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HomeMy WebLinkAbout01-17-92 : IN RE: ESTATE OF ROBERT M. MUMMA, Deceased IN THE COURT OF COMMON PLEAS CUMBERLAND COUNTY, PA NO. 21-86-398 ORPHAN'S COURT DIVISION RESPONDENT ESTATE'S TRIAL MEMORANDUM REGARDING PETITION FOR THE APPOINTMENT OF A TEMPORARY FIDUCIARY A. PROCEDURAL BACKGROUND This action is brought by Robert M. Mumma, II (RMMII) et al. under Section 4301 of the Probate Code, 20 P.C.S. 9 4301, requesting that temporary fiduciaries be appointed to replace the executrixes, Mrs. Mumma and Mrs. Morgan, "with regard to the administration of the decedent's interest in Lebanon Rock." This petition ~"l~ls with an earlier one filed on February 10, 1989, in which RMMII asked the court to remove the executrixes as fiduciaries as to the entire Estate. No action was ever taken with respect thereto, and RMMII filed a petition to defer action on the removal petition in March 1991. There was no reason given for the inordinate delay in bringing the instant petition before the court. 1487 .' , B. FACTUAL BACKGROUND The company involved, Lebanon Rock, Inc. ("Lebanon Rock" or "LRI"), is owned _ by RMMII personally, and"" by the Estate. Mrs. Mumma and RMMII are also the only, and equal, directors of LRI. Despite this equality of ownership and ability to control, prolonged and complex litigation in Dauphin County involving these parties has shown that RMMII has treated Lebanon Rock as though it were 100% owned and controlled by him. On an ongoing basis for approximately four (4) years, without disclosure to or consent from the Estate as his equal shareholder/director, RMMII makes all the decisions, does not consult or advise the Estate in any manner concerning the operations, and has made numerous self-dealing arrangements between himself (or companies owned 100% by him) and Lebanon Rock. RMMr:, has also continued to extract 5% of the gross sales into a company solely owned by him, and has used the monies of Lebanon Rock for his own personal purposes without approval of the Estate. Faced with RMMII's usurpation of control over an Estate asset, the executrixes have been involved in the Dauphin County litigation in an effort to preserve and protect the Estate's 50% owne"'trfl..dill~.Pf p!"..":frn LRI. Despi te RMMII' s contentions, there is no conflict of interest involved with respect to the executrixes' fiduciary duties. Against this background, it quickly becomes clear that RMMII is looking only to benefit his 50% interest in Lebanon Rock, and that RMMII is entirely ignorant as to the effect on the other businesses and assets of the Estate of what he wants as an 2 1488 " .:' individual shareholder of LRI. In sum, it is crystal clear that all RMMII wants is a mechanism for removing entirely the Estate from LRI. His current petition simply seeks the court's stamp of approval on his coup d'etat at Lebanon Rock, through the appointment of a "temporary fiduciary" to replace the executrixes of the Estate. As is demonstrated below, RMMII is focusing the court I s attention """,11I", lIw..W,;"asset -- Lebanon Rock -- and asking the court to remove the executrixes from controlling the Estate's interest in that asset. This is no different than his prior petition, which sought to remove the executrixes from control over all estate assets, except that it involves a different section of the Probate Code. UUlf11mrmlllJ l)r'l HJJ1T ofi liM .' "111rna J..III.L; ~43QJ., ,.~ and because, in this instance, appointing a temporary fiduciary is the same as removing a fiduciary, the legal standards for removal should be applied. When this is done, it is clear that RMMII's petition should be denied. C. LEGAL ANALYSIS AND ARGUMENT The executrixes have a fiduciary obligation to administer all estate ,~assets in a prudent and reasonable manner so as to provide optimum benefits for the Estate as a whole, and for all beneficiaries. See steele Estate, 377 Pa. 250, 257, 103 A.2d 409 (1954). Even though this obligation, which inherently requires a balancing of sometimes competing interests, may constrict the benefit to RMMII as an individual owner of 50% of one estate asset, 3 1489 " ., Lebanon Rock, it does not in and of itself create a conflict of interest. The gist of the complaint by RMMII seems to be that the executrixes have pursued the original arrangements made by the decedent for Elco, a corporation primarily owned and controlled by the Estate, to have rights to the -- 1Ir ~e in the Lebanon Rock quarry. Elco existed in the dolomite business for several years before December, 1985, when decedent established Lebanon Rock as a company to first quarry and sell high calcium stone from that same quarry, and then to become passive to the extent of developing real estate and receiving royalties from Elco on the dolomite which Elco would continue to extract for many years into the future. ~~ was invited in to become a 50% owner of Lebanon Rock at the time ~ llrjnr"'TIf In Jill "Tin lti!li_'EJII."iU85. RMMII's real objection is that recognizing this purpose for Lebanon Rock would terminate his ability to extract large sums of money from Lebanon Rock for his own personal benefit through rentals of equipment and through the 5% override on sales. RMMII I S preference, clearly established in the Dauphin County litigation, is to have Lebanon Rock enter into the dolomite business, something which the decedent never intended for Lebanon Rock to do. Despite the executrixes acting in accordance with the decedent's wishes, RMMII alleges that they are actually favoring other estate interests and assetl$.;\~;;p.etri~t of LRI. However, the executrixes do not own any interest in any business individual Iv which would be in conflict with any of the 4 1490 0' businesses operated and owned by the Estate, including Lebanon Rock. Thus, there is not in reality a conflict of interest. The executrixes have acted reasonably in administering the Estate and its businesses, and have merely been attempting to recoup for Lebanon Rock in the Dauphin county litigation the hundreds of thousands of dollars improperly taken from it by RMMII as an individual, and to see that it is operated the way its founder, the decedent, established. This involves no more conflict of interest than what decedent had purposefully created when these arrangements were established by him several months prior to his death. In fulfilling the decedent's scheme, implemented ab initio by the decedent while fully aware of the "conflict", the executrixes are doing no more than fulfilling the decedent's intentions, which the court must respect, absent a showing of fraud or bad faith. Flaqq's Estate, 365 Par 82, 73 A.2d 411 (1950). This is so because removal of the executrixes would be a drastic action, to be taken only when the estate is endangered and the court's intervention would be necessary to protect the property of the estate. Pitone Estate, 489 Pa. 60, 68, 413 A.2d 1012, 1016, appeal after remand, 297 Pa. Super. 161, 443 A.2d 349 (1980); Ouinlan Estate, 441 Par 266, 268, 273 A.2d 340, 342 (1971). Because decedent chose these executrixes as his fiduciaries, the bur~en on -.-..--"--- -------_.... --._._...~~-_..__...,_... .-, RMMII to prove that they should be replaced is higher than if the ---~----------------------- fiduciary had been court-appointed, because the decedent's right to ". --.--..--.---.... direct the administration of his estate is a property right. Rentschler Estate, 11 Par D & C 2d 357 (O.C. Phila.), affirmed, 392 5 1491 " 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). RMMII must show that his petition is not based on whim or caprice, and that a substantial basis 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). Importantly, the litigation in Dauphin county, while nominally involving Lebanon Rock, is actually litigation between the Estate as a 50% owner thereof, and RMMII as the other 50% owner. In fact, the litigation has proceeded as shareholder's derivative actions brought by Robert and by the Estate, both of which are about Lebanon Rock, but do not actually involve Lebanon Rock itself as a party. Therefore, there is not, as set forth in paragraph 16 of RMMII's Peti tion, any litigation "between Elco Concrete and Lebanon Rock", and thus no conflicting interest as has been asserted. Lebanon Rock, in which the Estate owns a 50% interest, along with several other companies which are substantially owned and controlled by the Estate, must be operated in a cooperative and harmonious manner for the benefit of the Estate and its beneficiaries, including potentially RMMII. The mere fact that this might upset RMMII because of his individual ownership of 50% of Lebanon Rock does not create a conflict, nor does it provide cause for removal of the executrixes. It appears that the instant petition is yet another attempt by RMMII to harass the executrixes and to make an end run around the 6 1.492 potential action which he fears the Dauphin County Court is about to take to terminate his unilateral manipulation of Lebanon Rock Inc. for his own gains. In fact, the prudence and reasonable nature of the position of the executrixes is made clear by the fact that the Dauphin County Court has consistently supported the Estate's posi tion that Elco should continue quarrying dolomite with the payment of a royalty to Lebanon Rock, and that Lebanon Rock should not be allowed to quarry dolomite. These are reflected in the Court's orders of september 7, 1990 and October 18, 1991. (Copies attached) The mere disagreement by RMMII is not sufficient to establish the substantial improper behavior or lack of responsibility that is required in order to remove a fiduciary. It must be kept i~__n:~_Tl~thiit:_",,,en thQugh_ the5lt;Cit\}te ( 20 Pa.C.S. ~ 4301) upon which RMMII is proceeding is one to appoint a temporary fiduciary, this by its nature involves a removal of the executrixes. Therefore, the case law cited above should control this court's action on the current petition, in the absence of case law under that section of the Probate Code. It makes sense that the same standards should apply, because the appointment of a temporary fiduciary would involve the removal and replacement of the existing executrixes. The standards appli=~,::~d_~_3~_ __I'a~C. S. ~ 3182 for removal make clear that any action of the court to impinge on the ..~_.'_ ,'_,,'.._,',__. _ .._,. ..___.._.. m....' ,.-' .. decedent's chosen fiduciary I s right to act must proceed with caution, because supplanting the decedent's choice, whether entirely or, as here, on a temporary basis, is a drastic step. ---..---- pitone Estate, supra. Absent bad faith, a decedent's knowing 7 1493 .' appintment of a shareholder of a company as a fiduciary of an estate containing stock of that company will not be disturbed. pincus Estate, 378 Pa. 102, 110-111, 105 A.2d 82, 86 (1954). Here, not only did the decedent place his wife and daughter in the executrix capacity, but he also implemented the program for Lebanon Rock and Elco which those executrixes are now trying to carry out, and about which RMMII now complains. Nothing in rises to the level needed to compel this court to override the decedent's intentions, as thereis simply no showing of fraud or bad faith on the part of the executrixes. ~ Furthermore, the reason given by RMMII for the need to have an expedited hearing -- that the Dauphin Deposit Bank line of credit is in jeopardy -- is no longer true, if it ever was. See the bank's letter of December 18 attached to the Estate's Petition to stay, and note also that the Estate has executed and returned to the bank the documents delivered with the Dec. 18, 1991, letter. Practically speaking, Section 4301 is geared toward those situations in which there is a temporary need to replace a fiduciary, due to that fiduciary's inability, incapacity or unwillingness to act, a conflict of interest, or some other reason or a temporal and temporary nature. RMMII's petition is more geared toward what he alleges to be an onqoinq conflict of interest in the executrixes with respect to Lebanon Rock, just one asset of a large estate. The timing of his petition, and the focus on this one asset, cannot be ignored, and in this regard, the several years of litigation in Dauphin County involving Lebanon Rock and the 8 149,1 " competing interests of RMMII and the Estate therein cannot be understated. The executrixes seek to carry out the decedent I s intentions for Lebanon Rock, and RMMII wants to take Lebanon Rock down a different path. The conflict, then, is onlY between RMMII and the Estate in their capacities as ecrual owners of this one estate asset. The executrixes have no conflict of interest so long as they continue to strive to achieve a proper balance in administering all of the estate's assets. Applying the relief sought by RMMII to this one asset does not relieve the problem at all, since the temporary fiduciary would also have to consider the interests of the Estate as a whole, which includes promotion of the interests of Elco and adherence to the original agreement. Lisa Morgan, one of the executrixes, will testify that she considers it important that Lebanon Rock be established in the futurre as it was intended to be by the decedent, that is, to receive royalty income and develop real estate, so that it would be a source of revenue for the Estate and the income beneficiary without any risk or similar attendant problems. It is impossible to divorce the responsibility on an asset-by-asset basis, and Section 4301 was not designed with that in mind. It would appear that any alleged "loss" because of the administration of Lebanon Rock by the executrixes would be a matter to be considered on objections to the account, surcharge, etc. On the other hand, the fact that Lebanon Rock, under RMMII's dominion and control for three and one half years, has failed to show a 9 :1495 profit, is appropriate evidence to consider since he now seeks to supplant the executrixes with a person or persons who will side with him in promoting his individual gain over that of the Estate. D. CONCLUSION Based on the foregoing, it is respectfully requested that the Petition for Appointment of a Temporary Fiduciary be denied. Respectfully submitted, GOLDBERG, KATZMAN & SHIPMAN, P.C. ~j)Q/0^~ R6nald M. Katzma Esquire P.O. Box 1268 Harrisburg, PA 17108-1268 (717) 234-4161 BY: Attorneys for Estate of Robert M. Mumma January 17, 1992 10 1496 HI RE: LITIGATION INVOLVING IN THE COURT OF COMMON PLEAS DAUPHIN COUNTY, PENNSYLVANIA ELCO CONCRETE PRODUCTS, INC., LEBANOrl ROCK, INC., p.uBERT H. NUNNAj II. LISA fl. HORGAN, BARBARA McK. MUMMA, THE ESTATE OF ROBERT M. MUMMA, et al ,'J(l, .'J() -;;) [f) 11 Tn NO. 6722 EQU ITY NO. 3210 S 1988 NO. 6744 EQU ITY ORDER AND NOW, this 18th day of October. 1991. we direct that Elco Concrete Products, Inc. shall continue to have access to the quarry for the mining of dolomite in accordance with the provisions of our September 7, 1990 order and we direct that Lebanon Rock, Inc., pending further order of this Court, nelfT..li -, -~nl -__Ie to third persons. On Friday, rlovember 29, 1991 at 9:00 A.M. we will hear evidence in support of the contending positions of the adversaries on the corporate management of Lebanon Rock, Inc. Specificaly, we will address the issues of deadlock in the management of Lebanon Rock, Inc. and the statutory means to deal with that corporate situation as provided in the Associations Code, Title 15, Pa.C.S.A. Additionally, we will hear evidence on the issue of whether Robert M. Mumma II is the president of Lebanon Rock, Inc. and whether Robert M. Mumma II should be removed as a director of that corporation. We direct that counsel for the parties submit to us memorandums of law, no later than November 15. 1991, setting forth the provisions of the Associations Code which counsel deem appropriate for us to consider, the relief that they think the Court should grant, if any, and the testimony that supports their position that already appears of record, 1.497 .' (counsel shall as well as an refer us to the appropriate transcript and page), outline of the testimony proposed to be presented on November 29, 1991 on these lS~U~~. The Court will hear evidence, during on December 30, two days of hearings, 1991 and continuing on commencing at 9:00 ".~l. December 31, 1991, on the following 1. Whether a contract was Issues: formed between Elco Concrete Pro due t s . 1 n c . a II d L e bon 011 Roc k , I II C . I' e [" t: i 11 e II t tat 'I e cut r ell t operations in the quarry as well as those dnticipated or desired by the parties, extending into 1992. 2. Whether Elco has mined outside the pit limi t. 3. Whether or not Elco should be permitted to mine, in the future, outside the pit limit. 4. Whether Lebanon Rock, Inc. is entitled to damages for Elco's quarrying inside and outside the pit limit. The Court will hear evidence, in two days of hearings. commencing at 9:00 A.H., January 23, 1992, and continuing through January 24, 1992, on the (oI1owitls\ issues: 1. Whether Lebanon Rock is entitled to damages resulting from the bank account opened by an employee of Elco. 2. Whether Lebanon Rock is entitled to damages for improper actions undertaken by the directors and employees of Elco. 3. Whether damages are appropriate by virtue of the alleged breach of agreement to guarantee the line of credit. 4. "The 30 acre dispute." The parties shall submit to the Court on 9, 1992 memorandums of law setting forth the or before January factual data which 1498 they believe supports th~ir position. (with reference to transcripts and page references) and appropriate legal for their position. These memorandums shall include suggested specific findings of fact and conclusions of law. The Court will hear evidence. during two days of hearings, commencing at 9:00 A.M. on February 2Q, 1992 and continuing through February 25. 1992, on the following issues: 1. Whether the mining operations violated the Pennsylvania Moncoal Surface Mining Conservation and Reclamation Act. 2. Whether Robert ~1. ;.Iumma II is liable to Elco for damages existing authority resulting from self-dealing. 3. Whether Richard B. \Hcke r sham. Esq. Inc. a proper party should have been disqualified as counsel for Lebanon Rock, 4. Whether Lebanon Rock, Inc. was cases Nos. 4678 and 4722. 5. The proposed sale of Lebanon Rock. Inc. 6. Whether or not Lebanon Rock Inc. is entitled to counsel to equity fees. The parties shall submit to the Court on or before February 14, 1992 memorandums of law settin.~ forth the factual data which they believe supports their position. (with reference to existing transcripts and page references) and appropriate legal authority for their position. These memorandums shall include suggested specific findings of fact and conclusions of law. Herbert A. Schaffn r. Judge 1499 .' ", IN RE: LITlGA TION INVOLVING -., ELCO CONCRETE PRODUCTS, INC., LEBANON ROCK. INC., ROBERT M. MUMMA. II. LISA M. MORGAN, BARBARA McK, MUMMA, THE ESTATE OF ROBERT M. MUMMA. et al R ,:,' . "/:: 0 .;".1.,,/ ,_I <_ (~~C; ~';'oi C' l,..' :. . .., f'r '. ,- " '. !')'J --' 1:\ .' I lU ~M '90 tN THE COURT OF COMMON PLEAS DAUPH~~~OUNTY. PENNSYLVANIA : ~-. ~ '. .~. : i ......".1 f"\ NO, 4678 EQUITY NO. 4722 EQUITY NO. 3210 S 1988 NO. 4744 EQUITY ORDER These cases have involved two corporations, Lebanon Rock, Inc. and Elco Concrete Products, Inc. exercising mining activities in a quarry in Lebanon County, the real property encompassing the quarry site, titled in the name of Lebanon Rock, Inc. The mining activities of these two corporations have been in existence since early 1986 and have basically and generally involved Elco personnel mining the mineral dolomite in the quarry and Lebanon Rock personnel mining high calcium limestone which, generally, underlay the dolomite. While there has been deep disagreement between the parties as to their rights in the quarry, the basic premise, that Elco was entitled to dolomite, the removal of which would expose high calcium limestone to Lebanon Rock's own quarrying efforts, is very clp.ar when all of the evidence presented in these cases relative to the formation of Lebanon Rock and both corporations initial involvement in the quarry site, is concerned. The Court has in prior decisions found that the joint use by both corporations of the quarry is appropriate and has provided for the establishment of a receiver to manage the efforts of both corporations in the quarry. 1500 The Court's decisions have been RECE.IVED SEP 1 1 lSSG appealed and- those matters have not yet been determined, finally. Now, in the last six weeks, a new problem has presented itself and the parties have, once again, come to the Court for relief. The new problem involves the exhaustion of the dolomite reserves from the original area planned for quarrying and the potential elimination, through sale of products, of the dolomite stores accumulated by Elco. Elco desires, therefore, to mine dolomite in other areas of the quarry, to pay Lebanon Rock a fair price for the product it takes, and to assume responsibility for necessary reclamation of any areas thus disturbed by the mining process. Elco suggests that this would be a temporary method of its operation in the quarry, pending a resolution of the matters now on appeal. Lebanon Rock objects to the continued presence. in this fashion, of Elco in the quarry site and suggests. alternatively, that it mine the dolomite and furnish it to Elco at terms reasonable and fair to Elco. The parties brought these concerns to the Court, initially. by Lebanon Rock filing on June 6, 1990 a petition basically seeking to have Barbara ricK. Mumma found in contempt of court as a result of a letter that she had written alleging that an agreement had been made between Lebanon Rock and Elco for the quarrying, by the latter, of dolomite. An answer was filed to the petition for contempt and the Court issued orders on June 18, 1990 and July II, 1990 relative to the petition for contempt filed and the answer filed thereto. Counsel for the parties indicated to the Court, subsequent to the July 11, 1990 order, that further 1501 - 2 - . " relief was necessary and the Court met with counsel for the parties on July 24, 1990. As a result of that conference, the Court issued an order directing the parties to submit plans for the operation of the quarry to the Court by August 15, 1990, which plans would involve Elco receiving dolomite from the quarry site. Further, if agreement had not been reached, the Court was to hear evidence and argument on the contending positions September 4, 1990. The Court, we note, takes the position that, although these matters are on appeal, Rule of Appellate Procedure l70l(b)(1) permits us to continue to deal with the matter as may be necessary to preserve the status quo while the appeals are pending. Counsel duly submitted to us on August 15, 1990 their contending plans, agreement was not reached and we received evidence and heard oral argument during a four hour hearing on September 4, 1990. We are persuaded that Elco's proposal is more reasonable, as an interim operating method, under all of the circumstances of this case. Mrs. Mumma, it must be pointed out, is a Vice President of Lebanon Rock, and a Co-Executor of her husband's estate, which estate owns 50% of the stock of Lebanon Rock. Thus, while she surely speaks for Elco, she has a very significant interest in Lebanon Rock as well and, thus, has a broad interest in the use of this quarry site. Historically, as well, Elco employees have quarried in the quarry, have removed the dolomi te product, have taken it to their own crushing facilities, and have marketed the product. It seems reasonable to not disturb this part of the operation, which the evidence establishes has worked 15Q~ _ reasonably we.ll, in place of a system where the dolomite product would be quarried and crushed by Lebanon Rock and left to Elco employees to move it from Lebanon Rock's stockpile, transport it to their own stockpile, and then sell it. We will, accordingly, adopt as a part of this order, the proposal submitted by Elco attached hereto as Exhibit "A" and incorporate it in this order. It is anticipated that further access to the Court may be required, pursuant to the present order, relative to price change, DER requirements or other factors that may be generated by changing economic conditions. The par ties ma y, as they have in the past, petition the Court for appropriate consideration and relief. BY THE COURT: J79{J dge Distribution: Richard B. Wickersham, Esq., P.O. Box 1286, Harrisburg, PA 17108 Ronald M. Katzman, Esq., P.O. Box 1268, Harrisburg, PA 17101 Jon A. Baughman, Esq., Pepper, Hamilton & Scheetz, 3000 Logan Square, 18th and Arch Streets, Philadelphia, PA 19103-2799 John W. Carroll, Esq., John A. Witherow, Jr., Esq., P.O. Box 1181, Harrisburg, PA 17108-1181 :1503 .' .' EXHIBIT "A" 1. Elco. will quarry dolomite in the Southwest Section of the quarry in accordance with the plan drawn by Akens Engineering Company dated May 21, 1990; 2. Elco will perform all work with respect to the quarrying, which will be done with its own equipment and its own men; 3. Elco will crush the dolomite through its own crusher; 4. Elco will use the dolomite in its business operations as heretofore; 5. Elco will pay a royalty to LRI in the amount of $.40 per ton; 6. The royalty will be calculated based upon the weight of the product, as determined on the platform scales which have been used by Elco and LRI since December 1985, at the time the product is either used by Elco, sold or otherwise transferred by it: 7. The royalty would be paid on the 10th of each month following the month of business activity: 8. The royalty payment would be deposited directly into the existing LRI account: 9. All reclamation requirements and expense incident to the quarrying of dolomite in the Southwest Section will be the responsibility of Elco, and will be guaranteed by Elco. Elco, shall, upon receipt of this order, initiate contact with the Commonwealth of Pennsylvania, its Department of Environmental Resources, to determine the manner in which Elco shall comply 1.50.1 .. . ,- ,.. .. - . with the Commonwealth's laws relative to reclamation assurances. This Court will direct, if necessary, that LRI cooperate with Elco in any submissions to the Commonwealth to the end that the application be made by the appropriate current permitee, with, however, Elco assuming full financial responsibility for performing and providing the appropriate assurances. 1505 " L.....W Ol'"YICE5 1LDBERG. KATZMAN & SHIPMAN, P.e. :)20E MARKET ST:flEET STRA"';'ERRY SQU.b.RE P. O. BOX lli!6rl HA}lRISBURG, PENNSYLVANIA 1710a.12G8 JAr.! ~ \~ i 1'1 .t ~ lOll? .li;J"''l4l .. ~ IN RE: ESTATE OF ROBERT M. MUMMA, Late of Cumberland County, pennsylvania IN THE COURT OF COMMON PLEAS OF CUMBERLAND COUNTY, PENNSYLVANIA : No. 21-86-398 : ORPHANS' COURT DIVISION POST-TRIAL BRIEF Post-Trial Arqument Unfortunately, the Hearing before this Court on January 17, 1992, as with a number of hearings in several courts regarding the various disputes between these parties, tended to some extent to get into wide-ranging matters of controversy between the parties. However, the issue before this Court is a very narrow one and one to which we submit -- the answer is quite clear. The question is as to whether, in the representation of the Estate with regard to its ownership of 50% of the stock of Lebanon Rock and one of the two positions on the Board of Directors of that Company, the Executrices are "in a position of conflicting interest or in any situation where [their] functioning as a fiduciary for a temporary period may not be in the best interests of the Estate." A very specific situation has been pointed out to this Court where, it is submitted, there is a definite conflicting interest and a very specific situation where the best interests of the Estate would be served by having an objective individual determine what really is in the best interests of the Estate. As can be seen from the 1506 > evidence submitted to this Court, there is presently a very important matter before the shareholders of Lebanon Rock, namely whether Lebanon Rock should engage in the mining and sale of dolomite or roadstone to outside third parties, pending a final decision by Judge Schaffner on whether Elco, itself, is legally entitled to mine roadstone from Lebanon Rock at a cost of 40 cents per ton. Judge Schaffner has already stated that, although sales to third parties might be profitable, it is an action which he is powerless to permit so long as there is a deadlock between the two shareholders on this important point. The executrices, in turn, refuse to eliminate this deadlock for fear that their own personal financial interests in Elco will be jeopardized thereby. There is a further important matter regarding Lebanon Rock as to which an objective point of view is required by the Estate. Sometime this year, Judge Schaffner will reach final decisions on the various disputes which are pending. If, even after these disputes have been resolved, there is a deadlock between the two shareholders, then it is likely that Judge Schaffner will order a dissolution of Lebanon Rock. (Counsel for the Executrices would argue that Judge Schaffner can simply appoint a custodian. However, it is clear that, at best, this would only be a temporary solution and that a custodian would not be permitted to make major decisions as to the future of Lebanon -2- 1~7 . . Rock. Ultimately, Lebanon Rock will have to be dissolved if a deadlock continues.) The question is whether it is in the best interests of the Estate to force a dissolution of Lebanon Rock. There can be no doubt but that the Executrices have a conflict with regard to these specific situations. Because of their individual stock interests in Elco, as well as their interests as salaried employees and officers thereof, they personally benefit to a greater extent from the generation of income by Elco as opposed to Lebanon Rock. The executrices have a definite bias which is not economically sound as to what the future of Lebanon Rock should be. The Court will recall that Mrs. Mumma testified that she believes that Lebanon Rock should simply be in the real estate business. Furthermore, it is clear that the Executrices believe that any entry into the dolomite business by Lebanon Rock would be competitively detrimental to Elco. This would not be the case. Mr. Mumma has testified as to plans for the non-local sale of dolomite, which is not being exploited at all by Elco. Thus, Elco will not be harmed competitively. The Executrices themselves concede that they must balance the interests of the Estate in both Elco and Lebanon Rock. There is no doubt but that it is proper for an objective individual, deciding as to what is best for the Estate, to take both of these interests into account. The fallacy in the -3- 1508 argument of the Executrices is that, although they profess to be objective, because of their conflict, they are not in a position to do this balancing. They have heavy personal interests at stake and their actions heretofore clearly show that they intend to protect those interests of the estate. They have already, unequivocally, taken a position on the issue that the interests of Lebanon Rock should give way to the interests of Elco. However, if an objective individual is appointed as temporary fiduciary, such individual will take into account the respective interests of the Estate in Elco and Lebanon Rock and not his or her own individual interests. Also, an objective individual will take into account whether Lebanon Rock very profitably can engage in the sale of dolomite while at the same time not hinder the operations of Elco. It must be remembered that for Lebanon Rock to engage in the sale of dolomite does not mean that it would not sell dolomite to Elco for use in its ready mix and building block operations. Furthermore, Elco already has under contract of sale another quarry in Lebanon County from which it can carryon dolomite operations if it so chooses. Finally, as stated above, Lebanon Rock dolomite will be sold non-locally. This will be faciliated by the easy access from Lebanon Rock to rail lines that reach points allover the East Coast. An objective individual will taken into account that such sales will enhance the profitability of Lebanon Rock, which is in the best interests -4- 1509 of the beneficiaries of the estate without interfering with the local dolomite market in which Elco is profitably doing business. The question before this Court is not whether Mr. Mumma is correct that it would be profitable and a good idea for Lebanon Rock to engage in the mining and sale of dolomite. The issue before this Court is whether the Executrices have any "conflicting interest" such that someone else should determine whether -- with regard to these limited matters -- such activity would be in the best interests of Lebanon Rock and of the Estate. On this key issue of whether a conflict exists, the Executrices have not come forward with any sound argument or evidence. All they have put forward is a simple disclaimer by them that there is a conflict. Viewing the matter objectively, there can be no doubt but that a conflict actually exists. For every dollar of profit that Lebanon Rock makes in the sale of dolomite, the estate receives 50% thereof. Correspondingly, for every dollar of profit that Elco generates from such a sale, the estate now only receives 21.6% of the profit, and this percentage will only decrease as Mrs. Mumma continues to personally withdraw stock from the Estate. Given the fact that the estate's financial interest in Lebanon Rock is twice as large as its interest in Elco, why would the Executrices place the interests of Eleo ahead of the interests of Lebanon Rock? The answer to this question is simple. For every dollar of profit that Lebanon -5- 1510 Rock makes, the Executrices receive nothing, however, for every dollar of profit that Elco generates, the Executrices, together, personally receive more than 28%. Thus, the Executrices have placed Elco's interest over Lebanon Rock not because it is in the estate's best interests to do so, but because it is in their own best interest. All of the arguments asserted by the Executrices in their own defense simply fall wide of the mark and are not addressed to relevant points. First, the Executrices come forward with baseless, vicious, ad hominem attacks on Mr. Mumma and the way in which he is running Lebanon Rock, all of which arguments we vigorously deny. They also argue that Elco legally has rights to the dolomite which are being wrongfully opposed by Mr. Mumma on behalf of Lebanon Rock. The short answer to these arguments is that Judge Schaffner will decide whether Mr. Mumma's actions are appropriate and will also decide the legal issues as to what rights, if any, Elco has to the dolomite. More importantly, because we are not seeking to have Mr. Mumma assume control over Lebanon Rock, but are, instead, requesting the appointment of an independent, objective fiduciary, Mr. Mumma's alleged conduct is not an issue herein. Secondly, the Executrices argue that, if Judge Schaffner appoints a custodian over Lebanon Rock, then there would be no need for a temporary fiduciary to decide upon the Estate's -6- ~51~ position with regard to the running of Lebanon Rock. This argument places the cart before the horse. We have asked Judge Schaffner to delay his consideration of whether to appoint a custodian due to a deadlock between the shareholders pending this Court's decision as to whether to appoint a temporary fiduciary. If such a fiduciary is appointed, there will be no deadlock and no need for a custodian for Lebanon Rock. Furthermore, even if a custodian were appointed to manage Lebanon Rock, there would still be a need for the shareholders to decide whether Lebanon Rock should be in the dolomite business. If, as suggested by Judge Schaffner, this is a major decision for Lebanon Rock as a corporation to make, then a custodian -- whose duty it would be to maintain the status quo -- would not be able to proceed with such a new business without shareholder approval. Hence, the need for the temporary fiduciary would still be critical. With regard to the custodianship issue, we need to correct erroneous statements made by counsel for the Executrices at the Hearing on January 17. Counsel argued that, when the Superior Court reversed Judge Schaffner's appointment of a receiver, the Superior Court simply told Judge Schaffner that he should have appointed a custodian. Thus, counsel implied that it is a foregone conclusion that a custodian of Lebanon Rock will be appointed. As this Court can see from the Adjudication and from the Superior Court opinion, Judge Schaffner appointed a receiver -7- 1512 over both Elco and Lebanon Rock. He never made any determination that Lebanon Rock itself needed to have either a receiver or a custodian. Furthermore, the Superior Court intimated strongly that, if a deadlock should persist, dissolution would quite probably be the ultimate remedy which would need to be effected. The Executrices argue that, if this Court should appoint a temporary fiduciary and if that fiduciary should vote against Lebanon Rock going into the dolomite business, then a deadlock would remain. However, Mr. Mumma has testified before this Court that, should an independent fiduciary be appointed, he would abide by the views expressed by that fiduciary. In any event, should there be disagreements between Mr. Mumma and the substitute fiduciary -- a situation which must always be anticipated since fair minds will differ on some subjects -- the important point is that the beneficiaries will have been protected because the individual making decisions on behalf of the Estate will not be affected by a conflict of interest. The Executrices argue that what is being requested is tantamount to a request to remove them as Executrices. This is simply not so. What is before the Court is a very narrow and specific situation and one which is precisely addressed by the statute in question, namely, a situation where, in these specific circumstances, there is a conflicting interest and the Executrices "functioning as a fiduciary for a temporary period -8- 1513 may not be in the best interests of the Estate." Note that the statute uses the words "may not be." The Court need not find any intentional wrongdoing on the part of the Executrices in order to grant relief here. All that is necessary is to find even an appearance of impropriety or the appearance of a conflict. Certainly, the evidence is overwhelming to the effect that a clear and actual conflict here exists. There can be no harm to the Estate by appointing a temporary fiduciary in this situation. On the other hand, there is a real and present danger that significant harm will come to this particular asset of the Estate should a temporary fiduciary not be appointed. The Executrices have argued that the statute in question is intended to operate only in situations where a fiduciary is temporarily out of the country or is otherwise indisposed. The fallacy of this argument, however, is apparent from the face of the statute itself. The statute specifically enumerates that, in addition to those limited situations in which the Executrices would have the statute operate, it is also operative whenever a fiduciary is "in a position of conflicting interest or in any situation where his functioning as a fiduciary for a temporary period may not be in the best interests of the estate." Since it is hornbook law that each and every word of a statute must be given legal effect, it necessarily follows that the legislature fully intended for the statute to apply in situations such as -9- 1514 this where the Executrices are laboring under a conflict of interest. The Executrices have further argued that, notwithstanding the fact that the statute in question is separate and distinct from the removal statute in the Probate Code, nevertheless, the common law standards for removal must apply in the present instance. Again, the statute itself clearly indicates otherwise. The statute in question was enacted in 1974, long after the removal statute had been enacted and long after the common law principles relating to removal had been formulated. If the legislature had intended that common law principles were to be applicable to situations involving conflict of interests, there would have been no need for the statute in question since this result would have necessarily been the effect of Pennsylvania law prior to 1974. By enacting the statute in question, the legislature manifested a clear intention to change the governing common law and to formulate an expedited procedure for transferring fiduciary responsibility when a conflict of interest arises. Grounds for removal are not relevant herein since the Executrices are not being removed from administering the decedent's estate, they are only temporarily replaced as to one of its assets. As soon as the Executrices see fit to disgorge their individual financial interests that created the -10- 1515 conflict in the first place, they can again assume their fiduciary duties. Finally, the Executrices have argued that it would be improper to appoint a temporary fiduciary in this matter since the conflict herein was allegedly known to Mr. Mumma Sr. and condoned by him. This argument, however, is specious for a myriad of reasons. First, Mr. Mumma wrote his will prior to the time that he bought Lebanon Rock and, therefore, his will could not have possibly contemplated the existence of such a conflict. Secondly, the nature of the conflict herein is such that it could not have been waived by Mr. Mumma even if he had known of it. This fact has been specifically acknowledged by the Pennsylvania Superior Court in its opinion dealing with the issues raised in the Dauphin County litigation.1 Finally, it was the Executrices, not the decedent, who created the conflict herein. It was the Executrices who implemented their scheme to personally divert family stock to their own uses via Mrs. Mumma's withdrawal power, and it was the Executrices who blocked Lebanon Rock's attempt to market dolomite to outside parties. In so doing, the Executrices, not the decedent, bear responsibility for the conflict herein. 1. Attached hereto as Exhibit "A" is a true and correct copy of the Superior Court's opinion. Please note pages 10 and 11. -11- 1_516 .' The Executrices, as a last resort, have also undertaken to assert the doctrine of laches by claiming that Mr, Robert Mumma, II inordinately delayed the filing of the present action until well after the onset of the Dauphin County litigation. In point of fact, it was only after the Executrices filed their accountings last summer that their stock diversion plan became apparent, and it was only in the fall of last year that the Executrices first attempted to block Lebanon Rock's sale of dolomite to third parties. These actions by the Executrices precipitated the filing of our instant action, and it is these actions that necessitated the relief that we seek. Submission of Additional Materials At the Hearing on January 17, the Court received two exhibits sUbject to the submission of additional documentation. First, Exhibit P-9, charts concerning dividends paid by Nine Ninety Nine, Inc., was received subject to the submission of testimony from the proceedings in Dauphin County further clarifying the percentage of 8% preferred stock owned by the Executrices during the relevant period. Attached hereto as Exhibit "B" are the pages constituting the testimony of Mrs. Mumma and Mrs. Morgan on this subject. It will be seen that this testimony further confirms the accuracy of the charts and the point which is being made. In particular, it should be noted -12- 1517 . " that both of the Executrices admitted that 100% of the dividends paid to the Estate were, quite properly, paid to Mrs. Mumma as the life tenant. It will be seen from the testimony beginning with redirect of Mrs. Morgan at page 131 that, during the luncheon recess, she called Mr. Hadley in Buffalo and ascertained that Mrs. Mumma did not buy the shares of Mrs. McClure (Babs) until after the 1988 dividends on the 8% preferred had been paid. Therefore, Mrs. McClure received those dividends directly. Mrs. Mumma bought all of the shares of Mrs. Roth (Linda) prior to the time the 1988 dividends were paid, such that Mrs. Mumma received the dividends on the shares formerly owned by Mrs. Roth. Of course, Mrs. Morgan pointed out that Mrs. Mumma paid more for those shares to the extent that there were dividends from previous years not paid. The testimony has been that this 8% preferred stock was stock owned by the three daughters. If we adjust the 1988 column on the chart of numbered page 4 of P-9 to take into account that Mrs. McClure received one-third of the 8% preferred dividends, we subtract $47,040 from the $256,332 listed as the total received by Mesdames Mumma and Morgan in 1988 for a new total of $209,292. The new percentage of the total payout representing that which Mesdames Mumma and Morgan received in 1988 is 76.7%. Carrying this adjustment through, the new percentage of all of the dividends paid to Nine Ninety Nine's shareholders over the last -13- 1518 . " '< three years which were paid to Mesdames Mumma and Morgan is 69.1% rather than the 73.93% set forth in the exhibit. As can be seen, this adjustment is minimal, and the point for which this chart was introduced still stands out very clearly, namely, that the Executrices, even in a normal year with no back payment of dividends, received in their individual capacities -- well over 50% of all of the income generated by Nine Ninety Nine. Also, notwithstanding that Elco is a subsidiary several levels down, every dollar of income generated by Elco is a dollar of income available for distribution to the shareholders of Nine Ninety Nine. On the other hand, Mrs. Mumma, as the life beneficiary on the 50% of Lebanon Rock stock, is entitled only to 50% of the dividends generated by Lebanon Rock. The other exhibit which was received subject to the submission of further documentation was the partial testimony by Mr. Boswell on December 12, 1991, in Dauphin County. Attached hereto as Exhibit "C" is his complete testimony, together with his deposition testimony, which was also received in evidence by Judge Schaffner. The Court will see that Mr. Boswell's direct testimony confirms what Mrs. Morgan was asked about during cross- examination before this Court on January 17, 1992, namely that Lebanon Rock was purchased in order to put Robert M. Mumma, II into the aggregate business, and Robert M. Mumma, Sr. contemplated selling Elco to his son. Furthermore, at the time -14- 1519 l' .~ of his death, he was seriously considering the execution of a shareholders agreement which would have provided that, upon his death, Robert M. Mumma, II would have had the right to buyout the Estate's shares in Lebanon Rock. Furthermore, this testimony confirms that there clearly was no legal agreement between Lebanon Rock and Elco as to any arrangement which would come into effect regarding the long-term mining of dolomite at the quarry. (In this regard, see particularly pages 26-29 of Mr. Boswell's deposition.) This, of course, confirms the finding of Judge Schaffner, which was noted by the Superior court, that there was no such legal agreement. In any event, as will be seen from the argument set forth below, this is not an issue which is presently before this Court. -15- 1520 " ~.. CONCLUSION WHEREFORE, we respectfully that this Honorable Court appoint a temporary fiduciary with regard to the administration of the estate's interest in Lebanon Rock. Respectfully submitted, ~ E,~'K Charles E. Shields, III, Esquire Commonwealth National Bank Building 2 West Main Street Mechanicsburg, PA 17055 william C. costopoulos, Esquire 831 Market Street Lemoyne, PA 17043 Jon A. Baughman, Esquire Pepper, Hamilton & Scheetz 3000 Two Logan Square Eighteenth and Arch Streets Philadelphia, PA 19103-2799 DATE: January 24, 1992 -16- 1521 " ~ CERTIFICATE OF SERVICE I, Charles E. Shield, ItI, certify that a copy of the attached POST TRIAL BRIEF and letter to Judge Sheely was served by first class mail on January 24, 1992 upon the following: Richard W. Stevenson, Esquire McNees, Wallace & Nurick P.O. Box 1166 Harrisburg, PA 1710B-1166, for Barbara M. McClure 129 S. Lewisberry Road Mechanicsburg, PA 17055 Thomas M. Kittredge, Esquire Morgan, Lewis & Bockius 2000 One Logan square Philadelphia, PA 19103-6993, for Barbara McK. Mumma and Lisa M. Morgan John Hardin Young, Esquire Porter, Wright, Morris & Arthur 1233 20th Street, N.W. Washington, D.C. 20036-2395, for Linda M. Roth 5104 Wessling Lane Bethesda, MD 20814 william F. Martson, Esquire Martson, Deardorff, Williams & otto 10 East High Street carlisle, PA 17013, for Barbara McK. Mumma and Lisa M. Morgan Attorney General Commonwealth of Pennsylvania Strawberry Square Harrisburg, PA 17120 (Courtesy Copy) Robert M. Frey, Esquire 5 South Hanover Street Carlisle, PA 17013 Ronald M. Katzman Goldberg, Katzman & Shipman, P.C. 320E Market Street Strawberry Square P.O. Box 1268 Harrisburg, PA 17108-1268 Cfu>>~./J E. xl1.d~ -:m:- Charles E. Shlelds, III HSBOO5/Sarah/certificate of service :l522 .r..~ '-' - ~ AL: r;;tJi t /JW II /Jl~ 1Ut). :<1 -210 --398 ~ E ~7lF ~ tv, ll!~~ III ~~ /.4 IliJSS 711- 7.,6 -iJ~O?