COURT REMOVES MANUFACTURERS BANK AS TRUSTEE OF SCHERER TRUSTS,
KARLA SCHERER FOUNDATION SAYS
DETROIT, Nov. 2 /PRNewswire/ -- The following was released today by the Karla Scherer Foundation:
Karla Scherer and John Scherer, who successfully bucked the then- incumbent board of directors of R.P. Scherer Corp. in a proxy fight in 1988, yesterday won another big one.
It won removal of Manufacturers National Bank as trustee of their trusts under the last will and testament of their father, Robert Pauli Scherer, who founded the company, the world's largest producer of soft gelatin capsules for the pharmaceutical and nutritional supplements industry.
Chief Wayne County Probate Judge Martin T. Maher yesterday ordered the removal, granting the Scherer's petition.
In his decision, Judge Maher stressed heavily that trustees' loyalty must be to those they serve, and not to themselves. He said he was "completely flabbergasted at how little work and review" went into the bank's decision to vote in favor of management.
Referring to a well-publicized earlier case when the courts removed Comerica and Detroit lawyer Miles Jaffee as trustees of the Bloomfield Township estate, Turtle Lake Farms, he stated the trustees must display complete loyalty to the beneficiaries of the trusts they are managing, to the exclusion of all selfish considerations and third parties.
The Scherers had charged Manufacturers with a conflict of interest in voting the stock in their trusts against their wishes and in favor of management during the contest.
As trustee, they said, the bank had control of 9.3 percent of the combined voting power of R.P. Scherer's outstanding common stock during the contest, which challenged management's determination to entrench itself by refusing to give meaningful consideration to a sale of the corporation.
At the same time, under the corporation's then-management, the bank received substantial interest income from loans made to the corporation, and the bank's then-chairman, Dean Richardson, sat on the corporation's board of directors, was a member of its audit and compensation committee, and had openly aligned himself with management.
The Scherers had charged that the bank's two key officers, Frank Couzens, then-executive vice president and chief trust officer, and Clinton Schloop, chief investment officer, reflecting the bank's conflict of interest, had not meaningfully or objectively evaluated the advantages to the trusts of voting for the board candidates who favored sale of the company.
They said that the two officers had failed to consult with them, although they were the beneficiaries of the trusts; had secretly met with the corporation's then-president and chief executive officer, Peter Fink, to discuss the proxy contest without disclosing the fact to them as the trusts' sole beneficiaries, in violation of their statutory duties; had tendered the proxies in favor of management despite the stock's not being on the bank's buy list; and had failed to withdraw the proxies despite an injunction by the Michigan Court of Appeals, staying the bank from voting the shares.
The Scherers also stated that they had been forced to go to court three times to stop the bank from voting the shares against their wishes and that, despite the court's ruling against the bank, the bank had charged the Scherers for its own legal expenses while unsuccessfully defending itself against the Scherers, and for its expenses in voting the shares against the Scherers' wishes.
Judge Maher noted that R.P. Scherer's stock had never been on the bank's recommended list; the company's performance had been "conspicuously poor"; Schloop, the bank's chief investment officer, had expressed concerns about the executive options, golden parachutes and poison pills that did not benefit the trust; Couzens, then- executive vice president and the bank's chief trust officer, had never read the trust documents nor the law concerning fiduciary duties, and had made his decision in less than 15 minutes, spending only a few minutes reviewing the competing, lengthy proxy statements; and the bank had never attempted to get both sides of the story and had become adversarial toward the beneficiaries of the trusts to which they had a fiduciary duty.
Judge Maher termed the bank's failure to comply with the Court of Appeals' injuction, staying the bank from voting the Scherers' stock, "even if not technically contempt of court, a breach of fiduciary duty."
Judge Maher set Nov. 20 to announce his findings concerning the monetary aspects of the case.
Commenting on the judge's decision, Karla Scherer said, "This case ceased to be about money long ago. The high-handedness of the bank was absolutely appalling. My brother and I, and my children, have been held hostage to a situation in which the bank essentially told us we have no voice. Had the situation gone unchecked, the bank would have simply become more brazen in its disregard for the rights of its other clients."
Her attorney, Phillip J. Kessler, stated, "Judge Maher's decision vindicates the concept of fiduciary responsibility."
/CONTACT: Gabriel Werba of Gabriel Werba & Associates, 313-259-4947, for the Karla Scherer Foundation; or Phillip J. Kessler of Butzel Long, 313-225-7018, or after hours, 313-656-2983/ CO: The Karla Scherer Foundation; Manufacturers National Bank;
R.P. Scherer Corp. ST: Michigan IN: SU: SC -- NYON1 -- 0493 11/02/91 09:19 EST