King v. Kings County Lafayette Trust Company, 68-C-645.

• Decision Date: 15 September 1970
• Docket Number: No. 68-C-645.,68-C-645.
• Citation: 323 F. Supp. 640
• Parties: Mrs. Carl KING, Administratrix of the Will of Mrs. Marjorie Frampton Dobbs, and Samuel Candler Dobbs, Jr., Plaintiffs, v. KINGS COUNTY LAFAYETTE TRUST COMPANY, Trustee (formerly known as Lafayette National Bank of Brooklyn in New York), Defendant, M. E. Kilpatrick and C. H. Candler, Jr., as Trustees under Trust Agreement dated December 9, 1940, Intervenor-Defendants.
• Court: U.S. District Court — Eastern District of New York

323 F. Supp. 640

Mrs. Carl KING, Administratrix of the Will of Mrs. Marjorie Frampton Dobbs, and Samuel Candler Dobbs, Jr., Plaintiffs, v. KINGS COUNTY LAFAYETTE TRUST COMPANY, Trustee (formerly known as Lafayette National Bank of Brooklyn in New York), Defendant M. E. Kilpatrick and C. H. Candler, Jr., as Trustees under Trust Agreement dated December 9, 1940, Intervenor-Defendants.

No. 68-C-645.

United States District Court, E. D. New York.

September 15, 1970.

Cichanowicz & Callan, New York City, Hoke Smith, James R. Harper, Atlanta, Ga., for plaintiffs; Michael J. Ryan, New York City, of counsel.

Wrenn & Schmid, Brooklyn, N. Y., for defendant; Pallister Feely, Brooklyn, N. Y., of counsel.

Hall, Casey, Dickler & Howley, New York City, M. E. Kilpatrick, Emmet J. Bondurant, Atlanta, Ga., for intervenor-defendants; John Howley, New York City, of counsel.

ZAVATT, District Judge.

This case involves competing claims of ownership of approximately 11,000 shares of Coca-Cola stock held by the Kings County Lafayette Trust Company (Trust Co.) pursuant to a 1936 trust agreement hereinafter referred to. The plaintiffs claim that the trust agreement was terminated by the settlor, the plaintiff Samuel Candler Dobbs, Jr. (hereinafter Dobbs, Jr.), and his deceased wife, Marjorie Frampton Dobbs, (hereinafter Mrs. Dobbs, Jr.) pursuant to a written agreement between them; that that agreement was approved by an order of the Superior Court of Fulton County, Georgia, dated December 1, 1967, (which had previously issued a decree of absolute divorce dated November 13, 1936) and that, pursuant to that agreement as so approved before the death of Mrs. Dobbs, Jr., the said shares of stock were to have been distributed as follows: 8,000 shares to Mrs. Dobbs, Jr.; 1,000 shares to her attorney and 2,000 shares to Dobbs, Jr.

The plaintiffs instituted this action to compel the Trust Co. to distribute the said stock pursuant to the terms of the said decree of the Georgia court. They have moved for summary judgment on the sole ground that the said decree is entitled to full faith and credit under Article IV, § 1 of the Constitution of the United States. The plaintiffs' motion is denied.

The intervenors contend that they are the owners of the said stock by virtue of the terms of a 1940 trust (Emory Trust); that, upon the death of Mrs. Dobbs, Jr., the 1936 trust terminated and the stock should have been delivered to them by the Trust Co., as trustees of the Emory Trust, hereinafter referred to. They have made a cross-motion for summary judgment. That motion is granted.

The Facts

The junior Dobbses married in the State of Georgia on April 15, 1925. Mr. Dobbs, Sr. was a citizen and resident of the State of Georgia and, obviously, a wealthy man. His assets included 90% of the stock of Lichens Company (Lichens). Dobbs, Jr. owned the remaining 10% by gift from his father. The assets of Lichens included 2,500 shares of Coca-Cola stock which it had purchased on April 9, 1930 through Dobbs and Company, a stock brokerage firm in New York City, of which Dobbs, Jr. was a partner. This stock and all stock dividends thereon were carried on the books of Lichens from the date of purchase (1930) to the date of the liquidation of Lichens (February 26, 1951) as a Lichens capital asset. From the time of this purchase in 1930 until 1957, long after Mr. and Mrs. Dobbs, Jr. were divorced, the stock was held by Dobbs & Company in a street name designated by that firm.

In 1936 Mr. and Mrs. Dobbs, Jr. came to a parting of the ways while she was a patient at New York Hospital in White Plains, New York, and he was a partner of Dobbs & Company. Negotiations leading toward a separation agreement (to be incorporated in a divorce decree) were conducted by and between Woodruff & Ward (of Atlanta, Georgia) and S. James Kennedy of New York, as attorneys for Mrs. Dobbs, Jr., and the law firm of Harold Hirsch & Marion Smith of Atlanta, Georgia, as attorney for Dobbs, Jr. These negotiations resulted in a separation agreement, dated October 19, 1936, which was executed by the parties thereto in New York State. Basically, it provided for monthly support payments to Mrs. Dobbs, Jr. of $600, plus additional obligations on the part of Dobbs, Jr., under special contingencies not here relevant.

Dobbs, Jr., apparently, did not possess the requisite assets to secure performance of his obligations under the proposed separation agreement. He requested Harold Hirsch and M. E. Kilpatrick, members of the Atlanta, Georgia, law firm which had handled personal and business affairs of the Dobbs family, to intervene in his behalf with Dobbs, Sr., with whom he did not enjoy a close relationship. They asked Dobbs, Sr. to consent to the pledging of the 2,500 shares of Coca-Cola stock, owned by Lichens and held by Dobbs & Company, in order to secure the obligations Dobbs, Jr. was to assume under the proposed separation agreement. Dobbs, Sr. consented. Whereupon, a trust agreement, dated October 19, 1936, was executed in New York State by and between the junior Dobbs and the Trust Co., pursuant to which the Trust Co. was to hold the stock to secure the obligations of Dobbs, Jr. under the separation agreement. In that trust agreement, Dobbs, Jr. represented to his wife and the Trust Co. that he was the owner of the stock:

TENTH

To secure the payments hereinbefore provided for, the First Party has granted, conveyed, assigned, set over and delivered, and by these presents does grant, convey, assign, set over and deliver unto the said Trustee, its successors and assigns, absolutely and without power of revocation, all his right, title and interest in and to certificates of stock representing in all Twenty Five Hundred (2500) Shares of the Capital Stock of Coco sic Cola Bottling Company, of New York, a New York Corporation, together with the appurtenances and all the rights of the First Party thereto; and the First Party guarantees said stock to be free and clear of any and all claims or liens of whatsoever character and that he has good title thereto as against all persons whomsoever * * *.

After the separation and trust agreements had been executed, Mrs. Dobbs, Jr. instituted an action for a decree of divorce in the Superior Court, Fulton County, Georgia. Dobbs, Jr. did not contest that action. The separation agreement (but not the trust agreement) was submitted to the court and incorporated into the decree of divorce signed by Judge Virlyn Moore, dated November 13, 1936.

On December 9, 1940, Dobbs, Sr. created an inter vivos trust (the Emory Trust) for the benefit of Emory University of Atlanta, Georgia, of which Dobbs, Jr., Lewis B. Hall, and M. E. Kilpatrick were named trustees. Dobbs, Sr. turned over to these trustees all his stock in Lichens, subject to his life interest therein.

On December 6, 1941, Dobbs, Jr. sold his 10% interest in Lichens to that Company for $250,000. By virtue of this sale, Lichens owned a life interest in the 2,500 shares of Coca-Cola stock (subject to the Brooklyn Trust for Mrs. Dobbs, Jr.), with remainder to the Emory Trust. Lichens, therefore, continued to receive the dividends on the stock after this date, as it had since 1936, while Dobbs, Sr. was alive. From 1936 to 1951 the cash dividends aggregated approximately $62,500.

Dobbs, Sr. died in Georgia on October 31, 1950. Dobbs, Jr. filed objections to the probate of his father's last will and testament. The dispute was compromised between Dobbs, Jr., the executors of his father's estate (M. E. Kilpatrick and the First National Bank of Atlanta), and Emory University, by the payment of approximately $500,000 to Dobbs, Jr.

Lichens was liquidated on February 26, 1951. As of this date, title to all assets of Lichens, including the shares of Coca-Cola stock, vested in the Emory Trustees pursuant to the Emory Trust. The Coca-Cola stock was still held by Dobbs & Company. The dividends thereon which, until 1951, had been paid by Dobbs & Company to Lichens were thereafter paid by Dobbs & Company to the Emory Trustees. The cash dividends so paid from 1951 to 1957 aggregated approximately $42,000.

In 1952, Dobbs, Jr. defaulted under the separation agreement and the Trust Co. sold a sufficient number of shares of Coca-Cola stock, upon instructions to Dobbs & Company, to provide funds out of which to pay to Mrs. Dobbs, Jr. the amounts of all such defaults.

On March 2, 1957, Dobbs & Company was dissolved. R. Glynn Mays, a partner in Dobbs & Company, was appointed Liquidator. As part of his duties, he received the cash dividends on securities still registered in the name of Dobbs & Company, including dividends on the Coca-Cola stock at issue, and paid the latter to the Emory Trustees. Finally, on December 27, 1963, Mays received notice that the certificates for the Coca-Cola stock held in the Dobbs & Company street name had been canceled, and were now held by the Trust Co., in the street name of its designee. Mays has continued to receive dividends on 1,114 shares of Coca-Cola stock (these shares were stock dividends on the original shares) after 1963 and has paid all of the same to the Emory Trustees.

Since 1963, the Trust Co. has received the dividends on all but the 1,114 shares still being held by the Liquidator, and has maintained said dividends in a segregated account—apparently awaiting the resolution of the conflicting claims to the Coca-Cola stock.

When Lichens was dissolved in 1951, Ralph J. Sauls, an accountant, was hired by the Emory Trustees to audit the Emory Trust (and the Lichens records) in order to determine the trust assets. He noted that the Coca-Cola stock had been carried continuously on the books of Lichens as a company asset, subject only to their hypothecation in trust to guarantee performance by Dobbs, Jr. of his obligations under the separation agreement. Before so certifying, he asked M. E. Kilpatrick to obtain written confirmation from Dobbs, Jr. There followed correspondence...