In re Pew Mem'l Trust No. 2

• Decision Date: 30 June 1977
• Docket Number: 2211 of 1974
• Citation: In re Pew Mem'l Trust No. 2, 5 Pa. D. & C.3d 698 (Pa. Commw. Ct. 1977)
• Parties: In re Pew Memorial Trust No. 2
• Court: Pennsylvania Commonwealth Court

5 Pa. D. & C.3d 698

In re Pew Memorial Trust No. 2

No. 2211 of 1974

Common Pleas Court of Philadelphia County, Pennsylvania, Orphans Court Division

June 30, 1977

Petition for declaratory judgment.

William C. Bodine and John G. Harkins, Jr. for petitioner.

Minturn O. Wright and Morris R. Brooke, for respondents.

OPINION

SHOYER, J.

On September 4, 1974, the Glenmede Trust Company(Glenmede) filed its petition with this court, asking for a declaration of its rights and responsibilities in connection with the sale of 5,564,357 shares of the common stock of General Crude Oil Company(General Crude), pursuant to an allegedly conditional contract which it had entered into on August 16, 1974, with the Dow Chemical Company(Dow).Cited as respondents, in addition to Dow, were the Honorable Israel Packel, Attorney General of the Commonwealth of Pennsylvania, in his capacity as parens patriae, the General Crude Oil Company(General Crude), and the International Paper Company(IP).The petition also sought this court's approval of the sale of said stock to IP in accordance with the September 4, 1974, resolution of Glenmede's board of directors.

Petitioner is a Pennsylvania trust company and is the trustee of the Pew Memorial Trust (trust) under a trust indenture dated June 3, 1957.The settlor of the trust was the Pew Memorial Foundation, a Pennsylvania non-profit corporation.The trust is an irrevocable perpetual trust for the exclusive benefit of charitable organizations exempt from Federal income taxation under 26 U.S.C.A. § 501(c)(3), or successor provisions of the Internal Revenue Code.

In January, 1974, among the assets of the trust, there were 5,564,357 shares of the common stock of General Crude.Such General Crude common stock had a fair market value on August 16, 1974, of $ 41.25 per share.The trust's holding of common stock constituted approximately 63 percent of the outstanding stock of General Crude.

The board of directors of Glenmede voted on August 16, 1974, to adopt the merger agreement of August 12 entered into between Dow and General Crude through which Dow would acquire all the shares of the common stock of General Crude held by Glenmede as trustee of the trust.The board of directors of Glenmede, at the same time, also voted to authorize its officers to vote the trust's shares of General Crude in favor of the merger agreement at a meeting of the shareholders of General Crude to be called sometime in the future.

After the board of directors of Glenmede so voted, Glenmede's officers delivered a letter to Dow adopting the Dow merger agreement and agreeing, " subject to such obligations as may be imposed upon a trustee pursuant to the laws of the Commonwealth of Pennsylvania respecting fiduciaries," to vote the shares of General Crude in favor of the Dow merger agreement.The quoted condition was inserted by A. R. Bell, president, and Augustus S. Ballard, secretary of Glenmede, because after adjournment of Glenmede's board and prior to the composition and delivery of said letter, IP had raised its offer from $ 47.50 to $ 50 per share.This increased offer was made orally by Mr. Monge, vice-chairman of IP's board, to Messrs. Bell and Ballard.Mr. Monge promised to deliver the offer in writing by Monday, August 19.Actually, delivery was made on August 18.

At a subsequent meeting on September 4, 1974, the board of directors of Glenmede voted to withdraw from the Dow-General Crude merger agreement and, subject to judicial approval, voted to sell its General Crude shares to a subsidiary of IP for $ 50 a share, and, on the same day, petitioned this court for a citation to show cause why a decree should not be entered to the effect: " that Dow has no right or claim whatsoever to the General Crude stock held by Glenmede as Trustee of the Pew Memorial Trust, and no rights or claims accrue under or by virtue of Glenmede's August 16, 1974, letter to Dow, and that the sale of Glenmede's General Crude stock to IP is approved in accordance with the September 4, 1974, resolution of Glenmede's Board of Directors."This citation was served September 5, 1974, on Dow, IP, General Crude and the Attorney General of Pennsylvania.

Also on September 5, Dow commenced suit against Glenmede and its various officers and directors in Federal Court to compel specific performance of the board's action and alleged binding commitment of August 16.Later, Dow petitioned the United States District Court to accept jurisdiction of this suit by removal, but (on October 25, 1974) this action was remanded by the District Court as improvidently removed.

In its answer to Glenmede's original petition in this case, Dow pleaded new matter in which it set up a counterclaim.In its paragraph 3, Dow referred to its Federal suit for petitioner's alleged breaching of Dow's contracts with Glenmede and General Crude and tortiously interfering with Dow's contractual rights and violating the Federal Security Laws.Dow also filed an answer to Glenmede's petition in its removal action to the District Court.In paragraph 3 of that answer, Dow sought both compensatory and punitive damages, but in paragraph 6 of its answer filed in this court, Dow denied jurisdiction of the orphans' court over its claims for damages.

On October 10, 1974, Dow unilaterally announced that it was " terminating" the merger agreement with General Crude.Thereafter, Dow withdrew its claim for specific performance of Glenmede's commitment to vote its shares of General Crude in favor of the Dow merger agreement but reserved whatever rights it might have as to damages.

By stipulation of all parties, this court entered a decree on November 25, 1974, dismissing General Crude as a party and approving the sale of General Crude stock to IP at $ 50 per share.

On January 15, 1975, this court sua sponte ordered Glenmede to file its account.The account was filed on March 17, 1975, and is now before the court for audit.

In this court's pre-trial order of July 21, 1976, which was entered pursuant to stipulation of all the parties, it is provided that " Dow will reassert at audit its claims for damages against Glenmede and IP.The parties agree that the court has jurisdiction of all claims raised by the pleadings except for Dow's claim under Section 10(b) of the Securities and Exchange Act of 1934.The court has decided that all issues of liability respecting these claims be tried first..."

Since subject matter jurisdiction cannot be conferred on a court by agreement of the parties, it behooves us to look at the situation under which Dow's claim for damages is being presented to the court for its consideration.

A.IN LIGHT OF ITS MANDATORY JURISDICTION OVER INTER VIVOS TRUSTS AND ITS BROAD, VISITORIAL AND SUPERVISORY POWER OVER CHARITABLE USES, THIS COURT MUST, IN CONNECTION WITH THE DISPOSITION OF A CHARITABLE TRUST ASSET, PROCEED TO HEAR AND DISPOSE OF ALL CONTESTED ISSUES CONCERNING THE TRUSTEE'S CONDUCT.

Section 711(3) of the Probate, Estates and Fiduciaries Code of June 30, 1972, P.L. 508, as amended, 20 Pa.C.S.A. § 711(3), concerning the " mandatory exercise of jurisdiction through [the] orphans' court division in general," accords orphans' courts exclusive jurisdiction over the " ... administration and distribution of the real and personal property of inter vivos trusts...."Section 715 of the same act accords the orphans' court division " ... all legal and equitable powers required for or incidental to the jurisdiction it exercises."20 Pa.C.S.A. § 715.

Not only is an orphans' court required to involve itself in all matters concerning the administration and distribution of a trust, but it bears as well an historic, special burden of overseeing charitable trusts.^[1] One of the most thorough explications of this responsibility for charitable trusts was set forth in Wilson v. Board of Directors of City Trusts,324 Pa. 545, 188 A. 588(1936).^[2] After holding that the orphans' court has exclusive jurisdiction over the control, administration and management of trust estates and is responsible " ... for the proper management, administration and preservation by the trustees of the trust res," Chief Justice Kephart went on to state:

" The scope of the powers that may be exercised by that court in relation to the administration, management and control of the trust property is ample for all purposes.It has been held that testamentary trustees are officers of the court(Laverelle's Estate, 101 Pa.Super 448) and it is only right and proper that they should be subject to the control of the court to which they must account, which may surcharge them for dereliction in office and determine whether such dereliction has taken place.In the exercise of this power particularly where 'charitable uses or bequests are involved, it [the orphans' court] has [the] broad visitorial and supervisory powers of the Commonwealth': Toner's Estate, 260 Pa. 49.The Act of June 7, 1917, P.L. 363, Sec. 9(b), which provides that the orphans'court shall have jurisdiction over the 'control, removal, discharge and settlement of accounts of... testamentary trustees' confers extensive powers.In Laverelle's Estate, supra, the court said, 'The power to " control" has a comprehensive significance including the right to direct, remand, dominate,' and at p. 451: 'There can be no question that the orphans' court possesses plenary powers within its sphere.'In Lafferty v. Corcoran,180 Pa. 309, this court said, with reference to the power of the orphans' court to compel an accounting by a trustee, 'The orphans' court has ample power to afford all needed relief in the premises.Its authority is plenary, embracing as it does all the powers of a court of chancery.'And, in Shollenberger's Appeal, ...