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In re Jackson

Superior Court of Pennsylvania

November 7, 2017

IN RE: JOHN E. JACKSON AND SUE M. JACKSON CHARITABLE TRUST APPEAL OF: POLLY J. TOWNSEND AND WILLIAM R. JACKSON, JR.

         Appeal from the Order Dated December 7, 2016 In the Court of Common Pleas of Allegheny County Orphans' Court at No(s): 3999 of 1988

          BEFORE: BENDER, P.J.E., SOLANO, J., and MUSMANNO, J.

          OPINION

          SOLANO, J.

         This case arises out of a dispute between the individual trustees (Appellants Polly J. Townsend and William R. Jackson, Jr.) and the corporate trustee (Appellee PNC Bank, N.A.) of the John E. Jackson and Sue M. Jackson Charitable Trust ("Trust"). Townsend and Jackson (hereinafter, "Individual Trustees") appeal from a December 7, 2016 Orphans' Court order entered under Section 7763(a.1) of the Uniform Trust Act ("UTA"),[1] that resolved that dispute by limiting the amount that could be distributed by the Trust to charities in 2016 and by designating which charities could receive distributions from the Trust that year. We affirm in part, vacate in part, and remand for further proceedings consistent with this opinion.

          The settlors, John E. Jackson and Sue M. Jackson (referenced in the Trust Agreement - and hence in this opinion - as "Grantors") established the Trust on February 6, 1950. John Jackson lived until April of 1971, and Sue Jackson lived until January of 1994. The Trust Agreement named two trustees, W.R. Jackson (John E. Jackson's brother) and Commonwealth Trust Company of Pittsburgh.

The Trust Agreement provided, in part:
4. This trust is created solely for charitable purposes, and the income and principal of the trust estate is to be used for the sole benefit of public charities in the manner hereinafter set forth.

. . . .

6. The Trustees shall distribute the income of the trust fund among such public charities created for religious, educational or other charitable purposes as they in their sole discretion may deem proper. The Grantors may from time to time suggest to the Trustees specific charitable institutions or charitable causes to which they would like contributions made by the Trustees but the Trustees are in no manner obligated to follow the requests of the Grantors but, on the contrary, may distribute the income and principal of the trust fund for such charitable purposes as they in their sole discretion may determine.
The Trustees shall from year to year determine what amounts of both income and principal of the trust fund shall be distributed to charitable institutions or for charitable purposes, and it is understood that there is to be no limitation placed on the discretion of the Trustees with respect to the amount of principal or income paid at any one time or to any one charity.
7. This charitable trust shall continue until the expiration of three years after the date when its assets have been entirely depleted. The Grantors may add additional assets to the trust at any time within three years after all of the assets of the trust have been exhausted; but if after a period of three years from the exhaustion of the trust fund no assets have been contributed to the trust fund by the Grantors, then at the end of such three year period this Agreement shall be considered as having been cancelled by the parties hereto and the trust thereupon finally terminated.
Upon the death or resignation of W.R. Jackson, the Commonwealth Trust Company of Pittsburgh will select another in his place from the officers of the Pittsburgh-Des Moines Company; and if said Commonwealth Trust Company shall merge with another trust institution, the merged institution together with W.R. Jackson, or his successor, shall continue to act as Trustee.

Trust Agreement at ¶¶ 4, 6-7.

         Trustee W.R. Jackson resigned in 1989. At that time, none of the officers of the Pittsburgh-Des Moines Company was willing to act as the individual trustee. The Orphans' Court appointed Appellant Polly J. Townsend, W.R.'s daughter, as the next individual trustee.[2] In connection with the resignation of Jackson and the appointment of Townsend, the trustees filed their First and Partial Account, which the Orphans' Court confirmed.

         On May 25, 1994, Townsend resigned as the individual trustee. The trustees then filed a Second and Partial Account. No new individual trustee was appointed at that time.

         On January 29, 1998, the Orphans' Court re-appointed Townsend as the individual trustee. The court also modified the succession provision of the Trust Agreement to state:

There shall always be two trustees acting hereunder, National City Bank of Pennsylvania and its successors and an individual trustee who is a member of the Jackson family. Upon the death, resignation or inability to serve of any individual co-trustee, the corporate trustee shall select as his or her successor a member of the Jackson family, subject to the approval of a court of competent jurisdiction.

         Order, 1/29/98. National City Bank of Pennsylvania was a successor in interest to Commonwealth Trust Company.

         On or about April 1, 2005, Townsend and National City Bank filed a Third and Partial Account in the Orphans' Court. They also filed a petition to reform the Trust to provide for two individual trustees and to appoint Townsend's brother, William R. Jackson, Jr., as the second individual trustee. On May 24, 2005, the Orphans' Court approved the Third and Partial Account and entered an order reforming the Trust's appointment provision to state:

There shall always be three trustees acting hereunder, National City Bank of Pennsylvania and its successors, which shall possess at all times one-half of the voting power of the trustees, and two individual trustees who are members of the Jackson family, each of whom shall possess at all times one-fourth of the voting power of the trustees. Upon the death, resignation or inability to serve of any of then serving individual co-trustee, his or her successor shall be such member of the Jackson family designated as such by said co-trustee at or before the time he or she ceases to so serve. In the event that an individual co-trustee ceases to serve without designating his or her successor, the other then serving individual co-trustee shall designate a member of the Jackson family to fill such vacancy, or if no such designation has been made, the successor individual co-trustee shall be such member of the Jackson family designated to serve by the oldest living grandchild of William R. Jackson competent to make such designation. . . .

Order, 5/24/05. The court also approved the appointment of William R. Jackson, Jr. as the second individual trustee.

         In 2006, Individual Trustees decided that they wanted to terminate the Trust. When National City Bank opposed the termination, Individual Trustees filed a petition in the Orphans' Court seeking to remove and replace National City Bank with a corporate trustee that would cooperate in terminating the Trust or, in the alternative, to terminate the Trust immediately. Individual Trustees explained:

Petitioners' reasoning for terminating the Trust during their lifetimes centered on concerns that if the Trust continues past Petitioners' lifetimes or their ability to administer the Trust, that the succeeding generation of potential Trustees (Petitioners' children and grandchildren) (i) lack the knowledge of the Grantors and their philosophies, (ii) will disagree over the administration of the Trust and (iii) will cause the Trust assets to be distributed in a manner never contemplated by the Grantors.

Pet., 12/1/06, at ¶ 63. As authority for terminating the Trust, Individual Trustees relied on Paragraph 7 of the Trust Agreement, which states in part: "This charitable trust shall continue until the expiration of three years after the date when its assets have been entirely depleted."

         Individual Trustees' request to terminate the Trust was unsuccessful. On May 24, 2007, the Honorable Robert A. Kelly granted National City Bank's motion for judgment on the pleadings, holding: (1) Paragraph 7 of the Trust Agreement is "not a basis for termination of the Trust"; and (2) the Individual Trustees' averments "do not constitute a basis for termination of the Trust but are merely allegations of a potential stalemate that may be arising between the Individual Trustees and the Respondent, National City Bank." Order, 5/24/07. The order dismissed Individual Trustees' petition insofar as it sought termination of the Trust, but did not address their request to remove and replace National City Bank. Id. Individual Trustees did not appeal the May 24, 2007 order, and did not thereafter pursue replacement of National City Bank.

         In late 2008, PNC acquired National City Bank and, as a result, became the corporate trustee. Since then, PNC and Individual Trustees have disagreed about the amount and recipients of the Trust's charitable donations, but until the present controversy, they were able to reach a compromise each year.

         On September 9, 2016, Individual Trustees sent PNC a list of proposed charitable distributions totaling $701,000 for the year 2016. In response, PNC prepared an analysis of the proposed recipients and presented it to Individual Trustees on October 13, 2016. On November 1, 2016, Individual Trustees prepared a revised proposal, deleting some recipients from their original list and reducing the total distribution to $693,000.

         On November 28, 2016, PNC filed a "Petition to Resolve a Deadlock Between Trustees Pursuant to Section 7763[(a.1)] of the Uniform Trust Act." PNC alleged that a deadlock had formed between itself and Individual Trustees regarding the amount and recipients of donations for the year 2016. PNC said that it sought judicial intervention because, in order to avoid a tax penalty under Section 4942 of the Internal Revenue Code ("Taxes on failure to distribute income"), the Trust needed to distribute at least 5% of its net assets ($475,838) before the end of the year. PNC Pet., 11/28/16, at ¶¶ 18, 20.[3] PNC represented that, in order to meet the year-end deadline, it would need to begin processing distribution payments by December 12, 2016, a mere two weeks later. Id. at ¶ 32.

         In its petition, PNC averred that, "[e]very year since Judge Kelly's Order, due to the desires of the individual trustees to make over distributions from the Charitable Trust and [PNC]'s desire to grow and preserve the Trust, the trustees find themselves facing a year-end deadline for complying with the requirements of Section 4942." PNC Pet., 11/28/16, at ¶ 20. Although PNC and Individual Trustees had compromised in previous years, PNC's petition averred that PNC was "no longer willing to jeopardize the long-term viability of the Charitable Trust for the sake of the short-term expediency of reaching an agreement with the individual trustees." Id. ¶ 27.

         PNC stated that, "in keeping with the traditional giving pattern of the Charitable Trust during the lifetime of the Donors," it favored distributing the Trust's funds "to civic organizations, educational/arts organizations, health care facilities and children & youth organizations, with at least one-half of such distributions being to charitable organizations primarily situated in Western Pennsylvania." PNC Pet., 11/28/16, at ¶ 21. PNC characterized the organizations it favored as "worthwhile charities," and contrasted its list of preferred donees with those organizations favored by Individual Trustees, which it called "political advocacy groups." Id. at ¶ 27. In addition, PNC averred that the amount of distributions favored by Individual Trustees would eventually exhaust the Trust "in circumvention of Judge Kelly's [May 24, 2007] Order." Id. at ¶ 23.

         PNC submitted to the court a list of proposed donees that, in its view, were "in keeping with (i) the giving history of the Charitable Trust[] during the lifetimes of John and Sue Jackson, and (ii) in keeping with Judge Kelly's Order of Court, dated May 24, 2007." PNC Pet., 11/28/16, at ¶ 28. PNC's list included 26 organizations selected by PNC to receive one-half of the required distribution ($237,919) and 18 organizations from the list Individual Trustees submitted to PNC, which were to receive the other one- half of the required distribution. PNC asked the court "to resolve the current deadlock by casting a 'third vote,'" either in favor of the list it had compiled, or in favor of the list that Individual Trustees had proposed to PNC in their September 9, 2016 letter. Id. at ¶ 32.

         On December 1, 2016, Individual Trustees filed an Answer and New Matter. Individual Trustees alleged that PNC "unilaterally imposed an artificial 5% limit on the Trust's annual charitable giving, forced the Trust to donate to local causes supported by PNC, and refused to allow charitable contributions to legitimate charities recommended by [Individual Trustees] (and supported by the Trust for decades)." Answer and New Matter at 1. They contended that the Grantors intended for the Trust's individual trustee(s) to make donation decisions and that PNC's "proper role - as set forth in the Trust Agreement and as demonstrated by the six decades-long history of the Trust before PNC's involvement - is to work with the [individual] Co-trustees to facilitate donations to charities selected by the [individual] Co-trustees and to manage the Trust's assets." Id. at 3, 6. Individual Trustees asked the court to deny PNC's petition, order PNC to make the contributions proposed by Individual Trustees on November 1, 2016, and order PNC -

to assume its proper corporate co-trustee role, which includes providing the [individual] Co-trustees with information and recommendations for possible donations, vetting charities, investing the Trust's assets (along with the [individual] Co-trustees), and otherwise providing the traditional services that the corporate co-trustee for this Trust provided for almost sixty (60) years.

Id. at 44. Also on December 1, 2016, Individual Trustees filed a Motion for Expedited Discovery. They sought an evidentiary hearing at the conclusion of the discovery.

         On December 2, 2016, the Orphans' Court held oral argument on PNC's petition. Both parties, as well as a representative of the Attorney General of Pennsylvania, were present.[4] PNC reiterated that it "need[ed] to cut checks by December 12th" in order to avoid the excise tax. N.T., 12/2/16, at 26. The Orphans' Court stated that it would cap donations at 5% of the Trust's assets because there was "no reason to go above" the amount required to avoid a tax penalty. Id. at 24-25. The court denied the motion for expedited discovery [5] and took the designation of charitable recipients under advisement. Id. at 32. On December 6, 2016, Individual Trustees filed a revised donation proposal, limiting their proposed donations to 5% of the Trust's assets.[6] On December 7, 2016, the Orphans' Court entered an order selecting the charities on PNC's list for distributions in 2016. The order stated that the court had considered PNC's petition, Individual Trustees' answer and new matter, Judge Kelly's May 24, 2007 order, and the December 2, 2016 oral argument. Order, 12/7/16. On December 14, 2016, Individual Trustees filed a motion for reconsideration or, in the alternative, for clarification of the court's December 7, 2016 order. On December 19, 2016, the Orphans' Court denied that motion.

         On May 2, 2017, the Orphans' Court filed an opinion in which it explained its decision. The court stated:

Given the time constraints which were placed upon the court by the unseasonable request, the court determined that a prudent decision would require distributions in order to not dissipate trust assets on non-trust intentions, solely because of the co-trustees['] inability to agree. The court chose 5% to be distributed for the current year utilizing the minimum investment return for private foundations. 26 U.S. Code §4942(e). The court also chose the charities as suggested by the corporate trustee, for the current year, solely because of the lack of time needed for all possible options to be fully vetted.
While the court has made these determinations, nothing in the court's determinations for this calendar year, should be interpreted or extrapolated to any future years. Consequently, all parties in interest will have the opportunity, in the event that non-agreement by the trustees occurs, to seek court intervention as to what is in the best interest of the trust with regard to distributions and the charities receiving such.

Orphans' Ct. Op., 5/2/17, at 2.[7]

          On January 5, 2016, Individual Trustees filed a timely appeal in which they raise the following issues, as stated in their brief:

I. Did the Orphans' Court abuse its discretion by entering a series of Orders breaking a contrived "deadlock" between co-trustees of the John E. and Sue M. Jackson Charitable Trust (the "Trust" or "Jackson Family Charitable Trust") without hearing any evidence, without holding an evidentiary hearing, and/or without making any findings of fact?
II. Did the Orphans' Court abuse its discretion by failing to even attempt to ascertain the intent of the Grantors of the Trust, which, under settled Pennsylvania law, is the "pole star" of every trust?
III. Did the Orphans' Court abuse its discretion by allowing Appellee PNC Bank, N.A. ("PNC"), the fourth successor corporate co-trustee, to usurp donation authority away from Appellants Polly J. Townsend ("Polly") and William R. Jackson, Jr. ("Dick") (together, the "Jackson Family Co-trustees") even though the Grantors' intent was for the Jackson Family trustee(s) to exercise such authority and the Jackson Family trustee(s) did, in fact, exercise such authority free from interference from all predecessor corporate co-trustees for nearly sixty years before PNC's involvement with the Trust?
IV. Did the Orphans' Court abuse its discretion by resolving the contrived "deadlock" by PNC's artificial deadline of December 12, 2016?
V. Did the Orphans' Court abuse its discretion by limiting 2016 donations from the Trust to five percent (5%) of Trust assets even though any such limitation is directly contrary to the Trust instrument, which provides that there is "no limitation" on the amount of princip[al] or income that can be donated to charity, and all donations proposed by the Jackson Family Co-trustees were consistent with the Grantors' intent and Trust history?
VI. Did the Orphans' Court abuse its discretion by refusing to permit donations in 2016 to so-called politically conservative charities even though such charities have received nearly 800 annual ...

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