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O'Donnell v. O'Donnell

Superior Court of Massachusetts, Suffolk

October 13, 2016

J. Joseph O'Donnell et al.
v.
Maryellen O'Donnell et al No. 135385

          Filed October 14, 2016

          MEMORANDUM AND ORDER ON DEFENDANTS' MOTION FOR PARTIAL SUMMARY JUDGMENT

          Edward P. Leibensperger, Justice

         This is 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.

         The 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.

         BACKGROUND

         At the 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.

         Pursuant 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.[1] This provision gave Maryellen voting control of the corporation.

         The 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 " older children."

         According 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 Maryellen.

         On May 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.

         The 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 estate.[2]

         On 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 estate.

         On 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.

         On 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.

         Plaintiffs, 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.

         On 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 ...


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