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HomeMy WebLinkAbout03-09-92 (2) IN RE: ESTATE OF ROBERT M. MUMMA, Deceased IN THE COURT OF COMMON PLEAS OF : CUMBERLAND COUNTY, PENNSYLVANIA ORPHANS' COURT DIVISION : NO. 21-86-398 IN RE: PETITION TO APPOINT A TEMPORARY FIDUCIARY BEFORE SHEELY, P.J. ORDER OF COURT AND NOW, this 6th day of March, 1992, the petitioner's petition to appoint a temporary fiduciary is hereby DENIED. By the Court, Jon A. Baughman, Esquire -fl')~ -3-/0--Cf:1, Charles E. Shields, III, Esquire _~~/\ ~, William C. Costopou1os, ESqUire~~~Xt For Defendant Robert M. Mumma, II ?f:L -4)'2,( 9 ~ Ronald M. Katzman, Esquire -fY)~ - 8--/0-"'13 Jack O'Connor, Esquire-fl1u&...J-3.-/c>-"(~ For Barbara McK. Mumma, Lisa Morgan and the Estate :pbf CA~ r~~7 3/,~~ 1.5'77 -;:L' ). -.;:j~~ O. \ $:- '9'- IN RE: ESTATE OF ROBERT M. MUMMA, Deceased IN THE COURT OF COMMON PLEAS OF CUMBERLAND COUNTY, PENNSYLVANIA ORPHANS' COURT DIVISION : NO. 21-86-398 IN RE: PETITION TO APPOINT A TEMPORARY FIDUCIARY BEFORE SHEELY, P.J. OPINION AND ORDER OF COURT Here we are asked to determine whether petitioner has met his burden of proof to show that the executrices are in a position of conflict of interest with respect to the interest of the estate and whether the conflict is of such a nature that the executrices are unable to act in the best interests of the estate. We answer both in the negative. FINDINGS OF FACT 1. The instant action concerns two family corporations, Elco Concrete Products, Inc. (Elco) and Lebanon Rock, Inc. (LRI) and their officers, directors and shareholders. 2. Elco is a pennsylvania Corporation formed in 1982 by Robert M. Mumma, Sr. (RMM Sr.). 3. RMM, Sr. was the president of Elco from its formation until his death in 1986. 4. Lebanon Rock, Inc. was formed by RMM Sr. in 1985. RMM Sr. was the president of LRI. 5. The stock of LRI was held equally between RMM Sr. and his son, Robert M. Mumma, II (RMM II). 1578 'NO. 21-68-398 6. In December, 1985 and January, 1986, the family members directly involved in the operation of the family's businesses were RMM Sr., Barbara McK. Mumma, and RMM II. 7. While RMM II had commercial enterprises that he owned in his own right, perhaps the largest concerns were held by the family, and without question, controlled by RMM Sr. 8. The control was maintained by a series of interlocking corporations, but, again, the guiding force in the family was RMM Sr. 9. In 1982, an acquisition of Elco, a company manufacturing concrete products, whose plant was adjacent to the quarry site of LRI in Lebanon County, was made. 10. Elco was controlled by RMM Sr. At the end of 1985, RMM Sr. entered into an agreement to purchase LRI as well. 11. LRI produced a stone called high calcium limestone, a product which could be of value in the Mumma family's construction business. 12. Elco already had crushing equipment and could use other stone products from LRI, which could be advantageous to its operation also. 13. Because of its seemingly advantageous commercial partnership, RMM Sr. decided to acquire the quarry and invited his son, RMM II to jOin in the enterprise with him. 14. By December of 1985, the new corporation had been formed and the sale of the quarry and its assets completed. 15. Father and son were equal shareholders of the new corporate enterprise, LRI. 1579 -2- 'NO. 21-68-398 16. RMM Sr. and RMM II envisioned that the operation would be managed in such a way that Elco would remove dolomite from the quarry for its uses, and LRI would remove high calcium limestone for its corporate purposes. 17. Barbara McK. Mumma, RMM Sr.'s widow, and Lisa Mumma Morgan, Esquire, RMM Sr.'s daughter, were appointed executrices of RMM Sr.'s estate after his death on April 12, 1986. 18. The estate now controls fifty percent of the shareholder's interest in LRI, and RMM II maintains the remaining fifty percent interest. 19. By the end of 1987, many changes had occurred in the absence of RMM Sr. 20. By 1987, family members had become so embroiled in lawsuits that the end result was familial catastrophe. 21. Some of the family members, RMM II and Mrs. Mumma and Mrs. Morgan specifically had become ardent, unrelenting, and often strong adversaries. 22. Mrs. Mumma and Mrs. Morgan, desiring to exercise interests they considered legitimate in LRI were offended by RMM II's refusal to discuss in any significant manner, the operations of LRI and his treatment of Elco as, in essence, a trespasser on the quarry site. RMM II believes that the executrices want LRI to fail. 23. RMM II stands before us now seeking the appointment of a temporary fiduciary. He does not believe that the executrices can effectively look out for the best interests 1~O '~O. 21-68-398 of the estate since the conflict is patent and obvious, the interest is largely personal and the executrices have a greater interest in the 999 Corporation which owns Elco's stock. 24. Oddly enough, the estate has wanted an independent person to oversee LRI for years and RMM II always fought them. 25. Neither executrix receives any salary or financial gain from Elco. 26. Any dividends paid out of 999 are not based'on Elco's profits. 27. LRI was acquired in 1985, and was to be in the high calcium aggregate business and the real estate business. 28. Elco had been in the dolomite business since and prior to 1985. 29. Dolomite and high calcium are two different types of aggregates. 30. Elco was confined to quarrying dolomite within the pit limits or Sam's Knob as it is called, any quarrying outside of the pit limits was sUbject to royalties being paid to LRI. 31. On October 18, 1991, the Honorable Herbert Schaffner of the Dauphin County Court of Common Pleas ruled that LRI was not to engage in the dolomite business. 32. In early 1988, RMM, II had refused to allow Elco access to the rental of LRI equipment necessary to extract its dolomite. 33. The executrices are concerned that entering into the dolomite business is beyond the original business plan of LRI and they are also concerned about the environmental and ~5~A NO. 21-68-398 reclamation liability which may attach to the estate were LR! permitted to enter into certain activities at the quarry site. 34. Lawsuits concerning LR! have been instituted in Cumberland, Dauphin and Lebanon counties. No one seems immune. 35. Four separate and related actions were filed in Dauphin County. No. 4678 Equity 1988 was instituted by LRI against Elco for trespass and wrongful removal of minerals from LRI land. LRI also instituted the action at No. 4722 Equity 1988 which requested the court to restrain Elco from the further manipulation of LRI property until proper Commonwealth permits were obtained. The action at 3210 S 1988 is a derivative suit instituted by the executors of the estate of Mumma, Sr. to enjoin RMM II from running LRI without the consent of the estate shareholders. This complaint also requested RMM II's removal as director of LRI. Finally, RMM II filed No. 4744 Equity 1988 as a derivative action against Elco alleging trespass, breach of contract and breach of fiduciary duty. 36. The Dauphin County Court of Common Pleas held a plethora of hearings regarding various issues raised in these complaints. The Honorable Herbert Schaffner ultimately issued an adjudication appointing a receiver to operate both Elco and LRI for an indefinite period. 37. The Superior Court of Pennsylvania reversed the lower court by holding that a joint receiver for both Elco and LRI was inappropriate. The Superior Court also held that the more appropriate remedy would be a custodian to manage LRI or an involuntary dissolution of LRI. The Superior Court remanded the matter. 1.582 -5- '~O. 21-68-398 38. RMM II is now before us, requesting us to appoint a temporary fiduciary. CONCLUSIONS OF LAW Because of the exigencies of the situation which arose in many estates through the absence from the jurisdiction of one or more fiduciaries, during World War II, who were nmembers of the armed forces of the United States or of any allied or associated power or . . . detailed by proper authority for duty with such armed forces "an act was passed, whereby the court having jurisdiction of the accounts of the fiduciary had the power to appoint a temporary fiduciary. Raymond M. Remick, Remick's Pennsylvania Orphans' Court Practice, S39.02(d) Temporary Fiduciaries (R. Richard J. Partridge, 1980). The present Section 4301, providing for the appointment of a temporary fiduciary, states as follows: Whenever and for so long as any fiduciary is in military service, in other government service, 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, the court having jurisdiction over such fiduciary shall have the power in its discretion: (1) To authorize the cO-fiduciary or co- fiduciaries, if any to exercise all or specified powers of the incapacitated fiduciary, whether discretionary or ministerial; or (2) to appoint a substituted fiduciary pro-tern to act in place of the incapacitated fiduciary and to authorize the substituted fiduciary pro-tern to exercise all or specified powers and discretion of the incapacitated fiduciary. 20 Pa. C.S.A S4301 1583 -6- NO. 21-68-398 Thus, we must decide if (1) a conflict exists and (2) whether such conflict renders the executrices incapable of acting in the best interests of the estate. Undoubtedly a conflict exists between RMM II and his mother and sister, who are executrices of RMM, Sr.'s estate. We note that .while friction between a fiduciary and one or more beneficiaries of the trust is not sufficient ground for removal of the fiduciary, it may be taken into consideration with other elements constituting grounds for removal. Mooney's Estate, 56 Mont. 1, 37 D.&C. 203 (1939). The only ground presented here is conflict. The executrices 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. ~ Steele Estate, 377 Pa. 250, 257, 103 A.2d 409 (1954). We realize that this obligation requires a balancing of sometimes competing interests which may constrict the benefit to RMM II as an individual owner of fifty percent of one estate asset. We do not believe that this in and of itself creates a conflict of interest. We also reason that the decedent must have recognized these potential conflicts, but purposefully created these arrangements for the best interest of his estate. In fulfilling the decedent's scheme, implemented ab initio by the decedent while fully aware of the .conflict,. the executrices 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 Pa. 82, 73 A.2d 411 (1950). 1584 -7- ," -NO. 21-68-398 To remove the executrices would be a drastic action, to be taken only if the estate is endangered and the court's intervention is 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): Quinean Estate, 441 Pa. 266, 268, 273 A.2d 340, 342 (1971). Because the decedent chose these executrices as his fiduciaries, the burden on RMM II 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 D&C.2d 357 (D.C. Phila.), affirmed, 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). RMM II 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). We do not believe that RMM II has met his burden. We believe that if anyone is hampering the process or endangering the estate, it is RMM II. He has attempted to thwart the executrices' attempts to gain knowledge about LRI. He has repeatedly refused to provide them with documentation and has even barred his mother from the Board of Directors meeting thus giving himself almost 100 percent control of LRI. In addition, he has deviated from his father's vision of Elco and LRI working together for the profitability of both corporations by treating Elco like a trespasser. We believe that by releasing the 1585 -8- -NO. 21-68-398 executrices from their duties, we would be giving RMM II, almost unlimited and unchecked power. Thus giving him the ability to take LRI to its peak profitability or to its detriment depending upon his pleasure. As both beneficiaries of the estate and executrices of the estate, it flies in the face of reason to suggest that the executrices would want to see LRI fail. To the contrary they would want it to flourish so as to add to the wealth of the estate. Suggestive of the executrices good faith was in securing another mortgage for LRI when they were finally provided with proper information and documentation. We believe that it would be foolhardy at this point and time to appoint a temporary fiduciary for LRI, considering the mound of litigation and plethora of paper work that it (in this case Dauphin Deposit Bank) would have to familiarize itself with in order to effectively operate as a temporary fiduciary. We believe that based upon the evidence presented at the hearing that both executrices are competent and able to carry out their functions, despite the conflict with RMM II and that most of the conflict surrounding the operation of LRI, RMM II has been brought on by himself. We believe the solution to LRI's problems does not lie in the appointment of a temporary fiduciary, but in the appointment of a custodian or dissolution of the corporation. ORDER OF COURT AND NOW, this 6th day of March, 1992, the petitioner's petition to apPoint a temporary fiduciary is hereby DENIED. 1586 -9- ^ NO. 21-68- 398 By the Court, Isl Harold E. Sheely Jon A. Baughman, Esquire Charles E. Shields, III, Esquire William C. Costopoulos, Esquire For Defendant Robert M. Mumma, II Ronald M. Katzman, Esquire Jack O'Connor, Esquire For Barbara McK. Mumma, Lisa Morgan and the Estate :pbf :158'7 -10- P.J.