In re Estate of Westin

• Decision Date: 28 April 2005
• Citation: 874 A.2d 139
• Parties: In Re: ESTATE OF Jonathan Mills WESTIN. Appeal of: Jonathan Mills Westin Creditors or JMW Creditors.
• Court: Pennsylvania Supreme Court

874 A.2d 139

In Re: ESTATE OF Jonathan Mills WESTIN.

Appeal of: Jonathan Mills Westin Creditors or JMW Creditors.

Superior Court of Pennsylvania.

Submitted November 22, 2004.

Filed April 28, 2005.

COPYRIGHT MATERIAL OMITTED

Joseph Cafaro, Jr., Pittsburgh, for appellant.

Robert A. Arcovio, Pittsburgh, for Jones, appellee.

Vincent J. Grogan, Pittsburgh, for Dice, appellee.

Richard H. Luciana, Oakmont, for Woods, appellee.

Gerald A. Role, Washington, D.C., for Internal Revenue Service, appellee.

Wesley T. Long, Greensburg, for Artman, appellee.

Stephen J. Poljak, Pittsburgh, for Zavarella, appellee.

Before: PANELLA, BECK and JOHNSON, JJ.

BECK, J.

¶ 1 The issues addressed in this appeal are removal of an estate's executor and surcharge against him and his law firm, after loss of the estate's assets due to criminal activity at the firm.

¶ 2 Appellants, all of whom had invested money with the decedent Jonathan Mills Westin, are eighteen creditors of the decedent's estate. By terms of Westin's will, Paul D. Zavarella, an attorney in the law firm of Bruce E. Dice & Associates, P.C., was appointed executor of the estate. He probated the will; obtained letters of administration; and on January 31, 2002 filed his first and final account of the estate. Bruce E. Dice, who was legal counsel for the estate, was listed as counsel of record on the account. The orphan's court issued its decree and schedule of distribution on September 25, 2002, distributing the estate's remaining financial assets, which amounted to $382,796. Out of this total, $89,469 was apportioned to appellant-creditors, and most of the rest, to the Internal Revenue Service.

¶ 3 Several months later, distribution of the estate's funds still had not been made. In response to a petition by appellants, the court issued a citation to Zavarella on January 8, 2003 to show cause why distribution should not be made in accordance with the September 25, 2002 decree. A hearing was held on February 6, 2003, at which time the court learned that funds belonging to the Westin estate had been embezzled by the office manager¹ of Dice & Associates. Only approximately $10,000 remained of the Westin estate funds.

¶ 4 On September 22, 2003, appellants filed a petition for a citation to show cause why Zavarella should not be removed as executor, and to show cause why Zavarella, Dice, and Dice & Associates should not be surcharged for the embezzled estate funds. Appellants also sought to surcharge Frank Jones, Esq., who assisted Dice with some aspects of the estate's accounting. After hearing argument, the court issued an order on April 14, 2004 with the following provisions: 1) The request to remove Zavarella as executor was moot as he had consented to withdraw; 2) The requests for surcharge for the embezzled funds against Zavarella, Dice, and Dice & Associates were denied; 3) Relief sought against Jones was denied as he was not a party litigant; 4) A judgment in the amount of $382,795 against the estate was entered in favor of all creditors; and 5) Claims of professional liability against Zavarella, Dice, and Dice & Associates were to be pursued in the civil division of the court of common pleas.

¶ 5 In this timely appeal, appellant-creditors contend that the trial court erred in three ways: first, by refusing to grant a hearing on the removal of Zavarella as executor of the estate; second by denying their petition for surcharge; and third, by entering a judgment against the estate rather than a surcharge against the executor.

¶ 6 In reviewing an order from the orphans' court, our standard is narrow: we will not reverse unless there is a clear error of law or an abuse of discretion. In re Estate of Geniviva, 450 Pa.Super. 54, 675 A.2d 306, 310 (1996); In re Estate of Albright, 376 Pa.Super. 201, 545 A.2d 896, 903 (1988), appeal denied, 522 Pa. 571, 559 A.2d 33 (1989). Our scope of review is also limited: we determine only whether the court's findings are based on competent and credible evidence of record. Albright, supra.

I. Removal of Executor

¶ 7 The court has statutory authority to remove a personal representative when, inter alia, "the interests of the estate are likely to be jeopardized by his continuation in office." 20 Pa.C.S.A. § 3182(5). Furthermore thermore, the court may summarily remove a personal representative when such action is "necessary to protect the rights of creditors or parties in interest." 20 Pa.C.S.A. § 3183. Our case law has recognized that "removal of a fiduciary is a drastic action which should be taken only when the estate is endangered and intervention is necessary to protect the property of the estate." In re Estate of Pitone, 489 Pa. 60, 68, 413 A.2d 1012, 1016 (1980) (quoting Scientific Living, Inc. v. Hohensee, 440 Pa. 280, 295, 270 A.2d 216, 224 (1970)).

¶ 8 Sufficient reason for removal of a fiduciary has been found when the fiduciary's personal interest is in conflict with that of the estate, such that the two interests cannot be served simultaneously. In re Estate of Dobson, 490 Pa. 476, 483 n. 6, 417 A.2d 138, 142 n. 6 (1980); In re Estate of Lux, 480 Pa. 256, 269-71, 389 A.2d 1053, 1059-60 (1978); In re Estate of Rafferty, 377 Pa. 304, 305-06, 105 A.2d 147, 148 (1954). The reasons for removal of a fiduciary must be clearly proven. Lux, supra at 269, 389 A.2d at 1059; Scientific Living, supra at 295, 270 A.2d at 224. However, proof of a conflict of interest can be inferred from the circumstances. See In re Estate of Gadiparthi, 158 Pa.Cmwlth. 537, 632 A.2d 942, 946 (1993) (ordering removal of an administrator, based on conflict of interest, after he challenged decedent's ownership of property titled in decedent's name). When a conflict of interest is apparent from the circumstances, bad faith or fraudulent intent on the part of the fiduciary need not be proven. Dobson, supra at 483 n. 6, 417 A.2d at 142 n. 6 (citing In re Estate of Banes, 452 Pa. 388, 395, 305 A.2d 723, 727 (1973); In re Estate of Noonan, 361 Pa. 26, 32-33, 63 A.2d 80, 84 (1949)).

¶ 9 In the present case, all parties agree that at least $370,000 from the Westin estate was embezzled from an account maintained by executor Zavarella's law firm, Dice & Associates. This fact was revealed to the court in February 2003, but the record reveals no evidence of any attempts by the executor to recover these funds for the estate. By any reasonable measure, the estate has grounds to file a claim against Zavarella and Dice & Associates to recover its assets. Zavarella would then be in the position of representing the estate, in his capacity as executor, in a claim against himself and his law firm. A conflict of interest between Zavarella and the estate is readily apparent from these circumstances. Therefore, Zavarella should be removed as executor of the Westin estate and a new administrator should be appointed.²

II. Surcharge

¶ 10 Appellants next contend that the orphans' court erred in denying their petition for surcharge against Zavarella, the executor of the estate, for the embezzled funds. Since a decree and schedule of distribution regarding the estate's assets had already been entered, the orphans' court questioned its continuing jurisdiction over the matter, denied appellants' petition for surcharge, and ordered that appellants pursue all claims of professional liability in the civil division of the court of common pleas. We disagree.

¶ 11 Jurisdiction over decedents' estates and their fiduciaries is invested, by statute, solely in the orphans' court.³ Our case law has made clear that both the decedent's estate and the executor are under the control and supervision of the orphans' court. Trout v. Lukey, 402 Pa. 123, 127, 166 A.2d 654, 656 (1961); Petition of Sch. Bd. of Sch. Dist. of Borough of McKees Rocks, 360 Pa. 285, 288, 62 A.2d 20, 22 (1948). "An executor . . . is an officer of the orphans' court and accountable to such court for all his actions of commission and omission in the performance of his fiduciary duties." In re Estate of Thompson, 426 Pa. 270, 276, 232 A.2d 625, 628 (1967).

¶ 12 By statute, one aspect of the fiduciary duty of the executor is to "take possession of, maintain and administer all the real and personal estate of the decedent. . . ." 20 Pa.C.S.A. § 3311. In other words, the executor bears the responsibility to "preserve and protect the property for distribution to the proper persons within a reasonable time." In re Estate of Campbell, 692 A.2d 1098, 1101 (Pa.Super.1997). In the performance of his fiduciary duties, the executor must exercise the "judgment, skill, care and diligence that a reasonable or prudent person would ordinarily exercise in the management of his or her own affairs." Id. at 1101-02.

¶ 13 When the executor of an estate fails to fulfill his fiduciary duty of care, the court may impose a surcharge against him. In re Estate of Lux, 480 Pa. 256, 264, 389 A.2d 1053, 1057 (1978) (citing Estate of Stephenson, 469 Pa. 128, 138, 364 A.2d 1301, 1306 (1976)). A surcharge is a penalty imposed to compensate the beneficiaries for loss of estate assets due to the fiduciary's failure to meet his duty of care; however, a surcharge cannot be imposed merely for an error in judgment. Id.; In re Estate of Ellis, 460 Pa. 281, 289, 333 A.2d 728, 732 (1975). Our Supreme Court has held that a standard of negligence is applied when evaluating whether an executor's management of an estate warrants a surcharge. Estate of Stephenson, 469 Pa. 128, 139, 364 A.2d 1301, 1306 (1976); In re Bender's Estate, 278 Pa. 199, 204, 122 A. 283, 284 (1923).

¶ 14 Before the court can impose a surcharge, it must give the executor an opportunity to be heard. In re Stitzel's Estate, 221 Pa. 227, 230, 70 A. 749, 750 (1908). Ordinarily, the party seeking to surcharge an executor bears the burden of showing a failure to meet the required standard of care. Ellis, supra at 285, 333 A.2d at 730; In re Estate of Geniviva, 450 Pa.Super. 54, 675 A.2d 306,...