Reed v. Robilio, 18326.

• Decision Date: 17 September 1968
• Docket Number: No. 18326.,18326.
• Citation: 400 F.2d 730
• Parties: Martha Cuneo REED, Plaintiff-Appellant, v. Albert F. ROBILIO, Victor L. Robilio, and John S. Robilio, Jr., As Executors of the Estate of Mrs. Jennie G. Robilio, John S. Robilio, Rose Ann Robilio, Florence Rita Robilio Radogna, and Union Planters National Bank of Memphis, Tennessee, Defendants-Appellees.
• Court: U.S. Court of Appeals — Sixth Circuit

400 F.2d 730 (1968)

Martha Cuneo REED, Plaintiff-Appellant, v. Albert F. ROBILIO, Victor L. Robilio, and John S. Robilio, Jr., As Executors of the Estate of Mrs. Jennie G. Robilio, John S. Robilio, Rose Ann Robilio, Florence Rita Robilio Radogna, and Union Planters National Bank of Memphis, Tennessee, Defendants-Appellees.

No. 18326.

United States Court of Appeals Sixth Circuit.

September 17, 1968.

Frederick Bernays Wiener, Washington, D.C., for appellant, Chandler, Manire, Johnson & Harris, Memphis, Tenn., Davis, Polk & Wardwell, Kissam & Halpin, New York City, of counsel.

Jack Petree, Memphis, Tenn., for appellees, Evans, Petree, Cobb & Edwards, Memphis, Tenn., on brief, for Albert F. Robilio, Albert F. Robilio, Victor L. Robilio and John S. Robilio, Jr., and Union Planters Nat. Bank of Memphis, Marion S. Boyd, Jr., Memphis, Tenn., on brief, Canada, Russell & Turner, Memphis, Tenn., of counsel.

Before WEICK, Chief Judge, and PECK and COMBS, Circuit Judges.

JOHN W. PECK, Circuit Judge.

In 1961, plaintiff-appellant brought this derivative action on behalf of the estate of her deceased parents alleging that defendants, as partners in the Memphis, Tennessee, partnership of Robilio & Cuneo, breached the fiduciary obligation owed the estate of her father. He had been a partner of the firm, and a breach of the fiduciary obligations owed her mother, who had also been a partner, was also alleged. Subsequent to trial, the cause was dismissed for lack of diversity jurisdiction and plaintiff appealed. This court reversed and remanded for a decision on the merits (376 F.2d 392 (1967)). Upon remand, the District Court held in favor of defendants (273 F.Supp. 954 (1967)), and plaintiff has again appealed.

Under a 1943 partnership agreement, plaintiff's father, Thomas A. Cuneo, owned a 30.66% interest in the Robilio & Cuneo partnership which manufactures and sells macaroni products, and plaintiff's mother, Zadie S. Cuneo, owned a 19.34% interest. The remaining 50% interest was owned by Albert F. Robilio and his now deceased mother, Jennie G. Robilio (Jennie G. Robilio died subsequent to commencement of this action and her executors have been substituted as parties defendant by order of the District Court). This partnership agreement remained in effect until Mr. Cuneo's death in 1959.

Under the terms of Mr. Cuneo's will, the Union Planters National Bank was appointed executor of his estate and was authorized to sell the 30.66% interest in the partnership. Negotiations with the Robilios resulted, and the executor subsequently accepted the Robilios' offer to purchase the interest for $317,000 upon the condition that the offer be approved by the Probate Court of Shelby County, and by Mrs. Cuneo and plaintiff. Thereafter, on March 7, 1960, a bill of sale was executed to the Robilios for Mr. Cuneo's partnership interest. In the present suit plaintiff sought to have a constructive trust imposed upon her father's interest, on the ground that the Robilios breached their fiduciary obligation to the estate of Mr. Cuneo by concealing and failing to disclose to the executor material facts regarding the fair value of the interest, and by purchasing that interest at a grossly inadequate price. Plaintiff also sought to have the partnership agreement executed by her mother and the Robilios subsequent to Mr. Cuneo's death canceled and rescinded on the grounds that the agreement unfairly restricts the class of persons to whom her mother's interest could be transferred, that the agreement gave the Robilios the option to purchase her mother's interest at an inadequate price upon the attempted transfer to persons outside the restricted class, and that the agreement was executed at a time when her mother was seriously ill and unable to comprehend the nature and significance of the agreement. The cause was tried to the court without a jury and, as noted above, the court held for defendants and dismissed the complaint as to both causes of action.

The record shows that shortly after Mr. Cuneo's death, Mr. Albert F. Robilio (hereinafter referred to as "Robilio" in the singular), the member of his family who actively participated in the management of the business, discussed with the partnership's auditor the appropriate methods of evaluating Mr. Cuneo's interest. Four formulae suggested by the auditor yielded valuations ranging from approximately $228,000 to $317,000. It was this latter amount that was offered to, and accepted by, the Bank for the 30.66% interest. Moreover, as found by the District Court, Robilio invited the representatives of the estate to make a personal inspection of the books, records and assets of the firm, and told them that he had directed his employees to furnish any information sought by the estate. Robilio also furnished the executor to Mr. Cuneo's estate with the financial reports of the partnership for the five year period preceding Mr. Cuneo's death.

The executor of the estate, Union Planters National Bank (hereinafter the "Bank"), had been the recipient of the partnership's banking business for over thirty years, and Mr. Herbert, the officer of the Bank's Trust Department who was responsible for handling the Cuneo estate, had on previous occasions evaluated and sold corporate and partnership businesses in his capacity as Trust Officer. The record also shows that the Bank had knowledge of all material facts bearing on the value of the firm and Mr. Cuneo's 30.66% interest.

In its opinion, the District Court thoroughly discussed the nature and scope of the fiduciary duty a surviving partner owes the estate of a deceased partner as follows:

"One of the relationships which is fiduciary in nature is that which exists between partners. Partners, by virtue of their business association, repose trust and confidence in each other. Hence, in their partnership affairs, one partner may not take any advantage of his associate. Brooks v. Martin, 69 U.S. (2 Wall.) 70, 17 L.Ed. 732 (1864).

"Although death dissolves the partnership, the fiduciary relationship continues. The surviving partner retains his fiduciary duty to the deceased partner\'s estate. Joseph v. Mangos, 192 Iowa 729, 185 N.W. 464 (1921).

* * * * * *

"The standard of good faith remains flexible. It cannot be said that the surviving partner, regardless of the circumstances, is to be held to an unbending procedure in discharging his fiduciary obligation. Equity predicates the fiduciary duty upon the assumption that the surviving partner will have a superior knowledge of the business and that the estate will be dependent upon him to receive fair treatment. Tennant v. Dunlop, 97 Va. 234, 33 S.E. 620 (1899). Thus, the surviving partner\'s conduct must be judged within the context of the knowledge and experience of the person with whom he deals. Cardoner v. Day, 253 F. 572 (D.Idaho 1918).

"Nevertheless, the leading cases reveal that certain conduct will violate the fiduciary duty as a matter of law. All of the authorities agree that the surviving partner may neither misrepresent nor conceal material facts. See Note, Fiduciary Duties of Partners, 48 Iowa L.Rev. 902 (1963). Concealment, in this sense, is not limited to active concealment. The duty may be breached by silence. Stark v. Reingold, 18 N.J. 251, 113 A.2d 679 (1955). Most of the courts, however, phrase this proposition in terms of `disclosure.\' For example, in perhaps the leading case in this area, the Supreme Judicial Court of Massachusetts held in Malden Trust Co. v. Brooks, 291 Mass. 273, 197 N.E. 100, 106 (1935), that the surviving partner has a duty to:

* * * disclose voluntarily all within his possession or knowledge from which a sound judgment as to the value of the share of the deceased partner in the partnership property and his claims against the partnership might be found. Emphasis supplied.

"Similarly, the Supreme Court of Virginia stated in Tennant v. Dunlop, 97 Va. 234, 33 S.E. 620 (1899), that:

having generally a superior knowledge of the assets and their value, it is his bounden duty, in purchasing the interest of the deceased partner, to acquaint his representative with full information as to the assets, and the facts from which their value may be estimated or inferred. It is not sufficient that he does not withhold or conceal such information, but it is incumbent upon him to disclose voluntarily all within his possession or knowledge from which a sound judgment as to the value of the interest may be formed.

"Plaintiff\'s interpretation of these, and similar cases, forms the basis of her charge that the Robilios violated their fiduciary duty. At the trial plaintiff established that Albert Robilio failed to mention numerous matters. Without listing them separately again, these matters which plaintiff alleges that the Robilios failed to disclose relate to: (1) good will; (2) consumer acceptance and demand; (3) possible growth of the firm; (4) the quality of personnel; (5) the potential earning future of the business; and (6) trends in the macaroni industry." 273 F.Supp. at 959-61.

The District Court then held that silence does not constitute a breach of good faith if the surviving partner could reasonably assume that the estate already had knowledge of the material facts, and that Robilio accordingly did not breach his fiduciary duty by failing to disclose matters relating to good will, consumer acceptance and demand, and the quality of the sales force, since these matters were reflected by the financial reports of the partnership. The court further held that Robilio was not required to volunteer an opinion on matters which were not reflected on the financial reports of the partnership, such as matters pertaining to possible growth of the firm, the potential earning future of the firm, and the trends in the macaroni business, stating:

"The Court holds that the failure to express an opinion on these matters did not breach the fiduciary duty. The only case of which the Court is aware

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