In re Estate of Harrison

• Decision Date: 24 January 2000
• Citation: 745 A.2d 676,2000 Pa. Super. 19
• Parties: In re ESTATE OF Sigmund S. HARRISON, Deceased. Appeal of Joel Every, Executor of the Estate of Sigmund S. Harrison, Deceased, Appellant. In re Estate of Sigmund S. Harrison, Deceased. Appeal of Harriet Richardson and Lydia Harrison, Appellants.
• Court: Pennsylvania Superior Court

745 A.2d 676

2000 Pa. Super. 19

In re ESTATE OF Sigmund S. HARRISON, Deceased.

Appeal of Joel Every, Executor of the Estate of Sigmund S. Harrison, Deceased, Appellant.

In re Estate of Sigmund S. Harrison, Deceased.

Appeal of Harriet Richardson and Lydia Harrison, Appellants.

Superior Court of Pennsylvania.

Argued October 27, 1999.

Filed January 24, 2000.

Thomas A. Boulden, Norristown, for Joel Every.

Lawrence J. Schempp, Philadelphia, for Harriet Richardson.

Before JOHNSON and STEVENS, JJ., and CIRILLO, President Judge Emeritus.

JOHNSON, J.:

¶ 1 This matter comes before us on cross-appeals from a final decree of the orphans' court of Montgomery County. Joel Every, Executor of the Estate of Sigmund S. Harrison, Deceased, (the Executor) appeals a portion of the decree that subjected him to a surcharge equal to a fee he accepted from counsel for the Estate in exchange for referral of litigation in which the Estate became involved. Beneficiaries Harriet Richardson and Lydia Harrison appeal a portion of the decree that sustained payment of the Executor's commission and affirmed sums paid to the Executor's wife for services she rendered as a rental agent for Estate properties. They assert as well that the Executor's commission was excessive. We conclude that the record supports the orphans' court's rulings and, in the Executor's appeal, establishes the propriety of the sanction. Consequently, we affirm the court's order entering the adjudication and decree nisi as the final decree.

¶ 2 This matter came before the orphans' court on objections to the Executor's final accounting. Estate beneficiaries Harriet Richardson and Lydia Harrison (the Beneficiaries) filed four objections, asserting initially that the Executor violated his fiduciary duty by accepting an undisclosed referral fee from two outside counsel for the Estate. The record reflects that the fees were equal to 15% and one-third, respectively, of the sums the two counsel billed to the Estate.

¶ 3 The Beneficiaries asserted also that the Executor violated his fiduciary duty by honoring the decedent's inter vivos contract with Fran Every to act as rental agent for the decedent's realty. Fran Every is the Executor's wife.

¶ 4 Finally, the Beneficiaries asserted that the Executor's commission was excessive and that the Executor distributed the commission prematurely, rendering the Estate unable to pay expenses necessary for conservation.

¶ 5 Following a hearing, the orphans' court, the Honorable Stanley R. Ott, sustained the Beneficiaries' objection to the referral fee but dismissed all remaining objections. On January 14, 1999, the Court entered a decree nisi surcharging the Executor an amount of $76,320, corresponding to referral fees the Executor accepted but did not disclose to the Beneficiaries. Both parties filed objections to the January 14th decree. The orphans' court heard argument en banc and confirmed Judge Ott's adjudication and decree nisi as the final decree, but modified the amount of the surcharge. Opinion and Order Sur Exceptions to Adjudication, 4/13/99, at 20. The court allowed the Executor a credit of $10,000 for legal work that he completed beyond the scope of work customarily required of executors. Both parties appeal from that order. We note, however, that the Beneficiaries do not contest the court's $10,000 reduction of the surcharge provided by the decree nisi.

¶ 6 For purposes of clarity, we will address the parties' appeal and cross-appeal separately below.

I. APPEAL OF EVERY

¶ 7 The Executor raises the following issues for our review:

1. Did [the Executor] engage in self-dealing as defined by Pennsylvania law by accepting undisclosed referral fees from counsel for the decedent's estate?

2. Even if [the Executor] engaged in self-dealing, was it the type that warrants sanctioning by the courts?

3. Assuming that [the Executor] engaged in prohibited self-dealing, should the "remedy" have been a prospective enunciation of the new law proscribing such conduct, not a punitive surcharge, especially when [the Executor] should not have known of any prohibition on that conduct?

Brief for Appellant, Joel Every, Esquire, Executor of the Estate of Sigmund S. Harrison, Deceased (hereinafter Brief for Appellant) at 4.

¶ 8 Our standard of review of the findings of an orphans' court is deferential.

When reviewing a decree entered by the Orphans' Court, this Court 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.

In re Estate of Geniviva, 450 Pa.Super. 54, 675 A.2d 306, 310 (1996) (internal citations omitted). However, "we are not constrained to give the same deference to any resulting legal conclusions." Id. "[W]here the rules of law on which the [court] relied are palpably wrong or clearly inapplicable, we will reverse the [court's] decree." Horner v. Horner, 719 A.2d 1101, 1103 (Pa.Super.1998) (discussing standard of review for courts of equity).

¶ 9 To facilitate appellate review, we will address the Executor's assertions together. The Executor argues first that his acceptance of an undisclosed referral fee from counsel for the Estate does not constitute self-dealing. He argues, as a corollary, that even if the elements of self-dealing are established, the facts of this case do not justify the sanction imposed by the orphans' court because fees charged by counsel were not affected by the referral fee arrangement. Finally, he contends that, notwithstanding our disposition of the prior two issues, the appropriate "remedy" is a prospective enunciation of the law, proscribing acceptance by attorney executors of referral fees from outside counsel. The Executor contends that the law pre-dating this appeal provided no clear prohibition of such activity. We find no merit in any of these contentions.

¶ 10 More than one-half century ago, our Supreme Court defined the role and duty of an executor as a fiduciary. "An executor is a fiduciary no less than is a trustee and, as such, primarily owes a duty of loyalty to a beneficiary of his trust." In re Noonan's Estate, 361 Pa. 26, 30, 63 A.2d 80, 82 (1949). "Executors, as well as other fiduciaries, are under an obligation to make full disclosure to beneficiaries respecting their rights and to deal with them with utmost fairness." Id. at 29, 63 A.2d at 82. The Supreme Court has elaborated accordingly that:

He that is entrusted with the interest of others, cannot be allowed to make the business an object of interest to himself; because from the frailty of nature, one who has the power[ ] will be too readily seized with the inclination to use the opportunity for serving his own interest at the expense of others for whom he is entrusted.

Id. at 31, 63 A.2d at 83 (citation omitted) (quoting Beeson v. Beeson, 9 Pa. 279, 284 (1848)). Thus, the rule forbidding self-dealing serves both to shield the estate and its beneficiaries and ensures the propriety of the executor's conduct. Id. at 32-33, 63 A.2d at 84. Consequently, "the rule is inflexible, without regard to the consideration paid, or the honesty of intent." Id.

¶ 11 Moreover, a finding of prohibited self-dealing need not be premised on a showing of loss to the estate:

The test of forbidden self-dealing is whether the fiduciary had a personal interest in the subject transaction of such a substantial nature that it might have affected his judgment in a material connection ... [T]he fiduciary's disqualifying interest need not be such as `did affect his judgment' but merely such as `might affect his judgment.'

Id. at 31, 63 A.2d at 84 (emphasis added) (quoting In re Downing's Estate, 162 Pa.Super. 354, 57 A.2d 710, 712 (1948)). See also Eagan v. Jackson, 855 F.Supp. 765, 779 (1994) ("It is unnecessary to show that the fiduciary succumbed to this temptation, that he acted in bad faith, that he gained an advantage, fair or unfair, [or] that the beneficiary was harmed.... [T]he fiduciary is punished for allowing himself to be placed in a position of conflicting interests in order to discourage such conduct in the future."). If the record substantiates a finding of self-dealing, the executor may be properly surcharged for any amount he accepted in violation of his fiduciary duty. Id. at 791-92.

¶ 12 In Eagan, the United States District Court granted forfeiture of a $75,000 referral fee paid to the guardian of an incompetent's estate by counsel who represented the estate in personal injury litigation. Under those parties' referral fee agreement, counsel would pay the guardian a percentage of fees he collected from the estate as continuing compensation for the referral. The district court recognized readily the potential conflict posed by such an agreement.

As the guardian of [the decedent's estate], [the guardian's] interest was in maximizing the funds recoverable by the estate as a result of this litigation, net of all costs including attorneys' fees. As a lawyer receiving a referral fee from [outside counsel], [the guardian's] position was compromised, since his interest was in maximizing [counsel's] overall fee, of which he would receive one-third. Clearly, [the guardian's] duty to superintend the litigation, including his willingness to terminate [counsel's] representation if it proved to be inadequate, was compromised by this arrangement.

Id. at 780.

¶ 13 In this case, the orphans' court concluded, as did the court in Eagan, that the Executor's fee arrangement with counsel for the decedent's estate posed an unavoidable conflict of interest and, thus, constituted prohibited self-dealing. Upon study of the record before us, we find no error in the orphans' court's determination. The record establishes, without contradiction, that the fees the Executor accepted were...