Mellon says it already boosted fees to manage trust

Bank of New York Mellon Corp., fighting to maintain control of the Elizabeth R. England charitable trust and collect more than $1 million in retroactive management fees dating to 1994, acknowledged in Philadelphia Orphans Court yesterday that it boosted its fees in 1998 without notifying the court or trust beneficiaries.

The testimony by Michael DiMedio, managing director in Mellon Wealth Management's Midatlantic Region, plainly surprised lawyers for College Settlement Camp of Philadelphia and the Pennsylvania Attorney General's Office, which has joined College Settlement in opposing Mellon's fee demands.

That reaction was shared by Ralph McDevitt, volunteer treasurer for College Settlement, which runs a camp for poor children in Horsham, and Lloyd Casson, interim dean of West Philadelphia's Church of the Savior, the city's Episcopal Cathedral. The two institutions are the largest beneficiaries of the England trust, recently valued at about $17 million.

McDevitt said he and Casson were surprised by the testimony. "It was quite an education," he said.

DiMedio was testifying on the first day of a hearing in Orphans Court in which College Settlement and the Attorney General's Office are seeking to block Mellon's attempt to collect the back fees and to raise its ongoing charges for administering the trust. The church has opposed the increased fees but hasn't joined in the legal battle.

The testimony was a surprise because a central issue in the legal battle, under way since 2007, is Mellon's argument that it should not be bound by the apparent strictures of a 1963 fee agreement that England entered into with one of its predecessor institutions, Girard Trust Corn Exchange Bank, a decade before her death.

Throughout the case, Mellon's lawyers have argued that the bank believes it should be free to collect whatever its current rates are for managing the trust, but that it had refrained from doing so in the past.

In 2007, when it first asked Orphans Court to approve the higher fees, Mellon said it had been underpaid by more than $1.4 million since England's 1973 death because it had adhered to the '63 agreement.

It's not clear how DiMedio's testimony could affect its request for $1 million in extra fees since 1994. But Robert Fiebach, Mellon's attorney, made it clear he had not expected the discovery of documents indicating the 1998 fee change. During his redirect examination of DiMedio, Fiebach indicated that evidence of the change arose when Mellon personnel gathered documents in preparation for the hearing before Orphans Court Judge Joseph D. O'Keefe, and that DiMedio, who joined the bank in 2001, didn't know exactly how the decision had been made.

Fiebach asked DiMedio: "You were unable to figure out how that came about?"

"That's right," DiMedio replied.

The testimony was also unanticipated because, during a long day on the witness stand, DiMedio repeatedly told the court that Mellon always considered the England fees inadequate but had not demanded an increase.

A related issue in the case, and a possible restraint on Mellon's latitude in the past, is a provision in England's trust that College Settlement says should allow it to ask the court to approve a change in trustees.

College Settlement has petitioned the court to replace Mellon with another trustee. The Attorney General's Office has not joined that aspect of the case.

DiMedio testified yesterday that neither College Settlement nor the church count as "adult beneficiaries" of England's estate. That term is used in the trust in language allowing beneficiaries to ask for a replacement.

DiMedio said Mellon believes the only people who might qualify as "adult beneficiaries" are recent graduates of Philadelphia High School for Girls and West Philadelphia High School.

Under provisions of England's estate, funds from the trust also fund an annual four-year college scholarship awarded to graduates at each school, targeted at students who wish to study art. England, daughter of a pharmacist and lab director at Smith, Kline & French Co., taught art at Girls High.