David Scaife claims conflict of interest by lawyer in family trust dispute

The personal wealth of the late Tribune-Review publisher Dick Scaife's daughter and son has nothing to do with whether Scaife should have been allowed to spend money they otherwise would have inherited, the pair said in court filings Thursday.

David Scaife, 48, of Shadyside and Jennie Scaife, 51, of Palm Beach, Fla., accuse trustees of improperly allowing Scaife to spend more than $300 million from a trust his mother, Sarah Mellon Scaife, created for him in 1935. They're asking an Allegheny County court to force an accounting of that trust, saying they would have benefited from money that otherwise would have been left after his death on July 4.

The trustees of that money — H. Yale Gutnick, chairman of the Tribune-Review board of directors; Scaife relative James M. Walton; and PNC Bank ­— say the children's rights as beneficiaries ended with the trust fund.

Gutnick, in court filings last month, noted that Sarah Mellon Scaife created a separate trust for Scaife's children in 1963, which is worth an estimated $560 million and pays them about $12 million a year.

“This irrelevant disclosure of highly personal and confidential information violates the sacred and fiduciary duty owed by a trustee to a beneficiary,” said Jennie Scaife in one of 10 documents she and David Scaife filed yesterday in Allegheny County court.

The disclosure “improperly cast a negative light on Jennie, and places her at jeopardy from persons who now possess this information,” her filing states. It said the information “should be stricken from the record.”

The charges and counter-charges in court documents filed by teams of lawyers representing Scaife's children and the trustees have taken on a personal tone.

David Scaife, in Thursday's filing, accused Walton of “parroting” Gutnick and said his lawyers intend to call Gutnick's lawyer, E.J. Strassburger, as a witness. Jennie Scaife's filing said Gutnick “shamelessly filed gratuitous” claims with the court in December.

Strassburger serves as trustee of the fund Sarah Mellon Scaife set up for her grandchildren, David Scaife's filing notes. Strassburger and Gutnick also served as the Trib's lawyers while Scaife used an estimated $140 million to more than $240 million from the trust to cover losses incurred by his newspapers, according to court documents.

“This matter is in litigation and our position(s) will become clear as the case proceeds. Suffice it to say that petitioners fired the first salvo, alleging that the trustees acted in bad faith and violated their fiduciary duties in distributing all the 1935 trust,” Gutnick said in a statement. “The trustees filed answers as they are legally required to do, denying that they acted improperly in any way.

“In their latest filings, the Scaife children argued both expressly and impliedly that, by not agreeing with them, the trustees have confirmed their bad faith. The absurdity of that position should be apparent,” Gutnick said.

Charles Avalli stepped down as Jennie Scaife's lawyer last month after Gutnick revealed legal opinions Avalli wrote in the 1990s that said trustees of the 1935 trust had “the broadest possible discretion” to spend the trust's money. William Pietragallo has replaced Avalli.

Jennie and David Scaife said Thursday that Gutnick had a conflict of interest because he served simultaneously as a trustee and Scaife's lawyer.

Speaking generally about conflicts of interest and not about this specific case, Deborah Rhode, a legal ethics expert at Stanford University Law School, said that if the trust has only one beneficiary, it's difficult to see a conflict.

“It's hard to see what the lawyer might do as a trustee that would be inconsistent with the sole beneficiary's interest,” Rhode said. But if Scaife's son and daughter are considered beneficiaries as well, “that could raise problems.”

Trustees of the 1935 trust contend it was set up for Scaife's benefit. Gutnick said Sarah Mellon Scaife provided separately for her grandchildren when she set up their trust shortly before Jennie Scaife's birth.

David and Jennie Scaife's other assets, estimated at $350 million to $500 million each, should not matter in this case, David Scaife said.

“The trustees can't have it both ways: either they considered other assets available to (Scaife's children) when making hundreds of millions of dollars of principal distributions to (Scaife), or they relied upon advice of counsel that they supposedly didn't need consider (his children's) interests at all,” the filing said.

Sarah Mellon Scaife created the 1935 trust when Scaife was 3. In addition to using the money to buy and publish newspapers, Scaife also donated millions of dollars from the trust to charity, Gutnick said. The donations are among an estimated $250 million in charitable contributions that Scaife made during his life, Gutnick said.

David Scaife said, “To the extent distributions were made to Richard so he in turn could make gifts to others, such distributions were improper and inconsistent with (Sarah Scaife's) intent and contrary to applicable law.”

Mike Wereschagin is a staff writer for Trib Total Media. He can be reached at 412-320-7900 or mwereschagin@tribweb.com.