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HomeMy WebLinkAbout03-30-89 COURT OF COMMON PLEAS OF CUMBERLAND COUNTY, PENNSYLVANIA ORPHANS' COURT DIVISION NO. 21-86-398 ESTATE OF ROBERT M. MUMMA, DECEASED MEMORANDUM OF LAW SUBMITTED BY BARBARA McK. MUMMA AND LISA M. MORGAN IN SUPPORT OF ANSWER TO PETITION OF ROBERT M. MUMMA, II FOR REMOVAL OF EXECUTORS AND TRUSTEES Barbara McK. Mumma and Lisa M. Morgan, Executors of and Trustees under the will of Robert M. Mumma, deceased (the "Estate"), submit the following Memorandum of Law in support of their Answer to the Petition of Robert M. Mumma, II for Removal of Executors and Trustees. INTRODUCTION Robert M. Mumma, II, individually and as "natural guardian" of his minor children, Robert M. Mumma, III and Susan Mann Mumma, remainder beneficiaries of one-quarter of decedent's Estate, has petitioned this Court to remove Barbara McK. Mumma and Lisa M. Morgan as Executors of and Trustees under decedent's will. Mr. Mumma alleges that the Executors and Trustees should be removed because (1) their interests as shareholders and employees of the family building supply business conflict with their duties as fiduciaries to protect the Estate's holdings in the business, (2) their management of the Estate jeopardizes the interests of the Estate's 1/ beneficiaries and (3) their administration of the Estate has been motivated by "animosity" and "spite" toward him and his family. Mr. Mumma's Petition should be denied because his allegations of conflict of interest, mismanagement and animosity are without factual or legal support. The interests of Mrs. Mumma and Mrs. Morgan as shareholders and employees of the family business are perfectly consistent with their interests as Executors and Trustees. Moreover, Mrs. Mumma and Mrs. Morgan have well managed the Estate and the Estate's building supply business since the decedent's death. Finally, the Executors and Trustees have at all times acted solely in the best interests of the Estate and its beneficiaries, and not out of personal animus toward Mr. Mumma or his family. I. THE PETITIONER HAS FAILED TO MEET HIS BURDEN OF PROOF AND THEREFORE THIS COURT SHOULD RETAIN THE EXECUTORS AND TRUSTEES CHOSEN BY DECEDENT. Mrs. Mumma and Mrs. Morgan are the Executors and Trustees named by the decedent in his will. They are the persons in whom he had confidence and with whom he entrusted the management and preservation of his Estate. Removal of the Executors and Trustees selected by the decedent is a drastic action which should be taken only when the estate is endangered and intervention is necessary to protect the property of the estate. Pitone Estate, 489 Pa. 60, -2- /// -;" 7. [! 68, 413 A.2d 1012, 1016, appeal after remand, 297 Pa. Super. 161, 443 A.2d 349 (1980) ; Ouinlan Estate, 441 Pa. 266, 268, 273 A.2d 340, 342 (1971) . A higher threshold of proof is demanded for the removal of a fiduciary selected by the decedent than for a fiduciary appointed by a court, for the decedent's right to direct the administration of his estate is a property right. Rentschler Estate, 11 Pa. D. & C. 2d 357 (O.C. Phila.), aff'd, 392 Pa. 46, 139 A.2d 910, cert. denied 358 U.S. 826 (1958); Glessner's Estate, 343 Pa. 370, 374,22 A.2d 701, 702 (1941). The burden, therefore, is on the petitioner to show that the petition is not based upon whim or caprice, and that a substantial reason for removal exists. Barnes Estate, 339 Pa. 88, 95, 14 A.2d 274, 277 (1940); Hartman Estate, 331 Pa. 422, 428, 200 A. 49, 52 (1938). In the present case, Mr. Mumma's petition falls woefully short of showing any legitimate reason for the removal of Mrs. Mumma and Mrs. Morgan. His allegations of conflict of interest, poor management and animosity are unsupported by fact and are prompted entirely by his own interests, which are contrary to interests of the Estate's beneficiaries. Mr. Mumma has failed to meet his burden of proof and therefore his Petition should be denied. -3- II. THE PETITION FOR REMOVAL OF THE EXECUTORS AND TRUSTEES SHOULD BE DENIED BECAUSE THE EXECUTORS AND TRUSTEES HAVE ALWAYS ACTED FOR THE BEST INTERESTS OF THE ESTATE, HAVE WELL MANAGED ALL ESTATE PROPERTY AND HAVE TREATED ALL BENEFICIARIES EVENHANDEDLY. A. The interests of Mrs. Mumma and Mrs. Morgan as shareholders and employees of the family business parallel their interests as fiduciaries over the business. Mr. Mumma alleges that Mrs. Mumma and Mrs. Morgan have a two-fold conflict of interest in the proposed sale of the family business. He initially contends that they have agreed with the buyer in a Letter of Intent to continue on as managers of the business and that their future interests as paid employees blind them to the present best interests of the Estate. He further contends that their individual interests as shareholders of the business conflict with their fiduciary duties to the Estate and its beneficiaries. Both contentions are baseless. Mr. Mumma's allegation regarding the employment arrangement between Mrs. Mumma, Mrs. Morgan and the buyer is belied by the Letter of Intent itself. Paragraph 4 of the Letter of Intent provides that current management will be retained by the buyer at salaries equal to present compensation. Paragraph 5 of the Letter of Intent further provides that Mrs. Mumma and Mrs. Morgan will continue as advisors following the sale, but not as part of the paid management. Rather, Paragraph 5 explicitly states that Mrs. Mumma and Mrs. Morgan will receive -4- no compensation for their post-sale advisory services. On the advice of counsel Mrs. Mumma and Mrs. Morgan have refused to accept any post-sale position involving compensation for services so as to avoid even the appearance of any improper motive in connection with their decisions regarding the sale of the business. They have merely agreed, at the behest of the buyer and in order to secure the benefits of the sale for the Estate, to continue as unpaid advisors to the business for a transitional period. This agreement, far from manifesting a conflict of interest, shows a willingness on the part of the fiduciaries to sacrifice their personal interests to the best interests of the Estate. Mr. Mumma's specious contention that the status of Mrs. Mumma and Mrs. Morgan as shareholders of the company to be sold conflicts with their fiduciary duties to the Estate, of which the company comprises a significant part, is equally without merit. As evidence of this supposed conflict Mr. Mumma points to the allocation of company stock to the marital trust, over which Mrs. Mumma has a five percent withdrawal power. The "two hats" worn by Mrs. Mumma and Mrs. Morgan as shareholders and fiduciaries do not pose a conflict meriting their removal. When a decedent knowingly makes a shareholder of a company a fiduciary of a trust or estate containing stock of the company, the fiduciary will not be removed absent bad faith. pincus Estate, 378 Pa. 102, 110-111, 105 A.2d 82, 86 (1954); Flaqq's Estate, 365 Pa. 82, 92, 73 A.2d 411, 414 -5- 4~! (1950); Lavino Trust, 28 Fiduc. Rep. 441, 451 (O.C. Montgomery 1978) . In Flaqq, the decedent bequeathed to his son sufficient stock in a family company to give the son a controlling interest; the balance of the stock was held in a trust for the decedent's daughter over which the son was trustee. 365 Pa. at 85, 73 A.2d at 413. The court held that the redemption by the company of stock held in the trust was not an impermissible act of self dealing by the trustee. Id. at 92, 73 A.2d at 415. The court noted the academic conflict presented by the son's role, on the one hand, as controlling shareholder of the company, and on the other, as trustee required to administer the trust solely for the benefit of his sister. Id. at 89, 73 A.2d at 414. The decedent was aware of this conflict when he drafted his Will; he, in fact, created the conflict. Id. Therefore, the decedent's testamentary scheme would be respected and as a practical matter no conflict would be found absent fraud or bad faith. Id. Similarly, a decedent's testamentary appointment will not be disturbed merely because a co-trustee is co-owner with the trust of the trust's principal asset (Ulansev Estate, 73 Pa. D. & C. 2d 453, 455 (O.C. Montgomery 1975)), nor because the trustee assumes the presidency of the trust's principal asset, receives substantial increases in salary and bonuses and permits the company to set up substantial reserves in lieu of paying dividends. (Hoover Estate, 63 Pa. D. & C. 517, 522 -6- (1947)). If, however, the trustee of a trust with a res of family corporation stock inordinately favors one beneficiary and becomes a key employee of a competitor company, the trustee may be removed. Holmes Trust, 74 Montgomery 46, aff'd 392 Pa. 17, 20, 139 A.2d 548, 551 (1958). The foregoing authority demonstrates that in the present case the mere fact that Mrs. Mumma and Mrs. Morgan are shareholders of the company as well as fiduciaries is not an impermissible conflict. The decedent placed his wife and daughter in those positions and his wishes should be respected. Moreover, neither the allocation of the stock to the marital trust nor the potential sale of the business poses a conflict. The allocation of the corporate stock to the marital trust was not, as Mr. Mumma claims, a calculated maneuver; it was simple mathematics. The bulk of the Estate consists of decedent's business interests and the bulk of the Estate (approximately 70%) is held in the marital trust. Accordingly, the fiduciaries had little choice but to allocate significant shareholdings to the marital trust. Similarly, simple mathematics dispels Mr. Mumma's contention that Mrs. Mumma and Mrs. Morgan will be disproportionately benefited by the proposed sale of the business. The consideration for the sale will be allocated, on a strictly proportional basis, among all of the individual shareholders, including Mrs. Mumma, Mrs. Morgan and Mr. Mumma, -7- and the Estate. There is simply no disproportionality, and no conflict of interest. B. The Petition Should be Denied Because the Executors and Trustees have Well Managed the Estate and Protected the Interests of its Beneficiaries. Mr. Mumma further accuses the Executors and Trustees of "mismanaging" and "wasting" Estate property because he claims that the appraised values of the family businesses reported on the estate and inheritance tax returns were incorrect. Mr. Mumma's argument seems to be that if higher values for the businesses were reported on the returns, the overall tax burden to the Estate upon a subsequent sale of the businesses would be minimized. Yet the duty of the Executors was to determine the correct values for the businesses as of the decedent's death. The ultimate correctness of those values will of course be determined in audits by the federal and state tax authorities. There is no question, however, that Mrs. Mumma and Mrs. Morgan acted prudently and satisfied their duty to the Estate in obtaining fair values for the Estate assets. In the valuation of assets other than marketable securities, fiduciaries must necessarily rely upon appraisals and estimates. Mrs. Mumma and Mrs. Morgan retained an independent firm of certified public accountants as well as expert real estate appraisers to determine the date of death values for decedent's business interests. Even if the -8- accountants and appraisers underestimated those values, it is ridiculous to argue that any changes thereto by the taxing authorities constitute mismanagement by, or cause for the removal of, the Executors and Trustees, who relied in good faith upon the expert appraisals. Cf. DiMarco Estate, 435 Pa. 428, 439, 257 A.2d 849, 855 (1969) (Executor who retained accountant and counsel in connection with obtaining fair values for estate assets and filing estate tax returns not removed merely because a complete estate Inventory was not filed pending the new values approved by the tax authorities). Compare Lohm's Estate, 440 Pa. 268, 276, 269 A.2d 451, 455 (1970) (Executor who failed to timely file tax returns surcharged); Wallis Estate, 421 Pa. 104, 112, 218 A.2d 732, 736 (1984) (Executor who failed to claim tax deductions advantageous to Estate denied additional compensation). To remove Mrs. Mumma and Mrs. Morgan at this stage in the Estate administration and to require a new Executor and Trustee to qualify and administer the Estate would only cause delay and expense. Indeed, the sole apparent motive for Mr. Mumma's insupportable Petition is precisely to generate such delay, confusion and expense, and to thereby thwart the proposed sale of the business. If this Court finds Mr. Mumma's motive and the consequent delay unacceptable, it may properly deny the Petition for Removal. See Estate of Georqianna, 312 Pa. Super. 339, 348, 458 A.2d 989, 994, aff'd 504 Pa. 510, 475 A.2d 744 (1983); Pitone, 489 Pa. at 69,413 A.2d at 1017. -9- C. The Petition Should be Denied Because the Executors and Trustees have Acted Solely for the Best Interests of the Estate and Not Out of Animosity to Mr. Mumma or His Minor Children. Mr. Mumma's final allegation is that the Executors and Trustees have, in the course of the administration of the Estate, acted out of animosity toward him and attempted to exclude him from involvement in the family businesses. To the contrary, Mrs. Mumma and Mrs. Morgan have at all times acted solely for the best interests of the Estate, and not out of animus toward Mr. Mumma or his young children. Shortly after the decedent's death Mrs. Mumma and Mrs. Morgan attempted to enter into negotiations to sell the business to Mr. Mumma. It was only after Mr. Mumma declined to do so that the Executors and Trustees entertained inquiry from a non-family buyer. It is simply ludicrous for Mr. Mumma to now claim that the proposed sale of the business manifests animosity toward him. Furthermore, this Court has held that Article THIRTEENTH of decedent's will authorizes his fiduciaries, upon their agreement in writing, to sell the family business to a nonfamily buyer. Accordingly, there is simply no obligation for the Executors and Trustees to either include Mr. Mumma in the management of the business or to offer to sell the business to him. In the wake of this Court's construction of Article THIRTEENTH of decedent's Will, Mr. Mumma's allegations are completely without support. -10- r Even assuming arguendo that Mrs. Mumma and Mrs. Morgan did harbor animosity toward Mr. Mumma and his children, disharmony or animosity between fiduciaries and the beneficiaries whose interests they represent does not provide grounds for removal. white Estate, 506 Pa. 218, 224, 484 A.2d 763, 766 (1984); Croessant Estate, 482 Pa. 188, 194-195, 393 A.2d 443,446 (1978); Beichner, 432 Pa. at 157, 247 A.2d at 782. Rather, it must be shown that the safety of the Estate is jeopardized. Id. There is no indication whatever that the Estate is in jeopardy under the stewardship of Mrs. Mumma and Mrs. Morgan. This Petition and the other legal proceedings initiated by Mr. Mumma, however, could jeopardize the Estate and the interests of its beneficiaries by threatening the proposed sale of the business. It is submitted, therefore, that the interests of the Estate would best be served by the denial of Mr. Mumma's meritless Petition.1/ 1/ The Estate would prefer that the Court resolve this Petition on the merits, so as to minimize the expense to the Estate and delay incident to possible appeals on issues of law. However, it should be noted for the record that the Estate does not waive the obvious point that Mr. Mumma has no standing individually to initiate this proceeding as he is not a party in interest in decedent's estate, nor does he have standing on behalf of his minor children, whose interests are represented by Robert M. Frey, Esq., the guardian ad litem appointed by this Court on December 28, 1988. See 20 Pa.C.S. ~~ 3183, 7121; Hitchcock Estate, 52 Pa. D. & C. 2d 675 (D.C. Wyoming), aff'd per curiam 442 Pa. 621, 275 A.2d 653 (1970). Cf. Estate of Boland, 99 Pa. Super. 321 (1930); Hornsev Will, 1 Fiduc. Rep. 2d 149 (D.C. Montgomery 1981). -11- CONCLUSION For the foregoing reasons, it is requested that the Petition of Robert M. Mumma, II for Removal of Executors and Trustees be denied. espectfully submitted, )1. 0 E. ZEITER, I.D. # 4629 OSEPH A. O'CONNOR, JR., I.D. #18327 CATHERINE M. KEATING, I.D. #50246 Morgan, Lewis & Bockius 2000 One Logan Square Philadelphia, PA 19103 (215) 963-5367, -5212 WILLIAM F. MARTSON, I.D. #06291 Martson, Deardorff, Williams & otto 10 East High Street Carlisle, PA 17013 (717) 243-3341 Attorneys for Respondents -12- -...~- ( '"'l i:'J 0 (Il _'"ON:3:0c..;,.: :O~6~~ 8 OH N::>"O 0 llJ 0 "". ~8:O :3: ~ ~ .~ ....."".0'"1<1"(0..... HGltllO i:'J lJ1..... O"l ::>" (0 I-' :3: 8:><:>< $l (0 ::>" , -llJ llJ (0 '0 "". OHZ$l 0 0 '"I (0 , o.O::S'"l::>"llJ <0 Z '"'l '"I I-' '" (0 ::s - "". !3 :><ZH 0 'd llJ 0 "'.....(0 ::s:>< !:"' Z:3:C ~ ::>" ::s 0 I w'd !:"' (0. t'J o n:3: llJ o.t:: I 1::>"1:"'(0 O'"'l(ll" tll Z ::s '"I lJ1 "".0 ~ :3: 0 '"'l C' 0 i:'J 0 (0 0<1" !' 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