Burt v. Rhode Island Hospital Trust National Bank, C.A. No. PC/02-2243 (R.I. Super. 7/26/2006), C.A. No. PC/02-2243
| Decision Date | 26 July 2006 |
| Docket Number | C.A. No. PC/02-2243 |
| Parties | ROLAND W. BURT, JR. and RAYMOND P. CYR, JR., as Beneficiaries of the Estate of Magda L. Burt, Plaintiffs v. RHODE ISLAND HOSPITAL TRUST NATIONAL BANK a/k/a FLEET NATIONAL BANK and ROBERT B. GATES as Co-executors of the Estate of Magda L. Burt, and ROBERT C. NYMAN, KENNETH J. NYMAN, KEITH JOHNSON, and NYMAN MANUFACTURING CO., Defendants |
| Court | Rhode Island Superior Court |
This controversy concerns the Estate of Magda Burt ("the estate") which remains the subject of ongoing proceedings in the Probate Court of the City of Warwick, Rhode Island. At all times relevant to this case, Fleet National Bank ("Fleet")1 and Robert Gates have been co-executors of the estate (collectively "executor defendants"). At the time of her death, Magda Burt was an officer and director of Nyman Manufacturing Company ("Nyman"), and she was its largest shareholder. Nyman, a closely held corporation, was founded in 1936 by John Nyman and, until 1997, was owned and managed by members of the Nyman family. Nyman's articles of incorporation authorized the issuance of 13,500 shares of Class A non-voting stock and 1,500 shares of Class B voting stock. At all times relevant herein, Robert Nyman, Kenneth Nyman, and Keith Johnson (collectively "Nyman defendants") were officers, directors, and/or shareholders of Nyman. Before the events leading to the present litigation, defendants Robert Nyman and Kenneth Nyman had inherited all of the issued and outstanding shares of Class B voting stock; each owned 375 of those shares. Other members of the extended Nyman family owned various amounts of the issued Class A nonvoting stock.
Magda Burt passed away in 1987. At the time of her death, she owned 2,256 shares of Class A nonvoting stock which became part of her estate. Through her will, admitted to probate in Warwick, Rhode Island, she appointed Fleet and Robert Gates as co-executors of her estate. Roland Burt and Raymond Cyr (collectively "plaintiffs") are among ten residuary beneficiaries named in Magda Burt's will, and, as such, both claim entitlement to one-tenth of the 2,256 shares held by the estate.
With regard to the estate's shares, however, Magda Burt's will provided:
If I am the owner of any stock in the Nyman Manufacturing Company at the time of my death, I hereby direct my executors to offer all such stock to said Nyman Manufacturing Company for sale at the lowest price for which they are willing to sell it and to make no sale at any lower price without first offering such stock to said company, this same condition to be imposed upon my trustee if such stock becomes an asset of any trust.
(Mem. in Supp. of Fleet's Mot. for Summ. J. Ex. A ¶10.) The executors of Magda Burt's estate twice attempted to have Nyman redeem the estate's shares in accordance with the terms of her will, in 1989 and again in 1993. The Nyman defendants assert that the corporation was financially unable at those times to redeem the shares. In January of 1994, Nyman hired Keith Johnson to guide Nyman out of its financial difficulties, and, within a year, Nyman's financial situation markedly improved.
As Nyman's economic vitality was improving, according to the plaintiffs, Nyman started acquiring all of its outstanding shares of stock in order to sell the business to an outside party. The Nyman defendants dispute the assertion that a sale of the corporation was planned at the time that Nyman was reacquiring the stock.
In August of 1995, the Nyman defendants negotiated the purchase of the estate's 2,256 shares of Class A stock at the price of $145.36 per share. The executor defendants transmitted Nyman's offer to the ten residuary beneficiaries along with forms for them to indicate whether they approved the terms of the sale, noting that a failure to respond would be considered consent. (Robert Tyler Aff. ¶ 6.) The record contains evidence that the executors sent notice of the proposed sale to the ten residuary beneficiaries. (Robert Tyler Aff. Ex. F.) Five of the residuary beneficiaries—plaintiff Raymond Cyr, Beverly Keipler, Judith Lawton, David Gilmore, and Janice Leffingwell—signed and returned the forms to the executors indicating that they approved the sale.2 Only one residuary beneficiary, Carol Lawton, returned the form to indicate her disapproval of the sale. (Mem. in Supp. of Fleet's Mot. for Summ. J. Ex. E.) Roland Burt, as well as three other residuary beneficiaries, did not return the forms to otherwise indicate their approval or disapproval of the proposed sale. (Robert Tyler Aff. ¶ 7.)
The executors, faced with a lack of unanimity among the beneficiaries and in light of a suit filed by Roland Burt against the executors,3 petitioned the Probate Court for an order to distribute that stock to the residuary beneficiaries so that the beneficiaries could decide individually whether to sell their shares. (Robert Tyler Aff. Ex. E; see also Mem. in Supp. of Fleet's Mot. for Summ. J. Ex. C.) After a hearing at which most of the beneficiaries were present, including the plaintiffs and plaintiff Burt's counsel (Robert Tyler Aff. ¶ 10), Probate Court Judge Mary E. McCaffrey denied the petition and ordered the executors to sell the estate's shares to Nyman according to the terms of its offer. Id. at Ex. G. The Probate Court ordered the executors to distribute part of the proceeds of the sale of stock to the residuary beneficiaries and to deposit the balance of the proceeds in the registry of the Probate Court. Id. There is no evidence in the record that the plaintiffs appealed this order to the Superior Court.4 Nyman redeemed the estate's shares on November 6, 1995. That same day, the Nyman defendants voted to give themselves options to purchase the 2,256 shares at a price of $145.36 per share.
According to the plaintiffs, Roland Burt and others objected to the sale, requesting that their inherited stock be retained and that a proper appraisal be made. (Roland Burt Aff. ¶¶ 2-3) Plaintiffs claim that the Probate Court ordered the sale of stock without a petition or prior notice to them. (Id. ¶4) The plaintiffs have submitted no evidence, however, that they objected to the Probate Court's order prior to the sale. Among the papers submitted to this Court is a petition filed by Roland Burt with the Probate Court in 1997, approximately two years after the sale of the estate's shares to Nyman. (Mem. of Law in Supp. of Defs. Robert C. Nyman, Kenneth J. Nyman, Keith Johnson, and Nyman Mfg. Co.'s Opp. to Pls.' Mot. for Partial Summ. J. Ex. 2.) In this petition, Roland Burt alleged that the true value of the estate's shares had never been determined; that the sale was compromised by a conflict of interest; and that the executors had submitted a flawed accounting. Id. The Probate Court denied this petition on April 3, 1997, rejecting Roland Burt's request for an independent appraisal on the grounds that his objection to the First and Final Account was untimely and, therefore, not properly before the court. Id. There is no evidence before this Court that Roland Burt appealed to the Superior Court, pursuant to R.I. Gen. Laws § 33-23-1, from the Probate Court's decree denying his petition.
In 2002, Roland Burt asked the Probate Court to review and reconsider the valuation, sale, and liquidation of the estate's shares in light of the alleged breach of fiduciary duty and fraudulent conduct by the executors. (Mem. in Supp. of Fleet's Mot. for Summ. J. Ex. H.) The Probate Court denied this petition with prejudice on March 25, 2002. Id. at Ex. I. Thereafter, Roland Burt filed in the Providence County Superior Court a claim of appeal on April 12, 2002 and his reasons for the appeal on May 1, 2002.5 A motion justice of this Court found that jurisdiction did not reside in Providence County and, on March 18, 2003, ordered that the case be removed from the trial calendar in Providence County, transferred to Kent County and held in abeyance pending further resolution by counsel and the court. Id. at Ex. L; Burt v. Gates, C.A. No. PP 02-2316 (R.I. Super. Ct. 2002) (Order dated March 18, 2003). Notwithstanding that court order, the file in that case has not been transferred to Kent County and reveals no further action since entry of the order. Also in 2002, Roland Burt, this time joined by Raymond Cyr, filed the case presently before this Court, which is not an appeal from a Probate Court order pursuant to R.I. Gen. Laws § 33-23-1 but, rather, is an action against the executors of Magda Burt's estate and the Nyman defendants for alleged misconduct in the handling of the sale of the estate's shares.
In the instant suit, in their Sixth Amended Complaint, the plaintiffs allege that the Nyman defendants breached their fiduciary obligations by withholding or misrepresenting information pertaining to Nyman's 1995 and/or 1996 profits, by misrepresenting their intentions to sell the business, and by failing to make full disclosure and fair valuation to plaintiffs according to the by-laws of Nyman. (Pls.' Sixth Am. Complaint ¶¶ 24, 34) The plaintiffs also claim that both the Nyman defendants and the executor defendants breached their fiduciary duties to the plaintiffs by failing to obtain an independent appraisal of Nyman and, instead, allowing the estate's shares to be sold at a price well below their true value. (Id. ¶¶ 25, 33) Additionally, the plaintiffs allege that the executor defendants breached their fiduciary duties by failing to bring an action against the Nyman defendants or to take any other action to seek relief for the substantial dilution in value of the stock at issue. (Id. ¶¶ 43, 45) Plaintiffs seek compensatory and punitive damages against all named defendants. (Id. ¶ 47 and ad damnum clause).
All parties to this action have filed summary judgment motions. The plaintiffs have moved for partial summary judgment on their claim that the executor defendants...
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