Loading...
HomeMy WebLinkAbout03-20-92 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 EXCEPTIONS TO ORDER OF COURT Robert M. Mumma, II, individually, and Robert M. Mumma, II as a Co-Guardian of the Estates of Susan Mann Mumma and Marguerite Mann Mumma, by their attorneys, Charles E. Shields, III of Mechanicsburg, William C. Costopoulos, of Lemoyne, and Jon A. Baughman, of Philadelphia, file the following Exceptions to the Order of Court denying Petitioner's Petition for the Appointment of a Temporary Fiduciary: CONCLUSIONS OF LAW 'iii1l Petitiener respectfully takes exception to the learned Court's fin.in~ that the executrices of the estate are not in a ~! \..o..-l\-'f'\." .y ~,,' 'ir, " position of conflict with respect to their fiduciary interest in ~'~I~. <;' ~ J "_/-'" ',J i \ Lebanon Reck, InC:: ("~"), a~d their personal financial interest in Elco Concrete Products, Inc. ("Elce"). To the contrary, the executrices are laboring under a \ '>.'\ conflict of interest with respect to their personal financial interest in Elco and their duties as fiduciaries of the estate with regard to the estate's interest in LRI. I ',."",...t J>' ---. Petitioner's assertion that the executrices are laboring ,F ;' under a conflict of interest is based on an objective analysis of the executrices' behavior. This conflict of' interest is-" \Y"J-1... manifested bY the following factors:., .If! II t '" J IF, , t. - I I i ':;X..- . f1."\. to:3o""",,",,.",f ii-~' r.... \. (I ~t !"/-"- 1588 1. The executrices have systematically transferred substantial amounts of stock in Nine Ninety-Nine, Inc. ("999"), which owns Elco, to Barbara McK. Mumma, one of the executrices. Mrs. Mumma is thus capable of transferring, by will or by gift, her substantial ownership in 999 t. her daughter, Lisa M. Morgan, the other executrice. This would be in direct contravention of the decedent's, Robert Mumma, Sr.'s ("RMMSr."), testamentary intent that his four children would each take an equal 1/4 share in the estate's assets. 2. As the Court is aware, Elco and LRI have been embroiled in litigation in Dauphin County for the past three years. The fact that Mrs. Mumma and Mrs. Morgan, as fiduciaries, hold substantial ownership interests in both litigants is a clear case of conflicting interest. Also, both Mrs. Mumma and Mrs. Morgan have stated under oath that the estate is paying Elco's c<-,A.'.. \ ~'b'-' and their own legal fees in the litigation between ~~~o and LRI.- 3. The executrices clearly benefit by advancing Elco's interests over LRI's. If the value of LRI stock increases, the executrices receive no immediate benefit because the increase in value inures solely to the benefit of the estate. If Elco's. value increases, then Mrs. Mumma and Mrs. Morgan immediately. realize the benefit of an increase in value of their personal stock holdings. 4. It is undisputed by any party to these proceedings that the executrices are paid officers of, and advisors to, Elco. 5. Although Dauphin Deposit Bank has recently -2- 1.589 refinanced its term loan arrangement with LRI, it will not reODen the line of credit to LRI pursuant to written instructions from the executrices that the line of credit is to remain frozen until they instruct Dauphin Deposit otherwise in writing. This has forced Robert M. Mumma II ("RMMII") to advance credit to LRI in order to maintain the viability of LRI. 6. Petitioner respectfully disagrees with the Court's reasoning that the decedent must have recognized these potential conflicts. Order, p.? The decedent bought LRI after he wrote his will, and in any event, the decedent could not possibly have foreseen that the executrices would divert stock such that they could alter his testamentary intent. Even if he had foreseen the conflict of interest, the Superior Court stated that the decedent could DQt waive such a conflict. Thus, it is clear that the executrices are laboring under a conflict of interest sufficient to endanger the property of the estate. Suspending the executrices from their duties would not give RMMII "almost unlimited and unchecked power. II Petitioner is merely requesting that an objective and impartial temporary fiduciary be appointed onlv with respect to the shares of LRI held by the estate onlv for the duration of the litigation between Elco and LRI. RMMII's behavior or potential conflicts (familial or otherwise) are irrelevant to this issue. RMMII is not an executor of the estate. Mrs. Mumma and Mrs. Morgan are the executrices, and as such their behavior is SUbject to scrutiny for potential conflicts of interest. The executrices -3- 1590 are laboring under a conflict of interest that warrants their removal in the narrowest possible way to remove that conflict. II. FINDINGS OF FACT Petitioner would like to make a few minor corrections for the record in the following findings of fact: 6. Barbara McK. Mumma did not become involved in the operation of the family businesses until after RMMSr.'s death. 16. While it may be true that RMMSr. originally envisioned that Elco would remove dolomite and LRI would remove high calcium limestone, RMMSr. was a very talented businessman who knew that the key to success is change and growth. Finding of Fact #33, which states that LRI's entering into the dolomite business is beyond the original business plan, is a contradiction to any good business plan. If it is shown to the executrices that LRI would profit by entering into the dolomite business, then they would be in violation of their fiduciary duty to prohibit such a venture. 22. The executrices have refused to discuss LRI's business affairs or to attend any Board of Directors' meetings. The executrices have shown, however, that they put Elco's interests first, to the severe detriment of LRI. 25. No party disputes that Mrs. Mumma and Mrs. Morgan are paid substantial salaries by Elco. 26. Dividends paid out by 999 are based on Elco's profits. Elco is wholly owned by 999. If Elco does well, then 1,'-' ~/" -4- 1.591 999 can pay more in dividends. 31. Judge Schaffner ruled that LRI was not to engage in the dolomite business in spite of the fact that the Superior Court had just remanded that issue for hearings. 33. See 116 above. CONCLUSION Petitioner would like to thank the Court for considering these points and corrections for the record. Respectfully submitted, f!M/~25 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: March 20, 1992 :1592 -5- 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 BRIEF It seems that the focus on the one important issue in this matter has fallen victim to the quagmire of paper and collateral issues, from both sides, that has bogged down these proceedings. The issue before this Court is a very narrow one and one to which -- we submit -- the answer is quite clear. Petitioner would like to clarify the one important issue for the Court. 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." There can be no doubt but that the Executrices are laboring under a conflict. 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. 1.533 The Court states in its Order of March 6 that the only ground for removal of the executrices presented by petitioner was familial conflict. this is not so. As hard as it may be for the Court to believe, Petitioner's assertion that the executrices are laboring under a confdlict of interest is based on an objective analysis of the executrices' behavior. 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 eventually 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 which involve, in part, the non-local sale of dolomite, which is not being exploited at all by Elco. Thus, Elco would 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 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 -2- ~594 to protect those personal interests at the expense 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 were appointed as temporary fiduciary, such individual would take into account the respective interests of the Estate in Elco and Lebanon Rock and not his or her own individual interests. 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 more than twice as large as its interest in Elco, why would the Executrices place the interests of Elco ahead of the interests of Lebanon Rock? The answer to this question is simple. For every dollar of profit that Lebanon 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 -3- ~595 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. They 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 position with regard to the running of Lebanon Rock. 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. -4- ~596 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 may not be in the best interests of the Estate." Note that the statute uses the words "mav 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 -5-1"-3,0. J' ( 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 this where the Executrices are laboring under a conflict of interest. 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. 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. -6- 1598 I"~ CONCLUSION Petitioner thanks the Court for its attention and consideration of this Brief. Respectfully submitted, f!~~ (!~ ')- 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: March 20, 1992 oJ'). . _ "t",.. .... ..~ ~J'- ..../--. r-..-..~ -7- 1539 CERTIFICATE OF SERVICE I, Charles E. Shields, III, certify that a copy of the attached BRIEF and EXCEPTIONS TO ORDER OF COURT was served by first class mail on March 20, 1992 upon the following: Richard w. stevenson, Esquire McNees, Wallace & Nurick P.O. Box 1166 Harrisburg, PA 17108-1166, 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. Mart son , Esquire Martson, Deardorff, Williams & otto 10 East High Street Carlisle, PA 17013, for Barbara McK. Mumma and Lisa M. Horgan 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 (J~€~~ HSBOO5/Sarah/certific8te of service 1600 I \ c~) ! ~~ H S I z m! 1ll . ~ ao IV i-' (J) "iJ I 00 tj i '" ~ I w @ \.0 00 !;J 1:1 :s: ~ .~ j (J) ~ ~