Cleveland v. Second Nat. Bank & Trust Co. (149 F.2d 466, 1945)

SIMONS, Circuit Judge.

The appeal is from a final judgment in one phase of the much litigated estate of Arthur D. Eddy of Saginaw, Michigan, and challenges allowances of counsel fees and costs expended or incurred by ■ the trustee in defending against the appellant’s counterclaim and cross-bill in a suit originally instituted to construe'the trust provisions of the Eddy will. The judgment is also attacked because the disbursements of the trustee are made a charge upon the dividends of shares of stock eventually to be turned over to the appellant in pursuance of the provisions of the trust.

Several aspects of the Eddy litigation have been here before and have been called to the attention of the Supreme Court of the United States, as will presently and more fully appear. If our difficulty in coming to a complete understanding of the issues now raised has been due to an assumption in the briefs that the court would recollect what was submitted and argued in the earlier cases, and would be similarly constituted, that difficulty has been resolved by the painstaking recital of the litigation leading to the assailed judgment made by the Supreme Court of Michigan in Second Nat’l Bank v. Reid, 304 Mich. 376, 8 N.W. 2d 104, to which we are greatly indebted. It there appears that notwithstanding our decisions affirming earlier judgments of the District Court, the denial of petitions for rehearing, and the refusal of the Supreme Court to review, the litigation was sought to be renewed upon substantially identical issues in the Probate and Circuit Courts of Saginaw County, requiring the issue of a writ of prohibition and an ancillary writ of mandamus by the Supreme Court of Michigan, to bring the basic controversy to an end.

As disclosed in the Michigan case, Eddy died testate in 1925, the principal asset of his large estate being the entire capital stock of C. K. Eddy & Sons, a holding company of stocks, bonds, real estate, and other property having a value of $3,600,000 at the time of his death. His will established trusts of which the appellee is now sole trustee. After provisions with which we are not now concerned, the income from % of his estate, trusteed under paragraph 9 of the will, was to be paid to a sister, Lila Eddy Doebler, and upon her death % of the corpus was to belong to and be turned over to her daughter, the appellant, and the other % to a charitable trust created by paragraph 10. The latter paragraph provided that losses in the principal of the trust estate should be made good out of income before the disposition of any further income to the beneficiaries.

In June, 1934, the trustee, conceiving that the provisions creating the trust were not clear, filed a bill in the Circuit Court for Saginaw County in Chancery, asking the court to hold that there had been no impairment in the capital stock of the Eddy Corporation, to determine whether sums paid by that corporation were to be charged to the income or the corpus of the trust fund, and in other respects to construe the trust. Upon appellant’s petition based upon diversity of citizenship, the case was removed to the District Court for the Eastern District of Michigan, Northern Division, where the appellant filed an answer and cross-bill in which she alleged that at the time of Eddy’s death the corporate assets were worth at least 4% million dollars; that she and her children would be entitled to' % of such assets at the death of her mother, Mrs. Doebler; that the corporation, its managers, and the widow of the decedent be made cross-defendants, that all of them be held liable for gross mismanagement of the corporation, and that losses in assets be charged to them and the trustee. She asked the court to administer the trust until the death of Mrs. Doebler, so that % of the corpus might be delivered to her and her children without loss or depreciation and at its value at the time of the testator’s death, and in addition, a determination that she be entitled to % of the assets of the corporation rather than the corporate shares in the estate.

With the interlocutory proceedings recited we are not now concerned, but after extended hearings in the main case the district judge found the charges in the appellant’s cross-bill to be absolutely groundless; that not only had there been no mismanagement, but the trustee was to be commended for wise and careful administration ; that the Eddy Corporation was not a sham or fraud, but a valid existí1’ rporation, and the trust estate cons: . of its share in the capital stock -' t! .corporation and not of its cox ^Jets. On February 7, 1939, a j • ]jjwas entered dismissing the cross-t ..