HomeMy WebLinkAbout05-23-08IN RE: IN THE COURT OF COMMON PLEAS
ESTATE OF LOY T. HEMPT CUMBERLAND COUNTY, PA a --~,
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RESPONSE OF KALBACH OBJECTORS TO GERALD L. HEMPT'S rn
EXCEPTIONS TO THE APRIL 16, 2008 OPINION AND ORDER
AND NOW, come the Kalbach Objectors, by and through their attorneys, METTE,
EVANS & WOODSIDE, and hereby file this Response to Gerald Hempt's Exceptions to the
April 16, 2008 Opinion and Order:
RESPONSE TO EXCEPTION NO. 1
(REMOVAL AS TRUSTEE)
In Exception No. 1, Gerald Hempt seeks to prevent his wholly justified removal as
Trustee. He alleges that his conflicts of interest, self-dealing, and breaches of fiduciary duties
should be ignored because in 1969 Loy Hempt appointed three entirely different people, Max
Hempt (Loy's nephew), Margaret Hempt (Loy's wife) and Dorothy Hempt Mark (Loy's niece),
to be Trustees or Alternate Trustees of his Trust. However, Loy Hempt never mentioned Gerald
in his Will or Codicil, and never suggested that a subsequent trustee would be immune from the
consequences of multiple conflicts of interest and a pattern of self-dealing.
As noted by this Court, Gerald was not appointed by Loy Hempt. Gerald was appointed
as a Successor Trustee in 1996 under dubious circumstances that displayed a troublesome lack of
candor toward the Court. It is undisputed that the Petition seeking to name Gerald as Co-Trustee
(subsequent to Dorothy Mark's death) was never docketed to the Loy Hempt Estate number, nor
was notice provided to Robert Kalbach or to any of Dorothy's three sons. There is no evidence
of record that in the appointment proceedings the Court was ever advised that there were any
strained relationships between Gerald and Robert Kalbach. (Actual hostility, though not adopted
by the Court as a basis of Gerald's removal, is by itself a sufficient basis to remove him as
Trustee.) Further, it does not appear that the Court was provided sufficient information to
appreciate: (1) that the remainder beneficiaries of the Loy Hempt Trust comprised three separate
branches of the family, (2) that Dorothy Mark and Max Hempt each represented two separate
and distinct branches, and (3) that when Max's son, Gerald, was offered to the Court to replace
Dorothy, thereafter only Max Hempt's branch of the family would have a member in a Trustee
role. What had been a co-trustee arrangement with checks and balances was thus eliminated,
without any notice to the other two (2) family branches.
Gerald also interprets Loy's Will and its waiver of self-dealing too broadly. The waiver
of liability for self-dealing set forth in Item Tenth (e) applies only to Hempt Brothers, Inc.
Gerald's conflicts and self-dealing also involved two (2) other companies, CA Hempt, Inc. and
Valley Land Company, neither of which is mentioned in Loy's Will. Loy's Will does not excuse
his trustees (even if the waiver extends to Gerald) from the trustee duties of loyalty and
impartiality with respect to beneficiaries. Loy's Will does not in any way allow his trustees
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(Gerald or otherwise) freedom to manipulate trust assets for the benefit of third parties, i.e.,
Gerald's brother, George Hempt, or to the detriment of Robert Kalbach.1
Neither of the half-century old cases cited by Gerald, Flagg's Estate, 73 A.2d 411 (Pa.
1950) and Steele Estate, 103 A.2d 409 (Pa. 1954), deals with removal of a trustee, and neither is
controlling under the circumstances in the instant case. See, Restatement Third, Trusts, ~ 78,
comment c(2) ("[N]o matter how broad the provisions of a trust may be in conferring power to
engage in self-dealing or other transactions involving a conflict of fiduciary and personal
interests, a trustee violates the duty of loyalty to the beneficiaries by acting in bad faith or
unfairly " (emphasis added)). There is nothing in the Court's Opinion to suggest that it found
Gerald's asset allocation among the three trusts to be fair. On the contrary, the Court specifically
found Gerald's asset allocation to be unfair by reason of his undervaluation of the family
businesses, as follows:
However, we are satisfied that the values attached to the family
business by the trustee were significantly less than their actual
value. Although he relied upon the advice of experts, there is no
question that Gerald used the values which were most beneficial to
the separate trust in which he and his siblings held a remainder
interest.
(Opinion, p. 7). This Court refused to find bad faith on Gerald's part in splitting the Trust only
because he relied upon the advice of counsel. (Kalbach Objectors had argued that any "reliance"
was not reasonable, but this argument was implicitly though not expressly rejected by the Court.)
~ Mr. Freedman's letter to Gerald Hempt dated April 11, 2001 (Kalbach Exhibit 10) states, in part, "[Ylou and
George would like to ensure that Robert Kalbach does not receive any additional shares of Hempt Brothers, Inc....
George wants to receive as many shares of Hempt Bros. as possible.
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Thus, the Court refused to award counsel fees. This limited finding does not, however, require
that Gerald be allowed to continue as Trustee. Exception No. 1 should be dismissed.
RESPONSE TO EXCEPTION N0.2
(ORRSTOWN BANK)
The Kalbach Objectors have no objection to the appointment of Hershey Trust Company
as Trustee as suggested by Gerald Hempt.
RESPONSE TO EXCEPTION N0.3
(SURCHARGE FOR DISTRIBUTION)
The Court properly recognized that the multiple roles Gerald Hempt occupied in this case
placed him in an "untenable" position as Trustee. His alleged lack of bad faith in making
distributions to Jean Hempt by which he personally benefited does not afford him protection.
See Noonan 's Estate, 63 A.2d 80 (Pa. 1949) (prohibition against self-dealing is absolute); Estate
of McGreedy, 470 A.2d 585 (Pa. Super. 1983) (rule of undivided loyalty is not intended to be
remedial of actual wrong, but preventative of the possibility of it).
The "distribution chart" attached to Gerald Hempt's Exceptions supposedly demonstrates
that because of tax consequences he would actually receive less of each dollar distributed from
Jean Hempt upon her death than he would as a distribution under the Loy Hempt Trust. These
calculations are flawed and transparently self-serving. The distribution chart makes no
allowance for the tax savings realized upon application of the Federal unified credit, an amount
which may vary depending upon the year of Jean's death. If Jean were to die in 2008, there
would be no Federal tax consequences for the first $2,000,000 distributed from Jean's Estate;
thus the calculations of the distribution chart would only apply to amounts distributed in excess
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of $2,000,000. If Jean were to die in 2009, when the unified credit is increased, tax
consequences would not start until $3.5 million had been distributed. The Federal estate tax is
repealed during 2010. Further, Mr. Hempt conveniently ignores the tax savings strategy he
contemplated and tried to implement in 2001 when he petitioned this Court for permission to
distribute as gifts from Jean Hempt's Estate over $800,000, consisting of a one-time gift of
$675,000 together with annual gifts of $10,000 per person (totaling $70,000 to the Mark
beneficiaries and the Hempt beneficiaries) retroactive to 2000. (See Kalbach Ex. 4).
RESPONSE TO EXCEPTION N0.4
(SURCHARGE FOR FEES PAID TO ROBERT FREEDMAN)
Exception No. 4 is predicated upon a benign recitation of "facts" at odds with the Court's
Opinion. Gerald Hempt continues to argue that, "[T]he evidence reflects that the trust division
was undertaken to preserve the value of the companies whose stock was held by the Trust and
that Gerald consulted with appraisers to obtain valuations of the family businesses." However,
this Court wisely saw through Mr. Hempt's weak proffered explanation. The Court correctly
found:
The division of the trust appears to have been driven by Gerald's
desire to place himself and his family in a position to obtain
additional shares of the family owned businesses. It was also
driven by a desire to prevent Robert from obtaining any shares of
Hempt Bros. or Valley Land. We can conceive of no benefit to the
trust or its beneficiaries (aside from Gerald and his siblings) by
dividing the trust.
(Opinion, p. 12). This is clearly supported by the record. In specifically addressing Mr. Hempt's
rationalization, the Court correctly stated:
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These arguments totally miss the point. As trustee,
Gerald's duty was to the trust and all of its beneficiaries. It was
not to Hempt Bros. or any other business entity. His argument that
he was acting to maximize the value of the trust assets by keeping
Robert from owning any stock in the family businesses is purely
illusory. (Emphasis in original).
(Opinion, pp. 12-13).
Mr. Hempt ignores the Court's conclusion with respect to his trust division:
"The duty to avoid a conflict of interest, not to engage in self-
dealing, and to act primarily for the benefit of the beneficiaries are
all fiduciary duties violated by Gerald in connection with his
division of the trust. He increased his future stake in Hempt Bros.
and Valley Land by assigning the maximum amount of shares to
the trust in which he is a remainder beneficiary. In that regard, he
was acting primarily for the benefit of himself, his family, Hempt
Bros. and Valley Land."
(Opinion, p. 13).
Certainly, these findings warrant imposition of the surcharge for attorneys' fees paid to
Mr. Freedman.
RESPONSE TO EXCEPTION NO. S
(DIVIDING THE TRUST)
In Exception No. 5, Mr. Hempt continues to argue good faith and the proffered benign
reasons for dividing the Trust. As set forth in the Response to Exception No. 4 (which is
applicable also to Exception No. 5 and hereby incorporated herein), it is clear that the Court
simply saw through these manufactured reasons and saw the trust division for what it was - Mr.
Hempt's bold attempt to obtain greater ownership and more control of three family businesses
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for himself and his brother, George.2 ("Gerald Hempt has demonstrated a desire to increase his
stake [in Hempt Brothers, Valley Land and C.A. Hempt) and control thereof by using his access
to the stock held by the trust." Opinion, p. 9).
Mr. Hempt's self-dealing and asset-grabbing in the trust division cannot be excused
simply because he subsequently sought Court approval through the accounting process. Mr.
Hempt knew at all times who the other interested parties were, and how they could be contacted.
Mr. Hempt never sought input from any other beneficiary, never asked what anyone else's goals
or preferences might be with respect to division of trust assets, and divided the trust and
allocated the assets without notice and before any of the Mark beneficiaries or Kalbach
beneficiaries knew anything about it. Any suggestion that Mr. Hempt took the "high road" in his
dealings with the trust assets is not credible.
WHEREFORE, the Kalbach Objectors respectfully request that Exceptions 1, 3, 4 and 5
be denied. Kalbach Objectors agree that Hershey Trust Company may be appointed as Trustee
rather than Orrstown Bank.
z The Court had no need to address and did not address alternate reasons proffered by the Kalbach Objectors to
defeat the trust division, that the current version of 20 Pa. C.S.A. §7191 could not be given retroactive effect, and to
do so would be an unconstitutional deprivation of a property interest without due process of law.
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Respectfully submitted,
METTE, EVANS & WOODSIDE
Howell C. Mette, Esquire
Sup. Ct. I.D. No. 7217
Daniel L. Sullivan, Esquire
Sup. Ct. I.D. No. 34548
3401 North Front Street
P. O. Box 5950
Harrisburg, PA 17110-0950
(717) 232-5000 -Phone
(717) 236-1816 -Fax
DATED: S ~ .z ~ ~ ~ ~' Attorneys for Kalbach Objectors
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CERTIFICATE OF SERVICE
I certify that I am this day serving a copy of the foregoing document upon the person(s)
and in the manner indicated below, which service satisfies the requirements of the Pennsylvania
Rules of Civil Procedure, by depositing a copy of same in the United States Mail at Harrisburg,
Pennsylvania, with first-class postage, prepaid, as follows:
Joel Zullinger Esquire
ZULLINGER & DAMS
14 North Main Street
Suite 200
Chambersburg, PA 17201
By:
DATED: 5'23 ~a
494166v1
Donald Kaufman, Esquire
McNEES, WALLACE & NURICK
100 Pine Street
P.O. Box 1166
Harrisburg, PA 17108-1166
Respectfully submitted,
METTE, EVANS & WOODSIDE
Howell C. Mette, Esquire
Sup. Ct. I.D. No. 7217
Daniel L. Sullivan, Esquire
Sup. Ct. I.D. No. 34548
3401 North Front Street
P. O. Box 5950
Harrisburg, PA 17110-0950
(717) 232-5000 -Phone
(717) 236-1816 -Fax
Attorneys for Kalbach Objectors
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1N RE: IN THE COURT OF COMMON PLEAS OF
CUMBERLAND COUNTY, PENNSYLVANIA
ESTATE LOY T. HEMPT,
Deceased
Trust Created Under Item
Fifth of the Will NO. 21-77-231 ORPHANS' COURT
ORPHANS' COURT DIVISION
ORDER OF COURT
AND NOW, this 27TH day of MAY, 2008, the Court Administrator is directed to
list Gerald L. Hempt's Exceptions to the April 16, 2008, Opinion and Order for the
JULY 9, 2008, ARGUMENT COURT. The parties are directed to file briefs in
accordance with the Local Rules of Court.
Edward E. Guido, J.
William Duncan, Esquire
Donald Kaufman, Esquire
No V. Otto, III, Esquire
Daniel L. Sullivan, Esquire
Joel Zullinger, Esquire
Court Administrator
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ORPHANS' COURT DIVISION
COURT OF COMMON PLEAS OF
In Re: ESTATE OF LOY T HEMPT, DECEASED CUMBERLAND COUNTY
PENNSYLVANIA
NO. 21-77-231
CERTIFICATE OF SERVICE OF ORDER
ORDER DATE: 05/27/08
JUDGE'S INITIALS: EEG
TIME STAMP DATE: 05/28/08
IN RE: ORDER OF COURT
SERVICE TO: WILLIAM DUNCAN DANIEL L SULLIVAN
DONALD KAUFMAN JOEL ZULLINGER
IVO OTTO III
METHOD OF MAILING: ENVELOPES PROVIDED BY:
^ USPS
^ RRR
^ HAND DELIVERED
^ OTHER
MAILED: 05/27/08
^ PETITIONER
^ JUDGE
® CLERK OF ORPHANS COURT
SERVICE TO: COURT ADMINISTRATOR
METHOD OF MAILING:
^ USPS
^ RRR
® HAND DELIVERED
^ OTHER
MAILED: 05/27/08
ENVELOPES PROVIDED BY•
^ PETITIONER
^ JUDGE
^ CLERK OF ORPHANS COURT