Court Opinion

ID: 4196787
Source: CourtListenerOpinion
Date Created: 2017-08-17 14:06:25.428148+00
Date Added: 2024-06-11T14:13:48.951464
License: Public Domain

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16-P-1314                                              Appeals Court

ELAINE PASSERO    vs.     PAULA LIA FITZSIMMONS, trustee,1 & another.2

                              No. 16-P-1314.

             Essex.        May 3, 2017. - August 17, 2017.

               Present:    Massing, Shin, & Ditkoff, JJ.

Trust, Breach of trust, Trustee's discretion, Exemption of
     trustee from liability, Removal of trustee, Trustee's
     compensation, Beneficiary, Distribution. Damages, Breach
     of fiduciary duty. Probate Court, Removal of fiduciary,
     Fiduciary's fees, Judicial discretion. Practice, Civil,
     Bias of judge, Waiver. Waiver.

     Civil action commenced in the Essex Division of the Probate
and Family Court Department on August 23, 2013.

    The case was heard by Peter C. DiGangi, J.

     George P. Lordan, Jr., (Anthony S. Porcello & Dennis P.
Derrick also present) for the defendants.
     Stefan L. Jouret (Rebecca Royer also present) for the
plaintiff.

    1
         Of the Ralph DeMarco Revocable Trust.
    2
         Madeline J. Lia, as trustee of the Ralph DeMarco Revocable
Trust.
                                                                       2

    SHIN, J.    This case involves a dispute over the

administration of a share of a trust established for the benefit

of the plaintiff and two of her three children.    The plaintiff

brought suit against the defendant trustees, claiming, among

other things, that they committed a breach of trust by paying

for fifteen years of storage fees out of trust assets.       A judge

of the Probate and Family Court agreed, ordered the defendants

to repay the storage fees and other unaccounted-for sums to the

trust, and removed the defendants as trustees.    We discern no

error in these determinations and reject the various challenges

that the defendants raise on appeal.

    Nevertheless, we conclude that remand is required for two

reasons.    First, the judge should not have appointed the

plaintiff's children as successor trustees because they are

themselves beneficiaries of the trust.    As such, they are

interested parties and are barred by the trust document from

exercising certain powers, including distributions.     Second, the

judge was without authority to order the successor trustees to

make monthly distributions to the plaintiff in a specified

amount.    We therefore vacate the judgment as to the appointment

of the successor trustees and the distribution of the trust's

assets and remand for appointment of a disinterested successor

trustee, who shall have the discretion to make distributions in
                                                                      3

accordance with the trust instrument.   We affirm the judgment in

all other respects.

     Background.   We summarize the detailed findings of fact

made by the judge, reserving some facts for later discussion.

The settlor -- who is the father of the plaintiff and of

defendant Madeline Lia, and the grandfather of defendant Paula

Fitzsimmons (who is Lia's daughter) -- executed a declaration of

trust in February of 1999.   The trust provides for division of

the settlor's estate into four equal shares upon his death.     One

share was to be held in a discretionary trust for the benefit of

the plaintiff and two of her three children, Paul Passero and

Alicia Passero,3 with any balance remaining upon the plaintiff's

death to be distributed to Paul and Alicia in equal shares.4    The

     3
       Because Paul and Alicia share the same last name, we will
refer to them by their first names.
     4
       In particular, article 4.2.2 of the trust document,
entitled "Elaine's Trust," states:

     "The [t]rustees shall hold, manage, invest, and reinvest
     one share as a separate trust for the benefit of the
     [s]ettlor's daughter, Elaine R. Passero and shall use any
     part or all of the net income and principal for the benefit
     of Elaine and her children, Paul Passero and Alicia Passero
     by making payments to or applying the same for any one or
     more of them at such time or times and in such amounts,
     proportions, and manner as the [t]rustees shall in their
     discretion deem advisable, with full power to accumulate
     any income not so paid or applied and to hold the same for
     future use or to add the same in whole or in part to
     principal until Elaine's death. At such time, the
     [t]rustees shall distribute all the property then remaining
     in Elaine's trust, free of all trusts, to Paul Passero and
                                                                   4

remaining three shares were to be distributed to the other

beneficiaries "free of all trusts."

    After the settlor died in April of 2001, the defendants

began administering the trust.   By October of 2008, three-

quarters of the trust assets had been distributed to the other

beneficiaries, leaving the plaintiff (and Paul and Alicia) as

the sole remaining beneficiaries.   The defendants made no

distributions to the plaintiff or her children until the judge

ordered them, in May of 2016, to give the plaintiff a $25,000

advance so that she could pay her medical bills and obtain

housing.

    The primary issue at trial concerned the defendants'

decision to pay storage fees out of the plaintiff's beneficial

interest in the trust.   Shortly after the settlor's death, the

defendants identified items of the plaintiff's personal property

that she had left in the settlor's home, and items of the

settlor's personal property that he had allocated to the

plaintiff in his will, and arranged for these items to be moved

to a storage facility in Massachusetts.   Subsequently, in 2003,

the trust's attorney, Robert Madruga, sent the plaintiff a

series of letters informing her that the property was in

storage, that she needed to make arrangements to have it shipped

    Alicia Passero in equal shares. In no event and under no
    circumstances shall the [t]rustees make any distributions
    to Mark P. Passero [the plaintiff's other child]."
                                                                     5

to her, and that the trust would not pay the storage fees "for

much longer."    In response to at least one of those letters, the

plaintiff, who lived in California, asked Madruga for the

location of the storage facility.    Acting on the defendants'

instructions, Madruga refused to give her that information.

    The plaintiff received no further communications about the

property until June of 2008.    At that time Madruga sent her

another letter in which he stated that she could not "cherry

pick" the items, but had to accept all of them together, and

refused again to provide the location of the storage facility.

Madruga sent two more letters to the same effect in March and

April of 2009.   Thereafter, the plaintiff heard nothing more

about the property until she filed this case in 2013.

    In total, the defendants paid the storage fees for a period

of fifteen years, expending over $50,000 out of the plaintiff's

share in the trust.    They also used trust assets to pay for

trustee's and attorney's fees and litigation expenses.    As a

result, by December of 2013, the plaintiff's beneficial interest

had been reduced to $463,719 from an opening balance of

$542,042, even though the defendants had never made a

distribution to her.    Her interest had been further reduced to

approximately $250,000 by June of 2016 because the defendants

continued to pay the storage fees, as well as litigation
                                                                      6

expenses and trustee's and attorney's fees, while the case was

ongoing.5

     At the same time they were paying the storage fees, the

defendants failed to provide the plaintiff or her children with

accounts of the trust.    Although the defendants prepared annual

accounts from 2001 to 2008, they gave the plaintiff only the

first two6 and then ceased preparing accounts until late 2014,

when they were required to do so by court order.     In contrast,

the defendants provided the other beneficiaries with each annual

account from 2001 to 2008.

     Discussion.   1.    Breach of trust.   Under the Massachusetts

Uniform Trust Code (code),7 a trustee has a duty "to administer

     5
       Before trial started, the parties viewed the stored
property pursuant to court order. Ultimately, the plaintiff
chose about a third to keep, and the parties signed a
stipulation, which the trial judge approved and incorporated
into an order, agreeing that the plaintiff would pay to have the
property shipped to her. The judge also ordered that the
defendants bear their own attorney's fees and litigation costs
with respect to claims on which the plaintiff prevailed.
     6
       Fitzsimmons testified that she gave the accounts for 2003
to 2008 to the plaintiff's nephew, Philip DiNapoli. According
to the plaintiff, however, she did not receive any of those
accounts until DiNapoli gave them to her in 2014. The judge
credited the plaintiff's testimony.
     7
       The code was passed as an emergency act on July 8, 2012,
effective the same date, and applies to "all trusts created
before, on or after the effective date" and to "all judicial
proceedings concerning trusts commenced on or after the
effective date." St. 2012, c. 140, § 66. There is no dispute
that the code governs this case, which was commenced in August
of 2013.
                                                                    7

the trust as a prudent person would, considering the purposes,

terms and other circumstances of the trust.    In satisfying this

standard, the trustee shall exercise reasonable care, skill and

caution."   G. L. c. 203E, § 804.   A trustee must at all times

"administer the trust solely in the interests of the

beneficiaries."   Id. § 802(a).   "A violation by a trustee of a

duty the trustee owes to a beneficiary shall be a breach of

trust."   Id. § 1001(a).

    The judge concluded that the defendants failed to act

prudently, and thereby committed a breach of trust, by using the

plaintiff's share of the trust to pay for fifteen years of

storage fees.    We discern no clear error in this ruling.    See

Woodward Sch. for Girls, Inc. v. Quincy, 469 Mass. 151, 159, 167

(2014) (reviewing for clear error judge's finding that trustee

breached fiduciary duty).    As the judge determined, despite

telling the plaintiff in 2003 that the trust would not pay for

the storage fees "for much longer," the defendants continued to

pay them for many more years without the plaintiff's

authorization.    At the same time, the defendants failed to

provide the plaintiff with accounts of the trust and failed to

communicate with her for nearly five years between 2003 and

2008, and again for four years between 2009 and 2013.    In

addition, when the plaintiff requested information about the

storage facility, the defendants refused to give her that
                                                                        8

information.   Through their actions the defendants depleted the

plaintiff's beneficial interest "by at least ten percent."    This

evidence was sufficient for the judge to find that the

defendants "imprudently wasted [t]rust assets," in violation of

their duty under G. L. c. 203E, § 804.   Cf. Woodward Sch. for

Girls, 469 Mass. at 167 (judge did not clearly err in finding

breach of fiduciary duty where trustee "failed to invest with

the long-term needs and best interests of the income beneficiary

in mind").

    In reaching his decision, the judge did not, as the

defendants argue, "reform" the trust document "[b]y nullifying

the [t]rustees' discretionary power to manage the [t]rust."       The

judge acknowledged that the defendants had discretion over how

to administer the plaintiff's share of the trust.   But as the

defendants concede, their discretion was not boundless.    "[E]ven

very broad discretionary powers" conferred by a trust instrument

"are to be exercised in accordance with fiduciary standards and

with reasonable regard for usual fiduciary principles."     Old

Colony Trust Co. v. Sillman, 352 Mass. 6, 10 (1967).     See Fine

v. Cohen, 35 Mass. App. Ct. 610, 617 (1993) ("Even when there

are broad discretionary powers, a trustee may not exercise his

or her discretion so as to shift beneficial interests in the

trust").   As the code specifically provides, "[n]otwithstanding

the broad discretion granted to a trustee in the terms of the
                                                                     9

trust, including the use of such terms as 'absolute,' 'sole' or

'uncontrolled,' the trustee shall exercise a discretionary power

in good faith and in accordance with the terms and purposes of

the trust and the interests of the beneficiaries."       G. L.

c. 203E, § 814(a).   The judge properly found, based on the

evidence presented, that the defendants did not adhere to usual

fiduciary principles or act in the plaintiff's interests.

Contrary to the defendants' assertions, this factual

determination did not constitute a reformation of the trust.

    We also reject the defendants' reliance on the exculpatory

clause of the trust document, which states:    "Unless due to his

own wilful default or gross negligence, no [t]rustee shall be

liable for his acts or omissions or those of any co-[t]rustee or

prior [t]rustee."    The code renders a trustee exculpatory clause

"unenforceable to the extent that it . . . relieves the trustee

of liability for breach of trust committed in bad faith or with

reckless indifference to the purposes of the trust or the

interests of the beneficiaries."    Id. § 1008(a)(1).8    In

addition, the case law has long defined the phrase "wilful

default" to include acts committed "with reckless indifference

to the interest of the beneficiary."     New England Trust Co. v.

Paine, 317 Mass. 542, 548, 550 (1945).    Here, the judge

    8
       An exculpatory clause is also unenforceable if it "was
inserted as the result of an abuse by the trustee of a fiduciary
or confidential relationship to the settlor." Id. § 1008(a)(2).
                                                                    10

expressly found that the defendants' "breach of trust was

committed with reckless indifference to the interests of the

beneficiaries."    As there was ample evidence to support this

finding, we agree with the judge that the exculpatory clause

does not shield the defendants from liability.

    Last, none of the miscellaneous factual challenges raised

by the defendants demonstrates clear error.    The defendants

claim that the plaintiff authorized them to store the property,

but the judge was entitled to credit the plaintiff's testimony

to the contrary.    See Demoulas v. Demoulas Super Markets, 424
Mass. 501, 510 (1997), quoting from Gallagher v. Taylor, 26
Mass. App. Ct. 876, 881 (1989) ("Where there are two permissible

views of the evidence, the factfinder's choice between them

cannot be clearly erroneous").    Nor was it clear error for the

judge to find that the defendants failed to give the plaintiff

the annual accounts for 2003 to 2008.    As mentioned, the judge

credited the plaintiff's testimony that she did not receive the

accounts until DiNapoli gave them to her in 2014.    Although the

defendants argue that they should have been allowed to call

DiNapoli to testify as a rebuttal witness, there is no

indication in the record that they asked for that opportunity at

trial.   Having failed to ask, they cannot now complain of error
                                                                    11

on appeal.     See Care & Protection of Leo, 38 Mass. App. Ct. 237,

243 (1995).9

     2.   Removal of defendants as trustees.    The defendants also

argue that the evidence did not justify the judge's decision to

remove them as trustees.    Under the code a judge may remove a

trustee where "because of unfitness, unwillingness or persistent

failure of the trustee to administer the trust effectively, the

[judge] determines that removal of the trustee best serves the

interests of the beneficiaries."    G. L. c. 203E, § 706(b)(3).10

We review a removal of a trustee only "to determine whether the

judge's findings are clearly erroneous . . . or whether there

has been an abuse of discretion."     Matter of the Trusts Under

the Will of Crabtree, 449 Mass. 128, 136 (2007).

     9
       The defendants further contend that the judge erred by
faulting them for not making distributions to the plaintiff,
given that she never asked for one. We need not reach this
argument -- or the plaintiff's counterargument that the
defendants had an affirmative obligation under the code to
inquire into her needs and finances -- because the judge did not
rely on the defendants' failure to make distributions as a basis
for his finding of breach of trust.
     10
       The code also authorizes removal if "the trustee has
committed a serious breach of trust"; "there is a lack of
cooperation among co-trustees that substantially impairs the
administration of the trust"; or "there has been a substantial
change of circumstances or removal is requested by all of the
qualified beneficiaries, the court finds that removal of the
trustee best serves the interests of all of the beneficiaries
and is not inconsistent with a material purpose of the trust and
a suitable co-trustee or successor trustee is available." G. L.
c. 203E, §§ 706(b)(1), (b)(2), and (b)(4).
                                                                   12

    The judge appropriately concluded that removal was

warranted in this case because the defendants "persistently

failed to administer the [t]rust effectively by expending

[t]rust funds on storage fees," rendering "their removal . . .

in the best interests of [the plaintiff]."   As discussed above,

the judge's findings are not clearly erroneous, and we discern

no abuse of discretion in his conclusion that removal would best

serve the plaintiff's interests.   The evidence supports his

determination that the defendants' "actions, including their

failure to provide [the plaintiff] with the accounts despite

providing them to [the other] beneficiaries and their

unreasonable refusal to provide [the plaintiff] with the address

of the storage facility, demonstrate their hostility towards

her."   See Shear v. Gabovitch, 43 Mass. App. Ct. 650, 689 (1997)

("It is appropriate to remove a trustee when hostile feelings

threaten to interfere with the administration of the trust");

G. L. c. 203E, § 803 ("If a trust has [two] or more

beneficiaries, the trustee shall act impartially in investing,

managing and distributing the trust property, giving due regard

to the beneficiaries' respective interests").   Furthermore, the

judge heard Fitzsimmons testify and found, based on her "tone

and demeanor," that she harbored "animus" towards the plaintiff.

Although the defendants contest that finding, assessing the

credibility of the witnesses was squarely within the purview of
                                                                      13

the judge.   See E.C.O. v. Compton, 464 Mass. 558, 562 (2013);

Castricone v. Mical, 74 Mass. App. Ct. 591, 600 (2009).

    3.   Disallowance of trustee fees.     The judge did not

clearly err in disallowing a portion of the trustee fees claimed

by the defendants.   The judge allowed all of Fitzsimmons's fees,

totaling $56,293, and $7,000 in fees paid to Lia in 2003.      But

given the lack of evidence that Lia had any involvement in

administering the trust after 2008, the judge found that she did

not earn her claimed fees of $3,715 in 2010 and ordered her to

repay that amount to the trust.   The defendants challenge the

disallowance on the sole basis that they were not given the

opportunity to call Lia to testify.    Once again, however, the

record does not reflect that they made any such request at

trial.   Their argument is therefore waived.   See Care &

Protection of Leo, 38 Mass. App. Ct. at 243.

    4.   Alleged bias of judge.     The defendants' final

contention is that the judge was biased against them, as

demonstrated by his "unbending disbelief of their proof and his

carte blanche adoption of [the plaintiff's] evidence."      Putting

aside that the defendants did not raise this issue below,

"judicial rulings alone almost never constitute a valid basis

for a bias or partiality motion."     Liteky v. United States, 510
U.S. 540, 555 (1994).   See Erickson v. Commonwealth, 462 Mass.
1006, 1007 (2012).   They can form a valid basis only "in the
                                                                  14

rarest circumstances" where they "reveal such a high degree of

favoritism or antagonism as to make fair judgment impossible."

Liteky, 510 U.S. at 555.   Accord Demoulas, 424 Mass. at 524–526;

Commonwealth v. Williams, 456 Mass. 857, 874 (2010).     Nothing in

the record supports the defendants' allegation that the judge

harbored such deep-seated favoritism or antagonism.     Indeed, the

judge ruled in the defendants' favor on several issues,

including on the plaintiff's claim that they failed to invest

the trust assets prudently and on the majority of the

defendants' request for allowance of their trustee fees.    In

short, we see no evidence that the judge was biased or that he

was "influenced by any considerations other than the law."

Erickson, 462 Mass. at 1007, quoting from Commonwealth v. Daye,

435 Mass. 463, 470 n.4 (2001).

    5.   Appointment of successor trustees.   While we uphold the

judge's findings of fact and rationale, we conclude that he

erred by appointing Paul and Alicia as successor trustees and by

ordering them to "make monthly distributions from the [t]rust

assets to [the plaintiff] in the amount of $4,000[] per month."

The trust document provides that certain powers are "exercisable

by disinterested trustees only," including "mak[ing] any

distribution or separation into shares."   An "interested

trustee" is defined to include a trustee "who is then eligible
                                                                    15

. . . to receive income or principal from the trust."   Paul and

Alicia fall within this definition because article 4.2.2

authorizes the trustees to "use any part or all of the net

income and principal" for the benefit of the plaintiff, Paul,

and Alicia "by making payments to . . . one or more of them at

such time and times and in such amounts, proportions, and manner

as the [t]rustees shall in their discretion deem advisable."

Thus, because they are not "disinterested," Paul and Alicia lack

powers essential to administering the trust, and so the judge

should not have appointed them as successor trustees.

       In addition, the judge should not have ordered the

successor trustees to make distributions to the plaintiff.

Article 4.2.2 gives the trustees the power to make distributions

in their discretion, which encompasses the "full power to

accumulate any income . . . and to hold the same for future use

or to add the same in whole or in part to principal until [the

plaintiff's] death."   By requiring distributions, the judge

modified the terms of the trust when no request for modification

was before him, and without following the procedures for

modification set out in the code.    See G. L. c. 203E, §§ 410–

415.    Accordingly, we vacate the judgment as to the appointment

of the successor trustees and the order requiring distributions,

and remand for appointment of an independent trustee, who shall

have the discretion to make distributions in accordance with
                                                                 16

article 4.2.2 of the trust instrument.   In all other respects

the judgment is affirmed.

                                   So ordered.