Estate of: Bernice M. Kane, Appeal of: Kane, L. ( 2021 )

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NON-PRECEDENTIAL DECISION - SEE SUPERIOR COURT I.O.P. 65.37
IN RE: ESTATE OF: BERNICE M. KANE, IN THE SUPERIOR COURT
TRUST SETTLOR OF PENNSYLVANIA
APPEAL OF: LAUREN H. KANE
Appellant No. 1496 EDA 2020
Appeal from the Order Entered July 8, 2020
In the Court of Common Pleas of Montgomery County
Orphans' Court at No: 2018-x2354
BEFORE: BOWES, J., STABILE, J., and MUSMANNO, J.
MEMORANDUM BY STABILE, J.: FILED OCTOBER 27, 2021
Appellant, Lauren H. Kane (“Lauren”), appeals from the order entered
on July 8, 2020 in the Orphans’ Court Division of the Montgomery County
Court of Common Pleas, denying her motion to compel arbitration and
granting the motion of Appellee, PNC Bank, N.A. (“PNC Bank”), for an
emergency stay of proceedings filed with the American Arbitration Association
(“AAA”). Lauren argues the Orphans’ Court erred when it determined, inter
alia, that the arbitration clause in her mother’s trust should not be enforced
because Lauren failed to raise the clause by preliminary objection or in new
matter and because she extensively availed herself of judicial proceedings
prior to demanding arbitration. Finding no abuse of discretion in the Orphans’
Court’s denial of the motion, we affirm.
At the heart of the case is “The Bernice M. Kane Revocable Living Trust,”
a revocable inter vivos trust (“the Trust”) created on August 10, 2000 and
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amended on February 14, 2003. Bernice’s daughter, Lauren, is a successor
individual co-trustee—along with PNC Bank—and is a contingent remainder
beneficiary of the Trust. Further, Lauren is Bernice’s agent pursuant to a
durable power of attorney executed in 2012 and accepted on May 30, 2013.
The factual and procedural history of this case is extensive, tortuous,
and complicated. As the Orphans’ Court explained:
The Trust provides for distribution of income and principal to
[Bernice] as she may request from time to time [] in writing. Upon
[Bernice’s] death, the trustees shall distribute [Bernice’s] tangible
personal property to her son, Michael Scott Kane (“Michael”), and
her daughter, Lauren [], to be divided between them equally[.]
For the residue of the Trust, the remaining principal of the Trust
estate shall be distributed pursuant to the power of appointment
under will of [Bernice’s] late husband, Joseph Kane (Decedent) or
pursuant to the terms of the Residuary Trust. The terms of the
Residuary Trust include, inter alia, (1) a provision that the
Trustees shall hold the sum of $200,000 in a separate Special
Needs Trust for [Bernice’s] grandson, Jeffrey David Kane and (2)
the Trustees shall distribute the then-remaining principal in two
equal shares between [Michael and Lauren]. The Trust originally
provided that [PNC Bank] would become the first successor
Trustee of the Trust. See Trust, Article [SIXTEENTH]. Upon the
death of [Bernice], [Michael and Lauren] shall become Co-
Trustees of their individual trusts created by this Trust.
As of September 20, 2013, [Bernice’s] treating physician
concluded that [Bernice] had experienced significant declines in
mental function as a result of dementia and as a result [was]
incapable of handling her financial affairs. When PNC Bank
learned there were assets in the Revocable Trust to be
administered, in accordance with the Trust provisions, it indicated
willingness to serve as co-trustee to [Lauren]. PNC Bank
confirmed its acceptance to serve as successor trustee to Wells
Fargo Advisers by writing dated September 14, 2015. On or about
October 2, 2015, [Lauren] wanted to be recognized as sole trustee
of the Trust. As agent under power of attorney, [Lauren] filed a
[“]Petition to Compel Wells Fargo Bank to Honor the Authority of
the Pennsylvania Power of Attorney for Bernice M. Kane to Provide
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Payment of Damages[”] by its refusal to do so and acknowledge
[Lauren] as sole trustee of the Trust. [Lauren] asserted that she
had a unilateral[] right to have unfettered access to the Trust
pursuant to the power of attorney, notwithstanding any language
contained in the Trust.
The Trust clearly states that in the event of both [Bernice’s] and
her husband’s incapacity or disability that PNC Bank shall become
successor Trustee. On October 2, 2015, PNC Bank filed an answer
to [Lauren’s] petition disputing her authority to serve as sole
trustee and her interpretation of the Trust. The court authorized
discovery and ultimately [Lauren] filed a notice of appeal with the
Superior Court of Pennsylvania concerning the court’s discovery
order. The Superior Court held that [Lauren] cannot act
unilaterally to control trust assets by virtue of the Power of
Attorney in a non-precedential decision. See [Estate of Kane,
2158 EDA 2016 (Pa. Super. filed April 24, 2017). The Supreme
Court subsequently denied Lauren’s pro se petition for allowance
of appeal.]
By November 2017, the transfer of assets comprising the Trust
from Wells Fargo Advisors to PNC and [Lauren] as co-trustees was
completed. On June 26, 2018, PNC Bank filed a petition for
citation to show cause why PNC Bank [] should not be reimbursed
for expenses advanced for the trust pursuant to 20 Pa.C.S.A.
§§ 7769 and 7779, and for assessment of counsel fees and costs
against [Lauren], co-trustee pursuant to 20 Pa.C.S.A. § 7780.1
and for equitable relief. Within the petition, PNC Bank claimed
that as a result of [Lauren’s] litigious strategies against the
express Trust provisions[,] PNC Bank was caused to incur
unnecessary counsel fees and costs. [See PNC Bank’s Petition,
6/26/18, at 14-16.] Further, PNC Bank alleged that [Lauren]
should be held liable for her waste of resources in the form of a
surcharge for breach of her fiduciary duties to [Bernice] and the
beneficiaries of the Trust. Thereafter, PNC Bank filed a petition
for leave to resign as co-trustee of the Trust. [See PNC Bank’s
Petition, 7/23/18.] In February 2019, [Lauren] filed a summons
against her former attorney for malpractice. [] In this case,
[Lauren] also has alleged that her former lawyer Phyllis Epstein of
Epstein, Shapiro & Epstein, P.C. stemming out of the Epstein[
firm’s] petition should be denied reimbursement for legal fees and
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costs advanced in connection with this Trust. [See Lauren’s
Petition, 11/14/19.][1]
On January 31, 2020, this court held a status conference with all
of the interested parties to identify the dispositive issues and
determine a plan for scheduling hearings. At that time, the court
determined the following were the dispositive issues: (1)
appointing a successor trustee for PNC Bank, (2) PNC’s June 2018
petition for fees, (3) [Lauren’s] request for reimbursement for
expenses and commissions, (4) [Lauren’s] objections to the
accounting of PNC Bank and (5) the Epstein matter. At this
conference the parties all agreed with the outstanding issues and
with the case management plan for proceeding, which included a
trial schedule, as well as an attempt of the parties to agree upon
a successor trustee.[FN] On February 25, 2020, the court issued a
case management order scheduling a two-day trial, which had to
be postponed due to Coronavirus. On May 29, 2020, the court
issued a second case management order cancelling a two-day trial
which was to be held on July 22 and July 23, 2020 due to
Coronavirus. Thereafter, on June 17, 2020, [Lauren] filed her
motion to compel arbitration based on an arbitration clause
contained in the Trust. In response, PNC Bank filed a motion for
emergency stay of judicial proceedings in which the Guardian ad
Litem [appointed in relation to the special needs trust for Bernice’s
grandson, Jeffrey David Kane] joined. [Lauren] opposed the stay
whereas the others opposed the motion to compel arbitration. On
July 8, 2020, this court issued an order denying the motion to
compel arbitration with prejudice, noting “[Lauren] waived
arbitration clause contained in the Trust by failing to raise an
agreement to arbitrate before availing herself extensively to the
judicial process of this Honorable Court.” See Order dated
7/8/2020. [Lauren] timely filed a notice of appeal and Pa.R.A.P.
1925(b) Statement.
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1 By order entered August 9, 2021, we granted Epstein’s application for leave
to file post-submission communications, accepted for filing three orders issued
by the trial court in the malpractice action, and made those orders, dated June
3, 2021, July 2, 2021, and July 6, 2021, respectively, part of the certified
record in this appeal. The June 3, 2021 order reflects the trial court’s dismissal
without prejudice of Lauren’s complaint against Epstein and her law firm. The
July 2, 2021 order denies Lauren’s motion for reconsideration. The July 6,
2021 order directs Lauren to file a Rule 1925(b) statement in the appeal filed
from the June 3, 2021 order. That appeal is docketed at 1474 EDA 2021.
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[FN] An agreement could not be reached regarding a successor trustee.
In a petition [filed] March 12, 2020, [Lauren] argued she has the right
to unilaterally choose the successor trustee. The court was working to
address this matter when the instant issue was raised.
Orphans’ Court Opinion, 9/8/20, at 1-4 (some footnotes and capitalization
omitted) (emphasis in original).
In her brief filed with this Court, Lauren asks us to consider the
following:
1.(a) Can either co-trustee waive the revocable trust’s arbitration
provision, which provides that if they are unable to act
unanimously, they “shall submit such issues to the American
Arbitration Association, whose decision shall be binding”?
1.(b) Is the provision binding upon PNC, which has enjoyed the
benefits of the trust while disavowing the mandatory arbitration
provision?
1.(c) Is the provision “unconscionable?”
2. If the arbitration provision can be waived, did [Lauren] do so?
Appellant’s Brief at 7.
We begin by setting forth our standard of review. In Setlock v.
Pinebrook Pers. Care & Ret. Ctr., 56 A.3d 904 (Pa. Super. 2012), this Court
stated:
We review a trial court’s denial of a motion to compel arbitration
for an abuse of discretion and to determine whether the trial
court’s findings are supported by substantial evidence. In doing
so, we employ a two-part test to determine whether the trial court
should have compelled arbitration. The first determination is
whether a valid agreement to arbitrate exists. The second
determination is whether the dispute is within the scope of the
agreement.
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Whether a claim is within the scope of an arbitration provision is
a matter of contract, and as with all questions of law, our review
of the trial court’s conclusion is plenary. The scope of arbitration
is determined by the intention of the parties as ascertained in
accordance with the rules governing contracts generally. These
are questions of law and our review is plenary.
Arbitration is a matter of contract, and parties to a contract cannot
be compelled to arbitrate a given issue absent an agreement
between them to arbitrate that issue. Even though it is now the
policy of the law to favor settlement of disputes by arbitration and
to promote the swift and orderly disposition of claims, arbitration
agreements are to be strictly construed and such
agreements should not be extended by implication.
Id. at 907-08 (citation omitted) (emphasis in original).
Both of Lauren’s issues, including the subparts of her first issue, involve
the issue of waiver. Therefore, we address the issues together in considering
the Orphans’ Court’s conclusion that Lauren waived arbitration in this case.
As the above-quoted excerpt from the Orphans’ Court’s September 8,
2020 opinion reflects, PNC Bank’s involvement in the Trust, as well as its
disputes with Lauren relating to handling of the trust, date back to 2015. The
Orphans’ Court recognized:
It is well-established under traditional Pennsylvania case law that
an agreement to arbitrate can be waived if not raised by
preliminary objection or as new matter in a responsive pleading.
See Pa.R.C.P. 1030 (affirmative defenses, including arbitration
and award, shall be pleaded in new matter); Pa.R.C.P. 1032 (with
exceptions not relevant here, all defenses not presented by
preliminary objection, answer or reply are waived); Goral v. Fox
Ridge, Inc., 683 A.2d 931, 933-44 (Pa. Super. 1996); Teodori
v. Penn Hills School Dist. Auth., 196 A.2d 306 (Pa. 1964)
(pleadings contain no mention of arbitration defense, therefore,
defense is waived); Samuel J. Marranca General Contracting
Co., Inc. v. Amerimar Cherry Hill Assoc. Ltd., 610 A.2d 499(Pa. Super. 1992) (arbitration is an affirmative defense which
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must be pleaded in new matter or waived); Kwalik v. Bosacco,
478 A.2d 50 ([Pa. Super.] 1984). “A waiver of the right to proceed
to arbitration may be expressly stated, or it may be inferred from
‘a party’s undisputed acts or language so inconsistent with a
purpose to stand on the contract provisions as to leave no
opportunity for a reasonable inference to the contrary.’” Goral[,
683 A.2d at 933 (quoting Marranca, 610 A.2d at 501)]. If the
pleadings are devoid of any mention of the defense of arbitration,
then it may be deemed waived. Teodori, 196 A.2d at 310.
Moreover, the failure to timely raise agreement to arbitration can
result in “exceeding unfairness to the opposing party.” Zimmer
v. CooperNeff Advisors, Inc., 523 F.3d 224, 232 (3d Cir. 2008).
As a matter of public policy, our courts have also waived a party’s
right to arbitration where her conduct would gain her an undue
advantage or result in prejudice to another party. See Kwalick,
478 A.2d at 52.
Orphans’ Court Opinion, 9/8/20, at 6-7.
The defense of arbitration was not raised by Lauren by preliminary
objection or in new matter to the various pleadings filed in this case. Rather,
it was raised for the first time in Lauren’s motion to compel arbitration filed in
June 2020, after the scheduled trial in this matter was cancelled for the second
time due to COVID-19. In accordance with our procedural rules, “[a] party
waives all defenses and objections which are not presented either by
preliminary objection, answer or reply . . . .” Pa.R.C.P. 1032(a). Therefore,
the Orphans’ Court did not abuse its discretion in determining that Lauren
waived arbitration by virtue of her failure to raise it as an affirmative defense
or in new matter.
Even if not waived by virtue of Pa.R.C.P. 1032, Lauren also waived any
right to arbitration by availing herself of the judicial process. In DiDonato v.
Ski Shawnee, Inc., 242 A.3d 312 (Pa. Super. 2020), this Court reiterated:
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“It is well-settled that although as a matter of public policy, our
courts favor the settlement of disputes by arbitration, the right to
enforce an arbitration clause can be waived.” O'Donnell v.
Hovnanian Enterprises, Inc., 29 A.3d 1183, 1187 (Pa. Super.
2011). A party that avails itself of the judicial process by
attempting to win favorable rulings from the judicial system
following the filing of a complaint waives the right to proceed
through arbitration. Stanley-Laman Group, Ltd. v. Hyldahl,
939 A.2d 378, 387 (Pa. Super. 2007).
When deciding whether a party accepted judicial process to
constitute waiver of a claim to arbitration, courts assess whether
the party: (1) failed to raise the issue of arbitration promptly; (2)
engaged in discovery; (3) filed pretrial motions that do not raise
the issue of arbitration; (4) waited for adverse rulings on pre-trial
motions before asserting arbitration; or (5) waited until the case
is ready for trial before asserting arbitration. O'Donnell, supra.
Significantly, a party “cannot avail itself of the judicial process and
then pursue an alternate route when it receives an adverse
judgment. To allow litigants to pursue that course and thereby
avoid the waiver doctrine and our rules of court is to advocate
judicial inefficiency; this we are unwilling to do.” Samuel J.
Marranca General Contracting Co. v. Amerimar Cherry Hill
Associates, 416 Pa. Super. 45, 610 A.2d 499, 502 (1992).
Id. at 318-19 (some internal citations omitted) (emphasis in original).
Here, Lauren argues her motion to compel was timely filed as soon as
she advised her current counsel of the arbitration provision in the Trust. The
Orphans’ Court rejected her contention, noting that “[Lauren’s] argument
rings hollow and disingenuous. It cannot be understated that this motion was
made just five days before the original trial date in this matter.” Orphans’
Court Opinion, 9/8/20, at 7. Further, “[t]he failure of [Lauren] and her counsel
to recognize the AAA Arbitration clause in the main operative document sooner
than the eve of trial is unreasonable and incredible.” Id. at 8. Moreover:
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By failing to raise arbitration promptly and availing herself
extensively to the judicial process through preparation for trial,
[Lauren] prejudiced other parties. Whether [Lauren] did not know
the provision existed or she knew about the about the arbitration
provision and failed to raise it is of no moment. [Lauren’s] conduct
suggests that she was biding her time using aggressive litigation
strategies before she surprised the parties and the court with her
motion to compel. She did not raise the arbitration clause earlier
in a pre-trial pleading and expressed no intent to arbitrate prior.
Her pattern of conduct suggests a conclusive acceptance of the
judicial process and waiver of arbitration. Therefore, the court
concluded [Lauren’s] motion to compel arbitration was patently
untimely and the movant had waived her right to seek arbitration
under the Trust because she delayed until the moment of trial,
caused a negative impact on trust resources, engaged in extensive
litigation, and availed herself to the judicial process for rulings and
discovery. Accordingly, the court did not err or abuse its
discretion in denying the motion to compel arbitration.
Id. at 8 (footnote and some capitalization omitted). Weighing the O’Donnell
factors, as restated in DiDonato, the Orphans’ Court concluded:
First [Lauren] failed to raise the issue of arbitration promptly
(waited more than one year after litigation commenced). She did
not file preliminary objections nor signal her intent to invoke the
arbitration clause of the trust promptly. Second, [Lauren]
participated in discovery. Third, she filed numerous pretrial
motions and maintained an aggressive litigious posture, which
included an appeal to the Superior Court. Fourth, she waited until
adverse rulings on pretrial motions and the denial of her request
to act as sole trustee before asserting arbitration. Finally, fifth,
she waited until the case was ready for trial. Accordingly, the
possibility of arbitration was waived by [Lauren’s] conduct.
Id. at 9 (citations omitted).
Regardless of the waiver factors identified above, Lauren contends (1)
neither co-trustee can waive the Trust’s arbitration provisions, which provide
that in the event the trustees are unable to act unanimously, they “shall
submit such issues to the American Arbitration Association, whose decision
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shall be binding, (2) that the provision is binding upon PNC Bank, and (3) that
the provision is not unconscionable.” Appellant’s Brief at 7 (emphasis added).
She argues that neither she nor PNC Bank signed “a contract in which they
‘agreed’ to arbitrate, so they cannot ‘waive’ that ‘agreement.’ Rather,
[Bernice] authored a trust document that directed them to arbitrate” disputes
before the AAA, whose decision would be final. Id. at 29 (emphasis in
original). She claims the arbitration clause is enforceable “because PNC Bank,
having availed itself of the benefits of the trust, cannot simultaneously
disavow the mandatory AAA arbitration clause.” Id. at 29-30. She asserts
the clause is not unconscionable “because that defense applies to one-sided
contracts, not to trusts.” Id. at 30.
PNC Bank counters Lauren’s arguments by examining the terms of the
Trust itself, which provide in relevant part:
In the event of a difference of opinion among the Trustees, the
decision of a majority then shall prevail, but the dissenting or
nonassenting Trustee(s) shall not be responsible for any action
taken by or inaction of the majority pursuant to such a decision.
If only two (2) Trustees are in office, they must act unanimously,
except if a Trustee is not empowered to partake in a particular
decision, in which case the remaining Trustee shall make such
decision, which shall be considered unanimous, unless the
unempowered Trustee disagrees. In the event the Trustees are
unable to act unanimously for a period of fifteen (15) calendar
days, they shall submit such issues to the American Arbitration
Association, whose decision shall be binding.
PNC Bank’s Brief at 26 (emphasis in original) (quoting Trust, Item SIXTEENTH,
at ¶ C.8). As PNC Bank recognizes, the provision is not a standard agreement
to arbitrate “any and all issues,” but rather “pertains only to the situation in
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which the trustees are deadlocked and unable to act” and, as such, “applies
to trustees’ disagreements over prospective acts necessary for the
preservation and investment of trust property, the exercise of a power held
by the trustees, or some other similar action to be taken in the future.” Id.
at 26-27. Therefore, the provision does not apply where, as here, there are
“after-the-fact disputes about the propriety of a trustee’s historic actions,
particularly those that have already been raised in the context of the audit of
a trustee’s account, let alone to a beneficiary’s attempts to invade the trust or
surcharge the trustee for an alleged breach of fiduciary duty.” Id. at 27.
Further, the disputes at issue before the Orphans’ Court “involve parties other
than the trustees and include pleadings filed by those other parties, including
Lauren, who herself initiated various filings in capacities other than that of a
trustee.” Id. (emphasis in original). As such, those claims are outside the
scope of the Trust’s arbitration provisions “because they do not involve an
inability ‘to act’ on the part of the trustees.” Id. Consequently, the disputes
are not arbitrable and the Orphans’ Court did not err in finding that contract
principles apply.2
At the conclusion of its opinion, the Orphans’ Court remarked:
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2 We acknowledge that PNC Bank argues, and the Orphans’ Court determined,
that PNC Bank did not sign the Trust document, and therefore never
specifically agreed to arbitrate disputes. Appellee’s Brief at 26-28; Orphans’
Court Opinion, 9/28/20, at 9-10. In light of our disposition of Lauren’s issues
based on waiver and the language of Item SIXTEENTH of the Trust, we need
not address the import, if any, of the lack of PNC Bank’s signature to the Trust.
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This case is ready for a trial and adjudication before an Orphans’
Court judge on the issues identified by the court. The court’s
ruling is not intending to foreclose the trustees from choosing to
arbitrate other disputes by mutual agreement, but as there is not
such agreement as to the payment owed to PNC Bank, the
withdrawal of PNC Bank, the appointment of a successor trustee,
claims for legal fees of the Epstein Firm, and claims for
reimbursement by [Lauren], which are the outstanding matters
agreed to by all parties at the January 31, 2020 conference and
established in a subsequent case management order. These
matters currently before the court should proceed to trial as
planned.
To be candid, this estate is a contentious matter with multiple
attorneys. It would be easier for the court to agree to have this
matter transferred to arbitration, but given the multitude of
complex issues currently before this court, granting [Lauren’s]
petition to compel arbitration at this stage in litigation would not
be equitable or just under the law or circumstances of this case.
Orphans’ Court Opinion, 9/8/20, at 14 (footnote and some capitalization
omitted).
We find that the court’s findings are supported by substantial evidence
and that the court did not abuse its discretion or commit error of law error in
determining that the language in Bernice’s Trust did not include an agreement
between (or among) the parties to arbitrate. Further, even if the provision
did bind the parties to arbitrate, Lauren failed to raise arbitration as an
affirmative defense or in new matter and, as a result, waived arbitration.
Moreover, she extensively availed herself of the judicial process, further
supporting the court’s conclusion she waived arbitration. Because the court
did not abuse its discretion by denying Lauren’s motion to compel, we shall
not disturb its July 8, 2020 order.
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Order affirmed. Case remanded. Jurisdiction relinquished.
Judgment Entered.
Joseph D. Seletyn, Esq.
Prothonotary
Date: 10/27/2021
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