decided: January 24, 1974.
Appeals from decree of Court of Common Pleas, Orphans' Court Division, of Westmoreland County, Nov. T., 1972, No. 65-70-886, in re estate of Richard K. Mellon, deceased.
David Berger and Philip C. Patterson, with them Gerald J. Rodos, Edwin P. Rome, Norman L. Holmes, Donald J. Farage, Edward McDaid, David Berger, P.A., Blank, Rome, Klaus & Comisky and Farage and Schrager, for appellants.
Gilbert J. Helwig, with him Henry P. Hoffstot, Jr., A. M. Wiggins, Jr., Joseph D. Hughes, Mason Walsh, Jr. and Reed, Smith, Shaw & McClay, for appellees.
Jones, C. J., Eagen, O'Brien, Roberts, Nix and Manderino, JJ. Opinion by Mr. Justice Roberts. Mr. Justice Pomeroy took no part in the consideration or decision of this case.
[ 455 Pa. Page 296]
The Orphans' Court Division of the Court of Common Pleas of Westmoreland County on November 3, 1972, overruled appellants' objections to the distribution proposed by the executors of the estate of Richard K. Mellon and confirmed absolutely the executors' accounts and distributions previously made. On December 29, 1972, the court en banc filed an opinion dismissing appellants' exceptions to the earlier decree. On the record before us it is unclear whether the auditing judge fully exercised the discretion granted by section 3389 of the Probate, Estates and Fiduciaries Code.*fn1 We therefore are obliged to vacate the decree and remand this matter to the orphans' court for further consideration.*fn2
[ 455 Pa. Page 297]
Richard K. Mellon died testate on June 3, 1970, and letters testamentary were granted eight days later.*fn3 On October 6, 1972, the executors' first and partial account and supplemental account, together covering administration to September 12, 1972, were called for audit. At the audit, counsel for the Penn Central Reorganization Trustees*fn4 objected to the proposed distribution and filed a memorandum in support of their objections. The basis of these objections was assertion of the estate's potential liability for some portion of the losses sustained by the Penn Central Transportation Company during decedent's tenure as a director of that corporation.
The auditing judge, on November 3, 1972, confirmed absolutely the executors' accounts and proposed schedule of distribution. The balance of $1,628,226.60 principal and $204,074.00 income was awarded to the executors for further administration.*fn5 The court en banc affirmed
[ 455 Pa. Page 298]
on December 29, 1972. A motion for reconsideration of the dismissal of exceptions and a petition to require residuary beneficiaries to refund distribution made by the fiduciaries prior to the decree were denied on January 24, 1973.
On this appeal*fn6 it is asserted that the orphans' court abused the discretion afforded it by section 3389 of the Probate, Estates and Fiduciaries Code by not suspending distribution pending determination in the United States District Court of decedent's liability in the Penn Central securities litigation. The auditing judge declined to suspend distribution because he believed the goal of prompt and orderly administration of the estate outweighed the interest of the Penn Central plaintiffs. The court en banc adopted this view.
It is manifest that the prompt, orderly, and efficient administration of decedents' estates is a primary concern of the Commonwealth and its orphans' courts.*fn7 So too, the Commonwealth and its courts recognize the public policy interest in protecting the claims of creditors against decedents' estates asserted in its courts or in other forums.*fn8 Striking a proper balance between
[ 455 Pa. Page 299]
these sometimes conflicting goals requires careful judicial circumspection and due consideration of all attending circumstances.
The orphans' court, in passing on a potential creditor's request to delay distribution pending litigation in another forum, should, inter alia, take account of: (1) the nature of the claim being asserted before the other tribunal, (2) the hardship, if any, which deferred distribution of principal or income would impose on the estate or the individual or charitable beneficiaries, and (3) the adverse effect of refusing any withholding and thereby precluding satisfaction from estate assets of a possibly meritorious claim being adjudicated in another court. In striving to reach an accommodation between the advantages of prompt distribution and the potential harm to the position of a claimed estate creditor, the orphans' court must not only consider the traditional concepts of comity and equity but also the full spectrum of just and reasonable available alternatives.
Section 3389 of the Probate, Estates and Fiduciaries Code provides: "When any claim not proved in the orphans' court division is being litigated in any other division or court, State or Federal, having jurisdiction thereof, the court may make such provision for the distribution or satisfaction of the claim as shall be equitable."*fn9 The commission's comment to the 1949 codification of this section states: "This gives the orphans' court the opportunity in its discretion to postpone final distribution where advisable or to make final distribution where the claim, in justice to other interested persons, should be presented in the orphans' court. The court, in addition to using its discretion as to whether any fund will be withheld will exercise a discretion as to the amount to be withheld."*fn10
[ 455 Pa. Page 300]
The orphans' court concluded that although certain of the objectors' claims against the estate were subject to the exclusive jurisdiction of the federal court, others were in federal court only because pendent to exclusively federal claims. The court found no justification for the objectors' failure to present these pendent claims in the orphans' court. The court further stated that the plaintiffs in the federal action had not diligently prosecuted their claim in that tribunal.
Though we need not now accept or reject these conclusions, we note that the Penn Central securities litigation is one of the most complex multi-district litigations ever brought in the federal courts. Trying one segment of this involved multi-party securities case in the orphans' court while the federal action continues would place an unnecessary extra burden on the litigants. Even had the pendent claims been tried, as suggested, in the orphans' court with the extensive hearings necessarily required and attendant delay, the adjudication would not be dispositive of plaintiffs' federal claims against the estate. This procedure would not in any realistic sense advance the public interest in expediting distribution of decedents' estates, nor would it promote the efficient utilization of state-federal judicial resources. An appreciation of the intricacies of the Penn Central litigation, and considerations of comity, as well as the policy of section 3389, indicate the desirability of deference to the federal court.*fn11
[ 455 Pa. Page 301]
The auditing judge was presented a substantial volume of evidence relating to the bankruptcy of the Penn Central and the role of the directors in that company's financial crisis. The thrust of this evidence, particularly a report of the Patman Committee*fn12 is that the period during which decedent served as a director of the Transportation Company saw the company's financial condition deteriorate primarily due to unrealistic dividend policies and a disastrous diversification program.*fn13 On this record it cannot be conclusively said that the estate may not be found liable to some extent for losses to the Penn Central plaintiffs.
The relevance of this evidence to the question presently before this Court is only in its indication that the objectors' claims may not, on the present record, be regarded as frivolous or vexatious. Thus the court was called upon to exercise the discretion vested in it by section 3389 to "make such provision for the distribution or satisfaction of the claim as shall be equitable."
The opinion of the court properly notes that the objectors "requested total suspension of all distribution for an indefinite number of years." The court en banc, affirming the auditing judge, declared that "[t]he effect of an indefinite delay on the beneficiaries of the estate, involving therein a charity, would be so great that this Court cannot sanction the same based on the record presented herein." It is apparent that the auditing judge and the court en banc failed to consider alternatives to the requested "total suspension of all distribution for an indefinite number of years."
[ 455 Pa. Page 302]
Section 3389, the commentary*fn14 to the 1949 code, and our cases*fn15 interpreting section 3389 all indicate that an integral component of "mak[ing] such provision for the distribution or satisfaction of the claim as shall be equitable" is the exercise of discretion as to the amount, if any, to be withheld and the duration of the delay. Although counsel requests total suspension for an indefinite period, the court in making "such provision . . . as shall be equitable," nevertheless retains and must consider the broad range of options permitted by section 3389. It is for the court in its discretion to determine whether any fund shall be withheld and, if so, the amount withheld and the interval of any postponement of distribution. Of course, if any principal is ordered retained by the fiduciary, the court, in its discretion, may make the income generated by that portion of the principal available to the individual or charitable beneficiaries. All such determinations are subject to modification by the orphans' court in light of changing circumstances.
Here the auditing judge and the court en banc rejected the objectors' demand for total and indefinite suspension of distribution. The opinion of the court en banc repeatedly refers to the objectors' request for total suspension and to the auditing judge's refusal to withhold indefinitely distribution of the entire distributable estate. Since total suspension for an indefinite term is not the only option available to the court in the exercise of its discretion, we conclude that the decree must be vacated. On remand it will be for the orphans' court to appraise the practicality and wisdom of partial withholding of estate assets and, if any withholding
[ 455 Pa. Page 303]
is decreed, the appropriate period during which distribution of principal or income may be delayed.*fn16
The decree is vacated and the record is remanded to the Orphans' Court Division of the Court of Common Pleas of Westmoreland County for further proceedings consistent with this opinion and for the entry of an appropriate decree.
Each party pay own costs.
Decree vacated and record remanded for further proceedings.