Hamilton v. Nielsen
| Decision Date | 13 April 1981 |
| Docket Number | No. 78 C 2379.,78 C 2379. |
| Citation | 513 F. Supp. 204 |
| Parties | Susan Kemper HAMILTON, Plaintiff, v. Arthur C. NIELSEN, Jr., and American National Bank and Trust Company of Chicago, Defendants. |
| Court | U.S. District Court — Northern District of Illinois |
Albert C. Lum, Lum & Ku, Los Angeles, Cal., Richard L. Horn, David R. Melton, Karon, Morrison & Savikas, Chicago, Ill., for plaintiff.
Lawrence W. Dam, Los Angeles, Cal., John E. Angle, Kirkland & Ellis, Chicago, Ill., for defendants.
FINDINGS OF FACT AND CONCLUSIONS OF LAW
This cause coming on for trial without a jury and the Court having considered the sworn testimony of the witnesses, the exhibits received in evidence, argument of counsel, the relevant authorities, and being fully advised in the premises makes the following findings of fact and conclusions of law pursuant to Fed.R.Civ.P. 52:
FINDINGS OF FACT:
1. Plaintiff, Susan Kemper Hamilton ("Plaintiff"), is a citizen of California currently residing in Switzerland.
2. Defendant, Arthur C. Nielsen, Jr. ("Nielsen"), is a resident of Illinois.
3. Defendant, American National Bank and Trust Company ("the Bank"), is a national banking association with its principal place of business in Chicago, Illinois.
4. The matter in controversy, exclusive of interest and costs, exceeds the sum of $10,000.
5. Plaintiff is one of several surviving children of Milton J. Hamilton who died on October 16, 1972, a resident of Lake County, Illinois.
6. On March 9, 1961, prior to his death, Milton J. Hamilton created an insurance trust ("the Trust") naming the Bank as trustee. By a subsequent amendment, Nielsen was named advisor to the trustee. The Trust provided that after the death of Mr. Hamilton and his mother, now both deceased, the Trust would be divided equally among five beneficiaries, one of whom is the plaintiff. The Trust authorized the trustee, subject to the authority of the advisor, to retain any property it received and to sell such property at private sale.
7. Mr. Hamilton's will was executed on September 20, 1972, and it was admitted to probate in Lake County, Illinois, on November 9, 1972. The will contained a "pour over" provision whereby the residue remaining after the payment of taxes, costs, claims, and specific legacies (hereinafter referred to as the "cash requirements") was to go to the Bank as trustee of the Trust. The will also authorized the executors to sell, retain, or invest property, or continue present investments upon such terms and in such manner as they deemed best, free from any limitations imposed by law and without order of any court. The will named the Bank and Nielsen as co-executors.
8. As co-executors, the Bank and Nielsen were responsible for meeting the estate's cash requirements out of the assets of the estate and funneling any residual assets to the Trust for the benefit of the five beneficiaries.
9. Among the assets of the Milton J. Hamilton estate were 58,718 shares of stock in Frank B. Hall and Company ("Hall"), 31,680 shares of Zenith United Corporation ("Zenith"), and a nontransferable option to acquire an additional 9,375 shares of Zenith at $2.72 per share on or before December 27, 1972. The executors exercised the option before it expired in December, 1972, when Zenith was trading at between $4 5/8 and $5.00 per share.
10. At the date of Mr. Hamilton's death, the 58,718 shares of Hall stock had a trading value of $1,548,687.25 at $26 3/8 per share.
11. During the administration of the estate, the executors made the following sales of Hall stock:
NO. OF PRICE NET
DATE SHARES PER SHARE COMMISSIONS PROCEEDS
1/29/73 11,000 19 1/8 $2,750.00 $207,625.00
6/13/73 5,000 12 60,000.00
7/17/73 5,000 13¼ 66,250.00
9/04/73 5,000 15 75,000.00
2/18/75 4,700 14 5/8 775.50 67,962.00
2/18/75 300 14 7/8 49.50 4,413.00
4/21/75 4,000 (3,900) 16¼ 874.09 64,113.41
( 100)
5/09/75 6,000 17 7/8 1,213.07 106,036.93
5/20/75 368 ( 300) 18 1/8 124.34 6,537.16
( 68)
TOTALS 41,368 $5,786.50 $657,937.50
12. During the administration of the estate, a total of 17,350 shares of Hall stock were transferred to the Trust as follows:
NO. OF VALUE OF STOCK AT VALUE PER SHARE AT
DATE SHARES TIME OF TRANSFER TIME OF TRANSFER
9/30/73 10,000 $150,000.00 15
1/22/75 1,350 16,368.75 12 1/8
4/16/75 1,000 17,187.50 173/16
5/01/75 5,000 91,250.00 18¼
TOTAL 17,350 $274,806.25
13. The Trust then made the following sales of Hall stock:
NO. OF PRICE NET
DATE SHARES PER SHARE COMMISSIONS PROCEEDS
1/17/75 4,017 11 5/8 $46,697.63
1/17/75 985 11 5/8 11,450.62
4/16/75 483 17 1/8 96.76 8,174.62
4/16/75 4,119 Approx. 17 1/8 unknown 69,712.38
4/16/75 1,373 Approx. 17 1/8 unknown 23,460.06
4/16/75 1,373 Approx. 17 1/8 unknown 23,259.42
5/02/75 5,000 17 7/8 $1,010.86 88,364.15
TOTALS 17,350 276,118.88
14. The Trust and estate received a total of $934,056.38 from the sales of the Hall stock.
15. At the date of Mr. Hamilton's death the 31,680 shares of Zenith stock had a trading value of $160,380.00 at $5 1/6 per share.
16. After the estate exercised the option to acquire an additional 9,375 shares of Zenith stock in December, 1972, the estate held a total of 41,055 shares. The estate borrowed $25,500.00 from the Trust in order to exercise the option at $2.72 per share. At the time the option was exercised, the 9,375 shares had a trading value of approximately $46,875 at $5.00 per share, representing a potential capital gain of over $20,000 for the estate.
17. The entire Zenith holding was sold by the estate to Zenith at $2.00 per share on December 14, 1976, without commissions, for a total of $82,110.00. No Zenith stock was ever transferred to or sold by the Trust.
18. The market for both Hall and Zenith stock was relatively limited or "thin" which inhibited the ability of the executors to make large block sales of the stock at favorable prices. Zenith was traded over the counter at all relevant times and the Hall stock was traded over the counter until December, 1973, when it was listed on the New York Stock Exchange.
19. Between September 1, 1972, and the end of December, 1973, the average weekly volume of trading in Hall stock was approximately 66,000 shares while the average weekly volume in Zenith stock was approximately 3,700 shares, less than one-tenth of the estate's entire Zenith holding.
20. The Internal Revenue Service acknowledged the limited marketability of the Zenith stock by allowing a "blockage discount" of $1.00 per share on the ultimate sale of the stock to Zenith in 1976 which represented 22.7% of the market value of the stock.
21. The free transferability of the Hall stock was initially in doubt since it was "lettered stock" not registered under the applicable federal or state securities laws at the time it was acquired by Mr. Hamilton in a tax free reorganization of his insurance agency. By letter dated December 15, 1972, outside legal counsel advised the executors of the Hamilton estate that the stock could be sold free and clear of any restrictions provided that the Hall company was notified and acquiesced in the transfer. Although Hall was notified in a timely manner, the company did not remove the restrictions on the stock certificates until late February, 1973, nearly one month after the first sale of the stock on January 29, 1973, accomplished pursuant to Rule 144 of the Securities and Exchange Commission.1
22. The Bank assigned experienced and competent officers to administer the day-to-day affairs of the estate who frequently reviewed the cash requirements of the estate as they changed over time, the marketability of the securities that formed the major portion of the corpus of the estate, the tax consequences of particular transactions, and who constantly and conscientiously considered the course of action that would reap the maximum potential benefit for the resulting Trust and its beneficiaries, including the plaintiff herein.
23. A thorough review of Hall, an insurance brokerage company, and Zenith, an insurance company,2 undertaken by the Bank in late 1972 revealed that they were both inherently sound companies with relatively favorable prospects for the future.
24. The Bank determined that the Hall stock, which comprised 72% of the estate's holdings, would be the logical source of funds with which to satisfy the cash requirements of the estate. As the cash requirements of the estate changed, however, in part due to the declining value of the estate's holdings and the corresponding decrease in the estate tax liability, the Bank resolved not to precipitously dump either the Hall or Zenith stock in a limited and falling market so as not to further adversely affect the price.
25. The executors had substantially satisfied the cash...
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