## Facts

- Alan Warehime created two ten-year voting trusts in 1988 holding most of Hanover Foods Corporation’s Class B voting stock, benefiting his children and certain grandchildren; the trusts were set to expire in 1998.
- After Alan’s death in 1990, his son John became sole voting trustee for both trusts and also served as Hanover Foods’ chairman and CEO.
- Using the trust-held voting power, John supported corporate governance changes in 1994 that eliminated cumulative voting, increasing the ability of the trust’s voting bloc to control board elections.
- Family and shareholder disputes developed regarding John’s management, including his compensation and a substantial corporate debt attributed to a company he owned.
- A committee of corporate directors proposed amending the articles of incorporation to create Series C preferred stock, to be held by disinterested directors and to carry substantial voting power during defined “disputes” among family members; otherwise the stock would be nonvoting.
- The beneficiaries Michael Warehime and Sally Warehime Yelland sought to enjoin John, as trustee, from voting the trust shares in favor of the Series C amendment, alleging the vote would entrench John’s control beyond the trusts’ expiration and breach his duty of loyalty.
- The trial court denied injunctive relief, finding no conflict between John’s personal interests and his trustee duties and crediting evidence that the amendment was intended to stabilize corporate governance and facilitate capital raising.
- The Superior Court reversed and granted relief, viewing the proposed vote as inconsistent with fiduciary obligations.
- The Pennsylvania Supreme Court granted review to address whether injunctive relief was warranted against the trustee’s intended exercise of voting power.

## Issues

1. Whether beneficiaries established entitlement to a mandatory injunction prohibiting a voting trustee from voting trust-held shares for a proposed corporate governance amendment.
2. Whether the trustee’s intended vote constituted a breach of the duty of undivided loyalty by using trust-derived voting power to secure continued corporate control.

## Decision

- The Pennsylvania Supreme Court reversed the Superior Court and reinstated the trial court’s denial of injunctive relief.
- The Court held the beneficiaries did not meet the heightened showing required for a mandatory injunction restricting a trustee’s exercise of voting power.
- The Court concluded the record did not clearly establish that the trustee’s intended vote was disloyal or primarily self-interested, as opposed to supported by legitimate corporate purposes.
- The Court emphasized deference to the trial court’s credibility determinations and factual findings concerning motive and business purpose.

## Legal Principles

- A mandatory injunction is an extraordinary remedy and requires a clear right to relief; courts exercise special caution when asked to restrain a trustee’s discretionary exercise of voting rights tied to corporate governance.
- A trustee owes beneficiaries undivided loyalty and may not use trust property or powers to advance interests adverse to beneficiaries.
- When a trustee’s corporate voting decision is supported by credible evidence of legitimate corporate objectives, an incidental benefit to the trustee (including enhanced influence) does not alone establish a breach of loyalty.
- Appellate courts should not reweigh evidence or substitute their factual determinations for those of the trial court where findings are supported by the record.
- Trust-law review of a trustee’s voting conduct is distinct from corporate-law review of the validity of the governance structure adopted by shareholder vote.

## Conclusion

The court held that, on the record presented, the beneficiaries failed to show a clear breach of fiduciary duty or other basis for extraordinary relief, so the trustee could not be enjoined from voting the trust shares in favor of the proposed governance amendment.


Warehime v. Warehime, 761 A.2d 1138 (Pa. 2000)