Court Opinion

ID: 4287379
Source: CourtListenerOpinion
Date Created: 2018-06-22 16:18:11.00767+00
Date Added: 2024-06-11T07:49:28.319902
License: Public Domain

J-A07032-18

                              2018 Pa. Super. 179

 IN RE: ESTATE OF CARRYL L.             :   IN THE SUPERIOR COURT OF
 WALTER, DECEASED                       :        PENNSYLVANIA
                                        :
                                        :
 APPEAL OF: LYNN M. WALTER              :
                                        :
                                        :
                                        :
                                        :   No. 844 MDA 2017

               Appeal from the Order Entered April 27, 2017
  In the Court of Common Pleas of Cumberland County Orphans' Court at
                         No(s): 21-2011-00593

BEFORE:       PANELLA, J., OLSON, J., and STEVENS*, P.J.E.

OPINION BY STEVENS, P.J.E.:                           FILED JUNE 22, 2018

      Appellant, Lynn M. Walter, former Executrix for the estate of Carryl

Walter (“Decedent”), appeals from the order entered by the Court of Common

Pleas of Cumberland County sustaining objections to her accounting upon a

finding of improper distributions and misappropriation of funds. We affirm.

      The Orphans’ Court sets forth the relevant procedural history and facts

as follows:

                            PROCEDURAL HISTORY

      A Decree of Probate and a Grant of Letters Testamentary were
      entered on May 19, 2011, in the Cumberland County Office of
      Register of Wills and Clerk of the Orphans’ Court for [Decedent’s]
      Will executed on November 12, 2010. [Three years later, after
      learning of the Estate, the Commonwealth, acting as parens
      patriae because the will named charities as beneficiaries, filed a
      petition to void gifts allegedly made pursuant to the Will.] A
      Citation was issued on May 6, 2014, based on [the
      Commonwealth’s petition]. The Citation was amended on March
      3, 2015, to extend the issuance to the Estate’s attorney and the

____________________________________
* Former Justice specially assigned to the Superior Court.
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     Executrix of the Estate, [Appellant], which further alleged
     misappropriation of funds.

     In June 2015, a material conflict was found to exist, and the
     Appellant was removed, followed by the Grant of Letters of
     Administration [to Appellee] d/b/n/c/t/a in July 2015. Objections
     to the Executrix’s account were filed in September 2016, and
     discovery was extended through the calendar year 2016.
     Thereafter, a hearing was held on the Objections on March 30,
     2017, and a decision entered on April 27, 2017. An appeal was
     filed on April 30, 2017, to Superior Court. . . .

     The [Orphans’ Court’s decision] sustained seven (7) Objections to
     the former Executrix’s Accounting as improperly distributed with
     specific notation that no finding was made as to proper
     distribution, malpractice on part of the former Estate’s attorney,
     error of the bank, or set-offs for any successful claim by former
     Executrix to the IOLTA fund. . . .

                               FACTS

     This case arises out of the embezzlement of Estate funds and
     conversion of its assets by the now-former Estate attorney
     (Attorney), while under the fiduciary eyes of the now-former
     Executrix [Appellant]. Carryl Walter (Decedent) died testate on
     May 11, 2011; Decedent left major assets of cash in Members 1st
     Credit Union (MFFCU), a gold and silver coin collection in a safe
     deposit box, and a mobile home. The salient facts from the
     proceeding are:

          1) Executrix is the ex-daughter-in-law of Decedent
             and, among other accounting positions, a former
             payroll supervisor with the Harrisburg School
             District.

          2) Attorney was Karl Rominger, Esq.

          3) Decedent had various accounts with MFFCU,
             specifically a money market account, checking
             account, savings account, and certificates of
             deposit accounts.

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          4) Executrix was orally advised on May 25, 2011, by
             a representative of MFFCU that the checking,
             savings, and money market accounts were
             “benefacted” to her, and together they transferred
             the balances of those accounts into an individual
             account opened in the Executrix’s individual name.

          5) In the Will, specific bequests were given to
             Executrix, $50,000.00; to Executrix’s daughter
             (Decedent’s    granddaughter),     $20,000;      to
             Executrix’s    son     (Decedent’s      grandson),
             $20,000.00; inter alia, with a specific gift of the
             coin collection to the National Military Family
             Association.

          6) The coin collection was removed from a safe
             deposit box and sold to a dealer in New
             Cumberland, PA., who had been found by
             Executrix, and together Executrix and Attorney
             took the coins to that dealer, who gave Executrix a
             check for $92,314.00

          7) Executrix set up a separate Estate bank account for
             the coin proceeds to send to the charity per good
             accounting practice, but instead the funds were
             transferred to Attorney’s IOLTA account allegedly
             at the charity’s request, and Attorney subsequently
             embezzled those funds from the IOLTA account.

          8) Executrix was told by Attorney [that] the charity[]
             [had sent an] email request[ing] cash in lieu of coin
             delivery[,] but [she] never saw any documentation
             [to that effect].

          9) Decedent had a mobile home that Executrix tried
             to sell on her own – estimated value of $49,900.00.

          10) The best offer for the mobile home was
            $35,000.00; however, no sale occurred due to
            potential buyer’s financial issues.

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           11) The mobile home was “sold” via title transfer to
             Executrix’s daughter in lieu of her receipt of a
             $20,000.00 specific bequest.

           12) The only beneficiary designation form signed by
             Decedent, on or about December 29, 2009, as
             shown in MFFCU computer’s system for all
             accounts was for a certificate of deposit,
             denominated as Share 41, which at Decedent’s
             death had matured on September 25, 2010, and
             that account left empty [sic].

           13) At one point in time, Share 41 had a $50,000.00
             balance with Executrix individually listed as
             beneficiary.

           14) There are no paper beneficiary forms (or
             electronic copies thereof) that support MFFCU’s
             computer system review that designates Executrix
             as beneficiary for any other accounts.

           15) Inexplicably, overdraft fees were charged three
             (3) times to the Estate’s bank account within the
             first year.

           16) Attorney embezzled various funds from the
             Estate, including directly from the Estate’s bank
             savings accounts, totaling $32,623.36[.] Attorney
             has been permitted by Executrix to be the lone
             signatory [of such accounts].

           17) Executrix paid herself and Attorney fees, each
             totaling $21,417.12, which occurred in two
             payments—August 2011 and January 2012.

Orphans’ Court Opinion, filed 9/29/17 at 1-5.

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      In Appellant’s Statement of Questions Presented, she raises the

following issues for our review:

      I.    WHETHER   THE   LOWER    COURT   ABUSED  ITS
            DISCRETION WHEN IT SUSTAINED THE OBJECTIONS
            OF THE ADMINISTRATOR RELATED TO APPELLANT’S
            RELIANCE ON THE ADVICE OF LEGAL COUNSEL?

      II.   WHETHER   THE   LOWER  COURT   ABUSED  ITS
            DISCRETION WHEN IT CONCLUDED THAT THE
            OBJECTOR MET ITS BURDEN OF PROOF NECESSARY
            TO FIND THAT APPELLANT HAD BREACHED HER
            FIDUCIARY  DUTY   AND  THEN   SUBSEQUENTLY
            SURCHARGED APPELLANT?

      III. WHETHER    THE  LOWER  COURT   ABUSED  ITS
           DISCRETION WHEN IT CONCLUDED THAT THE
           OBJECTOR MET ITS BURDEN OF PROOF NECESSARY
           TO FIND THAT THREE MEMBERS 1ST ACCOUNTS
           MARKED AS “IN TRUST FOR LYNN WALTER” WERE
           ESTATE ASSETS?

Appellant’s brief, at 5.

            Our standard of review of the findings of an orphans' court
      is deferential.

            When reviewing a decree entered by the Orphans'
            Court, this Court must determine whether the record
            is free from legal error and the court's factual findings
            are supported by the evidence. Because the Orphans'
            Court sits as the fact-finder, it determines the
            credibility of the witnesses and, on review, we will not
            reverse its credibility determinations absent an abuse
            of that discretion.

      In re Estate of Geniviva, [675 A.2d 306, 310 (Pa.Super. 1996)]
      (internal citations omitted). However, “we are not constrained to
      give the same deference to any resulting legal conclusions.” Id.
      “[W]here the rules of law on which the [court] relied are palpably
      wrong or clearly inapplicable, we will reverse the [court's] decree.”

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       Horner v. Horner, 719 A.2d 1101, 1103 (Pa.Super. 1998)
       (discussing standard of review for courts of equity).

In re Estate of Harrison, 745 A.2d 676, 678–79 (Pa.Super. 2000).

       Appellant’s first two issues coalesce to contend the orphans’ court’s

decision to impose against her a surcharge of $391,868.45 unduly punishes

her for crimes committed by Attorney, on whose legal expertise she relied as

a layperson. Such reliance on Attorney’s advice, she maintains, provided her

with a good faith defense to a surcharge, as her decisions were reasonable

and prudent under the totality of circumstances in accordance with

Pennsylvania decisional law. See infra.

       Both Appellee1 and the Commonwealth support the orphans’ court’s

rejection of Appellant’s good faith defense, as they argue a prudent person in

Appellant’s    fiduciary   position    and     with   her   professional   bookkeeping

experience and knowledge would have maintained close oversight of all

deposits and withdrawals from estate accounts. Instead, Appellant allowed

Attorney to transfer estate funds into two bank accounts over which Appellant

either could not or chose not to oversee and to which Attorney enjoyed access.

Even after receiving notification of three overdraft charges on the accounts,

Appellant still did not investigate account transactions or intervene to protect

estate funds. Such complete deference to Attorney’s advice, which continued

with respect to the management of other estate assets, was wholly

____________________________________________

1Appellee is Nicholas Peters, present Administrator d/b/n/c/t/a of Decedent’s
Estate.

                                           -6-
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incompatible with how a prudent person charged with a fiduciary duty under

such circumstances would have acted, Appellee and the Commonwealth posit.

           Our Supreme Court has recognized that “[w]here a fiduciary
     acts upon the advice of counsel, such fact is ‘a factor to be
     considered in determining good faith, but is not a blanket of
     immunity in all circumstances.’” In re Lohm's Estate, 440 Pa.
268, 269 A.2d 451, 455 (1970).

           There are two aspects to this ‘factor’ which must be
           weighed in deciding whether the fiduciary may defend
           against a surcharge attempt on the basis of reliance
           upon the advice of counsel. The initial choice of
           counsel must have been prudent under all the
           circumstances then existing, and the subsequent
           decision to rely upon this counsel must also have been
           a reasonably wise and prudent choice.
     Id.

In re Smith, 890 A.2d 1082, 1089 (Pa.Super. 2006).

     In advancing her position, Appellant initially argues the orphan’s court

failed to give appropriate weight to the undisputed fact that her choice of

Attorney was prudent under all circumstances then existing.         Neither the

Commonwealth nor Appellee disputes that the appointment of Attorney, which

was consistent with the directive of Decedent’s Will, was reasonable. They do

contest, however, Appellant’s suggestion that this factor carries enough

weight to offset her subsequent pattern of inattention to the depletion of

estate assets over the course of years.

     Our review of the record reveals the orphans’ court effectively gave due

regard to the governing standard of review expressed in In re Lohm’s Estate

and again in In re Smith. Specifically, the court acknowledged a prudent

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person in Appellant’s position may not have discovered all Attorney’s actions

that gave rise to the objections filed in this matter—Attorney’s avarice and

gambling addiction were unforeseeable causes of early estate dissipation, the

court opined. Attorney’s protracted pattern of embezzlement, however, was

discoverable with the exercise of due diligence, such that Appellant was not

discharged from her fiduciary accountabilities to protect and preserve the

estate in this respect. See Orphans’ Court Opinion, at 6.            We agree and,

therefore, discern no error with the court’s application of law to the present

matter.

       We also find the record belies Appellant’s contention that the weight of

the evidence tipped in favor of finding that she made good faith efforts to act

with prudence and wisdom in administering the estate only to be derailed by

Attorney’s   skillful   deception.       Indeed,   the   instances   of   Appellant’s

administrative breakdowns, which ranged from recurring failures of due

diligence to benefitting herself to the detriment of other beneficiaries, were

many.

       “One's appointment as an estate executor confers an honor and trust

and,    commensurately,     the   duty    to   oversee   the   administration   with

competence so as to avoid compromising the probity of the estate.               At a

minimum, this requires one to investigate estate transactions to determine

their soundness prior to approval.” Matter of Estate of Frey, 693 A.2d 1349,

1353 (Pa. Super. Ct. 1997).

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      Rather than investigate three separate bank notices advising overdraft

fees had been assessed on checking and savings accounts holding estate

assets, Appellant simply relied upon Attorney’s unsubstantiated assurances

that the notices were of no concern, which enabled Attorney to steal from the

estate for years.    A prudent executrix with Appellant’s experience as a

professional bookkeeper would have investigated and ascertained the reasons

for the serial overdraft notices. See in re Lohm’s Estate, 269 A.2d at 455

(finding executor’s reliance on tax attorney’s advice, which led to late filing,

not reasonable where prudent person in handling own affairs would ascertain

tax filing due date). No error attends the court’s conclusion that a surcharge

should reflect such losses.

      Appellant’s failure to bequeath Decedent’s valuable gold and silver coin

collection to the National Military Family Association, as the Will specifically

directed, was another example of Appellant’s unreasonable administration of

the estate. Instead of carrying out the Will’s bequest in this regard, Appellant

opted to believe Attorney’s false claim that the charity preferred cash instead

of the coins, and she agreed to convert the estate’s interest in the coins to

$92,314.00 cash. She then allowed Appellant to place the funds in his IOLTA

account on the pretense that he would distribute them to the charity from said

account.

      Never did Appellant verify with the charity that it had made this request

or investigate if it was within her powers to deviate from the Will’s specific

bequest. Nor, for that matter, did she ask Attorney to provide documentary

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proof that the charity received all income from the coin sale.            Instead,

Appellant uncritically agreed with Attorney’s plan to liquidate a unique and

valuable estate asset and place the cash into his IOLTA account, over which

she would have no supervisory powers.         Clearly, this was another in a series

of unreasonable and imprudent decisions inconsistent with Appellant’s

fiduciary duties to the estate and its intended beneficiaries.

      Additionally, this Court has recognized the rule forbidding an executor

from placing his own interests ahead of the interests of other beneficiaries:

      “An executor is a fiduciary no less than is a trustee and, as such,
      primarily owes a duty of loyalty to a beneficiary of his trust.” In
      re Noonan's Estate, 361 Pa. 26, 30, 63 A.2d 80, 82 (1949).
      “Executors, as well as other fiduciaries, are under an obligation to
      make full disclosure to beneficiaries respecting their rights and to
      deal with them with utmost fairness.” Id. at 29, 63 A.2d at 82.
      The Supreme Court has elaborated accordingly that:

            He that is entrusted with the interest of others, cannot
            be allowed to make the business an object of interest
            to himself; because from the frailty of nature, one who
            has the power[ ] will be too readily seized with the
            inclination to use the opportunity for serving his own
            interest at the expense of others for whom he is
            entrusted.

      Id. at 31, 63 A.2d at 83 (citation omitted) (quoting Beeson v.
      Beeson, 9 Pa. 279, 284 (1848)). Thus, the rule forbidding self-
      dealing serves both to shield the estate and its beneficiaries and
      ensures the propriety of the executor's conduct. Id. at 32-33, 63
      A.2d at 84. Consequently, “the rule is inflexible, without regard
      to the consideration paid, or the honesty of intent.” Id.

In re Estate of Harrison, at 679 (citing Eagen v. Jackson, 855 F. Supp.
765, 779 (1994) (holding it is unnecessary to show fiduciary acted, inter alia,

in bad faith; “fiduciary is punished for allowing himself to be placed in a

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position of conflicting interests in order to discourage such conduct in the

future.”).

      Appellant’s willingness to administer and distribute estate accounts in

patently self-serving ways without either demanding documentary support for

such actions or notifying beneficiaries and the court of such highly

consequential developments placed Appellant’s interests in conflict with the

interests of the beneficiaries she was entrusted to serve.        Chief among

Appellant’s actions in this regard was her willingness to accept the estate’s

several MFFCU bank accounts totaling $205,271.33 as her own, based on

nothing more than a MFFCU employee’s mistaken belief that Appellant was

the sole beneficiary for all accounts.

      Appellant knew Decedent’s Will bequested just $50,000 to her as one of

many beneficiaries, and she admitted she was “flabbergasted” at the

surprising news offered by the MFFCU employee. Yet, she never asked to see

the documentary support for this unexpected development nor did she inquire

further with MFFCU records custodians or officers in an effort to safeguard the

interests of all beneficiaries. Instead, despite realizing that over $205,000 of

estate assets was no longer available to other designated beneficiaries,

Appellant kept this information to herself and Attorney.     As noted, above,

Appellant would eventually spend the entire amount.

      On this point, the orphans’ court opines:

      The [Payable On Demand] beneficiary designations on the MFFCU
      accounts are not supported by the documentation. It is axiomatic
      to say that no designation or change of beneficiary is effective

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      unless it is completed on the form used by the bank in the manner
      prescribed by the bank. Executrix was “flabbergasted” to learn
      that all that money was given to her; it appeared too good to be
      true, and it was. At the expense of the estate, Executrix took the
      representations of bank personnel that she individually was
      entitled to the money, without investigation, and which was and
      is today without documentary support—a statement, a receipt, an
      invoice, or, in this case, a designation form—in order to specifically
      account for the disbursement. Executrix had this basic knowledge
      but failed to use it. In the vernacular that Executrix might more
      readily understand in her professional role, she would not have
      given out a paycheck to someone who had not produced a
      stamped time card or signed pay sheet. Executrix should not have
      so readily accepted the monies without clear, precise, and direct
      evidence.

Orphans’ Court Opinion, at 7-8.

      Appellant criticizes the orphans’ court’s findings as inconsistent with

evidence of record showing Decedent signed a Designation of Beneficiary Form

for a certificate of deposit in Appellant’s name, she claims.        Specifically,

Appellant argues: “This form documented [Decedent’s] desire to benefit

[Appellant]. There are also account statements for the Accounts produced by

[MFFCU] that show [Appellant] as the beneficiary of the Accounts.”

Appellant’s brief, at 39.

      While Appellee and the Commonwealth do not dispute that the record

reflects Decedent’s desire to benefit Appellant to some degree, they submit

Decedent signed but one Designation of Beneficiary Form in Appellant’s name

corresponding with a single account (Share 41) totaling $50,000.00—the

exact amount Decedent would eventually bequeath to Appellant through her

Will. However, as for the account itself, Decedent closed it prior to her death,

they continue, and she left open three other accounts totaling the

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$205,271.33 at issue.         Significantly, Decedent signed no Designation of

Beneficiary Form for any of these remaining accounts.

      To Appellant’s response that the bank statements for the remaining

accounts listed Appellant as the beneficiary, Appellant and the Commonwealth

assert this claim is misleading, for MFFCU’s officer in charge of the

investigation into the accounts confirmed that such a designation came not

from Decedent but from the bank employee who relied upon erroneous

computer records. The only Designation of Beneficiary form ever appearing

on the account was for the Share 41 account that Decedent eventually closed,

the investigator testified.

      Under 20 Pa.C.S.A. § 6409, “Nontestamentary transfer on death,” a

financial institution may effect a nontestamentary transfer of an account upon

death of the owner only if the owner had signed a “registration in beneficiary”

form, which forms a contract between the owner and the financial institution

to do so. Otherwise, the account is property of the estate. See, generally,

In re Estate of Wierzbicki, 174 A.3d 1061 (Pa.Super. 2017).

      Here, the record supports the position taken by Appellee and the

Commonwealth that, without a Designation of Beneficiary form applicable to

the accounts in question, there was no basis for Appellant’s claim that she was

their proper owner.      Moreover, with no evidence reflecting an intent in

Decedent to name Appellant as the sole beneficiary of the MFFCU accounts,

the orphans’ court appropriately determined Appellant engaged in self-dealing

with estate assets. Under our standard of review, therefore, we find the record

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supports the decision to incorporate the converted MFFCU bank accounts in

the order of surcharge.

      Other examples of self-dealing found by the orphans’ court included

both the payment of fees to Appellant and attorney and Appellant’s sale of the

estate’s vacant mobile home to her daughter. With respect to contesting the

court’s order of surcharge comprising executrix and attorney’s fees, Appellant

simply reiterates her unavailing position that she relied “completely and

totally” on Attorney’s advice on setting the amounts of compensation received.

For reasons explained above, more was due from Appellant in her role as

executrix than strict adherence to the estate attorney’s advice.

      As for Appellant’s handling of the estate’s mobile home, the record

shows Appellant sold the home, appraised at $49,900.00, to her daughter in

exchange for daughter’s agreement to forego taking her $20,000.00 specific

bequest under Decedent’s Will.       The objecting parties complained that

receiving less than one-half the value of the home was inequitable to the

estate and, therefore, an unreasonable decision on Appellant’s part.

      Appellant essentially asserted, however, that the initial appraisal proved

too high, for she had received only two offers when she first attempted to sell

the home—one for $10,000.00, which she refused, and the other for

$35,000.00, from a prospective buyer who was unable to raise the necessary

funds to complete the deal. Moreover, she claimed the home had lost more

value when a subsequent storm caused it to sustain significant water damage

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costing the estate nearly $38,000.00 over and above the homeowner’s

insurance award to make necessary repairs.

      To that explanation, Appellee and the Commonwealth argued, again,

that it was unreasonable to spend nearly twice as much on repairs than the

$20,000.00 payment the estate would receive from the sale to Appellant’s

daughter just one month later. The court, in its role as exclusive finder of fact

and arbiter of credibility, inferred from the record that Appellant decided to

provide her daughter with a newly-built home at a significant discount to be

borne by the estate. Because the facts adduced before the court support this

conclusion, we find no abuse of discretion in the imposition of a $15,000

surcharge reflecting the unreasonable loss stemming from Appellant’s sale of

the mobile home.

      In summary, Appellant’s defense that she relied upon the advice of

counsel provided her with no guarantee of immunity from a surcharge.

Instead, it was her obligation as the estate fiduciary to withstand the court’s

inquiry into, inter alia, the reasonableness and prudence of such reliance. The

orphans’ court, after examining the evidence and assessing the credibility of

witnesses, determined that Appellant’s administration of Decedent’s estate

failed to reflect such reasonableness and prudence. As we discern no abuse

of discretion in the court’s findings and conclusions in this regard, Appellant’s

appeal affords her no relief.

      Order affirmed.

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Judgment Entered.

Joseph D. Seletyn, Esq.
Prothonotary

Date: 6/22/2018

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