THE VINCENT J. FUMO IRREVOCABLE CHILDREN'S TRUST FOR THE BENEFIT OF ALLISON FUMO. APPEAL OF: VINCENT J. FUMO
Argued May 21, 2014
Appeal from the Decree August 1, 2013 of the Court of Common Pleas, Philadelphia County, Orphan's Court Division, No(s): 1557 (IV) of 2012. Before O'KEEFE, J.
Dionysios G. Rassias, Philadelphia, for Vincent J. Fumo, appellant.
Don P. Foster, Philadelphia, for appellee.
BEFORE: PANELLA, LAZARUS AND JENKINS, JJ. JENKINS, J. filed an Opinion in which LAZARUS J. joined. PANELLA J. filed a Dissenting Opinion.
Vincent J. Fumo (" Father" ) appeals from a decree removing Anthony Repici, M.D. as trustee of a trust Father created for his daughter, Allison Fumo (" Daughter" ), and appointing Sylvia DiBona as successor trustee of Daughter's trust. After careful review, we affirm.
Through a Trust Agreement created in 2006, Father created inter vivos irrevocable trusts for two of his children, Vincent E. Fumo, Jr. (" Son" ) and Allison Fumo (" Daughter" ), so that they and their children could live comfortably. Under the Trust Agreement, Son's and Daughter's trusts each became a 49.5% owner of the assets in the Fumo Family Limited Partnership (" FFLP" ). Father named Roseanne Pauciello as the trustee of both trusts.
In 2009, Father was convicted of mail fraud and other offenses. In early 2010, shortly before going to federal prison, and faced with dwindling finances, Father obtained a $1.4 million loan from the FFLP with a repayment date of 2013. In 2011 and 2012, he modified the loan to extend
the repayment date to 2040, when he will be 97 years old, and he then defaulted on the loan in its modified form.
On September 8, 2011, Pauciello announced that she was resigning as trustee. No one performed the duties of trustee between September 2011 and October 23, 2012, when, despite her prior resignation, Pauciello purported to appoint Samuel Bennett, the brother-in-law of Father's fiancé, as successor trustee.
On October 23, 2012, fearing that Bennett would not enforce repayment of the $1.4 million loan to the FFLP, Daughter filed a petition opposing Bennett's appointment as successor trustee and requesting termination of the trust. Daughter amended her petition twice in October and November of 2012. In response, Father and Bennett each appointed Anthony Repici, Father's longtime friend and personal physician, as successor trustee in place of Bennett.
On August 1, 2013, following an evidentiary hearing, the Orphans' Court entered a decree declaring Bennett's appointment of Repici null and void; declaring Father's appointment of Repici null and void; denying Father's motion to keep the record open so that he could testify in court following his release from prison; and appointing Daughter's nominee, Sylvia DiBona, as successor trustee. On August 29, 2013, Father filed a timely notice of appeal. Without ordering Father to file a statement of matters complained of on appeal, the court filed a detailed opinion articulating its findings of fact and conclusions of law.
Father raises four arguments on appeal: (1) the Orphans' Court abused its discretion in nullifying Repici's appointment as successor trustee; (2) Daughter had no right to seek Repici's removal because her petitions only sought Bennett's removal as trustee; (3) the Orphans' Court improperly refused to keep the record open so that Father could testify in court following his release from prison; and (4) the court improperly overruled Father's preliminary objections to Daughter's second amended petition.
We hold that the Orphans' Court properly decreed Bennett's appointment of Repici null and void. The Trust Agreement required Pauciello to appoint a successor trustee within sixty days after she became unwilling to serve as trustee. Pauciello did not appoint Bennett as successor trustee until 13 months after she became unwilling to serve. Thus, Pauciello's appointment of Bennett was a nullity, which in turn nullified Bennett's appointment of Repici.
Furthermore, the Orphans' Court properly decreed Father's appointment of Repici null and void. The Trust Agreement prohibits Father from serving as successor trustee. The Orphans' Court's opinion makes clear that it regards Repici as Father's alter ego due to their close, longtime friendship. It therefore was necessary to decree Repici's appointment a nullity to enforce the Trust Agreement's plain language and intent.
In addition, the Orphans' Court properly nullified Father's appointment of Repici under the doctrine of unclean hands. The
Orphans' Court found, and the record confirms, that Father appointed Repici as part of his plan to thwart repayment of his loan to the FFLP. Although the Orphans' Court did not use the term " unclean hands," it obviously regarded Father as acting in this fashion. We do as well, since the evidence shows that Father appointed Repici to exalt his own interests over Daughter's.
Alternatively, the Orphans' Court properly removed Repici and appointed DiBona as successor trustee based on clear and convincing evidence of a " substantial change in circumstances." 20 Pa.C.S. § 7766(b)(4). Daughter proved that Repici's appointment was part of Father's plan to stymie repayment of his $1.4 million loan to the FFLP, and Repici is unqualified to serve as trustee due to his close ties with Father and his lack of expertise in trust administration. Conversely, DiBona, a CPA and insurance broker as well as Daughter's godmother, is well qualified to administer the trust and can be counted on to protect Daughter's interests.
Finally, for the reasons provided below, we find no merit in the other arguments that Father raises on appeal.
In an appeal from an Orphans' Court decree,
[we] 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 Brown, 2011 PA Super 221, 30 A.3d 1200, 1206 (Pa.Super.2011) (citation omitted).
The Orphans' Court's decision to appoint or remove a trustee is subject to review for abuse of discretion. In re Croessant's Estate, 482 Pa. 188, 393 A.2d 443, 446 (Pa.1978); Holmes Trust, 392 Pa. 17, 139 A.2d 548, 551 (Pa.1958) (" the court may remove a trustee if his continuing to act as trustee would be detrimental to the interests of the beneficiary. The matter is one for the exercise of a reasonable discretion by the court" ); In Re Taylor's Estate, 320 Pa. 1, 181 A. 482, 483 (Pa.1935) (appointment of successor trustee would not be disturbed on appeal in absence of abuse of discretion).
Moreover, the Orphans' Court may invoke the doctrine of unclean hands when considering whether to appoint or remove a trustee. In Re Bosley, 2011 PA Super 126, 26 A.3d 1104, 1114 (Pa.Super.2011) (citing Stauffer v. Stauffer, 465 Pa. 558, 351 A.2d 236, 245 (Pa.1976)). The decision to apply the unclean hands doctrine against a party is subject to review for abuse of discretion. Id.
In addition, the Orphans' Court's decision to deny a continuance or to keep the record open is also subject to review for abuse of discretion. In Re D., 492 Pa. 454, 424 A.2d 1278, 1280 (Pa.1980) (reviewing Orphans' Court's decision to deny continuance for abuse of discretion).
The evidence credited by the Orphans' Court is as follows. Father is over seventy years old and is in poor health, having suffered multiple heart attacks, including
one in the past several years. On June 23, 2006, Father executed the Vincent J. Fumo Irrevocable Children's Trust Agreement (" Trust Agreement" ), which created two inter vivos, irrevocable trusts, one for Son and one for Daughter. Father's intent was to gift money in trust to Son and Daughter for their children " so that [they] would never have to suffer what he had suffered as a child" . Under the Trust Agreement, each trust became owner of a 49.5% limited partnership interest in the Fumo Family Limited Partnership (" FFLP" ). The FFLP's general partner, Vincent J. Fumo General Partnership, Inc. (" VJFGP" ), became owner of the remaining one percent.
Father is the sole shareholder and first president of VJFGP. Father was succeeded as president by Andrew Cosenza, who in turn was replaced by Tom Myers, Father's friend. Myers remains president today.
In 2007, the FFLP held approximately $3.2 million, giving Daughter's trust an interest of approximately $1.6 million.
Each child's trust was to dissolve on the child's 40th birthday. At the time of the creation of the Trust Agreement, Son was 37 years old, and Daughter was 16. When Son turned 40, his trust dissolved, and he received $533,000 in trust assets and personally took possession of his 49.5 percent interest in the FFLP. Daughter's trust, however, did not receive a matching amount of $533,000. The FFLP's 2009-10 tax returns show only a payable to Daughter's trust in that amount.
In Paragraph 14 of the Trust Agreement, Father appointed Roseanne Pauciello, a longtime friend, as trustee of Son's and Daughter's trusts. Paragraph 14 continues:
In the event Roseanne PAUCIELLO shall be unable or unwilling to act or to continue to act as a Trustee of any Trust hereunder, MITCHELL RUBIN, by signifying his acceptance in writing, shall become a Trustee hereunder in her place. If neither Roseanne PAUCIELLO nor MITCHELL RUBIN shall be able and willing to serve as Trustee of any Trust hereunder at any time, he or she shall be succeeded by such one or more individuals, or such series of one or more individuals, to serve as Trustees in consecutive order, as the last of them to serve shall designate in his or her Will or other written instrument delivered to the Settlor, if he is then living, or if he is not, to the adult beneficiary or beneficiaries of the Trust hereunder. If such Trustees fail so to designate a successor for a period of sixty (60) days following their inability or unwillingness to serve, or if all of their designees die, resign or are unable to serve, the vacancy may be filled by such individual or individuals as may be designated by the Settlor, if he is then living, or if he is not, by a majority of the beneficiaries under this Agreement
who are sui juris; provided, however, that under no circumstances shall the Settlor, the Settlor's spouse if he should be married, either of the Settlor's former wives, the Settlor's Issue, or the spouses of any of the Settlor's Issue, be eligible to serve as successor Trustees hereunder. The Settlor specifically authorizes the selection of different Trustees for different trusts.
In 2009, Father was convicted of 137 counts of mail fraud, tax evasion and obstruction of justice and was sentenced to 55 months' imprisonment, a $411,000 fine, and $2,340,839 in restitution. In August 2009, Father signed a durable power of attorney appointing Son and Myers as co-agents. In 2009, the FFLP made distributions to Father in the amount of $333,561. There was no equalizing payment to Daughter's trust.
Over and above the distributions to Father, on January 22, 2010, Father, acting through Son and Myers, borrowed $1,400,000 from the FFLP. The terms of the loan required Father to pay interest at the rate of 5%, or $5,833.33 every month, beginning March 1, 2010, and, to pay all sums due on or before the maturity date of January 31, 2013. The loan was secured by a mortgage on the premises at 2220 Green Street in Philadelphia. Two days later, Father received the loan proceeds. The record does not indicate that Daughter's trustee, Pauciello, participated in this transaction or consented to the loan.
In October 2010, the loan was amended to make the terms more favorable to Father. The amendment extended the original maturity date by two years to February 1, 2015. Thereafter, the principal balance was to be amortized over twenty years at a fixed rate of 4.5%, thus extending the repayment date to 2035. In return, Father agreed to a first mortgage on a home located on Kenyon Avenue in Margate City, New Jersey as additional security. He also agreed, in the event of a change of ownership of either the Kenyon Avenue or Green Street properties, to pay not less than $250,000 to the FFLP towards reduction of the principal balance owed. In the event title to both properties changed, the entire loan was to become immediately due and payable. Upon Father's death, the entire unpaid balance of the principal and interest under the loan was to become immediately due and payable. Once again, the record does not indicate that Pauciello participated in this transaction or consented to the loan.
In a letter dated October 24, 2010, Father wrote to Jane Scaccetti, Daughter's mother: " My goal is to become as judgment proof as possible. l want to own nothing but control everything. . . I never
want to be this vulnerable to the Government or any creditors again in my life!"
In an e-mail dated September 8, 2011, Pauciello notified Cosanzo, then president of the FFLP, that she was resigning as trustee. After submitting her notice of resignation, Pauciello abandoned her duties as trustee. Moreover, on October 14, 2011, Mitchell Rubin, whom the trust designated as successor trustee, renounced his appointment as trustee without naming a successor. Paragraph 14 of the Trust Agreement authorized Pauciello and/or Rubin to appoint a successor trustee within 60 days of their unwillingness to serve as trustee, but neither of them appointed a trustee within the 60 day window. Moreover, paragraph 14 authorized Father to appoint a successor trustee if Pauciello and Rubin failed to appoint one, but Father did not make any appointment. As a result, the position of trustee effectively remained vacant from September 2011 until October 2012.
While the trusteeship remained vacant, Father changed the title to both the Kenyon Avenue and Green Street properties. On October 12, 2011, Father conveyed the Kenyon Avenue property from himself to himself and Carolyn Zinni, his fiancé, as joint owners. Father did not make the required payment of $250,000 to the FFLP when he changed ownership of the Kenyon Street property. On February 21, 2012, Father conveyed the Green Street property from himself to himself and Son as joint owners. Under the terms of the amended line of credit agreement, the loan became immediately due and payable when he changed ownership of the Green Street property, and the failure to repay left the loan in default.
Beginning in August 2012, Son asked that the loan be repaid and requested an accounting of FFLP assets. At that point, Father revoked Son's durable power of attorney.
On October 23, 2012, Pauciello appointed Bennett as successor trustee, even though she had announced her resignation as trustee more than one year before and failed to appoint a trustee within 60 days of her unwillingness to serve. Bennett has two close ties with Father: he is Zinni's brother-in-law and Father, a former
state senator, obtained a job for him at the Pennsylvania Turnpike Commission in 2008.
On October 26, 2012, Daughter filed a petition to terminate the trust, or, in the alternative, to nullify Bennett's appointment as trustee and appoint a successor trustee. Daughter subsequently filed two ...