Phillips v. Moeller

• Decision Date: 02 May 1961
• Citation: 148 Conn. 361,170 A.2d 897
• Court: Connecticut Supreme Court
• Parties: L. Reed PHILLIPS v. Herbert L. MOELLER, Jr., et al., Trustees (Estate of Constand A. Moeller), et al. Supreme Court of Errors of Connecticut

Page 897

170 A.2d 897

148 Conn. 361

L. Reed PHILLIPS v. Herbert L. MOELLER, Jr., et al., Trustees (Estate of

Constand A. Moeller), et al.

Supreme Court of Errors of Connecticut.

May 2, 1961.

David D. Berdon, Hartford, with whom was Robert I. Berdon, New Haven, for appellant (plaintiff).

George W. Crawford, Hartford, for appellees (defendants).

Before BALDWIN, C. J., and KING, MURPHY, MELLITZ and SHEA, JJ.

MELLITZ, Associate Justice.

Constand A. Moeller died on June 1, 1914, a resident of New Haven, and under his will, filed in the Probate Court for the district of New Haven, a trust was created which provided for the distribution of the trust estate among his grandchildren, per capita, upon the death of the last survivor of his children. ¹ Four trustees, all now deceased, were named, of whom one was a son, one a son-in-law, one a brother, and one a nephew, of the testator. See Stevenson v. Moeller, 112 Conn. 491, 493, 152 A. 889. In 1940, three of the testator's grandsons became successor trustees, and in 1947, a fourth grandson was appointed a successor trustee. The four have functioned continuously as trustees since their respective appointments. All are annuitants under the trust. In 1958, the plaintiff, L. Reed Phillips, presented to the Probate Court an application for the removal of two of the trustees, the defendants Herbert L. Moeller, Jr., and Rudolph L. Kautz, Jr., and for the appointment of himself as a trustee. Phillips is also a grandson of the testator and an annuitant under the trust. The application was based on what is now General Statutes § 45-263 and charged that Moeller and Kautz had become incapable of executing their trust in that they had placed themselves in a position of conflict of interests, had neglected to perform the duties of their trust, and had performed trust duties in such a manner as to promote their own personal profit. The application was denied by the Probate Court. An appeal was taken to the Superior Court, and from a judgment dismissing that appeal Phillips has appealed to us.

The facts found, with such corrections as are warranted, are, so far as pertinent to a consideration of the questions presented, as follows: At the time of the death of the testator, he was the distributor in Connecticut for Narragansett beer. During the settlement of his estate the Probate Court, pursuant to what is now § 45-256 of the General Statutes, ordered the continued operation of this distributorship by the temporary administrator, the executors, and the trustees, in succession, for the purpose of the prudent winding up of the estate. This order continued until the eighteenth amendment to the federal constitution, became operative in 1920. After the repeal of that amendment on December 5, 1933, the trustees did not seek permission from the Probate Court to acquire the distributorship again. A person who had no connection with the estate secured the distributorship for the area. It was later sold to a firm which operated it until 1947, and then it was sold to a partnership comprised of Moeller, Kautz and another. As early as 1947, Phillips was employed by the partnership and had actual knowledge of the interests in, and ownership of, the distributorship. In 1956, the distributorship was transferred to a Connecticut corporation, Narragansett Sales Company, Inc., of which Moeller and Kautz were the incorporators, officers and directors, and in which they owned substantially all of the capital stock.

The trust estate owns 20 per cent of the capital stock of the Narragansett Brewing Company and also a number of parcels of real estate and mortgages on real property. Moeller is a director of the brewing company, representing the stock interest held therein by the trust estate. He owns no stock, personally, in the brewing company. Between 1950 and 1957, the brewing company paid dividends in stock instead of in cash as theretofore. Certain beneficiaries of the trust estate were opposed to the continuation of stock dividends and so informed Moeller and Kautz. Thereafter, at directors' meetings and at stockholders' meetings of the brewing company, these trustees opposed the continuance of the company policy of paying dividends in stock. In 1957, at the request of all the trustees, a special meeting of the directors of the brewing company was held at which the trustees appeared with counsel and remonstrated against the continuation of the company's dividend policy, but without success. Efforts of the trustees on other occasions to persuade the company to change its policy were fruitless. The accumulation of stock dividends was substantially more beneficial to the estate, because such dividends were not subject to income tax. Since 1940, the book value of the trust estate has grown from $1,823,220 to $2,400,892, reflecting the prudent administration of the estate by the trustees. The market value is approximately $5,000,000.

Annual accounts as required by § 45-268 of the General Statutes were filed by the trustees in the Probate Court and were accepted and allowed, after due notice and hearing, without objection by any beneficiary until Phillips filed an objection in 1957. From and after 1940, he had notice of the hearings in the Probate Court on the annual accounts by means of public notices published pursuant to § 45-269 in the New Haven newspapers; and from 1953 to 1957 he also received personal notice of the hearings.

During the trial, Phillips attacked the retirement allowances which had been made to two employees of the trustees. One was a son of the testator who had been employed by the latter prior to 1914 and had been continued on the same job by the trustees until he became infirm and was retired on $30 a week. The duties he performed before his disability were substantially those he had performed for his father during the latter's lifetime. The other was an employee who had worked for the estate for forty-two years, beginning in 1914, as secretary, bookkeeper and general office manager, and who was granted a retirement allowance at half salary for approximately two years until she reached the age for social security benefits. The retirement allowances paid to these employees were listed in the annual accounts filed by the trustees under the expense item of 'Office Salaries.' Phillips also attacked the method of reporting and accounting for rents collected by Rudolph Kautz, Sr., father of the defendant Kautz and a son-in-law of the testator. Kautz, Sr., following the procedure he used in the testator's lifetime, made monthly reports to the trustees of the full amounts of the rents collected and showed therein deductions of expenditures made by him, and also his commission of 3 per cent. He then remitted with his monthly report a check for the net amount. The trustees in turn reported this net amount in their annual accounts. The detailed information concerning these collections was recorded in the books of the estate, to which those beneficially interested in it had full access. The custom of accounting for rents in this manner was followed by both the predecessor trustees and the present trustees from 1940 to 1957 without objection. Since April 30, 1958, the rents formerly collected by Kautz, Sr., have been collected at the office of the estate.

There are forty-one living beneficiaries or potential beneficiaries of the trust, and none besides Phillips appeared in either the Probate Court or the Superior Court in support of the application to remove the defendant trustees. On the other hand, several beneficiaries and potential distributees appeared in the Probate Court and the Superior Court, by permission of the court and with the consent of Phillips' counsel, to oppose the application.

In the Superior Court, and in brief and argument, the specific acts charged as the basis for the grounds of removal were that Moeller and Kautz violated the terms of the trust requiring double security for loans made by it; that they failed to account properly concerning the operations of the trust when they did not show the commissions paid to Kautz, Sr., for rent collections, and the payment of retirement benefits to the two employees; and that they placed themselves in a position of conflict of interests by acquiring for themselves, instead of for the trust, the distributorship for Narragansett beer, thereby rendering themselves unable properly to serve the interests of the trust in dealings with certain of its tenants and mortgage debtors and with the Narragansett Brewing Company. The failure to prevent the payment of dividends of the brewing company in stock rather than in cash, between 1950 and 1957, was particularly pointed out.

The issue presented in the Superior Court was whether the Probate Court erred in denying the application for the removal of Moeller and Kautz as trustees. Whether there was adequate ground for their removal was a question addressed to the sound discretion of the Probate Court, and its conclusion could not be disturbed on appeal unless that discretion was abused. Peck v. Searle, 117 Conn. 573, 584, 169 A. 602; Carroll v. Arnold, 107 Conn. 535, 542, 141 A. 657; Murdoch v. Elliot, 77 Conn. 247, 256, 58 A. 718.

Whether, on the facts established, the action of the Probate Court was proper may be tested in the light of the following quotation from 1 Perry, Trusts and Trustees (7th Ed.) p. 493, which presents pertinent considerations notwithstanding that the present trustees, grandsons of the testator, are successor trustees, having been appointed to succeed the original trustees named by the testator, they having died. 'In no case ought the trustee to be removed where there is no danger of a breach of trust, and some of the beneficiaries are satisfied with the management. Nor will a trustee be removed for every violation of duty, or even breach of trust, if the fund is in no danger of being lost. The power of removal of trustees appointed by deed or...