O’Donnell, et al. v. O’Donnell, et al. (Lawyers Weekly No. 12-148-16)
COMMONWEALTH OF MASSACHUSETTS
SUFFOLK, ss. SUPERIOR COURT
CIVIL ACTION
No. 1684-CV-0897 BLS 1
J. JOSEPH O’DONNELL, PATRICK A. O’DONNELL, BRIAN M. O’DONNELL and
DANIEL O’DONNELL
vs.
MARYELLEN O’DONNELL, JOSEPH F. RYAN and PARKLAKE REALTY CORP.
MEMORANDUM AND ORDER ON DEFENDANTS’ MOTION FOR PARTIAL
SUMMARY JUDGMENT
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
1
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
2
55% of the voting shares.1 This provision gave Marellen 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
1 Parklake’s share structure was 7,500 voting shares and 7,500 non-voting shares.
3
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
2 Ryan states in his affidavit that it was the intent of JJO to make Share B available to the
older children to assist them in the payment of estate taxes upon the death of JJO. Plaintiffs
dispute that assertion, and rightly point out that they have had no opportunity to take discovery
regarding JJO’s intent. For that reason, I disregard, for purposes of this motion, Ryan’s assertion
regarding JJO’s intent in establishing the insurance trust.
4
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
5
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 shares that
would have been distributed by the 1997 trust to the older children.
Also, in January 2012, Ryan, as executor, sold 500 non-voting shares of Parklake to the
Share B portion of the insurance trust. Again, the sale generated $ 318,620 for the estate.
On January 27, 2012, Ryan corresponded with the older children to describe, among other
things, the completion of the transactions described above. Ten months later, on November 29,
2012, Ryan wrote to the older children describing continuing negotiations regarding the amount
of Federal estate taxes. He described planned additional purchases by Parklake and the insurance
trust to provide cash to the estate to pay the expected Federal taxes. Finally, on April 9, 2013,
Ryan reported to the older children a resolution with the Internal Revenue Service regarding the
amount of Federal estate taxes. He noted that there was a very substantial amount that would
have to be paid. Ryan stated “I propose to raise those additional funds by requesting Parklake to
redeem from the Estate more Parklake non-voting shares.”
Insurance Trust Accounts
In his affidavit, Ryan states that “[n]one of the older children questioned that this [use of
Share B of the insurance trust to purchase shares of Parklake from the executor] was the intended
use of their share of the Insurance Trust.”3 On February 7, 2013, Ryan sent to the older children
his Second Account as trustee of the insurance trust. This account was for the period from JJO’s
death to December 31, 2012. The account reported the purchase by the Share B portion of the
3 Plaintiffs dispute this assertion, as contained in the Statement of Undisputed Material
Facts (“SUMF”) ¶ 62. They cite a November 23, 2015, letter from current counsel (Ex. 65). Of
course, this letter came long after the transactions and the accountings reporting the transactions.
6
insurance trust of 500 non-voting shares of Parklake in January 2012. The accounting also
showed an adjustment to the purchase price of the non-voting shares by $ 150 from $ 637.24 per
share to $ 787.24 per share as a result of an IRS audit. In his communication of the account to the
older children, Ryan stated “PLEASE TAKE NOTICE that if you do not object to the Account
by a writing sent to me by certified mail within sixty days of your receipt of the Account you will
be deemed to have assented to the Account.” In his affidavit, Ryan states that none of the older
children objected to the account. Plaintiffs do not dispute this assertion with any contrary facts
supported by affidavits or evidence. See SUMF ¶ 66.
On November 1, 2013, Ryan sent another accounting of the insurance trust to the older
children. This was an interim accounting covering the period from January 1, 2013 to September
30, 2013. Again, Ryan notified the older children that “[u]nder the terms of the Trust, unless you
object in writing within sixty days of receipt of an accounting, mailed certified mail, you are
deemed to have assented to it.” Ryan indicated that it was his plan to issue a final accounting of
the insurance trust in early January 2014, and to make a final distribution of the trust’s property
at that time. The interim account referenced the purchase by the insurance trust of 117 additional
shares of non-voting shares from the estate as a result of a “refund of overpayment of value of
500 shares.” In other words, the previous adjustment of the purchase price by $ 150 per share for
the 500 non-voting shares of Parklake, was being reversed. The amount paid by the insurance
trust for the adjustment would be used to buy 117 additional shares.
The interim account also described the distribution by the insurance trust in April 2013,
of all of the non-voting shares of Parklake (that had previously been purchased from the estate) to
the older children. The correspondence included a form to be returned to Ryan by each of the
7
older children indicating, among other things, whether he or she assented to the account.
In his affidavit, Ryan states that he received signed assent forms from all of the older
children except for plaintiff, Patrick O’Donnell. The signed forms of assent from plaintiffs,
Joseph, Brian and Daniel O’Donnell are in the record
Finally, on January 13, 2014, Ryan wrote again to the older children, enclosing a “final
accounting for Share B of the Trust, which now has been distributed in full to you and the other
seven beneficiaries of Share B.” Once more, Ryan notified the older children that they must
object in writing within sixty days of receipt of the accounting or be deemed to have assented to
the accounting. In his affidavit, Ryan states that he received no objections from any of the older
children except for Patrick. Plaintiffs do not dispute the fact of no written objection. SUMF ¶ 71.
Plaintiff, Patrick O’Donnell, sent to Ryan the form that had been attached to Ryan’s
November 1, 2013, letter and accounting. Patrick indicated “I do not assent, see previous letter.”
Patrick’s form is dated January 15, 2013, which is, beyond doubt, a typo. Patrick admits in his
affidavit that he sent the form back to Ryan in January 2014. The letter was mailed, according to
a copy of the envelope, on January 16, 2014.
The parties dispute what correspondence was the “previous letter” referred to by Patrick
in the form noting his objection. In an affidavit, Patrick asserts that the “previous letter” was a
29-page letter to Ryan dated October 8, 2013 (Ex. 71). For purposes of this motion, I accept
Patrick’s representation that the “previous letter” was his October 8, 2013, letter (the “objection
letter”).
I have reviewed the 29-page objection letter. The bulk of the letter concerns the operation
of and accounting for Parklake. Nowhere in the letter is there stated an objection to the purchases
8
by the insurance trust of non-voting shares of Parklake held by the estate. In his affidavit
submitted in opposition to partial summary judgment, Patrick asserts that the objection letter
listed “my objections to the actions [Ryan] had taken as Executor of my father’s estate, Trustee
of the 1986 Insurance Trust of which I was a beneficiary, and a Member of the Board of
Directors of Parklake Realty Corp.” The affidavit fails to specify any particular sentence or
phrase constituting an objection to the transactions detailed in the accounting for the insurance
trust.
Estate Accounts
As executor of the estate of JJO, Ryan filed accountings with the Probate and Family
Court (“Probate Court”). The accountings detailed the sales by the estate of Parklake non-voting
shares held by the estate to the insurance trust and to Parklake as a redemption. It is undisputed
that Ryan reported the sales by the estate in his first and second accounts to the Probate Court
and the accounts were “allowed” by the court. SUMF ¶ 63. The first and second accountings
covered the period from July 7, 2011 (when Ryan was appointed as executor) to December 31,
2014. Brian, Joseph and Daniel O’Donnell signed and returned assent and waiver forms to the
first accounting. Patrick O’Donnell filed a Notice of Appearance and Objection on July 31, 2014.
Subsequently, in August 2014, Patrick filed a Withdrawal of Objection and assent. With respect
to the second accounting filed by Ryan as executor, all four plaintiffs submitted signed forms to
the Probate Court assenting to and waiving objection to the accountings.
On September 24, 2015, Ryan forwarded to the older children a Petition for Order of
Complete Settlement and Third and Final Account. Ryan received assents to the Third and Final
Account from all of the older children except Joseph and Patrick O’Donnell. Ryan, therefore,
9
filed the Third and Final Account as a contested matter. Present counsel for plaintiffs entered an
appearance in the matter in the Probate Court. A judge of the Probate Court held a hearing. On
July 25, 2016, the judge ruled that the older children assented to the transactions described in the
first and second accounts. Specifically, with respect to their objection to the redemption of shares
by Parklake, the court found “that the redemptions were reported, and assented to, in the First
and Second Accounts which have already been approved and a Decree has issued on each
Account. Therefore the Objectors are barred from raising these objections to the final distribution
of the stock.” Ex. 66.
DISCUSSION
Summary judgment is appropriate where there are no genuine issues of material fact and
the moving party is entitled to judgment as a matter of law. Mass. R. Civ. P. 56(c); Cassesso v.
Commissioner of Corr., 390 Mass. 419, 422 (1983). The moving party bears the burden of
affirmatively demonstrating the absence of a triable issue and that the summary judgment record
entitles the moving party to judgment as a matter of law. Pederson v. Time, Inc., 404 Mass. 14,
16-17 (1989). The moving party may satisfy this burden either by submitting affirmative
evidence negating an essential element of the opposing party’s case or by demonstrating that the
opposing party has no reasonable expectation of proving an essential element of its case at trial.
Flesner v. Technical Communications Corp., 410 Mass. 805, 809 (1991). Once the moving party
establishes the absence of a triable issue, the party opposing the motion must respond with
evidence of specific facts establishing the existence of a genuine dispute. Pederson, 404 Mass. at
17. An adverse party cannot defeat a motion for summary judgment merely by resting on its
pleadings and assertions of disputed facts, rather it must set forth specific facts with affidavits,
10
deposition testimony, answers to interrogatories, or admissions on file showing that there is a
genuine issue for trial. Mass. R. Civ. R. 56(c). When deciding a motion for summary judgment,
the court views the evidence in the light most favorable to the nonmoving party, but does not
weigh evidence, assess credibility, or find facts. Attorney Gen. v. Bailey, 386 Mass. 367, 370-371
(1982).
Count III
In Count III of the complaint plaintiffs allege that Ryan, as trustee of the insurance trust,
breached fiduciary duties owed to the older children by causing the insurance trust to purchase
non-voting shares from the estate. Specifically, it is alleged that by using only the portion of the
insurance trust held for the older children to buy shares from the estate, and not using the portion
of the trust held for Maryellen to purchase shares, Ryan violated his fiduciary duty as trustee. In
his motion for partial summary judgment, Ryan seeks dismissal of Count III because (a)
plaintiffs, with full knowledge, failed to object to the transactions and, therefore, are deemed to
have consented, (b) plaintiffs’ claims are barred by G.L. c. 203E, § 1005 (a), and (c) plaintiffs are
barred from complaining given the approval of the accounts by the Probate Court.
Article FOURTH, paragraph (b) of the insurance trust addresses accountings provided to
the beneficiaries by the trustee. The paragraph states that the assent by the beneficiaries to an
accounting, in the absence of fraud or manifest error, is binding and conclusive upon the
beneficiaries. Moreover, “[t]he failure of any such person to object to any such account by a
writing, mailed postage prepaid by certified mail, to the Trustee within sixty days of the first
delivery or mailing to such person of a copy of the account shall be deemed to be an assent by
such person.” It is evident that the purpose of such a provision is to allow a trustee to obtain
11
finality with respect to transactions reported in an accounting.
The evidence is undisputed that Ryan, as trustee of the insurance trust, sent to the older
children beneficiaries of the trust a Second Account on February 7, 2013. The accounting fully
disclosed the purchase by Share B of the insurance trust of 500 non-voting shares from the estate.
Ryan’s affidavit establishes that the plan to make the purchases was fully disclosed to the older
children. Moreover, plaintiffs do not dispute Ryan statement in his affidavit that none of the
older children objected to the Second Account. Finally, plaintiffs do not contend, nor could they,
that the purchase of shares by the insurance trust was accomplished by fraud. Accordingly,
pursuant to the terms of the trust, plaintiffs’ claim for breach of fiduciary duty by Ryan as trustee
is barred.
On November 1, 2013, Ryan rendered another accounting to the older children. This
interim accounting fully disclosed the purchase of another 117 non-voting shares by Share B of
the insurance trust. In addition, this accounting documented the distribution to all of the older
children of all of the non-voting shares of Parklake purchased from the estate. According to
Ryan, assents to the transactions described in the accounting were obtained from all of the older
children except Patrick O’Donnell. Patrick O’Donnell returned the form to Ryan by regular mail
dated January 15, 2014, more than sixty days from the date of receipt of the accounting. More
importantly, the form sent by Patrick O’Donnell, viewed in the light most favorable to him,
failed to indicate an objection to the transactions in the insurance trust. As a result, Ryan is
entitled to enforce the terms of the trust that bind beneficiaries to their deemed assent to the
transactions for failure properly to object.
A third and final accounting from Ryan as trustee of the insurance trust was sent to the
12
older children on January 13, 2014. This accounting ran through January 7, 2014, when all
remaining assets in Share B of the insurance trust were distributed.4 According to Ryan, and not
disputed, plaintiffs Joseph, Brian and Daniel O’Donnell did not object to the final accounting. As
described above, Patrick O’Donnell had previously withheld his assent to the second accounting
by correspondence mailed on January 16, 2014. He failed, however, to object to the purchase
from the estate of non-voting shares of Parklake by Share B of the insurance trust. The record
does not reflect any objection by Patrick O’Donnell specifically to the third and final accounting.
A second ground for Ryan’s motion to dismiss Count III is the application of G.L. c.
203E, § 1005 (a). That section, entitled “Limitation of action against trustee” requires that an
action alleging breach of trust by a trustee must be commenced within six (6) months of receipt
of a final account showing termination of the trust relationship. As described, Ryan’s January 13,
2014, correspondence to the older children distributed all of the assets of Part B of the insurance
trust to the older children, thereby terminating the trust relationship. This action challenging
Ryan’s conduct as trustee of the insurance trust (Count III) was commenced on March 16, 2016.
Accordingly, Count III is barred as untimely.
Finally, Ryan argues that the allowance by the Probate Court of accountings that
disclosed the sale by the estate of non-voting shares to the insurance trust acts to bar Count III.
There is currently pending before the Probate Court a contest over allowance and approval of
Ryan’s final accounting as personal representative of the estate. The Probate Court has already
ruled that the older children assented to the transactions in Parklake’s non-voting shares
4 The acceptance by all of the older children of the non-voting shares of Parklake held by
the insurance trust is further evidence of their assent to the transactions.
13
described in earlier accountings. This court should not, and need not, revisit that issue. See Mass.
R. Civ. P. 12 (b) (9).
In sum, plaintiffs’ Count III against Ryan for breach of fiduciary duty in his capacity as
trustee of the insurance trust is barred. Count III must be dismissed.
Other Paragraphs of the Complaint
Defendants’ motion for partial summary judgment also seeks to strike paragraphs 1, 11,
20, 27-41, and 55-56 of the complaint. It is argued that these paragraphs which describe the
actions by Ryan and Maryellen as directors of Parklake with respect to the redemption of
Parklake non-voting shares from the estate and the purchase by the insurance trust of non-voting
shares from the estate should be stricken because the transactions were either assented to or
approved by the Probate Court. While, as described above, plaintiffs’ claims against Ryan as
trustee of the insurance trust and as personal representative of the JJO estate are barred, the
complaint asserts claims in Counts I, II and IV with respect to the corporate side of the
transactions. Count I is a putative derivative claim on behalf of Parklake alleging waste, but also
alleging that the corporation was harmed by the approval by Maryellen and Ryan, in their
corporate capacities, of the sale of Parklake shares by the JJO estate. Count II is a direct claim by
plaintiffs as shareholders alleging the same conduct and asserting that the approval of the sales of
Parklake shares by the JJO estate harmed plaintiffs, individually. Count IV seeks an accounting
from the corporation.
Both the redemption transaction with the JJO estate and the purchase by the insurance
trust of non-voting shares from the estate required the consent and approval by Maryellen and
Ryan as directors and, in the case of Maryellen, controlling shareholder, of Parklake. Read
14
generously, plaintiffs’ complaint asserts that such consent and approval of the transactions by
defendants in their corporate capacities were unfair to plaintiffs as shareholders of Parklake.
Defendants do not move, at this time, for summary judgment to dismiss Counts I, II and
IV. It is premature at this stage, prior to discovery, to conclude that the allegations in the
challenged paragraphs should be stricken as “redundant, immaterial, impertinent or scandalous.”
Mass. R. Civ. P. 12 (f). As plaintiffs articulate their claims for breach of fiduciary duty against
Maryellen and Ryan in their corporate capacities, the transactions involving the sale by the estate
of non-voting shares may be relevant. Therefore, I decline to strike the paragraphs.
In addition, I decline to issue a declaration, at this pre-discovery stage of the action, that
plaintiffs’ claims of harm in Counts I and II, allegedly as a result of the approval by defendants to
cause the corporation to consent to the sales of its shares by the JJO estate, are barred by
principles of claim or issue preclusion. Such claims were not litigated in the Probate Court. See
Custom Kits Company, Inc. v. Tessier, 83 Mass. App. Ct. 1125 (Rule 1:28 decision)(2013), 2013
WL 1666742.
CONCLUSION
The motion by Joseph F. Ryan for summary judgment dismissing Count III of the
complaint is ALLOWED. Otherwise, defendants’ motion for partial summary judgment is
DENIED.
By the Court,
Edward P. Leibensperger
Justice of the Superior Court
October 13, 2016
15
16