for a
total return over many years[,] breached their fiduciary duty.
There was simply no credible evidence presented to support the
claim that [Appellees’] investment strategy as it relates to [the
trusts] was imprudent or that the beneficiaries received
inequitable treatment.
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Opinion re Trust No. 6, filed 2/24/16, at 6-7 (citations omitted). See also
Opinion re Trust No. 7, filed 2/24/16, at 6-7.
In his Brief to this Court, Appellant discusses, at length, his view of the
purposes for which the trusts were established and the income production
that he believes Appellees should have obtained. Appellant’s Brief at 47-50.
He also discusses the means by which Appellees might have produced more
income, including a drawn out discussion of the legality of adjusting income
and principal in a trust with a charitable remainder. Appellant’s Brief at 51-
53.
The relevant inquiry on appeal, however, is not whether Appellant can
persuade this Court that Appellees violated a fiduciary duty to Appellant
because an alternative investment strategy existed. Instead, the inquiry is
whether Appellant met this burden in the Orphans’ Court. In re Estate of
Cherwinski, supra at 167. The Orphans’ Court here found that Appellant’s
evidence lacked substance and credibility, and he, therefore, failed to meet
his burden of establishing that he was entitled to relief. After careful review,
we conclude that the Orphans’ Court’s did not abuse its discretion or lack
evidentiary support in the record for its findings regarding the credibility of
Appellant’s witness and the weight to be afforded Appellant’s evidence. Nor
did the Orphans’ Court err as a matter of law. Appellant is, therefore, not
entitled to relief on this claim.
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Attorney’s Fees and Expenses
In his final issue, Appellant avers that the Orphans’ Court erred in
permitting Appellees to recover attorney’s fees and expenses for (i)
intervening in Appellant’s divorce action to clarify the ongoing obligation to
pay income from the trusts into Ex-Wife’s escrow account; and (ii) defending
against Appellant’s claims for surcharges. Appellant’s Brief at 54-56.
It is beyond dispute that legal counsel for a trust is entitled to
reasonable compensation for services rendered to the trust. In re
LaRocca’s Trust Estate, 246 A.2d 337, 339 (Pa. 1968). When determining
whether a fee is fair and reasonable, courts are instructed to consider the
following factors:
the amount of work performed; the character of the services
rendered; the difficulty of the problems involved; the importance
of the litigation; the amount of money or value of the property in
question; the degree of responsibility incurred; whether the fund
involved was ‘created’ by the attorney; the professional skill and
standing of the attorney in his profession; the results he was
able to obtain; the ability of the client to pay a reasonable fee
for the services rendered; and, very importantly, the amount of
money or the value of the property in question.
Id. Where a trustee successfully defends a claim that he or she breached a
fiduciary duty, the trustee is entitled to have his or her legal fees paid from
the trust. In re Browarsky’s Estate, 263 A.2d 365, 366 (Pa. 1970).
Finally, “it is hornbook law that the reasonableness of the fee is a matter for
the sound discretion of the lower [c]ourt and will be changed by an appellate
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[c]ourt only when there is a clear abuse of discretion.” In re LaRocca’s
Trust Estate, supra at 339.
Appellant does not offer any argument or evidence disputing the
reasonableness of the amount of fees and costs claimed by Appellees.
Instead, Appellant avers that they are not entitled to any fees because he
established that they violated a fiduciary duty.
As discussed supra, Appellant failed to establish that Appellees
violated any fiduciary duty. Because Appellees successfully defended
against Appellant’s surcharge claim, they are entitled to the fees and costs
associated with defending that claim. In re Browarsky’s Estate, supra at
366.
Moreover, as the Orphans’ Court found:
There is no question that this present matter involved an
extraordinary amount of work and involved unique and
challenging circumstances, particularly that [Appellees] found
themselves in the middle of a hotly contested divorce.
[Appellees] have never filed any documents in this matter unless
it was to respond to a filing of [Appellant’s] or to comply with an
order of a court.
Opinion re Trust No. 6, filed 2/24/16, at 12. See also Opinion re Trust No.
7, filed 2/24/16, at 6-7.
After a careful review of the record and the arguments of the parties,
we discern no clear abuse of discretion in the Orphans’ Court’s decision to
award attorney’s fees to Appellees. Accordingly, Appellant is not entitled to
relief on this claim.
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Order affirmed. Jurisdiction relinquished.
Judgment Entered.
Joseph D. Seletyn, Esq.
Prothonotary
Date: 2/28/2017
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