Pennsylvania Fiduciary Litigation : Pennsylvania Trusts and Estates Lawyer & Expert Witness : Patti Spencer Law Firm : Fiduciary Litigation, Planning : Lancaster, Harrisburg, Philadelphia, Pennsylvania

Andrew Wolfe writing for the Nashua Telegraph:

NASHUA – A daughter of the late developer Samuel Tamposi will appeal a judge’s decision that cut her out of the family fortune and left her with millions of dollars in debt to the family trust, probate court records show.

Last month, Elizabeth “Betty” Tamposi, 55, of Gilford, lost a long, high-stakes battle with her brothers, Samuel Jr. and Stephen Tamposi, for control of her share of their family’s fortune.

Hillsborough County Probate Court Judge Gary Cassavecchia concluded that Betty Tamposi had violated the “no contest” clause of her father’s trust and would thus be disinherited. Rather than gain control of her share, Betty Tamposi could lose everything.

In addition, Cassavecchia ruled that she must pay back all the money she has received over the last two years, since she first filed the suit, and pay her brothers’ legal bills, which by their reckoning exceed $2 million.

Betty Tamposi and her lawyer, Michael Weisman, of Boston, had asked the judge to reconsider his rulings, but they withdrew their request on Aug. 31, court records show. On Sept. 17, one day before the 30-day deadline, they filed notice that they will appeal his decisions before the state Supreme Court.

It isn’t clear exactly how many millions of dollars Betty Tamposi would owe under Cassavecchia’s order – the figure could be $17 million or more – and neither side would comment on whether any post-trial settlement negotiations were under way.

Betty Tamposi declined to comment on the case by e-mail, writing that while the court case is public, “I view this as a private matter among my family.”

Andie Schwartz wrote an excellent article for Trusts and Estates analyzing the case.  It is entitled "Cementing Family Bonds."  Read it here.

Schwartz writes:  "As an expert witness for Betty, John Langbein, a professor at Yale Law School testified that the investment directors 'have a continuing duty to diversify trust assets to afford sufficient liquidity to meet the … distribution requests of the trustee.' He stated also that it wouldn’t benefit the beneficiaries to hold assets that were illiquid or undiversified. "

"The court held that in bringing and prosecuting the litigation, Betty acted in bad faith. Because she challenged the investment directors’ role and specific investments—both of which were expressly provided in the trust document as well as through Sam, Sr.’s intent—her lawsuit was a challenge to the trust provisions. "

The court's 54 page opinion: Shelton, Tamposi v. Tamposi, Jr. & Tamposi, 316-2007-EQ-0219 (August 2010).

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The beleaguered Hershey Trust Company is much in the news.  On February10, 2011, former Hershey Trust board member Robert Reese filed a petition in the Dauphin County Orphan's Court asking the court to compel current and former members of the trust company's board of directors to redress "breaches of trust."  Reese filed the petition on February 10, 2011 and an amendment to the petition of February 11. 2011.

This follows much bad press about alleged self-dealing on behalf of the board by acquiring Pumpkin World and Penn Wren Golf Course at grossly inflated prices. (And wouldn't you know it?  Board members had interests in the purchased land.)

Today we have this news: 

HERSHEY, Pa., Feb. 21, 2011 /PRNewswire/ -- Hershey Trust Company ("HTC") announced today that it has entered into a definitive agreement with Bryn Mawr Bank Corporation ("Bryn Mawr Trust") under which Bryn Mawr Trust will acquire the entire HTC Private Wealth Management Group (the "PWMG Business").  The transaction, which is subject to various closing conditions, including HTC and Bryn Mawr Trust both receiving regulatory approval, is expected to be completed within 90 days.

"The Hershey Trust Company has been taking ongoing steps to return its full focus to its core mission of managing the assets of the Milton Hershey School Trust," said LeRoy S. Zimmerman, chairman of the HTC Board of Directors.  "Selling our private wealth management business to Bryn Mawr Trust is another positive step to help us achieve that goal while doing so in a manner that is in the best interests of the group's private clients."

HTC expects the transition to Bryn Mawr Trust to be seamless and to have minimal impact on clients.  Bryn Mawr Trust is acquiring the entire PWMG Business, including the full team of client services personnel.  In addition, the Group will remain at its current location at West Chocolate Avenue in Hershey.  "Our clients can be assured that following the completion of the sale they will continue to work with the same team and receive the same high quality advisory and fiduciary services that they currently receive," said William F. Christ, President, Hershey Trust Company, PWMG.

"We carefully considered the sale of the PWMG Business and determined that Bryn Mawr Trust was the right buyer," Christ said.  "Bryn Mawr has a long and venerable history in the region and a culture rooted in tradition similar to ours.  Importantly, they share our commitment to customer service.  In addition, Bryn Mawr Trust and its subsidiaries offer a full range of personal and business banking services, and our clients will have access to additional services beyond those we currently offer.  We look forward to working with Bryn Mawr Trust during the coming months to ensure a smooth transition."

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The Pennsylvania Supreme Court has issued a decision holding that a third party that relies on a power of attorney is not immune from liability if the power of attorney is not valid. This decision calls into question third parties' acceptance of powers of attorney.

In recent years I have been increasingly frustrated by the refusal of financial institutions to honor an agent’s authority under powers of attorney. Time after time my clients have run into situations where a third party such as a broker, bank, or title company simply refuses to honor instructions given by an agent under a power of attorney. Sometimes they ask for the principal to sign "their" form, which is, of course, impossible if the principal is incapacitated. Sometimes they ask for an affidavit from me certifying that a document is valid and currently in force - which I cannot and will not do. That is far beyond my authority and ability as I could never know if documents have been revoked or superceded.

The issue has become very troubling and has caused me to consider recommending revocable trusts to clients solely for the purpose of dealing with disability and incapacity when I would not recommend them for that tired old excuse of "avoiding probate."

Things have now gotten worse. On December 21, 2010, the Pennsylvania Supreme Court handed down its decision in Vine v. SERS Board ( 9 A3d 1150), a case brought to my attention by Attorney William Campbell.

First, some background: To protect third parties, like banks, brokerage houses and retirement plans, the Pennsylvania power of attorney statute includes two provisions. First, the law requires a third party to obey the agent’s instructions, absent good reason not to do so. Second, if the third party acts in good faith reliance on the document, the third party is immune. These provisions have been necessary to provide third parties important relief from liability from relying on powers of attorney. These provisions are what has made the system work. If the third party is not relieved of liability - it is not going to take the risk of honoring the authority.

Here is an example: Grandfather signed a power of attorney naming Son as his agent under a power of attorney document. Grandfather becomes incapacitated. Son needs to access Grandfather’s funds in order to pay Grandfather’s bills. Son takes the power of attorney to the bank as proof of his authority to make withdrawals from Grandfather’s account. Under the Pennsylvania statute, we thought (or at least most, if not all, of my colleagues thought) that the Pennsylvania statute would protect a bank who relied in good faith on a power of attorney. What if the power of attorney were forged, or what if Grandfather was incompetent before he signed the document? If either of those things are true, then the power of attorney is not valid, but how in the world would the bank ever know? If we require the bank or other third party to investigate and make a determination of whether or not Grandfather was competent on the date the power of attorney is signed, then the power of attorney is effectively useless. No prudent bank or other third party is going to rely on any power of attorney document. To prevent this from being the case, the PA statute includes the provision that relieves the bank from liability for relying on the instrument.

Not any more.

The Pennsylvania Supreme Court has announced that the statutory protection for banks and other third parties only applies if the power of attorney is in fact valid. Hard to believe, I know, but true nevertheless. The highest court in the state now says that a third party is taking a risk to act on a power of attorney without a determination that the power of attorney is valid. How would they do that? It’s not something you can tell by looking at the power of attorney. If the power of attorney was signed a year ago and the principal is now incapacitated, how can a third party satisfy itself that the principal was competent when the power of attorney was signed? How can a third party know if the power was subsequently revoked? This is absurd.

True, broad durable powers of attorney can be abused, and they can create opportunities for self-dealing. This decision by the Supreme Court could render powers of attorney virtually useless. This is not a reasonable interpretation of the statue. As dissenting Justice Todd states, the Pennsylvania legislature "does not intend an absurd or unreasonable result" and described the court’s construction as "impracticable."

Since this decision is rendered by the highest court in the state, the only way to remedy the situation is for the legislature to act and pass more legislation. We hope that they will do so promptly. I guess the law would have to say something like a third party shall not have liability for good faith reliance on a power of attorney and "we really mean it."

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On January 31, 2010, Jackson Hewitt Tax Service filed a lawsuit against H&R Block (Jackson Hewitt Inc. v. H&R Block Tax Services LLC) to stop a new advertising campaign. The complaint is that H&R Block’s "Second Look" marketing campaign is deceiving customers and diverting business away from Jackson Hewitt. They claim that H&R Block has been disparaging Jackson Hewitt’s reputation and goodwill in the marketplace. The lawsuit also claims that H&R Block misleads customers about refund anticipation loans (RALs). The lawsuit is Jackson Hewitt Inc v. H&R Block Tax Services LLC, U.S. District Court, Southern District of New York, No. 11-00641.

H&R Block’s ad campaign claims it found errors in 2 out of 3 returns prepared by other commercial tax preparers when the returns were reviewed by Block. The reviews in question are H&R Block's "Second Look Review" service. For $29, Block will review returns prepared by other companies, to see if anyone missed anything. Jackson Hewitt in the complaint states: "H&R Block's 2 out of 3 claim necessarily implies the false claim that two out of three Jackson Hewitt customers who are entitled to refunds have been short-changed due to Jackson Hewitt errors or incompetence."

Interestingly, the Block TV ad campaign never mentions Jackson Hewitt in the script- it refers to "other commercial preparers." However, there is a "fine print" disclaimer on the ad which refers to Block’s review of Jackson Hewitt prepared returns. The complaint alleges that Block has run print advertisements that say, "We found errors in 2 out of 3 Jackson Hewitt Tax Returns."

H&R Block is about five times bigger than Jackson Hewitt, which is the second largest commercial tax preparer. Jackson Hewitt said it prepared 2.53 million U.S. tax returns in 2010. H&R Block prepared 20.1 million U.S. returns in its 2010 fiscal year. H&R Block is based in Kansas City, Missouri, and Jackson Hewitt in Parsippany, New Jersey.

Speculation is that the H&R Block ad campaign is in response to their being prevented from giving out RALs. This highly profitable short term loan offered by many commercial tax return preparers has been criticized by many because of high fees and interest rates.

Taxpayers who get RALs often pay charges for the application, e-filing and a range of other costs, in addition to the bank's finance charge. This can all add up to the equivalent of an interest rate in excess of 100% and sometimes multiples of that, according to the National Consumer Law Center. The Center reported that a $3,300 RAL carries a rate of about 72% when fees and charges are added up.

In December 2010, federal banking regulators Office of the Comptroller of the Currency informed HSBC Holdings Plc., H&R Block’s principal lender, that it must stop offering RALs.

The FDIC, which governs the bank funding Jackson Hewitt’s RALs, hasn’t made the same determination. This looks like a windfall for Jackson Hewitt whose RAL program is still going strong. Despite the government’s and financial advisors’ criticism of RALs, the public apparently still likes them. Hewitt was positioned to pick up lots of business from Block since Hewitt could offer RALs and Block couldn’t.

Block, in an attempt to aggressively market its services, began a new ad campaign. The campaign focuses on the Second Look Service. Taxpayers are urged to bring in their 2007, 2008 and 2009 returns. These returns can be amended if errors are found, and Block claims 2 out of 3 reviews result in refunds.

Jackson Hewitt’s complaint says: "H&R Block’s failure to offer a program comparable to Jackson Hewitt’s RALs has proven to be a significant disappointment to H&R Block’s prospective 2011 customers, with the result that H&R Block saw itself facing significant competitive disadvantage in competing with Jackson Hewitt as the peak tax return season approached. . . H&R Block’s response was to launch a massive promotional campaign based on false and misleading statements, designed to ‘trash’ both Jackson Hewitt and its RAL service."

Since they can’t offer RALs, H&R Block has some alternative products available for this filing season, including the Emerald card - you receive your refund on a prepaid MasterCard, and a Refund Anticipation Check (RAC) - Block gets your refund, deducts its fee and possibly your tax preparation fees and gives you either a check or a direct deposit. These are not loans. Block claims you get your refund in 8 to 15 days if you use one of these products.

This year the IRS says it expects more than 70% of returns to be filed electronically. Taxpayers can expect to get refunds in 7 to 10 days after filing. Let’s see - which is better 7 to 10 days or 8 to 15 days. Be careful out there.

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