No. 103 Harrisburg, 1981, No. 104 Harrisburg, 1981, Appeal from Orders of the Court of Common Pleas, Orphans Court Division, of Juniata County at No. 34-77-67.
Robert W. Costigan, Philadelphia, for appellants.
James B. Kozloff, Philadelphia, for Juniata Bank, participating party.
John C. Garner, Philadelphia, for White, et al., participating parties.
Cavanaugh, Beck and Montemuro, JJ. Montemuro, J., files dissenting opinion.
[ 321 Pa. Super. Page 104]
The instant appeal is from an order of the court below dismissing exceptions to an order granting the petition of Juniata Valley Bank to resign as trustee and denying the petition of a beneficiary under the trust to remove Raymond White as an individual trustee. In order to put the
[ 321 Pa. Super. Page 105]
two petitions in the court below in proper focus, the history of the trust must be reviewed. The inter vivos trust in question was established by C.A. White and his wife, Flo B. White, in 1965 for the benefit primarily of their thirteen grandchildren. The trustees named in the deed of trust were settlor, C.A. White (now deceased), his two sons, J. Nevin White and Raymond White, his son-in-law, Roy A. Wingate, and the Juniata National Valley Bank (now the Juniata Valley Bank). The principal assets of the trust were two tracts of timberland totaling over three thousand acres. The trust agreement provided for the establishment of separate trusts for each grandchild who was to receive income while the trust remained in existence. Principal distribution was to be made to each grandchild as follows: one-half when he reached the age of twenty-five and the balance of principal at age thirty. Appropriate provisions were made in the event of the death of a grandchild prior to complete distribution of principal.
Over the years a conflict developed in investment policies between Juniata Valley Bank and Raymond White which culminated in 1980 with Raymond's threat to sue the bank unless it resigned. As a result of these disputes the Juniata Valley Bank and Roy A. Wingate petitioned the court to resign as trustees. Subsequently, a petition was filed by one of the beneficiaries under the trust requesting that Raymond White show cause why he should not be removed as trustee.
The Orphans' Court may remove a trustee under the authority of the Probate, Estates and Fiduciaries Code, Act of June 30, 1972, P.L. 508, No. 164, 20 Pa.C.S.A. § 3182 when interests of the trust are likely to be jeopardized by the continuation of the trustee in office.*fn1 Removal of a trustee is a drastic action and proof of the need of this remedy must be clear. Croessant Estate, 482 Pa. 188, 393
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A.2d 443 (1978). Nevertheless, "[w]hile the removal of a trustee is a matter resting largely within the discretion of the court having jurisdiction over the trust, it is equally clear that an abuse of discretion renders its exercise subject to review." Crawford's Estate, 340 Pa. 187, 190, 16 A.2d 521, 523 (1940). See also Croessant Estate, supra; Scientific Living, Inc. v. Hohensee, 440 Pa. 280, 270 A.2d 216 (1970); La Rocca Trust, 419 Pa. 176, 213 A.2d 666 (1965). In our opinion a review of the history of the trust reveals that the court below abused its discretion in denying the petition to remove Raymond White as a trustee. In recent years Raymond was insistent that the trust engage in speculative investments notwithstanding that they would not produce income for the beneficiaries and involved substantial risks. His basis for investments such as gold, foreign coins and puts and calls was that he had made a great deal of money in speculating and saw no reason that the trust should not invest in like manner with trust assets.*fn2 He apparently saw no difference between risking his own money in speculative ventures and risking the assets of the trust.
It is clear that a mere error of judgment is not grounds for removal of a trustee. "All that the courts require of a trustee is common skill, common prudence and common caution." Barnes' Estate, 339 Pa. 88, 94, 14 A.2d 274, 276 (1940). In this case Raymond manifested lack of common caution and prudence and the Juniata Valley Bank alone acted as a restraining force on his desires to speculate. Raymond wanted to buy canned food as an investment and store it. He was interested in buying wheat, corn, oats and other commodities as well as livestock. He pressured the bank as trustee to invest in
[ 321 Pa. Super. Page 107]
foreign currencies such as Swiss francs and German marks. His justification was ". . . I own Swiss francs and German marks today, and have for years. And I have broken no laws and see that I'm breaking no laws by owning them. And I've doubled my money in many of them. And I do not count it as a poor investment or risky investment." (Emphasis added).
The court below correctly pointed out that "it is probably true the bank exerted the most influence in deterring improprieties" and the dissent accepts this assessment of the situation.*fn3 In this regard, with respect to Raymond's desires for the trust to go far beyond the range of what would be considered reasonable and proper trust investments, his counsel on appeal states in the appellate brief:
Finally, even if Raymond has not learned as much about trust law as might be hoped, he is nevertheless only one of three co-trustees. While it is clear that the Bank exerted the most control in overriding Raymond's suggestions, there is no evidence in the record that Raymond was able to bully the remaining two co-trustees as alleged by the appellants.*fn4 (Emphasis added).
Based on past performance, Raymond's continuation in the role of trustee will likely be adverse to the best interest of the trust. His desire to involve the trust in unorthodox and speculative investments is undoubtedly based on his belief that the trustees were vested with almost unlimited and absolute power under the deed of trust to do what they
[ 321 Pa. Super. Page 108]
wanted with trust property. One example is his stated belief that the trustees could value the timberland, the main asset in the trust, at any figure they wanted whether for sale or with respect to principal distribution. He was of the opinion that even if they valued the land at a dollar, although it might be a ridiculous valuation, they had the power to do so.*fn5 His beliefs concerning speculative investments continued notwithstanding the objection of his co-trustee, Juniata Valley Bank, based on an opinion letter of its counsel. The opinion letter stated in part that: "[t]he governing instrument in this case gives the trustees a broad power to invest and reinvest in such investments as they deem best for the beneficiaries and the trust. Nevertheless, the provision does not go so far as specifically to permit speculative investments, especially when considered
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with the stated purpose of the trust which is to provide 'regular income' for the settlor's grandchildren." The law firm concluded that the proposed investments by Raymond for the trust in copper pennies and lumber would not be proper trust investments because they probably would be deemed speculative.
An example of proposed self dealing by the individual co-trustees, Raymond and Nevin White, is illustrated in Raymond's desire to purchase lumber from Nevin for the trust. The bank would not agree to this as it believed it involved self dealing and a breach of trust. With respect to this transaction Raymond testified:
Q. Now you brought that proposition to bank?
A. We more than brought it to the bank; it was agreed on. The trustees all agreed on it in my recollection and the Trust Committee put a stop to it. They vetoed it, as they vetoed dozens and dozens of things on this trust.
Q. Did they tell you why they vetoed that particular --
A. Yes, the very same thing as Mr. Groninger was trying to explain to you.
A. That it wasn't lawful. And I'd like to know under what laws and whose. You're an attorney, you might tell me; I'll listen.
Q. Was it ever explained to you that this is a form of self-dealing and it might be illegal on that basis?
A. The price was at the market price and was not considered illegal and I consider it not illegal, and the trust is so written. If you will get the trust out and read -- Please read to the people here what it says about self-dealing. Would you get those paragraphs and read it?
Q. Mr. White, you can do your own reading --
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A. That's right, I can do my own reading but I can't do my own thinking.*fn6
The record reflects that the two individual trustees would have gone along with Raymond concerning his intention to buy lumber from his brother, a co-trustee, and his desire to buy gold. Raymond testified:
Q. Are you saying that three of the four trustees would vote in favor of something and then the bank just would not do it?
A. That's exactly right. The three trustees voted in favor of the lumber and there was no lumber bought; and they voted in favor of the ...