Court Opinion

ID: 2784799
Source: CourtListenerOpinion
Date Created: 2015-03-09 20:09:32.017141+00
Date Added: 2024-06-11T12:45:42.904944
License: Public Domain

J-A35042-14

NON-PRECEDENTIAL DECISION - SEE SUPERIOR COURT I.O.P. 65.37

IN RE: ESTATE OF MARIA C. SPEZIALE,              IN THE SUPERIOR COURT OF
DECEASED,                                              PENNSYLVANIA

                        Appellee

APPEAL OF: CONCETTA CITRANO,
MICHELE SPEZIALE, MARIA DISPENZA
AND ROSE PADORMO,

                        Appellants                    No. 492 WDA 2014

               Appeal from the Order Dated February 25, 2014
              In the Court of Common Pleas of Cambria County
                    Orphans' Court at No(s): 11-08-00290

BEFORE: BENDER, P.J.E., BOWES, and ALLEN, JJ.

MEMORANDUM BY BOWES, J.:                             FILED MARCH 09, 2015

      On appeal, Concetta Citrano (“Ms. Citrano”), Michele Speziale, Maria

Dispenza and Rose Padormo (collectively “Appellants”) challenge the

orphans’ court’s refusal to surcharge the executor of the estate of Maria C.

Speziale, deceased, (the “Estate”). We affirm.

      Mrs. Speziale, a widow, died testate on March 25, 2008. On April 4,

2009, her will was probated and letters testamentary were issued to Norman

Verhovsek and Rosalie Vernovsek. Mr. Verhovsek subsequently became sole

executor of the estate.    Ms. Speziale left her estate to nieces, nephews,

spouses of her deceased siblings, and a cousin.        Appellants are four of

twelve people entitled to receive a portion of her estate.
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      Mrs. Speziale had sizeable assets with an investment advisor, Edward

Stetz, who worked on behalf of AIG Financial Advisors (“AIG”). Before Mrs.

Speziale died, Ms. Citrano, decedent’s sister-in-law, started to suspect that

Stetz was stealing assets belonging to the decedent. Ms. Citrano initiated an

investigation and filed a complaint against Stetz with the Pennsylvania

Securities and Exchange Commission, which merged with the Pennsylvania

Department of Banking and Securities effective October 1, 2012 (the

“Commission”). Expenses and attorney’s fees were expended in connection

with that pursuit.

      After Mrs. Speziale died, the First and Final Account was filed and

listed probate assets of approximately $225,000. The record indicates that,

in addition to these probate assets, the beneficiaries received non-probate

assets.   Those non-probate assets consisted of annuities issued under

various life insurance policies and amounted to approximately $900,000.

These annuities were part of decedent’s investment portfolio with AIG.

      Exceptions were filed to the First and Final account, and a settlement

agreement was reached.      The settlement agreement was outlined in a

consent decree entered on October 26, 2009.         The decree provided in

pertinent part:

             4. The parties recognize that Concetta Citrano brought to
      light various concerns regarding the investments of the decedent
      and the conduct of the decedent's investment advisor and,
      further, that those concerns necessitated her retaining the
      assistance of counsel and ultimately she filed formal complaints
      with the Pennsylvania Securities Commission (hereinafter the

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     "Commission) and with the Pennsylvania Insurance Department
     with regard to those concerns. Additionally, through counsel,
     Concetta Citrano continued an independent investigation and
     obtained voluminous documentation pertaining to the decedent's
     finances, all of which has or will be made available to the
     Commission.

           5. The parties recognize that the continued expenses of
     the independent investigation conducted by and on behalf of
     Concetta Citrano make it impractical to continue such
     investigation. Further, as a result of the investigation conducted
     in response to the complaints filed by Concetta Citrano, the
     parties expect that disciplinary action has or will be taken by the
     Commission against the decedent's investment advisor and his
     principals. As a result of such disciplinary action it is possible
     that the Estate will obtain financial reimbursement for the
     actions of the decedent's investment advisor. The parties
     understand and agree that any such reimbursement to the
     Estate will now result from the continued action of the
     Commission and the parties will continue to cooperate with the
     Commission’s efforts in that regard. The parties also understand
     and agree that the amount of any such reimbursement is
     speculative; that the Estate lacks sufficient assets with which to
     independently pursue litigation against persons or entities that
     may be potentially liable to the Estate with regard to the
     decedent's finances; and that it is unfair and impractical to
     require Concetta Citrano to individually bear the continued costs
     associated with such litigation.

            6. In the event any recovery is obtained on behalf of
     the Estate by the Commission, it is agreed that before any
     distribution to any heir is made, Concetta Citrano will be
     reimbursed for all of the costs and expenses she has incurred in
     connection with her concerns regarding the investments of the
     decedent and the conduct of the decedent's investment advisor
     which, as-of the date hereof, are approximately $32,000.00, and
     that D.C. Nokes, Jr., Esq., shall be paid the sum of
     $4,300.00 from any recovery obtained by the Commission
     on behalf of the Estate prior to any distribution to any heir,
     said sum representing additional attorney's fees and costs
     incurred in responding to the investigation initiated by Concetta
     Citrano. These fees approved include services rendered by
     counsel up to and including proceedings before this court this
     date.

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            ....

            10. If assets are recovered by the Estate either as a
     result of the [property potentially owned by the decedent in
     Italy] or as a result of the actions currently before the
     Pennsylvania Securities and Exchange Commission, the
     Estate shall file a supplemental accounting and [the estate’s
     attorney] shall be justified in charging additional fees for such
     efforts as he expends in those matters. Any fees incurred by
     any heir shall not be reimbursed from proceeds of these two or
     other assets that may be collected by the Estate.

Decree, 10/26/09, at 1-3 (emphases added).

     The Commission launched an investigation into Stetz’s activities. As a

result, on August 19, 2011, the Commission entered into a settlement

agreement with AIG and SagePoint Financial, Inc. (“SagePoint”) and the

Commission agreed to release those entities in exchange for their payment

of $551,693.00 to the Estate. In accordance with the consent decree, the

executor filed a Second and Final Account seeking distribution of the

$551,693.

     Appellants filed exceptions to the accounting. While there were other

exceptions, the pertinent ones herein relate to Appellants’ objection to the

amount of attorney’s fees paid to the estate attorney and their demand that

the executor be surcharged because he improperly treated the Commission’s

recovery on behalf of the estate from AIG/SagePoint as an estate asset.

Appellants averred that the recovery from AIG/SagePoint should have been

treated as an annuity, a non-probate asset. Appellants maintained that, as

a result of this incorrect characterization of the recovery secured by the

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Commission, the executor incurred increased inheritance taxes and probate-

related expenses.

     The orphans’ court held hearings on the matter. L. Scott Mensch of

the Commission investigated the matter on behalf of the Estate, and he

negotiated the settlement with AIG/SagePoint. He testified that, when the

settlement was reached, all the annuities owned by decedent were no longer

in existence.   Mr. Mensch explained that the amount recovered from

AIG/SagePoint represented losses incurred due to Stetz’s activities while

Mrs. Speziale was alive.    The $551,593 consisted of reimbursement for

money stolen from the decedent’s account by Stetz as well as investment

losses incurred when Stetz terminated annuities and purchased others to

obtain a commission.       N.T. Estate Objections (Testimony of L. Scott

Mensch), 1/3/13, at 19.

     Gerald P. Neugebauer, Jr., who is both a lawyer and a certified public

accountant, was appointed master and mediator.           Under the order

appointing him, Mr. Neugebauer was directed to meet with counsel for the

parties and assess the merits of all exceptions to the Second and Final

Account. Relevant herein is Mr. Neugebauer’s conclusion that the settlement

from AIG/SagePoint was a probate asset. He opined as follows:

           1. The $551,693.00 that was received from [AIG and]
     Sagepoint Financial, Inc., following the extensive efforts of the
     Pennsylvania Securities Commission, was, in my opinion, well
     beyond a preponderance of the evidence, an Estate asset, this
     for the following reasons:

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              A. [The orphans’ court’s] DECREE of October 26,
          2009 was not appealed and must therefore be given
          significant weight. [The orphans’ court judge] clearly
          anticipated that, should reimbursement be received
          through the efforts of the Pennsylvania Securities
          Commission, such reimbursement would be an
          Estate asset. Reference is made to excerpts from
          Paragraphs 3 and 6 of the DECREE, which provide,
          as follows, verbatim:

                           "it is possible that the Estate
                      will          obtain        financial
                      reimbursement.

                         "any such reimbursement to
                      the Estate will now result from the
                      continued      action     of    the
                      Commission.z’

                          "In the event any recovery is
                      obtained on behalf of the Estate by
                      the Commission, and D.C. Nokes,
                      Jr., Esquire shall be paid the sum
                      of $4,300.00 from any recovery
                      obtained by the Commission on
                      behalf of the Estate.".

                 [The] DECREE does not suggest that any heir
          of the Estate would be entitled to any reimbursement
          in his or her own right.

              B. The Pennsylvania Securities Commission
          summary (Respondent's Exhibit 22), although
          mentioning numerous annuities, were all to the
          effect that Samuel Speziale (husband of Maria C.
          Speziale who predeceased his wife) and Maria C.
          Speziale, the Decedent herein, were defrauded out of
          funds by Edward F. Stetz, Jr. before the death of
          Maria C. Speziale on March 25, 2008. Allegations
          numbered 22 through 369 in that summary were
          entitled Sales Activity in the Brokerage Account of
          S.S. and M.S. from 1995 through 2006 and
          allegations numbered 370 through 402 in that
          summary were labeled Fees Paid to IHA from the

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          Brokerage Account of S.S. and M.S. from 1998
          through 2006. There were no allegations in the
          summary that Mr. Stetz defrauded either Mr.
          Speziale or Mrs. Speziale after the death of Mrs.
          Speziale in March of 2008.

             C. The detail of the losses prepared by the
          Pennsylvania Securities Commission (Petitioner's
          Exhibit 9) was entitled SPEZIALE ESTATE LOSSES
          and the bottom line thereon was labeled ‘Total
          Losses to Speziale Estate $607,061.23.’

             D. The September 14, 2011 check in payment of
          the $551,693.00 from Sagepoint Financial, Inc. was
          made payable to the order of “Estate of Maria
          Speziale, c/o D.C. Nokes, Jr. Law Office.”
          Subsequently, the Form 1099-MISC issued by
          Sagepoint Financial, Inc. for 2011 was issued in the
          name of the “Estate of Maria Speziale, c/o D.C.
          Nokes, Jr. Law Office.”

              E. Had Mrs. Speziale been alive at the time of the
          completion of the investigation by the Pennsylvania
          Securities Commission, or later, at the time of the
          issuance of the check from Sagepoint Financial, Inc.,
          she would have been entitled to the receipt of all of
          the funds of which her predeceased husband and
          herself were defrauded.

          F. The argument that the beneficiaries of the
          annuities used in the defrauding process should have
          received the Funds generated by the efforts of the
          Pennsylvania Securities Commission ignores the fact
          that each annuity had to be cashed in as part of the
          defrauding process. Once cashed in, and another
          annuity purchased from the proceeds of the cashed
          annuity, Mr. and Mrs. Speziale, or just Mrs. Speziale
          following her husband's decease, were defrauded
          and not any named beneficiaries of annuities that
          had been cashed. A beneficiary of any annuity in
          question would receive vested rights in that annuity
          only if that annuity was in existence at the time of
          the death of Mrs. Speziale.

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Letter from Gerald P. Neugebauer, Jr., 12/30/13. Mr. Neugebauer resolved

other exceptions but declined to render an opinion on the reasonableness of

the attorney’s fees paid to the estate attorney.

      The orphans’ court thereafter adopted the master’s finding that the

AIG/SagePoint settlement was a probate asset and rejected Appellants’

request for a surcharge. By order dated February 25, 2004, it approved the

Second and Final Account and the attorney’s fees outlined therein.       This

appeal followed. Appellants raise these contentions on appeal:

      1. Whether the Court committed an error of law in holding that
      the proceeds of the Pennsylvania Securities Commission
      investigation should be characterized as a probate asset?

      2. Whether the Court committed an error of law in basing its
      decision on confidential communications and/or facts not of
      record?

      3. Whether the Court committed an error of law in failing to
      surcharge the fiduciaries for the damages and losses suffered by
      Appellants as the result of the mischaracterization of assets,
      improperly prepared taxes, and unjustified fees and commissions
      charged to the Estate?

Appellant’s brief at 7.

      Initially, we outline the applicable standard of review:

               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

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            review, we will not reverse its credibility
            determinations absent an abuse of that discretion.

               However, we are not constrained to give the
            same deference to any resulting legal conclusions.

      In re Estate of Harrison, 745 A.2d 676, 678–79 (Pa.Super.
      2000), appeal denied, 563 Pa. 646, 758 A.2d 1200 (2000). “The
      Orphans' Court decision will not be reversed unless there has
      been an abuse of discretion or a fundamental error in applying
      the correct principles of law.” In re Estate of Luongo, 823 A.2d
      942, 951 (Pa.Super. 2003), appeal denied, 577 Pa. 722, 847
      A.2d 1287 (2003).

In re Fiedler, 2015 WL 224008, 4-5 (Pa.Super. 2015) (quoting In re

Estate of Whitley, 50 A.3d 203, 206-07 (Pa.Super. 2012)).

      Appellants first aver that the orphans’ court improperly determined

that the settlement from AIG/SagePoint was a probate asset. A non-probate

asset is one that passes to beneficiaries independently of the dictates of the

decedent’s will or intestate laws, whichever is applicable.     The asset is

considered “non-probate” since its distribution is made pursuant to the

document that governs it.    An annuity is not a probate asset, unless it is

payable to the estate, since it passes directly to the named beneficiaries

under the terms of the insurance policy.

      Appellants’ position on appeal is that the recovery from AIG/SagePoint

is an annuity. They rely upon testimony from Thomas S. Seitz, whom they

incorrectly characterize as the executor’s “own expert.” Appellants’ brief at

14.   Mr. Seitz was the accountant who prepared the estate’s income tax

return.   In the portion of the record that Appellants cite, Mr. Seitz stated

that he would view an annuity as a non-probate asset, that annuity

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payments are reported to the Internal Revenue Service on a Form known as

a 1099-R, and that he would have asked AIG/SagePoint to change the 1099-

Misc issued to the estate for the $551,693 to a 1099-R if that amount

represented payment of an annuity. Appellants represent that Mr. Seitz said

that he “would not have classified the AIG theft losses as a probate asset.”

Appellants’ brief at 15.   This representation is simply incorrect.   Mr. Seitz

spoke in general terms and never offered an opinion that the money paid by

AIG/SagePoint was an annuity rather than a probate asset. See Reproduced

Record at 21a, upon which Appellants exclusively rely for this position.

      Appellants ignore that there were no annuities in existence when the

AIG/SagePoint settlement was negotiated.        As Mr. Neugebauer cogently

analyzed, the settlement amounts were owed by AIG/SagePoint directly to

Mrs. Speziale based upon Stetz’s activities while she was still alive.     The

settlement proceeds of a potential lawsuit are not an annuity, there is no

document governing distribution of a settlement, and there are no named

beneficiaries of a settlement.    Since the amount paid by AIG/SagePoint

would have been paid directly to Mrs. Speziale, had she lived, it is clear that

it was an estate asset. The fact that Stetz stole the amount recovered from

an annuity does not convert the settlement of the potential lawsuit into an

annuity.

      Appellants’ position also rests upon their averment that the $551,693

represented improper fees collected by Stetz from “churning” activities.

Churning occurs when an investment agent improperly buys and sells assets

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solely to earn a commission rather than to advance his client’s financial

interests. However, Mr. Mensch reported that the recovery did not simply

represent improper commissions earned by Stetz from canceling and then

purchasing annuities.       The AIG/SagePoint payment also accounted for

money actually stolen from the Speziales’ account by Stetz.                Moreover,

regardless of whether the $551,693 represented churning fees earned by

Stetz, the undeniable fact in this case is that the money did not represent

payment of an annuity. It was a recovery directly from AIG/SagePoint on

behalf of a deceased person.

      Appellants’   first   contention    not     only   evidences   a   fundamental

misunderstanding of the law, it is inconsistent with the terms of the consent

decree entered on October 26, 2009. As outlined by Mr. Neugebauer, the

potential recovery by the Commission for Stetz’s activities was continually

characterized as a reimbursement to be received by the estate and an estate

asset. In addition to the portions of the decree quoted by Mr. Neugebauer,

the decree provides that, if the Commission negotiated a settlement, “the

Estate shall file a supplemental accounting.” Consent Decree, 10/29/09, at

3.   If the settlement was not a probate asset, there would have been no

need for another accounting. Thus, Appellants’ position on appeal must be

rejected based upon the terms of the consent decree entered in this matter

on October 29, 2009.        The orphans’ court’s ruling that the AIG/SagePoint

settlement was a probate asset is unassailable, and we affirm it.

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     Appellants’ second issue relates to the conduct of the proceedings

before Mr. Neugebauer. The orphans’ court directed that Mr. Neugebauer be

appointed mediator and master and meet with opposing counsel.           The

proceedings were not of record, and both Mr. Neugebauer and the orphans’

court considered various documents in rendering their decisions. On appeal,

Appellants complain about the appointment of Mr. Neugebauer as mediator

and master, the non-record nature of the proceedings, his private meetings

with the attorneys, and the consideration of various documents by Mr.

Neugebauer and the orphans’ court. However, Appellants failed to raise any

objections below either to Mr. Neugebauer’s appointment or to the manner

in which the mediation was conducted.      Likewise, they did not complain

about any documents considered during resolution of their exceptions.

Hence, Appellants’ second contention is waived.    Pa.R.A.P. 302 (a) (issues

that are not raised during the trial court proceedings are waived for

purposes of appeal).

     Appellants’ final position has two aspects.   They first argue that the

executor should be surcharged because he improperly treated the recovery

secured by the Commission as a probate rather than a non-probate asset

and thereby unnecessarily incurred increased fees and taxes to the estate.

Second, they complain about the amount of attorney’s fees awarded to the

estate attorney.

     As we have observed, a “[s]urcharge is the penalty for failure to

exercise common prudence, common skill and common caution in the

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performance of the fiduciary's duty and is imposed to compensate

beneficiaries for loss caused by the fiduciary's want of due care.”    In re

Fiedler, supra * 11 n. 5 (quoting In re Estate of Bechtel, 92 A.3d 833,

839 (Pa.Super. 2014)).      As to Appellants’ first position, if the executor

properly treated the $551,693.00 as a probate asset, then he did not fail to

exercise common prudence, skill and caution in the performance of his

duties. Since we have ruled that the orphan’s court correctly held that the

Commission’s recovery on behalf of the estate was a probate asset, we,

concomitantly reject any surcharge position premised upon the executor’s

correct characterization of the asset in question.

      Second, Appellants maintain that the amount of attorney’s fees

awarded to the estate attorney was excessive.        In the Second and Final

Account, estate attorney D.C. Nokes, Jr., was awarded attorney’s fees of

$24,600.00.    Of that amount, $4,300 represented his award under the

consent decree. After Appellants challenged the amount of attorney’s fees,

Mr. Nokes provided a fifteen-page document detailing the time that he spent

on estate matters from October 26, 2009, to February 25, 2013. He billed

at for seven hours and forty-one minutes at $200 per hour and for 111

hours and four minutes at $250 per hour. He accounted for $28,303.34 in

actual time spent.   The bill did not include work performed after February

25, 2013, which would include the proceeding before Mr. Neugebauer since

he was appointed on June 10, 2013.

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      In its final decree, the orphans’ court rejected Appellants’ challenge to

the amount of fees paid to Mr. Nokes and approved the payment of the

$24,600 outlined in the Second and Final Account. In Estate of McClatchy,

424 A.2d 1227, 1230 (Pa. 1981) (quoting Thompson Estate, 426 Pa. 270,

281-82, 232 A.2d 625, 631 (1967)) (citations and quotation marks omitted),

our Supreme Court observed,

         It is a well entrenched rule of law in this State that the
     responsibility for determining the amount of counsel fees rests
     primarily with the auditing judge. . . . The amount of fees to be
     allowed to counsel, always a subject of delicacy if not difficulty,
     is one peculiarly within the discretion of the court of first
     instance. Its opportunities of judging the exact amount of labor,
     skill and responsibility involved, as well as its knowledge of the
     rate of professional compensation usual at the time and place,
     are necessarily greater than ours, and its judgment should not
     be interfered with except for plain error.

     In its seminal decision In re LaRocca's Trust Estate, 246 A.2d 337,

339 (Pa. 1968) (footnote omitted), the Court held:

        The facts and factors to be taken into consideration in
     determining the fee or compensation payable to an attorney
     include: 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.

     In this case, Appellants allege that the attorney’s fees were based

upon a percentage of the assets administered by Mr. Nokes in the Second

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and Final Account. The record refutes this position. Mr. Nokes presented a

detailed bill for time spent and outlined the service provided. Appendix to

Case Memorandum In Response to Objections Raised to Second and Final

Account, 2/25/13, at Tab 2. On appeal, Appellants do not take issue with

one minute of time outlined by Mr. Nokes in that document. Similarly, they

did not suggest that he did not perform the described work.

         Hence, Appellants do not raise the existence of an abuse of discretion.

The awarded fee was supported by the amount of work performed, the

hourly rate was reasonable, and the estate had significant assets to pay Mr.

Nokes for his services. Hence, we decline to interfere with the considerable

discretion accorded the auditing judge in this setting, and its judgment in

awarding the attorney’s fees in question cannot be characterized as plain

error.

         Order affirmed.

Judgment Entered.

Joseph D. Seletyn, Esq.
Prothonotary

Date: 3/9/2015

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