In re Will of Crabtree, SJC-09787.

CourtUnited States State Supreme Judicial Court of Massachusetts
Citation865 N.E.2d 1119,449 Mass. 128
Docket NumberNo. SJC-09787.,SJC-09787.
PartiesIn the Matter of the Trusts Under the WILL OF Lotta M. CRABTREE.<SMALL><SUP>1</SUP></SMALL>
Decision Date14 May 2007
865 N.E.2d 1119
449 Mass. 128
In the Matter of the Trusts Under the WILL OF Lotta M. CRABTREE.1
No. SJC-09787.
Supreme Judicial Court of Massachusetts, Suffolk.
Argued January 2, 2007.
Decided May 14, 2007.

[865 N.E.2d 1123]

J. Owen Todd (Julie E. Green with him), Boston, for the trustees.

James R. DeGiacomo (Judith K. Wyman with him), Boston, guardian ad litem.



449 Mass. 129

Issues surrounding the administration of seven trusts created under the will of Lotta M. Crabtree are before us once again,2 this time on appeal from judgments of the Probate and Family Court removing the appellants Francis J. Harney and Robert G. Naughton as trustees, and surcharging them for excessive fees and administrative expenses charged to the Crabtree trusts in connection with the fifth accounts (for calendar year 1999) and the sixth and final accounts (for the period January 1, 2000, through July 5, 2000) of the trusts.3 In addition to the orders of removal and surcharge, the judge held that the trustees' failure to disclose in their accounts that portions of their fees for all seven trusts were being paid from the account of a single trust constituted a "fraud on the Court."

In an unpublished memorandum and order pursuant to its rule 1:28, the Appeals Court affirmed the removal of the trustees and the reduction in their fees. Matter of the Trusts Under the Will of Crabtree, 66 Mass.App.Ct. 1102, 845 N.E.2d 450 (2006).

865 N.E.2d 1124

It also ruled that the probate judge had abused his discretion by excluding certain testimony of an expert witness, and it vacated the surcharge for administrative expenses. On the trustees' petition for rehearing on the issue of fraud on the court, the Appeals Court issued an amended memorandum and order declining to reach the issue.4 We granted the respective applications for further appellate review of the trustees and the guardian ad litem (GAL) previously appointed by the probate judge. See note 8, infra.

449 Mass. 130

We affirm in part and reverse in part. We affirm the removal of the trustees, and the surcharge for excessive fees paid to the trustees. We conclude that there was no error in the judge's actions concerning the expert witness's testimony, but that the judge erred in surcharging the trustees for administrative expenses that had been paid separately by the trusts. We reverse the judge's finding that the trustees committed a "fraud on the Court."

1. Contested accounts. We begin by recounting the legal controversy from which this dispute arose, and we then summarize the operative facts. Naughton, Harney, and Joseph F. Lyons were appointed successor trustees of each of the seven Crabtree trusts in 1984, 1992, and 1995, respectively.5 Each trustee was a practicing attorney for the duration of his appointment, and the judge found that all three were acting as professional trustees, a status that carries with it a higher standard of conduct than that expected of ordinary trustees. See New England Trust Co. v. Paine, 317 Mass. 542, 550, 59 N.E.2d 263 (1945).

On May 25, 2000, the trustees filed the fifth accounts (the seventy-first accounts overall) of the Crabtree trusts, for the calendar year 1999. On November 29, 2000, Harney and Naughton filed the sixth and final accounts (the seventy-second accounts overall) of the Crabtree trusts for the period January 1, 2000, through July 5, 2000 (the date of Lyons's death). On May 17, 2001, the judge ordered the trustees to file a detailed written statement specifying the time the trustees spent on the trusts, as well as their basis for calculating trustee compensation and expenses.6 The same day, the judge appointed the GAL to

449 Mass. 131

represent the interests of the potential student charitable beneficiaries of the largest trust, the Lotta Agricultural Fund (agricultural fund trust), as to the seventy-first and seventy-second Accounts, and to review those accounts.7,8 On December 13,

865 N.E.2d 1125

2001, the trustees filed identical affidavits in response to the judge's order, outlining the time they claimed to have spent on trust business and the formulae they used to determine fees and expenses. The affidavits were submitted "under protest and reserving all rights of appeal."

The GAL filed his report with the Probate and Family Court on April 9, 2002. He concluded that the trustees had charged fees and expenses to the trusts that were "clearly excessive," and that the trustees had impermissibly established an endowment fund at the University of Massachusetts (university) using income from the agricultural fund trust. He recommended that the fifth and sixth accounts be disallowed.9 The GAL further recommended that the trustees be required to restate the accounts, and that they be surcharged for "any excessive fees and expenses" they had charged to the trusts. On June 19, 2002, the judge ordered a hearing on the fifth account of the agricultural fund trust, and the sixth account of all seven trusts, to be followed by a trial. The hearing and trial were held on fourteen nonconsecutive days between January 7 and September 30,

449 Mass. 132

2003. During the course of the trial, the judge heard testimony from, among others, an expert witness for the GAL, Stephen Howe,10 and an expert witness for the trustees, Michael Puzo.11 James Pitts, the senior vice-president for finance and administration of The Boston Foundation, an expert witness for the trustees, was not permitted to testify on the issue of the reasonableness of the trustees' fees, although the judge did permit Pitts to testify as an expert on other matters.

On July 29, 2004, the judge ordered removal of the trustees. The judge required Naughton and Harney to repay $122,960.22, together with interest, to the agricultural fund trust in relation to its fifth account (for 1999), and a total of $69,737.69, together with interest, to all seven Crabtree trusts in relation to their sixth and final accounts (for 2000).12 The judge also appointed successor trustees.

We turn now to the judge's factual findings, supplementing them where appropriate with uncontested material from the record.

2. Factual background. a. The will. On September 25, 1924, Crabtree, a well-known vaudeville star and stage actress, died. In her will, dated October 5, 1922, she created eight testamentary charitable

865 N.E.2d 1126

trusts. Seven are currently active.13 Each of the Crabtree trusts is a separate entity with a distinct charitable purpose, requiring separate administration and the filing of separate probate accounts. The stated purpose of the largest trust, the agricultural fund trust, is to provide loans to graduates of what

449 Mass. 133

is now the University of Massachusetts, as well as financial assistance to needy and meritorious students for their studies at the university.14 As of December 31, 1999, the assets of the agricultural fund trust had a market value of $4,082,766.05. The other six trusts have fewer assets, with market values as of December 31, 1999, ranging between $159,120.02 and $1,050,052.34. The combined market value of the other six trusts as of December 31, 1999, was $3,806,730.26.

b. Operation of the Crabtree trusts. The judge made detailed findings concerning the operation of the seven trusts. Although the trustees argue otherwise, the judge found that the administration of the Crabtree trusts, particularly the smaller trusts, was not particularly onerous.15 Having available to him records including minutes of trustee meetings and lawyers' diaries, the judge found that the trustees met weekly for less than one and one-half hours, on average, to discuss grant making and other trust matters, and that they rarely engaged in trust activities at other times.

449 Mass. 134

In addition to making loans to farmers,16 the judge found that the trustees had distributed income of the agricultural fund trust to the Lotta M. Crabtree Endowment

865 N.E.2d 1127

Fund (endowment). The endowment was established by the trustees in 1987 at the suggestion of officials at the university. Under the arrangement, rather than making direct grants or loans from trust income to eligible students, income from the agricultural fund trust was disbursed to the University of Massachusetts Foundation, Inc., which administers the endowment.17 The endowment, in turn, used some, but not all, of the funds to make scholarship grants to undergraduate and graduate students at the university. From 1987 until 1999, the trustees paid $631,751 of income from the agricultural fund trust into the endowment, and as of 2003, only $301,500 had been paid out.18 The trustees also agreed that ten per cent of the annual income of the endowment itself would be added to the endowment principal.

c. General accounting, fees, and expenses. Trustees' fees formed the bulk of trust expenditures. Both Naughton and Harney submitted affidavits averring that they did not keep itemized records of the time they spent on trust business, and that their compensation was not based on the time spent, "but rather on the basis customary to Boston trustees, i.e., law firms and banks managing trust assets, a percentage of principal under management and of income periodically." Under the formula adopted by the trustees, each trustee was paid a flat fee of "$3,500 per month which in total is approximately one-half of one percent of the principal assets, plus about $1,000.00 per quarter, which represents approximately one-third of [three]

449 Mass. 135

trustees' share of 6% of earned income." The percentage fee was paid on a quarterly basis. The trusts also generated administrative expenses, primarily for rent, accounting services, and a part-time secretary.19

The assets of the seven trusts were held in seven separate investment accounts at the brokerage firm Salomon Smith Barney, where each trust also had its own checking account. However, the trustees'...

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