J. Joseph O'Donnell et al.
Maryellen O'Donnell et al No. 135385
October 14, 2016
MEMORANDUM AND ORDER ON DEFENDANTS' MOTION FOR
PARTIAL SUMMARY JUDGMENT
P. Leibensperger, Justice
a dispute among members of the family of James J.
O'Donnell, III (" JJO") who died on May 4,
2011. Plaintiffs are children of JJO and his first wife
(deceased). Defendants are JJO's second wife, Maryellen,
and the long-time lawyer, Joseph F. Ryan, for JJO and the
real estate company that constitutes the major asset left by
JJO. In addition, the real estate company, Parklake Realty
Corp., is named as a nominal defendant for plaintiffs'
derivative claims of corporate waste and mismanagement,
including the failure to pay dividends. The present motion
does not challenge the claims by plaintiffs as shareholders
of Parklake, brought both as direct and derivative claims,
alleging breach of fiduciary duty and corporate waste and
mismanagement. Instead, this motion for partial summary
judgment seeks to dismiss claims alleging breach of fiduciary
duty in connection with purchases of shares in Parklake by an
insurance trust and by the company from the estate of JJO.
Specifically, the motion requests the dismissal of Count III
of the Verified Amended Complaint (" complaint")
alleging breach of fiduciary duty by Ryan as trustee of the
insurance trust. In addition, however, the motion requests
that the court eliminate from the other counts of the
complaint any allegations by plaintiffs for breach of
fiduciary duty arising from transactions in the insurance
trust and the estate of JJO. Defendants contend that such
allegations are barred by plaintiffs' previous consents
or by operation of law.
complaint alleges that Maryellen and Ryan in their fiduciary
capacities as directors and, in Maryellen's case,
controlling shareholder, of Parklake caused Parklake to
consent to the purchase of a number of shares from the JJO
estate in a manner that allegedly benefitted Maryellen to the
detriment of plaintiffs. Because the sale by the estate was
accomplished as part of a plan to provide cash to the estate
to pay estate taxes, and those transactions were approved by
the Probate and Family Court, defendants argue that
plaintiffs are barred in this action from challenging the
transactions. Accordingly, defendants want all allegations in
the complaint concerning purchases of shares in Parklake held
by the estate, whether by the insurance trust or as a
redemption by Parklake, to be stricken or dismissed.
time of his death, JJO owned 96.7% of the shares of Parklake.
The remaining 3.3% of the shares were owned by his ten
children in equal amounts. Parklake owned and operated three
apartment buildings in Brighton, Massachusetts. Following
JJO's death, Ryan was appointed executor of JJO's
estate. Appraisals of JJO's interest in Parklake were
ordered. The appraisals valued JJO's shares of Parklake
as being worth approximately $10.2 million.
to JJO's will, his shares of Parklake poured into a 1997
trust. Ryan is the sole trustee of the trust. The trust
provides that a marital trust be established to hold for the
benefit of Maryellen and her two children (fathered by JJO)
shares of Parklake in such number to constitute 55% of the
voting shares. This provision gave Maryellen voting
control of the corporation.
1997 trust directed that the remainder of the shares, both
voting and non-voting, of Parklake be distributed, free of
trust, to the eight children of JJO and his first wife. These
eight children are described in the trust as the " older
children." The four plaintiffs in this action are "
to Ryan, the estate was " cash poor" meaning that
there was not enough liquid assets in the estate to pay the
Federal and state estate taxes. The combined estate tax was
calculated to be approximately $1 million. Thus, Ryan
presented a plan to the older children for the payment of the
taxes. The plan was presented to the older children because
the terms of the 1997 trust provided that the trustee shall
satisfy a request from the executor for funds to pay estate
taxes from " property set aside for purposes of funding
the Family Trust. If the assets of the Family Trust are
insufficient to satisfy in full such request then the assets
of the Marital Trust may be used to satisfy any excess or
remaining portion." The term " Family Trust"
is not defined in the instrument but Ryan, as trustee,
interpreted the term to refer to the property--the remaining
shares of Parklake other than the voting shares held by the
Marital Trust-- to be distributed to the older children.
Thus, Ryan required that the estate taxes be paid by the
older children who would receive the property in the Family
Trust, with no contribution from the Marital Trust or
20, 2011, Ryan wrote to the older children. He enclosed
copies of JJO's will, the 1997 trust instrument, and a
1986 insurance trust. Ryan stated that he was the trustee
under the insurance trust, as well as the 1997 trust. Ryan
referenced estate taxes and stated that he was analyzing ways
to address the issue of payment.
insurance trust, established by JJO in 1986 (prior to the
1997 will and trust), held a life insurance policy on the
life of JJO, and some other assets. Upon the death of JJO,
the policy provided cash to the trust in the approximate
amount of $1 million. According to the terms of the insurance
trust, its assets were divided into Share A and Share B.
Share A, consisting of 55% of the value of the trust
property, was for the benefit of Maryellen. Share B,
consisting of the remaining 45%, was for the benefit of the
older children. Upon the death of JJO, the eight older
children were entitled to payment of the net income of Share
B, and distribution of the property in Share B on the date
five years from the death of JJO. Share A was to be paid over
to Maryellen at the same time, although she was entitled to
distribution of the principal of Share A at her request. The
insurance trust says nothing, one way or the other, about use
of its assets to pay estate taxes owed by the estate of JJO
based upon the value of property included in the
September 15, 2011, Ryan sent a letter to the older children
presenting three options for providing cash to the estate for
the payment of estate taxes. Ryan pointed out that, as
executor, he was responsible for seeing that all estate taxes
were paid and that he could not distribute shares of Parklake
to the older children until the taxes were paid. The three
options presented by Ryan were (1) the older children
contribute cash to the estate to pay the taxes, (2) the older
children borrow funds from the insurance trust and contribute
cash to the estate, and (3) the estate sell non-voting shares
(which, otherwise, would be distributed to the older
children) to Parklake for cash to provide liquidity to the
October 1, 2011, there was a meeting with Ryan at Ryan's
office attended, in person or by telephone, by all of the
older children. According to Ryan, but disputed by
plaintiffs, there was a consensus reached at the meeting to
proceed with option three.
November 2, 2011, Ryan wrote again to the older children.
Among other things, Ryan indicated that he planned to sell,
as executor of the estate, non-voting shares of Parklake to
Share B of the insurance trust. This idea was not one of the
options outlined in Ryan's September 15, 2011, letter.
The November 2, 2011, letter described the estimated value of
a share of voting and non-voting shares. The sale would
allegedly generate $450, 000 to satisfy a portion of the
estate taxes. The non-voting shares purchased by the
insurance trust would be held by the insurance trust until
the assets of the trust, including the shares, would be
distributed to the older children. In addition, Ryan proposed
that Parklake redeem shares from the estate in an amount to
pay the remaining amount of taxes estimated to be owed. Ryan
included a form for the older children to sign to indicate
agreement with the proposal to sell shares back to Parklake
(the form did not address the proposal to use the
insurance trust to buy shares). He renewed his advice to the
older children to seek independent counsel.
Joseph O'Donnell and Brian O'Donnell, returned the
form to Ryan confirming, " I concur with, and assent to,
your plan to redeem Non-Voting Parklake Shares sufficient to
pay all Massachusetts and Federal Estate taxes and to meet
all other payment obligations of the Estate." According
to Ryan's affidavit, Ryan received signed consent forms
from " the majority" of the older children.
December 28, 2011, Parklake's board of directors
(Maryellen, Ryan and Francis Hogan) voted to redeem from the
executor of JJO's estate (Ryan) 500 non-voting shares at
$633.24 per share for a total of $318, 620. The non-voting
shares were among the ...