Supreme Court Landmark Decision: Trust Under Will of Ashton, Pa., 241 A.3d 353 (2021)

A Mannion Prior litigation team of Obadiah English, Stanley Ott and John Higgins achieved a landmark 7-0 decision in the Pennsylvania Supreme Court. The decision held that trust beneficiaries, no matter how small their monetary interest in a trust may be in comparison to the size of the trust itself, have a right to pursue claims that a trustee has breached its fiduciary duties owed to a trust.  The decision represents a significant victory for trust beneficiaries and an express rejection of the argument that a beneficiary has to have a monetary interest which is harmed by a trustee’s action before the beneficiary can question a trustee.  Mannion Prior, LLP represented the beneficiary Elizabeth Ashton Reed (“Ms. Reed”), the successful appellant, throughout the underlying litigation and appeal process.

The litigation began in January 2018 when PNC Bank, N.A., as Trustee of a Trust established in 1950 under the Will of Ms. Reed’s uncle, Augustus T. Ashton (the “Augustus Ashton Trust”) filed an Account of its actions as Trustee in the Orphans’ Court of Philadelphia.  In connection with the Account, PNC sought a retroactive commission (in addition to fees which it received during Trust administration).   Under the terms of the Trust, Ms. Reed receives $2,400 of income per year from the Trust while the remaining income generated by the $73 million Trust funds “Ashton Scholarships” at the University of Pennsylvania. 

Among other things, Ms. Reed claimed that PNC improperly charged the Trust over $2.3 million in fees and breached its duty of loyalty by obtaining additional compensation.  She asked the Orphans’ Court to “surcharge” PNC for its fees, i.e., order PNC to repay the fees to the Trust.  She also opposed PNC’s claims for additional retroactive compensation.

Rather than address the merits of Ms. Reed’s claims, PNC argued that she lacked “standing” or the legal right to bring and pursue her claims or to question PNC’s actions.  PNC contended that nothing it did or did not do impacted or could impact Mrs. Reed’s $2,400 annual payment.  As a result, PNC argued, Ms. Reed was not harmed by, and thus could not challenge, PNC’s actions.  The Orphans’ Court of Philadelphia rejected PNC’s arguments.  The Hon. Matthew Carrafiello held that Ms. Reed, as the owner of an equitable interest in the Trust, could object to PNC’s conduct regardless of the size of her annuity in proportion to the size of the trust.  [In re Augustus Trask Ashton, No. 195201039, Opinion Sur Appeal, 2019 WL 1030718 (C.P. Phila. Feb. 25, 2019)].

Unhappy with the Orphans’ Court ruling, PNC sought an immediate appeal to the Pennsylvania Superior Court.  Surprisingly, the Superior Court granted the appeal and, adopting PNC’s rationale, reversed.  According to the Superior Court, Ms. Reed could not demonstate that her benefit would be harmed even if PNC, as alleged, mismanaged the Trust , due to the small size of her economic interest in comparison to the overall value of the Trust,.  See Trust Under Will of Ashton, 233 A.3d 869, 880 (Pa. Super. 2020).  Ms. Reed appealed to the Pennsylvania Supreme Court.

Before the Supreme Court, PNC, the University of Pennsylvania, and the Office of the Attorney General (“Appellees”) continued to argue that because of the small size of Ms. Reed’s annuity in comparison to the size of the Trust, Ms. Reed had no right to object to any alleged breaches of PNC’s fiduciary duties.   The Supreme Court, in a 7-0 decision, disagreed.

[PNC, the University of Pennsylvania, and the Office of the Attorney General] would subordinate the very bedrock idea of an equitable interest in the corpus to the expedient of an ad hoc test asking whether they have sufficiently mismanaged the trust to their own benefit to warrant relief, subverting time-honored precedent along the way. Were we to endorse pecuniary harm as the baseline test for trust beneficiary standing, we would recognize standing in theory while denying it in all but the most extreme cases of self-dealing or neglect.

The Pennsylvania Supreme Court’s unanimous decision in Ashton definitively confirms that every beneficiary has a right to hold their trustees accountable for breaches their duty of undivided loyalty no matter how dismissive the trustee may be of that status.

The case has been remanded to the Orphans’ Court for further proceedings. 

Upon the filing of her Objections, PNC filed preliminary objections contesting Ms. Reed’s standing to contest its breaches of fiduciary duty, on the basis that Ms. Reed’s objections, even if sustained, did not impact the payment of her annuity, given that the Augustus Trust had since grown to $72 million.  At the Orphans’ Court, Judge Matthew Carrafiello rejected PNC’s standing arguments and overruled its relative Preliminary Objections; on appeal, the Superior Court reversed, and adopted a “proportionality test” for standing at odds with the established law of trusts.  Before the Supreme Court, PNC continued to argue that because of the small size of Ms. Reed’s annuity in comparison to the size of the Trust, Ms. Reed was not entitled to object to any of PNC’s breaches of fiduciary duties.

 The Supreme Court rejected that premise and found that PNC “fundamentally…misunderstands the nature of the duties it owes [to Ms. Reed] under the UTA and her remedies for beach of those duties.”  Majority Opinion, at 12.  The Supreme Court held that Ms. Reed’s standing to object to her fiduciary’s self-dealing and disloyalty cannot be measured by her interest in the trust, “because the trustee stands in a fiduciary relationship to the beneficiary, the trustee is obligated to manage the property in the interests of the beneficiary, and not himself.”  Majority Opinion, at 12.  Justice Wecht’s concurring opinion goes further to conclude that PNC’s arguments “boggle the mind”:

 “[PNC, the University of Pennsylvania, and the Office of the Attorney General] would subordinate the very bedrock idea of an equitable interest in the corpus to the expedient of an ad hoc test asking whether they have sufficiently mismanaged the trust to their own benefit to warrant relief, subverting time-honored precedent along the way. Were we to endorse pecuniary harm as the baseline test for trust beneficiary standing, we would recognize standing in theory while denying it in all but the most extreme cases of self-dealing or neglect.”

 The Pennsylvania Supreme Court’s unanimous decision in Ashton definitively confirms that trustees that breach their duty of undivided loyalty to their beneficiaries to benefit themselves will be held accountable, no matter how relatively “small” the trustee believes those beneficiaries interests are.