HomeMy WebLinkAbout02-10-05
IN RE: JOSEPH D. AND
JANE W. BRENNER TRUST
NO. 21-2003 -879<
IN THE COURT OF COMMON PLEAS OF
CUMBERLAND COUNTY, PENNSYLVANIA
ORPHANS' COURT DIVISION
IN RE: JANE W. BRENNER
TRUST UWO "B"
NO. 21-2003-881 Y
21-2004-087 ./
IN RE: JANE W. BRENNER
TRUST UWO "C" ~
NO. 21-2003-881
IN RE: NANCY B. BLAKELY
TRUST
NO. 21-2003 -883 $
AUDITOR'S REPORT AND RECOMMENDATION REGARDING
ALL OBJECTIONS FILED
TO THE HONORABLE JUDGES OF SAID COURT:
The undersigned Auditor, being duly appointed by Your
Honorable Court, has taken testimony in the above-captioned
matters and makes the following report and recommendation.
By separate Orders of Court, all being dated December 19,
2003, the Auditor was appointed to hear all objections filed with
respect to the above-captioned matters.
It is to be noted that
the Auditor's appointment was reconfirmed and recommenced by the
Order of Court dated October 8, 2004." This bears note given the
fact that the passage of a substantial period of time from the
entry of the December 19, 2003 Orders of Court and the October 8,
2004 Order of Court was occasioned by the fact that the Objectors
herein had commenced identical or mirror civil complaints, all
IThe October 8, 2004 Order of Court was issued in t~e matter of Joseph D.
Brenner, Sr., and Joseph D. Brenner, Jr., and Margaret B. Bushey v. Manufacturers and
Traders Trust Company, a New York corporation, David C. Garity, an individual, and
Curt R. Stauffer, an individual, 21-2004-087, Orphan's Court.
raising substantially the same issues, as are presented in these
matters.2
The precise procedural history thereof will not be
repeated herein.
In accordance with the above-referred to Orders of Court,
and upon proper notice, the Auditor scheduled and held the audit.
The hearings took place over a period of four (4) days,
commencing November 2, 2004, and concluding November 5, 2004. A
transcript of the proceedings was made, said transcript
consisting of 858 pages.
Along therewith both Objector and
Respondent, through their able counsel, introduced a total of one
hundred and nineteen (119) exhibits.]
Although the filings in the above-captioned matters, along
with the pleadings filed in the above-referred to civil actions,
coupled with the lengthy transcripts and numerous exhibits are
voluminous, the issues posed by the objections filed herein, in
their simplest terms, raise claims as to the breach of fiduciary
duties on behalf of Manufactures and Traders Trust Company
(hereinafter referred to as, "M&T"), David C. Gority (hereinafter
referred to as, "Gority") and Curt R. Stauffer (hereinafter
referred to as, "Stauffer").
Specifically, determinations are
2see Footnote No. I, as well as the companion cases cited therein.
3rt is to be noted that Exhibit Nos. 37 and 38 were not utilized. All other
exhibits, by agreement of Objector and Responde~t, are deemed admitted and considered
a part of the record of these proceedings. This is not withstanding the fact that
numerous exhibits were not specifically mentioned nor referred to by any witness
offering testimony in these proceedings or by eithe= the Attorney for the Respondent
or the Attorneys for the Objector. Exhibit No. 119 was forwarded to the Auditor by
letter dated December 22, 2004 from the Attorney for the Objector. Exhibit No. 119 is
also deemed admitted and considered a part of the record of these proceedings.
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required to be made with respect to the obligation of M&T Bank to
deal honestly with its Co-Trustees and to act in the best
interests of the Trusts, primarily with respect to decisions
related to the TYCO stock. The basis of the objections filed is
that M&T, as Trustee and/or Co-Trustee, through its employees,
Gority and Stauffer, breached its fiduciary duties while
administering the above-captioned Trusts and, as a result
thereof, those Trusts suffered certain pecuniary losses. The
objections are, in essence, claims seeking a surcharge for an
alleged breach of fiduciary duty.
A brief summary of the facts are in order. Commencing
during the early 1990s, Joseph D. Brenner, Sr. (hereinafter
referred to as, "Brenner, Sr.") and his wife, Jane W. Brenner,
created several Trusts for the benefit of their children and
grandchildren. In or about November 1994, Brenner, Sr. and Jane
W. Brenner executed an Irrevocable Agreement of Trust for the
benefit of their four (4) children, and, upon the deaths of their
children, to their children in turn. Margaret B. Bushey
(hereinafter referred to as, "Bushey"), and Joseph D. Brenner,
Jr. (hereinafter referred to as, "Brenner, Jr."), being two (2)
of the Brenner children, have acted as Co-Trustees since October
1997 of what is referred to as the "Grandchildren's Trust"
(Joseph D. and Jane W. Brenner Trust - No. 21-2003-879). In
November of 1994, Jane W. Brenner executed three (3) Trusts for
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the benefit of Brenner, Sr., and the four (4) Brenner children.
Since October 24, 1997, M&T and Brenner, Sr. have been Co-
Trustees of the "Children's Trusts" (Jane W. Brenner Trust UWO
"B" - No 21-2003-881; Jane W. Brenner Trust UWO "C" - No. 21-
2003-881; and Nancy B. Blakely Trust - No. 21-2003-883). Gority,
a long-term employee of M&T and its predecessor entities, has had
primary responsibility for working with Brenner, Sr., Brenner,
Jr., and Bushey as Co-Trustees of the Grandchildren's Trust and
the Children's Trusts. Beginning sometime in the fall of 2001,
Stauffer was assigned to assist Gority with respect to the
administration of the Trusts. For ease of reference, the above-
captioned Trusts will be collectively referred to as the
"Trusts".
It is important to note that at the inception of the Trusts,
the sole asset or corpus of the Trust was AMP, Inc. stock. The
AMP stock subsequently became converted to Tyco International LTD
stock (hereinafter referred to as, "Tyco"). Discussions,
recommendations, determinations and decisions made with respect
to retaining or liquidating the Tyco stock have resulted in an
interesting and challenging odyssey that resulted in the sale of
all the remaining shares of Tyco stock in the Trusts on June 12,
2002. The filing of the within objections followed.
For the reasons set forth hereinbelow, this Auditor has
determined that M&T, as Co-Trustee, through its employees, Gority
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and Stauffer, has not breached its fiduciary duties to the other
Co-Trustees and to the Trusts. As such, a surcharge is not
appropriate. Therefore, it is recommended that the accounts
filed by M&T in all of the above-captioned matters be confirmed
and, further, that distribution of funds are directed in
accordance with those accounts as filed.
FINDINGS OF FACT
1. Commencing in the early 1990s, Brenner, Sr. and Jane W.
Brenner, his wife, established four (4) Trusts.
2. The Joseph D. and Jane W. Brenner Trust is referred to
as the Grandchildren's Trust. The Trustees are M&T Bank, Bushey
and Brenner, Jr.
(Ex. R-2)
3. The Jane W. Brenner Trust UWO "B" and the Jane W.
Brenner Trust UWO "C", and the Nancy B. Blakely Trust are
referred to as the Children's Trusts. The Co-Trustees for all of
these Trusts are Brenner, Sr., and M&T Bank. (Ex. R-l)
4. All of the Trusts were established with Farmer's Trust
Company as the original Trustee. M&T is the present Trustee by
virtue of it being a successor to the original Trustee, Farmer's
Trust Company and of Keystone Financial, Inc., which had
previously acquired Farmer's Trust Company.
5. The Trusts were originally funded exclusively with AMP
Stock. (Tr. 431.)
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6. All AMP shares held by the Trusts were converted to Tyco
shares by virtue of AMP being acquired by Tyco International, LTD
in 1999.
7. The Tyco stock (formerly AMP) was acquired by Brenner,
Sr., during his tenure at AMP. (Tr. 248-249.)
8. Brenner, Sr., is currently 87 years of age.
9. Bushey described her father, Brenner, Sr., as a dynamic
individual, being well-educated, charismatic and a well-known
business person. (Tr. 19-20.) Brenner, Sr., is a college educated
businessman who rose through the ranks to become the Chief
Executive Officer of AMP, Inc., a well-known local business. (Tr.
247-248.)
10. Bushey is a highly educated and sophisticated
individual who runs a part-time business.
11. Brenner, Jr., is a highly educated and sophisticated
individual who is employed by an industry in the Carlisle area.
12. Brenner, Sr., previously served as a director of
Farmer's Trust Company (now M&T) and currently serves as a
director of Frog, Switch and Company, Inc., of Carlisle,
Pennsylvania, a well-known local industry. (Tr. 72, 252.)
13. Brenner, Sr., is best described as having a hands on
philosophy with respect to all of the Trusts, notwithstanding the
fact that he is not a Co-Trustee to the Grandchildren's Trusts.
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14. Brenner, Jr., and Bushey deferred to Brenner, Sr., with
respect to all dealings with M&T Bank and all decisions made with
respect to the retention or disposition of the Tyco stock in
these Trusts. (Tr. 437-439, 442-444.)
15. In 1997 Jane W. Brenner died, whereupon Brenner, Sr.,
entered into a difficult time, same being manifest in a decline
in personal hygiene and appearance. (Tr. 16-22.)
16. Shawnee Smith, an M&T Bank employee who worked with
Brenner, Sr., since 1987 stated that matters involving Brenner,
Sr.'s personal appearance (clothing) seemed to resolve themselves
after he met a lady friend sometime before the summer of 2002.
(Tr. 787-788.)
17. Although somewhat physically diminished by age,
Brenner, Sr., was, throughout the entire proceedings that gave
rise to the filing of the objections herein, competent to
participate and to, in fact, make decisions with respect to the
Trusts. Brenner, Sr., testified, without reservation, that he
was and is competent to make financial decisions. (Tr. 291-293.)
18. Gority, a trust officer with M&T Bank and its
predecessors for a period in excess of 20 years, has known
Brenner, Sr., Brenner, Jr., and Bushey for a period in excess of
20 years. (Tr. 26-28, 429-431.)
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19. Bushey had a social relationship with Gority, all
through and by virtue of being members of a dinner club. (Tr.
456.)
20.
Initially, Gority served as Trust Officer for the
Trusts, providing both administrative and investment services.
21. Gority's duties and responsibilities became slowly
those of an administrative officer after the acquisition of
Farmer's Trust Company by Keystone Finanaical, N.A. Those same
duties and responsibilities continued through the acquisition of
Keystone Financial, N.A. by M&T. In addition, an investment
officer was assigned to the Trusts, same being Curt Stauffer.
(Tr. 585.)
22. Brenner, Sr., Brenner, Jr., and Bushey were provided
with ample notification as to the successor trust companies, as
well as the involvement of Stauffer.
23. In February of 2000, the Grandchildren's Trust was,
with the approval and acquiescence of Brenner, Sr., partially
diversified by the sale of a portion of the Tyco stock contained
therein. This was done to increase the income flow to the
beneficiaries of this Trust. The proceeds were utilized to
purchase tax free municipal bond type investments. (Tr. 434-435.)
24. On August 20, 2000, Brenner, Sr., reaffirmed, in
writing, his desire that all shares of Tyco stock be retained in
the Trusts. (Ex. R-7 and Tr. 447-448.)
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25. Commencing during the 1990s and through June Of 2002
Brenner, Sr. regularly came to the downtown Carlisle office of
M&T, or its predecessors, to review the Trusts, to conduct
banking matters related to the Trusts and to conduct personal
banking business.
26. Brenner, Sr., did express concern and confusion as to
the bank reporting statements issued for the Trusts by Keystone
Financial, N.A. and M&T, successors to Farmer's Trust Company.
The formatting of the bank reporting statements had been changed.
27. Brenner, Sr., did not like the new reporting
statements.
28. M&T, as well as its predecessors, repeatedly counseled
and advised Brenner, Sr., along with Brenner, Jr., and Bushey, as
to its concerns with respect to holding Tyco stock only in the
Trusts.
29. M&T, through Gority and Stauffer, on numerous
occasions, urged Brenner, Sr., along with Brenner, Jr., and
Bushey to diversify its holdings in the Trusts.
30. M&T held meetings with Brenner, Sr., and, when
available, Brenner, Jr., and Bushey, on several occasions, most
notably on January 2, 2001 and November 13, 2001. The main
purpose of these meetings was to urge diversification and to
suggest methods to accomplish same. These meetings were followed
by comprehensive letters forwarded to Brenner, Sr., Brenner, Jr.,
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and Bushey detailing the contents of the meetings and reaffirming
the recommendations made.
31. The January 2001 meeting was attended by Gority and M&T
Regional Trust Manager Thomas O'Connell, along with Brenner, Sr.,
Brenner, Jr., Bushey and Brenner, Sr.'s accountant, Ray Keller.
Concerns were expressed as to the concentration of Tyco stock and
the need to diversify. (Ex. R-8, Tr. 449-450.)
32. Gority felt that the January 2, 2001 meeting had gone
well and, as a result, Stauffer began to devise a plan to achieve
diversification within the Trusts, all in a manner that would be
deemed acceptable to Brenner, Sr. (Tr. 460-461.) The plan devised
by Stauffer was reviewed by Stauffer's manager and superiors.
33. Stauffer's immediate supervisor, Dan McGee,
participated in the review, noting that different techniques,
including a stop loss strategy and related strategies be
considered. (Ex. R-10, Tr. 605.)
34. On November 13, 2001, a meeting was held at M&T's
offices, which meeting included Gority, Stauffer, Brenner, Sr.,
Brenner, Jr., and Bushey. The presentation included a detailed
strategy for diversification as to the Trusts, including, among
other things, maximizing the returns to the Trusts utilizing a
systematic or programmed sale approach with respect to the Tyco
stock. (Tr. 606-609.)
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35. Gority and Stauffer felt that the November 13, 2001
meeting went well and so advised their superiors. (Ex. R-12 and
R-13, Tr. 465, 612.)
36. Brenner, Sr., Brenner, Jr., and Bushey did not like the
November 13, 2001 presentation. Neither Brenner, Sr., Brenner,
Jr., nor Bushey so advised M&T through Gority, Stauffer or any
other party as to their feelings in this regard. (Tr. 223-225.)
37. The value of Tyco stock fell from about $55.00 per
share in the later part of 2001 to $10.00 per share on or about
June 2, 2002.
38. Tyco stock sale price fell for various reasons, same
including, but not being limited to, the economy, accounting
irregularities and the resignation and indictment of the Chief
Executive Officer of Tyco.
39. In June of 2002 M&T Bank recommended that Tyco stock be
off-listed and expressed concerns as to possible bankruptcy of
Tyco.
40. From January 2002 to June 2002, Gority and Stauffer
repeatedly advised Brenner, Sr., along with Brenner, Jr., and
Bushey, to diversify the holdings of the Trusts.
41. M&T's concerns relative to the high concentration of
Tyco stock in the Trusts heightened during the early part of June
2002. Concerns arose as a result of accounting irregularities,
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the arrest of Tyco's Chief Executive Officer, Dennis Kozlowski,
amid charges of tax fraud and other allegations of wrong-doing.
42. From January 2002 to June 12, 2002, M&T properly
discharged its fiduciary obligation to the Trusts by keeping
Brenner, Sr., along with Brenner, Jr., and Bushey well-informed
of the market events and M&T's opinion regarding Tyco
International, LTD and Tyco stock.
43. On June 7, 2002 Stauffer contacted Brenner, Sr.,
Brenner, Jr., and Bushey to specifically inform them of M&T's
decision to no longer hold Tyco stock in any of its model
portfolios. (Ex. R-19, Tr. 626-634.)
44. On June 7, 2002 Tyco stock closed at approximately
$10.00 per share.
45. During the June 7, 2002 phone calls made by Stauffer, a
meeting was suggested. Brenner, Sr., advised that he would
coordinate the schedules of Brenner, Jr., and Bushey with respect
to this meeting. Bushey advised Stauffer to leave it up to
Brenner, Sr. to coordinate the meeting. (Tr. 626-634.)
46. On Monday, June 10, 2002, Stauffer spoke with Brenner,
Sr. and scheduled a meeting for Wednesday, June 12, 2002, to
discuss options and recommendations concerning the Tyco stock in
the Trusts.
47. Stauffer was advised by Brenner, Sr., that only he
would be attending the June 12, 2002 meeting and that only he
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would be representing the interests of the Trusts. (Ex. R-19, Tr.
632-633.)
48. The June 12, 2002 meeting was attended by Gority,
Stauffer and Brenner, Sr. John Klobusicky, Senior Investment
Officer in Pennsylvania for M&T, participated by speakerphone.
(Tr. 473-633.)
49. Gority and Stauffer offered an explanation as to
concerns and advised as to options. The Bank recommended that
one-third (1/3) of the Tyco shares held in the Trusts should be
sold immediately, with a "stop loss" order to be placed at $9.00
per share on all remaining shares. (Ex. R-20, Tr. 640-650.)
50. Brenner, Sr., at the conclusion of the June 12, 2002
meeting, signed two (2) written authorizations. One
authorization directed the immediate sale of one-third (1/3) of
the Tyco shares in the Trusts in which he was the Co-Trustee (the
Children's Trusts). The second signed written authorization
authorized the use of a stop loss order on the balance of the
shares at $9.00 per share, again pertaining to those Trusts in
which he was the Co-Trustee. (Ex. R-2l and R-22, Tr. 307, 312.)
51. Brenner, Sr., fully understood and voluntarily signed
both written authorizations.
52. Brenner, Sr.'s written authorizations constituted his
consent. Given the totality of the circumstances, the consent
was informed consent.
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53. Gority and Stauffer properly and professionally
explained the circumstances and their concerns with respect to
the Tyco stock and, further, advised as to their recommendations
at the June 12, 2002 meeting. This meeting lasted approximately
one (1) hour.
54. Brenner, Sr., at no time immediately subsequent to the
June 12, 2002 meeting and the placement of his signature on the
two (2) authorizations, advised Gority, Stauffer or any other M&T
employee or official that he did not understand or appreciate the
explanations given nor the actions that he authorized. Brenner,
Sr., did not suggest to anyone during or immediately following
the June 12, 2002 meeting that he needed additional time to
consider M&T's recommendations as made by Stauffer and Gority or,
further, did he request time to speak with Brenner, Jr., Bushey
or his accountant. (Tr. 305, 482-483.)
55. Immediately following the termination of the June 12,
2002 meeting with Brenner, Sr., Gority contacted and received
approval via telephone from Brenner, Jr., and Bushey to sell one-
third (1/3) of the stock in the Grandchildren's Trust and to
place the stop loss order. (Ex. R-19, Tr. 430, 477-478, 490, 492,
645, 742, 771, 772.)
56. Neither Brenner, Sr., Brenner, Jr., nor Bushey
requested that M&T reverse the stock sales that took place on
June 12, 2002.
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57. From June 10 through June 12, 2002, Bushey sold a
substantial portion of Tyco stock held by her immediate family,
said stock not being involved in the Trusts. Bushey requested
and received assistance from M&T in this endeavor. (Ex. R-24, Tr.
101, 102, 105.)
58. Bushey did not advise Brenner, Jr. of her decision to
sell the Tyco stock held by her immediate family. Brenner, Jr.
had understood that both he and Bushey would advise each other as
to any decisions that they made in their own right with respect
to the sale of disposition of Tyco stock that they held outside
the Trusts.
59. Brenner, Jr., during this period of time, did not sell
any Tyco shares that he or his immediate family held privately.
(Tr. 102, 188.)
60. Neither Brenner, Jr., nor Bushey signed and returned
the confirming written authorizations prepared and forwarded to
them by Gority. (Ex. R-25, Tr. 504.)
61. Brenner, Jr., and Bushey testified at the hearing that
they continued to refuse to sign and return the written
authorization confirming the actions that they verbally
authorized on June 12, 2002.
62. Subsequent to the events that unfolded in June 2002,
Stauffer left M&T Bank to be employed by PNC Bank. Stauffer was
not discharged for any reason whatsoever by M&T Bank. M&T Bank,
15
through Daniel McGee, stated that it wanted Stauffer to remain
and even made him a counteroffer, which was not accepted.
63. Gority, Stauffer and M&T Bank acted properly in all
instances throughout its involvement with the Trusts.
64. The Trusts are irrevocable Trusts. The beneficiaries
in all of these matters are the Trusts, along with the income
beneficiaries and the remainder beneficiaries.
65. Amy Holsinger worked with Stauffer as an assistant at
M&T Bank, starting in October 2001. She knew Brenner, Sr., by
virtue of exchanging pleasantries and the like. (Tr. 769-770.)
66. Amy Holsinger testified that her desk was located
approximately fifteen (15) feet from the office in which the June
12, 2002 meeting took place between Brenner, Sr., Gorityand
Stauffer. Although the office door was closed, she could hear
nothing unusual by way of loud or animated discussions. Brenner,
Sr., seemed, in all respects, to be in a normal state of mind
both entering and leaving the meeting. (Tr. 770-774.)
67. Shawnee Smith has been employed by M&T Bank and its
predecessors since 1985, primarily as a customer or service
representative. She first met Brenner, Sr., in about 1987 and
developed a close customer relationship with him.
She assisted
with respect to safe deposit box entries, bank deposits and other
courtesies.
(Tr. 784-786.)
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68. Shawnee Smith testified that, although Brenner, Sr. was
physically slowing down due to age, he appeared competent in all
respects in handling his financial affairs. (Tr. 789-790.)
69. Shawnee Smith testified that subsequent to Brenner,
Sr.'s wife passing away, his personal appearance (clothing)
slipped. Brenner, Sr.'s appearance improved after he met a lady
friend sometime before the summer of 2002. (Tr. 787-788.)
70. Shawnee Smith was approached by Bushey sometime before
June 2002. Bushey asked Shawnee Smith to advise her if Brenner,
Sr. ever engaged in any type of transaction that would not be
typical for him. (Tr. 793-794.)
71. Shawnee Smith observed no indication of diminished
mental capacity on the part of Brenner, Sr., from approximately
1987 to 2004 when Brenner, Sr. closed out his safe deposit boxes
and personal accounts at M&T. (Tr. 787-790.)
72. The shares of Tyco stock sold on June 12, 2002, as a
result of the authorizations received were not sold improperly.
73. Neither Brenner, Sr., Brenner, Jr., nor Bushey
immediately requested that M&T take steps to reacquire those
shares.
74. Objectors have not established, through Dr. Joseph F.
Brazel, or otherwise, that Brenner, Sr., had reduced mental
capacity on or before June 12, 2002, such that Brenner, Sr. did
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not appreciate and understand the advice and recommendations
provided by M&T.
75. Dr. Joseph S. Brazel's diagnosis that Brenner, Sr.
suffered from senile dementia, Alzheimer's type, prior to June
2002 was based upon observations only. No clinical tests,
including the Wechsler test or any other evaluations were given.
(Tr. 51, 59-60.)
76. Dr. Brazel did not communicate his diagnosis to
Brenner, Jr., Bushey or any other member of the Brenner family.
Dr. Brazel did not recommend that Brenner, Sr. stop driving his
motor vehicle. Dr. Brazel did discourage Brenner, Sr. from
driving his motor vehicle on the interstates.
77. Brenner, Sr., on or before June 12, 2002 was capable of
making decisions regarding the disposition and sale of the Tyco
stock in the Trusts. Neither Brenner, Jr., Bushey, nor Dr.
Joseph F. Brazel, Brenner, Sr.'s personal physician, communicated
to Gority, Stauffer, or any other employee or representative of
M&T, or it predecessors, their concerns and/or diagnosis that
Brenner, Sr. was suffering from a reduced or diminished mental
capacity on or before June 12, 2002.
78. Gority testified that he never had a reason to doubt
Brenner, Sr.'s capacity. Furthermore, Gority testified that he
would never have participated in nor would he have allowed
Brenner, Sr., to make decisions or sign documents if he had any
18
question as to his lack of sufficient mental capacity. (Tr. 429-
431.)
79. Brenner, Jr., and Bushey are designated as Attorneys in
Fact or Agents for Brenner, Sr., by virtue of a General Power of
Attorney executed by Brenner, Sr. Neither Brenner, Jr., nor
Bushey acted on behalf of Brenner, Sr., under his General Power
of Attorney by virtue of any matters involving the Trusts.
80. The testimony offered by the Objectors through James P.
Quinlan and David L. Steele, which testimony addressed the
appropriateness of the actions taken by M&T, was neither
persuasive nor relevant.
81. Brenner, Sr., Brenner, Jr. and Bushey have requested
that M&T transfer the Trusts to Orrstown Bank, of Carlisle,
Pennsylvania.
DISCUSSION
The crux of the objections filed in all of the above-
captioned matters is that M&T, as the Corporate Trustee, through
its employees, Gority and Stauffer, breached its fiduciary duties
while administering the Grandchildren's Trust and the Children's
Trusts (collectively, the "Trusts"). As a result thereof,
pecuniary losses, claimed to be substantial, resulted to the
Trusts. Collateral issues raised involve determining whether or
not Gority and Stauffer are jointly and severally liable for
19
M&T's conduct. The Objectors argue that M&T has breached its
fiduciary duty to the Trusts and, further, that Gority and
Stauffer, because of their individual actions and otherwise, are
jointly and severally liable for M&T's conduct.
M&T Bank, the Respondent, takes the position that M&T has
acted properly in all regards with respect to the Trusts.
Furthermore, M&T Bank, through Gority and Stauffer, has acted
properly through the administration of the Trusts and,
accordingly, neither Gority nor Stauffer are jointly or severally
liable. In addition, M&T, in its brief, states that it is
entitled to recover the costs of defending against the Objections
filed herein.
The standard of care imposed upon a Trustee under
Pennsylvania Law is well established. A Trustee is obligated to
exercise a standard of care which a man of ordinary prudence
would practice in the care of his own estate. See In re Estate of
Scharlach, 809 A.2d 376, 384 (Pa. Super 2002) .
Scharlach
discusses the standard of care and refers to Section 7203 of the
Probate, Estates and Fiduciary Code. See 20 Pa. Cons. Stat. Ann.
~ 7203. It is to be noted, however, that if a fiduciary has a
greater skill than that of a person of ordinary prudence, then
the fiduciary standard of care must be judged according to the
standard of one having this special skill. Likewise, a
professional fiduciary who "obtains the appointment as trustee by
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representing that he or she has greater skill than a person of
ordinary prudence... will be held to that higher standard."
Estate of Pew, 655 A.2d 521, 542 (Pa. Super 1994)
It is clear,
under Pennsylvania Law, that M&T owed a higher standard of care
than an individual of ordinary prudence. See In re Mendenhall,
398 A.2d 951, 952 (Pa. 1979). It is against the backdrop of
these principles that the actions or inactions of M&T Bank, in
the cases at bar, must be reviewed.
As is clearly indicated in the Findings of Fact appearing
hereinabove, M&T Bank has met the higher standard imposed by
virtue of it being a professional fiduciary. M&T has not
breached its fiduciary duty as owed to both the Trusts and the
Co-Trustees. As such, a surcharge is not appropriate. The
record of these proceedings most amply illustrates the
extraordinary care exercised by M&T Bank in making certain that
its fiduciary obligations were properly discharged.
M&T Bank, and its predecessors, enjoyed a long-running
relationship with Brenner, Sr., Brenner, Jr., and Bushey, all
with respect to the discharge of its duties as Co-Trustee of the
Trusts. As it was properly obligated to do so, M&T maintained a
constant effort to affirm and reaffirm its concerns with respect
to diversification of assets. M&T's concerns as to the
concentration of Tyco stock, particularly considering the events
that unfolded in 2001 and 2002, were well founded. Brenner, Sr.,
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Brenner, Jr., and Bushey are well-educated and sophisticated
individuals, all being familiar with the workings of these Trusts
and pertinent matters related thereto, particularly the function
of M&T as Co-Trustee. It is clear that Brenner, Jr., and Bushey
deferred to Brenner, Sr., with respect to all major decisions
that were made concerning the Tyco stock. This is not
withstanding the fact that Brenner, Sr., was Co-Trustee to the
Children's Trusts only.
Considerable effort was made by both parties to these
proceedings to address the status of the mental capacity of
Brenner, Sr., through the entire involvement of M&T and its
predecessors. This is particularly so with respect to the events
that rapidly unfolded during June of 2002, said events
culminating on June 12, 2002, with the sale of the Tyco stock.
It is this Auditor's opinion, based upon hearing all of the
testimony presented and, further, after reviewing the transcript
of the testimony and all exhibits, along with the briefs
submitted, that Brenner, Sr., did, in fact, possess sufficient
mental capacity to know, appreciate and understand the advice,
opinions and recommendations that were given to him on June 12,
2002 by Gority, Stauffer and Klobusicky.
Furthermore, it is
clear that Brenner, Sr., understood and voluntarily executed the
authorizations resulting in the immediate sale of one-third (1/3)
of the Tyco stock holdings, along with the stop-loss order
22
involving the remaining shares, all with respect to the
Children's Trusts, of which he was Co-Trustee. Brenner, Jr., and
Bushey were not in attendance at the June 12, 2002 meeting due to
the fact that they were not invited by Brenner, Sr. Their
absence, by virtue of not being invited, is consistent with the
past approach taken by Brenner, Sr., with respect to interacting
with M&T and the Trusts. That approach, simply put, was that
Brenner, Sr., was the individual in charge.
The most persuasive evidence as to the mental competency of
Brenner, Sr., was his own testimony. Clearly, Brenner, Sr., in
his own words, was not physically capable at age 87 of doing all
the things that he previously did and enjoyed. This is a natural
part of the aging process and is perfectly understandable.
However, Brenner, Sr., by his own testimony, stated that he was
perfectly capable of handling his own financial affairs. Both
under direct and cross examination, Brenner, Sr., exhibited a
very clear ability to comprehend questions asked and to respond
accordingly. As to cross examination, Brenner, Sr., more than
held his own.
It is important to note that Brenner, Sr.'s alleged
incapacity was not communicated to M&T Bank through either Gority
or Stauffer or any other individual. No communication as made by
Brenner, Sr., Brenner, Jr., Bushey, or Dr. Joseph F. Brazel,
Brenner, Sr.'s doctor. Shawnee Smith, an M&T Bank employee had
23
interacted with Brenner, Sr., since 1987. Although Shawnee Smith
noted changes, those changes were primarily physical, being
attributed to the normal aging process. Throughout their
interactions, Brenner, Sr., exhibited a high degree of
professionalism and knowledge, particularly with respect to his
bank dealings.
M&T Bank, and its predecessors, were constant and persistent
with respect to expressing concerns to Brenner, Sr., Brenner,
Jr., and Bushey as to the concentration of the Tyco stock in the
Trusts and the need to achieve diversification. These concerns
were accepted, at least in part, by Brenner, Sr., with respect to
the Grandchildren's Trust. In February of 2000, with the
approval and acquiescence of Brenner, Sr., the Grandchildren's
Trust was partially diversified by a sale of a portion of the
Tyco stock contained therein. Brenner, Jr. and Bushey authorized
these actions. The proceeds were utilized to purchase tax free
municipal bond type investments.
The concerns as to the Tyco stock exacerbated in 2002 as a
result of general adverse economic conditions, the deteriorating
condition of Tyco International, LTD and the arrest of Dennis
Koslowski, CEO of Tyco, on charges of fraud and other misdeeds.
The recommendations made by Stauffer as to diversification and
the like were reviewed by Stauffer's superiors, as well as
multiple other employees of M&T Bank that were in management and
24
investment positions. Based upon a thorough review of this
matter, it is clear that had M&T's recommendations been followed
when initially made, the events culminating in the decisions made
on June 12, 2002 could have been avoided.
Based upon the Findings made herein, neither Gority nor
Stauffer are jointly or severally liable for M&T's conduct.
Notwithstanding the attempts to portray Gority and Stauffer as
being unattached, uninvolved and/or overbearing, both of these
individuals exhibited a high degree of professionalism with
respect to properly discharging their fiduciary duties as to
these Trusts. It can be clearly concluded that Gority and
Stauffer acted properly and professionally throughout their
involvement with the Trusts, Brenner, Sr., Brenner, Jr. and
Bushey.
Brenner, Sr., knew, appreciated and understood the advice,
options and recommendations made by M&T, through Gority and
Stauffer with respect to diversification and the like. Brenner,
Sr. chose not to follow those recommendations until June 12,
2002. Brenner, Jr., and Bushey were most certainly concerned as
to the well-being of their father, Brenner, Sr. They were also
very concerned as to the financial soundness of the Trusts and
the benefits that they and their children derived therefrom.
Both Brenner, Jr. and Bushey clearly deferred to Brenner, Sr.,
25
with respect to all decisions made concerning Tyco stock and the
Trusts.
Given that there has been no breach of fiduciary duty by M&T
or on the part of Gority and Stauffer, there is no need to
discuss damages. Clearly, a surcharge is not proper as to any of
these Trusts.
M&T is not entitled to recover the costs of its defense in
these matters. The Auditor is not persuaded by the facts of this
case, as well as the legal authority cited by Respondent, that
such an award is warranted.
CONCLUSIONS OF LAW
1. The objections filed in all of the above-captioned
matters are proper for audit and, therefore, are properly before
this Auditor for hearing, determination and recommendation.
2. M&T is a professional fiduciary and, thus, is subject to
a higher standard of care.
The actions of M&T Bank, with respect
to its involvement as Co-Trustees in the above-captioned Trusts
were appropriate and consistent with the required higher standard
of care for a professional fiduciary.
3. M&T Bank did not breach its fiduciary duties to the
above-captioned Trusts or to any of the Co-Trustees.
26
4. Gority and Stauffer are not jointly and severally liable
for M&T's conduct.
5. A surcharge is not proper and, accordingly, there will
be no award made in favor of the Objectors.
6. M&T is not entitled to recover the costs of its defense
in these matters.
7. The accountings filed by M&T in all of the above-
captioned matters should be confirmed with distribution of funds
being directed in accordance with those accounts.
RECOMMENDATION
For the reasons appearing hereinabove, it is the
recommendation of the Auditor that the objections filed in all of
the above-captioned matters be dismissed. Furthermore, the
accounts filed by M&T Bank, as to all of the above-captioned
matters, should be confirmed with distribution of funds being
made in accordance with the accounts as filed by M&T.
As to the assessment of costs related to these proceedings,
the Auditor recommends as follows: The Auditor's fee in the
amount of $11,302.50, along with costs advanced in the amount of
$1.50, which fee and costs total $11,304.00, be paid equally by
Objectors and Respondents. This is appropriate given the
circumstances and complexity of these matters, along with the
27
effective and strenuous presentations and advocacy on the part of
the able counsel for both Objector and Respondent.
Specifically. the following costs shall be paid by the
parties as indicated within fifteen (15) days of the filing of
this Report, as follows:
Objectors (1/2 of the Auditor's Fee and Costs incurred)
$5,652.00
Respondents (1/2 of the Auditor's Fee and Costs
incurred) $5,652.00
A surcharge is not appropriate and, therefore, no award is
made in favor of the Objectors.
It ~s to be noted that the parties hereto have agreed, as
between themselves, as to the assessment of costs incurred with
respect to retaining the services of the Court Reporter for
purposes of making a transcript of the audit hearing proceedings.
In all other respects, each party to these proceedings is to
bear their own costs and expenses, their being no award for
payment of attorney's fees, costs and expenses being made in
favor of either Objectors or Respondents.
Date: February 10, 2005
Respectful submitted,
~o 80 ar Eaquire
Court Appoin e Auditor
1 West Main Street
Shiremanstown, PA 17011
(717) 737-8761
28
------------------------------------------------------------
IN RE: ESTATE OF
JOSEPH D. BRENNER, SR., JOSEPH D.
BRENNER, JR., and MARGARET B. BUSHEY,
IN THE COURT OF COMMON PLEAS
OF CUMBERLAND COUNTY,
PENNSYLVANIA
Petitioners,
ORPHANS' COURT DIVISICN
v.
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.
------------------------------------------------------------
PROPOSED AUDITOR'S RECOMMENDATION TO THE COURT
This matter came before court-appointed auditor James D. Bogar ("Auditor") for
hearing on November 2-5,2004. Petitioners were represented by their attorneys William F.
Martson, Jr., and Robyn E. Ridler, and Respondents were represented by their attorney, Mark D.
Bradshaw. Having considered the legal memoranda, exhibits, testimony of witnesses, and
arguments of counsel, and therefore being fully advised, the Auditor reports the following
statement of questions presented, findings of fact, and conclusions of law, and makes the
following recommendation to the Court:
FINDINGS AND CONCLUSIONS
A. Statement of Questions Presented
1. Did M&T breach its fiduciary duties with respect to the Jane Brenner "B" Trust?
2. Did M&T breach its fiduciary duties with respect to the Jane Brenner "C" Trust?
3. Did M&T breach its fiduciary duties with respect to the Blakely Trust?
4. Did M&T breach its fiduciary duties with respect to the Grandchildren's Trust?
5. What damages did the trusts suffer as a result ofM&T's conduct?
6. Is David Gority jointly and severally liable for M&T's conduct?
Exhibit A, Page I of 19
7. Is Curt Stauffer jointly and severally liable for M&T's conduct?
8. Should the accountings be confirmed?
B. Findings of Fact
1. The Jane Brenner "B" Trust is identified by account number 32-1056-60-8.
2. The Jane Brenner "C" Trust is identified by account number 32-1057-60-6.
3. The Blakely Trust is identified by account number 41-7090-60-2.
4. The J.D. & J.W. Brenner Trust ("Grandchildren's Trust") is identified by account
number 43-1075-60-5.
5. The four trusts are referred to collectively as the "Brenner Trusts."
6. The relevant trust instruments designate Farmers Trust Company ("Farmers") as
co-trustee of the Brenner Trusts.
7. The relevant trust instruments designate Joseph Brenner, Sr. ("Brenner Sr. If) as co-
trustee of the Jane Brenner "B," Jane Brenner "C," and Blakely Trusts.
8. The relevant trust instrument designates Margaret Bushey ("Bushey") and Joseph
Brenner, Jr. ("Brenner Jr."), two of Brenner Sr.'s four children, as co-trustees of the
Grandchildren's Trust.
9. Bushey, Brenner Jr., and Brenner Sr. are referred to .collectively as the "Brenners."
1 O. Brenner Sr. is currently 87 years old.
11. Brenner Sr. had a long and distinguished business career at Amp, Inc. ("Amp"),
retiring in 1982 after serving as its CEO and Chairman of the Board of Directors.
12. Since before 1997, Brenner Sr. has suffered from hearing loss that requires the use
of two hearing aids.
13. Since before 1997, Brenner Sr. has suffered from vision problems that affect his
ability to read, as a result of which he relies on others to read letters, bills, and other material to
him. Before 2002, Brenner Sr. stopped subscribing to newspapers and magazines as a result of
his difficulty reading.
14. In the late 1990's, Brenner Sr. began to suffer from senile dementia ofthe
Exhibit A, Page 2 of 19
Alzheimer's type.
15. Since the onset of Brenner Sr.'s senile dementia, Bushey and Brenner Jr. have
provided substantial assistance to their father with financial matters.
16. Among other things, Bushey and Brenner Jr. assist Brenner Sf. with balancing his
checkbook, managing his safe deposit boxes, processing bearer bonds, gifting stock, reading and
explaining retirement fund statements, and reading and explaining trust account statements.
17. In 1998, as a result of Brenner Sr.'s diminishing capacity, David Gority ("Gority")
requested, and Bushey agreed, that Bushey and Brenner Jr. would attend all substantive meetings
with Brenner Sr. regarding the Brenner Trusts.
18. Bushey communicated her agreement with Gority to Brenner Jr., and Brenner Jr.
agreed.
19. In a meeting with Gority in 1999, Brenner Jr. reiterated that the three Brenner co-
trustees should always be present together for substantive meetings conceming the Brenner
Trusts, with which Gority agreed.
20. Gority was personally aware since at least 1998 that Brenner Sr. was suffering
from diminishing capacity.
21. Other M&T employees, including Shawnee Smith, were aware since at least 1998
that Brenner Sr. was suffering from diminishing capacity.
22. Bushey and Brenner Jr. hold a durable general power of attorney for Brenner Sr.
23. M&T keeps a copy of Bushey and Brenner Jr.'s power of attorney for Brenner Sr.
in its files for each of the Brenner Trusts.
24. Between 1998 and June 11, 2002, Bushey, Brenner Jr., and Brenner Sr. worked
together with respect to each ofthe Brenner Trusts.
25. Between 1998 and June 11,2002, Bushey and Brenner Jr. attended all substantive
meetings about the Brenner Trusts.
26. Between 1998 and June 11,2002, Bushey and Brenner Jr.'s assistance to Brenner
Sr. was an effective means of dealing with his diminishing ability to understand business and
Exhibit A, Page 3 of 19
financial matters.
27. The Brenner Trusts were funded entirely with Amp stock acquired by Brenner Sr.
during his 35-year career at Amp.
28. The Grandchildren's Trust contains a provision releasing the Trustee from "all
responsibility and obligation to dispose of any portion of the AMP, Inc. stock by reason of the
concentration ofthe investments of the Trust in the stock of one corporation."
29. The Blakely Trust contains a provision granting the Trustee the power "to retain
any property'" ... ... originally constituting the trust or subsequently added thereto, although not of
a type, quality, or diversification considered proper for trust investments."
30. The beneficiaries of the Brenner Trusts are Brenner Sr., his children, and his
grandchildren.
31. Brenner Sr. 's personal assets are diversified into real estate, stocks, and bonds.
Upon his death, Brenner Sr.'s children and grandchildren will receive the entirety of his estate.
32. Farmers knew when it accepted the role of corporate co-trustee of each ofthe
Brenner Trusts that the trust corp uses consisted entirely (or virtually entirely) of Amp stock and
did not consider that fact a problem.
33. Bushey, Brenner Jr., and Brenner Sr. also never considered the fact that the
Brenner Trusts contain concentrated stock holdings an inherent problem.
34. Keystone Bank ("Keystone") acquired Farmers in or about 1998 and automatically
assumed the role of corporate co-trustee of the Brenner Trusts.
35. Prior to Keystone's acquisition of Farmers, Gority had both administrative and
investment authority for the Brenner Trusts.
36. During Keystone's tenure as corporate co-trustee, it is unclear who at Keystone
had investment authority for the Brenner Trusts.
37. During Keystone's tenure as corporate co-trustee, Bushey, Brenner Jr., and
Brenner Sr. continued to work solely with Gority with respect to the Brenner Trusts.
38. Tyco International ("Tyco") acquired Amp in 1998, which automatically
Exhibit A, Page 4 of 19
converted the Amp shares in the Brenner Trusts to Tyco shares. Tyco's per share dividends were
consistently lower than those previously paid by Amp.
39. In 1999, Bushey and Brenner Jr. sold 40% of the Tyco shares in the
Grandchildren's Trust and subsequently reinvested the proceeds in municipal bonds to restore the
income steam from the trust that had existed prior to the 1998 stock conversion.
40. Bushey, Brenner Jr., and Brenner Sr. worked together with Gority on the 1999
sale of Tyco stock from the Grandchildren's Trust and the subsequent reinvestment of the
proceeds.
41. Keystone never indicated to Bushey, Brenner Jr., or Brenner Sr. that Keystone
would. feel it necessary to resign if the Brenner Trusts continued to hold concentrations of
Ampffyco stock.
42. Manufacturer's and Traders Trust Company ("M&T") acquired Keystone in fall
2000 and automatically assumed the role of corporate co-trustee of the Brenner Trusts.
43. M&T was a larger and more institutionalized bank than Farmers or Keystone had
been.
44. Within six months of its acquisition of Keystone, M&T identified the
concentrations of Tyco stock in the Brenner Trusts as a problem. It was M&T's view that the
individual co-trustees had to be persuaded to reduce and ultimately liquidate the Tyco stock in
each of the Brenner Trusts.
45. During this time, internal conflicts developed between the administrative and
investment sides of M&T's trust department, including confusion about who was in charge of
M&T's corporate co-trustee responsibilities for accounts such as the Brenner Trusts.
46. In September 2001, M&T held several internal strategy meetings about how to
accomplish its goal of reducing the concentrations of Tyco stock in the Brenner trusts.
47. In these internal meetings, M&T also discussed various downside hedging
techniques that could offer protection to the Brenner Trusts.
48. At the time of the internal meetings at M&T, Tyco stock was trading in the $40-
Exhibit A, Page 5 of 19
$50 range.
49. Following the internal meetings in September, Gority called a meeting with
Bushey, Brenner Jr., and Brenner Sr. on November 13, 2001.
50. Gority introduced Stauffer to the Brenners for the first time at the November 13
meeting. Gority introduced Stauffer as the "investment officer" for the accounts and told the
Brenners that Stauffer was giving the presentation due to his investment expertise.
51. Gority did not explain to the Brenners, on November 13 or ever, that M&T's
fiduciary responsibilities as corporate co-trustee were now split between hIm and Stauffer.
52. Bushey, Brenner Jr., and Brenner Sr. understood Stauffer to be someone assisting
Gority, and believed that Gority wa~.the sole person who exercised the corporate co-trustee's
fiduciary responsibilities to the Brenner Trusts.
53. At the November 13 meeting, Stauffer told the Brenners how remarkably well the
stock in the Brenner Trusts had performed historically, but recommended that the Brenners
eliminate all of the Tyco stock within ten years by selling a portion each year based on a
comparison of price/earnings ratios. Stauffer did not discuss any downside hedging techniques
with the Brenners as an alternative or supplement to his proposed sale program.
54. Brenner Sr., Bushey, and Brenner Jr. listened to the November 2001 presentation,
considered it, but never agreed to Stauffer's long-term liquidation plan.
55. The Brenners did not consider the concentration of Tyco stock in the Brenner
Trusts to be a per se problem that had to be solved.
56. The Brenners did not know that M&T considered the concentrations a problem
that per se had to be solved, or that M&T was so concerned about the concentrations that it was
considering resigning as corporate co-trustee if the Brenners did not agree to sell the Tyco stock
in the Brenner Trusts.
57. Between November 2001 and June 2002, Tyco's stock price fell from $55 on
November 13,2001, to $10 on June 7, 2002.
58. On February 2, 2002, Gority sent a letter to Brenner Sr., stating that Brenner Sr.
Exhibit A, Page 6 of 19
had agreed conceptually at the end of January to a $60-$63 target price to consider selling 20% of
the Tyco stock in the Jane Brenner "B," Jane Brenner "e," and Blakely Trusts.
59. The February 2 letter made no reference to the Grandchildren's Trust, but was
copied to Bushey and Brenner Jr., and invited the Brenners to contact him if Brenner Sr. had a
different understanding of their discussion.
60. Brenner Jr. spoke to his father about meeting with M&T without him or Bushey
present, and did not believe it was necessary to contact Gority since the alleged agreement was
not self-executing on its face, and Gority had copied Bushey and Brenner Jr. and invited
discussion if Brenner Sr. had a different understanding.
61. On March 6, 2002, Stauffer sent a letter to Brenner Sr. in Florida. The letter was
reassuring about Tyco's value, did not recommend any new action on the Brenner Trusts, and did
not mention or recommend any downside hedging techniques.
62. M&T made no further communications to Bushey, Brenner Jr., or Brenner Sr.
until June 7, 2002.
63. By no later than May 6,2004, M&T had decided internally that it would resign as
corporate co-trustee of the Brenner Trusts unless the Brenners agreed to aggressively reduce the
Tyco holdings in the Brenner Trusts in the near term.
. 64. On ore before May 6, 2004, Stauffer asked Gority to set up a meeting with the
Brenners to discuss an aggressive reduction of Tyco stock in the near future, or else M&T would
resign as co-trustee.
65. Gority never set up a meeting with the Brenners in May 2002, and went on
vacation to Ireland at the end of May 2002.
66. No one at M&T ever communicated to the Brenners that M&T intended to resign
as corporate co-trustee unless the Brenners agreed to reduce the concentrations ofTyco stock in
the Brenner Trusts.
67. On June 7, 2002, M&T's internal analysts issued a "sell" recommendation on Tyco
stock. Stauffer believed, incorrectly, that a "sell" recommendation required him, as an
Exhibit A, Page 7 of 19
investment officer ofM&T, to immediately sell all Tyco shares in accounts for which M&T had
full investment authority and to achieve the same result as quickly as possible in accounts such as
the Brenner Trusts in which M&T shared the investment authority with co-trustees.
68. On June 7, Stauffer decided he should meet with the Brenners.
69. Gority had coordinated all previous meetings with the Brenners. He had never
told Stauffer about his agreement with Bushey and Brenner Jr. that they be present at all
substantive meetings with Brenner Sr.
70. Stauffer called Bushey on June 7, informed her that M&T was eliminating its
position in Tyco and that he advised the Brenners to do the same, and told her he wanted to hold
a meeting with her, Brenner Jr., and Brenner Sr. the following week when Gority was back from
vacation. Stauffer told Bushey that he would call her back to schedule the meeting.
71. Stauffer also called Brenner Jr. on June 7, informed him that M&T was
eliminating its position in Tyco and that he advised the Brenners to do the same, and told him he
wanted to hold a meeting with him, Bushey, and Brenner Sr. the following week when Gority
was back from vacation. Stauffer told Brenner Jr. that he would call him back to schedule the
meeting.
72. Stauffer ~ever contacted Bushey or Brenner Jr. again.
73. Stauffer called Brenner Sr. sometime between June 7 and June 12. Stauffer told
Brenner Sr. he wanted him to come in for a meeting. Brenner Sr. did not know the purpose of
the meeting, considered it inconvenient, but agreed to come to M&T. He asked Stauffer to keep
it short.
74. On June 12, Gority returned from his vacation. Gority had not been following
Tyco or the events surrounding Tyco at all for at least 11 days.
75. On the morning of June 12, Stauffer told Gority that Brenner Sr. was coming into
the office and that he was going to make a recommendation about Tyco. Stauffer did not tell
Gority what his recommendation was or how he had formulated it. Gority did not ask.
76. Stauffer and Gority met with Brenner Sr. on the morning of June 12. No one else
Exhibit A, Page 8 of 19
was present, except John Klobusicky who attended by speakerphone.
77. At no time during the meeting did Gority notify Stauffer of his agreement with
Bushey and Brenner Jr., or otherwise tell Stauffer that Bushey and Brenner Jr. should be present
in light of Brenner Sr.'s diminished capacity.
78. Stauffer recommended to Brenner Sr. that they sell one-third of the Tyco stock in
the trusts immediately.
79. Stauffer told Brenner Sr. that he would put a stop loss order on the remainder of
Tyco stock in the trusts to "protect" Brenner Sr.
80. Stauffer gave Brenner Sr. only a single, brief description of a stop loss order. He
did not explain how a stop loss order worked or that every Tyco share in the Jane Brenner "B,"
Jane Brenner "C," and Blakely Trusts would be sold at market if the trigger price was reached.
81. Stauffer did not explain to Brenner Sr. how he had set the trigger price, did not
seek Brenner Sr.'s input concerning the use of a stop loss order or the setting of the trigger price,
and either did not explain or affirmatively misled Brenner Sr. about whether and how he had
back-tested the trigger price he unilaterally chose.
82. Stauffer was the only person present at the June 12,2002, meeting who had any
personal experience with stop loss orders.
83. Stauffer's description of a stop loss order to Brenner Sr. was inadequate and
misleading.
84. As a result of his senile dementia and hearing problems, Brenner Sr. was confused
and could not understand what was being discussed at the June 12,2002, meeting.
85. Brenner Sr. did not understand that one-third of the stock would definitely be
sold.
86. Brenner Sr. did not understand what a stop loss was.
87. Brenner Sr. did not understand which trusts were at issue, and in particular did not
understand that Stauffer wanted to sell any stock in the Blakely Trust.
88. Without Bushey and Brenner Jr. present to assist him, Brenner Sr. felt alone,
Exhibit A, Page 9 of 19
pressured, and confused.
89. Brenner Sr. was not feeling well and was anxious to leave M&T.
90. Brenner Sr. looked to Gority for assistance and reassurance, not knowing that
Gority had no opinion whatsoever about the prudency of Stauffer's recommendation, or that
Gority no longer had any fiduciary responsibility for investments in the Brenner Trusts.
91. Gority presented Brenner Sr. with letters to sign, which Brenner Sr. could not
and/or did not read. No one read those letters to Brenner Sr.
92. Trusting Gority, Brenner Sr. signed the letters. However, he did not understand
what he was signing, nor did he agree with their contents.
93. . Prior to June 12,2002, Brenner Sr. had never agreed to sell any stock from the
Jane Brenner "B," Jane Brenner "C," or Blakely Trusts.
94. On June 12,2002, Brenner Sr. did not have sufficient mental capacity to consent
to M&T's recommendation for the Jane Brenner "B," Jane Brenner "C," or Blakely Trusts
without considerably more explanation and the assistance of Bushey and Brenner Jr.
95. Bushey and Brenner Jr. should have been invited to the June 12,2002, meeting
with Brenner Sr. because Gority had an agreement with Bushey and Brenner Jr. about their
attendance at substantive meetings with Brenner Sr.
96. Bushey and Brenner Jr. should have been invited to the June 12, 2002, meeting
with Brenner Sr. because M&T knew that Brenner Sr. was suffering from reduced capacity.
97. M&T knew on June 12, 2002, that Bushey and Brenner Jr. had been assisting
Brenner Sr. with his financial affairs for years due to his diminishing capacity.
98. M&T knew on June 12, 2002, that Bushey and Brenner Jr. had a durable general
power of attorney for Brenner Sr.
99. Without speaking to Bushey or Brenner Jr., at 11 :30 a.m., M&T entered an
immediate order to sell 4,533 Tyco shares from the Jane Brenner liB" Trust and a stop loss order
to automatidllly sell the remaining 9,067 Tyco shares from the Jane Brenner "B" Trust ifthe
stock price hit $9.00.
Exhibit A, Page 10 of 19
100. Without speaking to Bushey or Brenner Jr., at 11 :30 a.m., M&T entered an
immediate order to sell 13,866 Tyco shares from the Jane Brenner "C" Trust and a stop loss order
to automatically sell the remaining 27,734 Tyco shares from the Jane Brenner "C" Trust if the
stock price hit $9.00.
1 01. Without speaking to Bushey or Brenner Jr., at 11 :36 a.m., M&T entered an
immediate order to automatically sell 24,274 Tyco shares from the Blakely Trust and a stop loss
order to sell the remaining 48,468 Tyco shares from the Blakely Trust if the stock price hit $9.00.
102. At the same time, Stauffer instructed his assistant to "pend" the same trades in the
Grandchildren's Trust (i.e., pend a sell order on one-third of the shares and a stop loss order on
the remainder), so that they could be released immediately upon receiving the authorizations
from Gority.
103. M&T immediately sold 4,533 Tyco shares from the Jane Brenner "B" Trust at
$10.23.
104. M&T immediately sold 13,866 Tyco shares from the Jane Brenner "c" Trust at
$10.23.
105. M&T immediately sold 24,274 Tyco shares from the Blakely Trust at $10.23.
106. After Brenner Sr. left the bank, Gority called Bushey and Brenner Jr. to obtain
their consent to Stauffer's recommendation for the Grandchildren's Trust.
107. At the time Gority called Bushey and Brenner Jr. to obtain their consent, Gority
had no investment authority for the Brenner Trusts.
108. At the time Gority called Bushey and Brenner Jr. to obtain their consent, Gority
did not believe he was qualified or authorized to explain M&T's recommendation.
109. At the time Gority called Bushey and Brenner Jr. to obtain their consent, Stauffer
did not believe Gority was qualified or authorized to explain M&T's recommendation.
110. At the time Gority called Bushey and Brenner Jr. to obtain their consent, Gority
had no opinion as to the prudence ofM&T's recommendation.
111. Gority did in fact call Bushey.
Exhibit A, Page 11 of 19
112. Gority did not provide adequate information to Bushey for her to make an
informed decision concerning M&T's recommendation.
113. Gority told Bushey that her father had agreed to sell one-third of the stock and
place a stop loss order on the balance and that she should agree.
114. Gority did not adequately communicate to Bushey that he was asking for her
consent to sell stock in the Grandchildren's Trust and place a stop loss order on the balance of the
shares in that trust.
115. Gority made no effort to explain to Bushey what a stop loss order was.
116. Gority made no effort to explain to Bushey what a stop loss trigger price was, how
it worked, or how M&T had chosen $9.00. Gority made no effort to seek Bushey's input on an
appropriate trigger.
117. Bushey was astounded by the phone call from Gority.
118. Gority did not allow Bushey to speak to Brenner Sr. prior to making a decision.
119. Gority did not allow Bushey to speak to Brenner Jr. prior to making a decision.
120. Gority did not respond to Bushey's concern that Tyco's current price was too low
to sell one-third of the stock.
121. As a result of Gority's actions, Bushey gave superficial indicia of consent.
122. Gority then called Brenner Jr.
123. Gority did not provide adequate information to Brenner Jr. for him to make an
informed decision concerning M&T's recommendation.
124. Gority told Brenner Jr. that his father and sister had agreed to sell one-third of the
stock and place a stop loss order on the remainder, and that he needed to agree immediately.
125. Gority made no effort to explain to Brenner Jr. what a stop loss order was.
126. Gority made no effort to explain to Brenner Jr. what a stop loss trigger price was,
how it worked, or how M&T had chosen $9.00. Gority made no effort to seek Brenner Jr.'s input
on an appropriate trigger.
127. Brenner Jr. was astounded by the phone call from Gority.
Exhibit A, Page 12 of 19
128. Gority did not allow Brenner Jr. to speak to Bushey prior to making a decision.
129. Gority did not allow Brenner JT. to speak to Brenner Sr. prior to making a
decision.
130. Gority did not respond to Brenner Jr.'s concern that Tyco's current price was too
low to sell one-third of the stock.
131. Gority did not respond to Brenner Jr.'s concern about using a stop loss order.
132. As a result of Gority's actions, Brenner Jr. gave superficial indicia of consent, but
reiterated to Gority that he was uncomfortable with the stop loss order and told Gority that he
would get back to him about the stop loss order.
133. Gority did not offer to meet with Bushey or Brenner Jr. to discuss their concerns.
134. Gority made no effort to involve Stauffer in the June 12 calls to Bushey or
Brenner Jr.
135. Immediately after terminating the call with Brenner Jr., Gority notified Stauffer
that he had obtained consent from Bushey and Brenner Jr. and went to lunch.
136. At 12:05 p.m., M&T entered an immediate order to sell 11,134 Tyco shares from
the Grandchildren's Trust and a stop loss order to automatically sell the remaining 22,266 Tyco
shares from the Grandchildren's Trust if the stock price hit $9.00.
137. M&T im~ediately sold 11,134 Tyco shares from the Grandchildren's Trust at
$10.23.
138. Immediately after the phone call from Gority, Bushey and Brenner Jr. spoke to
each other on the phone and expressed their astonishment about the calls from Gority.
139. During the phone call with Bushey, Brenner Jr. explained to Bushey that Gority
had been calling about the Grandchildren's Trust, which she had not understood from Gority.
Within five minutes of speaking to Gority, Brenner Jr. tried to reach Gority to prevent the entry
of a stop loss order.
140. Brenner Jr. was unable to reach Gority because Gority had gone to lunch.
141. Brenner Jr. and Bushey had no way to know that Stauffer had negligently set the
Exhibit A, Page 13 of 19
stop loss trigger price so that it could trigger at any time due to an intraday bump.
142. While Brenner Jr. was trying to find Brenner Sr., the stop loss order triggered,
only a few hours after it had been placed.
143. As a result of the stop loss order, M&T automatically sold all the remaining Tyco
shares from the Brenner Trusts at $8.75 per share. Specifically, M&T sold 9,067 shares from the
Jane Brenner "B" Trust; ?7,734 shares from the Jane Brenner "C" Trust; 48,468 shares from the
Blakely Trust; and 22,266 shares from the Grandchildren's Trust.
144. M&T charged fees and commissions to the Brenner Trusts in connection with the
June 12 transactions, including a $.06 per share fee.
145. On June 12,2002, Tyco stock opened at $10.90 and closed at $10.15.
146. On the evening of June 12, Brenner Sr. did not know any stock had been sold
from the Brenner Trusts.
147. On the evening of June 12, Brenner Sr. believed that he might have agreed to sell
one-third of the stock in the Jane Brenner "B" and "C" Trusts that morning, but was not sure.
148. On the evening of June 12, Brenner Sr. did not know what a stop loss was and did
not understand when Bushey explained to him it had caused all the stock in the trusts to be sold.
149. Brenner Sr. was very upset and angry on the evening of June 12 because he did
not understand what had happened at the meeting that morning.
150. Brenner ST. did not understand and did not believe that all the stock had been sold
out of the Jane Brenner "B" and Jane Brenner "C" trusts.
151. Brenner Sr. did not understand and did not believe that any stock whatsoever had
been sold out of the Blakely Trust.
152. At approximately 9 a.m. on the morning of June 13,2002, Brenner Sr. told Gority
on the phone that he did not understand what a stop loss order was or why the Tyco stock had
been sold out of the Brenner Trusts.
153. Brenner Sr. was angry and upset during his phone call with Gority on June 13, and
hung up on Gority for the first time ever.
Exhibit A, Page 14 of 19
154. Bushey called Gority at approximately 9 a.m. on the morning of June 13, while
Gority was on the phone with Brenner Sr.
155. Gority and Stauffer called Bushey back on speakerphone. Bushey told Gority that
Brenner Sr. did not understand what a stop loss order was or why the stock had been sold out of
the trusts.
156. Stauffer's only response to Bushey was to yell repeatedly, "I told him what a stop
loss order was. I told him."
157. Gority's only response to Bushey was that they should "move on" and talk about
reinvesting the trust assets.
158. Bushey reiterated to Gority that M&T should not meet with Brenner Sr. without
her or Brenner Jr. present.
159. Bushey asked Gority ifhe had a tape recording of their June 12 telephone
conversation, to which Gority replied, "Margaret, you are starting to scare me."
160. Later on June 13, Brenner Jr. called Gority and also expressed concern and
disappointment about the events of the previous day.
161. Stauffer knew on June 13 that the June 12 sales from the Brenner Trusts could be
reversed for a period of three days, but never told Bushey, Brenner Jr., Brenner Sr., or Gority.
162. On June 13, Tyco stock opened at $10.40 and closed at $13.80.
163. On June 14, Tyco stock opened at $12.78 and closed at $13.40.
164. On June 13, 2004, and thereafter, Bushey and Brenner Jr. refused to sign written
authorizations for the sales made from the Grandchildren's Trust.
165. M&T never contacted the Brenners about the possibility of repurchasing Tyco
stock into the Brenner Trusts after June 12, 2002, even when a senior M&T executive saw Tyco's
stock price dip below the price at which the stock had been sold on June 12 and considered that
the Brenners might wish to repurchase it.
166. Pursuant to its own policies, M&T would not have allowed the Brenners to
repurchase Tyco stock into the Brenner Trusts after June 12,2002.
Exhibit A, Page 15 of 19
167. The only way M&T would have participated in the repurchase of Tyco stock after
June 12, 2002, was to resign as corporate co-trustee of the Brenner Trusts and then purchase
shares into a custody account.
168. M&T never explained this option to the Brenners and never offered to resign and
repurchase shares into a custody account.
169. Pursuant to the terms of the trust instruments, Petitioners validly removed M&T
as co-trustee of the Brenner Trusts and appointed Orrstown Bank as the successor trustee.
170. On September 30, 2003, Orrstown Bank sent a letter to M&T on behalf of
Petitioners, which formally notified M&T of its valid removal as trustee and directed M&T to
transfer all assets in the Brenner Trusts to Orrstown Bank as successor trustee.
171. M&T was on notice of its removal as trustee no later than September 30,2003.
172. On September 30, 2003, Tyco stock closed at $20.43.
173. M&T did not transfer the assets or otherwise respond to the letter of
September 30, 2003.
174. On April 15,2004, Petitioners (through counsel) demanded that M&T transfer the
assets in the Brenner Trusts to Orrstown Bank.
175. M&T did not transfer the assets or otherwise respond to the letter of April 15,
2004.
176. On April 15, 2004, Tyco stock closed at $28.35.
177. On June 17, Petitioners (through counsel) again demanded that M&T transfer the
assets in the Brenner Trusts to Orrstown Bank.
178. On July 8, 2004, M&T (through counsel) finally sent a letter to Petitioners
(through counsel) conditioning transfer of the assets on Petitioners' execution of a release.
179. On July 8, 2004, Tyco stock closed at $31.78.
180. Petitioners were unwilling to sign the release sent by M&T on July 8, 2004.
181. As of December 21,2004, M&T had not transferred the assets in the Brenner
Trusts to Orrstown Bank as successor trustee, and M&T continues to maintain physical control of
Exhibit A, Page 16 of 19
the trust assets.
182. On December 21,2004, Tyco stock closed at $35.60.
C. Conclusions of Law
1. M&T is a professional fiduciary.
2. M&T is subject to a higher standard of care as a professional fiduciary.
3. M&T was negligent or reckless in its communications with Petitioners about the
Brenner Trusts prior to June 2002, particularly with regard to downside hedging mechanisms.
4. M&T was negligent or reckless in the formulation and communication of its
June 12,2002, recommendation to sell one-third of the Tyco stock in the Brenner Trusts
immediately.
5. M&T was negligent or reckless in the formulation and communication of its
June 12,2002, recommendation to place a stop loss order at $9.00 on two-thirds of the Tyco
stock in the Brenner Trusts.
6. M&T breached its fiduciary duties to the Jane Brenner "B," Jane Brenner "C," and
Blakely Trusts when it met alone with Brenner Sr. on June 12,2002.
7. M&T breached its fiduciary duties to the Jane Brenner "B," Jane Brenner "C," and
Blakely Trusts when it sold stock from those trusts without the informed consent of Brenner Sr.
or, because Brenner Sr. could not give informed consent, someone with power of attorney for
Brenner Sr.
8. M&T breached its fiduciary duties to the Grandchildren's Trust when it allowed an
unqualified employee to contact the co-trustees to request consent to a recommendation that he
could not explain and about which he had no opinion.
9. M&T breached its fiduciary duties to the Grandchildren's Trust when it failed to
meet, or even offer to meet, with its co-trustees together to convey, explain, and discuss the most
significant recommendation the professional co-trustee had ever made.
10. M&T breached its fiduciary duties to the Grandchildren's Trust when it did not
provide adequate information to the co-trustees for them to give informed consent.
Exhibit A, Page 17 of 19
11. M&T breached its fiduciary duties to the Brenner Trusts when it failed to notify
Petitioners on June 13, 2002, that the June 12 transactions could be reversed for three days.
12. M&T breached its fiduciary duties to the Brenner Trusts when it did not timely
resign as co-trustee and transfer the assets so that the Brenners could reinvest the assets
remaining after the events of June 12,2002.
13. Petitioners lawfully removed M&T as co-trustee of the Brenner Trusts and
appointed Orrstown Bank as successor trustee, no later than September 30,2003.
14. Once M&T was removed as trustee of the Brenner Trusts, M&T breached its
fiduciary duties to the Brenner Trusts by failing to timely transfer the trusts assets to the
successor trustee for reinvestment.
15. M&T is liable for the damages caused to the Brenner Trusts as a result of its
negligent or reckless conduct and failure to meet the standard of care for a professional fiduciary.
16. The proper measure of damages is that necessary to restore the Brenners Trusts to
the position they would have been in but for M&T's negligent or reckless conduct and failure to
meet the standard of care for a professional fiduciary.
17. The proper measure of damages is the amount of the difference between the price
at which the Tyco shares were sold out of the Brenner Trusts on June 12,2002 (53,807 shares at
$10.23 and 107,535 shares at $8.75) and the price at which 161,342 Tyco shares may be
purchased on the open market on the date judgment is entered, plus the amount of any fees
charged to the Brenner Trusts for executing the June 12 transactions.
18. Gority is jointly and severally liable with M&T for the damages caused to the
Brenner Trusts.
19. Stauffer is jointly and severally liable with M&T for the damages caused to the
Brenner Trusts.
20. The accountings should be confirmed, subject to the foregoing exceptions.
21. All assets currently in the Brenner Trusts should be distributed immediately to
Barbara Brobst at Orrstown Bank, in her capacity as representative of the successor trustee.
Exhibit A, Page 18 of 19
AUDITOR'S RECOMMENDATION TO THE COURT
The Auditor recommends that the Court adopt the foregoing Statement of
Questions Presented, Findings of Fact, and Conclusions of Law; that the Court enter judgment in
favor of Petitioners and against Respondent M&T on all claims; that the Court enter judgment in
favor of Petitioners and against Respondents Gority and Stauffer on the claims for aiding and
abetting breach of fiduciary duty; that the Court order Respondents to pay damages, or surcharge
M&T, for the losses to the Brenner Trusts as described in paragraph 17 of the Conclusions of
Law above; that the Court confirm the accountings with the foregoing exceptions; and that the
Court order M&T to immediately release all assets in the Brenner Trusts to Orrstown Bank as the
successor trustee.
DA TED this ~ day of January, 2005.
James D. Bogar, Esq.
Court-Appointed Auditor
031590\000011595307 VOOI
Exhibit A, Page 19 of 19
CERTIFICATE OF SERVICE
I hereby certify that I served the foregoing PETITIONERS' POST-TRIAL
MEMORANDUM on:
Mark D. Bradshaw
Stevens & Lee
P. O. Box 11670
Harrisburg, PA 17108-1670
Attorney for Respondents
o by mailing a copy thereof in a sealed, first-class postage prepaid envelope,
addressed to each attorney's last-known address and depositing in the U.S. mail at Portland,
Oregon on the date set forth below;
o by causing a copy thereof to be hand-delivered to'said attorneys at each
attorney's last-known office address on the date set forth below;
[g] by sending a copy thereof via overnight courier in a sealed, prepaid envelope,
addressed to each attorney's last-known address on the date set forth below; or
o by faxing a copy thereof to each attorney at each attorney's last-known
facsimile number on the date set forth below.
DATED this 22nd day of December, 2004.
TONKON TORP LLP
>- . /
By /()h[flZ C _'/C{f.l~,L-_..
William F. artson, Jr., OSB No. 72163
Robyn E. Ridler, OSB No. 00016
Attorneys for Petitioners
031590\??oo I \602068 V004