Harvey v. Leonard

• Decision Date: 28 June 1978
• Docket Number: No. 58586,58586
• Citation: 268 N.W.2d 504
• Parties: Ruth HARVEY, Plaintiff-Appellee Appellant on Cross-Appeal, William H. Daubendiek, II, James L. Daubendiek, Sarah Daubendiek, Stephany Harvey, Susan Harvey, Kathleen Harvey, and All unborn blood descendants of W. H. Daubendiek provided for as Residual Beneficiaries under the Last Will and Testament of W. H. Daubendiek, Deceased, Additional Plaintiffs, v. Letha I. LEONARD and F. W. Daubendiek, Defendants, Eugene Daubendiek and William C. Daubendiek, Defendants-Appellants Appellees on Cross-Appeal, Robert W. Daubendiek, Additional Defendant.
• Court: Iowa Supreme Court

Page 504

268 N.W.2d 504

Ruth HARVEY, Plaintiff-Appellee Appellant on Cross-Appeal William H. Daubendiek, II, James L. Daubendiek, Sarah Daubendiek, Stephany Harvey, Susan Harvey, Kathleen Harvey, and All unborn blood descendants of W. H. Daubendiek provided for as Residual Beneficiaries under the Last Will and Testament of W. H. Daubendiek, Deceased, Additional Plaintiffs, v. Letha I. LEONARD and F. W. Daubendiek, Defendants Eugene Daubendiek and William C. Daubendiek, Defendants-Appellants Appellees on Cross-Appeal Robert W. Daubendiek, Additional Defendant.

No. 58586.

Supreme Court of Iowa.

June 28, 1978.

Johnson, Burnquist, Erb, Latham & Gibb and James L. Kramer, Fort Dodge, for defendants-appellants appellees on cross-appeal Eugene and William C. Daubendiek.

Whitesell Law Firm, Iowa Falls, for plaintiff-appellee appellant on cross-appeal Ruth Harvey.

Kersten, Opheim, Carlson & Estes, Fort Dodge, for defendant Letha I. Leonard.

Charles F. Knudson, Marcus, for defendant F. W. Daubendiek.

Considered by MOORE, C. J., and MASON, ^* REES, REYNOLDSON and McCORMICK, JJ.

REES, Justice.

This appeal is from a judgment of the District Court of Palo Alto County in which the trial court found the defendants as trustees of the testamentary trust under the will of W. H. Daubendiek had breached their fiduciary duty to the trust in causing or permitting the trust to lose control of the Jefferson Telephone Company, which had been in the control of the decedent. Two of the defendants, Eugene and William C. Daubendiek, have appealed and the plaintiff has cross-appealed claiming that the trial court was in error in not removing the trustees for the breach of their fiduciary duty and in not assessing properly the damages caused to the trust.

The controversy which was seminal to this litigation had its origin shortly after the death of W. H. Daubendiek, grandfather of the original plaintiff and of the defendants Eugene and William C. Daubendiek. A genealogical table, or chart, which was introduced into the record on the trial of this case as an exhibit, is here set out to indicate the identity of the parties to the action and their relationship to W. H. Daubendiek:

(See following illustration.)

NOTE: OPINION CONTAINS TABLE OR OTHER DATA THAT IS NOT VIEWABLE

In its findings of fact, the trial court characterized this litigation as "one of those miserable squabbles in a family of talented but hard-headed people". We incline to agree with the trial court's appraisal of the litigation.

W. H. Daubendiek, as is shown in the foregoing chart, died on September 16, 1948. In his will he provided for a testamentary trust by the provisions of which he gave to his wife Matilda, his son C. H. Daubendiek, his daughter the defendant Letha L. Leonard, his nephew F. W. Daubendiek, and his grandchildren including the plaintiff and the two appealing defendants, beneficial interests in the trust in various amounts; such interests are basically income interests. By its terms the trust was to terminate 21 years after the death of the survivor of the above named beneficiaries and "any other lineal descendants of mine in being at the time of my death.

Daubendiek nominated in his will his wife Matilda, his daughter Letha Leonard, his nephew F. W. Daubendiek, his son C. H. Daubendiek, and his grandson William C. Daubendiek as the executors of the estate and trustees of the testamentary trust. With relation to the obligations and duties of the trustees respecting the assets of the trust, the will made the following provision:

"Any individual Trustee under this will shall have the right to vote the stock of any corporation held by him or her as such Trustee, in favor of his or her election as a director of such corporation and, as such director, may vote in favor of his or her election as an officer of any such corporation and of the payment of any salary to him or her, as such officer or director, which he or she may deem reasonable."

Article Five of the will provided:

"In the administering of this trust and in the accounting for and distribution of the trust property, my Trustees shall be held only to ordinary care and faithfulness, and shall in nowise be liable or accountable for honest errors of judgment, nor for errors or wrongdoing of legal counsel, agents, or servants, nor for interest on funds temporarily idle. The judgments and discretion of my Trustees shall be final in any matters so long as they act in good faith. My Trustees shall have the right at all times and in all matters to act upon any information or evidence deemed by them reliable, without incurring any personal liability or responsibility of any kind or in any manner."

With regard to the accounting of the trustees, the trust provisions in Article Six of the will provided:

"My Trustees shall keep a true, complete, and permanent record of this trust instrument, of any resignations, appointments, or acceptance of trustees, of any and all assets received by them as Trustees, of any and all receipts and disbursements by them as Trustees, of any and all debts and liabilities incurred by them as Trustees, or chargeable in any manner against the trust property, and of any and all proceedings and decisions by them as Trustees, which record shall be preserved and shall be subject to examination at any and all reasonable times by any beneficiary of this trust. At least once each year the Trustees shall prepare, or cause to be prepared, a statement showing the condition of the trust, and the receipts and disbursements of the Trustees for the preceding calendar or fiscal year."

At the death of W. H. Daubendiek his estate had a controlling interest in the Jefferson Telephone Company by the direct and indirect ownership of shares in that company. C. H. Daubendiek had the management control of the Jefferson Telephone Company with the other trustees dividing the management of the other assets of the trust among themselves. In December, 1948 the Board of Directors of the Jefferson Telephone Company voted to give a cash bonus to five of its employees with the requirement that the bonus be utilized in purchasing stock of Jefferson Telephone Company at book value. These employees included C. H. Daubendiek and the defendants William C. and Eugene Daubendiek and two employees unrelated to the Daubendiek family. In July of 1949 William C. and Eugene each purchased 1,000 shares of the Jefferson Telephone Company with certificates being issues to them. The three other trustees, including the defendants F. W. Daubendiek and Letha Leonard, who did not participate in the stock purchase transaction, later learned that such stock transactions caused the trust to lose control of the Jefferson Telephone Company. At that time, C. H. Daubendiek advised the other members of the family in writing that such action was taken so that he and his sons Eugene and William C. could manage the telephone company without the interference of any of the other trustees. The trustees were then advised by Arthur Smith, an attorney representing other members of the family, that such stock transfers were illegal, and that legal action by the trustees could force a return of the control of the Jefferson Telephone Company to the trust.

The plaintiff Ruth Harvey attended a stockholders' meeting at which Attorney Smith attempted to lay before the stockholders the issue of the illegality of the stock transfers referred to above. Smith was not permitted to speak out at said meeting, but later at a meeting with C. H. Daubendiek, Eugene Daubendiek and William C. Daubendiek he did discuss the illegality of the stock transactions. At such meeting C. H. Daubendiek stated he did not consider the stock transfers as illegal, and refused to take any measures to restore the control of the Jefferson Telephone Company to the trust. The trustees who did not participate in the stock transfer took no legal action with regard to such stock transactions or to force the return of the control of Jefferson Telephone Company to the trust.

On December 23, 1950 the trustees and executors of the W. H. Daubendiek Estate filed their final report and application for discharge as executors. Neither the final report nor the order approving the same entered in January of 1951 made any reference to the stock transfers which provide the genesis of this controversy, or the loss of control of the Jefferson Telephone Company by the trust estate. During the period between the entry of the order approving the final report of the estate of W. H. Daubendiek and the commencement of this suit, several opportunities were afforded the trust to exercise its preemptive rights to certain stock issues, but such rights were not exercised by the trust. In 1962, C. H. Daubendiek died and was succeeded as trustee by his son Eugene Daubendiek who, then with his brother William C. Daubendiek, assumed the management of the Jefferson Telephone Company. Matilda, the mother of C. H. Daubendiek and the widow of W. H. Daubendiek, died in 1969.

After a continuing dispute with the trustees, plaintiff Ruth Harvey instituted the within action in equity against the present trustees on May 1, 1972. In her petition she prayed that the defendants be ordered to give a full and complete accounting of their individual trusteeships and to reveal all matters relating to the trust, that they be removed as trustees and be required to make full restitution for any and all damages caused to the trust by their failure to fulfill their obligations as fiduciaries thereof. She further prayed that the trustees at their own expense provide complete accountings and statements of the condition of the trust for each year they were acting as trustees. Upon motion of the parties, Robert W. Daubendiek, a son of C. H. Daubendiek and a brother of Eugene and William C. Daubendiek, was added as a party defendant. The plaintiff's petition was later amended to include additional parties plaintiff. The trial...