The two children of Richard Mellon Scaife have demanded, in court filings last week, an accounting for hundreds of millions of dollars that they said was drained from a trust to cover the losses of the Tribune-Review newspapers, despite the trustees’ duty to preserve funds for them.
Jennie Scaife, of Palm Beach, Fla., and David N. Scaife, of Shadyside, filed similar petitions in Orphans Court of Allegheny County. They claimed that three trustees who controlled $210 million in 2005 let that dwindle to nothing by the time of their father’s death, four months ago.
Their grandmother, the trust’s creator and namesake Sarah Mellon Scaife, included language in its 1935 deed suggesting that the trustees should have saved some of its principal for them, according to the petitions.
Jennie Scaife’s petition claims that “substantial amounts of the 1935 Trust have been distributed by the trustees to Richard Mellon Scaife to subsidize his operation of his Tribune-Review newspaper enterprise, such that as of the July 4, 2014, death of Richard Mellon Scaife, the 1935 Trust held no assets.”
David Scaife in his petition characterized the newspaper as “a waste of trust assets.”
The petitions revived the question of whether newspapers were a business or a hobby for the Ligonier billionaire. They spurred multiple responsible, knowledgable estimates that the Tribune-Review’s losses have approached $700 million over two decades.
Yale N. Gutnick, the executor of Richard Mellon Scaife’s estate and an attorney for the Tribune-Review, declined comment Saturday, saying he was in meetings. Mr. Gutnick is a trustee named in the petitions, and he said he is representing himself in the matter.
The petitions suggest deep divisions between, on one hand, Richard Mellon Scaife’s children, and, on the other, the handful of close associates managing his estate, estimated to be in the billion-dollar range. Richard Mellon Scaife did not mention the children in his will, which split most of his wealth between two foundations.
The petitions, which will be the focus of a Dec. 17 hearing before Court of Common Pleas Judge Kathleen A. Durkin, focus on just one of six Scaife trusts which, they claim, totalled $1.4 billion in 2005.
The 1935 Trust was unique among them because it did not give Richard Mellon Scaife full control over the fate of the assets before or after his death. Rather, Sarah Mellon Scaife wrote that the trust should be used for her son’s “welfare” during his life, and any remainder upon his death should go to his “issue.”
In such situations, “the trustee must balance the interest of the current beneficiaries against the interest of the remainder beneficiaries,” according to Michael J. Hussey, an associate professor of law at Widener University in Chester, who has no involvement in the case. Trustees often ensure that the trust covers the needs and accustomed lifestyle of the beneficiary, but resist the draining of the trust for uses beyond health, education, maintenance and support, he said.
Trustees often tell beneficiaries to tap other financial resources for extraneous purposes, Mr. Hussey added.
According to the petitions, from 2000 to 2004 alone, Mr. Scaife pumped $130 million into the Tribune-Review, “much of which came from the 1935 Trust.”
Mr. Scaife removed $19.5 million from the 1935 Trust in 2003, another $18 million in 2004, and $37.75 million in 2007, according to the petitions. They do not specify withdrawals from the trust in other years, but indicate that by the end of 2007, its balance was $140 million.
The 1935 Trust became an issue in the year-long divorce of Richard Mellon Scaife and Margaret Ritchie Battle, filed in 2006.
According to David N. Scaife’s petition, Mr. Gutnick and his colleague E.J. Strassburger said, in 2008, that “an alternative funding mechanism had been put in place to fund the [Tribune-Review’s] post-2008 losses,” and that there “would be at least $90 million remaining in the 1935 Trust” after the publisher’s death.
The petitions claim that the trustees — Mr. Gutnick, Scaife cousin James M. Walton, and PNC Bank — demanded and got from Richard Mellon Scaife a waiver of liability, “due to the concern of the Trustees of their personal liability for violating their duties” to administer the funds.
Such a waiver is “not normal,” according to Frederick N. Frank, an attorney for Frank, Gale, Bails, Murcko & Pocrass who has experience in trust law and also handles some litigation for the Post-Gazette. “It would occur where [trustees] had some concerns about the actions that they were taking, and that they were concerned about a possible surcharge or [legal] action for what they were doing.”
He said that if a trust’s principal were to be tapped to an unusual degree at the request of the beneficiary, the trustees might more commonly ask the children for a waiver. That does not appear to have occurred in regards to the 1935 Trust.
David N. Scaife’s petition cited testimony in the sealed, now concluded divorce case. The petition claims that rather than saving the 1935 Trust for his father’s welfare and then for his children, the trustees allowed it to be tapped “to fund the operating losses at Tribune-Review Publishing Company … for Richard’s ‘estate planning purposes.’ ”
The publisher could control the destiny of the other trusts after his death, so they were not emptied for the newspaper’s benefit, according to the petitions.
In August, after Richard Mellon Scaife’s death, in response to a request from his children, Mr. Strassburger provided a two-line statement for the 1935 Trust showing a zero balance as of July 4.
At this point, the children are demanding only for “an accounting” of the 1935 Trust.
Courts have held that a trustee who breaches the trust’s terms can be “surcharged” in the amount of any resulting losses.
The children could later seek to recover, from Richard Mellon Scaife’s estate, the money they think should have been preserved for them, according to Mr. Hussey. The estate could be on the hook for any such indemnification.
“It’s very possible that they have a cause of action here,” Mr. Hussey said.
The children’s attorneys did not comment Saturday.
The three trustees now can try to convince Judge Durkin that they shouldn’t have to detail the spending of the trust funds. If the judge demands that they account for the funds, the children could take further legal action against the trustees.
Mr. Walton could not be reached.
Jeffrey S. Lehman, senior vice president and director of fiduciary services at PNC Financial Services Group, said the company “makes no public comment on matters that are in litigation or going to go into litigation.”
In 2007, Ms. Battle’s attorneys characterized the Tribune-Review as a hobby, rather than an investment, arguing that the newspaper’s losses shouldn’t count against the divorce settlement.
Mr. Scaife’s will indicated that in 2004 he created a separate irrevocable trust controlled by people associated with the Tribune-Review. Court documents do not list the assets of that trust.
Mr. Scaife’s will divided his trust fund assets between the Sarah Scaife Foundation and the Allegheny Foundation. As a result, the Sarah Scaife Foundation is expected to roughly double in size to have assets of about $800 million, and the Allegheny Foundation will have about half that amount.
Mr. Scaife’s estate last month paid $100 million toward his state inheritance tax.
Though one of Sarah Mellon Scaife’s trusts and both her and Richard Mellon Scaife’s estates were filed in Westmoreland County, the children’s petitions are filed in Allegheny County. That’s because, according to the petitions, that is where the trusts do most of their business.
Rich Lord: rlord@post-gazette or 412-263-1542. Twitter @richelord
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