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HomeMy WebLinkAbout07-23-93 (3) IN RE ESTATE OF . COURT OF COMMON PLEAS . ROBERT M. MUMMA, . CUMBERLAND COUNTY . . . . ORPHANS' COURT DIVISION . Deceased. : . NO. 21-86-398 . MEMORANDUM OF BARBARA McX. MUMMA AND LISA M. MORGAN IN OPPOSITION TO PETITION OF ROBERT M. FREY FOR PRELIMINARY INJUNCTION AND RULE TO SHOW CAUSE I. INTRODUCTION Barbara McK. Mumma ("Mrs. Mumma") and Lisa M. Morgan ("Mrs. Morgan") respectfully submit this memorandum of law in opposition to the Petition for Preliminary Injunction and Rule to Show Cause ("the petition") filed by Robert M. Frey ("Petitioner"). Petitioner seeks to enjoin the sale of certain businesses and assets owned or controlled by the Estate of Robert M. Mumma, Sr. ("the Estate") or the Marital Trust under the Will of Robert M. Mumma, Sr. ("the Marital Trust"). Mrs. Mumma and Mrs. Morgan are executrices of the Estate and trustees of the Marital Trust under the Will. Robert M. Mumma, II ("Bob") has filed a Joinder in the Petition ("the Joinder"). II. ARGUMENT A. The Petition is Moot Because the Sale of the Family- Owned Businesses Has Been Completed. As a practical matter, this Court cannot grant the injunctive relief requested by Petitioner for the simplest of reasons - the sale of the businesses in question was completed on 2046 the morning of July 21, 1993. On that date, following notice to shareholders of Nine Ninety-Nine, Inc. ("999") and Hummelstown Quarries, Inc. ("HQI") and to all tenants-in-common under an Agreement Among Tenants-in-Common dated December 19, 1986 (lithe MRA-I Agreement"), CRH pic acquired: (1) all of the issued and outstanding stock of 999; (2) all of the issued and outstanding stock of HQI; certain real estate owned by the Mumma family and subject to the MRA-I Agreement (lithe Paxton street Yards"); (4) real estate owned by the Marital Trust (lithe Benders Quarry"); and (5) an option to purchase the Estate's 50% ownership interest in Lebanon Rock, Inc. These businesses and assets will be collectively referred to herein as lithe Pennsy Supply Businesses. II The total cash purchase price paid by CRH for the pennsy Supply Businesses was $32 million. On or before the morning of July 21, 1993, all corporate documents, deeds and other paperwork necessary to complete the sale of the Pennsy Supply Businesses to CRH were signed and filed. Also on that date, wire transfers of the purchase funds were completed, and monies were distributed to various persons, entities and escrows in accordance with the purchase documents.Y CRH is now, and for two days has been, in full possession of all of the assets and properties comprising the pennsy Supply Businesses and has assumed control of the 1/ The details of the transaction are more fully spelled out in the Information Statement mailed to all shareholders of 999 and HQI on July 9, 1993 and attached as Exhibit A to the Response of Mrs. Mumma and Mrs. Morgan to the Petition. 2 204'1' operations of the Businesses. As a result, it is simply not possible to enjoin the transfer as requested by Petitioner. Moreover, issuance of a rule to show cause why the sale should not be made sUbject to Court approval, or why Bob or others should be given an opportunity to bid on or purchase the Pennsy Supply Businesses, would be ineffectual. petitioner's prayer for relief therefore should be denied. B. Mrs. Mumma and Mrs. Morgan had the Power, Under Pennsylvania Law, the Will and the Prior RUlings of this Court, to Sell the xnterests of the Estate and the Marital Trust in the pennsy supply Businesses. In order to obtain a preliminary injunction, Petitioner must show that the conduct he seeks to enjoin is actionable and that his right to an injunction is clear. citv of Philadelphia v. District Council 33. AFSCME, 528 Pa. 355, 361, 598 A.2d 256 (1991); Albee Homes. Inc. v. Caddie Homes. Inc., 417 Pa. 177, 181, 207 A.2d 768 (1965). Petitioner bears a heavy burden of persuasion on each of these issues. sinazon v. Commonwealth Dept. of Pub. Welfare, 496 Pa. 8, 11, 436 A.2d 125 (1981). In the instant case, Petitioner has alleged no actionable conduct on the part of Mrs. Mumma and Mrs. Morgan.Y The Will grants Mrs. Mumma and Mrs. Morgan broad powers to sell or otherwise disposes of assets and properties owned by the Estate. Neither Pennsylvania law nor the prior rulings of 1/ The criteria for issuance of an injunction are cumulative, and each criteria must be established "fully and completely." Credit Alliance Corp. v. Philadelphia Minit- Mart Car Wash Corp., 450 Pa. 367, 301 A.2d 816 (1973). 3 2048 this Court in the above-referenced matter have in any way limited this power. See 20 Pa. C.S. 9 3351 (granting broad right to sell real and personal property unless will provides otherwise). Indeed, Bob has in the past sought to persuade this Court to limit the actions which Mrs. Mumma and Mrs. Morgan may take with respect to the family-owned businesses. In particular, Bob has argued that Article THIRTEENTH~ of the Will prevents Mrs. Mumma and Mrs. Morgan from selling the family-owned businesses to non-family interests without first offering them to family members. However, by Order dated March 8, 1989 in the above-referenced action, this Court held that under Article THIRTEENTH of decedent's Will, the [executrices} may sell Mumma family company stock to non-family members once the [executrices} unanimously agree in writing. Therefore, the language of Article THIRTEENTH is precatory and not mandatory. No appeal was taken by Bob from that order, and it has now become final. Consequently, there was no restriction upon the power of Mrs. Mumma and Mrs. Morgan, as executrices and trustees, to sell 1/ Article THIRTEENTH of the Will provides as follows: Notwithstanding the powers herein otherwise given, I direct that my stock in privately held corporations, supervised and administered by me as the Executive or operating officer prior to my decease or my stock in privately held corporations which otherwise is owned by me at my decease be not sold unless all of my trustees, and particularly my individual trustee or trustees, shall agree in writing that such stock be sold. It is my desire that if expedient and possible, the businesses which I have personally directed during my lifetime and of which I have had an interest be continued for the benefit of and under the management and control of my immediate family. 4 2049 to CRR the interests of the Estate and of the Marital Trust of the Estate's interests in the pennsy Supply Businesses. C. Assuming, Arquendo, that Mrs. Mumma and Mrs. Morgan Acted Improperly in selling Estate- or Trust-Owned Assets or properties to CRR, the Appropriate Remedy to Beneficiaries under the will is Through a Final Accounting. A preliminary injunction is a "harsh and extraordinary remedy." Credit Alliance, 450 Pa. at 371. In order to obtain preliminary injunctive relief against the proposed sale of the pennsy Supply Businesses to CRR, Petitioner must show, inter alia, that a preliminary injunction is necessary to prevent immediate, irreparable harm not compensable by money damages. See City of Philadelphia, 528 Pa. at 361; Sinazon, 496 Pa. at 11; S.D. Bowes. Inc. v. National Bank of the Commonwealth, 404 Pa. super. 512, 514-15, 591 A.2d 324 (1991). In the instant case, the beneficiaries under the will are not threatened with any harm not compensable by money damages. Petitioner alleges that the requested relief is necessary to ensure that appropriate consideration is obtained for the Pennsy Supply Businesses. See,~, Petition ~ 15 ("petitioner is unaware of any efforts on behalf of [Mrs. Mumma and Mrs. Morgan] to obtain a better price for the sale of the said companies or to obtain competitive bids from [Bob]"). However, even assuming that Mrs. Mumma and Mrs. Morgan have failed to meet their fiduciary duties to beneficiaries under the Will, the appropriate vehicle to address such failures is an 5 2050 action for surcharge upon the final accounting of Mrs. Mumma and Mrs. Morgan.~ If at that time it is determined that Mrs. Mumma and Mrs. Morgan failed to satisfy their obligations, by failing to obtain a fair price for the pennsy Supply Businesses or otherwise, the Court may determine the appropriate amount of any compensation owing to the beneficiaries under the Will.V D. Petitioner Lacks standing to Seek the Relief Requested. Petitioner apparently seeks relief in order to protect the interests of Bob's minor children. Indeed, Petitioner was appointed guardian ad litem of the interests of minor persons interested in the Estate. See Order dated December 29, 1988. At the time of the entry of the Order appointing him guardian ad litem, Bob had disclaimed his interest under the will in favor of his minor children. Subsequently, however, Bob sought to revoke the disclaimer, and this Court upheld the revocation. By Order iI No final accounting has been made by Mrs. Mumma and Mrs. Morgan. As a result, appropriate persons will have a full opportunity to address any issues relating the sale of the pennsy Supply Businesses at the time of the final accounting. 21 Petitioner's argument that the Pennsy Supply Businesses are "unique and nearly impossible to replace," see Petition ~ 3, is wholly irrelevant. Whether the businesses are unique is a question wholly distinct from whether the fractional ownership interest of a contingent beneficiary under the will in the businesses is unique. There is nothing unique about a bare investment interest in a business or corporation. Were this not so, any shareholder of a corporation could enjoin a sale on the grounds that he possessed some unique interest in owning a share of stock in that particular corporation. 6 2051 dated July 21, 1993, this Court denied Petitioner's exceptions to that the Court's order upholding the revocation. As a result of the July 21 Order, Petitioner has no standing to seek injunction of the sale of the pennsy Supply Businesses to CRR. Because Bob's disclaimer is, on the current state of the record, ineffective, Bob is the presumptive remainderman. As such, he represents the interests of his minor children under the doctrine of virtual representation. consequently, on the current state of the record Bob's minor children have no standing to enjoin actions taken by Mrs. Mumma and Mrs. Morgan. E. The Sale of the Pennsy supply Businesses to CRR Did Not Violate 20 Pa. C.S. ~ 3356. Bob argues in his Joinder that the sale of the CRR violated 20 Pa. C.S. ~ 3356. See Joinder ii 15-18. Bob bases this contention on the fact that the assets sold to CRR passed first into Kodie Acquisition Corp. ("Kodie"), a corporation formed by, inter alia, Mrs. Mumma and Mrs. Morgan. Bob claims that the transfer of the assets into Kodie prior to the completion of the sale constituted prohibited self-dealing, and therefore grounds to enjoin the sale. Bob's argument rests upon a misreading both of the facts and of the applicable law. First, Bob's argument incorrectly implies that Mrs. Mumma and Mrs. Morgan were the shareholders of Kodie at the time of the completion of the transaction. In fact, subsequent to CRR's acquisition of the stock of Kodie, the few shares issued to 7 2052 Mrs. Mumma and Mrs. Morgan at the time of the formation of Kodie were redeemed. This step occurred prior to the release of any of the purchase price from Kodie to the various selling entities. Thus, Mrs. Mumma and Mrs. Morgan were no longer shareholders of Kodie at the time that the time of the completion of the transaction.2/ Second, and more importantly, however, the sale of the pennsy supply Businesses is not the kind of transaction which 20 Pa. C.S. ~ 3356 was intended to prevent. That section is aimed at the prevention of self-dealing. In the instant case, Mrs. Mumma and Mrs. Morgan gained absolutely no financial advantage as a result of the transfer of the assets and properties comprising the pennsy Supply Businesses into Kodie. That step was merely an intermediate phase in the completion of the transaction. Mrs. Mumma and Mrs. Morgan never had the option of keeping the assets themselves at any price. Moreover, at the completion of the entire transaction, CRH possessed the entirety of the Pennsy Supply Businesses, and the cash purchase price had been received by the selling entities. The portion of the purchase price ultimately to be distributed to Mrs. Mumma and Mrs. Morgan was calculated solely on the basis of their individual shareholdings in 999 and HQI, and the value received for those shares was 2J Moreover, as a factual matter, none of the 999 or HQI stock owned by the Estate or the Marital Trust was purchased by Kodie. Rather, all outstanding shares were cancelled and, pursuant to subscription agreements, Kodie acquired newly- issued shares of 999 and HQI stock. 8 2053 identical to that received by the other former shareholders of the corporations.V F. The Court Should Not Enjoin the Sale of the Pennsy supply Businesses Under 20 pa. C.S. S 3355 Because the Only Post-Sale Remedy Available to Bob is an Appraisal proceeding. Bob also argues that this Court should enjoin the sale of the pennsy Supply Businesses to CRR under 20 Pa. C.S. 9 3355. See Joinder ~~ 19-25. In particular, Bob claims that the injunction of a sale of a Pennsylvania corporation is authorized by 15 Pa. C.S. 99 512 and 1712. Neither of those sections anywhere discusses injunctions or addresses the circumstances in which an injunction may be proper. In fact, the provision of the pennsylvania Business Corporation Law which deals with injunctions is 15 Pa. C.S. 9 1105. That section reiterates the pre-existing Pennsylvania law that a corporate action may be enjoined only if it is fraudulent or fundamentally unfair. See In re Jones & Lauqhlin Steel Corp., 488 Pa. 524, 412 A.2d 1099 (1980). However, it is important to note that the sale of the pennsy Supply Businesses already has closed, and that Bob has formally dissented from the corporate divisions of 999 and HQI by which a portion of the sale of the Pennsy Supply Businesses was achieved. Accordingly, his remedy 11 In addition, even as shareholders of Kodie, Mrs. Mumma and Mrs. Morgan were at all times bound by fiduciary duties as executrices and trustees. 9 2051 is limited to an appraisal of the fair value of his 999 and HQI stock. Id. at 531-32; 15 Pa. C.S. ~ 1105. III. CONCLUSION For the foregoing reasons, Barbara McK. Mumma and Lisa M. Morgan respectfully request that this Court deny the Petition of Robert M. Frey for preliminary Injuction and Rule to Show Cause. ~ -L L-/ osepho A. O'cr'onnor, Jr. Marc J. Sonnenfeld Brady L. Green 2000 One Logan Square Philadelphia, PA 19103 (215) 963-5212, 5572, 5079 William F. Martson Ivo V. otto, III MARTSON, DEARDORFF, WILLIAMS & OTTO 10 East High Street Carlisle, PA 17013 (717) 243-3341 Attorneys for Barbara McK. Mumma and Lisa M. Morgan 10 2055 CERTIFICATE OF SERVICE I hereby certify that a copy of the foregoing Memorandum of Barbara McK. Mumma and Lisa M. Morgan in Opposition to Petition of Robert M. Frey for Preliminary Injunction and Rule to Show Cause was served on July 23, 1993 as follows: VIA HAND DEUVERY Robert G. Frey, Esquire 5 South Hanover Street Carlisle, PA 17013 VIA FACSIMILE Charles E. Shields, ill, Esquire Commonwealth National Bank Building 2 West Main Street Mechanicsburg, PA 17055 Gerald K. Morrison, Esquire BUCHANAN & INGERSOLL 30 North Third Street, 8th Floor P. O. Box 12023 Harrisburg, PA 17108-2023 MARTSON, DEARDORFF, WlLUAMS & OTTO By ~\[.~~ Ivo V. Otto ill, Esquire Ten East High Street Carlisle, PA 17013 (717) 243-3341 Attorneys for Barbara McK. Mumma and Lisa M. 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