Court Opinion

ID: 4164081
Source: CourtListenerOpinion
Date Created: 2017-04-27 19:17:03.459582+00
Date Added: 2024-06-11T14:37:58.689732
License: Public Domain

J-A03018-17

NON-PRECEDENTIAL DECISION - SEE SUPERIOR COURT I.O.P. 65.37

IN RE: ESTATE OF: JOSEPH L. GRAHEK,            IN THE SUPERIOR COURT OF
DECEASED                                             PENNSYLVANIA

APPEAL OF: DAVID J. GRAHEK, PHILIP L.
GRAHEK, KATHLEEN G. CONNAL, JAMES
V.A. GRAHEK, STEVEN P. GRAHEK

                                                     No. 554 MDA 2016

                 Appeal from the Order Entered March 11, 2016
               In the Court of Common Pleas of Lancaster County
                      Orphans' Court at No: 36-1976-1376

BEFORE: LAZARUS, STABILE, and DUBOW, JJ.

MEMORANDUM BY STABILE, J.:                           FILED APRIL 27, 2017

       Appellants, David J. Grahek, Philip L. Grahek, Kathleen G. Connal,

James V.A. Grahek, and Steven P. Grahek, appeal from the March 11, 2016

order adjudicating the account1 of Wells Fargo Bank, N.A. (the “Trustee”).

We affirm.

       This matter concerns a trust (the “Trust”)2 created under the October

1, 1971 will of Joseph L. Grahek, deceased. The Trust’s asset was income-

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1
    See Pa. O.C. Rule 2.9.
2
  There are two trusts at issue in this litigation. The parties reference them
as Trust A and Trust B. For purposes of this memorandum, we shall refer to
both as the Trust.
(Footnote Continued Next Page)
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producing property (the “Property”) located in Orange County, California.3

Marion Grahek (“Mrs. Grahek”), the decedent’s wife was the Trust’s income

beneficiary during her lifetime.          Appellants David J. Grahek and Philip L.

Grahek were remainder beneficiaries.4             The Trust produced $200,000 to

$300,000 per year in income for Mrs. Grahek.

       On August 28, 2006, the Trust sold the Property because it was under

threat of eminent domain from the Orange County School District.              The

Trustee planned to reinvest the sale proceeds—$8.7 million5—in like-kind

property in order to avoid the capital gains tax. Section 1033 of the Internal

Revenue Code permits conversion of property without recognition of a

capital gain if the property in question is under threat of eminent domain.

26 U.S.C.A. § 1033.         In this case, a qualifying 1033 exchange needed to

occur before the end of 2009.

                       _______________________
(Footnote Continued)

3
 We culled our summary of facts from the orphans’ court’s March 11, 2016
memorandum.
4
   Mrs. Grahek died on October 16, 2013. Appellants Kathleen G. Connal,
James V. A. Grahek and Steven P. Grahek did not participate in this litigation
and were never listed in the caption until the notice of appeal. Opinion Sur
Appeal, 6/2/2016, at 1 n.2. The orphans’ court questioned the standing of
these parties. Id. Neither side briefed the issue, and we have no need to
address it.
5
    The net gain on the sale was $8.2 million.

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       The Trustee invested roughly $2.1 million of the sale proceeds in

money market accounts.           That amount would eventually cover the down

payment on a replacement property or the capital gains tax.          The Trustee

intended to obtain nonrecourse financing for the remainder of the purchase

price of a replacement property. The Trustee planned to find a replacement

property that would produce sufficient income to cover the mortgage. The

Trustee invested the remainder of the Property sale proceeds, roughly $6.5

million, in a stock portfolio. The Trustee believed its strategy would continue

to produce income for Mrs. Grahek and increase the principal value for the

remainder beneficiaries. Appellants agreed with the Trustee’s plan.

       During the financial crisis of 2008, nonrecourse financing became

temporarily unavailable and the Trust’s investment portfolio lost some of its

value. Dissatisfied with the situation, Appellants David J. Grahek and Philip

L. Grahek petitioned to remove Wells Fargo as trustee.            By agreement,

David and Philip Grahek accepted appointments as trustees pro tem.             In

2009, under their direction, the Trust purchased properties in Chattanooga

Tennessee and Canton, Georgia.            The Trust did not have to pay a capital

gains tax.

       On October 29, 2010, Appellants filed a petition to compel the filing of

an account.6       The Trustee filed its first account on January 14, 2011.

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6
    See 20 Pa.C.S.A. § 7797.

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Appellants filed objections to the account on March 1, 2011.        The Trustee

filed a motion for judgment on the pleadings on June 1, 2011. The orphans’

court denied that motion on January 23, 2012.          The parties filed a joint

stipulation of facts on March 26, 2015. Appellants filed amended objections

two days later. The orphans’ court conducted four days of hearings, the last

of which occurred on April 10, 2015. The orphans’ court entered the order

on appeal on March 11, 2016. Appellants filed this timely appeal on April 8,

2016.

        Appellants state the questions involved as follows:

        1. Did the orphans’ court err as a matter of law in concluding
           that the five-year investment horizon pursued by [the
           Trustee] satisfied the requirements of the prudent investor
           rule when [the Trustee] acknowledged that the maximum
           investment horizon was only three years and four months,
           and [the Trustee] was notified six months before the market
           crashed that 100% of the assets would be needed to
           complete the 1033 exchange?

        2. Did the orphans’ court err as a matter of law in approving
           [the Trustee’s] compensation in light of its breach of fiduciary
           duty?

Appellants’ Brief at 4.7

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7
    The orphans’ court, in its June 2, 2016 opinion sur appeal, notes that
Appellants’ questions presented differ in certain details from the issues they
raised in their objections to the account. Likewise, Appellee asserts that
Appellants have waived their arguments on appeal because they never
raised them at trial (a violation of Pa.R.A.P. 302(a)), or because they are not
included in Appellants’ concise statement of errors (resulting in waiver under
Pa.R.A.P. (b)(4)(vii)). As set forth in the main text, we conclude that the
trial court’s March 11, 2016 opinion provides a sufficient basis for this
(Footnote Continued Next Page)

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      The following standard governs our review:

             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. However, we are not constrained to give the
      same deference to any resulting legal conclusions. Where the
      rules of law on which the court relied are palpably wrong or
      clearly inapplicable, we will reverse the court’s decree.

In re Estate of Fuller, 87 A.3d 330, 333 (Pa. Super. 2014). Further, we

are cognizant that “one who seeks to surcharge a trustee bears the burden

of proving that the trustee breached an applicable fiduciary duty.”        In re

Dentler Family Trust, 873 A.2d 738, 745 (Pa. Super. 2005), appeal

denied, 897 A.2d 1184 (Pa. 2006).

      Instantly, the orphans’ court found no breach of fiduciary duty.

Rather, the orphans’ court found that the Trustee met its legal obligations;

that the Trustee’s plan sufficiently provided for the interests of the income

and remainder beneficiaries; and that a financial crisis of historic proportions

was unforeseeable.         Having reviewed the record, the parties’ briefs, the

applicable law, and the orphans’ court’s opinion, we adopt the orphans’

court’s March 11, 2016 opinion as our own. The orphans’ court’s thoroughly
                       _______________________
(Footnote Continued)

Court’s review and an accurate analysis of the substance of Appellants’
objections to the account and arguments on appeal.          To the extent
Appellants intended to raise any issues not addressed in the trial court’s
March 11, 2016 opinion and/or not previously preserved in accordance with
the Rules of Appellate Procedure, we deem such issues waived.

                                            -5-
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and accurately explains the lack of merit in each of Appellants’ objections to

the Trustee’s account. We direct that a copy of the orphans’ court’s opinion

be filed along with this memorandum.

      Order affirmed.

Judgment Entered.

Joseph D. Seletyn, Esq.
Prothonotary

Date: 4/27/2017

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