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HomeMy WebLinkAbout04-0408THE COURT OF COMMON PLEAS OF CUMBERLAND COUNTY, PENNSYLVANIA CIVIL DIVISION - LAW TRI-STATE FARM AUTOMATION, INC. 50 EAST 28TM DIVISION HIGHWAY LITITZ, PA 17543 Plaintiff : No. ~dd- ~D? : .- Defendant : Vo BRAD HEICHEL 118 MILKY WAY SHIPPENSBURG, PA 17257 PRAECIPE TO ENTER A DISTRICT JUSTICE JUDGMENT TO THE PROTHONOTARY: Please enter upon the records the Judgment of the Honorable Harold E. Bender at the above term and number in the amount of $6,354.09. A certified copy of the Judgment of October 29, 2003 is attached hereto, incorporated by reference herein as Exhibit "A". Respectfully submitted, NIKOLAUS & HOHENADEL, LLP Anth y Marc Hopkins,~rquire I.D. No. 47394 Attorney for Plaintiffs 212 North Queen Street Lancaster, PA 17603 (717) 299-3726 CERTIFICATE OF SERVICE I hereby certify that I have this day served a tree and correct copy of the Praecipe to Enter A District Justice Judgment upon the following person(s) and in the following manner, which service satisfies the requirements of the Pennsylvania Rules of Civil Procedure, by U.S. First Class Mail: Brad Heichel 118 Milky Way Shippensburg, PA 17257 D. Holbrook Duet, Esquire Byler, Goodley, Winkle & Hetrick, Inc. 363 West Roseville Road Lancaster, PA 17601 Date: BY: Respectfully submitted, NIKOLAUS & HOHENADEL, LLP Antho~ I.D. No. 47394 Attorney for Plaintiff 212 North Queen Street Lancaster, PA 17603 (717) 299-3726 COMMONWEALTH OF PENNSYLVANIA COUNT~ OF: CUMBERLAND 09-3-01 HAROLD E. BENDER ^d~e~s: 81 WALNUT BOTTOM ROAD P.O. BOX 361 SHIPPENSBU~G, PA ;.I.oho~.:(717) 532-7676 17257-0361 TRI-STATE FArM AUTOMATION INC 50 E 28TH DIVISION HWY LITITZ, PA 17543 NOTICE OF JUDGMENt/TRANSCRIPT CIVIL CASE PLAINTIFF: NAMEandADDRESS 50 E 28TH DIVISION HWY LITITZ, PA 17543 VS. DEFENDANT: NAME and ADDRESS CH~ICHEL, BRAD 118 MILKY WAY SHIPPENSBURG, PA 17257 Docket No.: CV- 0000275- 03 Date F ed: 10/03/03 THIS IS TO NOTIFY YOU THAT: Judgment: [] Judgment was entered for: (Name) ]Judgment was entered against: (Name) DEFAULT ~Ou~M'I~I~ PLTF qq~T-R~ ~M ~ITI~M~TON in the amount of $ 6, '~ c;4. ~9 on: [~ Defendants are jointly and severally liable. [~] Damages will be assessed on: E~ This case dismissed without prejudice. E~ Amount of Judgment Subject to AttachmentJ42 Pa.C.S. § 8127 $ ----]Portion of Judgment for physical damages arising out of residential lease $ (Date of Judgment) 1 o/~9/11'~ (Date & Time) Amount of Judgment $ 6,226.49 Judgment Costs $ 127.60 Interest on Judgment $ .00 Attorney Fees $ .00 Total $ 6,354.09 Post Judgment Credits Post Judgment Costs Certified Judgment Total $ $ ANY PARTY HAS THE RIGHT TO APPEAL WITHIN 30 DAYS AFTER THE ENTRY OF JUDGMENT BY FILING A NOTICE OF APPEAL WITH THE PROTHONOTARY/CLERK OF THE COURT OF COMMON PLEAS, CIVIL DIVISION. YOU MUST INCLUDE A COPY OF THIS NOTICE OF JUDGMENT/TRANSCRIPT FORM WITH YOUR NOTICE OF APPEAL. EXCEPT AS OTHERWISE PROVIDED IN THE RULES OF CIVIL PROCEDURE FOR DISTRICT JUSTICES, IF THE JUDGMENT HOLDER ELECTS TO ENTER THE JUDGMENT IN THE COURT OF COMMON PLEAS, ALL FURTHER PROCESS MUST COME FROM THE COURT OF COMMON PLEAS AND NO FURTHER PROCESS MAY BE ISSUED BY THE DISTRICT JUSTICE. UNLESS THE JUDGMENT IS ENTERED IN THE COURT OF COMMON PLEAS, ANYONE INTERESTED IN THE JUDGMENT MAY FILE A REQUEST FOR ENTRY OF SATISFACTION WITH THE DISTRICT JUSTICE IF THE JUDGMENT DEBTOR PAYS IN FULL, SE'F'rLES, OR OTHERWISE COMPLIES WITH THE JUDGMENT. , District Justice I certify that this is a true and correct copy of the record of the proceedings containing the judgment. /.~/¢¢~¢ Date ./¢~/~ ,~'~ ,District Justice My commission expires first Monday of January, 2006 . SEAL AOPC315-03 DATE PRINTED: 1/09/04 12:59:18 PM Ronald M. Katzman, Esquire I.D. # 07198 Guy H. Brooks, Esquire I.D. #49672 GOLDBERG, KATZMAN & SHIPMAN, P.C. 320 Market Street P. O. Box 1268 Harrisburg, PA 17108-1268 (717) 2344161 Counsel for Plaintiffs MARIE K. MAGARO, JAMES P. MCANDREW, and MARIE K. MCANDREW AND JAMES P. MCANDREW PARTNERSHIP, Plaintiffs LOWELL R. GATES, GATES, HALBRUNER & HATCH, P.C., and COMMUNITY TRUST COMPANY, Defendants COURT OF COMMON PLEAS OF CUMBERLAND COUNTY, PENNSYLVANIA No. 03-408 CIVIL ACTION - LAW JURY TRIAL DEMANDED MOTION OF PLAINTIFFS TO COMPEL PRODUCTION OF DOCUMENTS And now, come Plaintiffs, by their attorneys, Goldberg, Katzman & Shipman, P.C., and move the Court for an Order requiring Defendant, Community Trust Company (CTC), to produce documents requested by Plaintiffs for the reasons set forth below. I. FACTS Plaintiffs filed suit against Lowell R. Gates, Esquire and his law firm (Gates) as well as CTC for malpractice, breach of fiduciary relationship, and breach of contract arising out of the following circumstances. Plaintiff, Made Magaro (Magaro), had been the beneficiary of an individual retirement account (IRA) as a result of the death of her husband, David W. Magaro, in 1995. Gates was representing her as administratrix of that estate, as well as personally, and induced her to move her IRA from Merrill Lynch to CTC in December 1998. Gates had assured Magaro that with CTC as the custodian of her IRA, she could borrow money from that IRA to use for various business purposes, including the McAndrew Partnership, of which she and her then-husband, James McAndrew, were 50/50 owners. Gates was the CEO, and controlling owner of CTC, as well as its attorney. Thus, he was operating under a conflict of interest in acting as attorney also fi>r Magaro personally. Based upon materials already obtained by Plaintiffs, such as findings by the PA Department of Banking, as well as a legal opinion given to CTC, Plaintiffs have alleged that loans from Magaro's IRA to businesses in which she has a substantial interest constitute "prohibited transactions" as defined by the Internal Revenue Code. The effect of this is to cause disqualification of the IRA as of the beginning of 1999, which causes all of the money therein to be considered as having been paid out to Ms. Magaro in 1999, thus generating substantial income tax penalties and interest. This is a fact that should haw~ been clearly known to Gates, who held himself out as an expert in tax matters, and also to CTC, which also held itself out as specializing in and having substantial experience and qualifications with regard to tax planning matters, particularly investment of IRA funds. The prohibited transactions, and the effects thereof, were unknown to Plaintiffs until November 13, 2002. At that time, after an investigation was made and a critical report was received by CTC from the Pennsylvania Department of Banking, a letter was sent by CTC to Plaintiffs advising that, in accordance with Internal Revenue Code provisions, the entire IRA was retroactively disqualified as of the year 1999, and a 1099 for that year, showing all of the assets of the iRA (which were approximately $225,000) as taxable income received by Plaintiff Magaro for the year 1999, would be sent. That letter was attached as Exhibit A to the Complaint, and a copy is attached hereto as Exhibit 1. CTC, under directives from its attorney, Gates, refused to abide by or recognize the Internal Revenue Code provisions, and caused CTC to withhold sending the 1099 form. In doing so, he caused CTC to ignore the advice of their CEO at that time, Kerry McLaughlin, as well as the legal opinion which had been obtained at that point from a reputable and knowledgeable law firm (copy of memo from McNees, Wallace & Nurick dated November 7, 2002 is also attached hereto as Exhibit 2), all confirming the violations of law on the part of both Gates and CTC and the resulting onerous tax consequences for Magaro. Nevertheless, Gates and CTC persisted in advising that Plaintiff Magaro should do nothing, and that, in effect, she should participate with them in perpetrating a fraud on the Internal Revenue Service, by trying to keep these matters secret Plaintiffs thereupon filed suit because of the substantial tax liabilities and other losses arising ['rom the disqualification of the IRA as of 1999. Gates and CTC, despite the absence of any legal opinions, continue to assert that the IRA has not been disqualified. II. DOCUMENTS FOR WHICH ATTOKNEY-CLIENT PRIVILEGE IS CLAIMED In thc response to request for production of documents, CTC has refused to produce documents which it identified in the privilege log attached to its response, a copy of which is 3 attached hereto as Exhibit 3. It is the position of Plaintiffs that all of these documents pertain to legal opinions or advice concerning the very item which is the major issue in this case - that is, whether CTC and its attorney, Gates, advised Plaintiffs incorrectly that Magaro's iRA could validly engage in the transactions which involved lending money to a partnership in which she had a substantial interest. Plaintiffs have alleged that by doing so, Magaro's IRA was disqualified as of the beginning of the year 1999, and that she has been caused substantial income tax obligations, along with penalties and interest, and alamo has lost the opportunity to have her IRA monies accumulate tax free into the future. Plaintiffs have alleged that the actions of Defendants were reckless and outrageous, giving rise to assessment of punitive damages. As the attached memo from McNees, Wallace & Nurick (Exhibit 2) shows, which document was produced to Plaintiffs by CTC, the IRA was disqualified by reason of the actions which Magaro took based on the advice of CTC and its controlling officer and attorney, Gates. Gates has answered interrogatories in this case by contending that the borrowing of money from Magaro's IRA was not a prohibited transaction and that her IRA was not terminated. In answer to interrogatory 10(b), Gates stated that the contention that no termination occurred "is based upon the opinion that the transactions were not prohibited transactions under the relevant provisions of the IRC." Further, in answer to interrogatory 15(g), Gates stated that "them was not a written opinion" by him or his law firm. Further, in response to question 23(d), Gates stated that "in the opinion of the custodian, Community Trust Company, the IRA account was not terminated..." and in response to question 23(e), Gates answered that CTC had final responsibility for making a determination as to whether or not it would issue a 1099-R form which would have been required upon termination of the IRA. 4 Except for the first three items, all of the documents listed on the privilege log are clearly relevant to the key question involved in this case, whether or not the actions of Gates and CTC, with respect to the Magaro IRA, were or were not in violation of the applicable Internal Revenue Code, and thereby had caused the injuries that have been asserted in the Complaint. III. THE ATTORNEY-CLIENT PRIVILEGE IS NOT APPLICABLE TO PROTECT THE DOCUMENTS. First, as has been alleged, Gates was the attorney for Magaro, and at the same time, was also the attorney for, and a controlling owner and officer of, CTC. This placed him in a conflict of interest position, which waives any attorney-client privilege. See, Trac¥ v. Trac¥, 105 A. 2d 122 (Pa. 1954). Further, Pa. R.C.P. 4003.3 specifically provides, in the explanatory comment-1978, that there are situations where the attorney-client privilege is applicable when "the legal opinion of an attorney becomes a relevant issue in an action." See, In re: Estate of Wood, 818 A. 2d 568, 572 (Pa. Super. 2003) (the attorney-client pr/vilege falls in the event the attorney's conclusions and opinions "become a relevant issue"). At this point, Plaintiffs do not know whether these documents that have been withheld contain opinions that are at variance with the letter sent by McNees, Wallace & Nurick, which has already been provided, or whether they supplement and confirm the advice set forth in that letter. Certainly, Plaintiffs are entitled to receive the documents under the circumstances involved in this case. Additionally, the unduly broad and absurd conception of the attorney-client privilege held by CTC should be noted. In response to number 4 in the Request for Production of Documents, CTC states in response to the simple request asking about the corporate structure of CTC, 5 including documents identifying its corporate officers that this should be protected from disclosure "by the attorney-client privilege and the work product doctrine." While CTC went on to name the current officers, it failed to produce the relevant documents, which have nothing to do with an attorney-client privilege. Further, CTC has refused to provide any meeting minutes, even those which had to do with the Magaro IRA and the question of how CTC deals with its IRAs, including those of Magaro. Already produced by CTC was an agenda for the January 16, 2003 meeting of the Board of Directors. The agenda included under Item 1 - "Fiduciary Duty of Directors and Officers"; 2(b) "Adoption of Conflict of Interests Policy"; 3 - "Magaro/Miller IRA Accounts"; and 4 "Role of Outside Legal Counsel." All of these items are quite relevant to the case brought by Plaintiffs, and full and complete answers should be provided. Certainly, these would be relevant, particularly on the issue of punitive damages, in that they might show that CTC, knowing that it had prejudiced Magaro's tax-exempt IRA, nevellheless tried to conceal that fact. On a different note, Plaintiffs have asked in request 8 for materials and advertisements with respect to IRAs and their anticipated growth and/or increase in value. Part of the claim of Magaro is that she has lost the increase in value that would come from investing and reinvesting, tax free, the monies that are no longer available in her IRA. Many banks and financial institutions, including CTC, to our knowledge, have produced brochures or other information in marketing their IRAs that would constitute admissions as to the growth that would have occurred in Magaro's IRA if it had not been disqualified. Certainly, Magaro should be able to obtain this information that had been used by CTC in its marketing efforts. 6 IV. CONCLUSION Plaintiffs submit that CTC should be required to provide the documents listed on the privilege log which are claimed to be protected by attomey-client privilege, and that they further should be required to produce the documents in response to requests 4, 5, and 8. Respectfully Submitted, Date: February /"], 2004 Ronald M. Katzman, Esqui~I.D. No. 07198) 320 Market Street Strawberry Square Harrisburg, PA 17108-1268 (717) 234-4161 Attorneys for Plaintiffs 7 CERTIFICATE OF SERVICE I HEREBY CERTIFY that I served a true and correct copy of the foregoing document upon all parties or counsel of record by depositing a copy of same in the United States Mail at Harrisburg, Pennsylvania, with first-class postage prepaid, addressed to the following: Matthew M. Haar, Esquire Saul, Ewing, Remick & Saul, LLP Penn National Insurance Tower Two North Second Street, 7th Floor Harrisburg, PA 17101 Jeffrey Albert, Esquire McKissock & Hoffman 1700 Market Street Suite 3000 Philadelphia, PA 19103 By: Ronald M. Kaizman, Es~ire (I.D. #07198) Goldberg, Katzmaxl & Shipman, P.C. 320 Market Street P. O. Box 1268 Harrisburg, PA 17108-1268 (717) 234-4161; (717) 234-4161 (facsimile) Attorney for Plaint!~ffs Date: ~//7/(~ / /19/2002 1(1:32 F.~7~ 717 V~l 3015 JDS&~' [~002 TRUST November 13, 2002 Ms. Marie Magaro cio Fisaga 201 N. 2nc[ Street Harrisburg, PA 17101 PERSONAL & CONFIDENTIAL Community Trust Company IRA Custodial Account - Made Magaro Dear Ms. Magaro: Community Trust Company is chartered and regulated by the Pennsylvania Department of Banking and is subject to periodic examinations by this agenoy. During the Pennsylvania Department of Banldng's 2001 Examination of our trust company, which began in June of 2001 and continued, periodically, through the beginning o~ 2002, several of the IRA accounts under our administration were reviewed extensively. Your iRA, referenced above, was one that they chose to examine. As a result of their examination, they con61u'ded that the loan(s) that were made from your account to MK and JP McAndrew Partnership represented "prohibited transactions" as defined by the internal Revenue Code. We have been directed, as custodian to your account, to address this matter appropriately. We forwarded the various documentation maintained in our ~iles for your account to the law firm of McNees Wallace and Nudck for their legal opinion as to how w,~. should address this matter. Counsel with MeNses Waltace and Nudck (also) conciuded that these loans consttuted prohibited transactions under the IntematRevenue Cods (See IRC Sections 40B(e) and 4975 and PLR 8849001 .) Accordingly, we are providing you with the following information so that you may prepare for the potential consequeno, es that may result from the actions we intend to take tO bring this matter to a conclusion. A copy of this letter is being forwarded to Lowell Gates, Esquire, whom 1 understand represents you with respect to the establishment of this account and the structure of the loans subsequently made within this account. Based upon the legal opinion provided to us, we conclude that the loans made from your IRA account, established by you on December 12, 1998, caused the IRA to cease to be qualified (to receive the favorable tax status afforded IRA accounts,) and the distribution received by your Community Trust Company IRA from your Merrill l.ynch /19.'2002 10:32 FA_Y 717 ~1 8015 JDS&W ~ oo~ Ms. Marie Magaro Community Trust Company IRA Page -2 IRA received on January 29, 2002 resulted in an unsucc¢.ssful rollover. This means [hat the distribution received by your Community Trust Company IRA are n0tto be treated as held by the IRA and that the taxation rules covering distributions from IRA accounts apply to the distribution received by your Community Trust Company h°,A from your Merdll Lynch IRA. IMPORTANT NOTICE It is important for you to understand that. although Community Trust Company has no duty under the account agreement to review the account's investments, Community Trust Company is con=erned that, based on its research, the loans extended constituted "prohibited transactions" and resulted in disqualification of the IRA since its inception. Based upon our research, Community Trust Company is compelled to cease treating the iRA as such and to notify you that you may have incurred taxable income in 1999. Furthermore, Community Trust Company may have a duty to inform state and federal regulators of the disqualification, including filing a 1099-R with respect to the year the distribution from your Merrill Lynch IRA was received by your Community To'ust Company IRA (1999.) If you and/or you¢. legal counsel do not believe that the loan transactions within your IRA Account constituted "prohibited transactions" ,~s detailed under the Internal Revenue Code and Regulations there under, we request that you and/or your legal counsel provide substantiating documentation to Community Trust Company, that demonstrates to our satisfaction, that the ~oan(s) were not "prohibited transactions." If we are not in receipt of a response to this request by Wednesday, December 10, 2002 or, if your and/or your legal counsel's response does not demonstrate, to our satisfaction, that the loan(s) were not =prohibited transactions," we may proceed with the preparation, and filing of a t 09g-R with respect to the 1998 tax year and may cease treating-this accou n~ as an IRA immediately. ~ We strongly recommend tibet you discuss this matter with your legal couneel immediately so that you may take steps to prepare for the consequences of our pending actions. You, and/or your legal counsel, may contact me at (717)-731-9604 shoLtld you wish to discuss this matter in further detail. Sincerely, Copy [o: Lowell R. Gates, Esquire Keny L, McLaughlin, CTFA President and CEO TO: FROM: RE: DATE: MEMORANDUM Kerry L. McLaughlin, CEO Elizabeth P. Mullaugh E-MAIL: Community Trust Company Custodial IRA Accounts November 7, 2002 emullaugh@mwn.com Comm ; custodian establis I'lndividual Retirement Accounts "Magaro The laro IRA was established with a transfer from another IRA received by the CTC on January 29, 1999. Shortly after funding, in 1999, the Magaro IRA made a "loan" to MK and JP McAndrew Partnership, in which the participant and her spouse were partners. At the time of the loan, the participant was 40 years of age. CTC understood from counsel for the participan~that the transactions at issue were not violative of the qualified status of the IRAs. Prohibited Transactions Section 4975 of the Internal Revenue Code defines prohibited transactions for qualified retirement plans and is by virtue of 408(e) applicable to IRAs. Section 408 specifically prohibits an owner of an individual retirement annuity contract from borrowing under the contract but contains no parallel prohibition against borrowing from an individual retirement arrangement other than an annuity contract. Section 408(e) does provide that an IRA will cease to be an IRA exempt from tax if the individual for whose benefit the account is established engages in any transaction prohibited by §4975 with respect to the account. Section 4975, however, by its terms, sets forth various prohibited transactions between a "disqualified person" and the plan at issue; however, under a strict reading of the statutory Kerry L. McLaughlin, CE(_ November 7, 2002 Page 2 section and the regulations, plan participants are not specifically defined as "disqualified persons." Despite the disconnect between the two sections, commentators believe that Congress intended that IRA owners, partnerships and corporations controlled by them, and other related parties be prohibited from borrowing from IRAs. In other words, it was intended that IRA owners be included in the definition of "disqualified persons" for PUrposes of §4975. Although IRS private letter rulings have no official precedential value, PLR 8849001 supports this view by holding that the legislative history of ERISA supports the view that an IRA owner is a "disqualified person" for purposes of §4975. Consequence of Characterization of Loans as Prohibited Transactions Section 408(e) provides that if an individual engages in a prohibited transaction with respect to an IRA, the account ceases to be an IRA as of the first day of the taxable year in which the prohibited transaction occurred. All assets in the IRA as of the first day of such taxable year are deemed to have been distributed fromL..~ account on such first day. Any subsequent additions to the account.will be deemed to~h'~ve been made to a non-qua fled account. : While engaging in a "prohibited transaction" generally results in heavy excise taxes (50-100% of amount at issue) imposed against the disqualified person, in the case of IRAs, the tax consequence is limited to disqualification of the IRA and the consequences stemming therefrom. Distribution from an IRA results in 100% of the assets being subject to income tax and, if the IRA owner is under 59 ~ as of the date of the distribution (deemed or actua'l), a 10% early withdrawal penalty also applies. Distribution from an IRA triggers a requirement on the part of the IRA custodian to issue a notice to t't~e IRS of the distribution (with a copy the payee). Form 1099-R is due by January 31 of the year after the year in which the distribution occurred. Penalties for not filing the form were, prior to 1997, $25 per day up to $15,000 per year. For forms due after December 31, 1996, the penalty is $50 per form if the form is not filed by August 1 of the year the filing is due or if the form is not filed. Failure ~o file due to "intentional disregard" s at least $100 per failure, with no maximum (the maxir~um amounts being calculated on the number of forms filed late or not filed by a single institutional custodian in a given year). There is a dearth of case law dealing with fact patters similar to the ones at issue. PLR 8849001 provides guidance in that it dealt with an IRA created from a distribution from a qualified plan an asset of which was a promissory note of the plan participant. The IRS held that the distribution of the note to the IRA caused a deemed distribution and disqualification of the IRA as of the first day of the taxable year (before the IRA existed) and caused the distributions from the qualified plan to the 1RA to be treated as failed rollovers. Kerry L. McLaughlin, CE~_ November 7, 2002 Page 3 Analysis of Individual Transactions Maqaro IRA The loan to the MK and JP McAndrew Partnership on February 8, 1999 caused a deemed distribution to be made of the fair market value of the IRA as of January 1, 1999. Additionally, the IRA is deemed to have ceased to qualify as of that date. There was no actual deemed distribution from the IRA because the fair market value of the IRA on January 1, 1999 was zero. Rather, the distribution from the Merrill Lynch IRA received on 1/29/99 is treated as an unsuccessful rollovers from the Merrill Lynch IRA. Again, it is uncertain whether CTC should have had a responsibility under the Internal Revenue Code to file Form 1099-R because the Magaro IRA never existed as a qualified, tax-exempt IRA. However, we would again recommend require that CTC notify the IRA owner that because of the prohibited transaction, the account ceased to qualify (was never actually qualified) as an IRA and that the distributions from the Merrill Lynch IRA were therefore, not exempt from tax. Kerry L. McLaughlin, CEL. November 7, 2002 Page 4 Liability of CTC In the agreements governing I IRAs, CTC contracted as custodian of the accounts and assumed no investment responsibility for such accounts. Each participant certified that all information provided by the participant was true and correct and may be relied upon by the Trustee (custodian). Moreover, the Individual Retirement Custodial Account Plan provides that the Depositor (participant/owner) is to direct the Custodian with respect to investments of all contributions to the account and agrees to provide the Custodian with information necessary for the Custodian to prepare any reports required under Section 408(1) and regulation sections 1.408-5 and '1.408-6 (annual reports and disclosure statements). The Plan exonerates the Custodian from any duties to ascertain whether distributions or contributions are compliant or to review investment decisions. Finally, the Custodian is not liable under the Plan for determining whether rollovers comply with the requirements of the Internal Revenue Code and is not liable for any taxes incurred by the participant in connection with the account or in connection with any contribution to or distribution from the account. Recommended Steps The annual report required to be filed by CTC as custodian should as a technical matter, no longer be required because the account is not an IRA. Before that report is filed (or not filed) for 2002, however, CTC should notify the participants (or their counsel) of CTC's belief that the loans, aused the IRAs to cease to be ~ ualified ~ inception 3n case of garo IRA) as qualified rollovers. The notice should stress that, although CTC has no duty under the account agreement to review investments, CTC is concerned that, based on its research, the loans were prohibited transactions and resulted in disqualification of the lEAs at their inception. Based on its research, then, CTC is compelled to cease treating the IRAs as such, to noti~ the participants that they may have incurred taxable income in 1998 and 1999 respectively and that CTC and may have a duty to inform state and federal regulators of the disqualification (including filing a 1099-R with respect to the year of deemed distribution. The notice should put the participants or their counsel on notice that they must demonstrate to CTC's satisfaction that the transactions did not constitute prohibited transactions or CTC will be compelled to take action based on its belief that the transactions were so prohibited. If notice is sent directly to the participants, the notice should include advice to seek professional tax advice or counsel with regard to these issues. If either par/icipant fails to demonstrate that the transactions were not prohibited, CTC should file a prophylactic 1099-R with respect to the year at issue (1998 or 1999) and supply a copy to the participant. MARIE K. MAGARO, JAMES P. McANDREW and MARIE K. McANDREW and JAMES P. McANDREW PARTNERSHIP, PlaintilTs LOWELL R. GATES, GATES, HALBRUNER & HATCH, P.C., and COMMUNITY TRUST COMPANY, Defendants IN THE COURT OF COMMON PLEAS OF CUMBERLAND COUNTY, PENNSYLVANIA DOCKET NO. 03-408 Civil Term CIVIL ACTION - LAW : JURY TRIAL DEMANDED DEFENDANT COMMUNITY TRUST COMPANY'S PRIVILEGE LOG The following documents are not being produced in response to Plaintiffs' Request for Production of Documents to Defendant, Community Trust Company based on the protections identified below: 0523 - 0530 - February 12, 2003, correspondence from Department of Banking to Community Trust Company, including memorandum of understanding (strictly confidential by direction of the Pennsylvania Department of Banking). 0531 - 0561 - Report of Trust Company Examination as of close of business September 30, 1999 (strictly confidential by direction of the Pennsylvania Department of Banking). 0562 - 0580 - Report of Trust Company Examination as ol'closc of busilmss Scptc nbc' 30, 2002 (strictly confidential by direction of the Pennsylvania Department of Banking). 0581 - 0582 - January 14, 2003 correspondence from Rhoads & Sinon (by Charles J. Ferry, Esq.) to the Board of Directors of Community Trust Company Board Members regarding issues raised by the Pennsylvania Department of Banking in its examinations (attorney-client privilege). 0583 - 0586 - January 13, 2003 correspondence from Rhoads & Sinon (by Charles J. Fcrry, Esq.) to thc Board of Directors of Community Trust Company rcgarding issues raiscd by the Pennsylvania Department oF Banking in its examinations (attorney-client privilege). 0587 - October 8, 2002 e-mail from Kerry McLaughlin to Lowell R. Gates, Esquire (cc: Susan Russell) regarding Pennsylvania Department of Banking examination (attorney-client privilege): 0588 - 0589 - December 18, 2002 correspondence from McNees, Wallace & Nurick (by Elizabeth P. Mullaugh, Esq.) to Kerry McLaughlin regarding advice on IRA accounts (attorney- client privilege). 0590 - December 17, 2002 notes by Kerry McLaughlin regarding advice from McNees, Wallace & Nurick (by Elizabeth Mullaugh and Stephen Kern) (attorney-client privilege). 0591 - 0592 - November 21, 2002 correspondence front Kerry McLaughlin to Elizabeth Mullaugh, Esq. regarding advice on IRAs (attorney-client privilege). 0593 - 0597 - November 7, 2002 correspondence from McNees Wallace & Nurick (by Elizabeth P. Mullaugh, Esq.) to Kerry McLaughlin regarding advice on IRA Accounts (attorney- client privilege). 0598 - 0601 - August 23, 2002 correspondence from Kerry McLaughlin to Elizabeth P Mullaugh, Esq. at McNees, Wallace & Nurick regarding advice on IRA issues (attorney-client privilege). 0602 - 0605 - January 14, 2003 correspondence from Rhoads & Sinon (by Charles J. Ferry, Esq.) to Lowell Gates regarding advice on issues raised by the Pennsylvania Department of Banking (attomey-client privilege). 0606 - 0609 - January 8, 2003 correspondence from Rhoads & Sinon (by Charles J. Ferry, Esq.) to Lowell Gates regarding advice on issues raised by the Pennsylvania Department of Banking (attorney-client privilege). 0610 - December 9, 2002 correspondence from Kerry IV[cLaughlin to Lowell Gates, Esq. regarding issues raised by Pennsylvania Department of Banking (attorney-client privilege). 0611 - 0612 - December 12, 2002 correspondence from Kerry McLaughlin to Lowell Gates, Esq. (attorney-client privilege). 0613 - 0614 - December 17, 2003 correspondence from Lowell Gates, Esq. to Kerry McLaughlin regarding IRA issues (attorney-client privilege). 0615 - December 22, 2002 correspondence from Kerry lvlcLaughlin to Lowell Gates, Esq. regarding IRA issues (attorney-client privilege). 0616 - 0617 - December 22, 2002 correspondence from Kerry McLaughlin to Lowell Gates, Esq. regarding IRA issues (attorney-client privilege). 0618 - 0620 - January 14, 2003 correspondence from Rhoads & Sinon (by Drake D. Nicholas, Esq.) to Lowell Gates, Esq. regarding IRA issues (attorney-client privilege). CERTIFICATE OF SERVICE I hereby certify that on December 8, 2003, I served a true and correct copy of the foregoing Defe.dant Commttnily Trust Company's Response to Plaintiffs' Request for Productio~t of Documents, via first class mail, postage prepaid, upon the following counsel of record: Ronald M. Katzman, Esquire Guy H. Brooks, Esquire Goldberg, Katzman & Shipman, P.C. 320 Market Street P.O. Box 1268 Harrisburg, PA 17108-1268 Attorneys for Plaintiffs Jeffrey Albert, Esquire McKissock & Hoffman 1700 Market Street Suite 3000 Philadelphia, PA 19103 Lmv~,ll Gat~'.¥..h'.~ Exq. ttml Gat,:,s, f[alhrttttcr c~. l-latch. P,C. Dated: December 8, 2003 I{,iat(hev[; M. Haar Ronald M. Katzman, Esquire I.D. # 07198 Guy H. Brooks, Esquire I.D. #49672 GOLDBERG, KATZMAN & SHIPMAN, P.C. 320 Market Street P. O. Box 1268 Harrisburg, PA 17108-1268 (717) 234-4161 Counsel for Plaintiff MARIE K. MAGARO, JAMES P. MCANDREW, and MARIE K. MCANDREW AND JAMES P. MCANDREW PARTNERSHIP, Plaimiffs LOWELL R. GATES, GATES, HALBRUNER & HATCH, P.C., and COMMUNITY TRUST COMPANY, Defendants COURT OF COMMON PLEAS OF CUMBERLAND COUNTY, PENNSYLVANIA No. 03-408 CIVIL ACTION - LAW JURY TRIAL DEMANDED CERTIFICATION I hereby certify that on February 16, 2004, the discoveD, issues relating to the foregoing Motion were faxed to Matthew Haar, Esquire, of Saul, Ewing, Remick & Saul, LLP, counsel for Defendant Community Trust Company. No response has been received. GOLDBERG, KATZMAN & SHIPMAN, P.C. By: Ronald M. Katzm,m, Esd/uire I.D. #07198 Goldberg, Katzman & Shipman, P.C. 320 Market Street P. O. Box 1268 Harrisburg, PA 17108-1268 (717) 234-4161; (717) 234-4161 (facsimile) Attorney for Plain,tiffs THE COURT OF COMMON PLEAS OF CUMBERLAND COUNTY, PENNSYLVANIA CIVIL DIVISION - LAW TRI-STATE FARM AUTOMATION, INC. Plaintiff V. BRAD HEICHEL Defendant No. 04-408 Civil Term PRAECIPE TO MARK JUDGMENT SATISFIED Please mark the above-captioned matter satisfied. Date: BY: NIKOLAUS & HOHENADEL, LLP Anthony~Marc Hopkir~s, I.D.# 47394 Attorney for Plaintiff 212 North Queen Street Lancaster, PA 17603 (717) 299-2;726 CERTIFICATE OF SERVICE I hereby certify that I have this day served a tree and correct copy of the Praecipe to Mark Settled upon the following person(s) and in the following manner, which service satisfies the requirements of the Pennsylvania Rules of Civil Procedure, by U.S. First Class Mail: Brad Heichel 118 Milky Way Shippensburg, PA 17257 D. Holbrook Duet, Esquire Byler, Goodley, Winkle & Hetrick, Inc. 363 West Roseville Road Lancaster, PA 17601 Date: BY: NIKOLAUS & HOHENADEL, LLP I.D. No. 47394 Attorney for Plaintiff 212 North Queen Street Lancaster, PA 17603 (717) 299-3726 -2-