HomeMy WebLinkAbout02-25-05 (2)
IN RE: ESTATE OF
JOSEPH D. BRENNER, SR., JOSEPH D.
BRENNER, JR., and MARGARET B. BUSHEY,
Petitioners,
v.
~ACTURERSANDTRADERSTRUST
COMPANY, a New York corporation, DAVID C.
GORITY, an individual, and CURT R.
STAUFFER, an individual,
Respondents.
IN RE: JOSEPH D. AND JANE W. BRENNER
TRUST
IN RE: JANE W. BRENNER TRUST UWO "B"
------------------------------------------------------------
IN RE: JANE W. BRENNER TRUST UWO "C"
------------------------------------------------------------
IN RE: NANCY B. BLAKELY TRUST
IN THE COURT OF COMMON PLEAS
OF CUMBERLAND COUNTY,
PENNSYLVANIA
ORPHANS' COURT DNISION
..-No. 21-2004-087
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vI~o.21-2003-879
: /~o. 21-2003-881
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PETITIO~ERS' OBJECTIO~S TO AUDITOR'S REPORT
~D MEMO~DUM I~ SUPPORT OF OBJECTIO~S
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Petitioners Margaret B. Bushey ("Bushey"), Joseph D. Brenner, Jr. ("Brenner Jr. ")
and Joseph D. Brenner, Sr. ("Brenner Sr.") submit the following objections to the Auditor's
Report and Recommendation Regarding All Objections Filed ("Auditor's Report" or "AR").
Introduction
This case involves four trusts. The Jane W. Brenner Trust UWO "B," the Jane W.
Brenner Trust UWO "C," and the Nancy B. Blakely Trust are referred to collectively as the
"Children's Trusts." Respondents Manufacturers and Traders Trust Company ("M&T") and
Brenner Sr. were co-trustees of the Children's Trusts at the time ofthe events in question. The
Joseph D. and Jane W. Brenner Trust is referred to as the "Grandchildren's Trust." M&T,
Bushey, and Brenner Jr. were co-trustees ofthe Grandchildren's Trust at the time of the events in
question. The four trusts are referred to collectively as the "Brenner Trusts" or the "Trusts."
These abbreviations are consistent with the Auditor's Report.
The facts of this case have been recited on many occasions, both to the Court and
to the Auditor. In the interest of brevity, Petitioners will not recite the facts yet again here, but
instead direct the Court to their Post-Hearing Memorandum, which provides a detailed summary
of the facts at pages 1-31. While the Post-Hearing Memorandum necessarily recites the facts as
alleged by Petitioners, it also contains extensive citation to the record before the Auditor, and
will provide the Court with a much more thorough understanding of the case since the Auditor
did not make any findings on many ofthe facts alleged therein. Petitioners also point the Court
to the damages analysis contained in their Post-Hearing Memorandum at pages 55-59, rather than
reciting it again herein. The Auditor did not consider or discuss damages in the Auditor's Report
since he concluded that Respondents did not breach their fiduciary duties. (AR 26.) A copy of
Petitioners' Post-Hearing Memorandum is attached as Exhibit A for the Court's convenience and
incorporated herein.
Petitioners object to the Auditor's Report on four grounds. Petitioners obviously
disagree with the Auditor's conclusion that M&T exercised "extraordinary care" (AR 21), and
that David C. Gority ("Gority") and Curt R. Stauffer ("Stauffer") exhibited "a high degree of
professionalism" (AR 25), in discharging their fiduciary duties. However, Petitioners limit their
objections to four specific areas in which the Auditor failed to make any findings, failed to make
sufficient findings, or erred in his application of the law. First, the Auditor failed to make any
findings or conclusions with respect to two of the six claims stated in the Petition. Petitioners
therefore submit their Third and Fourth Claims, which relate to M&T's failure to timely transfer
the trust assets to the successor trustee, to the Court for resolution based on the evidence in the
record. Second, the Auditor made only one finding regarding M&T's failure to advise Petitioners
that the disputed stock sales could be reversed for three days. That finding was insufficient to
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reach a legal conclusion regarding M&T's conduct, and the Auditor in fact did not discuss or
make any specific legal conclusion in the Auditor's Report with respect to M&T's conduct
regarding the right of reversal. Third, the Auditor made insufficient findings of fact regarding
M&T's recommendation of$9.00 stop-loss orders on two-thirds of the Tyco shares in the
Brenner Trusts on June 12,2002, and M&T's communication of that recommendation to
Petitioners. Based on the undisputed evidence, M&T's conduct with regard to the stop-loss
orders was negligent as a matter oflaw. Fourth, and finally, the Auditor rejected the only
medical evidence regarding Brenner Sr.'s diminished capacity for reasons not supported by the
evidence, gave inappropriate weight to self-assessment evidence, and improperly relied on his
personal perception of the "normal aging process" and Brenner Sr.'s demeanor during his
testimony at the hearing.
Obiections and Memorandum In Support of Obiections
I. The Auditor Failed to Consider or Rule on Petitioners' Claims Against
M&T for Refusing to Transfer the Trust Assets to the Lawfully
Appointed Successor Trustee.
The Auditor's Report completely fails to address two of Petitioners' claims,
specifically the Third and Fourth Claims in the Petition, which assert that M&T breached its
fiduciary duty by refusing to release the assets in the Brenner Trusts to the lawfully appointed
successor trustee.
Petitioners presented significant evidence regarding M&T's refusal to release the
trust assets at hearing, as well as addressing the issue in their pre-hearing and post-hearing
briefing. The evidence on this issue was entirely undisputed by M&T, and is as follows. After
the events of June 12,2002, Petitioners lost all confidence in M&T and decided to remove all
their accounts from M&T, including the Brenner Trusts. (Tr. 135,218,284.) The trust
instruments give Petitioners the authority to remove M&T and appoint a successor trustee.
(Exs. 1,2, 119.) M&T has never contested that Petitioners have such authority. Petitioners
exercised that authority and selected Orrstown Bank to serve as the successor trustee. (Tr. 133-
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34.) At Petitioners' behest, Barbara Brobst ofOrrstown Bank wrote a letter to Respondent
Gorityon September 30, 2003. (Tr. 134; Ex. 95.) Ms. Brobst enclosed documents signed by the
Brenners and Orrstown Bank that removed M&T as trustee of the Brenner Trusts and appointed
Orrstown Bank as the successor trustee. Ms. Brobst also provided M&T with transfer
instructions for the trust assets. (Ex. 95.) Gority testified that the form ofthe removal notice was
valid in his experience and he did not have any objection to it. (Tr.573.) M&T has never
contested the validity or efficacy of its removal as trustee on September 30, 2003, nor has it ever
contested the appointment of Orrstown Bank as successor trustee.
M&T did not transfer the trust assets as directed. To this day, M&T retains the
entire corpus of all four ofthe Brenner Trusts. M&T did not even acknowledge receipt of the
September 30, 2003, notice of its removal and Orrstown Bank's appointment as successor trustee.
It is undisputed that M&T did not respond in any way to the September 30 notice of its removal
as trustee and instructions to transfer the assets to the successor trustee. On February 2,2004,
Petitioners filed its Petition in this matter. Petitioners included two claims against M&T for
breach of fiduciary duty based on its failure to transfer the assets in the Children's Trusts (Third
Claim) and Grandchildren's Trust (Fourth Claim) to Orrstown Bank upon receipt ofthe
September 30 notice.1 Petitioners asserted ongoing damage to the trusts as a result. M&T still
did nothing to transfer the assets. On April 15, 2004 counsel for Petitioners sent a letter to M&T
demanding that M&T release the assets to Orrstown Bank immediately or explain their failure to
do so. Counsel specifically pointed out that M&T's failure to release the trust assets to Orrstown
Bank so that they could be reinvested (their being almost entirely in the form of cash equivalents
at M&T) was reducing the value of the trust assets and thereby causing unnecessary damage to
the trusts. (Ex. 96.) Again, M&T was completely silent. On June 17,2004, counsel for
1 The Petition filed in the Orphans' Division on February 2,2004, was substantially similar to the
Complaint previously filed in the Civil Division on August 22, 2003. However, since M&T had
not been formally removed when the Complaint was filed, the Third and Fourth Claims regarding
M&T's failure to transfer the assets to Orrstown were new to the Petition.
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Petitioners sent yet another letter to M&T, repeating the demand that the assets be released to
Orrstown Bank to stem the continuing damage to the trusts caused by M&T's non-
responsiveness. (Ex. 97.)
Nearly a year after receiving notice of its removal, M&T finally responded on
July 8,2004, to Petitioners' repeated instructions to transfer the assets to the successor trustee.
M&T did not respond by transferring the assets, however. Instead, it sent a release for Petitioners
to sign to "facilitate" the transfer of trust assets to Orrstown Bank. (Ex. 98.) M&T offered no
explanation in its July 8 letter for its prolonged silence, its failure to transfer the assets earlier, or
its requirement that the Brenners sign a release. (Ex. 98.) On the same date, July 8, M&T filed
its Verified Answer to the Petition, in which it was forced to respond to the Third and Fourth
Claims. M&T admitted that the trust assets had not yet been released to Orrstown Bank and
continued to be held by M&T (Answer ~ 39), but otherwise denied Petitioners' allegations as
legal conclusions and asserted that no damage was being done to the trusts by M&T's failure to
release the assets (Answer ~~ 39,57,59).
As a matter of law, M&T breached its fiduciary duties by blatantly ignoring for
nearly a year its removal as trustee and instructions to transfer the assets to the successor trustee.
M&T gave no response to Petitioners' repeated requests to transfer the assets to Orrstown Bank
as the lawfully appointed successor trustee.2 As the Auditor recognized, M&T owes a "higher
standard of care" to the Brenner Trusts because it is a professional fiduciary (AR 21). Moreover,
M&T has physical control of the trust assets. No one at M&T has ever offered any explanation,
2 Petitioners' expert on fiduciary matters, David Steele, testified that a corporate trustee is
obligated to communicate with its co-trustees at all times regarding their accounts, including any
reasons the corporate trustee may have for not immediately transferring trust assets to a successor
trustee. (Tr. 389.) The Auditor dismissed Mr. Steele's testimony in its entirety as "neither
persuasive nor relevant." (AR 19 ~ 80.) Mr. Steele has 40 years of experience in the trust
industry, including 20 years managing trust departments at banks in Pennsylvania, and taught at
the Central Atlantic School of Trusts for 15 years. (Tr. 381-384 (discussing his credentials)).
While his testimony is not necessary to find in Petitioners' favor, it is relevant and persuasive on
its face and Petitioners submit it to the Court for appropriate consideration.
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during depositions, the hearing, or otherwise, for M&T's willful or negligent failure to release
the trusts assets once M&T was removed as trustee. (Tr. 135,218,287-88.) Petitioners are not
aware of any authority that permits M&T to hold the trust assets hostage pending resolution of a
dispute between the co-trustees. Such a rule of law would be unfair to the trust beneficiaries, as
well as improperly discourage lawful actions against negligent fiduciaries. It is also notable that
M&T has never even suggested that there is any legal authority for its retaining the trust assets
subsequent to its removal on September 30,2003. To the contrary, M&T's letter of July 8, 2004,
makes clear that M&T believes it has the ability to transfer the trust assets to Orrstown Bank if it
wishes to do so.
Unfortunately, the Auditor did not address Petitioners' Third and Fourth Claims
against M&T for refusal to transfer the trust assets to the successor trustee. The only finding of
fact in the Auditor's Report that is pertinent to these claims is No. 81, which states, "Brenner Sr.,
Brenner Jr., and Bushey have requested that M&T transfer the Trusts to Orrstown Bank, of
Carlisle, Pennsylvania." There is no mention of the claims or their substance anywhere else in
the Auditor's Report.
In light of the Auditor's failure to address Petitioners' Third and Fourth Claims,
the Court must do so. Based on the undisputed evidence, M&T breached its fiduciary duties by
willfully or negligently failing to transfer the assets in the Brenner Trusts to Orrstown Bank, the
lawfully appointed successor trustee, for over a year. M&T has never offered a defense or
explanation for its post-removal conduct because there is no justification. M&T's refusal to
transfer the trust assets upon receiving undisputed valid notice of its removal as trustee, not to
mention its complete failure to even respond to its co-trustees on this issue, cannot satisfy M&T's
higher standard of care as a professional fiduciary. Due to M&T's conduct, the trust assets have
remained at M&T, largely in the form of cash equivalents earning minimal interest, while the
cost of reacquiring Tyco stock has risen from a closing price of $20.43 on September 30, 2003
(the date on which Petitioners notified M&T of its removal as trustee) to $31.78 on July 8, 2004
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(the date on which M&T finally responded to the removal notice) to $33.61 on February 10, 2005
(the date of the Auditor's Report). (Ex. 108.) M&T should be surcharged for the losses suffered
by the trusts as a result ofM&T's prolonged and inexcusable failure to timely transfer the assets
to Orrstown Bank for reinvestment.
II. The Auditor Did Not Discuss M&T's Failure to Advise Petitioners that It
Could "Reverse" the Disputed Sell Orders, and Did Not Make Adequate
Findings of Fact on This Issue to Reach a Conclusion of Law.
It is undisputed that M&T knew it could have "reversed" the contested sales of
Tyco stock that occurred on June 12,2002, for any reason, for three days. Respondent Stauffer,
the investment officer for the Brenner Trusts, testified at the hearing that he was fully aware of
the ability to reverse the trades for three days, but did not tell either Respondent Gority, who was
the administrative officer for the trusts, or Petitioners, who were the co-trustees. (Tr.841-42.)
There is no evidence any of the Petitioners were aware trades could be reversed for three days.
It is also undisputed that M&T knew Petitioners were angry and upset on the
morning of June 13, 2002. Petitioners not only communicated those feelings to Gority, but
specifically told Gority that Brenner Sr. did not understand that the stock in the trusts would be
sold. Gority testified that, when he spoke to Brenner Sr. around 9 a.m. on June 13, Brenner Sr.
was upset and angry, "expressed his displeasure" to Gority, told Gority that he did not understand
the stop-loss order, and ultimately hung up on Gority, which was something Brenner Sr. had
never done before in their many years working together. (Tr. 506-08, 554-55.) Gority recorded
in a contemporaneous memorandum that Brenner Sr. told him on June 13 that "he did not
understand that we had explained the stop-loss to him and that he thought we would not sell
shares below $9.00 per share." (Ex. 19 at 4.)
Bushey also spoke to Gority on the morning of June 13, immediately after he got
off the phone with Brenner Sr. Gority characterized Bushey as "upset and concerned" when he
spoke to her (Tr. 507), and testified at hearing that she told him that morning that Brenner Sr. did
not understand what a stop-loss order was. (Tr.554-55.) Gority told Bushey that he had just
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been on the phone with Brenner Sr., and that Brenner Sr. was upset and said he did not
understand that he had sold all the stock in the trusts. (Tr. 129,507.) Busheyremembers
Stauffer in the background yelling that he had told Brenner Sr. what a stop-loss order was.
(Tr. 129.) Gority's only response to Bushey on the morning of June 13 was to say "let's just
forget about it and move on" and suggest meeting the next week to discuss reinvestment ofthe
proceeds. Gority did not dispute that is what he told Bushey. (Tr. 130,507.) Bushey responded
that the family was processing the information, asked him to send copies of everything, and
asked whether he had a tape recording of their phone call the previous day. (Tr. 130-31.) Gority
responded, "Margaret, you are starting to scare me" (Tr. 131), which he also did not deny.
Finally, still on June 13, Gority spoke to Brenner Jr., who Gority testified had
"pretty much the same reaction [as Bushey], that there was concern and disappointment of what
had happened." (Tr.507-08.) Stauffer does not recall participating in any of the calls on June
13, but does not deny participating. (Tr. 658) Stauffer does remember it being communicated to
him that Brenner Sr. was really angry about the events of June 12 (Tr. 842) and recalls Brenner
Sr. not being interested in discussing reinvestment with them (Tr. 658).
M&T was the professional fiduciary, had investment expertise, made investment
recommendations to Petitioners regarding the trusts, and physically controlled the trust assets.
The Brenners, by contrast, had little investment experience beyond owning Tyco stock, and had
only sold stock from any of the trusts on one prior occasion (selling approximately 40% of the
Tyco stock in the Grandchildren's Trust in 1999). It is undisputed that Stauffer, the investment
officer, was the only person involved in the events of June 12,2002, who knew that stock trades
could be reversed for three days.3 Nonetheless, the Auditor apparently concluded that, in
evaluating M&T's conduct with respect to the Brenner Trusts, the burden was on Petitioners to
3 It is likely that Stauffer's immediate superior, John Klobusicky, who attended the June 12
meeting with Brenner Sr. by speakerphone, was aware that trades did not settle for three days and
could be reversed during that time. However, Mr. Klobusicky was not involved in the June 13
phone calls, and did not testify about reversal.
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specifically ask M&T to reverse the June 12 trades during the three-day window. Finding of Fact
No. 56, the only part of the Auditor's Report directed to this issue, states, "Neither Brenner Sr.,
Brenner Jr., nor Bushey requested that M&T reverse the stock sales that took place on June 12,
2002." (AR 14 ~ 56.) There are no other findings on this issue in the Auditor's Report.
M&T knew unequivocally on the morning of June 13 that the co-trustees were
upset and angry about the June 12 stock sales. It is undisputed that Brenner Sr. and Bushey each
specifically told Gority on June 13 that Brenner Sr. did not understand what he had purportedly
agreed to the previous day, particularly the stop-loss orders. Brenner Sr. was so angry with M&T
that he hung up on Gority, an unprecedented event. According to the Auditor's findings, Brenner
Sr. was the independent decision-maker for the Children's Trusts and the de facto decision-maker
for the Grandchildren's Trust. (AR 6-7 ~~ 13-14; AR 25-26.) Yet, when M&T was informed that
Brenner Sr. did not understand the transactions and had not intended to sell stock, no one at
M&T ever told Brenner Sr. that the trades could be reversed on June 13, or even June 14.
(Tr. 558.) No one at M&T ever told Bushey or Brenner Jr. either, even though they were the co-
trustees on the Grandchildren's Trust, Gority knew on June 13 that they were both upset and
concerned about what had happened on June 12, and Bushey had gone so far as to ask Gority on
the morning of June 13 whether he had a tape recording of their June 12 conversation.
The Auditor's only finding of fact on the reversal issue wrongly places the burden
on Petitioners to first know that M&T could reverse the transactions, and then to specifically ask
M&T to do so. M&T was the professional fiduciary, had made the disputed investment
recommendation, had drafted the authorization letter for Brenner's signature, had the expertise to
actually know the trades could be reversed for three days, and had physical control of the trust
assets. Once M&T was put on notice on the morning of June 13 that its co-trustees were upset
and concerned, and specifically asserted that they had not understood what they had allegedly
authorized the prior day, M&T was obligated to at least notify Petitioners of their options,
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including the three-day window for reversing the transactions.4 Instead, the only thing Gority
told Petitioners was that they should "just forget about it and move on" and meet with M&T in a
week to discuss reinvestment. Stauffer told Petitioners nothing.
The Auditor's sole finding of fact regarding reversal, i.e. that Petitioners did not
specifically request it, is insufficient to resolve this issue. The Auditor failed to make any
findings regarding M&T's conduct in connection with the reversal issue, and did not include any
specific discussion or conclusions about M&T's conduct in the Auditor's Report. Petitioners
respectfully ask the Court to make additional findings based on the undisputed facts, to conclude
that M&T breached its fiduciary duty by failing to notify the co-trustees of the availability of
reversal under the circumstances of June 13, and to surcharge M&T for the damages suffered by
the trusts as a result ofM&T's negligence.
III. Based on the Undisputed Facts, M&T's Recommendation to Enter a
$9.00 Stop-loss Order on June 12,2002, Was Negligent as a Matter of
Law. The Auditor Also Did Not Make Adequate Findings on this Issue.
The following facts are undisputed. M&T had internal discussions about
downside hedging mechanisms, including stop-loss orders, in connection with the Brenner Trusts
in September 2001. (Exs. 64-66, 70, 72.) No one at M&T ever discussed stop-loss orders or any
other downside hedging techniques with Petitioners, however, until June 12, 2002. (Tr. 806-08,
117,280.) On June 12, Stauffer recommended to Brenner Sr. that they enter a stop-loss order at
$9.00 for 2/3 ofthe shares in each of the trusts (having already recommended that they selll/3 of
the shares immediately at market price). (AR 13 ~ 49.) Stauffer spoke on behalf ofM&T and
was the only person present who had any experience with stop-loss orders. (Tr. 535, 743-45,
4 Petitioners' expert on investment matters, James Quinlan, testified at the hearing that, under the
undisputed circumstances of June 13, a prudent investment advisor would have told their client
about the possibility of reversing the trades for three days. (Tr. 366-67.) The Auditor dismissed
Mr. Quinlan's testimony in its entirety as "neither persuasive nor relevant." (AR 19 ~ 80.)
Mr. Quinlan is a practicing investment advisor and the President of Smart Financial Advisors.
(Tr. 323-35 (discussing his credentials)). While his testimony is not necessary to find in
Petitioners' favor, it is relevant and persuasive on its face and Petitioners submit it to the Court
for appropriate consideration.
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280.) Stauffer did not consult with Brenner Sr. regarding what stop-loss trigger price he would
be comfortable with.5 (Tr. 809-10.) Stauffer did not tell Brenner Sr. as co-trustee why he was
recommending a $9.00 trigger price, did not tell Brenner Sr. how he had tested the $9.00 trigger
to reasonably ensure that it would not trigger a sale simply as a result of recent intraday market
volatility, and did not explain to Brenner Sr. how likely it was that the stop-loss order would
trigger in the market environment existing on June 12,2002. (Tr. 812-13.) Put another way,
Stauffer did not tell Brenner Sr. that the trigger price he was recommending would have resulted
in the complete liquidation ofTyco stock on three ofthe preceding seven trading days. (Tr.813.)
The following facts are also undisputed. Stauffer was the only person M&T
considered qualified to discuss investment matters with Petitioners. Stauffer never spoke to
Bushey or Brenner Jr. about the stop-loss recommendation for the Grandchildren's Trust,
however. It was Gority who called Bushey and Brenner Jr. on June 12. (AR 14 ~ 55.) Gority
had been on vacation in Ireland the ten days prior to June 12, did not have an opinion on M&T's
recommendation that they sell 1/3 ofthe Tyco stock in the Brenner Trusts immediately and place
a stop-loss order at $9.00 on the remainder, and did not believe he was qualified to answer any
questions regarding that investment recommendation. (Tr.494-95.) Gority told Bushey and
Brenner Jr. that Brenner Sr. had agreed to the $9.00 stop-loss order for 2/3 of the shares, and
asked for Bushey and Brenner Jr. to agree to the same for the Grandchildren's Trust. (Tr. 113,
212; AR 14 ~ 55.) Gority did not explain anything about the stop-loss order to Bushey or
Brenner Jr. (Tr. 493-94, 497-98.) Gority did not explain how a stop-loss order worked, how
Stauffer set the $9.00 trigger price, how Stauffer tested the trigger price, or what the likelihood of
a $9.00 stop-loss order triggering in the current market was. (Tr. 493-94, 497-98.) Brenner Jr.
specifically expressed concerns to Gority about the use of a stop-loss order. (Tr. 498, 213-14,
5 Mr. Quinlan gave expert testimony that a stop-loss trigger price should typically be determined
in consultation with the client, since the price at which the client wants to exit the stock position
is the "optimal" level for a stop-loss trigger. (Tr. 359-60.) Stauffer's superior, Dan Magee, also
testified that setting the trigger price is normally a collaborative effort with the client. (Tr.708.)
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231-32.) Gority did not respond to those concerns though. (Tr. 213, 498). In fact, Gority
testified that he did not feel it was necessary to respond to the co-trustee's concerns about the
stop-loss order because he "really felt as though the objection was just an expression of an
opinion." (Tr.498.) Despite the fact that Stauffer was the investment officer for the
Grandchildren's Trust, Stauffer considered it Gority's job to communicate M&T's
recommendation to Bushey and Brenner Jr. on June 12 (Tr. 827-28) and never spoke to either
Bushey or Brenner Jr. about his stop-loss recommendation. (Tr. 828, 836.)
Given the foregoing undisputed facts, M&T's June 12 recommendation regarding
the stop-loss order was negligent as a matter oflaw. First, M&T should have communicated
downside hedging options to Petitioners as part of the November 2001 presentation, or at least
once Tyco's stock price began declining precipitously in early 2002. Tyco stock fell from trading
around $57 in early January, to around $35 in early February, $20 in early May, and $10 on
June 7 when Stauffer called Petitioners to set up a meeting. However, between November 13,
2001 and June 7, 2002, M&T contacted Petitioners only twice,6 and did not mention downside
6 The Auditor found that Gority and Stauffer "repeatedly advised" Petitioners between January
2002 and June 12,2002 "to diversify the holdings of the Trusts" (AR 11 ~ 40), and that M&T
kept Petitioners well-informed of market events and M&T's opinion on Tyco during that time
period (AR 12 ~ 42). These findings are inconsistent with the undisputed facts in evidence.
After Stauffer's presentation of a seven-year diversification program for the trusts in November
2001 (Ex. 11), there are only two subsequent contacts in evidence: (1) a conversation with
Brenner Sr. at the end of January 2002 about potentially implementing the long-term
diversification plan, with a letter from Gority dated February 1 memorializing the conversation
(Ex. 14); and (2) a letter on March 6 from Stauffer to Brenner Sr., copied to Bushey and Brenner
Jr., which provided reassurances about the decline in Tyco's stock price, and reiterated Stauffer's
general belief that all portfolios should be diversified (Ex. 15). There is evidence that in early
May, when Tyco was trading around $20, Stauffer asked Gority to set up a meeting with
Petitioners to discuss an aggressive systematic sales program for the trusts (Ex. 16), but it is
undisputed that Gority never set up such a meeting. Quinlan gave expert testimony that a
prudent investment advisor would have discussed downside protections with the client given the
market environment existing in the first half of 2002 (Tr. 332-34).
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hedging mechanisms on either occasion. Instead, M&T waited to suggest building a door until
the horse was long out of the barn.
Second, and more importantly, when M&T finally did recommend a downside
hedging mechanism for the first time on June 12,2002, Stauffer failed to adequately test the
stop-loss trigger price that he recommended to reasonably ensure it would not trigger based
solely on intraday market volatility. According to Stauffer's own testimony, "What you want to
do in a stop-loss in a situation like this is set it so that it wouldn't go off in a normal trading day.
There would have to be some type of event that would cause the stock to trade much more
volatilely on the downside that would trigger that."7 (Tr.637.) Stauffer acknowledged the
importance of back testing an investment recommendation against historical data to "determine
whether certain parameters and assumption would actually be effective" in generating the desired
result. (Tr.615.) The only other time Stauffer had made an investment recommendation to
Petitioners was in November 2001. In that instance, Stauffer back tested his proposal, made a
point of explaining the importance of back testing to Petitioners, and included in the written
materials for the November 2001 presentation information about back testing, the time period he
had back tested, and a graphic depiction of what sales would have triggered in the previous
18 months pursuant to his recommended diversification plan. (Ex. 11.)
On June 12,2002, however, Stauffer did not do adequate back testing and did not
communicate to Petitioners how inadequate his back testing was. On June 12, Stauffer
recommended a trigger price 15% below the price at which Tyco was then trading. (Tr.81O.)
Stauffer says his calculation was "based upon just looking at the stock and its intraday
movements, what its volatility was from high to low in any given day." (Tr.637.) However, a
comparison ofTyco stock's high and low trading prices for the month of June 2002 shows that
7 Mr. Quinlan also gave expert testimony that a prudent investment advisor would avoid setting a
stop-loss order so that it triggered due to intraday volatility. (Tr. 337-39, 358-60.)
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there was more than 15% volatility on three of the seven trading days leading up to June 12.8
Stauffer testified that he could not "recall" those statistics (Tr. 811-12) or whether he noticed that
fact at the time. (Tr.812-13.) In any event, Stauffer admits that he did not communicate to
Brenner Sr. what period he back tested, or how likely it was that a stop-loss order would trigger if
the price were set at $9.00. (Tr. 813.) Stauffer "thinks" he looked at Tyco's daily volatility "for
the past six months or so" (Tr. 810), even though he knew Tyco had been more volatile recently
(Tr.812). Stauffer testified that it "is possible" the co-trustees to whom M&T was making the
recommendation would have wanted to know how likely it was in the current market that the
$9.00 price would trigger liquidation of all Tyco stock in the trusts. (Tr.813.)
Stauffer's negligence in formulating the stop-loss trigger price was exacerbated by
M&T's failure to adequately communicate the stop-loss recommendation or its practical
application to Petitioners, its co-trustees. Klobusicky recalls Stauffer giving only a single "brief'
description of a stop loss order. (Tr. 754.) Stauffer testified that he explained the stop-loss order
to Brenner Sr. as follows: "My explanation to him was that it was outside of a normal one day
trading volatility ofthe stock. So therefore, just normal market ups and downs would not
necessarily trigger the stop-loss." (Tr.649.) Gority does not recall exactly what Stauffer said
about how the stop-loss worked, but says his best memory is that Stauffer said words to the effect
that "it was a mechanism that was employed to protect the value and the shares should there be a
free fall in the market." (Tr.536.) Stauffer's description to Brenner Sr. (as either Stauffer or
Gority remembers it) was not accurate as to the stop-loss order Stauffer recommended on June
12, as a result of Stauffer's failure to back test the $9.00 trigger price in the existing market and
8 On June 3, the high was 18.800 and the low was 15.600 (17.02% volatility). On June 4, the
high was 16.800 and the low was 15.550 (7.73% volatility). On June 5, the high was 17.750 and
the low was 16.910 (4.78% volatility). On June 6, the high was 17.300 and the low was 14.400
(16.76% volatility). On June 7, the high was 12.550 and the low was 9.450 (24.70% volatility).
On June 10, the high was 11.750 and the low was 10.300 (12.34% volatility). On June 11, the
high was 11.250 and the low was 10.500 (6.66% volatility). All stock prices are taken from
Exhibit 108.
14
explain that a trigger price set 15% below current trading price would have triggered on three of
the last seven trading days. As to Bushey and Brenner Jr., Gority admits he did not tell either of
them anything about how the stop-loss trigger price was determined or back tested, or how likely
it was that it would trigger liquidation of all the Tyco shares in the Grandchildren's Trust that
day. 9
Mere hours after M&T recommended the $9.00 stop-loss order, Tyco stock's price
dipped briefly, causing the complete liquidation of all Tyco shares in the Brenner Trusts. The
sell order was triggered solely by intraday volatility that was predictable to someone with
investment expertise who back tested in the recent market. Tyco stock opened at $10.90 and
closed at $10.15 on June 12 (Ex. 108), and there were no announcements regarding Tyco during
the market day on June 12.
It was incumbent on Stauffer, as the person making the recommendation to
Brenner Sr. on behalf ofM&T and the only person knowledgeable about stop-loss orders, to
explain why he was recommending a stop-loss order, why he was recommending a $9.00 trigger
price, whether he had back-tested the recommended trigger price, and what the reasonable
likelihood was of a $9.00 stop-loss order triggering complete liquidation in the current market.
Stauffer failed in all these regards, and instead recommended a stop-loss order that was very
likely to achieve the result that he preferred-short-term sale of the entire Tyco position in the
trusts. (Tr.634.) Gority performed even worse in regards to the Grandchildren's Trust,
providing no information about the stop-loss recommendation to Bushey or Brenner Jr., and
blatently ignoring Brenner Jr.'s express concerns about using a stop-loss order.
M&T's negligence with regard to the stop-loss order is not excused by the fact that
M&T had previously encouraged Petitioners to diversify the trusts. This case is not about the
merits of diversification as a financial strategy. It does not matter whether the trusts might have
9 Mr. Quinlan testified that recommending a stop-loss without explaining it or explaining how
the trigger price was set is not prudent investment advice. (Tr. 339-40.)
15
performed better if Petitioners had sold more Tyco stock earlier. (See AR 25.) Tyco stock had
performed very well for the trusts historically, Petitioners were not obligated to diversify for the
mere sake of diversification,1.0 and even M&T had recommended a 5-10 year diversification plan
that it did not revise until June 2002.
The only issue is whether M&T's conduct in connection with the disputed June 12
transactions met the standard of care. Petitioners submit that, as a matter of law, M&T's
undisputed conduct with regard to the stop-loss orders did not satisfy the standard of care
applicable to M&T as a professional fiduciary, and certainly did not constitute the "extraordinary
care" that the Auditor found M&T to have exercised generally (AR 21). The Auditor did not
make specific findings about M&T's formulation of the stop-loss order recommendation and
communication of the same to its co-trustees. Petitioners respectfully request that the Court
make findings consistent with the undisputed facts (with respect to both the Children's Trusts and
Grandchildren's Trust), conclude that M&T breached its fiduciary duties with respect to its stop-
loss order recommendations, and surcharge M&T accordingly.
IV. Brenner Sr.'s Diminished Capacity is a Fundamental Issue, and the
Court Should Hear Evidence on this Issue Itself.
The foregoing errors in the Auditor's Report can be resolved in Petitioners' favor
without overturning the Auditor's findings that Brenner Sr. was "competent to participate and to,
in fact, make decisions with respect to the Trusts" (AR 7 ~ 17) and that Brenner Sr. "fully
understood and voluntarily signed both authorizations" with respect to the transactions on
June 12,2002 (AR 13 ~ 51). Brenner Sr.'s capacity, however, is a fundamental issue in this case,
and the Auditor's findings and conclusions as a whole are objectionable ifthe Court concludes
that Brenner Sr. was in fact not able to fully understand and make decisions independently
regarding the trusts by June 12,2002. If the Court concludes that Brenner Sr. was suffering from
diminished capacity, and that M&T knew or had reason to know that fact, then M&T was
1.0 The "duty to diversify" (or lack thereof) is discussed in Petitioners' Post-Hearing
Memorandum at pages 65-67.
16
obligated to take appropriate steps to accommodate his diminished capacity and to ensure that it
had informed consent to any recommendation it made, including involving Bushey and Brenner
Jr. if necessary since M&T knew they had power of attorney for Brenner Sr. and kept copies of
the power of attorney in the trust files (Exs. 60, 61; Tr. 580).
The only medical expert who gave any testimony regarding Brenner Sr.'s mental
ability, in June 2002 or otherwise, was Dr. Joseph Braze1.1.1. Dr. Brazel has been practicing
medicine for over 30 years, has been Brenner Sr.'s personal physician for over ten years, and
testified that approximately 70-75% of his patients are elderly. (Tr. 49-50.) Dr. Brazel testified
at the hearing that he has "absolutely no doubt" in his mind that Brenner Sr. was suffering from
senile dementia ofthe Alzheimer's type in June 2002 (Tr. 78, 50-56) and "no doubt" that Brenner
Sr. "did not have the ability to deal with complex data, subjects, discussions, or terminology" by
June 2002. (Tr. 78, 56-57.) Dr. Brazel testified that his opinion is based on his many years of
experience with Brenner Sr. and his many years of experience with dementia and how it is
handled in clinical practice. (Tr.61.)
In finding Brenner Sr. fully competent to make decisions independently about the
trusts on June 12,2002, the Auditor necessarily rejected Dr. Brazel's expert testimony. The only
reason for that rejection apparent in the Auditor's Report is in Finding of Fact No. 75, which
states, "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." (AR 18 ~ 75.) It is true that
Dr. Brazel based his diagnosis of Brenner Sr. on clinical observation and extensive experience
with senile dementia, but Respondents offered no evidence that clinical observation by an
experienced physician is an unacceptable method of diagnosis. As for clinical tests,
Respondents' counsel asked Dr. Brazel during cross-examination whether he had ever
1.1. Respondents offered no expert evidence regarding Brenner Sr.'s competency, and never
requested prior to the hearing that Brenner Sr. submit to any examination.
17
administered a "Wechsler Adult Intelligence Scale Test," a "Leiter Adult Intelligence Scale Test,"
or a "mini-mental" exam to Brenner Sr. Dr. Brazel testified that he had "absolutely not"
performed a Wechsler test "because we find them of no clinical value" (Tr. 59), that he had never
heard of a Leiter test (Tr. 60), but that he had "absolutely" performed one or more mini-mental
exams on Brenner Sr. (Tr. 59-61.) Respondents never offered any evidence regarding the nature
or relevance of the Wechsler or Leiter tests, and asked no further questions about the mini-mental
exam(s) Dr. Brazel conducted.
Having dismissed the only expert medical testimony (on objectionable grounds),
the Auditor concludes that Brenner Sr. fully understood and appreciated M&T's June 12
recommendation, based solely on Brenner Sr.'s own testimony at the hearing and the Auditor's
personal observation ofthe same. The Auditor's Report states, "The most persuasive evidence as
to the mental competency of Brenner, Sr., was his own testimony. * * * 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." (AR 23.)
The Auditor's Report misstates Brenner Sr.'s testimony, and mistakes its
relevance. Brenner Sr. acknowledged at his deposition and at the hearing that, since the late
1990s, he has needed "help," in fact "a lot of help," making business decisions.12 (Tr.291-92.)
12 Brenner Sr. testified as follows at the hearing, in response to questions by Respondents'
counsel Mr. Bradshaw:
Q. In May during that deposition, I asked you a question, sir, do you believe
that you are competent to make business decisions today, and your answer at
that point was sure?
A. Yes.
Q. Okay. So you believe that is an accurate response that you gave me back
during the deposition?
A. I needed help in making some of them.
Q. Okay.
A. I need a lot of help.
18
As Dr. Brazel testified, it is not surprising that a man of Brenner Sr.'s stature and experience
would have terrible difficulty admitting that he was no longer the man he once was. Brenner Sr.
did admit that he has declined though, both by acknowledging that he needs a lot of help and by
explaining the various ways in which he relies on his children for assistance. Petitioners testified
to the many ways in which Brenner Sr. relies on Bushey, Brenner Jr., and others (including
Shawnee Smith at M&T) to assist him with financial and business matters. For example, by June
2002, Bushey had been assisting Brenner Sr. with processing his bearer bonds, doing his annual
gifting, looking for items in his safe deposit boxes, reading his retirement papers, and balancing
his checkbook for years. (Tr. 110.) She testified that he could no longer perform even simple
financial tasks alone, such as balancing his checkbook or making change. (Tr. 111.)
More importantly, however, Dr. Brazel specifically testified that a patient's self-
assessment of their mental condition is of "absolutely no value" in determining whether he or she
is suffering from dementia. (Tr.67.) Dr. Brazel testified that he was unaware that Brenner Sr.
had declared himself competent, and that Brenner Sr. has told him personally "that he did not
understand the details of the meetings in regards to business terminology, sale of stocks,
etcetera," but that, given Brenner Sr.'s "proud nature and his past history as a successful
businessman," it would not surprise Dr. Brazel at all if Brenner Sr. "does feel that he is
competent, and he also feels he is taking his medications and other things correctly," which he
was not. (Tr. 67.) Respondents offered no contradictory evidence regarding the value of self-
assessment in diagnosing senile dementia.
It is also inappropriate for the Auditor to base his conclusions about Brenner Sr.'s
capacity to understand the information communicated to him on June 2002, on the Auditor's
Q. I also asked you: Do you believe that you were competent to make business
decisions in June of2002, and your answer on that day was I do. Do you
believe that was an accurate answer? Was it accurate in May when you told
me that you believed that you were competent to make business decisions in
June of2002?
A. Yes.
19
personal observation of Brenner Sr. for a short time on November 2,2004. Medical diagnosis is
certainly not within the Auditor's expertise, and the only medical expert at the hearing testified
that Brenner Sr. was not capable in June 2002 of processing the type of information at issue or
making the type of decisions at issue. Neither Respondents nor the Auditor questioned
Dr. Brazel about the vicissitudes of senile dementia, whether one short interaction is sufficient
for a lay person to recognize senile dementia in another person, or whether it is fair to
characterize senile dementia as merely the normal "aging process." Brenner Sr.'s testimony was
directed almost entirely to his memory of events. The fact that he was able to focus on the
questions, give responsive answers, and display orneriness on cross examination,13 hardly
justifies the conclusion that he was capable of hearing, processing, and meaningfully responding
on June 12 to the proposal of a financial mechanism with which he was unfamiliar and the
unexpected demand for a decision. Brenner Sr. testified that, to this day, he does not know what
a stop-loss order is except that it is something he is "not interested in." (Tr.280.) Brenner Sr.
was not "tested" on his ability to understand and use this type of information, even if it were
possible to do so, during the Auditor's hearing.
Finally, the Auditor made no findings regarding Brenner Sr. 's ability to hear
during the June 12 meeting, or about his ability to read the authorization forms that he signed.
The testimony is undisputed that Brenner Sr. has had profound hearing loss since at least 1997,
which necessitated hearing aids in first one then both ears. (Tr. 255-56, 57-58.) Brenner Sr. also
has had vision problems since at least 1997 that made it difficult for him to read, such that he
stopped subscribing to periodicals and has relied on his wife (now deceased) and children to read
to him. (Tr. 258-61, 108-09.) Brenner Sr. testified that he has difficulty with telephones and
speakerphones in general due to his hearing loss (Tr. 255-57), and that he could not understand
13 It is hardly surprising that Brenner Sr. would be somewhat ornery given how upset he is about
how M&T treated him. Brenner Sr. was a bank customer for many years, had known and
respected Gority in particular for a long time prior to the events of June 12, and feels that he was
treated terribly on June 12. (Tr. 250-51, 280.)
20
Klobusicky during the June 12 meeting. (Tr.281.) More importantly, with respect to the written
authorizations, the clear weight ofthe evidence is that no one read the papers to Brenner Sr.
before he signed them. It is undisputed that Brenner Sr. did not read them (Tr. 282), whether or
not he physically could have at the time. (Tr. 108, 260.) Gority claims that he read the
authorizations aloud to Brenner Sr. (Tr. 481), but Brenner Sr. says that did not happen (Tr. 282)
and neither Stauffer nor Klobusicky remember Gority doing that (Tr. 835, 752).14 The Auditor
made no findings on this issue.
Based on the foregoing, Petitioners submit that the Court itself must evaluate the
issue of Brenner Sr.'s mental ability relative to the events of June 12, as well as addressing the
relevance of the hearing and reading issues that the Auditor did not resolve. In their briefing on
the disputed question of whether the Court or an auditor should hear this case, Respondents
urged the Court to have an auditor hear the evidence, and specifically argued:
If, on the other hand, either party is dissatisfied with the disposition of
Auditor Bogar, our Local Rules of the Cumberland County Orphans' Court
establish a procedure for final resolution of the claims by the Orphans'
Court. * * * In the event that further Court involvement is necessary, the
expenditure of the Court's resources will be limited to issues truly
requiring the court's involvement, and the Court will benefit from the
inevitable 'winnowing' ofthe issues which is sure to result from the
auditor's proceedings."
Respondents' Memorandum of Law in Support of Resolution of All Claims and Accounts by
Court Appointed Auditor (filed Oct. 1,2004) at 7. In this case, whether Brenner Sr. had
diminished capacity on June 12,2002, is a crucial issue at the heart of the litigation. Ifthat issue
is determinative of the Court's decision, Petitioners submit that the Court should review the
testimony of Dr. Brazel and determine whether to hear additional evidence on the issue of
Brenner Sr.'s capacity in June 2002. Petitioners will make Dr. Brazel available for further
14 Gority testified at the hearing that it is his practice to read important documents to clients.
(Tr. 520.) However, when asked during his deposition why he had not read a document to
Bushey and Brenner Jr., Gority testified: "Perhaps, I misspoke. I don't always in the sense that if
there's any question, then I would read it." Asked "Any question about what?," Gority testified,
"Their ability to hear and understand what they are agreeing to." (Tr. 520; Ex. 113 at 33.)
21
testimony, and otherwise accommodate the Court in this regard.
Conclusion
Petitioners object to the Auditor's Report and Recommendation Regarding All
Objections Filed on the foregoing grounds, and respectfully ask the Court make additional
findings of fact and conclusions of law consistent with the evidence.
DATED this 25th day of February, 2005.
TONKON TORP LLP
By
William F. Martson, r.,O B No. 72163
Robyn E. Ridler, OSB No.
Attorneys for Petitione
22
CERTIFICATE OF SERVICE
I hereby certify that I served the foregoing PETITIONERS' OBJECTIONS TO
AUDITOR'S REPORT AND MEMORANDUM IN SUPPORT OF OBJECTIONS on:
Mark D. Bradshaw
Stevens & Lee
P. O. Box 11670
Harrisburg, PA 17108-1670
Of Attorneys for Respondents
lID 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;
o 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 25th day of February, 2005.
By
William F. Martson, Jr., OS No. 72163
Robyn E. Ridler, OSB No. 0 016
Attorneys for Petitioners
031590\00001\615384 V002
EXHIBIT A
------------------------------------------------------------
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 DIVISION
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.
------------------------------------------------------------
PETITIONERS' POST-TRIAL MEMORANDUM
Petitioners Margaret B. Bushey, Joseph D. Brenner, Jr. ("Brenner Jr."), ansl Jose~.
~--.-\
D. Brenner, Sr. ("Brenner Sr. ") respectfully submit the following facts and arguments;oased on ('0
the evidence introduced at the hearing, as proof of their claims.
I. FACTS
The facts in this case are disputed. In several instances, the parties offer very
different accounts of events, including key events such as the phone calls from David Gority
("Gority") to Bushey and Brenner Jr. on June 12,2002. In order to resolve these issues, the
Auditor will necessarily have to make credibility determinations regarding the individual fact
witnesses, in particular Bushey, Brenner Jr., Brenner Sr., Curt Stauffer ("Stauffer") and Gority.
In the statement of facts below, where conflicting testimony was presented at the hearing,
Petitioners cite their own testimony and any supporting testimony from other witnesses who were
present. Petitioners also point out various inconsistencies between Gority's, Stauffer's, and John
Klobusicky's ("Klobusicky") testimony, which undermine Gority and Stauffer's credibility.
Ultimately, however, it is for the Auditor to determine credibility, based on listening to the
testimony and observing the witnesses at the hearing, so Petitioners have atteI)lpted to
:"'<,')
c,; \
(e)
:..-;,-"
appropriately minimize their briefing on credibility issues.
A. History of the Brenner Family Trusts
There are four trusts at issue in this litigation. On November 23, 1994, Brenner
Sr. and his wife Jane Brenner executed an Irrevocable Agreement of Trust (Ex. 2), which created
the "Grandchildren's Trust" for the benefit of their children and grandchildren. On the same date,
Mrs. Brenner executed an Amendment and Restatement to Declaration of Trust (Ex. I) related to
the Jane Brenner "B" and "C" Trusts, which were created in 1991 for the benefit of Brenner Sr.
during his lifetime and the children and grandchildren upon his death. The fourth trust at issue is
the Blakely Trust, a trust created in 1985 for the benefit of the Brenners' daughter Nancy Blakely.
(Ex. 119.) (The Jane Brenner "B," Jane Brenner "C," and Blakely Trusts are referred to
collectively as the "Children's Trusts.") All four trusts were funded with Amp, Inc. ("Amp")
stock that had been acquired by Brenner Sr. over the course of his 35-year career at Amp. (Tr.
248-49.)
Each of the trust instruments designated one or more Brenner family members to
serve as co-trustee. Brenner Sr. was designated co-trustee for the three Children's Trusts (Exs. 1
and 119),1 and Bushey and Brenner Jr. were designated co-trustees for the Grandchildren's Trust
(Ex. 2). The trust instruments each designated Farmers Trust Company ("Farmers") to serve as
the professional co-trustee. (Exs. 1,2, 119.) Brenner Sr. chose Farmers because he served on
Farmers' board for nearly 20 years and had a lot of confidence and trust in the people there.
(Tr. 255.)
Farmers understood when it agreed to act as co-trustee that the trusts were funded
entirely with Amp stock. The instrument creating the Grandchildren's Trust contains an express
provision recognizing that the assets consist solely of Amp stock and releasing the trustees from
"all responsibility and obligation to dispose of any portion of the AMP, Inc. stock by reason of
1 With respect to the Blakely Trust, in addition to serving as co-trustee, Brenner Sr. had authority
to act under a limited power of attorney from Mrs. Blakely (Tr. 173.), which she had granted to
him years prior and which was still in effect in 2002.
2
the concentration of the investment of the Trusts in the stock of one corporation." (Ex. 2 at 6.)
The Blakely Trust instrument similarly contains a provision granting the trustees the power to
"retain any property * * * originally constituting the trust or subsequently added thereto, although
not ofa type, quality, or diversification considered proper for trust investments."2 (Ex. 119 at 5
, m.5(a).) Gority was personally aware of at least the Grandchildren's Trust provision.
(Tr.562.) In fact, Farmers based its trustee fee on the fact that the trusts consisted solely of Amp
stock, as evidenced by fee letters written by Gority. (Ex. 39.) No one at Farmers ever indicated
that there was any problem with the trusts holding concentrations of Amp stock (Tr. 39), and
Gority, who was an officer at Farmers at the time, admits that Farmers did not consider the
concentrations a problem (Tr. 560-61).
In 1997, Keystone Financial Bank: ("Keystone") acquired Farmers and assumed
responsibility as co-trustee of the Brenner trusts. In the same year, Brenner Sr.'s wife Jane died
after a prolonged illness that had exhausted Brenner Sr. (Tr. 15,250.) Brenner Sr. was 80 years
old at the time. His health had suffered during the final years of caring for his wife. By 1997,
Brenner Sr. had profound hearing loss, which necessitated hearing aids in first one then both
ears. (Tr. 255-56, 57-58.) He had vision problems that made it difficult for him to read, such
that he relied on his wife and children to read to him and stopped subscribing to periodicals.
(Tr. 258-61, 108-09.)
After his wife's death, Brenner Sr. began to suffer noticeably from age-related
senile dementia. (Tr. 50-51.) He began to have difficulty taking care of his hygiene (Tr. 22-23,
25), which his doctor testified is common with the disease (Tr. 54). Brenner Sr. began having
difficulty keeping track of and taking his medications, even after his doctor simplified his
medical regime and Bushey put in place reminder systems at his doctor's recommendation.
(Tr. 52, 56.) He had difficulty remembering medical appointments. (Tr. 52, 56.) He also had
difficulty with his finances. (Tr. 55.)
2 Neither trust instrument prohibits sale of the stock.
3
As his own abilities declined, Brenner Sr. increasingly relied on his children,
especially Bushey, to assist him. Bushey kept track of and processed Brenner Sr.'s bearer bonds,
which was something she had begun helping him with even before her mother's death. (Tr. 17,
263-64.) Bushey also began to assist Brenner Sr. with balancing his checkbook, writing checks,
and resolving problems with bills. (Tr. 110,262.). She began helping him with his annual
gifting to his children and grandchildren in 1999, and took the mechanics of that process over for
him in 2000. (Tr. 18.) Brenner Sr. gave Bushey access to all the family safe deposit boxes'
(except Brenner Jr.'s personal box) (Tr. 18), and she regularly had to search for bonds or other
items that Brenner Sr. could not locate, to the point that it was well-known and a friendly joke
within the bank. (Tr. 25-26, 796.) Brenner Sr. also relied on bank employees to help him.
Shawnee Smith helped him with bonds and with routine matters such as deposits, which Smith
would normally not be involved in, but which she helped him with because she cared about him
and had known him for a long time. (Tr. 785-87, 262.) Other bank clerks also helped him,
including helping him balance his checkbook. (Tr. 262-63.) Brenner Sr. accepted the help of his
children and others, because he realized after his wife's death that he not only wanted help with
his business matters, but in fact needed help. (Tr.264-65.)
By the summer of 1998, Brenner's decline had become apparent to Gority. One
day, when Bushey was in the bank on other business, Gority asked her to come to his office so
they could speak privately. (Tr.26.) Gority explained that Brenner Sr. had been dropping in on
him unannounced on a regular basis, and was often asking questions that Gority had already
answered the day or two prior. (Tr.26.) Gority indicated that Brenner Sr.'s unannounced visits
were disruptive to his work, and Bushey agreed to speak to her father about making an
appointment ifhe needed to see Gority. (Tr. 25-26.) At Gority's suggestion, Bushey also agreed
that, going forward, either she or Brenner Jr. (preferably both) would attend any meetings
between the bank and Brenner Sr., so that they would be able to help him understand things and
answer any questions he had afterwards, instead of his having to bother Gority. (Tr. 27.)
4
Bushey communicated her agreement with Gority to Brenner Jr. (Tr. 30). Bushey
remembers Brenner Jr. agreeing that it was a great idea for them to work as a team in taking care
of business at the banle (Tr. 30-32.) Brenner Jr. also remembers the conversation with Bushey
and remembers agreeing that one or both of them should accompany Brenner Sr. to any
substantial meetings about the trusts.- (Tr. 192.) Bushey then told her father that she and Brenner
Jr. "thought it was time that we all began working as a team to go in. And then we would help
him by being his ears and his eyes and have another perspective and know exactly what was
presented to him. So that when he had questions, we could answer them, and he would not have
to continue to bother David." (Tr. 31-32.) Bushey found her father to be "fine" with that and
thought he seemed "relieved." (Tr. 32.) Brenner JI. also discussed the matter with his father on
various occasions and found Brenner Sr. "all for it." (Tr. 193.) At the hearing, asked twice,
Gority did not "deny" that Brenner Sr. told him he wanted Bushey and Brenner Jr. present at
meetings, but would only say (twice) that he could "not remember" Brenner Sr. saying that.
(Tr. 526.) In his deposition, Gority admitted, "It is possible that he could have made that request.
I just can't remember." (Tr.526.)
Around the same time Bushey and Gority reached their agreement about Brenner
Sr., another significant event occurred. In 1998, Tyco International ("Tyco") acquired Amp. As
a result, all the Amp stock in the trusts was automatically converted to Tyco stock, which paid
substantially lower dividends than Amp had paid. (Tr.37.) Bushey and Brenner Jr. therefore
decided to sell 40% of the stock in the Grandchildren's Trust in 1999 and to reinvest those assets
in municipal bonds in order to restore the income stream to its prior level} (Tr. 37; Exs. 48, 6.)
During a meeting in Gority's office in 1999 regarding this transaction, Brenner Jr. made a point
3 Respondents cite this situation as an example of Bushey and Brenner Jr. giving verbal approval
for M&T to act. However, the record shows that Bushey and Brenner Jr. gave written approval
at the time the Tyco shares were actually sold in 1999. (Ex. 18.) The exhibit that refers to
previous verbal approval (Ex. 6) relates only to the reinvestment of the proceeds into particular
municipal bonds in February 2000, which is something that the Brenners had discussed with
M&T for nearly a year and were just waiting for M&T to identify appropriate bonds.
5
On January 2, 2001, Gority held a meeting with the Brenners to discuss the trusts.
As was the normal practice, Gority coordinated the meeting and invited each of the Brenners.
(Tr. 32.) Bushey, Brenner Jr., and Brenner Sr. all attended, as did Brenner Sr.'s accountant Ray
Keller. (Ex. 8.) During the meeting, Gority reviewed the various accounts. (Ex 8.) He raised
the issue of diversification in general terms, but nothing was agreed to, as evidenced by Gority's
own memorandum to file regarding the meeting (Tr. 199-201; Tr. 8).5 Gority then addressed
M&T's fee arrangement for the accounts, which is what Bushey remembers most about the
meeting. (Tr. 184; Ex. 8.) An internal memorandum from Gority referring to this meeting also
makes clear that the fee arrangement was a big issue. (Ex. 63.)
Nothing further happened until August. In August 2001, Stauffer sent an email to
Gority asking about setting up a meeting with the Brenners to discuss a "reduction" plan.
(Ex. 63.) Gority replied that he would "be happy to arrange a meeting with the Brenners about
the TYCO shares, but please remember that the Tyco shares were only half of the discussion.
The other half, and the more problematic are the fees." (Ex. 63.) In his response to Gority,
which he cc'd to his boss Magee, Stauffer asked whether anything could be done before the fee
issue was resolved and, if not, where the bottleneck was on that issue "in case I have to respond
[to] the lack of action on the Tyco issue." (Ex. 63.) Gority's response is unknown.
In September 2001, M&T held several internal meetings to strategize about how
to get the Brenner trusts diversified. (Exs. 64-66, 70, 72.) M&T, including Stauffer, was aware
that Brenner Sr. in particular was opposed to price-blind program selling of the stock. (Tr.590.)
Stauffer says he was asked to bring to the meetings various techniques for addressing
concentrations, from very simple to very sophisticated strategies. (Tr. 598.) As reflected in the
internal memoranda of those meetings, the participants did in fact discuss various downside
hedging strategies, as well as different methods for reducing the concentrations over time.
(Exs. 64-66, 70, 72.) Downside hedging options, such as a stop loss order, costless collar, or a
5 .Petitioners contest the accuracy of some portions of that memorandum, but do not contest that
diversification was discussed in general terms.
8
and trusted. (Tr. 199.)
After Gority's introduction, Stauffer made a formal presentation, accompanied by
bound presentation materials containing the same information. (Ex. 11.) In essence, Stauffer
told the Brenners that the Tyco stock in the trusts had performed extraordinarily well, and that it
was therefore a good time to consider selling some of it to capture those gains and reinvest
elsewhere. (Ex. 11; Tr. 272.) Stauffer offered a single proposal: diversify the accounts by
selling a varying percentage of Tyco stock each year, based on a comparison of Tyco's
price/earnings ratio to the market, with the goal of selling most or all of the Tyco stock within ten
years. (Ex. 11.) To illustrate his recommendation, Stauffer explained how sales would have
occurred in the previous 18 months under the plan. (Ex. 12 at ~ 4.)
Stauffer admits that he did not present any of the other options that M&T had
discussed internally, such as a stop loss order, costless collar, or combination of covered calls
and protective puts. (Tr. 806, 809.) Stauffer appears to have disregarded the internal discussion
about "Need to establish floor" and "use multiple strategies," which are recorded in Magee's
handwritten notes of the September 21 meeting. (Ex. 10 at 4.) Another person's notes of the
September 11 meeting record the floor issue as well, noting, "How do we protect on the
downside?" (Ex. 66.) Magee testified that he has used stop losses in concentrated accounts,
working in consultation with the client to establish both upward and downward floors. (Tr. 683.)
Stauffer himself testified that he uses stop losses to protect gains where a stock has generated
"nice profits." (Tr. 648.) Stauffer made a point of telling the Brenners that they had done well
with Tyco in November 2001 (Ex. 11), but he still did not discuss a stop loss or other hedging
options with them.
The Brenners listened to Stauffer's presentation on diversification and asked
appropriate questions, then departed. Afterwards, the Brenners discussed the presentation and
concluded that they were not interested in Stauffer's recommendation at that time. It is important
to keep in mind that the Brenners did not consider the concentrations an inherent problem that
had to be solved, as M&T did. Moreover, M&T did not communicate the extremity of its
10
position to the Brenners, in November 2001 or otherwise, keeping them in the dark about the
brewing internal crisis at M&T on this issue. The Brenners perceived Stauffer as a salesman for
the bank's investment products (Tr. 80, 201; Ex. 11), and Brenner Sr. was concerned that the
bank wanted complete control of the reinvestment process (Tr. 273-74). Although the Brenners
never actually agreed to Stauffer's recommendation, Gority reported the meeting as a success to
his superiors, stating that Stauffer had done a "great job presenting the solution" to the
concentration problem. (Exs. 12 and 13.) According to an internal memorandum and email from
Gority, Gority told the Brenners he would contact Brenner Sr. to arrange a meeting with everyone
in early December. (Ex. 12, 13.) However, there is no evidence he called a meeting in
December.
Gorityand Stauffer apparently did talk to Brenner Sr. at the end of January 2002,
although the circumstances of that meeting are unclear. Brenner Sr. does not recall the meeting
(Tr. 275), and Stauffer believes it may have been on the phone (Tr. 612), although Stauffer is
also not sure whether he attended it at all (Tr. 612). Bushey and Brenner Jr. were not invited; in
fact, Bushey was out of the country on vacation at the time it allegedly occurred (Tr. 34). Bushey
and Brenner Jr. learned of the meeting when they received "cc" copies of a letter from Gority to
Brenner Sr., dated February 1, 2002. (Ex. 14.) The letter asserts that Stauffer reviewed his
valuation model again and that Brenner Sr. agreed to "potentially liquidate" 20% of the Tyco
stock in the Children's Trusts, at a target price of$60 to $63, subject to any sale or purchase
orders being discussed with Brenner Sr. prior to execution. (Ex. 14.) Upon receiving the letter,
Brenner Jr. gently chastised his father for attending the meeting without him or Bushey present,
to which Brenner Sr. responded that it "wasn't anything" and was not worth Brenner Jr.'s time.
(Tr. 203.) Brenner Jr. and Bushey did not contact Gority, however, since M&T had not to their
knowledge asked Brenner Sr. to commit to anything during the conversation, and Brenner Sr. had
in fact not committed to anything without them present. At most, Brenner Sr. had conceptually
agreed to a relatively minor reduction if the stock reached an upward target price, at which point
M&T would have to contact the Brenners to actually get authorization for any sales from the
11
trusts anyway. (Ex. 14 at ~ 3.) It is also noteworthy that the letter, copied to Bushey and Brenner
Jr., lays out in detail what Brenner Sr. purportedly agreed to and asks him to please let Gority
know if Brenner Sr. had a different understanding of what they discussed.? (Ex. 14 at ~ 4.)
Between January and March 2002, Tyco's stock had fallen from $58 at the
beginning of January, to $30 at the beginning of March. (Ex. 108.) The program Stauffer had
recommended in November did not contain any downside protection, and was useless even to
diversify the accounts as long as stock prices stayed down. (Ex. 11.) On February 8, Stauffer
appears to have agreed with his supervisor Magee that he would communicate with the Brenners
via letter and "reset limit from 60 to 50-ish." (Ex. 78.) The only letter Stauffer sent to the
Brenners, however, was on March 6, 2003. The letter was sent to Brenner Sr. at his winter
residence in Florida, copied to Bushey, Brenner Jr., and Gority. (Ex. 15.) Stauffer explained
some of the reasons Tyco's stock price had fallen so significantly in the previous months, then
provided M&T's opinion on Tyco, which included opining that Tyco "does not face a near-term
financial liquidity problem," that "much of the panic surrounding the shares ofTyco is not
warranted," and that Tyco's longer-term valuation in a "less 'Enron-frenzied' market" is around
$52/share absent further damaging disclosures. (Ex. 15.) Stauffer concluded the letter by stating
that M&T believed it prudent for all accounts with a concentrated position in one stock, not just
Tyco, have a liquidation plan in place and "carried out in a disciplined and timely manner." (Ex.
15.) As to Tyco specifically, Stauffer told the Brenners that M&T's "research indicates that based
on the information available today, Tyco stock appears to represent a good investment
opportunity as part ofa diversified portfolio." (Ex. 15.)
On its face, Stauffer's March 6 letter is reassuring about Tyco and does not advise
the sale of Tyco stock, except as part of a diversification program that he believed prudent for
any concentrated account holding anyone stock. (Ex. 15; Tr. 330.) It is also noteworthy that
? By comparison, Stauffer testified that he believed the agreement was self-executing. (Tr. 820).
Gority testified that it was not self-executing (Tr. 579), which is also how he described the
alleged agreement in his letter. (Ex. 14.) This conflict in Gority and Stauffer's testimony suggests
a serious communication problem.
12
Stauffer did not ask Bushey and Brenner Jr., either by letter or otherwise, to agree immediately to
a diversification program for the Grandchildren's Trust, even though they had never agreed to the
model he had presented in November. Nor did Stauffer present any downside hedging options to
prot~ct the accounts generally, or recognize in the March 6 letter that the model he had
previously recommended did not provide any general downside protection. Nor did Stauffer give
any indication that his model was no longer adequate to achieve diversification the bank
considered critical. (Ex. 15.) Stauffer testified at the hearing that the March letter was meant to
"illustrate" that the model he recommended in November 2001 was not going to be effective in
the current market (Tr. 616), and that he thinks he said that in the letter (Tr. 616). He did not.
(Ex. 15.)
There is no evidence ofM&T directing any further correspondence to the
Brenners until June 2002. Unbeknownst to Petitioners, however, M&T decided internally during
this time that it would resign as co-trustee unless the Brenners committed in the near term to an
aggressive diversification program for the trusts. Although no one had ever told Bushey, Brenner
Jr., or Brenner Sr. (Tr. 47, 268, 196), B M&T had been discussing the possibility of resigning as
co-trustee on the accounts for some time due to the lack of diversification (Tr. 568, 624-25).
Stauffer sent an email to Klobusicky on May 6,2002, stating that he had asked Gority to set up a
meeting "in order to have a frank discussion with the Brenners about either beginning an
aggressive systematic sales program in regard to the Tyco stock in all five[9] accounts or working
with them in order to move the accounts a [sic] another trustee." (Ex. 16.) Stauffer continued,
8 Gority claims he communicated at least the concept of resignation to the Brenners during the
January 2001 meeting, pointing to a statement in his memo to file that alludes to the concept
without using the word. (Tr. 570; Ex. 8.) However, the Brenners do not recall Gority or anyone
ever telling them M&T might resign over the issue, they never saw Gority's memo to file, and
there are several instances in the record where Gority's internal memoranda do not accurately
reflect what happened (such as when Brenner Sr. hung up on him). The Brenners agree they
would have allowed M&T to resign had they known that M&T took such an all-or-nothing
position. (Tr. 185,268, 197.)
9 The fifth account refer<?nced is Brenner Jr.'s revocable trust account, which is also comprised
entirely ofTyco stock, but which is not at issue in this litigation because no stock was sold from
that account.
13
"Both Dave and I believe that this is the best course of action at this time and that we can
accomplish this without sacrificing much, if any, good will, no matter what the final decision."
(Ex. 16.)
By May 6, Tyco's share price had fallen to $19. (Ex. 108.) Gority never set up
any meeting with the Brenners in response to Stauffer's request, however. (Tr. 625.) At the end
of May, Gority went on vacation to Ireland. (Tr.472.) The next time the Brenners heard from
anyone at M&T was June 7, 2002.
B. Events of June 2002
By June 2002, Brenner Sr. was 85 years old, had been declining cognitively as a
result of senile dementia for at least five years, wore hearing aids in both ears due to profound
hearing loss, and had significant vision problems due to cataracts. Bushey and Brenner Jr. were
regularly assisting Brenner Sr. with his financial affairs, including the trusts. Bushey had been
assisting Brenner Sr. with processing his bearer bonds, doing his annual gifting, looking for items
in his safe deposit boxes, reading his retirement papers, and balancing his checkbook for years.
(Tr. 110.) In fact, by 2002, Brenner Sr. could no longer perform even simple financial tasks
alone, such as balancing his checkbook or making change. (Tr. 111.) Specifically with regard to
the trusts, Bushey, Brenner Jr., and Brenner Sr. viewed themselves as a team and worked as a
team. (Tr. 30-31,36,38,84,266.) Brenner Jr. and Bushey patiently and repeatedly went over the
trust account statements with Brenner Sr. (Tr. 36, 190-91.) Bushey and Brenner Jr.'s conduct was
consistent with the agreement that they had made with Gority, and an effective means of
managing Brenner Sr.'s reduced capacity while maintaining his dignity. (Tr. 36.)
M&T, in particular long-term employees Gority and Shawnee Smith ("Smith"),
were also well aware of Brenner Sr.'s decline. Gority admits noticing Brenner Sr. decline with
age (Tr. 429, 522) and says that he took care to speak very clearly to Brenner Sr., not to speak
rapidly, and to speak to him simply without using esoteric words. (Tr. 523-24.) Gority was
aware Bushey had been helping Brenner Sr. with his business affairs for a number of years
(Tr. 524-25), and his agreement with Bushey and Brenner Jr. about their attendance at
14
substantive meetings with Brenner Sr. had been in place for several years. Smith also noticed
what she considered a "normal decrease over time" in Brenner Sr. (Tr. 789, 795), including
hygiene problems that she talked to Bushey about, after which they seemed to improve (Tr. 787-
88). Smith noticed Brenner Sr.'s inability to remember things that were not written down
(Tr. 879) and his need to have things repeated at times (Tr. 795). She also knew, of course, that
Bushey was helping him with his bearer bonds and safe deposit boxes (Tr.796), and she had seen
Bushey's handwriting in Brenner Sr.'s checkbook (Tr. 797). Some time around June 2002
(Tr. 790), Smith had a conversation with Bushey in which Bushey asked Smith to bring it to her
attention if Smith ever saw Brenner Sr. do anything out ofline. (Tr.790.) Smith testified that
she understood this request to refer not to embarrassing personal conduct, but to Bushey wanting
to know if Brenner Sr. did "something out of the ordinary for him, some type of transaction that
would not be typical to what he does." (Tr.793-94.)
Bushey had no doubt that M&T, in particular Gority, was aware of Brenner Sr.'s
decline. (Tr.27.) When the bank changed the format of the account statements, Brenner Sr.
repeatedly complained to Gority that he found the statements confusing. (Tr. 458.) Gority had to
help him review the statements until Bushey and Brenner Jr. took over that task as a result of the
1998 agreement between Gority and Bushey. (Tr.454.) Gority had also made comments to
Bushey in social settings over the years about her father's "busyness" and confusion about his
busyness (Tr. 35). Since their 1998 agreement, reiterated by Brenner Jr. in 1999, Bushey and
Brenner Jr. had been invited to and attended all substantive meetings regarding the trusts. M&T
was ~lso aware that Bushey and Brenner Jr. held a general power of attorney for Brenner Sr.,
which allowed them to act on his behalf.1o M&T kept copies of the power of attorney in each of
10 The power of attorney admitted as an exhibit was executed in March 2001. Bushey actually
had power of attorney for Brenner Sr. for many years prior to 2001 (Tr. 19), but, around the time
of the Keystone acquisition, neither the bank nor the Brenners could find a copy. At the bank's
request, Brenner Sr. executed a new power of attorney, which also gave Brenner Jr. authority to
act for Brenner Sr. if Bushey could not. (Ex. 60.) The power of attorney is durable and general
(Ex. 60), and it remains in effect today (Tr. 19).
15
the trust account files. (Exs. 60,61; Tr. 580.) Under the circumstances, there was no need for
Bushey and Brenner Jr. to affront their father's dignity by instituting proceedings to remove him
as co-trustee of the Children's Trusts. (Tr. 35-36, 155-56.)
In early June 2002, however, M&T intentionally or negligently ignored the system
put in place to deal with Brenner Sr. 's declining capacity, and took advantage of an opportunity to
sell the Tyco concentrations that had been a secret thorn in M&T's side since it acquired.
Keystone. On Monday, June 3, Tyco's CEO was arrested and charged with tax evasion, which
caused a drop in Tyco's stock price. (Tr.94.) On Friday, June 7, Stauffer received an email
notifying him that M&T's internal analysts were issuing a "sell" recommendation on the stock.
(Ex. 18.) Stauffer's superior Magee testified at the hearing that, upon receiving an internal "sell"
recommendation, an investment officer is expected to exit the position in a "reasonable fashion,"
on a case by case basis, based on what is appropriate for the account at the time given all of the
circumstances. (Tr.715-16.) According to Magee, that is the appropriate action with regard to
both discretionary accounts and accounts with a co-trustee such as the Brenner accounts.
(Tr. 716.) Stauffer took a stronger view of a "sell" recommendation, however, believing that it
required him to sell all Tyco stock in discretionary accounts immediately. (Tr. 626, 821.)
Stauffer also believed at the time, although it is unclear whether it is true, that the Brenner
accounts were the only accounts in Carlisle still holding Tyco stock. (Tr. 822-23.)
The same day he received the "sell" recommendation, Stauffer called Bushey.
There is no evidence that Gority had ever told Stauffer about his agreement to include Bushey
and Brenner Jr. in meetings with Brenner Sr., although Stauffer obviously knew that they had all
attended the November 2001 meeting at which he made his first recommendation on the trusts.
Bushey describes Stauffer as being in a "panic."l1 (Tr.93-95.) Stauffer told Bushey that Gority
11 Stauffer asserts that he did not feel panicked. However, Stauffer admits he speaks quickly
when he feels "passionately," and that his manner could be described as "breathless." (Tr. 21,
630.) Stauffer also admits he was imparting a lot of information during the call to Bushey and
"may have spoken as I tend to do so quickly in doing so." (Tr. 839) Of course, Bushey and
Brenner Jr. had only met Stauffer once before, when he gave the formal presentation in
16
was on vacation so he was taking it upon himself to call the family about the Tyco situation,
notify them that M&T was eliminating its position in Tyco, and advise them to do the same.
(Tr. 93, 96.) Stauffer told Bushey he would call her back later to set up a meeting the following
week once Gority returned from vacation. (Tr. 94.) This was the first and only time Stauffer
ever called to set up a meeting with the Brenners. (Tr.819.) Stauffer made a similar call to
Brenner Jr. and told Brenner Jr. that he would get back to him the follOWIng week to set up a
meeting with all three of them. (Tr.209.)
The Brenners had been following the Tyco news closely (Tr. 88, 208-09), so
nothing Stauffer told them on June 7 was new, except that M&T was divesting its position. (Tr.
103,210.) However, while Brenner Jr. was somewhat amused by Stauffer's dramatics,12
. Stauffer's manner had scared Bushey considerably (Tr. 96). Like her siblings, she and her
children owned a large amount of Tyco stock in their own personal accounts. (Tr.89.) Bushey
was quite frightened by Stauffer because she normally talked to Gority and understood Stauffer
to be calling her as Gority's representative. (Tr. 96, 98.) She believed the situation had to be
"very, very" serious for Stauffer to call, and that M&T must know something she did not (Tr. 96.)
As a direct result of the panicked and excited tone of Stauffer's phone call, Bushey cancelled her
lunch appointment and weekend plans, and took action to put her and her children's personal
Tyco holdings into street name, in case they needed to sell them the following week. (Tr.96-
100.) In conversations that weekend though, both Brenner Sr. and Brenner Jr. told Bushey that
they themselves did not intend to sell any Tyco stock. (Tr. 102-03.)
Bushey and Brenner Jr. heard nothing further from M&T until Wednesday,
June 12. (Tr. 106,212.) Late that morning, Gority called Bushey. Gority and Bushey were
November 2001.
12 Brenner Jr. testified at his deposition that he was "kind of amused" by Stauffer's panicky .
manner in the June 7 phone call. (Ex. 33 at 21.) When asked about being "amused" at the
hearing, Brenner Jr. clarified that he had been referring to Stauffer's manner, stating that the call
itself was "certainly not amusing" hut that he was already aware ofthe content. (Tr. 228-29.)
17
friends and had been in a dinner group together for over twenty years, so their conversations were
typically relaxed in nature. (TI. I 12, 431.) In this instance, however, Gority was very terse and
rushed. (Tr. 1 12.) He told Bushey that her father had been in the bank that morning and agreed
to selI one-third of the stock in the trusts and put a stop loss order on the rest. (Tr. 113.) Bushey
was "absolutely astounded." (Tr. 113.) She did not know that Gority was back from vacation,
that her father had been at M&T that morning, or what a stop-loss order was. She did know that
she had just spoken to her father recently and that he had not been intending to sell any Tyco
stock. (Tr. 102-03.) She also knew the stock was trading around $10, which she considered low.
(Tr. 113.)
Gority told Bushey that her father had made the decision to sell and he needed her
to agree. (Tr. 113.) Bushey understood Gority to be asking whether she would affirm her father's
decision with respect to the Children's Trusts. (TI. 116.) Bushey asked to speak to her father,
.but Gority told her he had already left. (TI. 113.) Bushey believes she also specifically asked
Gority why she was not included in the meeting, but he did not offer any explanation. (Tr. 117.)
Bushey was shocked and confused by this out-of-the-blue call and Gority's uncharacteristic
manner, but she trusted Gority and his representations about her father's actions that morning, as
he expected her to trust him (Tr. 494). Bushey questioned Gority about selling one-third at the
current price and asked whether they should not try to get more, to which Gority did not respond
except to say it had been decided. (Tr. 113.) Astounded, but feeling pressured to agree and to
agree quickly, and relying on Gority's assurances, Bushey agreed to her father's purported actions
with respect to the Children's Trusts. (Tr. 114.)
Gority immediately terminated the call to Bushey. (Tr. 114.) He had not invited
her into the bank to meet. (Tr. 115.) He had not addressed her concern about selling one-third at
the current price. (Tr. 113.) He had never explained what a stop loss order was or why M&T
was recommending it at any price, let alone $9.00, even though M&T had never discussed with
her or even told her what a stop loss order was before. (Tr. 116-17.) In fact, by his own
admission, Gority could not explain anything to Bushey since he was neither qualified nor
18
informed enough to do so. (Tr.494-95.) But Gority admits he never told her that he had no
opinion about the recommendation or its prudence. (Tr. 552.) He says he did not consider that
"important." (Tr.553.) Gority also says he did not consider it necessary to explain M&T's
recommendation or how a stop loss order worked. (Tr.493-94.) Gority, as a representative of
M&T, considered it sufficient that he got Bushey to utter words of agreement. As he testified,
"she expressed her agreement with what had been recommended, and I presumed that she
understood what the recommendation was." (Tr.494.)
Gority then called Brenner Jr. (Tr.497.) The conversation lasted about five to
eight minutes (Tr. 212.) and was very stressful and hurried in nature (Tr. 216). Gority told
Brenner Jr. that Brenner Sr. had been in the bank and was selling one-third of the stock in the
trusts and putting a $9 stop-loss order on the remainder (Tr. 212), and that Bushey wanted to
move forward with the same plan for the Grandchildren's Trust. (Tr. 213.) Gority told Brenner
Jr., "It is up to you now. You need to go with this. Time is of the essence. You have got to
move and make a decision. We need to do this. We need to do it." (Tr. 213.) Gority never
denied making these statements during his hearing testimony. Brenner Jr. responded to Gority
that he could not believe this was happening, that he needed to talk to Brenner Sr. and Bushey,
that he thought the price to sell one-third was low, and that he didn't like the stop loss at all.
(Tr.213-14.) Gority admits that Brenner Jr. thought the price was low and "wasn't particularly
comfortable with the stop loss order." (Tr.498.) Gority admits that he did not explore Brenner
Jr.ls concerns (Tr. 554), make any effort to explain the basis for M&T's recommendation
(Tr. 216-17), or offer to set up a meeting (Tr. 498). Although Gority claims he would have
referred Bushey and Brenner Jr. to Stauffer if they had asked any "questions of significance" (Tr.
583), he did not refer Brenner Jr. to Stauffer in response to his expressed concerns about both
aspects of the recommendation, and there is no evidence Brenner Jr. or Bushey were even aware
that Stauffer had been in the meeting that morning.
Rather t~an respond to Brenner Jr.'s concerns or refer him to Stauffer, Gority said
words to the effect, "Well, that is what we are doing. That is what your father did. That is what
19
your sister wants to do. You need to agree to this." (Tr. 213-14.) Under pressure, and relying on
Garity's misrepresentations that Brenner Sr. and Bushey had given full consent, Brenner Jr. said
he would "tentatively agree" to the one-third but that he did not like the stop loss, needed to talk
to his father and sister, and would get back to Garity. (Tr.214.) Gority says he did not consider
trying to meet with the co-trustees to discuss their concerns, particularly Brenner Jr.'s concern
about the stop loss order, because "I really felt as though the objection was just an expression of
an opinion, but he had given me his agreement. So I didn't pursue it any further. I didn't feel that
I needed to." (Tr. 498.)
Gority tenninated the call and went to Stauffer's office, where he told Stauffer that
he had gotten Bushey and Brenner Jr.'s approval, and then returned to his own office and went to
lunch. (Tr.500.) Stauffer, in turn, told his assistant to execute the sales from the
Grandchildren's Trust, which she did immediately, at 12:05 p.m. (Tr.783.)
Meanwhile, Brenner Jr. and Bushey called each other. Both expressed their
astonishment that Brenner Sr. had agreed to sell stock at all. (Tr. 118.) Bushey stated her
concern about the price for the one-third, as she had to Garity. (Tr. 118.) Brenner Jr. responded
that he was more concerned about the stop loss order, the significance of which Bushey had not
realized. (Tr. 118,214-15.) In the course of conversation, Brenner Jr. also revealed to Bushey
that Gority claimed she had given approval for the sale of stock from the Grandchildren's Trust.
Brenner Jr. remembers Bushey responding, "I didn't agree to any such thing. What are you
talking about? It is just father that is doing it. That is bad enough." (Tr. 215.) Bushey had not
understood Garity's call to relate to the Grandchildren's Trust. (Tr. 116.) Brenner Jr. told Bushey
he was going to try to find Brenner Sr. and ended the call. (Tr. 215, 118.) He then called M&T
to try to reach Gority and cancel the stop loss order, in light of his conversation with Bushey.
(Tr. 217.) Although it had been no more than five minutes since he had spoken to Garity,
Brenner Jr. could not reach Garity (Tr. 217), who had already left for lunch.13
13 Garity testified that he almost always eats lunch from 12:00 to 1 :00. (Tr. 500.) Since the
trades from the Grandchildren's Trust were executed at 12:05 p.m. (Ex. 23; Tr. 783), Brenner Jr.'s
20
While Brenner Jr. went to look for his father (Tr. 215), Bushey waited. Given the
aberrant phone calls from Stauffer on June 7 and Garity on June 12, and Bushey's belief that
M&T must have told Brenner Sr. something terrible about Tyco for him to agree to what he
purportedly had, Bushey became convinced that M&T knew something about Tyco that she did
not. That afternoon, while she waited, Bushey decided to sell one more batch of her own
personal Tyco holdings, which she had not intended to do.14 (Tr. 119-120.) Meanwhile, shortly
after the phone calls from Gority, and before Brenner Jr. was able to find Brenner Sr. or talk to
Garity again, Tyco's stock price dipped briefly to $9. Brenner Jr. knew, and Bushey knew as a
result of her conversation with Brenner Jr., that this meant all the shares had been sold from the
trusts. (Tr. 119.)
That evening, Brenner Sr. returned home, whistling, and told his daughter
Katherine (who was staying with him) that he thought he might have sold a third of the shares of
the stock that day at $10.50. (Tr. 121.) He gave Katherine some papers from his briefcase
(Tr. 121), which were the authorizations he had signed at M&T. Katherine immediately called
Bushey, and then brought Brenner Sr. to Bushey's house. (Tr. 123.) Brenner Sr. waited on the
porch, while Katherine showed Bushey the papers and discussed the situation. (Tr. 123-24; Exs.
21,22.) Bushey realized her father had no idea all the stock had been sold. (Tr. 124.)
Deciding Brenner Sr. would take the news better in his own home, Bushey
accompanied Brenner Sr. and Katherine back to his house. (Tr. 124.) She then showed Brenner
Sr. the papers and explained what they meant. (Tr. 124.) Brenner Sr. did not understand and did
not believe her. (Tr. 124-25.) He pounded on the table and screamed at her that she did not
know what she was talking about. (Tr. 125.) When she explained the stop loss, he screamed
testimony that Garity was at lunch is consistent with Gority's testimony about his lunch habits.
14 This was the last time Bushey sold any personal holdings. At final count, Bushey sold
approximately 60% of her own Tyco holdings and less than half of her children's Tyco holdings
(Tr. 102), based on a plan her husband helped formulate after Stauffer's June 7 call (Tr. 101).
She made individual decisions with respect to each block sold, and did not use a stop loss.
(Tr. 102.) Brenner Jr. never sold any of his or his children's personal Tyco holdings. (Tr. 188.)
21
"no, no, no" and insisted, "I sold one-third of the stock. Curt Stauffer put that on the bottom to
protect me. One-third, one-third, one-third, that is all I was selling." (Tr. 126.) Bushey found it
"very difficult" to convince him. (Tr. 126.) Brenner Sr. also insisted that he had not sold any
stock from the Blakely Trust and that Bushey did not know what she was talking about.
(Tr. 127.) Brenner Sr. does not remember the evening of June 12 well, but does remember that
he did not understand what had happened that morning at M&T until Bushey explained it to him.
(Tr. 286.) In fact, Bushey testified, "He isn't entirely convinced sometimes to this day."
(Tr. 126.)
It is unclear what in fact did happen at the June 12 meeting with Brenner Sr., since
Bushey and Brenner Jr. were not invited, and Brenner Sr. is confused and upset about it. It
appears that, at some point between June 10 and 12, Stauffer telephoned Brenner Sr. and asked
him to come into the bank. (Tr.277.) Brenner considered it inconvenient but agreed to come.
(Tr. 277-78.) He did not know the purpose of the meeting (Tr. 278) but, according to Stauffer,
asked M&T to keep it short (Tr. 649). The meeting was very important to M&T though, and
Stauffer made sure his superiors Magee and Klobusicky both knew about it. Klobusicky, who
was M&T's most senior person in investment portfolio management for Pennsylvania (Tr. 738),
decided to personally attend the meeting. He considered attending in person, but decided it was
not necessary after talking to Stauffer about it. (Tr. 732; Ex. 112 at 36.) Klobusicky, in turn, told
his superiors in Buffalo. Immediately prior to the meeting with Brenner Sr., Klobusicky called
Steve Braunscheidel and Bud Babcock because he felt he "should let senior management know
what was going on" and that Stauffer was going to recommend that the Brenners diversify and
sell the Tyco stock. (Tr.737.)
When Brenner Sr. arrived on June 12, Stauffer was already on conference call
with Klobusicky. (Tr.278.) Brenner Sr. said hello to Klobusicky when he was directed to do so,
but otherwise did not interact significantly with him (Tr. 281-82), which is consistent with
22
Klobusicky's testimony.15 Brenner Sr. has difficulty hearing on telephones and speakerphones as
a result of his hearing loss and associated ringing he experiences in his ears. (Tr. 255-57.) He
could not understand Klobusicky (Tr. 311), did not know "what [Klobusicky] was after"
(Tr. 281), and believes he told Stauffer that he could not understand Klobusicky (Tr. 311-12).
No one at M&T had told Klobusicky that Brenner Sr. suffered from hearing loss (Tr. 750), and it
is unlikely Stauffer noticed whether Brenner Sr. was wearing his hearing aids since Stauffer does
not even remember Brenner Sr. having hearing aids (Tr. 801). Although they did not interact
significantly, having someone on the speakerphone no doubt added to the "utter confusion"
(Tr. 282) from Brenner Sr.'s perspective.
Brenner Sr. characterizes the meeting on June 12 as a "high tension meeting."
Stauffer was "highly excited." (Tr.278.) Brenner Sr. did not consider himself part of the call
between Stauffer and Klobusicky. (Tr.278.) Brenner Sr. spoke with Gority during the meeting,
who told Brenner Sr. they ought to sell some stock and asked ifhe would consider 20%
reasonable. (Tr.279.) Brenner Sr. said even 30% was a reasonable figure to consider, but only
to consider. (Tr. 279, 314.) At some point during the meeting, which Stauffer says lasted about
a half hour (Tr. 654-55), Brenner Sr. says Stauffer started "having a fit about it's getting late" and
said "We got to do this. We got to do it right now. Every minute is counting. It must be done."
(Tr.279.) Asked about this at the hearing, Stauffer testified only that he "doesn't believe" he said
words to that effect (Tr. 646), but admitted he did not think there was much time to deliberate
(Tr. 646).
Stauffer then either told Brenner Sr., or instructed Gority to tell Brenner Sr., that
he would put a stop loss on the bottom in order to "protect" him. (Tr. 126,279.) Brenner Sr.
does not remember anyone explaining to him at all what a stop loss order was. (Tr.280-81.)
Stauffer claims that he described it "numerous" times and that he believes Klobusicky also
15 Klobusicky says he introduced himself at the beginning of the meeting and gave a 30-60
second opener about why they were there. (Tr. 739.) At the end of the meeting, he asked
Brenner Sr. to wait while Gority drew up the papers (Tr. 741). Otherwise, Klobusicky says there
was some back and forth but does not recall any specific exchanges. (Tr.741.)
23
reiterated the explanation. (Tr. 647.) However, Klobusicky testified that Stauffer gave only a
"brier' description of a stop loss order while he was on the phone, that he himself did not explain
a stop loss order to Brenner Sr., and that Stauffer described the stop loss order only once.16
(Tr. 754.) Gority has no clear recollection of what explanation, if any, Stauffer gave to Brenner
Sr. about how a stop loss order worked (Tr. 537.)
Even assuming Stauffer gave a single "brier' description, as Klobusicky recalls,
Brenner Sr. did not understand it or recognize its significance or application. (Tr. 280-81.)
Brenner Sr. was tired, not feeling well, and anxious to leave the bank. (Tr. 279-80.) He felt that
it was "not [his] meeting" (Tr. 314), that there was "absolute panic" in the room (Tr. 286), and
that things were "confused" and "much too fast" (Tr. 314.). Brenner Sr. had not known that the
purpose of the meeting was to sell stock (Tr. 316) or that he would be asked to sign anything
(Tr. 305,314). He felt pressured and alone without Brenner Jr. and Bushey there (Tr. 280) and
felt there was not anything more for him to do (Tr. 279). He did not believe M&T would
reschedule the meeting to include Bushey and Brenner Jr. (Tr. 305.) In Brenner Sr.'s words, "If
you would have been there, you would have known why. There was no intent to do anything like
that. They wanted answers right then." (Tr. 305). With Klobusicky on Stauffer's phone, Brenner
Sr. also felt he did not have access to a telephone. (Tr.313.)
Without his children to assist him, Brenner Sr. looked to Gority (Tr. 267), as he
had in the past (Tr. 265). Gority acknowledges that he had a good working relationship with
Brenner Sr. and had worked with him on the accounts for years. (Tr.430.) Brenner Sr. believed
16 When asked about the discussion of a stop loss with Brenner Sr., Klobusicky testified at his
deposition, "I don't recall a lot of discussion on that. I don't know. I believe that occurred after I
left the call. But while I was on the call, I don't recall - I believe Curt discussed it briefly, but I
don't recall a detailed discussion while I was on the call about the stop loss." (Ex. 115 at 43.)
Asked about this understanding at the hearing, Klobusicky clarified that he did not in fact recall
"any details that were discussed subsequent to the meeting on the stop-loss that Curt got into."
(Tr. 746-47.) Stauffer's only testimony on this point is that he cannot recall whether Klobusicky
stayed on the phone until Brenner Sr. left, but that the meeting had "largely been concluded"
when Gority went to type up the authorizations, so it is "very possible" that Klobusicky got off
the phone at that point. (Tr. 835.)
24
that Gority was the person in charge ofM&T's responsibilities for the trusts. (Tr.267.) In fact,
he essentially viewed Gority as the appointed co-trustee on the trusts. (Tr. 306: 13.) He believed
that Stauffer had "no power" and was only "an assistant to David." (Tr. 310.) Brenner Sr. had no
way to know that-although Stauffer had postponed scheduling the meeting until Gority was
back from vacation-Gority had not been following the Tyco situation at all (Tr. 472), received
almost no information from Stauffer prior to the m~eting (Tr. 473), did not know going into the
meeting what M&T was going to recommend (Tr. 530), and personally held no opinion
whatsoever as to the soundness of the recommendation. (Tr.544.) Gority never told Brenner Sr.
any of these facts. (Tr. 547.) Gority claims it never occurred to him that silence on his part
could be taken as assent (Tr. 550), even though he knew Brenner Sr. trusted his judgment (Tr.
540), knew that members of the Brenner family expected him to speak up and express his
opinion on issues about the trusts (Tr. 542), and knew these were the most significant
transactions in which the trusts had ever engaged (Tr. 539).
Brenner Sr. believes Gority tried to speak up at some point during the June 12
meeting to say things were going too fast but was quickly shut down by the others. (Tr.314.) In
the end, it was Gority who prepared the authorization papers and presented them to Brenner Sr.
to sign. (Tr.476.) It is unclear whether Brenner Sr. could physically read the papers in June
2002 given his cataract situation at the time (which has since improved due to surgery). (Tr. 108,
260.) He did not in fact read them. (Tr.282.) Gority claims he read the papers aloud to Brenner
Sr. (Tr. 481), but Brenner Sr. says that did not happen (Tr. 282) and neither Stauffer nor
Klobusicky remember Gority doing that (Tr. 835, 752).17 In any event, Brenner Sr. did not
understand the meaning of the papers. He admits he did sign, but only to "to get rid of it"
1 7 Interestingly, Gority testified at the hearing that it is his practice to read important documents
to clients. (Tr. 520.) However, during his deposition (as read to him at the hearing), when asked
why Gority had not read a document to Bushey and Brenner Jr., Gority testified: "Perhaps, I
misspoke. I don't always in the sense that ifthere's any question, then I would read it." Asked
"Any question about what?," Gority testified, "Their ability to hear and understand what they are
agreeing to." (Tr. 520; Ex. 113 at 33.)
25
(Tr. 280) because he had "had enough" and "was getting out." (Tr. 282.) He felt "under duress."
(Tr. 308.) He also fundamentally did not understand the meaning of the papers. He did not
understand that the stop loss Stauffer had referred to meant something could happen in the
market that would cause every single share of stock to be sold. (Tr.284.) Brenner Sr. feels that
"no one in his right mind would have agreed to that." (Tr.284.) Brenner Sr. also completely
failed to comprehend that one of the papers related to the Blakely Trust. (Tr. 283-84.)
It is unclear whether Brenner Sr. even understood that his signing something was
determinative, since he believed there were four co-trustees on the trusts at that point (Tr. 308),
i.e., him, Bushey, Brenner Jr., and Gority (for M&T). Brenner testified at the hearing that the
meeting with him on June 12 "wasn't the trustees' meeting. Margaret was not there. Joe was not
there." M&T considered Brenner Sr.'s signature sufficient though, and executed the sales in the
Jane Brenner "B" and "C" Trusts at 11 :30 a.m., followed by the sales in the Blakely Trust at
11 :36 a.m. (Ex. 23; Tr. 782-83.) The M&T participants at the June 12 meeting say it was easy to
get Brenner Sr. to agree to the recommendation. Asked whether it was a hard sell, Gority
testified, "I don't believe so, no. I believe the information was so compelling that there was not a
lot of back and forth regarding is this appropriate or not. Most of the discussion centered on
what the levels would be." (Tr.478-79.) Stauffer also does not recall "much, if any, push back"
from Brenner Sr. about whether to sell (Tr. 654-55), and Klobusicky perceived Brenner Sr. as
"receptive." This picture of Brenner Sr. is entirely at odds with his long resistance to selling
stock from the Children's Trusts, the fact that he had specifically told Bushey over the weekend
that he did not intend to sell any stock (Tr. 103), and the fact that he did not sell a single share of
his own Ty~o holdings (Tr. 285). Under the circumstances, it is clear that Brenner Sr. simply did
not understand the concrete nature of the one-third sale being discussed at the meeting, or what
adding a stop loss meant, which is precisely why he needed Brenner Jr. and Bushey there to assist
him.
As soon as Brenner Sr. left the bank, Gority returned to his office to make the
telephone calls to Bushey and Brenner Jr. (Tr.483.) The substance of those calls has already
26
been recounted, as have the subsequent interactions between Bushey, Brenner Jr., and Brenner
Sr. on June 12.
The next contact between the Brenners and M&T occurred on the morning of
June 13. Brenner Sr. spoke to Gority around 9 a.m. on June 13. (Tr.507.) Gority admits that
Brenner Sr. "expressed his displeasure" and was "somewhat upset and angry." (Tr.506.) By
Garity's own admission, Brenner Sr. specifically told him on June 13 that he did not understand
the stock would be sold below $9. (Tr. 508.) As Brenner Sr. testified at the hearing, he does not
even understand how a stop loss order works to this day. (Tr.280.) According to Gority's own
memorandum about the events of June 12 (written at the regional trust manager's direction),
Brenner Sr. told Gority on June 13 that "he did not understand that we had explained the stop
. loss to him and that he thought we would not sell shares below $9.00 per share." (Ex. 19 at 4.)
Brenner Sr. was in fact so upset and angry on June 13 that he hung up on Gority, which is
something he had never done before. (Tr. 555.) Gority did not record this fact in his memo,
instead stating simply that "the call ended." (Ex. 19 at 4.) Gority testified at the hearing that he
considered that statement an accurate portrayal of being hung up on. (Tr. 555-56.)
After Brenner Sr. hung up on him on the morning of June 13, Gority called
Bushey, who had left a message while he was on the phone with Brenner Sr. (Tr. 129.) Gority
told Bushey that he had just been on the phone with Brenner Sr., who said he did not understand
that he had sold all the stock. (Tr. 129.) Bushey told Gority that she was also calling because
Brenner Sr. did not understand what a stop loss was and did not understand what had happened
on June 12 at all. (Tr. 129.) Gority confirms that Bushey told him on June 13 Brenner Sr. did
not understand what a stop loss order was. (Tr.554-55.)
Gority's only response to Bushey was to suggest "let's just forget about it and
move on" and schedule a meeting for the next week to discuss how to reinvest the proceeds.
(Tr. 130.) Bushey told Gority the family was processing the information, asked him to send
copies so she would know what had happened herself, and asked him whether he had a tape
recording of their phone call the previous day. (Tr. 130-31.) Gority responded, "Margaret, you
27
are starting to scare me." (Tr. 131.) Later that day, Brenner Jr. also called Gority. Brenner Jr.
asked Gority what had happened, what the numbers were, and why he and Bushey had not been
at the meeting. (Tr. 216.) Gority's response was, "Your father made the agenda for the meeting.
M&T had nothing to do with it." (Tr.216.) Of course, Gority was in Ireland until June 12, so he
had no personal knowledge of how the meeting was called or how the agenda was set. It is
undisputed that it was in fact Stauffer who had called the Brenners during the previous week to
tell them that M&T was divesting its entire position in Tyco and to ask that the Brenners come in
for a meeting the next week when Gority was back from vacation. It is also undisputed that it
was M&T who recommended on June 12 that one-third of the stock be sold and a stop loss order
put on the remainder.
Gority admits that Brenner Sr. and Bushey told him on the morning of June 13
that Brenner Sr. had not understood what happened or what he signed on June 12. He admits that
Brenner Sr. was angry and hung up on him. He admits that Bushey was "upset and concerned"
when he spoke to her. (Tr. 507.) He admits that Brenner Jr. had "pretty much the same reaction,
that there was concern and disappointment of what had happened." (Tr.507-08.) Yet Gority
claims he was not disturbed on June 13, except to the extent that he did not like to have unhappy
clients. (Tr.557.) Stauffer says he does not ,even remember participating in the calls on June 13,
except that he remembers it being communicated to him that Brenner Sr. was really angry about
the events of June 12 (Tr. 842) and recalls Brenner Sr. not being interested in discussing
reinvestment with them (Tr. 658).
Gority claims the only solution he could think of was to meet with the Brenners.
(Tr.557.) As Bushey testified, however, Gority described the proposed meeting as one to "move
on" and discuss reinvestment (Tr. 131). Neither Gority nor Stauffer ever suggested that the
trades could be reversed in light of Brenner Sr.'s lack of understanding of what he signed on
June 12. (Tr.558.) In fact, as James Quinlan ("Quinlan") testified, all the trades that occurred on
June 12 could have been reversed, for any reason, on June 13, and a prudent investment advisor
would have told their client that fact under the undisputed circumstances of June 13. (Tr. 366-
28
67.) Stauffer admits he was aware of the ability to reverse the trades for three days (Tr. 841) but
did not tell Gority or the Brenners. (Tr. 841-42.)
The one thing Gority did try to do was obtain written authorizations for the trades
from the Grandchildren's Trust. He sent authorization letters to Bushey and Brenner Jr. for
signature (Ex. 25), which he followed up at least twice with phone calls to Bushey. Bushey told
Gority that the family was still processing what had happened and they were not signing the
letters. (Tr; 131-32, 509.) Gority specifically asked Bushey to sign the letters by a certain date if
they were going to because he had to make a report to someone. (Tr. 132.) Bushey and Brenner
Jr. did not sign the letters by that date, nor did they ever sign the letters. (Tr. 132.)
By June 19, M&T's regional manager had expressed concern and asked Gority to
write a memo relating the events of June 12. (Tr. 509-10.) An internal email between Magee
and Klobusicky, dated June 19, indicates that M&T recognized there was a problem and was
attempting to use Gority's friendship with Bushey to obtain the written consents from her and
Brenner Jr. (Ex. 87.) Babcock, a senior member of management in Buffalo, also requested files
on the Brenner accounts from Gority during this time period. (Tr.514.)
Despite his conversations with the Brenners on June 13 and his subsequent
conversations with Bushey, which were apparently sufficient to get the regional trust manager to
ask him to write a memo detailing events, Gority reported to Babcock sometime between June 19
and July 3 that he was confident he would obtain Bushey and Brenner Jr.'s signatures. (Ex. 112
at 43-44, 76.) Gority also made a point of telling Babcock, in a July 3 email, that Bushey had
called him after the June 12 transactions and asked that M&T not meet with Brenner Sr. without
her or Brenner Jr. present, which Gority asserted to Babcock was a "BIG change from prior
meetings." (Ex. 26.) Gority went on to say in the email that Bushey "is the spoke person for the
rest of the family, but only Co-Trustee on the [Grandchildren's] Trust" and "only gets information
for the account for which she has legal responsibility." (Ex. 26.) Both those statements were, of
course, untrue. Gority had an agreement with the Brenners that Bushey and/or Brenner Jr. would
attend any substantive meetings regarding the trusts, by which they had abided. Bushey also
29
regularly received information about the Children's Trusts, both from her father (who needed her
and Brenner Jr.'s help to read the trust statements) and from M&T (at the January 2001 and
November 2001 meetings and through M&T copying her on letters such as Exhibit 14). It is
noteworthy that Babcock had not asked Gority for the information contained in his July 3 email
and testified that he did not know why Gority provided it to him. (Ex. 112 at 74-76.)
C. Removal of M&T as Co-Trustee
The Brenners lost all confidence in M&T as a result of the events of June 2002.
(Tr. 135, 218, 284.) As a result, they decided to remove all their accounts, including the trusts,
from M&T. Petitioners have the authority to remove M&T and appoint a successor trustee under
the terms of the trust instruments (Ex. 1, 2, 119), and M&T has never contested their authority to
remove M&T as co-trustee. After consideration, Petitioners selected Orrstown Bank to serve as
the new co-trustee for the trusts. (Tr. 133-34.)
At Petitioners' behest, Barbara Brobst of Orrstown Bank wrote a letter to Gority
on September 30,2003. (Tr. 134; Ex. 95.) She enclosed documents signed by the Brenners and
Orrstown Bank, which removed M&T and appointed Orrstown Bank as the successor co-trustee,
and provided M&T with transfer instructions for the trust assets. (Ex. 95.) According to Gority,
the form of notice was valid in his experience and he did not have any objection to its form.
(Tr. 573.) Nonetheless, M&T did not respond to the request or instructions in any way. As a
result, counsel for Petitioners sent a letter to M&T (through its counsel) on April 15, 2004,
asking M&T to release the assets to Orrstown Bank immediately or at least explain their refusal
to do so. (Ex. 96.) Again, M&T was silent. On June 17,2004, counsel for Petitioners sent yet
another letter to M&T (through its counsel), again demanding that the assets be released to
Orrstown Bank. (Ex. 97.) Both the April 15 and June 17 letter pointed out to M&T that its
refusal to release the assets to Orrstown Bank was reducing the value of the trust assets and
thereby causing unnecessary damage to the trusts. (Ex. 96' 2; Ex. 97' 2.)
On July 8, 2004, nearly a year after Petitioners first notified M&T of its removal
and instructed M&T to transfer the assets, M&T finally responded to Petitioners' repeated
30
requests. (Ex. 98.) In the interim between September 30, 2003, and July 8, 2004, the price of
Tyco stock had gone from $20 to $31) (Ex. 108.) On July 8, Respondents offered to release the
assets to Orrstown Bank if the Brenners would sign a release. (Ex. 98.) M&T offered no
explanation for their failure to transfer the funds earlier, or for their demand that the Brenners
sign any form of release prior to the assets being transferred. (Ex. 98.) Petitioners were
unwilling to sign the proffered release. (Tr. 136.) No one has ever explained to Bushey (Tr.
135), Brenner Jr. (Tr. 218), or Brenner Sr. (Tr. 287-88) why the assets have not been transferred,
or why M&T is placing any conditions on their release.
II. PETITIONERS HAVE PROVEN THEIR CLAIMS
M&T, David Gority, and Curt Stauffer failed Petitioners and failed these trusts.
M&T recognizes that it is important for a professional co-trustee to provide calm leadership
(Tr. 764), communicate with its non-professional co-trustees in a way that they can understand
(Tr. 764), and give its non-professional co-trustees adequate information for them to give (or not
give) informed consent to an investment recommendation (Tr. 721). M&T did none of those
things in this case. It failed as an institution to adequately communicate with the Brenners,
setting the stage for Gority and Stauffer's negligent and reckless conduct in June 2002. M&T
also failed as an institution when it ignored Petitioners' repeated demands that it release the trust
assets to the lawfully appointed successor trustee for reinvestment.
Respondents claim that Petitioners are simply suffering from "seller's remorse,"
and are looking back at the events of June 12,2002, with the benefit of hindsight now that the
market has shaken out. Again, the evidence shows that is not the case. There is undisputed
evidence that Bushey, Brenner Jr., and Brenner Sr. were all upset and angry with M&T on
June 12, and that all three of them communicated that fact to M&T immediately on June 13,
including telling Gority that Brenner Sr. had not understood what he had purportedly agreed to
the previous day. Bushey even asked Gority on the moming of June 13 whether he had a tape
recording of their June 12 conversation, to which he responded "you are starting to scare me."
From June 13 forward, Bushey and Brenner Jr. consistently refused to sign the written
31
authorizations that Gority requested. And the Brenners sought legal advice and prepared
contemporaneous memoranda of events within a week of June 12, 2002.18 Petitioners' actions
are patently inconsistent with a common case of "seller's remorse."
Instead, the evidence proves that M&T, aided and abetted by Gority and Stauffer,
breached the standard of care and its fiduciary duties to the Brenner trusts when it sold every
single share of Tyco stock out of the trusts on June 12,2002, without the true consent of the co-
trustees. It was M&T's job, as the professional fiduciary and the trustee making the
recommendation, to provide adequate information to its co-trustees and ensure the co-trustees
understood the recommendation prior to seeking consent. M&T did not even try to do that. The
ev.idence proves that M&T further breached the standard of care and its fiduciary duties to the
trusts when it subsequently refused to release the trust assets to the appointed successor trustee.
Petitioners have made out each and every one of their claims against Respondents.
A. Elements of the Claims and the Standard of Care
1. The Elements of the Claims
The elements of a common law breach of fiduciary duty claim are: (1) that the
defendant negligently or intentionally failed to act in good faith and solely for the benefit of
plaintiff in all matters for which he or she was employed; (2) that the plaintiff suffered injury;
18 Bushey and Brenner Jr. both testified that they prepared detailed factual recitations of events at
the request of counsel within about a week after June 12, 2002. (Tr. 114, 219.) Bushey and
Brenner Jr. used those memoranda to refresh their present recollection of events and gave
testimony consistent with those memoranda. (Tr. 115,219.) The memoranda themselves were
never requested by Respondents and are not part of the record. (Tr.220.) Interestingly, Gority
and Stauffer also prepared factual recitations of the events of June 2002, which are Exhibit 19 in
the record. Stauffer claims the idea came to him on his own as the prudent thing to do (Tr. 657),
but Gority admits that M&T's Regional Trust Manager directed him to prepare his recitation
(Tr. 511). Amazingly, Respondents assert that "there is no good reason to question the accuracy"
of Exhibit 19, while the Brenners' recollections are "unspecific, undocumented and potentially
motivated by self-interest" and therefore "entitled to less weight." (Respondents Proposed
Findings (10/21/04) at ~ 81.) That assertion is completely ridiculous. Both sides prepared their
memoranda in the same time period. Gority and Stauffer were well aware of the Brenners'
allegations, the risk of litigation, and the risk to their own jobs and reputations when they
prepared the memoranda. Gorityand Stauffer's recitations are no more specific, documented, or
immune from self-interest than anyone else's.
32
and (3) that the defendant's failure to act solely for the plaintiffs benefit was a real factor in
bringing about plaintiffs injuries. See In re Church ofSt. James the Less. 2003 WL 22053337
*19 (Pa.Com.PI. 2003), aff'd, 833 A.2d 219 (Pa. Commw. 2003). Once the plaintiff shows a
causal connection between the trustee's breach and the trusts' losses, the burden of persuasion
shifts to the trustee to prove, as a matter of defense, that the loss would have occurred in the
absence of a breach of duty. See Estate of Stetson, 463 Pa. 64, 84 (1975). Petitioners maintain
that M&T breached its fiduciary duties in numerous respects.
The Auditor (and the Court) may also surcharge Respondent M&T for its "failure
to exercise common prudence, common skill and common caution in the performance of the
fiduciary's duty." In re Estate of McColligan, 2004 WL 2554859 *3 (Pa.Com.PI. 2004) (slip
copy) (quoting Miller's Estate, 345 Pa. 91, 93 (1942)). Surcharge is imposed "to compensate
beneficiaries for loss caused by the fiduciary's want of due care. ,,19 Id. At M&T's vigorous
insistence, the Court has consolidated its proceedings on the Petition (which states Petitioners'
common law claims) with it proceedings on the Accountings (to which Petitioners filed
Objections consistent with the Petition). It is therefore appropriate to surcharge M&T,
additionally or in the alternative to holding them liable for common law breach of fiduciary duty.
2. The Applicable Standard of Care
The standard of care imposed upon a trustee under Pennsylvania law "is that
which a man of ordinary prudence would practice in the care of his own estate." In re Estate of
Scharlach, 809 A.2d 376, 384 (2002). However, "If a fiduciary has greater skill than that of a
person of ordinary prudence, then the fiduciary's standard of care must be judged according to the
standard of one having this special skill." Id. Similarly, a professional fiduciary "who obtains
the appointment as trustee by representing that he or she has greater skill than a person of
19 Respondents have long insisted this action is solely a surcharge action. (Defs.' Prelim. Objs.
to Civil Complaint (9/15/03) at ~ 1; BriefSupp. Defs.' Prelim. Objs. to Civil Complaint, passim.)
Petitioners maintain that the availability of surcharge does not diminish their ability to assert
claims against Respondents for breach of fiduciary duty and aiding and abetting breach of
fiduciary duty. However, it is certainly within the Court's authority to surcharge M&T as well.
33
ordinary prudence... will be held to that higher standard." Estate of Pew, 440 Pa. Super. 195,237
(1994).
Under Pennsylvania law, M&T owed a higher standard of care than an "ordinary
person." See Scharlach, supra, 809 A.2d at 386. M&T is comparable to the bank defendant in
Mendenhall. 484 Pa. 77, 398 A.2d 951 (1979). In that case, the Pennsylvania Supreme Court
concluded that a bank trustee that assigned an investment officer to each trust account, organized
an investment committee that reviewed the bank's holdings and made recommendations about
acquisition and retention of investments to a trust administration committee, had its investment
officers conduct periodic reviews of all trust accounts and analyze the holdings in each account,
and employed outside investment analysts, "possessed greater resources and skills than those of
the ordinary individual trustee." Id. at 81-82. Accordingly, the court held, "If, on remand the
court determines [the bank] failed to use the resources and skills it possessed in administering the
[subject] trust, a surcharge is justified for any depreciation in the value of principal resulting
from the breach of duty." Id.
As codified by the Pennsylvania legislature, the "prudent investor rule" requires a
fiduciary to "invest and manage property held in a trust as a prudent investor would, by
considering the purposes, terms, and other circumstances of the trust and by pursuing an overall
investment strategy reasonably suited to the trust." 20 Pa.C.S.A. ~ 7203(a). The statute requires
a fiduciary to consider multiple factors in making investment and management decisions,
including but not limited to:
(1) the size ofthe trust;
(2) the nature and estimated duration of the fiduciary relationship;
(3) the liquidity and distribution requirements of the trust;
(4) the expected tax consequences of investment decisions or strategies and of
distributions of income and principal;
(5) the role that each investment or course of action plays in the overall
investment strategy;
(6) an asset's special relationship or special value, if any, to the purposes of the
34
trust or to one or more of the beneficiaries * * * ;
(7) to the extent reasonably known to the fiduciary, the needs of the beneficiaries
for present and future distributions authorized or required by the governing
instrument; and
(8) to the extent reasonably known to the fiduciary, the income and resources of
the beneficiaries and related trusts.
Id. ~ 7203(b).
In addition to their investment obligations, fiduciaries must be held to a high
standard of conduct in their dealings with co-trustees and trust beneficiaries. To do less would
abrogate the settlor's intent to have co-trustees jointly responsible for the trusts, and would risk
undermining the importance of the fiduciary relationship. As the Pennsylvania Supreme Court
stated:
Many forms of conduct permissible in the work-a-day world for those
acting at arm's length, are forbidden to those bound by fiduciary ties. A
trustee is held to something stricter than the morals of the market place.
Not honesty alone, but the punctilio of an honor the most sensitive, is then
the standard of behavior. As to this there has developed a tradition that is
unbending. * * * Only thus has the level of conduct for fiduciaries been
kept at a level higher than that trodden by the crowd.
In re Holmes' Trust, 392 Pa. 17,21, 139 A.2d 548,551 (1958) (quoting Meinhard v. Salmon, 164
N.E. 545, 546 (N.Y. 1928)); ~ also In re Dingee's Estate, 154 Pa.Super. 374,378,35 A.2d 577,
579 (1944) (''It is the duty of a trustee to keep the beneficiaries fully informed of his acts. ").
3. A Note Regarding Expert Witnesses
In addition to fact witnesses, Petitioners called two witnesses to offer expert
testimony on M&T's conduct and whether it fell below the standard of care for a professional
fiduciary in Pennsylvania. James Quinlan is a practicing investment advisor and the President of
Smart Financial Advisors. He has attained multiple designations and licenses in investment
advising, finance, and trading, including Certified Financial Planner, Charter Financial
Consultant, Personal Financial Specialist, Certified Public Accountant, and NASD security
licenses 6, 7, 24, 51,63, and 65. (Tr.323-325.) Quinlan offered expert testimony regarding the
appropriate conduct of an investment advisor (such as Respondent Stauffer), both in general and
in specific situations at issue in this case. David Steele ("Steele") has 40 years of experience in
35
the trust industry, including 20 years managing trust departments at banks in Pennsylvania, and.
taught at the Central Atlantic School of Trusts for fifteen years. (Tr. 381-384.) Steele offered
expert testimony regarding the appropriate conduct of a trust officer (such as Respondent Gority)
and a trust fiduciary (such as Respondent M&T), both in general and in specific situations at
issue in this case.
Each expert witness' qualifications are discussed in greater detail in his hearing
testimony, and Petitioners cite the expert testimony herein as appropriate. Petitioners
respectfully urge the Auditor to consider the expert testimony in evaluating Petitioners' claims.
B. M&T's Failure to Communicate Adequately with the Brenners Prior to June 2002 Set
the Stage for the Events of June 12-13,2002
M&T (and its predecessors) failed to communicate with the Brenners in several
important regards prior to June 2002 that set the stage for subsequent events. First, M&T never
got to "know the client." (Tr. 326.) Quinlan testified that it is not prudent to render financial
advice without knowing the client's overall financial picture (Tr. 327), and that M&T was not
prudent in acting on one piece ofthe Brenners' investments without looking at the total picture
(Tr. 328). The total picture affects the timeline and risk profile for each piece. (Tr. 328.) M&T
never inquired about the Brenners' or Brenner Sr.'s pools of wealth and overall diversification.
(Tr. 82, 198,254.) As Quinlan testified, discussing risk profile, time horizon, and use of money
with the co-trustee will normally open up the discussion of how the trusts fit into the family's
overall picture, including income and withdrawal needs. (Tr. 347.) In this case, Brenner Sr.
believed Gorityand Stauffer knew he had other assets because he had referred to them in a
general way, but M&T never actually asked him or attempted to quantify his other assets.
(Tr. 254.) Brenner Sr. testified that he is in fact personally diversified in real estate, municipal
bonds, stock (including but not limited to Tyco stock), and cash. (Tr. 253.) Upon his death, all
of Brenner Sr.'s assets will go to his children and grandchildren (Tr. 321), who are also the
beneficiaries of the trusts (Ex. 1, 2, 119).
36
Stauffer admits he made no effort to understand Brenner Sr.'s overall wealth.
(Tr. 803.) Stauffer says he considered Brenner Sr.'s overall wealth "irrelevant" because a trust is
"its own entity" and Brenner Sr. is only one beneficiary. (Tr. 803.) Stauffer's view of the trusts
as entities in a vacuum is unreasonable. There are individuals involved in a trust (Tr. 346), as
Quinlan testified, and it is still necessary to look at the overall portfolio to determine the
appropriate level of risk. (Tr. 346,354.) A trust is part of an individual's holdings, but it may
not be all they have, and the bank needs to know who the beneficiaries are and what other assets
exist to support them. (Tr.346.) Stauffer's supervisor Magee implicitly agreed when he testified
that the trust account objective should be set in a collaborative fashion between the portfolio
manager, the administrative officer, and the client, and that the appropriate level of
diversification depends on the objective of the particular account. (Tr. 700.) Magee considered
the "customer" or client in this case to be "several family members." (Tr. 697-98.) Similarly,
when asked his understanding of how M&T evaluates whether a particular account concentration
is appropriate, Babcock testified that, in addition to the stock itself, one needs to look at the
underlying instrument, any customer letters in the file, tax considerations, the particular history
on the account and where the asset came from, any pattern of sales, and "not the least * * *
would be the family's wishes." (Ex. 112 at 32-33.)
M&T's own testimony is inconsistent with Stauffer's view ofthe trusts in a
vacuum. Stauffer's view of the trusts is also inconsistent with Pennsylvania's "prudent investor
rule," which requires a co-trustee to consider multiple factors in making investment decisions in
connection with a trust, including (but not limited to) "the role that each investment or course of
action plays in the overall investment strategy," "an asset's special relationship or special value, if
any; to the purposes of the trust or to one or more of the beneficiaries," "the needs ofthe
beneficiaries for present and future distributions authorized or required by the governing
instrument" to the extent "reasonably known to the fiduciary," and "the income and resources of
the beneficiaries and related trusts" to the extent "reasonably known to the fiduciary." See 20 Pa.
C.S.A. ~ 7203. As to the Blakely Trust, for example, M&T apparently did not even keep a copy
37
of the trust instrument, let alone evaluate the factors identified in section 7203.
As an investment professional and professional fiduciary, Stauffer and M&T also
did an exceedingly poor job of communicating to the Brenner co-trustees different financial tools
available to protect the trust assets on the downside. There is no evidence that Gority, Stauffer,
or anyone at M&T ever discussed any downside hedging options with any member of the
Brenner family.20 As Quinlan testified, zero cost collars and other hedging techniques are more
sophisticated market tools than the average investor would be familiar with, so they take time to
adequately explain and then implement. (Tr.355-57.)
It is especially remarkable that Stauffer did not discuss hedging options with the
Brenners given the thorough discussion at M&T's internal meetings in September 2001. Magee
and other M&T personnel at those internal meetings recognized the need for downside
protection. Magee's notes of the last internal meeting say "add stop loss as strategy" (Ex. 70), as
do someone else's notes of the same meeting (Ex. 72). Stauffer admits that M&T determined at
that time that a stop loss would probably be the most palatable option for downside protection on
the trusts. (Tr. 804.) Nonetheless, Stauffer never discussed a stop loss or any other downside
hedging options with the Brenners in November 2001, when the stock was trading around $55.
Instead, the one and only recommendation he made was a diversification program based on pIe
ratios with the goal of having all the Tyco stock sold within ten years.
While Tyco's stock price declined from $58 at the beginning of January 2002 to
$16 at the beginning of June 2002, Stauffer still did not communicate with the co-trustees about
downside hedging options. During that time period, M&T sent two letters to the Brenners. The
first, a letter from Gority on February 1, at which time the stock was trading at $35, purported to
memorialize a conversation with.Brenner Sr. in which he agreed conceptually to a $60-$63 target
20 Gority was the investment officer for the trusts when Farmers was co-trustee. It is unclear
who at Keystone had that responsibility. Stauffer's name appears on internal documents as the
"investment officer" on the accounts (Exs. 43, 45, 50-52), but Stauffer does not remember being
assigned to the Brenner accounts until 2000 or 2001 after M&T took over (Tr. 589). By all
accounts, Stauffer did not take any action on the trusts until the fall of2001.
38
for upside protection. The second, a letter from Stauffer on March 6, at which time the stock was
still trading at $34, summarized various events at Tyco. On their face, and to Quinlan's eye as a
professional investment advisor (Tr. 330), both letters suggested that panic around Tyco was not
warranted and seemed to be meant to calm the co-trustees and communicate that the
fundamentals ofTyco were sound and overshadowed the negative media. Quinlan testified that a
prudent investment advisor would have discussed downside protections, like those M&T
discussed internally in September 2001, with the Brenners in this February to March 2002
timeframe. (Tr. 334.) As the stock continued to decline between March and June 2002, M&T
still did not meet with the Brenners to discuss downside protections. Stauffer says he was
"absolutely concerned" with the drop in Tyco's stock price between March and June 2002
(Tr. 622) and that the shares had "lost 80% of their value" in the six months leading up to June
2002 (Tr. 639). But he did nothing.21
Stauffer offers no explanation for his failure to discuss downside protections with
the Brenners earlier. He simply says that, "when it came time to use a downside protection," he
chose a stop loss order because that was what M&T had decided on internally in September
2001. (Tr. 804.) It is mystifying why Stauffer believes that June 2002, when the market hysteria
over Tyco was at its height, was the appropriate time to mention downside protection for the first
time. He testified himself that a stop loss order is a good technique to protect gains while stock
is performing well, with which Quinlan agreed. By June 2002, the stock had fallen from $55 at
the time of the November meeting to $10 on June 12 when he mentioned a stop loss order for the
first time. By that time, Stauffer agrees, it was "way past" the time to discuss risk tolerance.
21 During Steele's testimony, Respondents' counsel asked Steele whether he believed it was
prudent for the Brenners to "repeatedly decline the bank's recommendation to sell as the shares
tumbled from the sixties, the fifties, the forties, the thirties, twenties and down into the tens?"
Steele responded, "I don't think they are entirely blameless as a fiduciary with other beneficiaries
involved." (Tr.407-08.) However, Respondents' counsel misrepresented the facts prior to
asking for Steele's expert opinion. M&T did not "repeatedly recommend" anything between
January and June 7, 2002. The only communications M&T made to the Brenners during that
time period are reflected in the February 1 and March 6 letters. At most, M&T "recommended"
selling 20% of the shares in the Children's Trusts ifTyco's stock price rose to $60-$63.
39
(Tr. 832.)
In addition to creating a rea] opportunity to protect the trust assets on the
downside, presenting hedging options to the Brenners in November 2001, or at least sooner than
June 2002, would have provided an opportunity for thoughtful discussion and questions with all
the necessary parties present, and without the panic and pressure M&T brought to bear in June
2002. Unfortunately, it appears that Stauffer was so focused on getting the accounts diversified,
as his superiors had been urging him to do for some time, that he completely failed to
communicate other options that could have protected the accounts significantly had they been
presented in a timely fashion.
C. Grandchildren's Trust: M&T Breached Its Fiduciary Duties and the Standard of Care
in June 2002
1. M&T Did Not Obtain True Consent from the Co-Trustees
When the internal "sell" recommendation came to him on June 7,2002, Stauffer
finally decided that he had better meet with the Brenners. Stauffer called both Bushey and
Brenner Jr. to tell them about the sell recommendation and to tell them he wanted to schedule a
meeting with the entire family the following week when Gority returned from vacation. It is
undisputed that Stauffer never called back Bushey or Brenner Jr. Bushey and Brenner Jr. have no
idea why he did not call them back about meeting. Stauffer claims that he did not because, in a
subsequent conversation with Brenner Sr., Brenner Sr. allegedly told him that he would come
alone. (Tr. 632-33, 825.) Even assuming arguendo that Stauffer is not fabricating that allegation
to cover having dropped the ball, Stauffer's assertion makes no sense. Stauffer had personally
told both Bushey and Brenner Jr. that he would call them back. He also knew that Brenner Sr.
was not a co-trustee on the Grandchildren's Trust and that M&T needed Bushey and Brenner Jr.'s
consent for any transactions in the Grandchildren's Trust. If Stauffer actually knew that Brenner
Sr. was coming alone as he claims, then, putting aside the propriety of meeting with Brenner Sr.
alone, it was completely inexcusable for him not to call back Bushey and Brenner Jr. to set up a
separate meeting with them about the Grandchildren's Trust. (Of course, had he done so, they
40
would have ensured Stauffer met with all three Brenner co-trustees together.)
Instead, Stauffer and M&T just ignored Bushey and Brenner Jr. until midday on
June 12. Incredibly, on June 12, Stauffer still did not bother to meet with Bushey and Brenner Jr.
to present and discuss his recommendation. Stauffer testified that, if Gority had been in town on
June 7, then they would likely have made those calls to the Brenners together. (Tr.630.)
Stauffer explains that Gority could not have handled those calls alone because .Stauffer needed to
be there to communicate the rating change and investment rationale. (Tr.630.) Although
Stauffer claims Gority could not have handled the June 7 calls alone, Stauffer allowed Gority,
and in fact relied on Gority, to make the far more significant calls on June 12 alone. This despite
the fact that he had personally told Bushey and Brenner Jr. he would call them back to schedule a
meeting, and despite the fact that he considered himself the only person qualified to discuss any
investment issues with them, let alone a recommendation that would result in the sale of every
Tyco share in the trust.
Gority has testified repeatedly that the only reason he called Bushey and Brenner
Jr. on June 12 was to set up a meeting on the Grandchildren's Trust similar to the one that had
just been held on the Children's Trusts. (Tr. 491.) The overwhelming weight of the evidence
proves that is not true. Gority admits that he knew that Stauffer was recommending the Brenners
act that day (Tr. 531), yet Stauffer has no recollection of Gority asking him when he would be
available to meet (Tr. 827), and Gority has never claimed that he did. Stauffer's testimony is very
clear that he expected Gority to get authorization from Bushey and Brenner Jr. Stauffer's
understanding was that Gority was going to call to "apprise [Bushey and Brenner Jr.] of what Mr.
Brenner, Sr. agreed to and ask them if we had their permission to execute the same strategy in
their accounts." (Tr.826.) Asked ifhe was planning to meet with Bushey and Brenner Jr.
himself that day, Stauffer testified, "At that point in time, it was Dave Gority who took
responsibility for making those contacts. Whether we had to meet with them in person or we
could accomplish it over the phone had yet to be seen." (Tr. 826.) Stauffer even "pended" the
trades in the Grandchildren's Trust to make sure they could be executed as quickly as possible
41
once authorization was received. (Tr. 652-53.) According to Stauffer's assistant, "pending" was
unusual and saved about one minute once authorization came through. (Tr.778-79.) Stauffer
was just waiting for Gority to "tell me that we got the authorization." (Tr. 653.)
Sent to do a job neither he nor Stauffer believed him qualified to do, Gority did it
poorly to say the least. Gority contacted Bushey and Brenner Jr. separately and did not give them
an opportunity to talk to each other or Brenner Sr. By his own admission, Gority did not explain
the rationale for M&T's recommendation to sell one-third of the shares in the Grandchildren's
Trust immediately, did not explain what a stop loss order is, did not explain the rationale for
M&T's recommending a stop loss in the Grandchildren's Trust, did not explain how Stauffer set
the stop loss trigger price, and did not discuss the likelihood that the stop loss price would trigger
the liquidation of the Tyco stock in the trust. As to Bushey, Gority did not even make clear what
account he was calling about. Bushey did not understand that Gority was calling about the
Grandchildren's Trust, and Brenner Jr. confirms that she denied giving Gority consent on the
Grandchildren's Trusts when she spoke to Brenner Jr. immediately afterwards. It is noteworthy
that Gority agreed at the hearing that he was calling Bushey in her capacity as co-trustee of the
Grandchildren's Trust (Tr. 491), but never testified that he told Bushey that fact during the call
(Tr. 490-96).
Gority did not provide adequate information for Bushey or Brenner Jr. to make an
informed decision on the substance of the recommendation. As Steele testified, it "was
incredibly imprudent that any corporate fiduciary would have a telephone discussion with a co-
fiduciary on such a matter as the sale of stock that has been repeatedly rejected from sale."
(Tr. 391.) Even worse, when Bushey and Brenner Jr. both expressed concerns about the
recommendation on its face, Gority made no effort to address them. As Steele testified, the
appropriate response when a co-trustee expresses discomfort and concern about a
recommendation is "to have a face-to-face meeting so you can sit down and explain and hear
their concerns and try to answer their concerns one step at a time and come to some mutual
. decision, a meeting of the minds." (Tr.394.)
42
Stauffer says he "felt very confident" that Gority "could recap with them what we
covered in the meeting" and pointed out that he was only two offices away if Gority needed him
"for further explanation." (Tr. 828.) Stauffer admits that everything said to Brenner Sr. was
important for him to hear as a co-trustee. (Tr. 824-25.) Asked how Stauffer expected Gority to
explain something that was not discussed in the meeting, e.g., how the stop loss trigger price was
set, Stauffer testified that Gority "would have come and got me." (Tr.836.) But Gority never
"got" Stauffer, never referred Bushey or Brenner to Jr. to Stauffer, and never offered to set up a
meeting. Gority did not even provide the minimal information that was provided to Brenner Sr.
Gority did not consider explaining the recommendation or responding to Bushey and Brenner
Jr.'s concerns necessary. Instead, he pressured them to make a decision without providing
adequate information, time to consider, or an opportunity to consult with one another or someone
with investment expertise. Although it was M&T who had contacted them, Gority's testimony
shows that he considered the burden entirely on Bushey and Brenner Jr. to figure out the
recommendation and try to come up with appropriate questions without any information.
In sum, Gority alone presented a recommendation that he did not take part in
formulating, did not know the rationale for, and says he did not even have an opinion about the
prudence of, regarding selling the stock of a company that he had not even seen the news about
for almost two weeks. Stauffer expected and encouraged him to do so. Not surprisingly, Gority
capitalized on the Brenners' established relationship with him to try to obtain the consent he was
sent to get. Bushey and Brenner Jr. had no idea that Stauffer was the only person qualified or
permitted to give investment advice on the trusts. They trusted Gority, they were shocked at the
manner and content of Gority's call, and they were inappropriately pressured to act immediately
when M&T could and should have contacted them in advance to set up a meeting in person with
all the trustees present. As Steele testified emphatically, M&T should never have sought consent
from Bushey or Brenner Jr. on the phone without a face to a face meeting. (Tr. 404-05, 409-10.)
Again, this situation was caused by Gority and Stauffer's negligence in particular. Klobusicky
testified that he was not privy to the discussion with Bushey and Brenner Jr. but "assumed" they
43
were given the same information as Brenner Sr. (Tr. 753.) It was also "much to [his] surprise"
when Klobusicky learned later that Gority and Stauffer had executed the sales in the
Grandchildren's Trust based on verbal authorization. (Ex. 89 at ~ 2.)
2. M&T's Recommendation was Negligent
The substance of Stauffer's recommendation for the trusts on behalf of M&T was
also negligent or reckless. With respect to the recommendation to sell one-third at market, M&T
offered no rationale for recommending that particular quantity of shares be sold. Stauffer cites a
Harris research report from June 10 (Ex. 20) as something he relied on because M&T's internal
analysts were no longer covering Tyco. (Tr.659-62.) However, that report rates Tyco as
"neutral" and only recommends against "new positions" in Tyco. (Ex. 10.) Gority says he did
not even know what price Tyco was trading at when he made the recommendation to Bushey and
Brenner Jr. (Tr.499.) There is no evidence regarding why M&T recommended an immediate
30% sale from the Grandchildren's Trust.
The stop loss order is much worse. It is undisputed that Bushey and Brenner Jr.
were given no information about the stop loss order, except to reference it as part of the
recommendation and something that Brenner Sr. had allegedly agreed to. Even if they had been
given the minimal information Brenner Sr. was purportedly given, however, that information was
inadequate, as wel1 as misleading due to the way Stauffer set the trigger. Stauffer says he
described a stop loss order to Brenner Sr. multiple times (Tr. 649), but Klobusicky says Stauffer
only gave one "brief' description before asking for Brenner Sr.'s consent. Stauffer admits he did
not discuss with Brenner Sr. what an appropriate trigger price would be prior to recommending
$9.00. (Tr. 833.) In contrast, Magee testified that he always explains the basis for recommending
a stop loss order and the particular trigger price. (Tr. 709; Tr. 682.) Magee explained that "part
of the stop-loss program is discussing with a client trying to get a sense of what they are willing
to get out at." (Tr. 712.) It is necessary, Magee says, to have a meeting of minds with the client
as to the appropriate trigger price. (Tr. 709.) Magee's testimony echoes Quinlan's that a prudent
investment advisor walks through a stop loss with the client because the client "wouldn't
44
understand if you set a stop loss at a certain price without telling them what you are trying to
accomplish. Once they understand what will happen, then they can help determine the price."
(Tr. 339; Tr. 337-339.) Magee's testimony is also consistent with Quinlan's testimony about
needing to identify the particular client's "sleep factor," i.e., the point at which that client is
uncomfortable continuing to hold a stock that is losing value (Tr. 334,337-38,353-54), or wants
to "get out" as Magee put it.
Stauffer apparently disagrees. Stauffer testified that he considered it M&T's
"obligation as the expert fiduciary to make [the] recommendation" on the trigger price (Tr. 834),
which he considered a "crucial part" of the recommendation (Tr. 649). Having taken on that
obligation unilaterally, Stauffer did such a bad job of setting the trigger price that he virtually
assured it would trigger. According to Stauffer's own testimony, a stop loss order is appropriate
when a stock "could be subject to events beyond simple market volatility that could trigger the
stock to drop quickly." (Tr.605.) Stauffer also testified, "What you want to do in a stop-loss in a
situation like this is set it so that it wouldn't go off in a normal trading day. There would have to
be some type of event that would cause the stock to trade much more volatilely on the downside
that would trigger that." (Tr.637.) Quinlan also testified that a prudent investment advisor sets
the trigger price by looking at trading activity and the bands and range of activity for the stock.
"Volatility of the stock would be important. The more volatile it is, the wider the band. Because
with a stock with a stop-loss, an intraday movement. will cause it even though at the end of the
day, it could be back above." (Tr.337.) Software is even available to help analyze the trading
range of a stock and assist in setting a trigger price to avoid sale based on an intraday bump.
(Tr. 358.)
The evidence and Stauffer's testimony show that Stauffer recommended a trigger
price 15% below the price Tyco was trading at the time. (Tr. 810.) Stauffer says that figure was
''based upon just looking at the stock and its intraday movements, what its volatility was from
high to low in any given day." (Tr.637.) Stauffer obviously did not look at recent intraday
movements and volatility though. A comparison of Tyco stock's high and low trading prices for
45
the month of June 2002 shows that, in the seven trading days leading up to June 12, there was
more than 15% volatility on three of the seven days.22 (Ex. 108.) Stauffer says he cannot
"recall" those statistics about the past seven trading days (Tr. 811-12) and has no recollection
whether he noticed that fact at the time (Tr. 812-13). As to not mentioning this fact to the
Brenners, Stauffer says it is "possible" that the co-trustees might have liked to know how likely it
was that the trigger he recommended would result in the sale of all the trust assets: "I guess it is
possible. I can't speak for what they were thinking." (Tr.813.)
Setting a trigger price is not an exact science, which is precisely why it should be
done in consultation with the client to determine a figure that the client is comfortable with. As
Quinlan testified, that is the "optimal" level for a stop loss trigger. (Tr.359-60.) Having elected
not to consult with the clients, Stauffer should have at least done the necessary volatility analysis
and back-testing to determine the likelihood of his price recommendation triggering the sell
order. Stauffer had back-tested his November 2001 recommendation to "determine whether
certain parameters and assumption would actually be effective" in generating the desired result
(Tr. 615). In fact, he made a point about the importance of back-testing in that presentation to the
Brenners. The written materials for the November 2001 presentation included a page explaining
back-testing and the time period back-tested, and another page depicted graphically what sales
would have triggered in the previous eighteen months under his model. (Ex. 11.) As for his June
12 stop loss trigger recommendation, Stauffer says he "thinks" he back-tested it by looking at
daily volatility on average "for the past six months or so." (Tr.81O.) Stauffer does not explain
why he looked at such a long time period when he knew Tyco's stock had been more volatile
recently. (Tr. 811.) He admits that he did not tell Brenner Sr. what time period he tested. (Tr.
22 On June 3, the high was 18.800 and the low was 15.600 (17.02% volatility). On June 4, the
high was 16.800 and the low was 15.550 (7.73% volatility). On June 5, the high was 17.750 and
the low was 16.910 (4.78% volatility). On June 6, the high was 17.300 and the low was 14.400
(16.76% volatility). On June 7, the high was 12.550 and the low was 9.450 (24.70% volatility).
On June 10, the high was 11.750 and the low was 10.300 (12.34% volatility). On June 11, the
high was 11.250 and the low was 10.500 (6.66% volatility). High and low trading prices are
taken from Exhibit 108.
46
813.) He also admits there is "no supporting documentation of his back-testing" at all. (Tr.814.)
Within a few hours of his recommendation, Tyco stock dipped briefly to the
trigger price Stauffer had urged, causing the sale of every Tyco share in the trusts. This
triggering was caused not by "some type of event that would cause the stock to trade much more
vo1atilely" than on a normal trading day (Tr. 637), to quote Stauffer, but by the type of intra day
bump that a prudent investment advisor would avoid. (Tr.337.) Tyco's stock price opened at
$10.90 on June 12, and it closed at $10.15 that day. (Ex. 108.) Although there was ultimately a
positive announcement about Tyco's cn division after the market closed that night, Stauffer says
the market on June 12 was expecting bad news about cn. (Tr.640.) Nonetheless, the market
was still back up to .$10.15 by the end of the trading day. The $9.00 price that triggered the stop
loss was, by definition, an intraday bump in a market with known volatility.
The fact that Stauffer set the stop loss trigger so badly exacerbated M&T's
negligence and recklessness in communicating the stop loss recommendation generally to the
Brenners. Nothing was explained to Bushey or Brenner Jr. As Quinlan testified, recommending
a stop loss without explaining it or explaining how the trigger price was set is not prudent
investment advice. (Tr. 339-40.) Stauffer claims that he explained the stop loss order to Brenner
Sr. as follows: "My explanation to him was that it was outside of a normal one day trading
volatility of the stock. So therefore, just normal market ups and downs would not necessarily
trigger the stop loss." (Tr.649.) Although Gority does not really recall what Stauffer said about
how the stop loss worked, he says his best memory is that Stauffer said words to the effect that
"it was a mechanism that was employed to protect the value and the shares should there be a free
fall in the market." (Tr. 536.) Even assuming arguendo that Stauffer made these statements to
Brenner Sr. to attempt to obtain his consent to the stop loss order, the statements are inaccurate
and misleading on their face given the truth about Tyco's daily volatility in the market at the time.
The only person involved in the events of June 12 who had any experience with
stop loss orders was Stauffer. Gority had never used a stop loss order (Tr. 535) and was not
involved in formulating the recommendation to use one on June 12. Klobusicky had not used
47
stop loss orders. (Tr. 743-44.) Stauffer had told Klobusicky prior to the meeting with Brenner
Sr. that he was going to recommend a stop loss (Tr. 636) and claims that Klobusicky was "very
agreeable" to the $9.00 trigger price (Tr. 637). However, Stauffer admits there was "not a lot of
discussion" with Klobusicky (Tr. 636), and Klobusicky testified that in fact he and Stauffer did
not discuss the trigger price except that Stauffer must have mentioned to him what it was. (Tr.
745.) As for the Brenners, Brenner Sr. had no experience with stop loss orders and still does not
understand how they work. (Tr. 280.) Bushey did not even pick up on Gority's reference to a
stop loss order she was so unfamiliar with them. Brenner Jr. knew enough to know that he was
uncomfortable and did not like the idea of using one, as he expressed directly to Gority during
the June 12 phone call.
It was incumbent on Stauffer, as the person making the recommendation on behalf
ofM&T and the only person knowledgeable about stop loss order, to explain why he was
recommending a stop loss order, how he had set the trigger price, whether he had back-tested it,
and what the reasonable likelihood was of it triggering in the near future. Stauffer failed in all
these regards, and recommended a stop loss order that was very likely to achieve the result that
he personally wanted-short-term sale ofthe entire Tyco position in the trusts. Stauffer admits
he personally would have preferred just to sell all the Tyco stock in the Brenner trusts on June 12
(Tr.634). It is not surprising that Stauffer would have preferred to sell the entirety of the Tyco
stock in the Brenner trusts on June 12, given that those accounts were receiving the most
attention from M&T and its senior management of any of the 300 accounts to which Stauffer was
assigned, and Stauffer had told his boss just a month prior that he felt M&T would have to resign
and lose the accounts ifhe could not get an aggressive diversification plan in place in the near
term. Of course, Stauffer got what he wanted-he did sell all the Tyco stock in the Brenner
trusts on June 12.
48
3. M&T Has Wrongfully Refused to Transfer the Trust Assets to the
Successor Trustee
Subsequent to the events of June 2002, M&T has further breached its fiduciary
duties by ignoring the notice of its removal as co-trustee and direction to transfer the assets to the
lawfully appointed successor trustee, Orrstown Bank. For nearly a year, M&T was silent in the
face of repeated requests that M&T transfer the assets, during which time the price of Tyco stock
increased from $20 to $31. On July 8, 2004, M&T finally responded, conditioning transfer of the
assets on the Brenners' signing a release. (Ex. 98.) M&T offered no explanation for its long
silence, or for its placeme' t of any condition on transfer of the funds. Petitioners are aware of no
authority that allows M&T to condition transfer of the assets on their signing any form of release.
Petitioners are also unaware of any authority that M&T's filing of accountings prevents it from
transferring assets to a lawfully appointed successor. M&T itself obviously believes it has the
ability to transfer the assets, as evidenced by its July 2004 letter.
Petitioners have repeatedly pointed out to Respondents that refusing to release the
trust assets is reducing the value of the trusts because the assets are not being properly reinvested.
(Exs. 96, 97.) As Steele testified, a corporate trustee has an obligation to communicate with its
co-trustees at all times regarding their accounts, including communicating about the transfer of
assets to a successor trustee. (Tr. 389.) Steele also testified that, in his expert opinion, M&T's
delay in transferring the assets to the successor trustee is so significant that it is a breach of
fiduciary duty. (Tr. 390.) There is no justification for M&T's conduct.
D. Children's Trusts: M&T Breached Its Fiduciary Duties and the Standard of Care in
June 2002
1. M&T Did Not Obtain Knowing Consent from its Co-Trustee
M&T breached its fiduciary duties to the Children's Trusts and failed to meet the
standard of care when it conducted a substantive meeting with Brenner Sr. on June 12, 2002,
without Bushey or Brenner Jr. present. Dr. Joseph Brazel testified at the hearing that he has
"absolutely no doubt" in his mind that Brenner Sr. was suffering from senile dementia of the
49
Alzheimer's type in June 2002.23 (Tr. 78, 50-56.) Dr. Brazel also testified that he has "no doubt"
in his mind that Brenner Sr. "did not have the ability to deal with complex data, subjects,
discussions, or terminology" in June 2002. (Tr. 78,56-57.) Brenner Sr. had difficulty with even
"mundane" matters by that time. (Tr. 50-51, 78.) Dr. Brazel has been practicing medicine for
over 30 years, has been Brenner Sr.'s personal physician for over ten years, and approximately
70-75% of his patients are elderly. (Tr.49-50.) Dr. Brazel's, opinion is based on his many years
of experience with Brenner Sf., and his ?1any years of experience with dementia and how it is
handled in clinical practice. (Tr. 61.)
Although self-assessment is of no clinical value, it is notable that Brenner Sr.
himself recognizes that he needs "help," in fact "a lot of help," making business decisions, which
is why he has willingly accepted assistance with financial and other matters.24 (Tr.291-92.)
Bushey and Brenner Jr. know that Brenner Sr. needs a lot of help, and have provided that
assistance for many years, especially since their mother's death in 1997. It was because of their
concern about his diminishing capacity that Bushey and Brenner Jr. agreed with Gority in 1998
that one or both of them should attend any meetings with Brenner Sr. This arrangement reduced
23 M&T attempted to undermine Dr. Brazel's testimony at trial by citing another physician's notes
of a medical clearance exam prior to emergent hip surgery on Brenner. Sr. (Tr. 77,53.) The
notation states "mentally sharp as a tack, up to current events." (Ex. 109.) However, as Dr.
Brazel testified, that physician only met Brenner Sr. briefly that evening and has not treated
Brenner Sr. otherwise. (Tr. 74, 53.) Dr. Brazel was not present, and there is no evidence
whether or not Bushey or Brenner Jr. was present. Dr. Brazel testified unequivocal1y that he did
not consider Brenner Sr. competent to give consent for an invasive medical procedure in 2002.
(Tr.51.)
24 Respondents' counsel asked Dr. Brazel at the hearing whether he was aware that Brenner Sr.
had testified in his deposition that he was competent to make business decisions in June 2002.
(Tr.67.) Petitioners assert that is a misleading characterization of Brenner Sr.'s testimony.
Brenner Sr. admitted in his deposition, as he did at the hearing, that he requires assistance and
relies on Bushey and Brenner Jr. in particular to assist him. In any event, as Dr. Brazel testified,
a patient's self-assessment of their mental condition is of "absolutely no value" in determining
whether he or she is suffering from dementia. (Tr.67.) Dr. Brazel testified that it would not
surprise him if Brenner Sr. believed that he was competent and also believed that he was taking
his medications correctly, which he was not. (Tr. 67.)
50
the disruptions to Gority's work caused by Brenner Sr. stopping in repeatedly to ask questions
that Gority had already answered. It also created a safeguard for Bushey and Brenner Jr. to make
sure Brenner Sr. understood communications from M&T. Until June 2002, this arrangement was
an effective means of dealing with Brenner Sr. 's reduced capacity.
In June 2002, however, M&T failed to abide by that agreement. The fact that
Gority was on vacation when Stauffer arranged the meeting no doubt contributed to the events of
June 2002. However, even assuming arguendo that Stauffer did not recognize the significance of
Brenner Sr.'s condition, Gority had a responsibility to relay that important information to Stauffer
as someone with authority for the accounts. Moreover, once Gority became personally involved
on June 12, he absolutely should have spoken up and either called Bushey and Brenner Jr. to get
them there or terminated the meeting. He knew they had an agreement and he knew Brenner Sr.
needed help. Unfortunately, as Farmers became Keystone and Keystone became M&T, the bank
had grown larger and more impersonal. It had become driven more by numbers and models than
the personal service relationships that had caused Brenner Sr. to choose Farmers as co-trustee in
the first place. Although the Brenners did not know it, Gority had lost much of his authority for
the trusts. Gority knew that M&T was pressing to get the trusts diversified though, as it had ever
since it acquired Keystone.
When it mattered most, Gority chose loyalty to the goal of his employer over the
needs of his client, a client to whom both he and M&T owed a fiduciary duty. Trying to keep up
and keep his job, Gority went along instead of standing up. He allowed Stauffer to pressure and
confuse Brenner Sr. into making a "decision," and prepared and presented papers to Brenner Sr.
for him to sign. Gority claims that he read the papers aloud to Brenner Sr., but the testimony of
everyone else present proves that did not happen. Brenner Sr. had no idea that the papers said he
had agreed to sell any shares, or that they said he agreed to something that could cause the
complete liquidation of Tyco shares in the trusts. (Tr.283-84.) Brenner Sr. had no idea that one
of the papers referred to the Blakely Trust. (Tr. 282-83.) Brenner Sr. does not even remember
whether he signed one paper or two. (Tr.283.)
51
The evidence is clear that Brenner Sr. felt alone, confused, uncomfortable, pushed
around, and not in control. His experienced was inevitably colored by his senile dementia and
further confounded by his hearing problem. He perceived utter panic and confusion around him.
He saw Stauffer as highly excited, jumping up and down, pounding on the desk, and demanding
an immediate decision. (Tr. 286.) He did not understand why someone from Buffalo was
involved. He did not understand what M&T was recommending. He did not know what it all
meant or what he should do, and he needed Bushey and Brenner Jr. to assist him.
Not only were Bushey and Brenner Jr. not there, but M&T did not even attempt to
tailor its presentation so that there was at least a chance that Brenner Sr. could understand it.
Stauffer convinced Klobusicky it was unnecessary to attend the meeting in person, and never told
Klobusicky that Brenner Sr. had hearing loss. Stauffer explained a stop loss order once, briefly.
All Brenner Sr. got out of this single brief description was that Stauffer was trying to "protect"
him. Stauffer did not give a "worst case scenario" for the stop loss order to make sure Brenner
Sr. understood how the mechanism worked and that it meant all the shares could be sold
automatically due to market events. As Steele testified, worst case scenarios can be an effective
means to test someone's understanding: "I always tried to put things in the worst terms for them
to see if they understand that." (Tr.401.) Stauffer did not explain to Brenner Sr. how the stop
loss order would have worked in the past week, for example, or give him any illustrations like
those Stauffer included in his November 2001 presentation. As Steele testified, in dealing with a
trustee with age-related dementia, it is important to modify the message to be sure the person
understands: "And if! have to explain it one time, two times or ten times, if! have to draw
diagrams, if we have to get together later on, we will do that, whatever is necessary." (Tr.396.)
Klobusicky also testified that it is important for the professional co-trustee to tailor its message to
the individual co-trustee and communicate to the individual in a way that allows him or her to
understand and evaluate the recommendation. (Tr. 764.)
Had Stauffer called back Bushey and Brenner Jr. as he had promised he would,
there is no doubt that Bushey and Brenner Jr. would have been at the meeting with Brenner Sr.
52
They knew Brenner Sr. was suffering from reduced capacity, they had an agreement with Gority
to attend meetings with Brenner Sr., and they had in fact attended all meetings at which any
substantive decisions had been made or requested. M&T asserts that it had in fact been meeting
alone with Brenner Sr. since 1998 and that Bushey and Brenner Jr. knew it. The evidence does
not support that allegation. The January 2002 meeting has already been discussed- Bushey and
Brenner Jr. were not invited, but no decisions were made at that meeting, the circumstances of its
occurrence are unknown, Stauffer believes it may have been by phone and is not sure he was
even present, and Brenner Jr. discussed the matter with Brenner Sr. about having attended alone
immediately after receiving the letter. Gority claims there were meetings with Brenner Sr. in
1999 in connection with the 40% reinvestment in the Grandchildren's Trust. (Tr.437-38.) The
substance or circumstances of these meetings is unknown since there is no memoranda of them,
even though Gority testified that he documented "all significant client interaction" as a matter of
standard practice. (Tr.446.) However, Bushey and Brenner Jr. alone signed the authorizations
for the sale in 1999 and the reinvestment in 2000, so any involvement by Brenner Sr. was
insignificant in that sense. Finally, Gority also claims that he met alone with Brenner Sr. in
summer 2000 to discuss and sign the letters authorizing continued holding of the Tyco shares in
the Children's Trusts. (Tr.448.) A meeting to confirm the status quo is distinctively different
than a meeting to radically change course, but, in any event, there is no evidence Bushey or
Brenner Jr. were aware of that meeting.
Stauffer claims he did not call Bushey and Brenner Jr. about meeting on June 12
because Brenner Sr. told him he would attend alone. As previously discussed, that makes no
sense with respect to the Grandchildren's Trust. It is also irrelevant as to the Children's Trusts.
M&T, through Gority, had an agreement with the Brenners about their attending meetings
together. Gority was also well aware personally of Brenner Sr.'s condition as a result of their
long-standing relationship, as were other bank employees such as Shawnee Smith. M&T also
knew that Bushey and Brenner Jr. had power of attorney for Brenner Sr. and kept a copy in each
ofthe trust files. Steele testified that, in his own experience, he has asked individuals with power
53
of attorney to get involved or even take over trust responsibilities for someone suffering from
age-related dementia. (Tr. 396.) In this case, Bushey and Brenner Jr. were already involved, of
their own accord, assisting Brenner Sr. with his business affairs while still respecting his dignity.
M&T should have made sure Bushey and Brenner Jr. were present to assist him on June 12, as
they had agreed with Bushey and Brenner Jr. and as they knew was necessary, instead of putting
the burden on Brenner Sr. to admit that he was confused and could not do it alone. There is no
excuse for Stauffer and Gority meeting alone with Brenner Sr. on June 12.
2.- M&T's Recommendation Was Negligent, and Its Subsequent Refusal to
Release the Trust Assets to the Successor Trustee is Inexcusable
M&T's negligence in the substance of its recommendation is discussed in detail in
Section II.C.2, supra, which is incorporated herein by reference. Even had Brenner Sr. been
capable of understanding and providing consent, which he was not, M&T did not provide enough
information for him to do so, in particular with regard to the stop loss order. Brenner Sr. had no
understanding that the "protection" to which Stauffer referred meant using a mechanism that
could result in the complete liquidation of Tyco shares in the trusts. Brenner Sr. also had no way
to know that Stauffer had not adequately back-tested his recommendation and was
recomrnending a trigger price that would almost certainly hit. Of course, M&T should never
have met alone with Brenner Sr. to discuss such a significant recornmendation in the first place,
and that fact alone renders M&T's actions in connection with the Children's Trusts a breach.
M&T's subsequent refusal to release trusts assets to the lawfully appointed successor trustee is
discussed in detail in Section II.C.3, supra, which is incorporated herein by reference. M&T's
conduct in this regard has been identical with respect to all four trusts.
54
E. M&T's Actions Have Damaged the Trusts
As a result of M&T's action, the following shares were sold on June] 2, 2002:
Pursuant to Immediate Sell Order Pursuant to Sto Loss Order
Jane Brenner "B" Trust 4,533 shares 10.23 ../ 9,067 shares $8.75 ..;
Jane Brenner "C" Trust 13,866 shares 1 0.23 V 27,734 shares $8.75 ..;
Blakel Trust 24,274 shares 10.23 ..; 48,468 shares $8.75 ~
Grandchildren's Trust 1 ],134 shares 10.23 J 22,266 shares $8.75 /
(Exs. 90, 23, 82, 90.) at~ 3 1~.-23':1
Petitioners are entitled to compensatory relief sufficient to make the trusts whole
for the damages suffered as a result ofM&T's conduct. The Pennsylvania Superior Court has
adopted the measure of damages recognized in Restatement (Second) of Trusts S 205, stating:
Restatement S 205 provides, "If the trustee commits a breach of trust, he is
chargeable with (a) any loss or depreciation in value of the trust estate resulting
from the breach oftrust; or (b) any profit made by him through the breach oftrust;
or (c) any profit which would have accrued to the trust estate if there had been no
breach of trust. II Comment (a) explains that in choosing among these three
remedies, the beneficiary has the option of pursuing the remedy that will place
him in the position in which he would have been if the trustee had not committed
the breach.
In re Estate ofScharlach, 809 A.2d 376,386 (Pa. Super. 2002) (citing Restatement (Second) of
Trusts ~ 205); see also Restatement (Second) of Trusts S 208, Illustration to cmt. d ("A bequeaths
shares of stock to B in trust for C and directs him not to sell the shares. B sells the shares for
$10,000. C sues B for breach oftrust. At the time of the decree, the shares are worth $12,000.
B is chargeable with $] 2,000 and the amount of dividends on the shares. "); Application of Kettle,
423 N.Y.S.2d 701 (N.Y. A.D. 1979) (ordering trustee to repurchase wrongfully sold shares and
restore to the trusts).
In this case, M&T wrongfully sold the Tyco shares in the trusts without the proper
consent of its co-trustees. The settlors' appointment of co-trustees would be meaningless if the
professional co-trustee could run roughshod over the family co-trustees to acquire superficial
55
indications of "consent," rather than true consent, to accomplish its own investment objective.
The overwhelming weight of the evidence-including the Brenners' conversations about Tyco
amongst themselves over the weekend of June 8-9, and the fact that Bushey, Brenner Sr., and
Brenner Jr. were all upset and angry with M&T on the morning of June 13-shows that none of
them would have consented to M&T's recommendation on June 12 had it been adequately
explained to the three of them together, as it should have been. Once the stock was sold, and
there was no longer an option to unwind the trades, the Brenners still would have considered
repurchasing the shares, but knew that it would be an "uphill battle" with the bank. (Tr. 219,
135.) Brenner Sr. testified that he thought it would have been a "grand idea" to repurchase Tyco
after June 12. (Tr. 317.) He gives other testimony on this issue that is more confusing (Tr. 317-
19), but that is not surprising given Brenner Sr.'s mental condition and his desire for some
stability after the events of June 12. Bushey also admits she is a little "gun shy" since the events
of June 12. (Tr. 135.) Regardless, the current price of Tyco is the correct baseline to measure
damages because the stock would never have been sold on June 12 in the first place but for
M&T's actions.
Respondent M&T should be ordered to pay damages to restore the trust to the
position it would have been in had M&T not breached its fiduciary duties, i.e., the position of
never having sold the Tyco shares. See Scharlach, 809 A.2d at 386. Specifically, it should pay
damages or surcharge in the amount of the difference between the price at which the shares were
improperly sold on June 12, and the price at which the shares can be purchased on the open
market on the date judgment is entered.25 It should also pay the amount ofthe fees charged for
the transactions on June 12, including the $.06/share fee. (Exs. 80, 84, 85.) Finally, M&T
should be ordered to immediately release the trust assets to Orrstown Bank, or else be ordered to
pay additional damages for any increase in the open market price of Tyco between the time
judgment is entered and the time the trust assets are actually transferred to the successor trustee.
25 For context, the closing price of Tyco stock was $35.60 per share on December 21,2004.
56
Respondents assert that they are not liable to the trusts for their conduct because
Petitioners failed to "mitigate." Specifically, Respondents assert that Petitioners did not
repurchase Tyco shares into the trusts on July 25,2004, when the stock briefly reached an all-
time low of $6.98 per share. (Ex. 29 at ~ 71.) Respondents conveniently overlook a number of
facts. First of all, it was M&T's breaches of fiduciary duty that caused the stock to be sold in the
first place, which is why the current repurchase price is the correct measure of damages. Second,
the damages at issue were caused to the trusts, and Petitioners are s'uing in their capacity as co-
trustees. Prior to its removal as co-trustee in September 2003, M&T was just as responsible to
the trust (and ultimately the trust beneficiaries, which include but are not limited to Petitioners)
as Petitioners were. In fact, under Pennsylvania law, M&T is held to a higher standard of care
because it is a professional fiduciary with more resources and expertise than an ordinary investor.
M&T never once suggested that it would be willing to repurchase Tyco to mitigate the damage
to the trusts. As a professional fiduciary with a staff of investment professionals, M&T was in as
good or better a position to notify the Brenners of the trading price and suggest repurchasing
Tyco shares to mitigate the damage it caused on June 12,2002.
Klobusicky confirms that M&T discussed internally the possibility of
repurchasing Tyco into the trusts after June 12,2002. When Klobusicky saw Tyco dip below the
price at which it was sold, he remembers his immediate reaction as "is there a way or would Mr.
Brenner want to buy this back and actually be ahead of the game." (Tr.749.) Klobusicky
remembers telling M&T's Chief Investment Officer Bill Dwyer at the time that the Brenners
"should probably look at buying this back." (Tr.749.) However, Klobusicky did not contact the
Brenners, or direct anyone else to contact the Brenners, to advise them the stock price was down
and offer them the opportunity to repurchase. (Tr.762.) Klobusicky does not know why no one
at M&T discussed the possibility of repurchase with the Brenners, except that he recalls it being
mentioned openly that they were in litigation with the Brenners. (Tr. 762-63.) The fact that
M&T knew the Brenners were pursuing litigation against them as a result of June 12 does not
change M&T's duty to the trusts so long as it remained a co-trustee.
57
Klobusicky notes that the Brenners never approached M&T about repurchasing
Tyco stock after June 12,2002. But the Brenners had not approached M&T about selling it in
the first place, and they did not approach M&T about anything after June 12 except its removal
as co-trustee. The Brenners also knew that they could not do anything without M&T's
agreement. In addition to its co-trusteeship, M&T has always had physical control ofthe assets
(over Petitioners' objection since September 2003). The fact is M&T would never have allowed
Petitioners to repurchase Tyco shares into the accounts, and the Brenners knew it. Magee
testified that investment officers are not permitted generally to purchase stock that is subject to
an internal "sell" recommendation or is not on the approved list. (Tr. 718-19.) M&T had a "sell"
recommendation on Tyco stock after June 7, 2002 (Ex. 18), and Tyco did not go back onto
M&T's approved list until at least summer 2004. (Tr. 759.) Moreover, M&T had always been
opposed to the non-diversification in the trusts, to the point that it had decided by May 2002 to
resign unless an aggressive reduction plan was put in place in the short term. It is unbelievable
that M&T would have allowed the Brenners to reestablish a concentrated position. Indeed,
Klobusicky testified that he does not believe M&T would have let the Brenners buy back even a
small amount of Tyco stock after June 2002. (Tr.761-62.) At best, according to Klobusicky,
M&T would have resigned as co-trustee and opened a custody account. (Tr. 750, 767.)
Ironically, M&T's resignation is precisely what the Brenners wanted. M&T
should have resigned before June 2002 if its desire for diversification was so strong that it
overwhelmed its ability and duty to communicate appropriately with the Brenners. All three
Brenners have testified that they would have allowed M&T to resign, and Stauffer's own May
2002 email indicates a beliefthat M&T could resign as co-trustee without significant damages to
the relationship. (Ex. 16.) M&T was obligated to be honest and candid with the Brenners as co-
trustees, but it was not honest and candid about the extremity of its position on diversification.
After June 12,2002, Petitioners certainly no longer trusted Respondents, and wanted nothing
further to do with M&T. When they communicated their position to M&T on the morning of
June 13, M&T could and should have told the Brenners that the trades could be reversed for three
58
days, and then resigned. Quinlan gave expert testimony that M&T should have discussed
reversing the trades with the Brenners on June 13 (Tr. 342), and Stauffer admits that he knew
about it but did not tell Gority or the Brenners. M&T should have offered to cover the cost of
unwinding the trades since it was M&T's conduct that had caused the sale, and insurance might
have even covered the cost. (Tr. 342.) Even ifM&T was unwilling to voluntarily accept
financial responsibility though, it should have notified the Brenners that the trades could be
reversed. (Tr.342.) Indeed, M&T could have resigned voluntarily at any time and released the
assets to the Brenners for reinvestment. But M&T had never been candid with the Brenners
about its internal resignation discussions, and that fact did not change after June 12,2002.
M&T's utter silence once the litigation began, and its complete failure to transfer
the assets when asked (repeatedly), is the reason that its damages liability has continued to
escalate. Petitioners notified M&T in September 2003 that they had legally removed M&T as
co-trustee and appointed Orrstown Bank as successor trustee. (Ex. 95.) At that time, Tyco was
trading at $20. (Ex. 108.) Petitioners repeated their demand that M&T transfer the assets to
Orrstown at least twice more. (Exs. 96, 97, 108.) By July 8, 2004, the first time M&T gave any
response to their repeated demands to release the assets, Tyco stock was selling at $31. Even
today, M&T has still not transferred the assets to Orrstown Bank. Between the first day of the
hearing, November 2, and the day this brief was filed, December 22, the stock has risen again
from $32 to $36. Since at least September 2003, M&T has been holding the trusts assets
hostage, no longer having any authority over them but continuing to keep physical control of
them. It is M&T that has repeatedly failed to prevent further damage to the trusts.
F. Gority and Stauffer Aided and Abetted M&T's Breaches
1. Pennsylvania Courts Recognize this Cause of Action
Pennsylvania courts have only recently recognized a cause of action for aiding and
abetting breach of fiduciary duty. The federal courts were the first to conclude that Pennsylvania
law would recognize this tort. See Stone St. Services. Inc. v. Daniels, 2000 U.S. Dist. LEXIS
18904 *8 (E.D. Pa.) ("No Pennsylvania state courts have addressed whether a claim for aiding
59
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. ");
Adena. Inc. v. Cohn, 162 F. Supp. 2d 351,357 (E.D. Pa. 2001) (stating similar). The first
Pennsylvania state court to recognize a cause of action for aiding and abetting breach of fiduciary
under state law was the Commonwealth Court of Pennsylvania in 2003. See Koken v. Steinberg,
825 A.2d 723, 731 (Pa. Commw. 2003) (concluding that aiding and abetting breach of fiduciary
duty falls within the scope of "persons acting in concert" under Restatement (Second) of Torts ~
876 and is a "viable cause of action in Pennsylvania"). Since then, the Court of Common Pleas
has also recognized the cause of action. See Lichtman v. Taufer, 2004 WL 1632574 *8
(Pa.Com.PI. 2004) (slip copy).
Respondents are expected to argue that, even though Pennsylvania courts
recognize this cause of action, Gority and Stauffer could not aid and abet M&T's breaches since
they were the ones who actually effected the breaches while acting as agents ofM&T.26 While
the Pennsylvania courts have not specifically addressed a situation like this one, courts in other
states have allowed plaintiffs to pursue aiders and abetters who have relationships with the
fiduciary. See,~, Winer Family Trust v. Queen, 2004 U.S. Dist. LEXIS 1825 *2-3 n.2 (E.D.
Pa.) (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 ofthe
other entity, as the parties against whom aiding and abetting breach of fiduciary duty claims were
asserted); Thompson v. Glenmede Trust Co., 1996 U.S. Dist. LEXIS 13675 *1-6 (E.D. Pa.)
(identifying corporate officers and certain lawyers as the parties against whom aiding and
abetting breach of fiduciary duties claims were asserted); Taita Chem. Co. v. Westlake Styrene.
LP, 2003 U.S. App. LEXIS 23671 *5-6 (5th Cir.); (corporation allegedly aided and abetted its
26 In their preliminary objections, Respondents asked the Court to strike Petitioners' aiding and
abetting claims on the grounds that no such cause of action existed in Pennsylvania and that
Petitioners failed to state a claim even if the cause of action did exist. In ruling on the objections,
the Honorable Kevin A. Hess, Jr., rejected Respondents' objection and allowed the claims to
proceed. (Order 6/18/04.)
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directors' breaches of fiduciary duty); CCBN.com. Inc. v. Thomson Financial. Inc., 270 F.
Supp.2d 146, 152 (D. Mass. 2003) (recognizing that corporation 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 of respondeat 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 ("[a]
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 Papercraft, 187 B.R. 486, 495 n.7
(Bankr. W.D. Pa. 1995), rev'd and remanded on other grounds, 211 B.R. 813 (W.D. Pa. 1997),
aird, 160 F.3d 982 (3d Cir. 1998) ("As a matter oflaw, Muqaddam [the vice president ofCVC]
was evC's agent and, under the doctrine of respondeat superior, CVC is liable for Muqaddam's
breach of fiduciary duty. ").
There is no legal or equitable reason under Pennsylvania law to excuse Gority and
Stauffer for their conduct as employees ofM&T. Had Gority and Stauffer committed tortious
acts in other types of employment, they would be subject to personal liability. A different rule
should not apply because they are employees of a financial institution in the business of trust
administration. So long as Petitioners prove the elements of the claims, which they have here,
Respondents Gority and Stauffer should be subject to personal liability for their conduct.
2. Elements of an Aiding and Abetting Breach of Fiduciary Duty Claim
In order to make out a claim for aiding and abetting breach of fiduciary duty under
Pennsylvania law, the following elements must be proven: (1) a breach of a fiduciary duty owed
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to another; (2) knowledge of the breach by the aider and abettor, and (3) substantial assistance or
encouragement by the aider and abettor in effecting the breach. See Lichtman, supra, 2004 WL
1632574 at *8; Koken, supra, 825 A.2d at 732. In this case, M&T's committed multiple
breaches of fiduciary duty (as discussed in Sections e and D above), Gority and Stauffer were
aware ofthose breaches, and Gority and Stauffer acted in concert with each other and M&T to
provide substantial assistance or encouragement in effecting those breaches.
3. Gority and Stauffer Aided and Abetted M&T's Breaches
Respondents Gority and Stauffer provided substantial assistance and
encouragement to one another and to M&T in breaching M&T's fiduciary duties to the Children's
and Grandchildren's Trusts. Gority and Stauffer were the principal actors through which M&T's
breaches were effectuated. M&T could not have committed the breaches of June 12, 2002,
without their substantial assistance. Nor could M&T have committed those breaches without
Gority and Stauffer's substantial assistance and encouragement of one another.
Gority and Stauffer's individual actions have already been described in detail and,
in the interests of brevity, will not be repeated here. Petitioners will just briefly highlight some
of their more egregious actions. With regard to the Children's Trusts, Gority allowed the
meeting with Brenner Sr. on June 12 to proceed without Bushey and BrennerJr. present, even
after it became apparent that Stauffer wanted a decision from Brenner Sr. Gority knew that
Brenner Sr. was suffering from reduced capacity, and also knew that the meeting was in violation
of Gority's long-standing agreement with the Brenners that Bushey and Brenner Jr. be present for
meetings with Brenner Sr. The fact that Gority was on vacation when Stauffer took it upon
himself to contact Brenner Sr. does not excuse Gority's own actions on June 12. As to Stauffer,
with regard to the Children's Trusts, Stauffer never called back Bushey or Brenner Jr. about
scheduling the meeting, as he had promised them both on June 7 he would do. Even assuming
arguendo that Gority failed to anticipate Stauffer ever calling a meeting himself and did not tell
Stauffer about the agreement, there was no excuse for Stauffer not to call back Bushey and
Brenner Jr. as he had promised. Ifhe had, the meeting with Brenner Sr. on June 12 would never
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have been held without Bushey and Brenner Jr. present.
With regard to the Grandchildren's Trust, Gority called Bushey and Brenner Jr. on
June 12 to obtain their consent to M&T's recommendation, even though he did not believe
himself qualified or authorized to discuss the substance ofthe recommendation with them, and
then in fact did not explain the recommendation or respond to their concerns about it. As to
Stauffer, with regard to the Grandchildren's Trust, Stauffer allowed and encouraged Gority to
contact Bushey and Brenner Jr. by phone to try to obtain their consent to Stauffer's
recommendation, even though Stauffer knew Gority was not informed about the Tyco situation
and knew Gority did not even know the basis for the recommendation, let alone have the
expertise to discuss it. As to all the Brenner trusts, upon learning on June 13 that the Brenners
were upset and concerned and had not given meaningful consent to the June 12 transactions,
Stauffer failed to inform the Brenners, or even Gority, that the sales could be unwound for three
days.
These are certainly not the only instances of Gority and Stauffer's conduct aiding
and abetting M&T's breaches, but they are excellent illustrations.
4. Gority and Stauffer are Jointly and Severally Liable for Damages
Aiders and abetters are jointly and severally liabile with the fiduciary for its
breaches of fiduciary duty. See Jackson v. Smith, 41 S.Ct. 200,201,254 U.S. 586, 589 (1921)
(stating that persons who knowingly join a fiduciary in an enterprise that constitutes a breach of
his fiduciary duty of trust are jointly and severally liable); Gotham Partners. L.P. v. Hallwood
Realty Partners. L.P., 817 A.2d 160, 172 (Del. Supr. 2002) (holding members of the board of
directors of the General Partner jointly and severally liable with the general partner for aiding and
abetting the General Partner's breach of fiduciary duties created by the Partnership Agreement).
Cf. 70 Pa C.S.A. ~ 1-503 (Pennsylvania statute imposing joint and several liability on anyone
who materially aids in an act or transaction constituting a violation of certain securities laws);
Jairett v. First Montauk Sec. Corp., 153 F. Supp.2d 562, 577 (E.D. Pa. 2001) (citing same).
63
As such, Respondents Gority and Stauffer should be held jointly and severally
liable with M&T for M&T's breaches of fiduciary duty in connection with the Children's and
Grandchildren's Trusts.
G. Conclusion
There were many points at which, had M&T done its fiduciary duty, the events of
June 12 would have never occurred and the Tyco stock would never have been sold. M&T
should have been candid about the fact that it considered diversification per se so important that
it would resign if the Brenners did not agree to it, in which case the Brenners would have allowed
M&T to resign. Gority should have told Stauffer before June 2002 that he had an agreement with
the Brenners regarding meetings with Brenner Sr., or at least stopped the meeting on June 12
once he realized' Bushey and Brenner Jr. had not been invited, in which case Brenner Sr. would
never have been alone in Stauffer's office and pressured by someone he trusted to sign something
he did not understand. Stauffer should have called back Bushey and Brenner Jr. before the
meeting as he had promised, in which case Brenner Sr. would never have been alone in Stauffer's
office. M&T should have explained the recommendation to Bushey and Brenner Jr. and given
them an opportunity to meet in person with everyone present. Gority should have responded to
Bushey and Brenner Jr.'s express concerns about the recommendation on its face, and certainly
should not have done anything before he spoke to Brenner Jr. again about the stop loss. Stauffer
should not have set the stop loss trigger without testing it adequately, such that it triggered within
a few hours due to volatility that was normal for the past week of trading, before the Brenners
had any time to remove the order. Stauffer should have told the Brenners on the morning of June
13 that the trades could be unwound for three days, in which case there would have been an
opportunity to undo most of the damage. But M&T did none ofthese things. M&T would not
even transfer the assets after it was removed as trustee so that they could be reinvested. M&T
has breached its fiduciary duties repeatedly and failed to meet the standard of care for a
professional fiduciary in Pennsylvania.
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III. OTHER MATTERS
Petitioners anticipate the following issues being raised in or by Respondents' post-
trial briefing, and therefore submit the following additional arguments.
A. Respondents' New Matters are Meritless
Respondents assert two new matters in their Answer to the Petition. (Ex. 29.)
1. First New Matter: M&T's Purported Defenses
Respondents' first "New Matter" is actually a compilation of various defenses and
affirmative defenses that Respondents purport are available to them, including alleging that
Petitioners failed to mitigate damages (Ex. 29 at ~~ 66-77), that Pennsylvania law does not
recognize a cause of action for aiding and abetting breach of fiduciary duty (ld. ~ 81), that
Petitioners' claims are barred by estoppel or consent (ld. ~~ 82-85), and that M&T's
recommendation was reasonable when made (ld. ~~ 86-101). Petitioners have already addressed
the merits of these "new matters" in its substantive briefing above, and therefore do not address
them separately here.
2. Second New Matter: Counterclaim against Petitioners
In their second "New Matter," Respondents name Petitioners as additional
defendants, allege that Petitioners breached their own fiduciary duties, and assert a counterclaim
against Petitioners. Specifically, Respondents assert that Petitioners' failure to diversify the trusts
constitutes a breach of fiduciary duty. (Ex. 29 at ~~ 115, 124, 128.) Respondents also allege that
Petitioners' maintenance of this action against M&T constitutes a breach of fiduciary duty
because M&T will be entitled to attorneys' fees if the action fails. (Ex. 29 at ~~ 128-130.)
Respondents' allegations regarding the failure to diversify are meritless. To the
extent Respondents claim that Petitioners were simply unwilling to ever consider diversification,
the evidence shows that Bushey, Brenner Jr., and Brenner Sr. did consider it at various times and
in fact did it on one occasion. Bushey and Brenner Jr. diversified the Grandchildren's Trust by
selling 40% of its Tyco shares in 1999 and reinvesting in municipal bonds. Brenner Jr.
considered further diversification of the Grandchildren's Trust on several occasions but decided
65
against it. (Tr. 198.) Brenner Sr. was not conceptually opposed to diversification, but was very
concemed about the timing, and did not want to be locked into a price-blind reduction plan.
(Tr. 299.) It is also important to note that the instruments creating the Grandchildren's Trust
(Ex. 2 at Article IV) and the Blakely Trust (Ex. 119 at III.5(a)) both contain provisions expressly
authorizing the trustee to retain the Tyco stock.
Petitioners were under no obligation to diversify the trusts without regard to their
personal judgment on the issue. The current Pennsylvania statutory requirement that fiduciaries
"reasonably diversify" investments (20 Pa. C.S.A. .~ 7204(a)) became effective December 25,
1999, and does not apply to trusts that became irrevocable before that date. See 20 Pa. C.S.A. ~
7204(b).27 The Grandchildren's Trust has been irrevocable since its inception in 1994, and the
Children's Trusts became irrevocable upon Jane Brenner's death in October 1997. As such,
~ 7204's requirement to "reasonably diversify investments" has never applied to those trusts. As
to Blakely's Trust, Pennsylvania law has always recognized the uniqueness of inception assets,
and has continued to do so by expressly exempting inception assets from the diversification
requirement of ~ 7204. See 20 Pa. C.S.A. ~ 7205 (titled "Retention of inception assets" and
stating that "[a] fiduciary, in the exercise of reasonable care, skill and caution, may retain any
asset received in kind, even though the asset constitutes a disproportionately large share of the
portfolio"); see also Estate of Pew, 440 Pa. Super. 195, 240 (1994) ("The mere retention of
stocks which the trustee received from the settler is not, in itself, negligence. Especially when
such stocks have produced a high rate of return for the trust over an extended number of years. ").
The Tyco stock in the trusts had proven a wise investment over the years. Cf.
Pew, supra, 440 Pa. Super. at 241 ("Over the long haul, the decisions ofthe original trustees and
27 The legislature did not apply section 7204 to trusts created prior to its effective date "because
Pennsylvania had not required diversification" previous to enactment of this statute. See Official
Comment to 20 Pa. C.S.A. ~ 7204; see also, ~, Saeger Estates, 240 Pa. 73, 76 (1940) ("we
conclude that.. . there is no authority in the law of this State for the doctrine, contended for by
appellants, that trust investments, otherwise legal and entirely proper under all the recognized
standards, are necessarily improvident per se for any claimed lack of proper diversification").
66
the co-successor trustees to continue to fund the trust principal with the Sun Company common
stock and later the Oryx common stock has proven to be a wise decision. ").. Petitioners properly
considered relevant factors, including those identified in Pennsylvania's prudent investor rule
(20 Pa. C.S.A. ~ n03), and decided to retain those holdings for the benefit ofthe trusts. Had the
stock in fact not been sold on June 12, 2002, it would have continued to perform well. Under the
circumstances, there is neither a legal or factual basis for Respondents' counter-claim against
Petitioners. See Trust of Munro, 373 Pa. Super. 448, 453 (1988) ("Where the trustee is
authorized to retain certain stock, an exceptant to the trustee's account has the burden of proving
that retention of the stock was negligent.").
As for the allegation that Petitioners breached their fiduciary duties by
maintaining this litigation, there is no evidence whatsoever to suggest that Petitioners brought or
maintained this action in anything other than good faith. Moreover, Respondents are not entitled
to attorneys' fees in any event, as discussed in subsection C below.
B. Deposition Testimony of Hearing Witnesses Should Not Be Considered
At the hearing, the issue was raised whether, or to what extent, it is appropriate for
the Auditor to consider the deposition testimony of witnesses who also testified at the hearing in
making his recommendation to the Court. The Auditor initially reserved his ruling and invited
briefing on this issue. (Tr. 849.) Since Respondents had already submitted Petitioners'
deposition transcripts as Exhibits 32-34, Petitioners requested at that time that, if the Auditor
ultimately determined that consideration was appropriate, Petitioners be given an opportunity to
submit deposition transcripts. Thereupon, the Auditor ruled that both parties could submit
whatever depositions they wished, and that such depositions would be made part of the record
and given "whatever weight they should be accorded." (Tr.850.) Petitioners submitted
deposition transcripts of various current and former M&T employees as Exhibits 112-118.
Petitioners wish to address just briefly the weight th~ deposition transcripts should
be accorded. The use of depositions at trial is governed by Pa. R. Civ. P. 4020. Rule 4020
allows the use "[a]t the trial" of "any part or all of a deposition, so far as admissible under the
67
rules of evidence," in accordance with five provisions (quoted in relevant part):
1. Any deposition may be used by any party for the purpose of contradicting or
impeaching the testimony of a deponent as a witness.
2. The deposition of a party or of anyone who at the time of taking the deposition
was an officer * * * of a party or a person designated under Rule 4004(a)(2) or
4007. 1 (e) to testify on behalf of a public or private corporation * * * which is
a party, may be used by an adverse party for any purpose.
3. * * * [28]
4. If only part of a deposition is offered in evidence by a party, any other party
may require him to introduce all of it which is relevant to the part introduced,
and any party may introduce any other parts.
5. * * *
Pa. R. Civ. P. Rule 4020. Rule 4020 is applicable to auditor proceedings pursuant to Orphans'
Court Rules 3.1 and 3.6.
Respondents' counsel asserted at the hearing that the depositions of Bushey,
Brenner Jr., and Brenner Sr. may be used for "any purpose" since they are parties. (Tr. 848.) It is
true that Petitioners fall under Rule 4020(a)(2), as do Gority and Stauffer (who are parties) and
Klobusicky and Magee (who are officers of party M&T). However, the use of their depositions
is limited on the face of Rule 4020 to use "at the triaL" Petitioners submit that citing to
deposition transcripts not used at trial in post-trial briefing is not an appropriate use of
depositions under Rule 4020.
Petitioners raise this issue not to be hyper-technical, but due to fairness concerns.
Everyone who testified at the hearing was previously deposed. During the hearing, both sides'
counsel had full opportunity to question witnesses about the events at issue, and to attempt to
impeach the witnesses with their prior deposition testimony. Petitioners took advantage of this
opportunity by using deposition testimony for impeachment (Rule 4020(1)) and other purposes
(Rule 4020(2)) during the deponents' testimony at the hearing. At the conclusion of the hearing,
28 Provision (3) addresses witnesses who are unavailable at trial. The only deponent who did not
testify at trial was Bud Babcock, whose deposition is admissible under Rule 4020(3), as
Respondents' counsel acknowledged at the hearing. (Tr. 846.) As such, there is no dispute that
Babcock's deposition is entitled to its full weight.
68
Respondents indicated ,hat, rather than use deposition testimony during the witnesses' testimony,
they intended to reserve citing it until their post-trial briefing, at which point they would use the
depositions "as [they] wish." (Tr. 848.)
This approach is unfair to Petitioners. Unlike the other witnesses, Petitioners will
not have any opportunity to explain or clarify any alIeged inconsistencies in their deposition
testimony. They have finished testifying, they have no way to predict what portions of their
deposition testimony Respondents may claim inconsistent in order to address them in this brief,
and they are not permitted to submit a reply brief or affidavits in rebuttal. Moreover,
Respondents' intended use creates a substantial practical problem. During all the depositions,
counsel for the deponent made objections based on form, and reserved all other objections.
Since Respondents did not bring the deposition testimony into evidence during the hearing,
Petitioners' counsel will not have an opportunity to reassert or argue form objections made during
the depositions, nor wiIl Petitioners' counsel be able to assert non-form objections.
For the foregoing reasons, Petitioners urge the Auditor (and the Court) not to
consider deposition testimony that Respondents' counsel chose not to use "at the trial" as
permitted by Rule 4020. If the Auditor does choose to consider the depositions, then Petitioners
respectfully request that the foregoing concerns and limitations be taken into account in
determining the weight to which that testimony is entitled.
C. M&T Cannot Recover Attorneys' Fees in This Proceeding
In paragraph 128 of their Answer, Respondents assert that, "Should this attempted
surcharge action fail, M&T Bank will be entitled to recover all costs and attorneys' fees incurred
in defending itself from the Trusts themselves." Petitioners feel it is necessary to address this
assertion, lest there not be another opportunity to do so before the Auditor should the Auditor
find in favor of Respondents.
Respondent M&T is not entitled to attorneys' fees, no matter what the outcome of
this litigation. Pennsylvania law does not permit the award of attorneys' fees absent "an express
statutory authorization, a clear agreement by the parties, or some other established exception."
69
Merlino v. Delaware County, 556 Pa. 422, 425, 728 A.2d 949 (1999); see also Fitzgerald v. City
of Philadelphia, 87 Pa. Commw. 482,487,487 A.2d 485, 488 (1985) ("One must compensate his
counsel in the absence of an express statutory authorization or some established exception.").
In this case, there is no statutory authorization for awarding attorneys' fees to
M&T. See 42 Pa. C.S.A. ~ 2503 (stating ten statutory allowances for recovery of attorneys' fees).
The trust agreements do not provide for an award of attorneys' fees (Exs. I, 2, 119), and the
parties have no other agreement regarding attorneys' fees. As for "established exceptions,"
Pennsylvania law has established an exception by which attorneys' fees may be awarded to a
trustee who successfully defends a surcharge action brought by beneficiaries. See,~, Coulter's
Estate, 379 Pa. 209, 108 A.2d 681 (1954); Wormley's Estate, 359 Pa. 295, 300-01, 59 A.2d 98,
100 (1948); Pittsburg Press Co. Trust, 16 Pa. D.&C.3d 280, 285 (Pa. Com. PI. 1980). However,
this suit was brought by Petitioners in their capacity as co-trustees, not beneficiaries. (Petition,
Ex. 28 at ~~ 1-3.) Petitioners have found no cases in Pennsylvania awarding attorneys' fees to a
trustee in a suit brought by a co-trustee. One case, Estate ofTose, 482 Pa. 212, 393 A.2d 629
(1978), suggests that Petitioners could potentially recover attorneys' fees to the extent that their
actions, if successful, will increase the corpus of the trusts. See id. at 222-23 (discussing
common funds doctrine, which allows award of attorneys' fees to litigant whose actions protect
the fund from jeopardy or augment the fund); see also 42 Pa. C.S.A. ~ 2503(8) (statute
authorizing award of attorneys' fees out of a fund). However, Respondent M&T cannot recover
under the common funds doctrine, since M&T is simply defending itself against claims, not the
trusts, and any success it may have will benefit only itself, not the trusts or the beneficiaries.
There is no reason M&T cannot cover the costs of defending against litigation
between co-trustees in the fees it generally charges for its professional services. In any event,
there is no statutory basis, contractual basis, or established common law basis to award attorneys'
fees to M&T. As such, an award is not permitted under Pennsylvania law. See Merlino, supra,
556 Pa. at 425; Fitzgerald, supra, 87 Pa. Commw. at 487.
70
IV. PROPOSED RECOMMENDATION TO THE COURT
Based on the facts proven at the hearing and the law, Petitioners respectfully
request that the Auditor adopt Petitioners' proposed Auditor's Recommendation to the Court,
which is attached as Exhibit A. Specifically, Petitioners ask that the Auditor conclude that
Respondent M&T breached its fiduciary duties to the four trusts, that Respondents Gority and
Stauffer aided and abetted M&T's breaches, that M&T is liable for the damages caused to the
trust assets as a result of its actions, and that Respondents are jointly and severally liable for the
damages caused to the trusts. Petitioners ask the Auditor to recommend that the Court confirm
the accountings submitted by M&T, subject to the foregoing exceptions, and order Respondent
M&T to immediately release the trust assets to Orrstown Bank as the successor trustee.
DATED this 22nd day of December, 2004.
TONKON TORP LLP
.",,,...
By
fc{&~el,_____.
Wi liam F. artson, Jr., OSB No. 72163
Robyn E. Ridler, OSB No. 00016
Attorneys for Petitioners
71