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HomeMy WebLinkAbout04-23-04 JOSEPH D. BRENNER, SR., JOSEPH D. : IN THE COURT OF COMMON PLEAS BRENNER, JR. and MARGARET B. : OF CUMBERLAND COUNTY, BUSHEY, : PENNSYLVANIA Plaintiffs : : ORPHANS' COURT DIVISION V. : : No. 21-04-087 MANUFACTURERS AND TRADERS : TRUST COMPANY, a New York : Corporation, DAVID C. GORITY, an : Individual, and CURT R. STAUFFER, an : Individual, : Defendants : DEFENDANTS' BRIEF IN SUPPORT OF PRELIMINARY OBJECTIONS Defendants, Manufacturers and Traders Trust Company ("M&T"), David C. Gority ("Gority"), and Curt R. Stauffer ("Stauffer"), by and through their counsel, Stevens & Lee, file the following Brief in Support of Preliminary Objections to the Petition filed by Plaintiffs Joseph D. Brenner, Sr. ("Brenner Sr."), Joseph D. Brenner, Jr. ("Brenner Jr.") and Margaret B. Bushey ("Bushey"). I. PROCEDURAL HISTORY This action is the second (virtually identical) iteration of Plaintiffs' claims. Plaintiffs filed a four (4) count Complaint in the general civil division of this Court against these same Defendants on or about August 22, 2003. Count I of the Complaint alleged that Defendant M&T breached its fiduciary duty in relation to the Children's Trusts (defined below). Count II alleged that Defendant M&T breached its fiduciary duty in relation to the Grandchildren's Trusts (defined below). Count III alleged that Defendants Gority and Stauffer aided and abetted in M&T's alleged breach of duty in relation to the Children's Trusts. Finally, Count iV alleged that Gority and Stauffer aided and abetted M&T's breach of fiduciary duty in relation to the Grandchildren's Trust.~ In addition to specified damages, Plaintiffs requested punitive damages I These Counts become the Fifth and Sixth causes of action in the instant Petition. 04/09/04/SL1 394200vl/66255.037 under Counts I and II of their Complaint. Plaintiffs also demanded trial by jury in this initial complaint. Defendant filed Preliminary Objections to all counts of the original Complaint on September 15, 2003, and later supplemented its Preliminary Objections with a brief in support thereof pursuant to applicable local rules. Argument was held on December 3, 2003, and an Opinion and Order striking Plaintiffs' Complaint, transferring the action to the Orphans' Court division and permitting Plaintiffs twenty days to file a Petition for the issuance of a Citation was then issued by Judge Bayley on January 21, 2004. That Opinion and Order are attached to Defendants' Preliminary Objections as Exhibit "A". Plaintiffs availed themselves of this opportunity to file a Petition, but, disappointingly, filed in the Orphans' Court division a Petition substantially identical to the previous Complaint, having all the same deficiencies which were identified in the prior preliminary objections (other than forum). Otherwise stated, Plaintiff's Petition still demands a trial by jury (to which Plaintiffs are not entitled); seeks punitive damages (to which Plaintiffs are not entitled); seeks specified damages (which Plaintiffs do not articulate a basis for) and seek to impose individual liability upon employees of the institutional fiduciary (for which there is no basis). For this reason, Defendants are constrained to re-raise the objections which the Court did not address in its January 21, 2004 Opinion. II. STATEMENT OF RELEVANT FACTS The Statement of Relevant Facts is taken directly from Plaintiffs' Petition, which, (solely for purposes of Defendants' Preliminary Objections), are deemed to be true. In the early 1990's, Plaintiff Brenner Sr. and his wife, Jane Brenner, created several trusts for the benefit of their children and grandchildren, the sole asset of the trusts being Amp, Inc. stock (which stock was subsequently converted to Tyco stock as the result of an 2 04/09/04/SL1 394200vl/66255.037 acquisition). (Petition, ¶ 9).2 In November of 1994, Brenner Sr. and his wife executed an Irrevocable Agreement of Trust for the benefit of their four children, and upon the children's death, their grandchildren (the "Grandchildren's Trust"). M&T (as successor to Farmers Trust Company), together with Bushey, and Brenner Jr., have been co-trustees of the Grandchildren's Trust since October 24, 1997. (Petition, ¶ 10). At the same time, Jane Brenner created four separate trusts for the benefit of Brenner Sr. and the four Brenner children. At all times since October 24, 1997, M&T (as successor to Farmers Trust Company), has been a co-trustee with Brenner Sr. for the Children's Trusts. (Petition, ¶ 12). Defendant Gority was an employee of M&T who was primarily responsible for working with Brenner Jr., Bushey and Brenner Sr. as co-trustees of the Grandchildren's and Children's Trusts, respectively. (Petition, ¶ 17). Beginning in the fall of 2001, Defendant Stauffer, also an M&T employee, assisted Gority with his administration of the Trusts. (Petition, ¶ 19). On or about January 23, 2002, Gority and Stauffer, in the course of performing their duties as M&T employees, recommended to Plaintiffs that both the Children's Trust and the Grandchildren's Trust should diversify by liquidating certain of the Tyco stock. As co-trustees, Plaintiffs agreed to liquidate only 20% of the Tyco stock. (Petition, ¶ 20). After further discussions between all of the co-trustees, 40% of the Tyco stock was ultimately sold from the Grandchildren's Trust during the first half of 2002. No Tyco stock was sold from the Children's Trust at this time (Petition, ¶ 21). During March of 2002, as a result of several market events which negatively impacted the market value of Tyco stock, Gority and Stauffer reiterated their recommendation to the other co-trustees to liquidate the Tyco stock and diversify the Children's Trusts. (Petition, ¶ 22). Co-trustee Brenner Sr. refused his consent to M&T's recommendation to diversify the 2 For the most part, these paragraph numbers remain entirely unchanged as between the original Complaint and the subsequent Petition. 3 04/09/04/SL1 394200v 1/66255.037 Children's Trust at this time. (Petition, ¶ 23). Subsequent to Brenner Sr.'s refusal to consent to the diversification, Tyco's CEO Dennis Kozlowski was arrested, causing its stock to sharply drop in value. (Petition, ¶ 24). Following Kozlowski's arrest, M&T's employees again telephoned Plaintiffs (co-trustees) urging them to agree to further diversify the Trusts. (Petition, ¶26). In early June, 2002, Gority and Stauffer arranged a meeting with Brenner Sr., co- trustee of the Children's Trust, to again discuss diversifying the Children's Trust. (Petition, ¶7 26, 27). At the meeting, Brenner Sr. executed an agreement consenting to immediate liquidation of one-third of the Tyco stock in the Children's Trust and to place a "stop loss order" at $9.00 on the remaining Tyco shares. (Petition, ¶ 28). Neither Brenner Jr. nor Bushey attended this meeting (Petition, ¶ 29). Gority and Stauffer thereafter implemented the agreed-upon plan, resulting in the liquidation of all of the Tyco shares from the Children's Trust and the Grandchildren's Trust. (Petition, ~[ 30). Gority and Stauffer telephoned Bushey and Brenner Jr. and obtained their collective approval for the plan to liquidate the Tyco shares and diversify both Trusts. (Petition, ¶7 32, 33). On June 12, 2002, as a result of the "stop loss orders," all remaining shares of Tyco stock were sold from the Trusts. (Petition, ~[ 36). Plaintiffs filed this action seeking: (1) surcharge of M&T in the amount of $764,573 for breach its fiduciary duty as co-trustee of the Children's Trust (Petition, ¶ 47); (2) surcharge of M&T in the amount of $199,605 for breach its fiduciary duty as co-trustee of the Grandchildren's Trust (Petition, ~ 54); (3) surcharge of M&T employees Gority and Stauffer in the amount of $764,573 for aiding and abetting M&T's breach of fiduciary duty in regard to the Children's Trust (Petition, ~[ 67); and (4) surcharge of M&T employees Gority and Stauffer in the amount of $199,605 for aiding and abetting M&T's breach of fiduciary duty in regard to the Grandchildren's Trust (Petition, ¶ 65). Plaintiffs have also requested an award of punitive damages against M&T and seek a jury trial. (Petition ¶7 48, 55). As indicated, this action was 4 04/09/04/SL1 394200vl/66255.037 originally commenced in the general jurisdiction of this Court rather than in the Orphans' Court Division but was then transferred to the Orphans' Court Division pursuant to Judge Bayley's January 21, 2004 Opinion and Order.3 III. STATEMENT OF QUESTIONS PRESENTED A. Should Plaintiffs' demand for a jury trial be stricken where there is no statutory right to a jury trial in a surcharge action? SUGGESTED ANSWER: YES B. Should Plaintiffs' claim for punitive damages be stricken where punitive damages are unavailable as a matter of law in a surcharge action? SUGGESTED ANSWER: YES C. Should Plaintiffs' specific demand for particularized damages be stricken where Plaintiff's request is not based upon a clearly discernible, objective and calculable basis? SUGGESTED ANSWER: YES D. Should claims brought against parties who were joined unnecessarily and which claims fail to state a cause of action be dismissed? SUGGESTED ANSWER: YES IV. ARGUMENT A. Plaintiffs' Demand for a Jury Trial Must Be Stricken because No Statutory Right to a Jury Trial Exists in a Surcharge Action. Any entitlement or right to a jury trial in Orphans' Court is purely statutory. See Pew Trusts, 14 Fiduc. Rptr. 2d at 404. (Montgomery Co. 1994) The Orphans' Court must grant a jury trial, upon timely demand, only "[w]hen a substantial dispute of fact shall arise concerning the decedent's title to property, real or personal, any party in interest" or in heatings to determine legal capacity. 20 Pa. C.S. § 777(a) and (b). Where the issue involves matters other than those found in § 777(a) and (b), the "granting of a jury trial is purely discretionary, and, if granted, the 3 The only substantive difference between the current Petition and the original Complaint is the addition of Counts Third and Fourth, relating to the release of the trust funds to a successor trustee as requested by Plaintiffs. 5 04/09/04/SL1 394200vl/66255.037 effect of the jury's decision is merely advisory, and not having the same effect as the verdict of a jury in a case of law." Pew Trusts, 14 Fiduc. Rptr. 2d at 404. Pew further noted that: "Surcharge, a mixed question of negligence and fiduciary duty has always lain outside the purview of a jury trial as a matter of right." Id.___~. at 405, citing Chambers Est., 7 Fid. Rep. 2d 299, 303. The instant action does not involve a decedent's title to property, nor does it involve the determination of and individual's legal incapacity. Thus, the decision to grant a jury trial is statutorily within the sole discretion of the Orphans' Court, and if granted, is merely advisory. Therefore, Plaintiffs' "demand" for a jury trial as of right in this action is an improper demand and must be stricken. Most troublingly, Plaintiffs, themselves, acknowledged in the prior briefing that there is no right to ajm'y trial in Orphans' Court under these circumstances. See Brief in Opposition to Preliminary Objections, filed November 26, 2003, at 4, 5: "[Plaintiffs'] rights will not be adequately protected by the accounting proceedings especially given the absence of a right to ,inly. trial in Orphans' Court." Id. At 5 (emphasis added). Despite this express recognition that they have no right to a jury trial, Plaintiffs have chosen to waste this Court's time by blithely re-asserting this non-existent "right" through endorsement of their Petition with a "demand" for a jury trial. Said "demand" should be summarily stricken. B. Plaintiffs' Claim for Punitive Damages Must Be Stricken because Punitive Damages May Not be Recovered in a Fiduciary Surcharge Action. In Pennsylvania, punitive damages are rarely available and are subject to strict judicial control. See Martin v. Johns-Manville Corp., 508 Pa. 154, 169, 494 A.2d 1088, 1096 (1985). As such, several courts have held that punitive damages may not be recovered in a fiduciary surcharge action. See Cavalier Estate, 10 Fiduc. Rptr. 2d 147, 153 (Westmoreland 1990); Freedman Estate, 1 Fiduc. Rptr. 2d 60, 68 (Allegheny 1980). Only one court has 6 04/09/04/SL1 394200vl/66255.037 suggested that punitive damages might be appropriate in a surcharge action. See Lemke Trust, 1.3 Fiduc. Rptr. 2d 328 (Dauphin 1993). (Significantly, the court in Lemke, itself, cited no authority allowing punitive damages). In addition to the above decisions denying punitive damages in surcharge actions, the Third Circuit Court of Appeals has predicted that the Pennsylvania Supreme Court would not permit punitive damages in a trustee surcharge action. Packard v. Provident National Bank, 994 F.2d 1039 (3rd Cir. 1993). In Freedman Estate, 1 Fiduc. Rptr. 2d 60 (Allegheny Co. 1980) (upon which this Court relied, in part, in resolving the previous preliminary objections), certain trust beneficiaries brought an action against a corporate trustee for negligence, breach of fiduciary duty, breach of contract and misrepresentation. The complaint claimed punitive damages because of "willful and reckless" conduct by the bank. The defendant fiduciary filed a preliminary objection to strike the allegation in the complaint relating to punitive damages. Freedman Estate at 67. In sustaining the defendant's preliminary objection, the court found that while it could surcharge a fiduciary for mismanagement, it had absolutely no authority to grant punitive damages. Id. at 68 (emphasis added). The court stated that "the purpose of surcharge is to reimburse beneficiaries for losses due to mismanagement and not a punitive, disciplinary measure and thus punitive damages by way of surcharge are improper." Id~ (emphasis added). The court concluded by stating that: Nowhere in the Probate, Estates and Fiduciaries Code is it provided that a willfully, reckless fiduciary is also subject to exemplary damages although such a fiduciary might be required to pay for actual losses, counsel fees for the objectors and litigation costs. He may also be barred fi.om other compensation. But none of these remedies which have accrued over hundreds of years of practice may be called punitive damages. Id. 7 04/09/04/SL1 394200vl/66255.037 Based upon the above authorities, and given the complete absence of persuasive or binding authority allowing punitive damages for surcharge actions in the Pennsylvania Probate, Estates and Fiduciaries Code, Plaintiff's request for punitive damages must be stricken. C. Plaintiffs' Claim for Particularized Damages Must Be Stricken because Plaintiff Has Not Indicated the Manner of Damage Calculation. Pennsylvania Rule of Civil Procedure § 1021 (b) states that "any pleading demanding relief for unliquidated damages shall not claim any specific sum." In clear violation of this Rule, Plaintiffs' Petition, in Paragraphs 47, 54, 62, and 65 requests damages in specific amounts. Nowhere in the Petition do Plaintiffs provide any clearly discernible, objective and calculable basis for the specific sums that they request. Therefore,'pursuant to Pennsylvania Rule of Civil Procedure § 1028(a)(2), Plaintiffs' request for specified damages must be stricken as in violation of a rule of court. D. Plaintiffs' Claim Against Individual Defendants Gority and Stauffer Must Be Dismissed for Failure to State a Claim. Plaintiffs allege two counts of"aiding and abetting" a breach of fiduciary duty against defendants Gority and Stauffer. (Complaint, ¶¶ 61, 64). Nei~er the Pennsylvania Supreme Court nor the Pennsylvania General Assembly has recognized a cause of action against employees of a bank for allegedly "aiding and abetting" a purported breach of fiduciary duty by the employer bank. Therefore, Plaintiffs' claims for aiding and abetting a breach of fiduciary duty against Defendants Gority and Stauffer must be dismissed.4 The simple truth of the matter is this: this is a surcharge action against an institutional fiduciary, M&T Bank. This Court's recognition of the fact that this is a surcharge 4 In Copeland v. Fischer & Porter Co., 32 Pa. D.&C.4th 57 (Bucks 1996), a charge was brought against a corporation that it aided and abetted a purported breach of fiduciary duty by its controlling shareholders. The defendant corporation objected to the charge on the grounds that such a cause of action is not recognized in the Commonwealth. Id~. at 62. The Court sustained the defendant's objections on other grounds and did not address the recognition of aiding and abetting a breach of fiduciary duty. Id__:. at 65. In any event, Copeland, is among a very few decisions even discussing the notion of"aiding and abetting" a breach of fiduciary duty, and Copeland does not support the existence of such a claim. 8 04/09/04/SL1 394200vl/66255.037 action is reflected in Judge Bayley's January 21, 2004 Opinion and Order transferring the action from the civil division to the Orphans' Court because it is a surcharge action. It is the Bank, and not its employees directly, that had a fiduciary duty to Plaintiffs. Defendants are entirely unaware of any authority supporting a direct claim in Orphans' Court against the employees of an institutional fiduciary. Plaintiffs have certainly not cited any such authority. This failure supports the argument that the inclusion of these claims against the individuals is not only novel, but it is intended to harass and intimidate them. There is no argument which can be seriously advanced that these parties are appropriate, much less necessary, to the resolution of Plaintiffs' claims. Alternatively, even assuming that an action for aiding and abetting a breach of fiduciary duty were recognized in the Commonwealth, the claim against Gority and Stauffer nevertheless still fails. A claim of aiding and abetting a breach of fiduciary duty, by its very nature, logically assumes that a third party has aided in the breach of another's fiduciary obligation. Plaintiffs acknowledge that at all relevant times, both Gority and Stauffer were employees of M&T. (Petition, ¶~ 17, 19). As such, Gority and Stauffer did not take any individual action in relation to the trusts; rather, all of their actions were done in their capacity as employees of M&T. Aiding and abetting a breach of fiduciary duty, if recognized as a cause of action, could be analogized to a claim for tortious interference with a contract. The fiduciary duty owed by a trustee arises, after all, out of the trust agreement or contract. Thus, aiding and abetting a breach of a contractually imposed fiduciary duty is, in many ways, similar to the tort of tortious interference with a contract. In Daniel Adams Associates, Inc. v. Rimbach Publishing, Inc., 360 Pa. Super. 72, 519 A.2d 997 (1987), one of the issues raised was whether an officer of a corporate employer 9 04/09/04/SL1 394200vl/66255.037 who discharges an employee can be held individually liable for interfering with the contract of employment between the employee and the corporate employer. In determining that the officer could not be held liable, the court found that the cause of action necessarily involved three parties, two to contract and one to interfere. Id.__:. at 79, 1000. In forming its decision, the court relied upon the well-established rule that "where a party contracts with a corporation through a corporate agent who acts within the scope of his authority and reveals his principal, the corporate principal alone is liable for breach of the contract." Id. (internal citations omitted) (emphasis added). Thus;the court held that the corporate officer could not be held individually liable for tortious interference with a contract because, as an agent of the corporation, he was acting on behalf of one of the contracting parties, and consequently could not be held liable for tortiously interfering with a contract in which his principal was a party. Id_~. at 82, 1002. Plaintiffs in the instant case are alleging that Gority and Stauffer, acting as M&T employees, aided and abetted M&T in it__~s alleged breach of fiduciary duty. Plaintiffs concede however, (as they must), that Gority and Stauffer, however, were at all relevant times acting in their capacity as employees of M&T. Thus, Plaintiffs are essentially alleging that M&T aided and abetted itself in its breach of fiduciary duty. As is the case with the tortious interference with contract in Daniel Adams, a third party must be involved (in the case oftortious interference, one that interferes with a contract, - and in the case of aiding and abetting a breach of fiduciary duty, one that aids and abets). Because Gority and Stauffer were employees of M&T, they could not "aid and abet" their employer in a breach of fiduciary duty. 10 04/09/04/SL1 394200vl/66255.037 It is disappointing that Plaintiffs changed (essentially) only the caption on their Complaint when refiling it as the instant Petition. All of these issues have previously been briefed and need not have been revisited. For the foregoing reasons, Defendants respectfully request that the Court dismiss the counts alleging aiding and abetting a breach of fiduciary duty against defendants Gority and Stauffer. Dated: April 5~__, 2004 STEVENS & ,~~~ BYM ark D~X~.5~~ Attorney I.D. No. 61975 Christopher M. Cicconi Attorney I.D. No. 19331 4750 Lindle Road P.O. Box 11670 Harrisburg, PA 17108-1670 (717) 561-5242 Attorneys for Manufacturers and Traders Trust Company, a New York Corporation, David C. Gority, an Individual, and Curt R. Stauffer, an Individual, Defendants 11 04/09/04/SL1 394200vl/66255.037 JOSEPH D. BRENNER, SR., JOSEPH D. : IN THE COURT OF COMMON PLEAS BRENNER, JR. and MARGARET B. : OF CUMBERLAND COUNTY, BUSHEY, : PENNSYLVANIA Plaintiffs : : CIVIL ACTION - LAW V. : No. 2003 4125 MANUFACTURERS AND TRADERS : TRUST COMPANY, a New York : JURY TRIAL DEMANDED Corporation, DAVID C. GORITY, an : Individual, and CURT R. STAUFFER, an : Individual, : Defendants : CERTIFICATE OF SERVICE I, MARK D. BRADSHAW, ESQUIRE, certify that on this date, I served a certified tree and correct copy of the foregoing Defendants' Brief in Support of Preliminary Objections upon the following counsel of record, by facsimile and by depositing the same in the United States mail, postage prepaid, addressed as follows: Keith O. Brenneman, Esquire Snelbaker, Brenneman & Spare, P.C. 44 West Main Street P.O. Box 318 Mechanicsburg, PA 17055-6249 William F. Martson, Esquire Tonkon Torp, LLP 1600 Pioneer Tower 888 S.W. Fifth Avenue Portland, OR 97204-2099 Date: April ~, 2004. 12 04/09/04/SL1 394200v 1/66255.037