When individual fiduciaries are found to have breached their fiduciary duties, they are often found to have received some help.  Many times a spouse, lover, or business partner is seen lurking in the wings, aiding and abetting the breach of fiduciary duty.  From an aggrieved beneficiary’s or successor fiduciary’s perspective, it’s imperative to get that joint-wrongdoer brought into court, where he or she can be held to account for the wrongdoing and – if there’s a recovery to be had – reimburse the estate or trust for damages.  In other words, a person cannot be held to account unless he or she is actually a party to the litigation.

In Estate of Brown, the Superior Court of Pennsylvania, decided that the Court of Common Pleas of Delaware County exceeded its authority when it imposed a surcharge on Kenneth Pearl, who was not a party to the underlying proceeding.

Lorie Pearl was appointed as plenary guardian of the person and estate of Alice Brown based on Alice’s incapacity.  Within two years, the income and principal received by Lorie (approximately $365,000) had dissipated to almost nothing (approximately $5,600).  David Fogg sued Lorie for breach of fiduciary duty.

At trial, Kenneth testified that he and Lorie had purchased a house for Alice to rent.  Kenneth intended that Alice’s rent would equal the cost of the monthly mortgage payment and utilities on the property.  The trial court held that because Kenneth was unjustly enriched from Lorie’s improper use of Alice’s assets, he was liable to Alice’s estate under a constructive trust theory.

The Superior Court ruled that the trial court exceeded its authority by imposing a surcharge on Kenneth when Kenneth was not named as a party to the suit, served with process, or given the opportunity to contest the surcharge.

As soon as David learned that Kenneth had a hand in Lorie’s activities, David would have been wise to have Kenneth joined as a defendant in the lawsuit and served with process.  Because Kenneth was not actually a party to the litigation, Alice’s estate lost out on collecting the surcharge and injecting some cash into Alice’s depleted estate.