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HomeMy WebLinkAbout01-24-92 IN RE: ESTATE OF ROBERT M. MUMMA, Deceased IN THE COURT OF COMMON PLEAS CUMBERLAND COUNTY, PENNSYLVANIA NO. 21-86-398 : : ORPHAN'S COURT DIVISION ESTATE'S SUPPLEMENTAL TRIAL MEMORANDUM INTRODUCTION The issue presented by the Petition herein of Robert M. Mumma, II, (RMMII), by the Answer filed by Barbara McK. Mumma and Lisa M. Morgan, (Executrices), and by the testimony at the hearing on this matter held January 17, 1991, is whether RMMII has carried his heavy burden of proof to show the Executrices are in a position of conflict of interest with respect to the interest of the Estate of Robert M. Mumma (the Estate) in a corporation known as Lebanon Rock, Inc. (LRI) and if so, whether the conflict is of such a nature that the Executrices are unable to act in the best interests of the Estate. (See P.C.S. S 4301) The legal standards which have to be met in order to grant the relief requested were fully analyzed in the Trial Memorandum previously submitted, and will not be repeated here. Suffice to say that, as set forth therein, the remedy of removal of fiduciaries, which is what the Petition is requesting, has been characterized by the courts as a "drastic" remedy requiring evidence that the Estate is "endangered," and these elements must 1523 consequently, any dividends paid out of Nine Ninety-Nine are in no way based on Elco's profits. Finally, to the extent that RMMII attempts to portray that dividends paid out of 999 somehow benefit the Executrices to the detriment of the Estate and the beneficiaries, the Court should review the shareholder data of 999 which indicates that all family members share in these dividends. In fact, RMMII and the Estate actually receive more share of any dividend than Mrs. Mumma or Mrs. Morgan personally. Thus, RMMII's assertion that the proceeds of Elco are eventually distributed to the fiduciaries is totally baseless and falls like a house of cards. Second, the standard for removal of a fiduciary is that a conflict exists which prevents him or her from acting in the best interests of the estate. In re Raffertv's Estate, 377 Pa. 304, 105 A.2d 147 (1954). Clearly, no evidence has ever been presented to illustrate any such inability on the part of the Executrices. Rather, what is occurring here is that RMMII attempts to create a conflict on the part of the Executrices by setting forth certain business disputes as to the management of LRI, which disputes are currently being litigated in Dauphin County. The only "conflict" that exists is that between the Executrices as one fifty percent shareholder of LRI, and RMMII as the other fifty percent shareholder, with respect to the operations of that company. This is a business dispute as to the management of a corporation, and a -3- 1525 on the other is certainly not grounds for removing the fiduciaries and appointing a Temporary Fiduciary. Even if there was a conflict of interest in this case between the personal interests of the Executrices and the best interests of the Estate, neither the pleadings filed herein nor the testimony at the January 17, 1991, hearing reveal facts which indicate in any way that the Executrices are not acting in the best interests of the Estate. There clearly is a business dispute between RMMII and the Executrices with respect to the management of Lebanon Rock and Elco at a quarry site where both companies operate. That is being litigated in Dauphin County, where the Court is expected soon to rule on the Estate I s request that a custodian be appointed to operate LRI in a manner that would enhance the Estate's position. RMMII has been actively opposing this, because it will put an end to his taking money out of LRI for his own benefit and to the detriment of the Estate. It is indeed ironic that the person (RMMII) who is destroying the Estate's interest in LRI should come into court alleging that the Executrices, rather than himself, should be removed. But then, as the Superior Court observed, RMMII will stop at nothing "to force a favorable result." RMMII believes that Lebanon Rock should be operated in a manner that maximizes solely its profits; the Executrices believe that both Lebanon Rock and Elco should be operated taking into -5- :1527 account the best interests of the Estate's ownership interest in both companies and in accord with the original intent and business plans for those corporations. As Mrs. Morgan testified, Lebanon Rock was acquired in 1985 and was to be in the high calcium aggregate business and the real estate business. Elco, on the other hand, has been engaged in the dolomite business both since and prior to 1985. Dolomite and high calcium are two different types of aggregate. That this was the original business plan agreed to by all the parties has been well established in the Dauphin County litigation and is substantiated by the testimony of William D. Boswell, Esq., the attorney who formed these corporations for the parties. (Attorney Boswell's testimony is in evidence in this proceeding.) Importantly, many statements were produced to the Court made previously, under oath, by RMMII himself, or his counsel, which confirm that the purpose of LRI was to be in the hiah calcium business, not dolomite, and thereafter to sell real estate and receive a royalty from Elco incident to Elco's quarrying of dolomite. The prior sworn testimony of Attorney Boswell which was placed into evidence is entirely consistent with this, as is the following finding of Judge Schaffner in the Dauphin County action, as quoted in the Memorandum of the Superior Court dated July 3, 1991 (p. 5): -6- ~528 "There can be no serious question that Mumma, Sr., and then his son, RMII, envisioned that the operation would be managed in such a fashion that Elco would remove dolomite from the quarry, for its uses, and LRI would remove high calcium limestone for its corporate purposes." Additionally, Judge Schaffner ruled in his September 7, 1990, Order and in his October 18, 1991, order, both of which were placed in evidence by RMMII, that LRI was not to engage in the dolomite business, but that Elco was to continue to do so. Typical of the misleading statements offered by RMMII in this proceeding, however, is his statement that Lebanon Rock had been selling dolomite since 1987, and that the first time Elco entered the quarry with its own equipment was in 1988. This statement is contrary to the testimony of Mrs. Morgan and contrary to the evidence that has been well-established in Dauphin county. What RMMII characterizes as "dolomite" sold in 1987 was actually dirty high calcium that Lebanon Rock was unable to sell for its normal uses. Furthermore, testimony clearly indicates that Elco was mining and selling dolomite from the outset. The only thing that changed was that in early 1988, RMMII unilaterally refused to allow Elco access to the rental of LRI equipment necessary to extract its dolomite, which access Elco had for several years enjoyed, and Elco was forced to purchase certain new equipment to continue its business operations. As Mrs. Morgan stated, Lebanon Rock did not begin to mine and sell dolomite until 1991, at which time Judge -7- 1529 Schaffner ordered them to cease. RMMII is unilaterally trying to deviate from the business plan of Lebanon Rock without proper corporate authority, and it is this fact that creates the "conflict" between the parties. In addition to the fact that entering into the dolomite business is beyond the original business plan of Lebanon Rock, there are numerous other factors on which the Executrices have reasonably based their decision not to alter Lebanon Rock's operations. A particular concern of the Executrices (testified to by Lisa M. Morgan at the January 17, 1991, hearing) is the environmental and reclamation liability which may attach to the Estate were Lebanon Rock permitted to enter into certain activities at the quarry site. RMMII has never addressed these concerns. As set forth in our Trial Memorandum, the fiduciaries are given a wide range of discretion in which to exercise their responsibilities. Mere disagreement by RMMII, either as a fifty percent owner of LRI, or as a beneficiary of the Estate, is not a basis for taking any punitive action against the fiduciaries. In fact, even if this Court were to conclude that if it were the fiduciary, it might have acted differently with respect to LRI, the relief requested by RMMII could not be granted. It is only if the Court finds that these fiduciaries have acted without any appropriate basis, and have abused their discretion, that the -8- 1530 action requested could be considered. justifies any such conclusion. None of the evidence In considering the testimony, we submit that the Court should keep in mind the description of RMMII by the Superior Court, as it impacts upon RMMII' s credibility. At page 11 of the Superior Court's decision, footnote 4, which RMMII placed into evidence, the Superior Court pertinently observed that RMMII' s "past conduct evidences that he will exceed all bounds to force a favorable result." This Court should consider that RMMII never testified as to how much profit per year LRI would make if it were allowed to go into the dolomite business. He further did not testify as to how much (if any) of any such profits would flow to the Estate. He made only a fleeting and general reference to the fact that there were needs for additional dolomite production in the Lebanon area, but pertinently never produced one document, one studv, one analvsis, to support his bald assertion. The fact clearly is that under RMMII' s unilateral operation of LRI for over four years, which has excluded the Executrices and the Estate from all participation, LRI has never made a dime of profit. Because of RMMII's actions, the Estate's ownership interest in LRI has been compromised. certainly, a high degree of factual evidence should be required before the Court would conclude that RMMII, having -9- 1531 essentially run LRI into the ground for the last four years, should now cause it to enter a new field of endeavor. Based on past conduct, not only is he untrustworthy and lacking in credibility, but he also has demonstrated an inability to operate LRI in a profitable manner. Certainly, the Executrices cannot be held to have abused their discretion by not accepting the unsubstantiated allegations of RMMII. Further illustrative of RMMII's lack of credibility is his testimony with respect to monies taken from LRI by him to pay Attorney Wickersham. RMMII claimed in his testimony that Mr. Wickersham represented .LRI, and not him personally. However, through his attorneys he asserted a different story to the Superior Court. Based on that, it is clear that not only has RMMII run this 50-50 corporation, LRI, unprofitably, but he has also taken money into his own pocket which otherwise would have been available to the Estate. Mrs. Morgan testified extensively concerning the basis for the decision of the Executrices not to agree with RMMII concerning a change in the direction and basic purposes of LRI. By merely attempting to carry out the operations of the various companies in the same manner which the decedent had employed, and by adhering to agreements which he had made, as well as court orders and declarations of the attorney who handled the transaction at the -10- 153Z time it occurred, and evaluating the other risks incident to entering into the dolomite business, the Executrices certainly have proved beyond a doubt that there is no basis for their removal, especially in light of the heavy burden of proof which rests with RMMII to prove the contrary. Finally, if the Executrices do make mistakes in their management of the Estate's interests in Lebanon Rock and Elco which run afoul of the standards of conduct the law sets for fiduciaries, the proper remedy for the beneficiaries of the Estate will be to request the Court to surcharge the Executrices to make the Estate whole. In re Dobson's Estate, 490 Pa. 476, 417 A.2d 138 (1980). A person who owns fifty percent of an asset, and who has demonstrated himself to have unilaterally mismanaged that asset, cannot use business disputes between him and the other fifty percent owner over the management of that corporation to create a conflict within the parameters of S 4301. The "conflict" manufactured by RMMII simply is not a conflict of interest, and it does not disable the current fiduciaries from acting in the best -11- 1533 interests of the Estate, particularly because those fiduciaries have not derived any personal gain. Respectfully submitted, BY: & SHIPMAN, P.C. R NALD . KA Z , ESQUIRE Attorney for Estate of Robert M. Mumma, Deceased 320E Market Street P. O. Box 1268 Harrisburg, PA 17108-1268 (717) 234-4161 Attorney 10# 07198 Date: January 24, 1992 -12- :1534 CERTIFICATE OF SERVICE I hereby certify that I am this date serving a copy of the foregoing Answer with New Matter to Petition for the Appointment of a Temporary Fiduciary upon the person(s) and in the manner indicated below, which service satisfies the requirements of the pennsylvania Rules of civil Procedure, by depositing a copy of same in the United States Mail, Harrisburg, Pennsylvania, with first- class postage, prepaid, as follows: Charles E. Shields, III Esq. Commonwealth National Bank Bldg. 2 West Main Street Mechanicsburg, PA 17055 William C. costopoulos, Esq. 831 Market Street Lemoyne, PA 17043 By: 1~~' 320E Market street P. O. Box 1268 Harrisburg, PA 17108-1268 (717) 233-4161 Attorney 1.0. #38872 P.C. Attorneys for Estate of Robert M. Mumma, Deceased Dated: January 24, 1992 -13- 1535 LAW OFFICES LDBERG, KATZMAN & SHIPMAN, Pc. :320E M.ARKET STREET STRAWtlERRY ~.:.-QUARE P. O. tlOJ{ 1288 HARRISBURG, PENN5YLV..<\.:NIA 17108-1268 ~