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Schnader Appellate Team Obtains Significant Victory in Trust Case for Wells Fargo

On November 23, 2011 by Schnader in Appellate

A Schnader appellate team including Bruce P. Merenstein, Carl A. Solano and Ralph G. Wellington obtained a major victory on November 23, 2011 in a trust case for Firm client Wells Fargo Bank when the Supreme Court of Pennsylvania affirmed the decision of the Superior Court in Estate of Anna E. Fridenberg, Deceased. The Court held that Pennsylvania trial courts are not bound by a 1951 Pennsylvania Supreme Court decision forbidding the compensation of trustees from a trust corpus if the trust was created before a statutory change permitting such compensation. This decision overturns more than a half century of Pennsylvania law on an issue of great importance to the fiduciary departments of financial institutions.

Schnader was retained to handle the case on appeal after the Philadelphia Orphans’ Court ruled against our client (then, Wachovia Bank) by holding that it could not receive commissions from the principal of a trust created in 1940 for its work as a trustee because Wachovia’s predecessor had already received a commission from principal for acting as the testator’s executor. The court based its holding on a 1951 Pennsylvania Supreme Court decision called Williamson’s Estate, which held that it was unconstitutional for the Pennsylvania Legislature to allow recovery of such commissions from trusts created before 1945 because laws on the books before 1945 prohibited their recovery. The Legislature tried to change the Williamson rule many times, but the courts continued to adhere to the rule.

In our successful appeal to the Superior Court, the Firm mounted an aggressive frontal attack on the Williamson rule, arguing that the Superior Court should defer to the Pennsylvania Legislature’s repeated attempts to repeal it. We argued that the Legislature had made known its desire to repeal the rule five separate times by separate enactments and that any federal due process objections had been removed by changes in federal due process law since the Williamson decision. In a 2-1 decision, the Superior Court agreed with our arguments and found Williamson limited to its facts. The dissent agreed on all substantive grounds as well, but felt that only the Supreme Court could change the Williamson result.

The Attorney General sought further review by the Pennsylvania Supreme Court and on November 23, 2011, the Supreme Court ruled in Wells Fargo’s favor. In an opinion by Justice Eakin, the Court explained that Williamson Estate should no longer be followed because the reasoning underlying that decision no longer is valid. Noting that “the fiduciary landscape has changed significantly” since Williamson was decided, the Court explained that modern trustees must perform far more duties today than they did in the early 20th Century and that the Legislature acted reasonably in concluding that trustees therefore deserved additional compensation for their services. Under modern due process law, legislation that furthers a legitimate public purpose furthered by rational means is constitutional, even if it applies retroactively to events (like creation of a trust) that occurred before its enactment. The Court also rejected the Attorney General’s argument that legislation permitting the additional commissions impaired contract rights arising under the 1940 trust. The Court explained that compensation of the trustee was governed by applicable state statutes, and not by any specific terms of the trust document.

Carl Solano argued the case in both the Supreme and Superior Courts.

Category: Appellate