Newhouse v. CANAL NATIONAL BANK OF PORTLAND

• Decision Date: 21 December 1950
• Docket Number: No. 689.,689.
• Citation: 94 F. Supp. 830
• Parties: NEWHOUSE et al. v. CANAL NATIONAL BANK OF PORTLAND, et al.
• Court: U.S. District Court — District of Maine

94 F. Supp. 830

NEWHOUSE et al. v. CANAL NATIONAL BANK OF PORTLAND, et al.

No. 689.

United States District Court D. Maine, S. D.

December 21, 1950.

Jacob H. Berman, Edward J. Berman, Sidney W. Wernick and Clement F. Robinson, all of Portland, Me., for plaintiffs.

Leonard A. Pierce, Charles W. Allen and Sidney W. Thaxter, all of Portland, Me., for defendants.

CLIFFORD, District Judge.

This matter came on to be heard on the Court's own motion that the question of jurisdiction be determined prior to trial of the case on its merits. Oral arguments were made and brief submitted on this issue, and it is now before this Court for determination.

It is agreed that there is diversity of citizenship between the parties and that the amount in controversy, exclusive of interest and costs, exceeds $3,000. This Court has jurisdiction of the case, unless the facts alleged in the complaint state a cause of action which is beyond the jurisdiction of this Court, under the rules stated in Waterman v. Canal-Louisiana Bank Co., 1909, 215 U.S. 33, 30 S.Ct. 10, 54 L.Ed. 80.

The plaintiffs are certain of the beneficiaries of a trust established under the Will of Mary J. E. Clapp. This action is against the present trustees individually, and in their capacity as trustees; and against the Canal National Bank of Portland, a third party, individually, and in its capacity as trustee under a mortgage indenture with the Clapp estate.

The plaintiffs assert that they are seeking in their complaint only an in personam judgment against the trustees, claiming that there has been use of trust income in a way that violates the provisions of the trust; and, in addition to that, they are seeking to impose liability on a third person, namely, the Canal National Bank of Portland, on the theory that the Bank, with knowledge or notice of this violation of the terms of the trust, received and paid out such trust income. The plaintiffs demand that the Canal National Bank of Portland "be adjudged and be held as trustee for the benefit of the plaintiffs, in accordance with their respective interests as beneficiaries of the Clapp trust, of all the net rents of the Clapp Memorial Building and rear parking lot received by said Bank from the defendants, Sidney St. F. Thaxter and Montgomery Blair, Jr., or either of them, in each and every year from 1934 to May, 1947, inclusive;" that the Bank make an accounting to the plaintiffs of "all monies received by it, being net rentals from the Clapp Memorial Building and rear parking lot" during the 13 years mentioned; that judgment be rendered against the Bank in favor of the plaintiffs "for the amount each plaintiff is entitled to receive as his pro rata share, in accordance with his respective interest as a beneficiary of the Clapp trust, of the net rents" herein mentioned, which the Bank received from said trustees during the 13 year period, and for such further relief as the nature of the case may require.

Substantially the same demands are made and the same relief is sought by the plaintiffs against each of the named trustee defendants, for the net rents of the Clapp Memorial Building and rear parking lot received by either or both of them during the years in question and paid to the Canal National Bank of Portland or to any other person except as a beneficiary of the Clapp trust; and that judgment be rendered against the trustees in favor of each of the plaintiffs as their interest may appear.

The defendants contend that the real and vital issue in this case is res judicata. In support of this contention they assert that the allowance of the annual probate accounts, showing the payments made for interest due under the mortgage indenture and the source from which they came, is an adjudication by the Probate Court that the payments were proper; and since these decrees were not appealed from, they have become res judicata and are not subject to collateral attack. The defendants further contend that a decision of these issues now before this Court necessarily involves an examination and revision of all of the accounts previously approved by the Probate Court, and a review of the entire administration of the trust during the 13 year period. For these reasons the defendants assert that under the applicable decisions of the courts, both State and Federal, this Court lacks jurisdiction to consider and determine the issues of this case, and that the sole jurisdiction relating to these issues is in the Probate Court for the County of Cumberland, State of Maine.

It becomes necessary and relevant to a discussion of the issue of jurisdiction to review briefly the background of the case and the legal proceedings which have previously been taken in the courts of the State of Maine.

Mrs. Mary J. E. Clapp died in September, 1920. Her Will was probated and allowed in the Probate Court for the County of Cumberland, the following month, in October, 1920. Defendants Sidney St. F. Thaxter and Montgomery Blair Jr., are the successor trustees of the trust established by that Will, having been appointed and duly qualified by the Probate Court. Among the property included in the residuary trust created by the Will was the so-called Homestead Lot, which had been occupied by the Clapp family. By the twelfth clause of her Will, Mrs. Clapp directed that the Homestead Lot be retained by the trustees during the entire life of the trust and that "no portion thereof be sold or otherwise disposed of except by ordinary and customary leases." In her Will she directed that the Homestead be taken down and that, in its place, "a handsome, substantial and imposing block" be erected in memory of her father and grandfather, to be "especially adapted for occupancy by stores, offices and halls". She further authorized the trustees to use any other portions of her real and personal estate as were necessary for the purpose of erecting the Clapp Memorial Building. She recommended that the construction of the Clapp Memorial Building should cost not less than $300,000.00.

In 1922 the then trustees instituted a proceeding before the Supreme Judicial Court of Maine, in Equity, asking the Court to determine whether they had authority under the terms of the Will to borrow money on the credit of the estate, enforceable against the entire assets of the trust, and further asking for authority to borrow money and procure loans, to give promissory notes, bonds, or other obligations in their capacity as such trustees, enforceable against the entire trust estate, except said Homestead Lot. The defendants in said proceeding were the then beneficiaries of the trust, being all the persons then in being who had any interest either in the income or principal, and included the plaintiffs in this proceeding. On May 10, 1922, Justice Scott Wilson issued a final decree which provided that the trustees were authorized, under the terms of the Will, for the purpose of erecting the Clapp Memorial Building, "to borrow money and procure loans from time to time, to give promissory notes, bonds and other obligations in their capacity as trustees, enforceable against the whole trust estate, except said Homestead Lot." Pursuant to this decree, the trustees under the Will executed and delivered to the Canal National Bank of Portland, as trustee, a mortgage indenture providing for the issue of $300,000.00 principal amount of bonds of the estate, secured exclusively by the so-called "Clapp Block" (not to be confused with the Clapp Memorial Building, later erected on the Homestead Lot). The bonds were issued, in accordance with the decree, to mature on June 1, 1937. The proceeds of the bonds were used by the trustees for the erection of the Clapp Memorial Building, as directed by the Will. On the maturity of the bonds, on June 1, 1937, the estate was unable to pay the principal amount due, for reasons not material here. Accordingly, an extension agreement was entered into in May, 1938, as of June 1, 1937, between the trustees of the estate and the Canal National Bank of Portland, as trustee under the mortgage indenture for the holders of the bonds. The time for payment under the extension agreement was moved forward to June 1, 1947.

By the terms of the Will, dealing with the Homestead Lot and the building to be erected thereon, it was specified that: "The net rents thereof and of whatever building may be thereon shall be taken as a part of the net income of the trust aforesaid * * subject to the special provisions herein concerning the same."

The Will also contained the following provision: "The entire net income of the trust * * * shall annually, or oftener, at the discretion of said trustee, be paid over to or applied for the benefit of" the designated beneficiaries.

Prior to 1934 the trustees commingled all of the income of the trust estate, including that from the Clapp Memorial Building. From that fund they paid the interest due on the bonds under the mortgage indenture, paid other expenses incidental to the administration of the trust, and paid the balance of such income to the named beneficiaries under the Will.

No claim is asserted here by the plaintiffs for rent received from the Clapp Memorial Building prior to 1934.

In 1934 the net income from the estate materially decreased as the result of the bankruptcy of a tenant which had been paying a substantial rental. Thereafter, until May, 1947, the trustees used all the income, including that from the rentals of the Clapp Memorial Building, in payment of the expenses of administration of the trust and the interest due on the mortgage bonds. In short, they continued the practice followed by them from the inception of their duties as trustees.

On May 16, 1947, at the request of the Canal National Bank of Portland and in accordance with the terms of the original mortgage indenture, the trustees of the estate executed a supplemental mortgage indenture, conveying to the Canal National Bank of Portland, as further...