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In re Estate of Fridenberg

August 24, 2009

ESTATE OF ANNA E. FRIDENBERG, DECEASED
APPEAL OF: WACHOVIA BANK, N.A.



Appeal from the Order entered July 1, 2008 In the Court of Common Pleas of Philadelphia County Orphans' Court, No. 261 of 1941.

The opinion of the court was delivered by: Kelly, J.

BEFORE: STEVENS, KLEIN and KELLY, JJ.

OPINION

¶ 1 Appellant, Wachovia Bank, N.A., appeals from the order of the Philadelphia County Court of Common Pleas, Orphans' Court Division, denying its application for certain commissions on trust principal as compensation for trust administration services. Appellant challenges the Orphans' Court's conclusion that such commissions were barred by In re Williamson's Estate, 82 A.2d 49 (Pa. 1951). We reverse the order of the Orphans' Court and remand for further proceedings consistent with this opinion.

¶ 2 This case involves a testamentary trust established under the will of testatrix Anna E. Fridenberg, dated February 14, 1938.*fn1 The twentieth paragraph of the will provided that the residue of Ms. Fridenberg's estate and certain property over which she exercised powers of appointment was to be held in trust to pay the net income to certain named annuitants, all since deceased. The balance of the net income was to be paid to the Jewish Hospital Association of Philadelphia for the perpetual upkeep, maintenance, and support of the Fridenberg Memorial Surgical Building. The testatrix named Fidelity--Philadelphia Trust Company and Philip N. Goldsmith as executors of her estate and trustees under the will. Ms. Fridenberg died on March 26, 1940.

¶ 3 The Jewish Hospital Association of Philadelphia was eventually consolidated, along with several other entities, into the Albert Einstein Medical Center.*fn2 By decree dated February 18, 1981, the Orphans' Court authorized the demolition of the Fridenberg Memorial Surgical Building and directed that a surgical floor of a proposed patient care tower be designated the "Fridenberg Memorial Surgical Floor." In an adjudication dated March 5, 1981, the Orphans' Court directed that the income from the trust be used to support the surgical floor.

¶ 4 Appellant Wachovia eventually became the corporate successor to Fidelity--Philadelphia Trust Company. On January 12, 2006, following the death of another individual trustee, Bruce Taylor, Wachovia filed the third account under the Fridenberg trust, covering the period from the end of the second account in 1978 through March 16, 2005, the date of Mr. Taylor's death. In it, Wachovia sought commissions from principal for both itself and Mr. Taylor for the period from June 1998 through March 2005.*fn3

¶ 5 The Attorney General filed twelve objections to the third account. (See Objections of Commonwealth of Pennsylvania, Office of Attorney General, as Parens Patriae, to Third Account of Wachovia Bank, N.A., 4/28/06). Although eleven objections were subsequently withdrawn, the Attorney General continued to object to Appellant's request for commissions on market value, paid from principal, because its corporate predecessor as trustee, Fidelity--Philadelphia Trust Company, which also served as executor of the will, had previously accepted a fee for its executor services.

¶ 6 Under section 45 of the Fiduciaries Act of June 7, 1917, P.L. 447 (the 1917 Act),*fn4 in force at the time of the death of Ms. Fridenberg, a trustee was prohibited from receiving a second "commission" for trust services if the trustee had previously received compensation for services as executor of the will under which the testamentary trust was established. The 1917 Act was repealed by the Act of April 10, 1945, P.L. 189 (1945 Act). However, our Supreme Court, in the case of In re Williamson's Estate, supra, decided that the repeal of section 45 by the 1945 Act was not to be applied retroactively, as a denial of due process under the Fourteenth Amendment to the United States Constitution on a theory of implied contract. Id. at 54.

¶ 7 After the Williamson case, our Legislature again amended the law, enacting the Act of May 1, 1953, P.L. 190, (1953 Act), which, like the 1945 Act, also sought to allow "dual commissions." Later, our Supreme Court, in In re Scott's Estate, 211 A.2d 429 (Pa. 1965), construed the continued applicability of the holding in Williamson in light of the 1945 Act and the 1953 Act.*fn5 Against a claim that the rule was mere dicta, the Court concluded, "Irrespective of whether this part of the Williamson's Estate Opinion was or was not dictum, we find it persuasive and applicable." Id., at 432 (footnote omitted). The Court expressed concern that "retroactive application of the Acts of 1945 and 1953, at this late date, would not only greatly increase litigation but would also open a Pandora's box[.]" Id. at 433; (see also Orphans' Ct. Op. at 6).

¶ 8 However, two years afterward, Chief Justice Bell, who was also the authoring judge in Scott, again writing for the majority, stated:

Several Justices of this Court (including the present writer) and the Legislature and the Orphans' Court of Philadelphia have from time to time pointed out the unfairness of this harsh rule and their desire to see it eliminated or further modified. Realistically speaking, it is a matter of common knowledge that financial and modern conditions have changed so greatly since the Act of 1864 and the Act of 1917, supra, that we should limit Williamson Estate, and Scott Estate, and Coulter Estate, supra, to their facts, and under our King's Bench powers, and under the powers granted to us by the Act of May 20, 1891,[ ] P.L. 101, 12 P.S. § 1164, should allow, if earned, the payment of a fair and reasonable interim commission on principal to a (non-executor) trustee of a long-term trust. Without such a policy rule to cope with modern conditions and to "make both ends meet," how otherwise in these days can a corporate trustee continue to exist as a fiduciary, and why otherwise would an individual trustee, or indeed a bank or trust company, ever accept a long-term trust?[ ]

In re Ehret's Estate, 235 A.2d 414, 421 (Pa. 1967) (emphasis added). Accordingly, the decision in Ehret permitting earned interim commissions on principal effectively ended the precedential authority of Williamson and Scott by limiting those cases to their facts, even while preserving the executor/trustee restriction under then prevailing legislation.*fn6

¶ 9 The legislation was subsequently amended. Section 7185 of the Probate, Estates and Fiduciaries Code (PEF Code), enacted as the Act of June 30, 1972, P.L. 508, No. 164, provided for "reasonable and just" compensation to the trustee, and permitted graduated compensation based on market value.*fn7 Section 7185 was amended by the Act of February 18, 1982, P.L. 45, No. 26, to provide, in part, for compensation out of principal. Section 14 of the Act of October 12, 1984, P.L. 929, No. 182, provided that Section 7185 of the PEF Code, as amended by the Act of February 18, 1982, supra, "shall apply to all trusts regardless of whether the trust was created before, on or after February 18, 1982." Act of October 12, 1984, § 14 (emphasis added).

¶ 10 Our Legislature adopted the Uniform Trust Act by the Act of July 7, 2006, P.L. 625, No. 98.*fn8 Section 7768(c) of that Act provided:

(c) Entitlement not barred.-None of the following shall bar a trustee's entitlement to compensation from the ...


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