The opinion
J-A33031-14
2015 PA Super 53
IN RE: RAYMOND G. PERELMAN IN THE SUPERIOR COURT OF
CHARITABLE REMAINDER UNITRUST PENNSYLVANIA
UNDER AGREEMENT OF TRUST DATED
APRIL 25, 1996
APPEAL OF: JEFFREY E. PERELMAN
Appellant No. 151 EDA 2014
Appeal from the Decree of December 9, 2013
In the Court of Common Pleas of Philadelphia County
Orphans' Court at No.: 529 IV of 2013
IN RE: RAYMOND AND RUTH PERELMAN IN THE SUPERIOR COURT OF
COMMUNITY FOUNDATION UNDER PENNSYLVANIA
AGREEMENT OF TRUST DATED AUGUST
21, 1995, AS AMENDED
APPEAL OF: JEFFREY E. PERELMAN
Appellant No. 155 EDA 2014
Appeal from the Decree of December 9, 2013
In the Court of Common Pleas of Philadelphia County
Orphans' Court at No.: 520 IV of 2013
IN RE: RAYMOND AND RUTH PERELMAN IN THE SUPERIOR COURT OF
EDUCATION FOUNDATION UNDER PENNSYLVANIA
AGREEMENT OF TRUST DATED AUGUST
21, 1995, AS AMENDED
APPEAL OF: JEFFREY E. PERELMAN
Appellant No. 162 EDA 2014
Appeal from the Decree of December 9, 2013
In the Court of Common Pleas of Philadelphia County
Orphans' Court at No.: 519 IV of 2013
J-A33031-14
IN RE: RAYMOND AND RUTH PERELMAN IN THE SUPERIOR COURT OF
JUDAICA FOUNDATION UNDER PENNSYLVANIA
AGREEMENT OF TRUST DATED AUGUST
21, 1995, AS AMENDED
APPEAL OF: JEFFREY E. PERELMAN
Appellant No. 163 EDA 2014
Appeal from the Decree of December 9, 2013
In the Court of Common Pleas of Philadelphia County
Orphans' Court at No.: 521 IV of 2013
IN RE: RAYMOND AND RUTH PERELMAN IN THE SUPERIOR COURT OF
FAMILY CHARITABLE FOUNDATION PENNSYLVANIA
UNDER AGREEMENT OF TRUST DATED
APRIL 25, 1996, AS AMENDED
APPEAL OF: JEFFREY E. PERELMAN
Appellant No. 164 EDA 2014
Appeal from the Decree of December 9, 2013
In the Court of Common Pleas of Philadelphia County
Orphans' Court at No.: 528 IV of 2013
BEFORE: LAZARUS, J., WECHT, J., and STRASSBURGER, J.*
OPINION BY WECHT, J.: FILED MARCH 17, 2015
Jeffrey Perelman appeals the decrees1 of the Philadelphia County Court
of Common Pleas Orphans’ Court sustaining the preliminary objections of
____________________________________________
*
Retired Senior Judge assigned to the Superior Court.
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Raymond Perelman to Jeffrey’s2 petitions. In those petitions, Jeffrey seeks
production of a broad array of documents pertaining to various charitable
trusts (the “Charitable Entities”) established by Raymond as settlor and
administered by Raymond as an original trustee, as well as records from
various entities that allegedly are controlled by Raymond. Jeffrey alleges
that these Raymond-controlled entities improperly did business with the
Charitable Entities. The orphans’ court sustained Raymond’s preliminary
objections solely upon the basis that Jeffrey lacked standing to seek the
production in question. Although we do not pass upon any of Jeffrey’s
specific document requests, we conclude that the orphans’ court erred in
finding that Jeffrey lacked standing to attempt to establish a legal basis for
the production in question. Accordingly, we reverse the orphans’ court
decrees sustaining Raymond’s preliminary objections, and we remand for
further proceedings.
_______________________
(Footnote Continued)
1
As the caption indicates, this decision encompasses five separate
appeals, which this Court consolidated sua sponte pursuant to Pa.R.A.P. 513
by order entered on February 27, 2014. As explained at greater length,
infra, the substance of the underlying proceedings, the orphans’ court’s
rulings, and the appeals at issue enables us to provide a unitary discussion
that applies equally to all five appeals.
2
The parties, the orphans’ court, and now this Court, adopt the
convention of referring to the various members of the Perelman family
involved in this action, or its genesis, by their given names to minimize
confusion. Our employment of this convention is a convenience, but by no
means suggests that this Court views the parties informally.
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The orphans’ court has provided the following factual and procedural
background of this case:
On June 27, 2013, Jeffrey Perelman (“Jeffrey”) filed amended
petitions seeking a court order requiring his father, Raymond
Perelman (“Raymond”), to produce for inspection and copying all
books and records related to the administration, distribution and
investment of the following charitable foundations1 established
by Raymond and his Wife, Ruth Perelman [“Ruth”][3]:
The Raymond and Ruth Perelman Judaica Foundation[,]
The Raymond and Ruth Perelman Community Foundation,
and[]
The Raymond and Ruth Perelman Education Foundation[.]
According to Jeffrey, these three foundations were established
by separate, identical Agreements of Trust dated August 21,
1995. Jeffrey also filed amended petitions relating to the
Raymond G. Perelman Charitable Remainder Unitrust under
Agreement of Trust dated April 25, 1996 and the Raymond and
Ruth Perelman Family Charitable Foundation under Agreement of
Trust dated April 25, 1996.[4]
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3
Jeffrey requested, in the alternative, that Raymond be directed “to
prepare and file with the [orphans’ court] accountings of the administration
of the [Charitable Entities].” Amended Petition for Inspection of Books and
Records (521 of 2013) ¶¶ 65. Given the sweep and nature of Jeffrey’s
requests, it is difficult to distinguish those requests from an overarching
request for an accounting, except insofar as they also seek records from
outside entities that he alleges did improper business with the Charitable
Entities. Because the requests are effectively indistinguishable from an
accounting, we view them as the latter, as to which there is far more
relevant case law.
4
Based upon the parties’ approaches to these cases and our review of
the record, we understand that these various entities are all subject to
materially identical governing documents, and that Jeffrey’s arguments are
identical as to each. Accordingly, we address all of the petitions, docketed in
the Philadelphia County Orphans Court at 519, 520, 521, and 528 IV
(Footnote Continued Next Page)
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____________________
1
Jeffrey had initially filed a petition seeking this
information on April 24, 2013. When preliminary
objections were filed by Raymond and Ronald Perelman,
however, Jeffrey responded by filing his amended
petitions.
In addition to inspecting and copying the books and records of
the Charitable Entities, Jeffrey also seeks to inspect and copy
“the books and records of the entities with whom the Education
Foundation engaged in business and/or financial transactions”
that were owned or controlled by Raymond [or Jeffrey’s brother,
Ronald Perelman (“Ronald”)5], individually or as trustee.
[Raymond and Ronald] vigorously opposed these petitions,
asserting, inter alia, that they should be dismissed because
Jeffrey lacks standing to pursue them. It is undisputed, for
instance, that Jeffrey was not a beneficiary of any of these
charitable foundations. In addition to Jeffrey’s lack of standing,
Raymond asserts that Jeffrey’s petition should be dismissed for
failure to join or identify indispensable parties. He claims that it
is also factually defective in failing to name the business entities
whose corporate books and records are sought. Raymond also
maintains that Ruth [Perelman’s] estate [“Ruth’s Estate” or the
“Estate”]6 faces no liability attributable to the administration of
the Foundation during her trusteeship for various reasons. In
response, Jeffrey argues that he has standing as the executor of
[Ruth’s E]state and as a successor trustee. . . .
Factual Background
An analysis of [Jeffrey’s] standing to gain access to the books
and records of the [Charitable Entities] hinges on the various
documents and amendments to those documents that were
executed to establish the [C]haritable [Entities]. On August 21,
_______________________
(Footnote Continued)
of 2013, in a unitary discussion. As noted, supra, we refer to them
collectively as the “Charitable Entities.”
5
Ronald is not a party to the instant appeal.
6
Ruth was an original trustee for the Charitable Entities, although her
trusteeship allegedly was terminated several years before her death.
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1995, [Ruth and Raymond] executed an Agreement of Trust
(“August 21, 1995 Trust Agreement” or “1995 Trust
Agreement”) to establish the Raymond and Ruth Perelman
Education Foundation. In this agreement, they designated
themselves as trustees or original trustees. As Raymond notes,
this foundation is exempt from income taxation as a private
foundation within the meaning of the Internal Revenue Code of
1986. One key provision of this initial 1995 trust agreement
that is at the heart of the present dispute is Item FOURTH which
provides:
FOURTH—Irrevocability: This trust is expressly stated to be
irrevocable, provided, however, that this trust, except for
this Item FOURTH, may be amended at any time or times
by written instrument or instruments signed and
acknowledged by the Original Trustees then serving.
However, no amendment shall authorize the Trustees to
conduct the affairs of this trust in any manner or for any
purpose contrary to the provisions of Section 501(c)(3) of
the Code.
Another key provision of the initial 1995 trust agreement is Item
SEVENTH, which states:
SEVENTH—Trustees: Additional and Successor Trustees
may be appointed as follows:
1. The Original Trustees may, if they deem it
appropriate, by joint action, or by the sole action of
the latter to serve of them, appoint at any time, or
from time to time, Additional or Successor Trustees;
and by joint action, or by the sole action of the latter
to serve of them, dismiss any such Additional or
Successor Trustee, with or without cause, and
without any requirement to appoint a replacement.
This authority to appoint Additional Successor
Trustees does not foreclose a decision by the Original
Trustees, or by the latter to serve of them, to
administer the Foundation without Additional and
Successor Trustees until such time as both of the
Original Trustees are no longer serving.
2. Upon the termination of service by any Trustee, for
whatever reason, no accounting shall be required,
unless an original Trustee, or a majority of all
Trustees other than the terminating Trustee, shall
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insist, and the release by the remaining Trustees of
the terminating Trustee shall be a complete
discharge to the terminating Trustee of all liability for
his or her service.
August 21, 1995 Trust Agreement, Item SEVENTH.
On February 12, 1996, Raymond and Ruth amended this initial
August 21, 1995 Trust Agreement for the Education Foundation
with the “First Amendment and Restatement of the Raymond
and Ruth Education Foundation” (hereinafter “February 12, 2006
Amended Trust Agreement”). Item FOURTH was amended as
follows to give Raymond sole authority to amend the trust prior
to his death:
FOURTH—Irrevocability: This trust is expressly stated to be
irrevocable; provided, however, that this trust, except for
this item FOURTH, may be amended at any time or times
by written instrument or instruments signed and
acknowledged by RAYMOND PERELMAN. However, no
amendment shall authorize the Trustees to conduct the
affairs of this trust in any manner or for any purpose
contrary to the provisions of Section 501(c)(3) of the
Code. In addition, after RAYMOND PERELMAN’s death,
resignation or permanent incapacity, at any time, or from
time to time, the then surviving Trustees shall have the
power to amend this Agreement or any of its terms in any
manner required for the sole purpose of ensuring that the
trust qualifies and continues to qualify under Section
501(c)(3) of the Code.
Significantly, this amendment was signed by both original
settlors and trustees who were then serving: Ruth and Raymond
Perelman.
Item SEVENTH of the February 12, 1996 Amended Trust
Agreement likewise continued to provide that “no accounting”
would be required upon the termination of “service by any
Trustee, for whatever reason” unless an original trustee “shall
insist.” Moreover, “the release by the remaining trustees of the
terminating Trustee shall be a complete discharge to the
terminating Trustee of all liability for his or her service.”
On November 12, 2007, Raymond amended the February 12,
1996 Amended Trust Agreement. Two years later, on August
18, 2009 Raymond revoked in its entirety the February 12, 1996
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Amended Trust Agreement. In so doing, he removed Ruth as
original trustee. He also changed the successor trustees upon
Raymond’s death from his sons Jeffrey and [Ronald] to Ronald
and Debra Perelman [“Debra”]. Ruth died [on] July 31, 2011.
In 2013, Raymond executed more amendments to the trust
document. On May 13, 2013, Raymond, serving as the sole
Original Trustee of the trust, revoked the November 12, 2007
Amendment and the August 18, 2009 Amendment in their
entirety. This May 13, 2013 Amendment further provides that
the successor trustees upon Raymond’s death would be [Ronald
and Debra]. A few weeks later, on May 29, 2013, Raymond
once again amended the trust to provide in Item SEVENTH that
“at no time” shall [Jeffrey] serve as a successor trustee for this
foundation. By document dated June 11, 2013[,] Raymond
amended and restated the trust for the Raymond and Ruth
Perelman Education Foundation. It appoints Ronald and Debra
to serve with him as additional trustees of the foundation upon
acceptance of that appointment. It states Jeffrey shall never
serve as successor trustee. According to Raymond, this June 11,
2013 Amendment and Restatement is the “operative governing”
trust document for the Education Foundation.
Orphans’ Court Opinion (“O.C.O.”), 12/6/2013, at 1-4 (footnoted citations to
the record omitted).
Citing Jeffrey’s non-beneficiary status, the breadth of his requests for
disclosure, Ruth’s failure to seek compensation for her service while she was
alive, and the absence of any imminent tax liability as well as Raymond’s
commitment individually to indemnify Ruth’s Estate for any liability arising
from Ruth’s trusteeship for the Charitable Entities, by decrees dated
December 4, 2013, docketed on December 6, 2013, and transmitted to the
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parties on December 9, 2013,7 the orphans’ court determined that Jeffrey
lacked standing to request the information in question and sustained
Raymond’s preliminary objections to Jeffrey’s petitions. This timely appeal
followed.8
Before this Court, Jeffrey raises the following issues:
1. Does [Jeffrey], as Executor of [the Estate], have standing
to bring the petitions below seeking discovery in support of a
request, by [Ruth’s] Estate, for compensation through the date
of her death for Ruth’s service as trustee?
2. Does Jeffrey, as Executor of [Ruth’s] Estate, have standing
to bring the petitions below seeking discovery relating to
management of the [Charitable Entities] during Ruth’s service as
a trustee to assess the Estate’s potential liability to the Internal
Revenue Service for transactions engaged in by the [Charitable
Entities] during her tenure?
Brief for Jeffrey at 2-3.
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7
Jeffrey purported to appeal the December 4, 2013 decrees. However,
pursuant to Pa.R.A.P. 108(a)(1), “the day of entry [of an appealed-from
order] shall be the day the clerk of the court . . . mails or delivers copies of
the order to the parties,” as required by Pa.R.C.P. 236(a)(2). Our docket
has been corrected to reflect this fact.
8
The orphans’ court did not direct Jeffrey to file a concise statement of
the errors complained of on appeal pursuant to Pa.R.A.P. 1925(b). The
court relies upon the opinion it issued contemporaneously with the appealed-
from orders in satisfaction of its obligation to furnish this Court with an
opinion under Rule 1925(a). That opinion provides an explanation of the
basis for the orphans’ court’s rulings that is sufficient to enable our thorough
review of the issues presented.
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Both issues address Jeffrey’s standing, in his capacity as executor of
Ruth’s estate, to request certain documentation of the Trusts and other
related entities.9
A party seeking judicial resolution of a controversy must, as a
prerequisite, establish that he has standing to maintain the
action. Standing requires a party to have a substantial interest
in the subject matter of the litigation; the interest must be
direct; and the interest must be immediate and not a remote
consequence. The inquiry into standing ascertains whether a
party is the proper party entitled to make the legal challenge to
the matter involved. A person who has no stake in the matter
has no standing to obtain judicial resolution of his challenge to
the matter.
A trustee must file an accounting when directed to do so by the
Orphans’ Court division, and may file an account at any other
time. 20 Pa.C.S.A. § 7181. The court may cite the trustee, on
application of a person in interest, to file an account of the
management of a trust estate. Further, a trustee must file an
accounting upon the request of the beneficiary of the trust.
However, even the next of kin of a beneficiary of a trust has no
interest in the trust, which would automatically entitle such
person to demand that the trustee file an accounting. If, upon
citation to file a formal account, the trustee acquiesces without
challenge and provides a formal accounting to the next of kin of
the beneficiary of the trust, then the trustee cannot be heard to
argue that the next of kin lacks standing to demand a filing of an
account.
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9
In the orphans’ court, Jeffrey also sought to establish standing as a
successor trustee, opining that Raymond’s amendments to the Charitable
Entities’ governing documents purporting to remove him from that status
were improper and ineffective. The orphan’s court rejected this argument.
Jeffrey does not appeal, and we need not consider, that aspect of the
orphans’ court’s ruling.
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Rock v. Pyle, 720 A.2d 137, 142 (Pa. Super. 1998) (case citations
omitted).
Although the factual background, as condensed above, is somewhat
confusing, Jeffrey’s issues on appeal are straightforward. First, Jeffrey
submits that Ruth’s Estate, for which he serves as executor, has standing to
examine the Charitable Entities’ records to determine whether Ruth, and by
extension the Estate, are entitled to compensation for her administrative role
vis-à-vis the Charitable Entities. Second, Jeffrey submits that the Estate has
standing to seek the records in question to determine whether the Estate
might be exposed to liability to the IRS for any actions or transactions by the
Charitable Entities that occurred while Ruth shared responsibility for the
Charitable Entities’ administration.
Jeffrey’s issues pertain to the orphans’ court’s rulings sustaining
Raymond’s preliminary objections to Jeffrey’s disclosure requests.
“Preliminary objections, the end result of which would be dismissal of a
cause of action, should be sustained only in cases that are clear and free
from doubt.” Bower v. Bower, 611 A.2d 181, 182 (Pa. 1992).
A demurrer admits as true all well-pleaded facts and all
inferences reasonably deducible from them, but not any
conclusions of law. Only if upon the facts averred, the law says
with certainty that no recovery is permitted will this Court
sustain the demurrer. Where a doubt exists as to whether a
demurrer should be sustained, this should be resolved in favor of
overruling it.
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Buchanan v. Brentwood Fed. Sav. & Loan Ass’n, 320 A.2d 117, 120
(Pa. 1974) (citations and internal quotation marks omitted); see Stahl v.
First Pa. Banking & Trust Co., 191 A.2d 386, 389 (Pa. 1963). The scope
of our review of an order sustaining preliminary objections is plenary.
Solomon v. Gibson, 615 A.2d 367, 368 (Pa. Super. 1992). We begin with
Jeffrey’s second issue, which concerns the Estate’s potential exposure to IRS
liability.
In rejecting Jeffrey’s argument that he had standing to seek discovery
to assess the Estate’s potential exposure to IRS liability associated with the
administration of the Charitable Entities, the orphans’ court explained as
follows:
In the initial August 21, 1995 Perelman Education Foundation
Trust Agreement, the settlors expressed their intent that “the
release by the remaining Trustees of the terminating Trustee
shall be a complete discharge of the terminating Trustee of all
liability for his or her services.” This same position is expressed
in the June 11, 2013 Amendment and Restatement of the
Perelman Education Foundation Agreement[,] which states in
Item TENTH (G) that “the release by the Original Trustee, or a
majority of the trustees then serving other than the terminating
trustee if the Original Trustee is not then serving, shall be a
complete discharge to the terminating trustee of all liability for
the terminating trustee’s service.” With this clear, unambiguous
language Ruth and Raymond, and after Ruth’s removal and
death[] Raymond alone[,] reiterated a straightforward
mechanism for providing a complete discharge for a terminating
trustee such as Ruth.
Raymond followed through with the option set forth in the trust
agreements by executing a “Release, Indemnification and Waiver
of Accounting Agreement” on May 29, 2013. With this
document[,] which specifically references the Ruth and Raymond
Perelman [Education] Foundation Trust Agreement of August 21,
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1995, and its subsequent amendments, Raymond released “Ruth
Perelman from any liability for her service, if any, as a Trustee of
the Trust” while waiving “the preparation and filing of an account
of the administration of the Trust during the period Ruth served
as a Trustee of the Trust.” Based on the clear language of these
documents, the [Estate] has been discharged from any liability
relating to the management of the Perelman Education
Foundation so that Jeffrey, as her executor, cannot claim to be
aggrieved or have standing.
O.C.O. at 7-8.
In his Omnibus Memorandum of Law in Opposition to Preliminary
Objections (“Jeffrey’s Memorandum”), Jeffrey presented the following
argument:
Raymond’s claim that Ruth’s Estate has no potential liability [to
the IRS] because of his “release” is almost comical. The
potential liability of Ruth’s Estate that Jeffrey raised in the
Amended Foundation Petitions is to the IRS for the way
Raymond has administered the Foundations, stripped them of
cash and made investments in business interests controlled by
Ronald. The IRS is not bound by Raymond’s “release” if Ruth’s
Estate has potential liability, and given his own potential
exposure, Raymond’s indemnification is likely worthless.
Jeffrey’s Memorandum at 21. Before this Court, Jeffrey largely repeats
these assertions, noting that in his petitions he provided ample basis for
concern in the Foundations’ IRS 990-PF forms. He emphasizes that, in the
context of preliminary objections, the orphans’ court was obligated to
assume the truth of those averments, and should have granted discovery on
that basis. See Brief for Jeffrey at 30-31. In support of the insufficiency of
Raymond’s indemnification commitment, Jeffrey quotes this Court’s decision
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in Woodburn v. Consolidation Coal Co., 590 A.2d 1273
(Pa. Super. 1991):
[F]or a party responsible [for] complying with safety regulations,
to ignore those regulations because of an indemnity clause in a
contract is very risky. That clause only has meaning if the
indemnitor has the assets to satisfy its agreed indemnification.
In these cases, the plaintiff can seek collection of his entire
judgment against any party found liable. The indemnitee may
be required to pay the full judgment and, if the indemnitor is
financially weak, not be compensated.
Id. at 1277.10
Identifying Jeffrey’s IRS concerns as a “puzzling gambit,” Raymond
essentially responds that Jeffrey’s petition properly was denied because
there is no present IRS claim against the Charitable Entities or the Estate,
and the Estate has been released and indemnified for any such liability.
Brief for Raymond at 40. In support of his first point, Raymond notes that
the statutes cited by Jeffrey as possible bases for IRS liability provide that
liability can be imposed upon a trust manager only upon a showing that the
manager knowingly “participated” in improper conduct. See id. at 41-42
(citing 26 U.S.C. §§ 4941, 4944). “While Jeffrey alleges misconduct by
Raymond,” Raymond observes, “he portrays Ruth as an innocent bystander,
which would shield her and her Estate from any liability to the IRS under the
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10
Notably, the promise of personal indemnification that Raymond cites
was created years after Ruth’s death, and more years still after her service
as a trustee was terminated. Consequently, Ruth could not have relied upon
it in any way.
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very statutes he cites. . . . As such, there simply is no basis that [the]
Estate can be held liable for any violation of federal law relating to private
foundations.” Id. at 42 (emphasis in original).
In one of several instances in which Raymond directly impugns
Jeffrey’s motives, he explains as follows:
These are yet additional indicators confirming personal, ulterior
motives are driving Jeffrey, i.e., his stated desire to oust
Raymond from the Charitable Entities he created and funded,
and to take control of them (and their millions of dollars)
himself.
Id. at 43. Raymond argues that “this Court should not countenance such
conduct, just as the Orphans’ Court did not.” Id.11 Consequently, Raymond
contends, Jeffrey’s concerns regarding the Estate’s exposure to IRS liability
are “entirely speculative.” Id. As such, these concerns, being “wholly
contingent on future events,” cannot support standing. Id. (citing
Pittsburgh Palisades Park, LLC v. Commonwealth, 888 A.2d 655, 660
(Pa. 2005)).
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11
In the same passage alone, Raymond refers to Jeffrey’s “personal
animus for Raymond” and his “reprehensible and troubling” “harassment.”
Brief for Raymond at 43. Elsewhere, Raymond cites Jeffrey’s “personal and
inappropriate motives,” his “enmity toward Raymond, and his related
“confus[ion] regarding the proper discharge of his fiduciary duties to Ruth’s
Estate.” Id. at 49. Raymond cites no sources to establish a foundation for
his serial imputations regarding Jeffrey’s allegedly improper motives.
Because Jeffrey’s interests or motives have no bearing whatsoever on the
pure questions of law concerning his standing that we are called upon to
consider, we will treat these insinuations as no more than the irrelevant
surplusage that they are.
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In his second argument, Raymond argues that the Estate’s interest is
wholly unfounded by virtue of the Charitable Entities’ governing documents’
express release and discharge of any terminating trustee’s “liability for his or
her service.” Id. at 44. Raymond avers that Ruth “consented to this
mechanism for releasing a trustee when she signed the 1995 Agreements
and the 1996 Agreements.” Id. at 44-45. He further maintains that
subsequent amendments to the agreements that were executed after Ruth
died did not substantively modify the effect of this provision. Id. at 45.
Raymond further argues that, in his individual capacity, Raymond provided
the Estate “a broad indemnification from ‘any and all liabilities’ (including tax
liabilities and penalties) for [Ruth’s] service as trustee,” and in support of
that contention quotes Raymond’s May 24 2013 “Release, Indemnification
and Waiver of Accounting Agreement.” Id. at 46 (citing, inter alia, Raymond
and Ruth Perelman Judaica Foundation Release, Indemnification and Waiver
of Accounting Agreement, 5/24/2013, at 2 ¶ 7).12
There is scant Pennsylvania authority relative to the standing
questions presented. But it seems clear to us that the question lying at the
heart of the issues presented is a practical one: While it may be true that
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12
Raymond asserts that “[t]hese binding provisions are broad enough on
their own to foreclose any potential liability for Ruth’s Estate to the IRS.”
Brief for Raymond at 46. However, he cites no legal authority to support the
proposition that the IRS would consider itself bound in its enforcement, or
must do so under any applicable law, by any discharge agreement between
private parties.
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Jeffrey’s pleadings do not assert present misconduct with certainty, Jeffrey
submits that the information he seeks will enable him to determine whether
the Estate for which he is responsible is at risk of exposure to IRS liability.
In suggesting that Jeffrey is on an unbounded fishing expedition motivated
by animus rather than fiduciary concern, Raymond disregards Jeffrey’s
detailed recitation of potentially wrongful transactions and relationships
entered into by the Trusts during Ruth’s tenure. Jeffrey’s allegations are
fortified by reference to the publicly available 990-PF forms for the
Charitable Entities and span fourteen detailed paragraphs of specific
allegations concerning various business relationships that, at first blush,
might be problematic for the Charitable Entities’ Subsection 501(c)(3) status
under the Internal Revenue Code.
Among the averments that the orphans’ court was obligated by law to
accept as true for pleading purposes were the following:
The schedules attached to the Charitable Entities’ IRS Form
990s indicate that those entities have ownership interests in
land, buildings, and equipment that are leased to entities,
which are named by Jeffrey, that allegedly are owned or
controlled by Raymond “either individually [or] as a trustee of
the Charitable Remainder Unitrust” in violation of the Internal
Revenue Code, which violation can expose managers to a 5%
excise tax,13 Amended Petition for Inspection of Books and
Records (521 IV of 2013) at ¶¶ 42, 43-45.
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13
Although the orphans’ court is not obligated to defer to Jeffrey’s
conclusions of law, Buchanan, 320 A.2d at 120, that does not mean the
court may turn a blind eye to averments of fact that establish a question
(Footnote Continued Next Page)
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These holdings included a $34 million stake in Revlon, Inc.,
and Revlon Worldwide, entities substantially owned by
Ronald, who also was a disqualified person under the Internal
Revenue Code, id. at ¶¶ 49-50;
Certain of these outside entities had not made lease
payments due to the Charitable Foundations, and receivables
to the Charitable Entities had “swelled to more than $150
million,” id. at ¶¶ 46, 48,
The documents requested by Jeffrey, putatively to evaluate the tax
implications of these and other alleged misdealings, included “[l]eases,
rental agreements or any other agreements that support the rental income
amounts reported by the [Charitable Entities] and identify the parties who
were charged rent”; “accounts receivable records that support the amounts
reported” by the Charitable Entities to the IRS; “documents relating to any
collection activities in connection with the amounts reported as accounts
receivable”; and “[b]ills of sale, agreements, [etc., that] relate to the
ownership, purchase, sale or transfer of title to any assets owned or held by
the Foundations.” Id. at ¶ 63.
It cannot credibly be disputed that, were Jeffrey to learn that Ruth was
associated in any way with any misconduct by the Charitable Entities vis-à-
vis the Internal Revenue Code such that the Estate might be held liable or
that her service as a trustee was merely contemporaneous with such
_______________________
(Footnote Continued)
regarding compliance. For example, while a court need not accept a
plaintiff’s averment that a defendant was negligent as a matter of law, it
should not grant a demurrer when the facts as pleaded set forth a prima
facie case of negligence.
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misconduct by another trustee, his best course would be to inform the IRS
and work proactively to rectify the situation. This approach plainly is more
likely to minimize the Estate’s exposure, not only because it will reduce the
fines and/or penalties associated with the oversight or misconduct but also,
less quantifiably, because it can be expected to engender good will.
It is equally clear to us that Raymond’s putative indemnification of the
Estate is immaterial. Should the IRS detect misconduct in the
administration of the Charitable Entities during Ruth’s tenure and determine
that it has cause to seek sanctions against the Charitable Entities and
trustees—an assessment that is wholly independent of whether Ruth
ultimately is exonerated—her Estate’s exposure will consist not only of the
prospect of surcharges, but of the potentially considerable expense to the
Estate of resolving the situation, whether favorably or not. Furthermore, the
terms of the putative indemnification concern, at most, only “any liability”
the Estate may suffer. It is not clear that Raymond willingly would read this
to refer also to the costs of the Estate’s defense, which could be
considerable, given the complexity and scale of the Charitable Entities and
what appear from Jeffrey’s pleading to be their elaborate transactional
histories. And finally, while Raymond asserts that he has ample resources to
follow through on the indemnification, Jeffrey can have no assurance that
Raymond will have those resources at some future time, or that Raymond
will not contest the applicability of the indemnification clause.
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On the other hand, our law is clear that standing should be viewed
stringently, and we must assess Jeffrey’s asserted bases for standing with
some skepticism. Raymond is correct that speculative harm, standing alone,
does not create standing. See Pittsburgh Palisades Park, 888 A.2d
at 660-61. But Pittsburgh Palisades Park is inapposite, because it
involved the question of aggrievement in connection with litigation, not
standing to seek production or an accounting in advance of any specific
action to recover damages or to determine whether there is tax or other
exposure to the IRS that would best be resolved proactively. In short,
neither Pittsburgh Palisades Park nor any other authority cited by
Raymond addresses standing to seek information to determine, rather than
seek indemnification for, the Estate’s exposure. Necessarily, what qualifies
as stringency must differ in the context of accountings and their equivalent,
which involve some element of speculation; one does not seek an accounting
to discover what he already knows.
We find that the orphans’ court too quickly dismissed Jeffrey’s
concerns. Given that the question arose on preliminary objections, the
orphans’ court was bound by law to assume the veracity of Jeffrey’s
averments and grant Jeffrey the benefit of all favorable inferences to be
derived therefrom. See Buchanan, 320 A.2d at 120. Based upon our
review, Jeffrey’s averments clearly and with ample detail set forth bases for
concern regarding the administration of the Trusts while Ruth was still a
director.
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The remedy for this is to reverse the orphans’ court decrees sustaining
Raymond’s preliminary objections and to remand for further proceedings.
We intend no prejudice to Raymond’s right to challenge any particular
subcategory of Jeffrey’s requests for discovery. If any of the requests do not
appear to be calculated to lead to the discovery of admissible evidence, are
not tailored to the action, or reflect a fishing expedition, the orphans’ court
may reject them. See generally Pa.R.C.P. 4003.1 (providing that “a party
may obtain discovery regarding any matter, not privileged, which is relevant
to the subject matter involved in the pending action” and that even requests
that will produce only inadmissible evidence are permissible “if the
information sought appears reasonably calculated to lead to the discovery of
admissible evidence”); Berkeyheiser v. A-Plus Investigations, Inc.,
936 A.2d 1117, 1127 (Pa. Super. 2007) (holding that the trial court must
ensure that the requests “are tailored” to the specific action and that
discovery requests that reflect “a mere fishing expedition” should not be
allowed). We hold only that Jeffrey’s pleadings, in his capacity as executor
for Ruth’s Estate, satisfied the threshold standing requirements to allow the
production of documents or an accounting, provided that the requests are
appropriately fashioned to address Jeffrey’s stated concerns—i.e., whether
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the Charitable Entities have complied in full with the applicable requirements
of the Internal Revenue Code.14
We now turn to Jeffrey’s first stated issue, in which he argues that the
orphans’ court erred in denying his discovery requests to the extent that
they served his effort to determine whether Ruth’s Estate is entitled to
compensation for Ruth’s service as an original trustee. Speaking generally,
a trustee’s right to reasonable compensation is well-established, without
regard to whether the governing trust document(s) expressly so provide. In
re Reed, 357 A.2d 138, 140-41 (Pa. 1976) (citing, inter alia, Restatement
(Second) of Trusts § 242 (1957)) (“It is well established that if a deed . . .
creating a trust is silent as to compensation, a trustee is entitled to receive a
reasonable allowance on the income passing through his hands during the
term of the trust . . . .”). Moreover, in the instant case, during Ruth’s
____________________________________________
14
Discovery such as that sought in the first case should be governed in
the first instance by Orphans’ Court Rule 3.6, which provides as follows:
“The local Orphans’ Court . . . may prescribe the practice relating to . . .
discovery [and the] production of documents . . . . To the extent not
provided for by such general rule or special order, the practice relating to
such matters shall conform to the practice in the Trial or Civil Division of the
local Court of Common Pleas.” Philadelphia County Orphans’ Court rule
3.6.A(1) provides, in relevant part, only that “leave to . . . obtain discovery
or the production of documents[] may be granted only on petition upon
cause shown.” Consequently, for general standards we turn next to
Philadelphia County’s local civil rules. However, nothing in the Philadelphia
County Court of Common Pleas Civil Division’s local rules relevantly upsets
the application of the Pennsylvania Rules of Civil Procedure governing
discovery. Consequently, for purposes of resolving the instant matter, the
orphans’ court is governed by the prevailing general standards governing
discovery.
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service the governing documents for the Charitable Entities expressly
provided for trustee compensation. See, e.g., The Raymond and Ruth
Perelman Judaica Foundation, 8/21/1995, Item FIRST ¶ 5 (“Trustees shall be
entitled to reasonable compensation for services rendered as Trustees as
well as for other services rendered [in other capacities] . . . .”).
The orphans’ court explained its refusal to provide such discovery with
the following brief comment:
Exactly why Jeffrey needs the extensive discovery he requests to
determine whether Ruth may be due compensation as trustee as
expressly provided for in the governing document is unclear. If,
as Jeffrey suggests, Ruth was entitled to compensation by the
document, wouldn’t that information suffice? Moreover,
Raymond notes that Ruth never sought compensation for her
services as trustee for these charitable foundations during her
lifetime. Since Jeffrey is one of the prime beneficiaries under her
will, there is an element of self-serving in his requests. In any
event, Jeffrey fails to explain why this discovery is necessary and
therefore, his standing as to this request is unsupported.
O.C.O. at 8-9.
We detect problems with this reasoning. First, our case law is clear
that, in the absence of a specification in the underlying trust documents as
to how a trustee will be compensated, a court may determine what
constitutes the “reasonable” compensation provided by law. See In re
Kennedy’s Trust, 72 A.2d 124, 126-27 (Pa. 1950); see also In re La
Rocca’s Trust Estate, 213 A.2d 666, 668 (Pa. 1965) (citing In re
Mastria’s Estate, 196 A.2d 653 (Pa. 1964)) (observing that the
determination of proper compensation is “a matter peculiarly within the
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knowledge, competence and experience” orphans’ court). Inasmuch as one
permissible method of calculating compensation involves deriving
compensation as a percentage of trust assets under management, see
Kennedy, 72 A.2d at 126-27, the need is manifest for more information
than a mere trust provision indicating in general terms that compensation
may be awarded. Furthermore, much as does Raymond, the orphans’ court
appears to infuse its reasoning with assumptions about Jeffrey’s motives,
which do not bear upon the legal questions presented. That Jeffrey is a
beneficiary of the Estate hardly strikes us as a sound reason to object to his
efforts to ensure that the Estate collect such monies as it is rightly entitled
to. Finally, the orphans’ court’s ultimate reliance upon the lack of specificity
as to how various items of discovery would inform the compensation inquiry,
while certainly reasonable taken in isolation, does not inform Jeffrey’s
standing to seek such discovery.
We also find unpersuasive the orphans’ court’s and Raymond’s
contentions that, as a matter of law, no claim will lie for compensation
because Ruth failed to seek it during her lifetime and thereby waived any
such claim by the Estate. While a trustee may waive, explicitly or by
conduct, her right to compensation, see In re Card’s Estate, 9 A.2d 557,
559 (Pa. 1939), merely declining to seek compensation is not sufficient to
defeat the right at a later time to seek it. Reed, 357 A.2d at 141-42. As
Reed makes clear, whether a trustee has waived the right to compensation
is a case-specific and fact-intensive inquiry, one seldom if ever suited to
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resolution in the context of a demurrer. While the orphans’ court may, on
remand, find upon a duly developed record, that Ruth intended to waive her
contractual right to reasonable compensation, it erred in doing so based
solely upon the pleadings.
To be clear, the orphans’ court’s concern that the documents Jeffrey
seeks might not be relevant to the calculation of any compensation due
Ruth’s Estate certainly warrants consideration on remand. However, were
the court to determine that the Estate is entitled to compensation, and that
such compensation should be calculated by percentage of assets or
transactions, certain records might be required to drill down into the assets
of the Charitable Entities beyond that information found in those entities’
Form 990s. As well, additional information may assist in determining the
degree of Ruth’s involvement in the day-to-day activities of the Charitable
Entities, which reasonably could inform the assessment of how much
compensation would be reasonable.
Jeffrey does not, in his amended petitions, distinguish which
documents would assist in determining whether the Estate might be liable to
the IRS from the documents that would assist in determining appropriate
compensation, if any. Nonetheless, we find as a threshold matter that
Jeffrey has standing to seek such information as would be necessary to
determine the Estate’s right to compensation for Ruth’s service. As with the
document requests vis-à-vis tax compliance, because it dismissed Jeffrey’s
petition for want of standing, the orphans’ court made no effort to identify
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which requests, if any, were appropriately tailored to inform the potentially
meritorious concerns raised by Jeffrey.
As with our analysis of the IRS issue, we will not make that
assessment in the first instance, nor will we conclude at this time that
Jeffrey is entitled to any discovery at all. Rather, we will entrust that
assessment to the orphans’ court, underscoring that court’s broad discretion
to demand of Jeffrey that he proffer some tangible nexus between the
requested records and the IRS and compensation inquiries, as well as some
indication as to why those records will suffice where the records already in
his possession cannot.
For the foregoing reasons, we reverse in their entirety the orphans’
court’s decrees sustaining Raymond’s preliminary objections to Jeffrey’s
document requests, and we remand for further proceedings consistent with
this opinion.
Decrees reversed. Case remanded. Jurisdiction relinquished.
Judgment Entered.
Joseph D. Seletyn, Esq.
Prothonotary
Date: 3/17/2015
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