Shear v. Gabovitch, 94-P-152

• Decision Date: 14 October 1997
• Docket Number: No. 94-P-152,94-P-152
• Parties: Gertrude SHEAR v. William GABOVITCH & another, 1 trustees. 2
• Court: Appeals Court of Massachusetts

Page 1168

685 N.E.2d 1168

43 Mass.App.Ct. 650

Gertrude SHEAR v. William GABOVITCH & another, ¹ trustees.²

No. 94-P-152.

Appeals Court of Massachusetts Suffolk.

Argued Oct. 14, 1994.

Decided Oct. 14, 1997.

William Gabovitch, pro se.

Brian A. Davis, Boston, for plaintiff.

Before ARMSTRONG, KASS and JACOBS, JJ. ^*

ARMSTRONG, Justice.

The defendants William Gabovitch and Sumner Woodrow were trustees of two Shear family trusts from 1974 to 1992, when they were removed by a judge of the Superior Court. Both defendants appealed, but Woodrow withdrew his appeal. The case is before us on the appeal of Gabovitch.

The plaintiff, Gertrude "Trudi" Shear, was the life beneficiary of the two trusts, which had been established by her husband, Maurice "Murray" Shear, in 1971 and 1973. The trusts were irrevocable. Murray designated himself as the original trustee of both trusts and he funded the trusts with shares of stock representing his one-third interest in Mount Pleasant Hospital of Lynn and, later, the Shears' family home. In 1974 he resigned as trustee and asked his accountant, Gabovitch, and his personal attorney, Woodrow, to serve as cotrustees. They agreed and were duly appointed by Trudi, the "then beneficiary," in accordance with the trust instruments' provisions for appointment of successor trustees. In 1986, in circumstances that will be described in detail below, the trustees sold the trusts' shares of hospital stock back to the hospital for $3 million. Shortly after the sale, Trudi and Murray asked the trustees to resign, in order that Trudi might appoint another trustee or trustees, but both Gabovitch and Woodrow refused. Trudi filed this complaint seeking to remove them and to surcharge them for losses caused by alleged breaches of their fiduciary duty. The trustees filed a counterclaim accusing Trudi and Murray of conspiracy and abuse of process.

After a lengthy trial, the judge in 1992 entered findings that were largely favorable to the plaintiff, Trudi. He found that the trustees had been guilty of breaches of fiduciary duty: first, for failing to take action to stop a massive waste of hospital assets during the years 1981-1986, resulting in the trusts earning no income from their dominant investment; and, second, for selling the Shear trusts' hospital shares for less than fair value. He found that their actions and omissions were tainted by bad faith, depriving them of the protection of the trusts' identical exculpation clauses. For lost income, the surcharge was $995,825; for the inadequate sale price, $664,880. In addition he surcharged the trustees for all but $7,200 of the fees they had paid themselves, or $285,975, ³ as well as for legal and related fees that they had paid from the trusts in their defense, or $418,759. The total of the surcharges was $2,340,439, for which they were liable jointly and severally, with an additional surcharge of $25,000 against Woodrow alone. Last, the judge ordered the trustees removed and appointed interim successor trustees. The trustees' counterclaim was dismissed.

The plaintiff, in her brief on appeal, makes the point that most of the defendant Gabovitch's argument is directed at facts found by the judge; further, such findings cannot be reversed unless clearly erroneous. That is true, of course, and in a record as long as the 5,000-page example before us, we should be surprised not to find some item that could be said to support almost any one of the judge's findings of fact. The burden is on the appellant to show that a finding of fact is clearly erroneous. First Pa. Mort. Trust v. Dorchester Sav. Bank, 395 Mass. 614, 621-622, 481 N.E.2d 1132 (1985). Despite these hurdles, a finding of fact will be deemed "clearly erroneous [if], although there is evidence to support it, the reviewing court on the entire evidence is left with the definite and firm conviction that a mistake has been committed." Demoulas v. Demoulas Super Markets, Inc., 424 Mass. 501, 509, 677 N.E.2d 159 (1997), quoting from United States v. United States Gypsum Co., 333 U.S. 364, 395, 68 S.Ct. 525, 542, 92 L.Ed. 746 (1948), and Building Inspector of Lancaster v. Sanderson, 372 Mass. 157, 160, 360 N.E.2d 1051 (1977). On careful study of the entire record, including 1,400 pages in documentary form, we are left with a definite and firm conviction that certain of the judge's central findings and conclusions are clearly erroneous. As a result of our analysis of the record, we vacate the surcharges relating to lost income and sale of the hospital shares for an inadequate price. We modify the surcharge relating to counsel fees, affirm the surcharge relating to trustee fees, and, despite concluding that the evidence is inadequate to support the findings of breach of fiduciary duty, affirm on the basis of hostility the portion of the judgment removing Gabovitch and Woodrow as trustees. On the basis of findings that are supported by the evidence, we affirm the separate judgment dismissing the trustees' counterclaim.

FACTS.

To explain our decision, we have found it necessary to lay out facts, and the evidence relevant to certain findings, in somewhat more detail than is usually called for; part of the reason for this necessity lies in the fact that much evidence that was critical to understanding relationships between the parties and to explain the trustees' actions and omissions claimed as grounds for relief was, in our view, erroneously excluded from evidence on the objections of the Shears. Much of that evidence was documentary and is in the record before us, or was laid out by offers of proof, and we have thought it proper to take it into account in evaluating the trustees' actions in context, to determine whether the plaintiff has sufficiently made out a case of breach of fiduciary duty by the trustees on the whole record. See Gulf Oil Corp. v. Fall River Hous. Authy., 364 Mass. 492, 493, 306 N.E.2d 257 (1974); Markell v. Sidney B. Pfeifer Foundation, Inc., 9 Mass.App.Ct. 412, 429-431, 402 N.E.2d 76 (1980); Kosak v. MacKechnie, 24 Mass.App.Ct. 20, 23, 505 N.E.2d 579 (1987). The evidence of which we speak is consistent with the judge's subsidiary findings and with the evidence that was admitted. The excluded evidence is significant in that it puts the trustees' and other participants' actions in an understandable context. The Shears were not entitled to have the trustees' acts considered in an artificial vacuum, shorn of the context that showed their significance. While it is generally inappropriate to find facts at the appellate level, Markell, supra at 430, 402 N.E.2d 76, particularly based on excluded evidence, it is appropriate to evaluate the adequacy of the plaintiff's showing of breach of fiduciary duty against the evidence as it would have appeared but for the judge's errors in sustaining the plaintiff's own objections.

With that preface, we set out the facts in three parts: first, a general chronology of events; second, an explanation of the financial operations of Mount Pleasant Hospital, the trusts' dominant investment; and, third, a discussion of one critical conclusion of fact that, in our view, was clearly erroneous.

1. Chronology of events. Mount Pleasant Hospital (MPH or the hospital) was established in the late 1960s, ⁴ in Lynn, by Murray and two partners, Milton Richman and Dr. Walter Henry. MPH was an eighty-eight bed, private, proprietary, non-acute hospital specializing in treatment for alcoholism and substance abuse. Its humane treatment and rehabilitation programs were said to be unusual at the time but had a precursor in Doctors Hospital in Worcester. Murray was involved with Doctors Hospital, apparently in a managerial capacity. Dr. Henry was an osteopathic physician and Richman an attorney. The record does not disclose the equity contributions, if any, ⁵ of the three partners in the founding of MPH, but each had one-third of the shares of stock, and it was understood from the outset that the three men, with their families, would share equally in the economic benefits of its operation. Each of the three was to serve as an officer of the hospital at times during the ensuing fifteen or twenty years, Murray serving as treasurer until he was removed in 1980.

The hospital prospered from the late 1970s to 1986, but relations among the partners were rarely harmonious. In 1972 Richman and Murray had a falling out with Henry, who had borne primary responsibility for running MPH as chief executive officer from 1966. Henry was removed in 1972, and Richman and Murray assumed joint responsibility for controlling the operations of MPH. In 1975 Richman and Murray had a falling out, and Murray and Henry took over joint control of the hospital. The evidence suggested that Henry, although chief executive officer, by that time was spending many months in Florida each year and that Murray, occupying the office of treasurer, had a relatively unfettered hand in controlling the hospital until his removal in 1980.

In the early 1970s each of the three partners put his shares of hospital stock into trusts. Murray created two virtually identical trusts, the first in 1971 and the second in 1973 and, as previously noted, funded them with his shares of hospital stock and, later, title to the Shear family home. Trudi was the beneficiary for life, unless she should sooner cease to be married to Murray or, after his death, should remarry. Thereafter the trusts were to be divided into three parts, one for each son. These trusts would end when the sons, respectively, reached age thirty-five. The trusts were irrevocable, and distributions were discretionary with the trustee or trustees. ⁶ The latter were given broad general powers to manage the trust corpora, including the power to mortgage, lease, or sell without license or leave of court. The trustee or trustees were exonerated from personal liability "for any loss to the trust estate or for any act or omission, or for any error or...