HomeMy WebLinkAbout04-23-04 (2) IN RE: ESTATE OF ·
JOSEPH D. BRENNER, SR., JOSEPH D. · IN THE COURT OF COMMON PLEAS
BRENNER, JR., and MARGARET B. BUSHEY, ' OF CUMBERLAND COUNTY,
· PENNSYLVANIA
Petitioners, ·
· ORPHANS' COURT DIVISION
· No. 21-2004-087
MANUFACTURERS AND TRADERS TRUST
COMPANY, a New York corporation, DAVID C. ·
GORITY, an individual, and CURT R. ·
STAUFFER, an individual, ·
Respondents. ·
PETITIONERS' RESPONSE BRIEV IN OPPOSITION TO
RESPONDENTS' PRELIMINARY OBJECTIONS
Petitioners Joseph D. Brenner, Sr. ("Brenner Sr."), Joseph D. Brenner, Jr.
("Brenner Jr."), and Margaret B. Bushey, by their attorneys Tonkon Torp LLP and Snelbaker,
Brenneman & Spare PC, submit the following Brief in Opposition to Respondents Manufacturer
and Traders Trust Company ("M&T"), David C. Gority, and Curt R. Stauffer's Preliminary
Objectio. ns to the Petition.
I. Procedural Background
Petitioners filed a complaint against Respondents in the Civil division of this
court on August 22, 2003, relating to Respondents' misconduct in connection with certain trusts.
After argument on preliminary objections, Judge Edgar B. Bayley ordered the action transferred
from the Civil division to the Orphans' Court division and granted Petitioners time to file a
petition for citation in the Orphans' Court. Petitioners filed their Petition on February 2, 2004.
Thereafter, Respondents filed Preliminary Objections on March 9 and a Brief in Support of
Preliminary Objections on April 9.
II. Factual Background
Petitioners reiterate by reference all facts alleged in the Petition, which
Respondents concede the court must assume to be true for purposes of resolving the Preliminary
Objections. In short, Petitioners assert that M&T, aided and abetted by two of its employees,
breached its fiduciary duties while serving as co-trustee of four Brenner family trusts.
Specifically, Petitioners assert that Respondents improperly coerced Petitioners into selling trust
assets, thereby causing substantial damage to the trusts. Petitioners take exception to
Respondents' abridged summary of the alleged facts to the extent it suggests that Brenner Sr.,
Brenner Jr., or Bushey freely agreed to M&T's course of action, or is otherwise inconsistent with
the allegations in the Petition.
III. Questions Presented
A. Is Petitioners' "demand" for a jury trial proper?
SUGGESTED ANSWER: YES.
B. Have Petitioners adequately stated a claim for punitive damages?
SUGGESTED ANSWER: YES.
C. Have Petitioners adequately stated their demand for damages?
SUGGESTED ANSWER: YES.
D. Have Petitioners adequately stated a claim against Respondents Gority and
Stauffer?
SUGGESTED ANSWER: YES.
IV. Argument
A. Petitioners Have Properly Demanded a Jury Trial
Petitioners believe that a jury is necessary and entirely appropriate in this case,
and have properly demanded a jury trial pursuant to 20 Pa. C.S. § 777(d). If the Court concludes
that a jury trial is not available by right, then it is soundly within this Court's discretion to appoint
an advisory jury. See id. § 777(c). Respondents appear to take issue not with whether a jury is
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appropriate, but with Petitioners' use of the word "demand." However, section 777(d) clearly
states that "Iai person desiring a trial by jury shall make demand therefore in writing at least ten
days prior to the initial hearing before the orphans' court division .... "Petitioners desire a trial by
jury and therefore properly made a demand in writing as part of their Petition. The Court will
decide in due course whether to empanel a jury by right or in its discretion, but there is no basis
to strike Petitioners' demand as a matter of law.
B. Petitioners Have Stated a Claim for Punitive Damages
Petitioners seek punitive damages against M&T on the grounds that M&T
engaged in outrageous conduct and acted with intent or reckless indifference in breaching their
fiduciary duties. Respondents assert that punitive damages are unavailable as a matter of law.
However, in the most recent Pennsylvania case on this issue, Lemke Trust, 13 Fiduc. Rptr. 2d
328, 18 Pa. D. & C.4th 417 (Dauphin 1993), the court soundly rejected M&T's view. The sole
question before the £emke court was whether punitive damages were recoverable in a surcharge
action as a matter of law. The £emke court concluded that punitive damages ar__~e available in a
proper case, and expressly rejected the earlier case on which Respondent M&T now relies,
Freedman Estate, 1 Fiduc. Rptr. 2d 60 (Allegheny 1980), affd inpart, quashed inpart by 307
Pa. Super. 413,453 A.2d 651 (1982), as seemingly founded on an outdated view of the law. See
£emke, 13 Fiduc. Rptr. 2d at 328-29.~
t The Freedman beneficiaries appealed the order on which Respondents rely, but the Court of
Appeals did not review it since it was interlocutory and nonappealable at the time. Freedman
was followed without further analysis in the other case Respondents cite, Cavalier Estate, 10
Fiduc. Rptr. 2d 147, 153 (Westmoreland 1990). As to the Third Circuit's "prediction" in Packard
v. Provident National Bank, 994 F.2d 1039 (3d Cir. 1993) that Pennsylvania courts would not
allow punitive damages against a trustee, that "prediction" was based in part on Freedman, and
the Packard court may not have been aware of Lemke. The Lemke opinion was issued after
Packard was argued (but before it was decided), and Packard does not mention Lemke. Note
that the ultimate issue in Packard was whether punitive damages could be included in the
amount-in-controversy calculation for jurisdictional purposes, which is not an issue in this case.
Finally, Respondents point out the fact that Judge Bayley cited Freedman once in his opinion and
order of January 21, 2004, which is true, but he did so on an unrelated point--Judge Bayley did
not consider or decide the punitive damages issue.
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Punitive damages punish intentional or reckless misconduct while deterring
similar misconduct by the defendant and others in the future. See Creed v. Allstate Ins. Co., 365
Pa. Super. 136, 141,529 A.2d 10 (1987); Franko v. Newton Ransom Township, 34 Pa. D & C.3d
523, 526 (1984). As such, they satisfy "a public policy purpose beyond compensation to the
injured party." McDermott v. Party City Corp., 11 F. Supp.2d 612, 630 (E.D. Pa. 1998). As the
£emke court correctly recognized, there is no sound reason to allow trustees to exercise their
fiduciary duties recklessly with impunity, while subjecting other fiduciaries to punitive damages
for similar misconduct. See Lemke, 13 Fiduc. Rptr. 2d at 328 ("we see no good reason why a
claim for such damages should be less appropriate against a fiduciary in a proper case in an
Orphans' Court proceeding than in any other").
The same rationales apply to actions against fraudulent or reckless trustees as
actions against other any other fiduciary. Other fiduciaries are subject to punitive damages under
appropriate circumstances. See, e.g., Rizzo v. Haines, 520 Pa. 484, 507, 555 A.2d 58 (1989)
(finding an attorney's breaches of fiduciary duty "more than sufficient" to justify a punitive
damages award). There is no reason to hold trustees, let alone corporate trustees who enter
fiduciary relationships in their regular course of business, to a lesser standard or give them
special treatment. Cf. Maritrans GP Inc. v. Pepper, Hamilton & Scheetz, 529 Pa. 241,254, 602
A.2d 1277 (1992) ("By ignoring the common law principles of fiduciary duty, the Superior Court
elevated attorneys above the law and granted to them greater rights and protection than are
enjoyed by other fiduciaries in this Commonwealth. No rule so preferring attorneys can be
permitted to stand.").
Petitioners have alleged facts sufficient to state a claim for punitive damages in
this case, and Respondents do not assert otherwise. Respondents object solely based on their
contention that punitive damages are never available against a fiduciary such as M&T as a matter
of law. The most recent caselaw and basic principles of fairness belie this assertion. The
objection should be rejected.
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C. Petitioners Have Properly Requested Compensatory Damages
Petitioners allege that Respondents improperly pressured and coerced them to sell
over 160,000 shares of Tyco stock from their family trusts at rock-bottom prices ($8.75 per share
for two-thirds of the shares and $10.2313 per share for one-third of the shares) on .tune 12, 2002.
During the eight months following the liquidation date, the median closing price of Tyco stock
was $15.22, which is the price Petitioners used to estimate the damages caused by M&T's
actions. Petitioners notified Respondents of thc basis for their damages estimate during the
proceedings in the Civil division.
As Petitioners state repeatedly in the Petition, actual damages will be proven at
trial. See Petition ¶¶ 47, 54, 57, 59, 62, 65, and Prayer. Petitioners merely provided estimates of
the amount of damages, and expressly identified such amounts as "approximate" in the Petition,
to give Respondents and the Court some idea of the amount in controversy. Petitioners see no
offense to Pennsylvania Rule of Civil Procedure 1021(b) in doing so. However, if the court finds
the estimates unhelpful or in conflict with Rule 1021 (b), then Petitioners do not object to the
specific dollar amounts being stricken, so long as Petitioners' assertion of damages and prayer for
the award of damages remains. Actual damages will be proven at trial regardless.
D. Petitioners Have Stated Claims against Gority and Stauffer
Respondents assert, without authority, that Pennsylvania law does not recognize a
cause of action for aiding and abetting fiduciary duty. No Pcunsylvania state court has addressed
this issue. In the only reported state case in which the issue was presented, the court did not
address it because it decided the case on other grounds. See Copland v. Fischer & Porter Co., 32
Pa. D&C.4th 57 (Bucks 1996). However, federal courts in Pennsylvania have repeatedly
recognized such a cause of action under Pennsylvania law. "No Pennsylvania state courts have
addressed whether a claim for aiding and abetting a breach of fiduciary duty is actionable in
Pennsylvania. However, most Pennsylvania federal courts have concluded that the state courts
would recognize the tort." Stone St. Services, Inc. v. Daniels, 2000 U.S. Dist. LEXIS 18904 *8
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(E.D. Pa.). See also Wirier Family Trust v. Queen, 2004 U.S. Dist. LEXIS 1825 *2 (E.D. Pa.)
(noting plaintiffs' assertion of state law claims for aiding and abetting breach of fiduciary duty);
Adena, Inc. v. Cohn, 162 F. Supp. 2d 351,357 (E.D. Pa. 2001) ("The Pennsylvania Supreme
Court has yet to rule on whether it would recognize a claim of aiding and abetting a breach of
fiduciary duty; however, the United States District Court for the Eastern District of Pennsylvania
has entertained such a claim on at least three occasions."); Thompson v. Glenmade Trust Co.,
1996 U.S. Dist. LEXIS 13675 *7 n.6 (E.D. Pa.) (recognizing plaintiffs' assertion of aiding and
abetting breach of fiduciary duty claims, which defendants did not challenge despite challenging
plaitniffs' aiding and abetting fraud claims).
Many courts in other states have also recognized the existence of an action for
aiding and abetting breach of fiduciary duty in recent years. See, e.g., Taita Chem. Co. v.
Westlake Styrene, £p, 2003 U.S. App. LEXIS 23671 '17-18 (Sth Cir. Nov. 20, 2003) (applying
Delaware law); EBS£itig. LLC v. Barclays Globallnvestors, N.A., 304 F.3d 302 (3d Cir. 2002)
(including claims under Delaware law for aiding and abetting breach of fiduciary duty); Danjaq,
£LCv. Sony Corp., 1999 U.S. Dist. LEXIS 22486 *5, 50 U.S.P.Q.2d (BNA) 1638 (C.D. Cal.
1999); Twenty First Century L. P. I. v. LaBianca, 19 F. Supp.2d 35, 41 (E.D.N.y. 1998)
(applying New Jersey law); Newport Acquisition Co. No. ! v. Schiro, 230 B.R. 800, 805 (Bankr.
N.D. Tex. 1998); Nelson v. Elway, 971 P.2d 245, 247 (Colo. Ct. App. 1998), cert. den., 1999
Colo. LEXIS 103; Fitzgerald v. Cantor, 1999 Del. Ch. LEXIS 52 *2-3 (1999); Niagra Mohawk
Power Corp. v. Freed, 288 A.D.2d 818, 818 (N.Y. Sup. Ct. 2001). The Restatement also
recognizes such a cause of action: "A person who knowingly assists a fiduciary in committing a
breach of trust is himself guilty of tortious conduct and is subject to liability for the harm thereby
caused." Restatement (2d) of Torts § 874 cmt. c (1977); see also Holmes v. Young, 885 P.2d
305, 308 (Colo. Ct. App. 1994), cert. den., 1994 Colo. LEXIS 947 ("A number of federal and
state courts have recognized a cause of action under the theory of aiding and abetting breach of
fiduciary duty and have adopted the Restatement position for guidance."). The significant
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number of states that have recognized the tort when given the opportunity further supports the
conclusion that the Pennsylvania state courts would and should recognize it.
Having established the existence of a claim for aiding and abetting breach of
fiduciary duty under Pennsylvania law, Respondents do not contest that Petitioners have
adequately stated its elements, except to assert that Gority and Stauffer cannot be liable since
they were not themselves fiduciaries and since they were purportedly acting on behalf of their
corporate principle M&T. To state a claim for aiding and abetting, it is not necessary that the
aiders and abetters were themselves fiduciaries, nor does their status as employees foreclose
liability. See, e.g., Stone Street, supra, 2000 U.S. Dist. LEXIS at *8-9 (stating that the elements
of an aiding and abetting breach of fiduciary duty under Pennsylvania law would be: "(1) a
breach ora fiduciary duty owed to another; (2) knowledge of the breach by the aider or abettor;
and (3) substantial assistance or encouragement by the aider or abettor in effecting that breach");
In re Frederick's of Hollywood, Inc. Shareholders £itig., 1998 Del. Ch. LEXIS 111 *9 ("To state
a cognizable claim for aiding and abetting, the Petitioners must establish '(1) the existence ora
fiduciary relationship, (2) the breach of the fiduciary's duty, and (3) a knowing Participation in
that breach by the Respondents who are not fiduciaries'").
Other courts have allowed plaintiffs to pursue aiders and abetters who have
relationships with the fiduciary. See, e.g. Winer Family Trust, supra, 2004 U.S. Dist. LEXIS at
*2-3 n.2 (identifying one person who was Vice President of one entity and a director of the other
entity, and another person who was associate general counsel of one entity and director of the
other entity, as the parties against whom aiding and abetting breach of fiduciary duty claims were
asserted); Thompson, supra, 1996 U.S. Dist. LEXIS at * 1-6 (identifying corporate officers and
certain lawyers as the parties against whom aiding and abetting breach of fiduciary duties claims
were asserted); Taita Chem. Co., supra, 2003 U.S. App. LEXIS 23671 at *5-6 (corporation
allegedly aided and abetted its directors' breaches of fiduciary duty); CCBN. com, Inc. v.
Thomson Financial, Inc., 270 F. Supp.2d 146, 152 (D. Mass. 2003) (recognizing that corporation
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could be liable for aiding and abetting breach of fiduciary duty by its employees, who it had
appointed as directors on another corporation's board); Ivanhoe Partners v. Newmont Mining
Corp., 535 A.2d 1334, 1344 (Del. 1987) ("Of course we recognize that one who knowingly joins
with a fiduciary, including corporate officials, in a breach of a fiduciary obligation is liable to the
beneficiaries of the trust relationship. ).
By analogy, in the area ofrespondeat superior liability, it is well-established that
the injured party may make a claim against the agent as well as the principal. See Henkels &
McCoy, Inc. v. Adochio, 138 F.3d 491,493 (3d Cir. 1998); Brennan v. Huber, 112 Pa. Super.
299, 308-09, 171 A. 122 (1934); see also Restatement (Second) of Agency § 217A cmt. a ("Iai
principle is jointly and severally liable with the agent for whose tortious conduct he is
responsible"). At least one Pennsylvania court has suggested that respondeat superior principles
may apply to breach of fiduciary duty claims. See In re Papercrafi, 187 B.R. 486, 496 n.7
(Bankr. W.D. Pa. 1995), rev d and remanded on other grounds, 211 B.R. 813 (W.D. Pa. 1997),
afl'd, 160 F.3d 982 (3d Cir. 1998) ("As a matter of law, Muqaddam [the vice president of CVC]
was CVC's agent and, under the doctrine ofrespondeat superior, CVC is liable for Muqaddam's
breach of fiduciary d' "-"'
uty. ).
Finally, Daniel Adams Associates, Inc. v. Rimbach Publishing, Inc., 360 Pa.
Super. 72, 519 A.2d 997 (1987), on which Respondents rely, is distinguishable. Daniel Adams
states 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. at 79-80. First, tortious interference with contract does not provide a
perfect analogy to aiding and abetting breach of fiduciary duty. See, e.g., S&KSales Co. v. Nike,
Inc., 816 F.2d 843,848 (2d Cir. 1987) (concluding that intent is not a necessary element for a
participation in breach of fiduciary duty claim, even though it is a necessary element for a
contract interference claim, because torts may be analogous but that "does not mean that they are
identical"). Second, Petitioners did not contract with M&T through Respondents Gority and
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Stauffer. The trust agreements created a relationship between Petitioners and M&T's predecessor
approximately a decade ago. M&T (or its predecessor) assigned individual employees to the
trusts, well after the fact in Stauffer's case. Third, it was critical to the decision in Daniel Adams
that the individuals were acting within the scope of their authority. See id. at 79-85. In this case,
subject to proof at trial, Gority and Stauffer may have acted outside the scope of their authority.
Gority and Stauffer made representations to Petitioners about M&T's position and
recommendations regarding Tyco stock that may have been inaccurate or intentionally
misleading. There is also a factual question whether Gority and Stauffer lied to Petitioners about
the timing of the stock sales in order to cover up personal misconduct of which M&T may not
have been aware.
The weight of authority indicates that Pennsylvania law does recognize a claim
for aiding and abetting breach of fiduciary duty, and Respondents cite no authority to the
contrary. Moreover, Petitioners have properly stated the necessary elements of a claim.
Respondents' objection and related request that Gority and Stauffer be summarily dismissed from
the action should therefore be denied.
V. Conclusion.
For the foregoing reasons, Petitioners respectfully request that the Court overrule
Respondents' Preliminary Objections. In the event the Court concludes that any of the objections
are well founded, Petitioners ask for leave to amend.
DATED this 16th day of April, 2004.
SNELBAKER, BRENNEMAN & SPARE, P.C.
Keith O. Brenneman
Richard C. Snelbaker
031590\00001 \563280 V001 Attorneys for Petitioners
CERTIFICATE OF SERVICE
I, KEITH O. BRENNEMAN, ESQUIRE, hereby certify that I have, on the
below date, caused a tree and correct copy of the foregoing Petitioner's Resp~)nse
Brief to be served upon the persons and in the manner indicated below:
FIRST CLASS MAIL, POSTAGE PREPAID, ADDRESSED AS FOLLOWS:
Mark D. Bradshaw, Esquire
Stevens & Lee, P.C.
P. O. Box 11670
Harrisburg, PA 17108-1670
SNELBAKER, BRENNEMAN & SPARE, P.C.
Keith O. Brenneman, Esquire
44 W. Main Street
P. O. Box 318
Mechanicsburg, PA 17055
(717)697-8528
Attorneys for Petitioners
Date: April 16, 2004