Cosden v. Mercantile-Safe Deposit and Trust Co.

• Decision Date: 07 March 1979
• Docket Number: MERCANTILE-SAFE,No. 796,796
• Citation: Cosden v. Mercantile-Safe Deposit and Trust Co., 398 A.2d 460, 41 Md.App. 519 (Md. App. 1979)
• Parties: Audrey COSDEN et al. v.DEPOSIT AND TRUST COMPANY, Trustee, et al.
• Court: Maryland Court of Appeals

Page 519

41 Md.App. 519

398 A.2d 460

Audrey COSDEN et al. v. MERCANTILE-SAFE DEPOSIT AND TRUST COMPANY, Trustee, et al.

No. 796.

Court of Special Appeals of Maryland.

March 7, 1979.

Peter Parker, Baltimore, with whom were Clarke Murphy, Jr., Nicholas G. Penniman, III, Robert C. Prem, Charles H. Palmer, III, and Alexander Gordon, IV, Baltimore, on brief, for appellant, Audrey Cosden.

Peter H. Madden, Michael Madden and Christina Madden, pro se.

H. Vernon Eney and J. Cookman Boyd, Jr., Baltimore, with whom were John W. Scheflen and Venable, Baetjer & Howard, Baltimore, on brief, for appellees.

Argued before MORTON, THOMPSON and COUCH, JJ.

THOMPSON, Judge.

We are concerned with whether or not the Mercantile-Safe Deposit and Trust Company, as Trustee under the will of William R. Hammond, should be surcharged for a breach of trust in selling the grounds upon which Pimlico Race Track is located for an inadequate price. There are also questions concerning the proper allowance and allocation of the Trustee's commissions and of counsel fees. The case was last before this Court in 1975, Madden v. Mercantile-Safe Deposit and Trust Co., 27 Md.App. 17, 339 A.2d 340 (1975). We there summarized the relevant facts as follows:

"William R. Hammond became the owner, in 1905, of some 78 acres of land, with improvements, known as Pimlico Race Track, then located in Baltimore County but which, by later annexation, became a part of the City of Baltimore. The entire property was leased to The Maryland Jockey Club of Baltimore City, which conducted horse racing there. Mr. Hammond, then a widower, died in 1909. His will left the Pimlico property and other assets to Safe Deposit and Trust Company of Baltimore, now Mercantile-Safe Deposit and Trust Company, 1 in trust, and provided, with minor exceptions not now material, that the income be paid to his only child, a daughter, Audrey F. Hammond, for her life. The daughter later became Mrs. Audrey Hammond Madden. In his will the testator gave his daughter a power of appointment, and provided that if she did not exercise the power, the principal of the trust would, at her death, go to the persons who would be entitled to it as if he had died intestate.

"Through successive leases negotiated between them from time to time, the Pimlico property held by Mercantile, enlarged by the later acquisition of certain contiguous parcels, was continuously leased to the Jockey Club, until August 1947. Under an agreement of sale dated 30 April 1947, the Trustee sold the Pimlico property which it held to the Jockey Club for $1,115,000. Settlement of that sale in August 1947 terminated the lease which, by its terms, would have ended in 1949.

"Mrs. Madden, in 1943, irrevocably released the power of appointment she had under her father's will. The legal effect of that release was determined by the Court of Appeals in Madden v. Mercantile-Safe Deposit and Trust Co., 262 Md. 406, 278 A.2d 55 (1971). Her release of the power of appointment, thus rendering impossible a divestiture of the remainder, which she could have accomplished by an exercise of the power, did not, as she contended, merge the remainder with her life estate, on the ground that she was the sole person who would have been entitled to take if Mr. Hammond had died intestate. On the contrary, said the Court of Appeals, the class of persons entitled to the remainder was to be determined at the time of Mrs. Madden's death, and would be those persons who then would have been entitled, according to the law in effect in 1909, to take Mr. Hammond's estate had he died intestate.

"To continue this narrative, we quote from the opinion in Madden v. Cosden, 271 Md. 118, 314 A.2d 128 (1974), an earlier appeal from an order entered in the present case, where the Court of Appeals said, at 119-20, 314 A.2d 128, at 129:

'Mrs. Madden died on 4 January 1972, survived by three daughters, Audrey Cosden, Anne M. Hallenbeck, and Jane M. Humphreys, each of whom have descendents, and by three grandchildren, Peter H. Madden, Michael J. Madden and Christina Little Madden, the children of Mrs. Madden's only son, James H. Madden, who had died in 1953.

'Immediately following Mrs. Madden's death, Mercantile-Safe Deposit and Trust Company (the Mercantile), trustee of the trust estate created by Mr. Hammond's will, caused to be prepared a schedule of the assets then comprising the trust, which had a value of some $3,000,000.00, and of a proposed distribution, under which Mrs. Cosden, Mrs. Hallenbeck and Mrs. Humphreys, daughters of Mrs. Madden and granddaughters of Mr. Hammond, would each receive one-fourth of the trust assets, and Peter H. Madden, Michael J. Madden and Christina Little Madden, grandchildren of Mrs. Madden and great-grandchildren of Mr. Hammond, would each receive one-twelfth of the trust assets, since they shared equally the one-fourth share which would have passed to their father, if living.

'When it became apparent that all of the children of James H. Madden were not willing to acquiesce in the proposed distribution, the Mercantile in June, 1972, filed in the Circuit Court of Baltimore City a bill of complaint which recited the circumstances; asked that the court assume jurisdiction of the trust, and determine the proper distribution of the trust estate.'

"The issue presented and decided in Madden v. Cosden, supra, was the validity of Mrs. Madden's second marriage, following a Nevada divorce, and whether Mrs. Hallenbeck and Mrs. Humphreys, children of that second marriage, were entitled, as lawful heirs and next of kin of Mr. Hammond, to share in the distribution. The Court of Appeals held that they were.

"The Present Case in the Circuit Court

"Mercantile's bill of complaint to determine the proper distribution of the trust was filed in the Circuit Court of Baltimore City on 23 June 1972. Combined answers, cross-claims, and counterclaims filed by Peter H. Madden on 21 August and 23 August were later stricken, apparently for reasons of form, and on 26 December 1972, with leave of court, he filed an amended counterclaim, naming as counter-defendants Mercantile, in its trust capacity and in its individual capacity, and, as an added party, the Jockey Club. Leave to bring in the Jockey Club as a counter-defendant was later granted. At the same time he filed his answer to Mercantile's complaint Peter H. Madden filed the cross-claim against his codefendants which raised the issue decided in Madden v. Cosden, supra.

"On 10 April 1973, with leave of court, Peter H. Madden filed a second amended counterclaim, in which Audrey Cosden joined. On 17 May 1973, with leave of court, a third amended counterclaim, in which Michael Madden and Christina Madden also joined as counter-complainants, was filed.

"The Counterclaim alleged that in selling the Pimlico Race Track to the Jockey Club in 1947, Mercantile had breached its fiduciary duty in numerous ways, resulting in the disposition of a trust asset for an inadequate price. It sought to surcharge Mercantile for the difference between the sale price and the actual value, or, in the alternative, to rescind the sale." 27 Md.App. at 20-24, 339 A.2d at 343-345.

At the close of appellants' case on the surcharge counterclaim the chancellor granted Mercantile's motion to dismiss under Rule 535. In reversing that ruling we pointed out that such a motion tests the legal sufficiency of the evidence. We then discussed the evidence adduced by the appellants on each of their theories of breach of trust. We said:

"In the case before us the contentions of the appellants cover the full range of breach of fiduciary duty, from bad faith and self dealing, to precipitous action, lacking the required diligence, and taken by the exercise of poor and uninformed judgment and without exploiting potential offers to buy at a higher price.

"We lay aside 'self dealing' in the strict sense. Appellants misuse the term, we think, in characterizing Mercantile's actions. When a person, natural or corporate, is a party to or otherwise profits from a transaction with a trust or other estate of which he is a fiduciary, as when he buys from or sells to the trust, or acts as a broker in the sale, he is self dealing. The courts generally hold that such a transaction, in the absence of full disclosure and consent of all beneficiaries, is voidable by the beneficiaries, with no need to show unfairness. McDaniel v. Hughes, 206 Md. 206, 111 A.2d 204 (1955); Schockett v. Tublin, 170 Md. 117, 183 A. 521 (1936); Mangels v. Tippett, 167 Md. 290, 173 A. 191 (1934).

"Mercantile did not buy the Pimlico Race Track property from the Hammond Trust, nor otherwise profit from the sale, except for its commissions as trustee. The sale did not involve any self dealing.

"Appellants point to evidence that several members of the Board of Directors of Mercantile had other connections which, appellants contend, showed or raised a presumption that each was subject to conflicting interest which destroyed or impaired his ability to act in the best interest of the Hammond Trust.

"Charles E. Rieman was the president of Western National Bank, which was the Jockey Club's principal depository, and which at times made substantial loans to the Jockey Club.

"F. Granger Marburg was a partner in the brokerage firm of Alex. Brown & Sons, and as such was a partner of W. Wallace Lanahan. Mr. Lanahan was a member of the board and executive committee of the Jockey Club, and was one of the Jockey Club's two negotiators for the purchase of the Pimlico Race Track. There was also evidence to indicate that Alex. Brown & Sons owned 350 shares of stock of the Jockey Club, but there was further evidence that the stock had been acquired for Alfred Gwynn Vanderbilt and had been transferred to him.

"Edwin F. A. Morgan was a partner in the law firm of Semmes, Bowen and Semmes, and as such was a partner of Lawrence Perin, and shared with him in the fees received by the law firm for its representation...