In re Enger's Will
| Decision Date | 09 January 1948 |
| Docket Number | No. 34422.,34422. |
| Citation | 225 Minn. 229,30 N.W.2d 694 |
| Parties | In re ENGER'S WILL. LERAAN et al. v. AFTENRO SOC. OF DULUTH et al. |
| Court | Minnesota Supreme Court |
Appeal from District Court, St. Louis County; Martin Hughes, Judge.
Proceeding in the matter of the trust created by the last will and testament of Bert J. Enger, decedent, wherein Arnold W. Leraan and Alfred Hoel, trustees, filed their final accounts to which Aftenro Society of Duluth and others, beneficiaries, filed objections. From an order vacating prior orders, the trustees appeal.
Order affirmed in part and appeal dismissed as to other parts of order.
John Heitmann and Holmes, Mayall, Reavill & Neimeyer, all of Duluth, for appellants.
Royal G. Bouschor and James J. Courtney & Son, all of Duluth, for respondents.
The trustees of the trust created under the will of Bert J. Enger, deceased, appeal from an order vacating, to the extent necessary to permit the beneficiaries to litigate against the trustees' claims based on their self-dealing with assets of the trust free from any defense that the vacated orders preclude the assertion of the claims, five prior orders of the court, viz., two orders authorizing the sale of securities, two orders allowing annual accounts, and an order authorizing the trustees to consent to the sale of its physical properties by a corporation in which they held stock as such.
The appeal raises the following questions: (1) Whether an order vacating prior orders (a) allowing a trustee's annual account, (b) authorizing a trustee to sell securities, and (c) authorizing a trustee to consent as such to the sale by a corporation in which he holds stock of its physical properties is appealable; (2) whether the court may vacate orders authorizing a trustee to sell assets or to give a consent as trustee, where the trustee is guilty of self-dealing in connection with the transactions involved and conceals that fact; (3) whether, where there is nothing in a trustee's annual account or the proceedings for its allowance to apprise the beneficiaries of the fact that the trustee was guilty of self-dealing or to tender any issue with respect to that question, the order allowing the trustee's annual account is res judicata so as to preclude the subsequent assertion of a claim against the trustee based on self-dealing; and (4) whether, under the circumstances stated in the preceding query, the vacation of an order allowing a trustee's annual account for the purpose of enabling the beneficiaries to assert against the trustee rights arising out of his self-dealing causes legal prejudice to the trustee.
These questions arise in connection with the final accounting. In proceedings under M.S.A. § 501.33, the district court confirmed the appointment of the trustees and acquired jurisdiction of the trust as a proceeding in rem. The trustees having filed their final account and noticed it for hearing, the beneficiaries filed objections thereto charging the trustees with self-dealing, waste, and failure to account for trust funds, and sought to hold them liable by reason thereof. To the objections, the trustees filed an answer. So far as concerns any liability for alleged self-dealing, the trustees contended that the vacated orders were res judicata of all matters in controversy and precluded the beneficiaries from litigating their claims. Thereupon the beneficiaries moved to vacate the orders to the extent necessary to enable them to litigate, free from any bar arising by reason of res judicata or otherwise, the questions of self-dealing and resulting liability by reason thereof. On the motion to vacate, the court heard oral testimony and other evidence, from which it determined that the trustees had been guilty of such self-dealing as to require vacation of the orders in question to enable the beneficiaries to litigate free from any bar on account of the orders the questions concerning self-dealing by the trustees and liability on their part arising by reason thereof.
Because of the generality of the claims and the defenses thereto set forth in the objections and the answer thereto, we are not sure whether we understand precisely what relief the objectors seek or what defenses the trustees interpose to the claims asserted against them. These may properly be left for determination in the course of the trial upon the merits. For present purposes, enough appears to show that the objectors claim that the trustees were guilty of self-dealing in connection with four separate transactions and of waste and failure to account for trust funds. No point has been made here with respect to the claims for waste and failure to account, and for that reason those matters need not be further considered.
The four transactions with respect to which objectors contend the trustees are liable by reason of self-dealing and the grounds of such liability may be briefly stated as follows:
(1) That in the sale, pursuant to court order of December 16, 1936, of 1,279 shares of common stock of Enger & Olson, Inc., trustee Leraan was personally interested as a purchaser and that the stock was sold at much less than its real value, with resulting loss to the trust of $69,500 according to one valuation and $44,765 according to another; (2) that the trustees by an ex parte order of February 27, 1940, were authorized to consent as trustees to the sale by Marine Iron & Shipbuilding Company of Delaware, herein referred to as Old Marine, to a corporation having the same name, organized under the laws of Minnesota, herein referred to as New Marine, of Old Marine's physical properties in exchange for one-third of the common stock of New Marine, which authorization trustee Leraan, who then was president and a director of Old Marine by reason of the trustees' ownership of stock therein used in connection with others to promote and organize New Marine, part of the plan for which provided that Leraan should receive one-sixth of its common stock and the right to purchase additional stock amounting to $1,000, which it was arranged should be paid for out of New Marine's earnings; and that, although New Marine's earnings were sufficient to declare dividends, which if distributed would have enabled Old Marine with the dividends which it would have received from New Marine to make its common stock worth its par value and to provide for the retirement of its preferential preferred stock and ordinary preferred stock, Leraan and his associates by means of excessive salaries, bonuses, diversion of both corporate profits and corporate funds, appropriated to their own use such large amounts of New Marine's earnings that Old Marine was thereby prevented from receiving dividends on its stock therein in the amounts to which it was entitled, and that thereby the trustees caused loss to the beneficiaries by depreciating the sale value of stocks held by the trustees in Old Marine; (3) that the trustees sold 79 1/3 shares of preferential preferred stock of Old Marine to nominees of trustee Leraan for his benefit and 88 1/3 shares of ordinary preferred stock of the same corporation for $1 a share, which would have been worth at least $270 a share if the dividends to which Old Marine was entitled from New Marine had been declared and paid; that thereby the beneficiaries sustained a loss of $42,104.34; that, in addition, Old Marine's common stock, which if it had received the dividends in question would have been worth at least its par value of $4,500, was charged off by the trustees as worthless, and that they should be surcharged by reason thereof for an additional $4,500; and (4) that the trustees, pursuant to court order of December 27, 1945, sold to Roy H. Olson 408 shares of preferred stock of Enger & Olson, Inc. and 64 shares of stock of Duluth National Bank for $37,000, which was $10,200 less than its real value; and that trustee Leraan was personally interested in the sale as a purchaser.
It appears (1) that the order of December 16, 1936, authorizing the sale of the 1,279 shares of common stock of Enger & Olson, Inc. was granted after notice and hearing and that the beneficiaries at the hearing expressed in effect satisfaction and approval of the sale; that on September 21, 1937, the court by order allowed the annual account of the trustees for the year from August 1, 1936, to July 31, 1937, showing the sale pursuant to the order of December 16, 1936; (2) that, while the order of February 27, 1940, authorizing the trustees as such to consent to the exchange by Old Marine of its physical properties for one-third of the stock to be issued by New Marine was an ex parte one, the court made an order about nine months afterward allowing the trustees' annual account for the year from August 1, 1939, to July 31, 1940, which recited: "By an order of the court dated on the 27th day of February, 1940, your petitioners were authorized to enter into an agreement with the Marine Iron and Shipbuilding Company for the purpose of consummating their plan of reorganization as fully described in your petitioners' petition on that subject;" (3) that, while there was no prior order authorizing the sales of 79 1/3 of preferential preferred and of the 88 1/3 of ordinary preferred stock of Old Marine, the court by order of November 23, 1942, allowed the trustees' annual account for the year from August 1, 1941, to July 31, 1942, which contained an entry showing a sale of 79 1/3 shares of the preferential preferred stock for $79.33 and a book loss of $7,800.72; and (4) that there was no further order concerning the sale under the order of December 27, 1945.
The beneficiaries contend that the fact is, and that the evidence taken upon the motion to vacate shows, that Leraan's individual interest and self-dealing in the transactions mentioned were concealed by the trustees from the beneficiaries and from the court. It appears without...
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