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MINTZ TRUST (10/12/71)

decided: October 12, 1971.

MINTZ TRUST


Appeal from decrees of Court of Common Pleas, Orphans' Court Division, of Philadelphia, No. 3851 of 1958, in re Trust under deed of Dorothy Luria Mintz -- Appeal of Dorothy Luria Mintz, Cestui Que Trust.

COUNSEL

David Berger, with him Howard L. Schambelan and Harold Berger, for appellant.

Louis J. Goffman, with him H. Robert Fiebach and Morris H. Goldman, for appellees.

Bell, C. J., Cohen, Eagen, O'Brien, Roberts and Pomeroy, JJ. Opinion by Mr. Justice Roberts. Mr. Justice Eagen dissents. Mr. Justice Jones took no part in the consideration or decision of this case. Mr. Justice Cohen took no part in the decision of this case.

Author: Roberts

[ 444 Pa. Page 191]

This appeal involves an extended intra-family dispute between a sister and her brothers concerning the administration of a trust of which the brothers were the trustees and the sister the beneficiary. Appellant, the sister, alleges the trustees entered into numerous transactions which violated not only their general fiduciary duties of loyalty and good faith but also the express terms of the trust instrument. We are in agreement with the adjudication of the Orphans' Court of Philadelphia that no breach of trust justifying relief is evident on the record before us.

The facts as found by the auditing judge and approved by the court en banc insofar as they are relevant to this appeal are as follows:

Luria Brothers and Company was a well established scrap metals brokerage concern, owned and operated by members of three branches of a closely-knit family, headed respectively by three brothers, Abe, Alec, and Max Luria. By 1935, Abe Luria had passed away, and Max's family and Alec Luria each owned 44 1/2% of the outstanding stock of the company. Alec Luria was trustee of the deceased brother's estate, and he controlled the remaining 11% owned by Abe Luria's family. The two dominant groups were therefore the Max Luria and Alec Luria families. Max and Alec were actively engaged in the business, and their families depended on Luria Brothers for their livelihoods.

Max Luria had five sons -- Herbert B., William, I. David, Henry T., and Mortimer F., -- and one daughter, Dorothy F. Luria (now Dorothy Luria Mintz). His sons were involved in the family business in varying capacities and degrees.

[ 444 Pa. Page 192]

Alec Luria had only one son, Herbert, who was likewise employed by Luria Brothers. Non-family members also held important positions in the concern and were competing for recognition. Friction existed between the two families as Max favored the continued advancement of his sons despite possible adverse consequences to the non-family employees.

In 1935, Max and Alec created Luria Steel and Trading Company with the understanding that the new concern would be developed for Max's sons. Luria Steel commenced operations in 1937 and undertook to manage all of the foreign export and brokerage business of Luria Brothers. Four of Max's five sons left Luria Brothers to assume positions in the new company. The friction had been temporarily lessened.

Max Luria died in 1939. In his will he called for harmony between his sons and his brother. Within a month of his death a trust was established by his widow and the six children known as the Max Luria Family Trust to consolidate the family property and centralize control in the trustees, who were Herbert, William, I. David and Henry T. Luria.

Dorothy Luria Mintz was a party to this irrevocable deed of trust executed on December 9, 1939, but made effective on October 3, 1939. By the agreement she named herself as life tenant with a special power of appointment during her lifetime and a power to appoint the principal by will. This trust is the subject of the appeal now before us. However, before outlining its provisions and the allegations of breach of fiduciary duty asserted by Dorothy against her four brothers, certain additional facts concerning the growth of Luria Brothers and Luria Steel should be mentioned.

Herbert B. Luria, Max's eldest son, assumed the mantle of leadership of his side of the family subsequent to his father's death, and efforts were made to proceed amicably. In 1940, a "Harmony Agreement"

[ 444 Pa. Page 193]

    was executed by members of both families, including Dorothy. The agreement entitled Max's family to "put" to Alec their shares of Luria Brothers. Conversely, Alec Luria acquired the right to tender all his Luria Steel stock as part of the purchase price for the Luria Brothers stock. The agreement thus recognized the division of interest between the two families.

Tranquility reigned between the two camps until the end of 1944. Then, in December of that year, six key employees of Luria Brothers sent in letters of resignation, because they feared that upon Alec Luria's death, Max's sons would again control the business. The six employees, representatives of both families, and counsel met throughout the night of December 28, 1944 at the Ritz Carlton Hotel in Philadelphia.

Alec Luria's position was that either the key employees remain, or the business should be liquidated. The key men would only continue their employment if Max Luria's sons, with the exception of William, left the active management of Luria Brothers. Herbert B. Luria refused to relinquish his family's right to participate in management decisions so long as they had funds invested in the business.

The parties finally agreed that the Max Luria family would sell its 6,000 shares of Luria Brothers to Alec Luria for $350 per share, which was $107 more than the stock's book value. Similarly, the Max Luria family was to acquire Alec Luria's stock in Luria Steel at $216.31 per share, which was the book value. The directors of Luria Brothers authorized a loan of the necessary funds to purchase 3,250 of its shares from the Max Luria family. A "memorandum of agreement" embodying these transactions was executed on January 2, 1945.

As a result, the trusts for the six children of Max Luria each acquired 200 shares of Luria Steel, increasing their respective holdings from 100 to 300 shares.

[ 444 Pa. Page 194]

In addition, each trust received $187,000 in cash. An investment counselor gave uncontradicted testimony that Max's family received $641,000 more for its holdings in Luria Brothers through the January 2, 1945 agreement than it would have had the two companies been liquidated at that time.

The Max Luria family then set about reinvigorating Luria Steel. The auditing judge found that the scrap metal business was hazardous at that time, with the war coming to a close. So, while the brothers invested $625,000 in the stock of the company, they purchased $90,000 worth of Luria Steel debentures paying 6% interest and $5,000 worth of United States Treasury Bonds for Dorothy. This was done, according to the findings of the auditing judge, for the purpose of insuring Dorothy an annual income and to protect her funds from a high risk investment. The bonds were subordinated to loans made by financial institutions, but were a debt of the corporation and thus would have had to be paid prior to any distribution of assets to the shareholders upon liquidation. The purchase of these bonds was made after the family's counsel had advised the trustees that no violation of the deed of trust would occur in making such an investment.

In 1958, Herbert Luria died. The trustees rendered an accounting on April 30, 1958, to which Dorothy Luria Mintz filed various objections. Lengthy litigation ensued. At one point, a substantial settlement was agreed upon by counsel, but appellant refused to compromise, preferring to rely on a judicial resolution of the dispute. Finally, on March 14, 1968, the auditing judge denied all of appellant's objections to the accounting in a lengthy opinion. See Luria Trust, 45 D. & C. 2d 749 (1968). The court en banc likewise dismissed appellant's exceptions to the adjudication on December 26, 1968. A schedule of distribution was then filed to which appellant also objected. Her objections

[ 444 Pa. Page 195]

    were dismissed by the auditing judge on February 16, 1970, and this supplemental adjudication was confirmed by the court en banc on ...


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