Court Opinion

ID: 4389426
Source: CourtListenerOpinion
Date Created: 2019-04-22 18:55:03.116961+00
Date Added: 2024-06-11T14:23:08.992708
License: Public Domain

J-A26019-18

                                  2019 PA Super 120

    IN RE: TRUST UNDER AGREEMENT               :   IN THE SUPERIOR COURT OF
    OF PAULINE O. WALKER DATED JULY            :        PENNSYLVANIA
    17, 2001, AS AMENDED JUNE 9,               :
    2014                                       :
                                               :
                                               :
    APPEAL OF: KATHERINE W.                    :
    BANTLEON AND ELIZABETH W.                  :
    MECKE                                      :   No. 262 WDA 2018

              Appeal from the Order Entered February 16, 2018
     In the Court of Common Pleas of Allegheny County Orphans' Court at
                         No(s): No. 04034 of 2016

BEFORE: BENDER, P.J.E., SHOGAN, J., and MURRAY, J.

OPINION BY SHOGAN, J.:                                      FILED APRIL 22, 2019

       Appellants,     Katherine     W.    Bantleon   and    Elizabeth   W.   Mecke

(“Daughters”), appeal from the order denying their objections to the first and

final account filed by Smithfield Trust Company (“Appellee”) in this matter

pertaining to the trust created by their mother, Pauline O. Walker

(“Decedent”).1 Because we conclude that Appellants lack standing, we affirm.

       Decedent was a real estate agent. In July of 2001, Decedent funded a

revocable trust and designated Appellee as trustee. Initially, the beneficiary

of the trust upon Decedent’s death was to be her probate estate. In June of

____________________________________________

1   Daughters have filed an “Appellants’ application to quash Appellee’s
challenge to standing,” which is set forth in Section V of the argument portion
of Appellee’s brief. Appellee’s Brief at 59-66. For the reasons set forth in this
Opinion, we deny Daughters’ application to quash.
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2014, Decedent amended the trust documents to provide that the remaining

trust assets were to be split equally between Daughters.

       Beginning in late 2003, Appellee diversified the trust assets to include

illiquid investments in private limited partnerships, and the investments were

categorized as high-risk. Shareholders of Appellee also invested in the private

offerings. Ultimately, the trust invested in thirty-eight limited partnerships for

a total of approximately $1.8 million.

       Decedent died on March 30, 2015. On November 4, 2015, trust assets

were distributed to Daughters. On August 5, 2016, Appellee filed a first and

final account to finalize administration of the trust. On September 16, 2016,

Daughters filed objections in their capacity as beneficiaries of the estate. In

their objections, Daughters claimed that Appellee breached its duty as trustee

by investing in certain private limited partnerships. The estate was closed on

September 26, 2016.           Appellee filed preliminary objections challenging

Daughters’ standing with regard to the trust. The preliminary objections were

denied. Appellee then filed an answer and new matter.

       On November 28, 2017, Daughters sought to amend their original

objections to include a new claim under the Pennsylvania Unfair Trade Practice

and Consumer Protection Law and to add the estate as a party-plaintiff.2

____________________________________________

2 In their motion to amend the objections, Daughters stated, “The [September
16, 2016] Objections filed by [Daughters] set forth a cause of action for breach
of trust and derive from [Appellee’s] action vis-à-vis the [Decedent’s]

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Daughters had filed a separate action in the Court of Common Pleas Civil

Division raising the same unfair trade practice claim and listing the estate as

a party-plaintiff. Daughters sought to merge that action with the action in

orphans’ court, but a judge in the civil division denied their request.

Daughters’ subsequent request to amend the original objections was denied

on December 18, 2017. A five-day trial began on January 29, 2018, following

which the trial court overruled Daughters’ objections by order dated February

16, 2018. This appeal by Daughters followed. Daughters and the trial court

complied with Pa.R.A.P. 1925.

       Daughters present the following issues for our review:

       I. WHETHER THE LOWER COURT ERRED WHEN IT DETERMINED
       THAT [APPELLEE] SATISFIED ITS FIDUCIARY OBLIGATIONS?

         A. WHETHER THE LOWER COURT ERRED WHEN IT IGNORED
         THE DISCRETIONARY AUTHORITY GRANTED BY THE TRUST
         INSTRUMENT?

         B. WHETHER THE LOWER COURT ERRED IN APPLYING THE
         INCORRECT BURDEN OF PROOF TO [DAUGHTERS]?

       II. WHETHER THE LOWER COURT ERRED WHEN IT DETERMINED
       [DAUGHTERS] FAILED TO PROVE BREACH OF TRUST?

         A. WHETHER THE LOWER COURT ERRED WHEN IT
         DETERMINED [APPELLEE] DID NOT VIOLATE ITS DUTY OF
         LOYALTY TO [DECEDENT] AND DID NOT ENGAGE IN SELF-
         DEALING?

____________________________________________

Revocable Trust.” Motion for Leave to File Amended Objections, 11/28/17, at
3, ¶ 2.

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          B. WHETHER THE LOWER COURT ERRED WHEN IT
          DETERMINED [APPELLEE] DID NOT VIOLATE ITS DUTY OF
          PRUDENCE TO [DECEDENT]?

          C. WHETHER THE LOWER COURT ERRED WHEN IT
          DETERMINED [DECEDENT] PROVIDED INFORMED CONSENT?

      III. WHETHER THE LOWER COURT ERRED IN ITS DENIAL OF
      [DAUGHTERS’] EVIDENCE THAT SUPPORTS A FINDING OF
      BREACH OF TRUST?

          A. WHETHER THE LOWER COURT ERRED IN DENYING
          [DAUGHTERS’] MOTION IN LIMINE PURSUANT TO THE DEAD
          MAN’S ACT?

          B. WHETHER THE LOWER COURT ERRED WHEN                     IT
          DISQUALIFIED [DAUGHTERS’] EXPERT WITNESS?

Daughters’ Brief at 4-5.

      Before we address the issues presented by Daughters, we are compelled

to consider the final argument presented by Appellee because of its dispositive

nature.   In its final issue Appellee argues that Daughters lack standing to

pursue this appeal. Appellee’s Brief at 59-66. We agree.

      Because our determination of whether an individual has standing to

commence an action is a question of law, our scope of review is plenary. In

re T.J., 739 A.2d 478, 481 (Pa. 1999). It is axiomatic that:

      [i]n Pennsylvania, a party seeking judicial resolution of a
      controversy “must establish as a threshold matter that he has
      standing to maintain the action.” Fumo v. City of Philadelphia,
      972 A.2d 487, 496 (Pa. 2009). . . . “The core concept of standing
      is that a person who is not adversely affected in any way by the
      matter he seeks to challenge is not aggrieved thereby and has no
      standing to obtain a judicial resolution to his challenge.” Id.
      (citing Wm. Penn Parking Garage[, Inc. v. City of
      Pittsburgh,] 346 A.2d [269,] 280-[2]81 [Pa. 1975)]).

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Johnson v. Am. Std., 8 A.3d 318, 329 (Pa. 2010). Thus, the inquiry into

standing ascertains whether a party is the proper party entitled to make the

legal challenge to the matter involved. In re Trust Under Agreement of

Keiser, 572 A.2d 734, 736 (Pa. Super. 1990). A person who has no stake in

the matter has no standing to obtain judicial resolution of his challenge to the

matter.    Id.   Moreover, we observe the Commonwealth Court, our sister

appellate court, has aptly noted that “[s]tanding must exist at the time of and

throughout the legal proceeding; ….” Tishok v. Department of Education,

133 A.3d 118, 124 (Pa. Comm. 2016).3

       We are mindful that Section 7781 of the Uniform Trust Act defines a

breach of trust as follows: “A violation by a trustee of a duty the trustee owes

to a beneficiary is a breach of trust.” 20 Pa.C.S. § 7781. In addition, Section

7783, which addresses damages in the absence of a breach, states “Absent a

breach of trust, a trustee is not liable to a beneficiary for a loss or depreciation

in the value of trust property or for not having made a profit.” 20 Pa.C.S.

§ 7783(b). Section 7753 of the Uniform Trust Act articulates the duties of the

trustee with regard to a revocable trust, and provides: “Regardless of the legal

capacity of the settlor, the rights of the beneficiaries are subject to the control

____________________________________________

3 “Although decisions of the Commonwealth Court are not binding on this
Court, we may rely on them if we are persuaded by their reasoning.”
NASDAQ OMX PHLX, Inc. v. PennMont Secs., 52 A.3d 296, 308 n.7 (Pa.
Super. 2012)

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of, and the duties of the trustee are owed exclusively to, the settlor while a

trust is revocable.” 20 Pa.C.S. § 7753(a).

      Furthermore, the “Uniform Law Comment” to Section 7753 states, in

relevant part, that:

             This section recognizes that the settlor of a revocable trust
      is in control of the trust and should have the right to enforce the
      trust.

                                     * * *

            Typically, the settlor of a revocable trust will also be the sole
      or primary beneficiary of the trust, and the settlor has control
      over whether to take action against a trustee for breach of
      trust. … Following the death or incapacity of the settlor, the
      beneficiaries would have a right to maintain an action against a
      trustee for breach of trust. However, with respect to actions
      occurring prior to the settlor’s death or incapacity, an
      action by the beneficiaries could be barred by the settlor’s
      consent or by other events such as approval of the action
      by a successor trustee. For the requirements of a consent, see
      [20 Pa.C.S. § 7789].

20 Pa.C.S. § 7753 (Uniform Law Comment) (emphases added). In addition,

we observe the comment to Section 7753 offered by the Joint State

Government Commission notes that “Subsection (a) places a revocable trust

on the same footing as a will, under which no beneficial interest is effective

until the testator’s death.” 20 Pa.C.S. § 7753 (Jt. St. Govt. Comm. Comment).

      We are also mindful that the powers of a settlor of a revocable trust are

discussed in Section 74 of The Restatement (Third) of Trusts, which provides,

in part, as follows:

      § 74 Effect of Power of Revocation

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      (1) While a trust is revocable by the settlor and the settlor has
      capacity to act:

            (a) The trustee

                                    * * *

                  (ii) may comply with a direction or act in
                  reliance on an authorization of the settlor
                  although the direction or authorization is
                  contrary to the terms of the trust or the
                  trustee’s normal fiduciary duties, even if
                  the direction or authorization is not
                  manifested in a manner by which the
                  settlor could properly amend or revoke
                  the trust.

            (b) The rights of the beneficiaries are exercisable by
            and subject to the control of the settlor.

Restatement (Third) of Trusts § 74(1).

      Comment a to Section 74 addresses the scope of the section and

provides, in part, as follows:

             This Section deals with situations in which a person
      currently has, by reason of a power of revocation … the equivalent
      of ownership of the trust property, even though the legal title to
      the property is held by the trustee. A power of this type allows
      the trust property to be taken by and vested personally in the
      settlor or other holder (the “donee”) of the power, thereby
      eliminating all interests of other beneficiaries.

Restatement (Third) of Trusts § 74, cmt. a.

      Further, Comment b to Section 74 states, in part:

             A trustee is not liable to the beneficiaries for a loss that
      results from compliance with a settlor’s direction in accordance
      with the terms of that direction. The trustee remains subject to
      fiduciary duties, however, and thus has potential liability, with
      respect to those aspects of the directed conduct that are not
      prescribed by the terms of the settlor’s direction. Thus, if the

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     settlor of a revocable trust simply directs the trustee to sell certain
     real property held in the trust, the trustee must, for example, act
     with prudence in arranging the price and other terms of the sale.

Restatement (Third) of Trusts § 74, cmt. b.

     Comment c provides in part as follows:

     Subsection (1)(a)(ii) is essentially an extension of the rule of
     beneficiary consent in § 97. (Cf. Comment d, below.) The
     justification here for allowing (without requiring) compliance with
     an informal direction by the settlor of a revocable trust, or for
     allowing action in reliance on the settlor’s informal authorization,
     is that such conduct by a trustee, particularly by a family member,
     friend, or other inexperienced trustee, is not unreasonable.
     Therefore, if action has been taken under such circumstances, the
     trustee should not be denied the above-described degree of
     consent-based protection from liability merely because of the lack
     of formality. (See § 97.) As a practical matter, however, in the
     event of a surcharge action, the trustee does run a risk in relying
     on unwritten evidence to support a defense based on settlor
     direction or authorization.

Restatement (Third) of Trusts § 74, cmt. c.

     Comment d further explains, in part:

     [S]ettlors who hold powers of revocation may and often do
     consent to accountings by trustees or, via accountings or
     otherwise, approve prior acts that might or do constitute a breach
     of trust, thereby binding all beneficiaries and relieving the trustee
     of liability to them.

Restatement (Third) of Trusts § 74, cmt. d.

     The above cited authority plainly provides that a trustee’s duty inures

solely to the benefit of the settlor of a revocable trust during the settlor’s

lifetime. Moreover, a settlor may ignore a breach of trust, which precludes

action on the part of the remainder beneficiaries. Accordingly, we proceed

with our analysis with these concepts in mind.

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       Our review of the record reflects that Decedent created the instant

revocable trust on July 17, 2001, and Appellee was designated as the trustee.

Trust Agreement, 7/17/01, at 1.            Beginning on November 18, 2003, and

continuing until December 9, 2014, Appellee acquired for the trust interests

in a limited partnership known as Sea Venture.          First and Final Account,

8/5/16, at 92-96.         During that period, there were over forty separate

purchases of limited partnership interests in Sea Venture products at prices

ranging from $25,000 to $100,000 per unit. Id.

       The record further reflects that Daughter Mecke testified at trial and

indicated her belief that Decedent was capable of understanding the nature

and risks involved with alternative investments, such as the limited

partnership interests. N.T., 1/29/18-2/2/18, at 619-620. Daughters have

admitted that “[they] are not aware of any facts which suggest that

[Decedent] was unaware of the revocable trust acquisition of the limited

partnership interests.” Id. at 614. In addition, Daughters have conceded that

Appellee did interact with Decedent as to investments and distributions. Id.

Daughters also admitted that Appellee provided Decedent with monthly

account statements detailing the investments held in her revocable trust as

well as the performance of such investments.4 Id. Monthly letters were also

____________________________________________

4   Copies of those account statements were admitted as Joint Exhibit 39.

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sent by Appellee to Decedent addressing the various investments in the trust.

Joint Exhibit 38. Decedent died on March 30, 2015.

      It is undisputed that, as trustee of the revocable trust, Appellee owed a

duty to Decedent during her lifetime and Daughters’ rights as beneficiaries

were subject to Decedent’s control.      20 Pa.C.S. § 7753(a); Restatement

(Third) of Trusts § 74(1). As illustrated above, all of the investments, which

Daughters allege resulted in a breach of duty by Appellee, occurred during

Decedent’s lifetime. The record further indicates that Decedent consented to

and approved the investments made by Trustee. Decedent’s acquiescence to

the investments made by Appellee was binding upon Daughters and relieved

Appellee of liability to them. Restatement (Third) of Trusts § 74, cmt. d. This

consent by Decedent is a bar to the action on the part of Daughters because

they are not aggrieved by Appellee’s conduct as trustee. 20 Pa.C.S. § 7753.

Hence, Daughters, as beneficiaries, are not the proper parties to present the

legal challenge to the matter involved. In re Trust Under Agreement of

Keiser, 572 A.2d at 736. Therefore, we affirm the order of the trial court,

albeit on other reasons. Indeed, this Court has the authority to affirm the trial

court because of a lack of standing to pursue this appeal, even though the

trial court decided the case on another ground. “[W]e are not bound by the

rationale of the trial court and may affirm on any basis.”        Richmond v.

McHale, 35 A.3d 779, 786 n.2 (Pa. Super. 2012).

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     Appellants’ application to quash Appellee’s challenge to standing is

denied. Order affirmed.

Judgment Entered.

Joseph D. Seletyn, Esq.
Prothonotary

Date: 4/22/2019

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