The opinion of the court was delivered by: Julius J. Hoffman, Senior District Judge.
This is an action brought pursuant to the diversity
jurisdiction of the court in which the plaintiffs, certain
beneficiaries of the Judson M. Fuller Trust, seek to recover
damages and obtain injunctive relief from the defendants, Patrick
S. Filter, the law firm of Carey, Filter and White and the
National Bank of Austin. The case proceeded to trial before the
court sitting without a jury.
The plaintiffs' first amended complaint is in three counts and
seeks the removal of the present trustee of the Judson M. Fuller
Trust, the National Bank of Austin, and the removal of Patrick S.
Filter as Chairman of the Board of the Harrington and King
Perforating Company. The amended complaint further seeks the
recovery of all fees paid to the Bank as trustee, the recovery of
all fees and wages paid to the defendant Filter since 1972 in his
capacity as Chairman of the Board and the recovery of all
retainer fees paid the defendant law firm since 1972 while the
law firm has been on retainer to the corporation as its counsel.
Count I of the amended complaint alleges that the principal of
the Judson M. Fuller Trust consists of the controlling portion,
704 shares, of the stock of the Harrington and King Perforating
Company. It is asserted that the National Bank of Austin is the
present trustee and that it caused one of its directors, Patrick
Filter, to be elected Chairman of the Board of the Harrington and
King Corporation in 1972. The plaintiffs further allege that the
defendant Filter is also the present Chairman of the Board of the
trustee Bank and that he has held both positions simultaneously
The plaintiffs contend that the election of Filter to the Board
of the company was the result of the defendant Bank, which has
the sole voting authority over the stock held in trust, voting
its shares by proxies issued to Filter and Gordon Steil,
president of the corporation, for the election of Filter as
Chairman. It is alleged that the Bank and Filter have exercised
dominion and control over the stock held by the trust for the
purpose of enriching the defendant Filter and the law firm of
which he is a partner. The plaintiffs assert that the election of
Filter as Chairman through the acts of the Bank as trustee has
created a conflict of interest whereby the Bank's duties to the
beneficiaries of the trust conflict with those duties owed by
Filter to the corporation. The plaintiffs aver that the creation
of this conflict constitutes a breach of fiduciary duty by the
Bank to the beneficiaries of the Judson M. Fuller Trust.
Count II of the amended complaint alleges that the defendant
Filter has assumed control and operation of the Harrington and
King Perforating Company for his own personal profit and gain
thereby placing himself in a position of conflict of interest. It
is asserted that the payment of fees and wages to Filter causes
him to personally profit from his fiduciary position and that the
trust has suffered a loss.
Count III asserts that the law firm of Carey, Filter and White
is on retainer to the Harrington and King Perforating Company.
The defendant Filter is alleged to be a partner in the law firm.
The plaintiffs aver that the retainer fees have increased yearly
since 1972 at the personal request of the defendant Filter in his
capacity as Chairman of the Board of the company. The payment of
these retainer fees is asserted to be in violation of the
defendant Filter's duties to the beneficiaries of the trust.
All defendants deny the substantive allegations of the amended
complaint and deny that either a breach of fiduciary duty
occurred or that a conflict of interest exists as a result of the
actions of the defendants. The defendants Filter and the law firm
affirmatively assert that the plaintiffs are barred by the
applicable statute of limitations and are further barred from
proceeding with this action because they are guilty of laches.
Much of the testimony admitted in this trial was presented
pursuant to the stipulation of the parties. The only seriously
contested factual issues were the plaintiffs' prior knowledge of
the defendant Filter's triple position with the corporation, the
exact manner in which Filter obtained the position of Chairman of
the Board and certain events involving an alleged attempt by the
defendant Filter to sell the corporation to a third party without
notice to the beneficiaries of the Judson M. Fuller Trust. As
such issues are important but not controlling in this case, the
court concludes that the parties have presented the court with a
situation in which there is little disagreement as to what the
facts are but there is a major dispute as to how the law is to be
applied to these facts. The court has endeavored to comply with
the wishes of the parties and will now set forth its findings of
fact and conclusions of law.
The plaintiffs are current beneficiaries of the Judson M.
Fuller Trust. The trust was established by the will of Judson M.
Fuller and was dated March 6, 1953. Judson M. Fuller died on
February 5, 1963. The terms of the trust instrument provide that
the trust be funded with 704 shares of the stock of the
Harrington and King Perforating Company. The net income of the
trust is to be divided among Judson M. Fuller's four children. In
the event of the death of one or more of the children, that
child's share is to be distributed to his surviving heirs or by
the terms of the child's will.
The 704 shares of stock constitute 67.7% of the total
outstanding shares of the Harrington and King Perforating
Company. Accordingly, the trust property represents the
controlling interest in the company. By Paragraph 4 of the trust
instrument, Judson E. Fuller, the son of Judson M. Fuller, is
named as co-trustee with the defendant National Bank of Austin.
Paragraph 4(a) of the trust instrument empowers Judson E. Fuller,
for as long as he should desire, with the sole voting authority
over the stock in the trust to be voted in a manner which, in his
discretion, is in the best interests of the beneficiaries.
Paragraph 4(d) of the trust instrument gives the surviving
co-trustee the right to vote the stock in the same manner as
given to Judson E. Fuller by Paragraph 4(a).
At the time the trust became effective and continuing until the
death of Judson E. Fuller in March, 1972, Judson E. Fuller was
president of the Harrington and King Perforating Company and its
chief executive officer. Judson E. Fuller was also trustee of the
trust with the National Bank of Austin and also a beneficiary of
the trust. He also served on the Board of Directors of the
National Bank of Austin and was a member of the Bank's trust
committee for five years prior to the death of Judson M. Fuller.
Three days following the death of the Chairman of the Board of
the Harrington and King Perforating Company, Judson E. Fuller, on
March 22, 1972, a special meeting of the Board was convened for
the purpose of selecting a new Chairman of the Board. At that
meeting, Patrick Filter, who had served as a Board member since
1964, discussed the succession with another Board member, Robert
Jorgenson. It was agreed between the two that Ray Zelder should
not be Chairman of the Board because of his lack of experience.
Patrick Filter requested that Robert Jorgenson nominate him,
Filter, to be the new Chairman of the Board. Jorgenson did
nominate Filter and his election as ...