In Re Estate Of Clarence A. Warden

• Decision Date: 13 September 2010
• Citation: 2 A.3d 565
• Court: Pennsylvania Superior Court
• Parties: In re ESTATE OF Clarence A. WARDEN, Deceased. Appeal of Charles LeMenestrel & Genevieve LeMenestrel-Manas.

2 A.3d 565

In re ESTATE OF Clarence A. WARDEN, Deceased. Appeal of Charles LeMenestrel & Genevieve LeMenestrel-Manas.

Superior Court of Pennsylvania.

Argued Feb. 24, 2010.

Filed July 9, 2010.

Reargument Denied Sept. 13, 2010.

COPYRIGHT MATERIAL OMITTED.

COPYRIGHT MATERIAL OMITTED.

Louis J. Sinatra, Philadelphia, for appellants.

Thomas S. Biemer, Philadelphia, for Wachovia Bank, Participating Party.

Gary R. Battistoni, Philadelphia, for Warden, Participating Party.

BEFORE: BOWES, OTT, and FITZGERALD ^* , JJ.

OPINION BY FITZGERALD, J.:

¶ 1 Appellants, Charles LeMenestrel and Genevieve LeMenestrel-Manas (“Appellants”), appeal from the order entered in the Court of Common Pleas of Delaware County, which overruled their objections to the accounting and denied their claim for imposition of a surcharge on the Trustees, William G. Warden III (“Warden III”) and Wachovia Bank, N.A. (“Wachovia”) (collectively, “Trustees”). We hold that under these facts, Trustees acted in good faith and did not engage in intentionally dishonest behavior. Finally, we hold that under the facts of this case, acquiescence and laches bars Appellants' claims. Accordingly, we affirm.

¶ 2 The trial court set forth the background:

The Clarence A. Warden Residuary Trust (“Trust”) was created by Charles A. Warden, Sr. (“Settlor”), the grandfather of the Co-Trustee, William G. Warden, III ... and the great-grandfather of the Objectants, Charles and Genevieve LeMenestrel-Manas, who are brother and sister.

* * *

At the time of the Settlor's death in 1951 ... 109, 960 shares of stock of the Superior Tube Company (hereinafter “Superior Tube”)[,] a company co-founded in 1931 by the Settlor[,] [was transferred to the Trust]. In 1970, Superior Tube's shares of stock were exchanged for those in a holding company known as CAWSL Corporation (hereinafter “CAWSL”) in which Superior Tube became one of a number of subsidiaries thereof. In 1996, CAWSL's name was changed to Superior Group, Inc., hereinafter referred to as “SGI”. The Trust was, from its inception and at the Settlor's intention, heavily concentrated with SGI stock, valued initially at $1,511,950.00 pursuant to the court approved Final Estate Accounting filed in 1958, and in the First and Second Accountings filed in 1982 and 1987, all court approved without objection from any beneficiary.

The retention and investment of Trust property was designated a discretionary act by the Settlor, who expressly provided that his Trustees would have no liability for the exercise thereof, so long as they acted in good faith:

“The exercise of good faith by the Trustees under this instrument of any and all of the foregoing powers, authority and discretion shall be without any responsibility or liability upon them for any depreciation or other loss by reason of so doing.”

In amplification of the discretion granted to the Trustees regarding their investment decisions, Warden Sr. expressed a preference for focusing on an investment's long-term performance and his own investment philosophy:

“I suggest to my Trustees that in the investment and reinvestment of funds from time to time in their possession they favor the purchase of common stock equities in companies which to them appear to have or to indicate the promise of growth and thus tend to off-set the decrease of purchasing power over the years. I also give my Trustees full power to purchase and retain all investments which at the time of purchase or receipt may be producing little or no return, and also to purchase and retain any other securities, the return on which may at any time be reduced or wholly eliminated. In so suggesting I do not intend to restrict them in their full freedom, except as otherwise provided herein, in making other types of investments or in making investments having a fixed return, but merely to suggest a broad program of investment which would be in substance a continuation of that policy which in my lifetime I have consistently followed.”

* * *

The Settlor placed a number of specific restrictions on the power of the Trustees to sell the SGI shares of stock. The Codicil provides:

“THIRD: If at the time of my death, I am owner of stock of the SUPERIOR TUBE COMPANY, or of the stock of any corporation with which the said Company has merged or consolidated, the general power of sale given to my Executors and Trustees in my Will with respect to any property of mine shall be subject, as respects such stock alone, to the limitations of the Codicil set forth.[”]

“I direct that said stock shall not be sold by my Executors or Trustees, either in whole or in part, unless (a) all of my Executors or Trustees, as the case may be, at the time in office, agree to the same, and (b) in addition unless all of the Trustees of any other then subsisting Trust created by me and holding any part of said stock, agree in writing to such sale by the Executors or Trustees under my Will, and (c) finally unless such sale or sales are at a price not less than that determined by Edward Hopkinson, Jr. ... as representing the fair market value therefore.... In the event that Edward Hopkinson, Jr. is dead or refuses or is unable to make such valuation, then I direct that any such sale or sales by my Executors or Trustees, with the written approval as aforesaid of the Trustees of any other then subsisting Trust created by me and holding any of such stock, shall be (a) at a price or prices not less than the book value thereof as determined by sound and customary accounting procedure....”

Trial Ct. Op. at 4-7 (citations and footnotes omitted); see generally Lemenestrel v. Warden, 964 A.2d 902 (Pa.Super.2008), appeal denied, 603 Pa. 695, 983 A.2d 729 (2009).

¶ 3 In 1987, Warden III successfully petitioned the trial court to become the successor Trustee to his father. Trial Ct. Op. at 7. All present and future beneficiaries consented to this appointment. Id. at 8. Warden III is also an income beneficiary of the Trust with a twenty-five percent interest. Id. at 10. Appellants, on the other hand, “hold a combined 12.5 percent interest in the Trust. The remaining vested beneficiaries [including Warden III,] collectively holding an 87.5 percent interest in the Trust, have registered no objections to the September 29, 2004 Accounting at issue here.” Id. at 11. The accounting period at issue was from January 1, 1987, through July 30, 2004. Appellants' interest vested in the year 2000. Id. at 10.

¶ 4 The trial court provides a detailed history of SGI from its founding in 1931 to the present that we do not recount here. See id. at 11-28. SGI's value has fluctuated throughout the company's life, which affects the Trust's performance. “[D]uring [Wachovia's] administration of this Trust, the Trust's principal income in SGI has increased from $1.5 Million at the time of its inception to at least $189 Million[.]” Id. at 67.

SGI held its first ever formal shareholders' meeting on June 9, 2001, which gathering was attended by Warden III ... and other family shareholders, including [Appellants]. The meetings, like other such yearly gatherings to follow were driven by a two part agenda, a short first portion thereof that included the Bank Trust officers, and a second longer meeting attended by the family shareholders in SGI. During the second part of each of these meetings, written materials, including copies of slides depicting operating income and revenue for a number of the subsidiaries, were shown to and reviewed with the family during presentations by ... Warden III ....

It was not until the 2003 and 2004 family meetings in which a plan to fully liquidate SGI for certain business reasons related in slide materials and to develop a “family trust office” or “Private Trust Company” (“PTC”) that [Appellants] began to become uncomfortable with the direction of the company. Although initially enthused about the PTC, [Appellants] reported concerns developing during the Summer of 2003, regarding potential tax consequences of the PTC and fears of an “undemocratic” governing structure of that organization ....

During the Family Meeting held in February 2004, the family members were provided with information evincing that SGI's financial structure and performance were “poor and disappointing”. The assemblage was advised of an SGI operating loss totaling over $66 Million sustained from 2000 through 2003, and that the result would be a reduction of their dividend payments by half. [Appellants] declared that their reaction to the foregoing information as well as a suggestion that a separate trust be maintained for them sans their SGI stock led them to research the Company on the internet ....

Id. at 36-38 (citations omitted). An accounting was filed; Appellants filed objections. A sixteen-day trifurcated trial ensued.

¶ 5 On February 26, 2009, the trial court overruled Appellants' objections and denied Appellants' claim for a surcharge. On April 1, 2009, the trial court entered a final adjudication, and Appellants timely appealed on April 14, 2009.

¶ 6 Appellants raise the following issues: Whether the trustees acted in good faith and properly discharged their fiduciary duties in monitoring and retaining the SGI stock?

Whether the bank was powerless to divest SGI, although the bank collaborated with Warden III so that he could become co-trustee of the trust, thus creating an impasse?

Whether there was a loss to the trust established in the trifurcated trial, which deferred the issue of loss to a subsequent trial?

Whether Appellants acquiesced to the monitoring and retention of the SGI stock in the trust and were guilty of laches?

Appellants' Brief at 2.

¶ 7 The standard for reviewing an Orphan's Court findings is deferential. In re Estate of Harrison, 745 A.2d 676, 678 (Pa.Super.2000).

The findings of a judge of the orphans' court division, sitting without a jury, must be accorded the same weight and effect as the verdict of a jury, and will not be reversed by an appellate

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