Troyak v. Enos

• Decision Date: 04 June 1953
• Docket Number: No. 10760,10761.,10760
• Citation: 204 F.2d 536
• Parties: TROYAK v. ENOS.
• Court: U.S. Court of Appeals — Seventh Circuit

204 F.2d 536 (1953)

TROYAK v. ENOS.

Nos. 10760, 10761.

United States Court of Appeals Seventh Circuit.

May 13, 1953.

Rehearing Denied June 4, 1953.

Ashley M. Van Duzer, John S. Beard, Jr., Cleveland, Ohio, Herbert J. Patrick, Indianapolis, Ind., for George E. Enos. McHale, Patrick, Cook & Welch, Indianapolis, Ind., Arter, Hadden, Wykoff & Van Duzer, Cleveland, Ohio, of counsel.

Thomas M. Scanlon, Frederic D. Anderson, Jerry P. Belknap, Indianapolis, Ind., Manly K. Hunt, Chicago, Ill., for Durive Troyak. Turner, Hunt & DeBolt, Chicago, Ill., Barnes, Hickam, Pantzer & Boyd, Indianapolis, Ind., of counsel.

Before DUFFY, FINNEGAN and LINDLEY, Circuit Judges.

LINDLEY, Circuit Judge.

Plaintiff brought this suit against her mother Ethel, her half-sister Jeanette, her half-brother George E. and the Enos Coal Mining Company, a corporation, to recover from George certain shares of the capital stock of the corporation held by him, on the claim that, as her trustee, agent and fiduciary representative, he had so violated his obligations that certain portions of the stock which he had procured in his individual right should be declared held in trust by him for plaintiff and ordered transferred to her. She sought also to recover the value of some 120 shares of the corporate stock, her conveyance of which to other persons she claimed he had wrongfully procured in like violation of his fiduciary undertakings.

The cause was referred to a special master, who took the evidence and filed a report including voluminous findings of fact and short conclusions of law. In the latter, he held that plaintiff could not recover for any of the 120 shares last mentioned but was entitled to have delivered to her 250 shares, plus dividends, upon payment by her to George of $25,000. The court approved and confirmed the report and entered judgment accordingly. Cross appeals were perfected. Plaintiff asserts that the trial court erred in denying recovery for the 120 shares and, as to the 250 shares awarded her, that the allowance is insufficient and should be increased. On the other hand defendants insist that there should have been no recovery whatsoever and that the suit should have been dismissed for want of equity.

The 250 shares ordered surrendered by George to plaintiff upon her payment of $25,000 are part and parcel of 1000 shares for which George obtained an option and which he ultimately received from the company. The issue between the parties centers chiefly about these shares, i. e., whether they are trust property or belong to George personally; consequently, in order to dispose of it properly, we have found it necessary to examine somewhat carefully the evidence produced by the respective parties.

Among the master's findings are the following: The Enos Coal Mining Company is an Ohio corporation, mining, selling and distributing coal in Indiana. George A. Enos, husband of defendant Ethel, and father of defendants Jeanette Galbreth and George E. Enos, and step-father of plaintiff, Durive Troyak, Ethel's daughter by a previous marriage, organized and operated the corporation. He undertook to foster and protect the business as a family investment. Ethel, Jeanette and the plaintiff had no substantial business experience. The son George, upon graduating from college and business school, immediately began to work for the company. The father discussed with the son his personal problems and those arising from financing and operating the company. Jeanette had married at the age of 19, was a housewife and relied upon her brother George in all business matters. Plaintiff had the equivalent of a high school education and operated a small shop with her first husband, McCurdy, for a short time, but had had no executive or administrative experience. She married her second husband, Troyak, in January 1944, and for the next few years, while he was in the army, lived near him.

The corporation had 10,000 shares of capital stock, of which the father originally owned or controlled 5106. Prior to his death in 1940, he transferred 4,716 shares to his wife, retaining only 390 shares. Between 1930 and 1940 he became financially involved, borrowing substantial sums of money and assigning his shares as security therefor. Ethel likewise assigned to the same creditor the shares registered in her name. The net result was that in June, 1940, the Enos family owned stock as follows: the father 390 shares, Ethel 1716, Jeanette, Durive and George, each 1000, all subject, however, to liens in favor of certain creditors. Because of the exigencies confronting him, the father created a voting trust, July 1, 1940, under which all 5106 shares were deposited with the trustees. All the stock was pledged, first to a bank, for a loan it had made and then, to a syndicate of minority stockholders for indebtedness owing it. The senior Enos, having died October 17, 1940, Fred S. McConnell succeeded him as one of the trustees.

At the time the voting trust agreement was executed, the father was in failing health and decided further to create a family trust, the corpus of which consisted of the 4716 shares owned by Ethel, Durive, Jeanette and the son George. The mother and the three children assigned all their voting trust certificates to the son as trustee in the following amounts: Ethel 1716 shares, and each of the three children, 1000 shares. These shares then became trust property, subject to the assignments to creditors. The agreement provided that when the debts were paid and the security released by the creditors, the shares would become the property of the trust estate, and that the trustee would collect the dividends thereon and pay them "to those * * who are living at the time of the Trustee's receipt of such income". The agreement was to terminate upon the death of all but one of the beneficiaries, and thereupon the trustee was to cause all trust property to be assigned to the surviving beneficiary.

When the father died, his estate was hopelessly insolvent, his assets aggregating about $24,000 and his debts $208,000. As the syndicate still had a first lien upon the 390 shares of the company's stock held by deceased's administrator and upon the 4716 shares held by the trustee, for a substantial debt, it became apparent that some of the stock would have to be sold in order to liquidate the indebtedness. The son, George, on January 21, 1941, obtained from Ethel, Durive and Jeanette a power of attorney, authorizing him to act for them in all matters relating to the settlement of the father's estate and the claims against the same, including full power to perform all and every act requisite and necessary in the premises, including the right to assign or otherwise hypothecate their voting trust certificates.

On June 7, 1941, George, as trustee, negotiated an arrangement with the syndicate, whereby the latter purchased 2430 of the shares held in trust at $60 per share, giving the trustee an option to repurchase them at $100 per share, as a unit, between July 1, 1946 and October 1, 1946. The voting trust of July 1, 1940 was succeeded by a new one for 5500 shares, including the 2430 shares, to continue in existence until October 1, 1946. The 5,500 shares so placed under the control of the new voting trust consisted of the 2430 sold to the syndicate by the family trust, 2071 so-called "free" shares still held by the family trust and 999 shares contributed by various members of the syndicate.

When the 2430 shares were sold, George received the purchase price, $145,800, and used it in settlement of the debts of his father's estate. The family trust then took over the 390 shares owned by the father's administrator at $60 per share and released the estate from any liability. As a result, the corpus of the family trust was depleted by the sale of 2430 shares sold to the syndicate at the price of $60 per share but still retained the option to repurchase them.

The family trust was modified by an instrument dated July 1, 1941, signed by George, Jeanette, and Ethel and by George, as attorney in fact for the plaintiff, and by himself as trustee. The instrument revoked certain provisions previously mentioned, and provided that the trustee should hold the voting trust certificates, exercise such discretion as in his sole judgment he might deem proper for the best interests of the beneficiaries, exercise the voting rights of any security which he might hold from time to time, open a bank account, in the name of himself as trustee, withdraw moneys at such times and for such purposes as he might deem necessary, compromise, compound and adjust claims in favor of or against the trust estate upon such terms and conditions as he might deem best, appoint agents and attorneys, make advances or borrow money, pay taxes, assessments and expenses, obtain approval of the living beneficiaries before he sold any securities, and distribute the income of the trust estate to the beneficiaries. The trust agreement was further modified in January, 1942.

Neither George nor plaintiff was satisfied with the survivorship provisions of the family trust, which precluded possibility of any interest therein in their respective families. They agreed that it was desirable that the beneficiaries save money from the dividends so that when the option period arrived, each would have funds available for use in taking up the options. George represented to his mother and sisters that the options were of substantial value and that they should save as much money as possible, to be invested by him, so that he might increase the savings available for purchase of options. The mother and sisters having agreed, George, as trustee, thereafter received all dividends paid upon the free shares, in the trust, divided the same in four equal parts and paid to each of the beneficiaries out of her respective shares such amount as was required for her personal needs, and invested the balance. These savings and investments were...