Trust of Nell G. Jack

Citation: 2022 Pa. Super. 158Docket: 415 WDA 2021

Court: Superior Court of Pennsylvania; September 14, 2022; Pennsylvania; State Appellate Court

Original Court Document: View Document

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Christine J. Toretti and James H. McElwain, Trustees of the Trust established by Nell G. Jack, appeal an order from the Allegheny County Orphans’ Court that enjoins them from using Trust assets for legal fees without court approval and from exercising any Special Power of Appointment without notifying Joseph J. Toretti, a beneficiary. The appeal stems from a February 26, 2021 order concerning Trust asset usage and follows a complex history involving trustee appointments and removals. Initially, the trust had three individual trustees and a corporate trustee, with Christine later becoming sole trustee after the removals of Richard J. Kline and McElwain. In 2001, McElwain was re-appointed by Christine to facilitate a controversial $10 million investment in S.W. Jack Drilling Company, which PNC Bank, the corporate trustee at the time, deemed self-dealing. Christine and McElwain eventually removed PNC and modified the trust to eliminate the corporate trustee requirement. Joseph, the son of Christine and a beneficiary, filed a petition in 2018 challenging the Trustees' accounting, claiming it omitted significant periods and reflected actions not in good faith or aligned with beneficiary interests, indicating potential self-dealing. The appellate court vacated the injunction order and remanded the case for further proceedings, affirming the appealability of the injunction under Pa.R.A.P. 311(a)(4).

Trustees filed responses to Joseph’s objections, leading to the appointment of Honorable Joseph Del Sole as special master on September 24, 2019, to resolve discovery issues and later to mediate substantive disputes. On September 2, 2020, Joseph petitioned for the immediate removal of the Trustees, alleging that Christine and McElwain managed the trust detrimentally for the beneficiaries' interests, favoring their self-interests. The petition requested several actions, including the removal of the Trustees, an injunction against using trust assets for personal legal fees, reimbursement of legal fees paid on their behalf, and the appointment of an interim successor trustee with specific powers.

Christine denied any breach of fiduciary duty or self-dealing, and McElwain supported her response. The court subsequently issued an order prohibiting the Trustees from using trust assets for legal costs without court approval and from exercising any Special Power of Appointment without notifying Joseph and obtaining court permission if he objects. The court denied additional relief requests. The Trustees filed an appeal, raising two issues: whether the Orphans’ Court erred by granting injunctive relief without a hearing and without finding wrongdoing, and whether it abused its discretion in restricting Christine's nonfiduciary special power of appointment. Appellate courts review preliminary injunctions for abuse of discretion, guided by a highly deferential standard that looks for reasonable grounds for the lower court's actions.

Trustees contend that the Orphans’ Court made errors in partially granting Joseph's request for injunctive relief by not holding a hearing, failing to establish any wrongdoing by the Trustees, and not determining that immediate and irreparable injury would occur before a hearing. They argue that Joseph did not meet the six prerequisites for a preliminary injunction under Pennsylvania law and that the court misapplied sections 7766(c) and 7781(b) of the Probate, Estates, and Fiduciaries (PEF) Code. These sections allow for injunctive relief pending a decision on a trustee's removal but require a court to find evidence of a breach of trust before granting relief. Trustees assert that establishing such a finding necessitates an evidentiary hearing, which was not conducted. The PEF Code allows the court to provide remedies to protect trust property and beneficiary interests, including compelling duties and enjoining breaches. The procedure for injunctions in the Orphans’ Court follows the Pennsylvania Rules of Civil Procedure, which stipulate that a preliminary injunction requires notice and a hearing unless immediate and irreparable harm is demonstrated, justifying a decision without one.

In considering whether to grant a preliminary or special injunction, courts can rely on pleadings, affidavits, or other proofs. Typically, a written notice and hearing are required before issuing a preliminary injunction, unless there is an urgent need to protect a clear right from immediate and irreparable injury. In such cases, a court must find that relief is necessary prior to notifying the defendant, and failure to hold a hearing within five days dissolves the injunction. To qualify for injunctive relief, a party must demonstrate several criteria, including the necessity to prevent harm that cannot be compensated by damages, that greater injury would result from denying the injunction, that the injunction restores parties to their status before wrongful conduct, that the activity to be restrained is actionable, that the injunction is appropriately tailored, and that it does not negatively affect the public interest. If any criterion is unmet, the court need not consider the others.

In this case, Joseph filed for a preliminary injunction on September 2, 2020, but the court granted relief on February 26, 2021, without a hearing or a determination of immediate and irreparable harm. The court also failed to find a breach of trust, as required by statute, and did not assess the necessary prerequisites for injunctive relief. Consequently, the order granting injunctive relief was vacated, and the case was remanded for a hearing. Additionally, the court erred in restricting Christine's exercise of her nonfiduciary special power of appointment, as her authority under this power is distinct from her fiduciary duties and does not carry a good faith obligation. Upon remand, the court cannot enjoin Christine from exercising her power of appointment, which allows her to designate beneficial ownership interests in the appointive property. The injunction against McElwain's exercise of any power of appointment under the Trust was also inappropriate since only Christine holds that power in her individual capacity.

The holder of a power of appointment is classified as a beneficiary of a trust and is not subject to fiduciary duties, such as a duty of good faith. The donee may exclude certain potential appointees when exercising this power, limited solely by the terms outlined in the governing document. Article I, Section 2.2 of the Trust grants Christine the authority to appoint beneficiaries from her issue, with the only restriction being that she cannot use this power to discharge any legal obligations. Christine's exclusionary power of appointment allows her discretion in selecting beneficiaries. The Orphans’ Court incorrectly issued an injunction against her exercise of this power based on fiduciary conduct allegations. The court's order is vacated, and the case is remanded for further proceedings. Joseph’s claim that Christine is attempting to discharge a legal obligation through threats related to the power of appointment is unfounded, as he fails to identify any specific legal obligation that would be discharged. Additionally, his assertion that the Trust Agreement inherently carries a duty of good faith and fair dealing is unsupported, as it is treated as a trust rather than a contract. Judgment has been entered, and jurisdiction is relinquished.