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HomeMy WebLinkAbout07-27-93 (2) IN RE ESTATE OF ROBERT M. MOMMA, : COURT OF COMMON PLEAS CUMBERLAND COUNTY : ORPHANS' COURT DIVISION Deceased. NO. 21-86-398 SUPPLEMENTAL MEMORANDUM OF BARBARA McK. MOMMA AND LISA M. MORGAN IN OPPOSITION TO PETITION OF ROBERT M. FREY FOR PRELIMINARY INJUNCTION AND RULE TO SHOW CAUSE I. INTRODUCTION Respondents Barbara McK. Mumma ("Mrs. Mumma") and Mrs. Morgan ("Mrs. Morgan") respectfully submit this supplemental memorandum of law with respect to issues raised in the briefs filed in support of the Petition of Robert M. Frey {"Petitioner"} for Preliminary Injunction and Rule to Show Cause and the Joinder of Robert M. Mumma, II ("Bob") therein. II . ADDITIONAL BACKGROUND The sale of the pennsy Supply Businesses to CRH was in fact a sale of five separate elements. Those elements were: (l) all of the stock of Nine Ninety-Nine, Inc. ("999"), following a division of that corporation; (2) all of the stock of Hummelstown Quarries, Inc. ("HQI") following a division of that corporation; (3) the Benders Quarry; (4) certain properties located in Harrisburg and owned by the MRA tenants-in-cornmon under the MRA-I Agreement ("the Paxton Street Yards"); and (5) an option to purchase all the Estate's 50% interest in Lebanon Rock, Inc. for $2 million. The total consideration received from CRH was $32 million. The ownership of the various entities comprising the pennsy Supply Businesses prior to the sale was as follows: 999 Marital Trust Barbara McK. Mumma Lisa M. Morgan Robert M. Mumma, II Linda M. Roth Barbara M. McClure HQI Marital Trust Barbara McK. Mumma Lisa M. Morgan Linda M. Roth Barbara M. McClure Robert M. Mumma, II 28.44% 22.84% 14.39% 11. 48% 11. 42% 11. 42% 79.74% 18.34% 0.48% 0.48% 0.48% 0.48% Paxton Street Yards (under MRA-I) Marital Trust Robert M. Mumma, II Lisa M. Morgan Linda M. Roth Barbara M. McClure Barbara McK. Mumma Benders Quarry Marital Trust 81.82507% 4.24708% 4.23555% 4.23555% 4.23555% 1.22120% 100% 50% Interest in Lebanon Rock, Inc. Estate 100% The sale of the Pennsy Supply Businesses to CRH was accomplished by a two-stage closing. At the Stage I Closing, which occurred on July 8, 1993, documents necessary for the sale were executed. However, no properties, assets or consideration changed hands. On July 9, Notice of 999 and HQI shareholder actions by written consent was mailed to Bob and Barbara M. McClure ("Mrs. McClure") by certified mail, return receipt 2 requested. The ten day period required by 15 Pa. C.S. ~ 1766{b) for shareholder action by written consent began to run the following day. Bob received the Notice of shareholder action on July 12, and Gerald K. Morrison, Esquire was briefed that same day as to the specifics of the sale of the pennsy Supply Businesses to CRH. The Stage II Closing occurred on the morning of July 21. The Stage II Closing occurs in the morning. At the Stage II Closing and pursuant to the Subscription Agreement and other closing documents, all Kodie Acquisition Corp. (" Kodie" ) I' stock owned by Mrs. Mumma, Mrs. Morgan and Mrs. Roth was redeemed and 1000 new shares of Kodie stock were issued to CRH. The cash purchase price from CRH was then released from escrow and the transaction was completed. Kodie, which by that time was a wholly-owned subsidiary of CRH, received the assets and properties comprising the pennsy Supply Businesses. Later that ~/ Kodie was incorporated by Mrs. Mumma, Mrs. Morgan and Linda M. Roth on May 21, 1993. As Bob's Exhibit 1, a Board of Directors Consent for KOdie, clearly states, Kodie was, at the insistence of CRH, incorporated to facilitate a series of transactions which will result in (i) the acquisition by CRH pIc, a Republic of Ireland corporation of all of the issued and outstanding stock of the Corporation after the repurchase of the stock interest of the existing shareholders herein, (ii) the acquisition by the Corporation of [the pennsy Supply Businesses]. . . Thus, it was at all times contemplated that Kodie would be an intermediary in the transaction and that, prior to the completion of the transaction, it would be a wholly-owned subsidiary of CRH. 3 day, a copy of the instant petition was provided to counsel for Mrs. Mumma and Mrs. Morgan for the first time. III. ARGUMENT A. The Corporate Actions Necessary to Complete the Sale of Corporate Stock Were Validly Approved by the Shareholders of 999 and HQI. In his brief, Bob claims that no valid sale of the pennsy Supply Businesses to CRH occurred on July 21. The crux of this argument is Bob's erroneous assertion that the closing took place before the expiration of the ten days required by 15 Pa. C.S. ~ 1766(b).~ However, the notice was mailed on July 9. Therefore, the first day of the ten-day period was July 10, and the final day of the required period was July 19. See 15 Pa. C.S. ~ 1702 (a) ("If the notice is sent by mail. . it shall be deemed to have been given to the person entitled thereto when deposited in the United States mail. . . ."). The shareholders of 999 and HQI thus were free to complete the corporate divisions ~/ Bob also argues that the sale is invalid because the Stage II Closing occurred before the July 22 shareholders' meeting. However, as the July 9 Notice made clear, all necessary corporate actions were taken by written consent of a majority of the shareholders of 999 and HQI. The shareholders' meetings were scheduled merely to ratify and confirm the actions previously taken, and to allow an opportunity for any corrections or other action necessary with respect to the documents. 4 necessary for the transaction on July 20 or at any time thereafter. ~I As a result of the fact, nowhere mentioned in Bob's brief, that the Notice was deemed to have been given as of the date of its mailing, Bob's argument that there was no valid approval of the corporate actions necessary for the sale is demonstrably untrue. As a consequence, his further argument that there has been no "valid sale" also is meritless. Because a valid, properly approved sale occurred on July 21, this Court cannot as a practical matter enjoin the sale.Y B. There Was No Self-Dealing Involved in the Purchase of the pennsy Supply Businesses by Kodie. The argument of Bob and petitioner that Mrs. Mumma and Mrs. Morgan somehow engaged in self-dealing by selling the pennsy Supply Businesses to CRH for $32 million rests upon blatant misrepresentation with respect to the structure of the sale. As set forth in the original memorandum of law of Mrs. Mumma and d/ Gerald K. Morrison, Esquire was advised of this provision, and of the view of Mrs. Mumma and Mrs. Morgan that the closing might occur on July 20, by counsel for Mrs. Mumma and Mrs. Morgan on July 12. ~/ Bob's citation of cases standing for the proposition that this Court acquired jurisdiction upon filing of the Petition is irrelevant. There was at the time of the Stage II Closing no order, nor is there now, enjoining or otherwise preventing the sale of the pennsy Supply Businesses to CRH. Moreover, Bob offers no evidence supporting his assertion that the timing of the closing was altered by the filing of the Petition. In fact, it was only as a result of delays encountered in finalizing certain closing documents that the sale did not close on July 20. 5 Mrs. Morgan in opposition to the Petition, Mrs. Mumma and Mrs. Morgan were not shareholders of Kodie when that corporation acquired any of the assets comprising the pennsy Supply Businesses. A few additional facts make clear the transparency of the argument pressed by petitioner and Bob. First, following the Stage I Closing, title to all of the assets comprising the pennsy Supply Businesses remained exactly where it had been prior to the sale. Second, had the Stage II Closing not occurred, the ownership of the pennsy Supply Businesses would have remained exactly as it had been prior to the Stage I Closing. Because no transfers were to be completed until the cash paid by CRR was released from escrow, there was no consideration for any transfer of property prior to the Stage II Closing. Third, the formation of Kodie as an intermediate step in the transaction was accomplished at the insistence of CRR, and all matters relating to Kodie were negotiated with CRR. At the time of the Stage II Closing on which the sale was accomplished, Kodie was a wholly- owned subsidiary of CRR. Fourth, the shares of Mrs. Mumma and Mrs. Morgan in"Kodie were redeemed prior to the completion of the transaction. Finally, Mrs. Mumma and Mrs. Morgan at no time provided any of the consideration received by the pennsy Supply Businesses. Moreover, Bob's contention that the executrices negotiated through Kodie to purchase the pennsy Supply Businesses patently false. On the contrary, Mrs. Mumma and Mrs. Morgan 6 negotiated to sell the pennsy Supply Businesses to CRH. Indeed, the particular agreements by which Kodie acquired certain assets were the subject of protracted discussions with CRH. This was appropriate since at the time of the sale, CRR was the sole owner of Kodie. Such arduous negotiations hardly would have been necessary had Mrs. Mumma and Mrs. Morgan simply negotiated with themselves to acquire the businesses. In addition, if Mrs. Mumma and Mrs. Morgan had first acquired the pennsy Supply Businesses as Kodie, they alone would have received the consideration from the sale of Kodie's stock to CRH. However, all such proceeds have been or will be distributed to the former owners of the Pennsy Supply Businesses who join or have joined in the sale.~1 Petitioner's argument that the sale of the pennsy Supply Businesses to CRH, or some part of that transaction, constituted self-dealing under In re Estate of Comerford, 388 Pa. 278, 130 A.2d 458 (1957), also is without merit. In particular, petitioner cites language from Comerford indicating that self- dealing "does not lie exclusively in a fiduciary's sale of trust :i/ Bob's brief contends that "the sale to Kodie was arranged to generate $5,299,000 to Mrs. Mumma personally. .. " However, Bob ignores the fact that this amount is nothing more than Mrs. Mumma's pro rate share, based upon her ownership interest, in the assets sold, and does not constitute or include any premium over the value received for the interests of other sellers. That Mrs. Mumma may have acquired some of the 999 stock purchased by CRH as a result of withdrawals from the Marital Trust - as expressly permitted under the Will of Mr. Mumma, Sr. - is irrelevant to Bob's self-dealing allegation. Additionally, Mrs. Mumma has promised in writing to repay the Marital Trust in the event that the 999 stock was undervalued at the time of its withdrawal. 7 property to himself" (emphasis in original). However, the facts under consideration in Comerford are readily distinguishable from those in the instant case. In Comerford, the fiduciary of an estate, inter alia, transferred estate-owned assets to a corporation of which he was an officer and whose beneficial owners were relatives of the fiduciary. There was no subsequent transfer to a disinterested third party. Rather, the court concluded that the fiduciary might have been guilty of self- dealing because he, in effect, transferred estate-owned assets to his own family. Thus, the "corporate device" used was a means to effect this intra-family transfer, not, as in the instant case, a vehicle for the sale of estate-owned assets to a third party in a fully negotiated, arm's length transaction. Petitioner's attempt to equate the instant transaction with that in Comerford relies upon a stop action view of the CRH sale. While at one time Mrs. Mumma and Mrs. Morgan were shareholders of Kodie, and while at a different time Kodie acquired the pennsy Supply Businesses, these two events never coincided. Moreover, at the end of the transaction, the estate-owned businesses and assets were owned not by a family-onwed holding company - as they had been in Comerford - but by the wholly-owned subsidiary of an independent third-oparty buyer. In addition, 20 Pa. C.S. ~ 3356, upon which Petitioner relies for his contention that the approval of this Court was required to complete the sale of the pennsy Supply Businesses, 8 prohibits only purchases by a personal representative in his individual capacity. As demonstrated above, Mrs. Mumma and Mrs. Morgan did not transfer any property or assets to themselves in their individual capacities. Thus, even assuming, arquendo, that Mrs. Mumma and Mrs. Morgan ran afoul of the general rule against self-dealing stated in Comerford, which allegation Mrs. Mumma and Mrs. Morgan vigorously deny, that fact alone does not mean that court approval of the CRH sale was required. Indeed, Comerford did not involve an attempt to enjoin an action by a fiduciary. Rather, the case involved exceptions to a final account filed by the trustee, and the only issue was whether the orphans' court should have permitted that account to be reopened to permit review of the transaction in order to determine if a surcharge might be appropriate. Such a proceeding likewise is the proper forum for assertion by petitioner or Bob that Mrs. Mumma and Mrs. Morgan failed to obtain a fair price for the Pennsy Supply Businesses or otherwise failed to satisfy their fiduciary duties. C. There is No Requirement Under the Will or the Express Wishes of Mr. Mumma, Sr. that Bob be Given a First Refusal Right or Other Exclusive 'Opportunity to Purchase the Pennsy Supply Businesses. Finally, the briefs of both Bob and of Petitioner repeat the tired assertion, expressly rejected by this Court, that Article THIRTEENTH of the Will of Robert M. Mumma requires that Bob be given an opportunity to match the sale price offered 9 by CRH.~ Any doubts remaining following this Court's prior and explicit rule on this issue as to the fact that Mr. Mumma intended to entrust Mrs. Mumma, and Mrs. Morgan as her co- executrix and trustee, with all decisions relating to the management of the family-owned businesses was put to rest by Mr. Mumma's parting words to his wife: "Move ,slowly and get good counsel - Then do as you honestly think best." See Respondents' Exhibit 4. IV. 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 Injunction and Rule to Show Cause. ~~_~~m.d/ Jose A. o '..connor, Jr. Marc J. Sonnenfeld Brady L. Green 2000 One Logan Square Philadelphia, PA 19103 (215) 963-5212, 5572, 5079 ~/ This argument, in a slightly different incarnation, also has been rejected by the Court in its holding that Bob does not possess first refusal rights as to pennsy Supply, Inc. or the properties held by the MRA tenants-in-common. It is worth noting, in considering the lengths to which Bob apparently is willing to go to block this or any other sale of the pennsy Supply Businesses, that in his testimony before this Court on July 26 Bob attempted to argue that the Court had not denied that he held such first refusal rights. 10 William F. Martson Ivo V. Otto, III MARTS ON , DEARDORFF, WILLIAMS & OTTO 10 East High Street Carlisle, PA 17013 (717) 243-3341 Attorneys for Barbara McK. Mumma and Lisa M. Morgan 11