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HomeMy WebLinkAbout10-22-04 (2)IN RE: ESTATE OF JOSEPH D. BRENNER, SR., JOSEPH D. BRENNER, JR., and MARGARET B. BUSHEY, Petitioners, v. MANUFACTURERS AND TRADERS TRUST COMPANY, a New York corporation, DAVID C. GORITY, an individual, and CURT R. STAUFFER, an individual, Respondents. IN THE COURT OF COMMON PLEAS OF CUMBERLAND COUNTY, PENNSYLVANIA ORPHANS' COURT DIVISION No.21-2004-087 . _ -. = ;. 3 ~? PETITIONERS' SUPPLEMENT TO HEARING BRIEF - AS REQUESTED BY AUDITOR ~._p.J In addition to their Hearing Brief, Petitioners submit the following specific information as requested by Auditor James D. Bogar in his letter dated October 13, 2004. I. Statement of Basic Facts The following is a very brief rendition of the facts of this case. The specific facts and allegations regarding each of Petitioners' claims are described in detail in Petitioners' Hearing Brief. There are substantial, crucial factual disputes in this case, which will require credibility assessment and resolution by the Auditor after seeing the evidence and hearing the testimony of the witnesses. This matter involves four trusts created by Petitioner Brenner Sr. and his wife Jane Brenner (deceased). Brenner Sr. and M&T served as co-trustees on three of the trusts (known as the "Children's Trusts"), and Bushey, Brenner Jr., and M&T served as co-trustees on one of the trusts (known as the "Grandchildren's Trust"). All four trusts were originally funded entirely with Amp, Inc. stock, which was acquired by Brenner Sr. during his forty-plus year career at Amp, and which was converted to Tyco shares when Tyco purchased Amp in 1998. As of June 11, 2002, Tyco shares constituted 100% of the assets in the Children's Trusts, and approximately 60% of the assets in the Grandchildren's Trust. Since 1997, Brenner Sr.'s physical and mental health have significantly declined. Brenner Sr. suffers from hearing loss, vision loss, and dementia associated with his advanced age. Respondent Gority has known Brenner Sr. for many years, and has been assigned to the Brenner trusts since their inception. In 1998, Gority initiated a conversation with Petitioner Bushey regarding Brenner Sr.'s condition, during which he suggested, and Bushey agreed, that Bushey and Brenner Jr. should participate in all meetings going forward so that they could assist their father. Thereafter, M&T made a practice of inviting Bushey and Brenner Jr., and Bushey and Brenner Jr. made a practice of attending, all meetings with Brenner Sr. Brenner Sr.'s physical and mental health continued to decline as he advanced in age, but the mechanism to which Gority and Bushey (and subsequently Brenner Jr.) had agreed to deal with Brenner Sr.'s reduced capacity worked successfully until June 2002. M&T had become co-trustee on the Brenner accounts in fa112001 upon acquisition of another bank that had been serving as co-trustee. David Gority remained assigned to the account, but M&T was more concerned about diversification than its predecessors had been. In fact, unbeknownst to Petitioners, M&T was considering resigning if Petitioners did not agree to diversify the Children's Trusts and diversify to further the Grandchildren's Trust. In June 2002, negative events at Tyco created an opportunity for M&T to try to attain the degree of diversification it wanted to see in the trusts. Respondents not only seized this opportunity, but did so with little regard for the co-trustees, except to the extent that they wanted the cover of the co-trustees' superficial "consent" to M&T's plan. On June 12, 2002, in abrogation of the long-standing agreement and practice, Respondents held a meeting regarding Tyco with Brenner Sr. alone at M&T's offices. Respondents did not advise Bushey or Brenner Jr. that the meeting was taking place. Without the assistance of Bushey and Brenner Jr., or any accommodation by Respondents for that matter, 2 Brenner was unable to understand the course of action that Respondents endorsed, and did not understand the plan he purportedly agreed to, which was the sale of one-third of the Tyco stock in each of the Children's Trusts immediately and the entry of a stop loss order at $9.00 on all remaining Tyco shares. Having secured his signature on two short written "authorizations," however, Respondents were satisfied and immediately entered the orders. Respondent Gority then telephoned Petitioner Bushey and improperly pressured her to agree to the plan that her father had purportedly consented to, although Gority did not clearly explain that he was seeking her consent to apply the same plan to the Grandchildren's Trust and, in fact, spent almost no time explaining the rationale for M&T's recommendation or its benefits and disadvantages. Respondent Gority then placed a similar telephone call to Brenner Jr., which was also very short and similar in nature, and during which he represented to Brenner Jr. that Brenner Sr. and Bushey had already agreed and he should do the same. Both Bushey and Brenner Jr. expressed disbelief that Brenner Sr. had agreed to the Tyco liquidation plan referenced by Gority. However, Gority characterized it as a "done deal," did not provide adequate information about the plan or its rationale for the co-trustees to make a meaningful response, improperly pressured the co-trustees to assent immediately, and did not allow them the time or opportunity to discuss the matter with each other (as they would and should have had that morning if Respondents had advised Bushey and Brenner Jr. of the meeting). Gority also failed to respond to Brenner Jr.'s specific concerns about the stop loss order, which he expressed on the telephone with Gority, and told Gority he would call him back after speaking to Bushey and Brenner Sr. Brenner Jr. spoke to Bushey and tried to reach Brenner Sr. immediately after getting off the phone with Gority, and left Gority a message, but Gority was at lunch when he called and did not timely return his call. Again, having secured superficial "consent" to their plan, Respondents immediately entered the orders on the Grandchildren's Trust (if they had not improperly done so prior to speaking to Bushey and Brenner Jr.), without even waiting to hear back from Brenner Jr. 3 about the stop loss order. That same afternoon, Tyco's stock price fell below $9.00, causing the complete liquidation of Tyco shares from all the trusts. Petitioners ultimately removed their accounts from M&T and appointed a successor trustee as a result of Respondents' conduct. However, M&T has refused to release the trust assets so that they maybe appropriately reinvested by the successor trustee. M&T initially ignored Respondents' requests altogether. More recently, M&T's counsel has made release of the funds contingent on Petitioners signing a limited release. II. Statement of Principal Issues of Liability and Damages The principal issues regarding M&T's liability are (1) whether M&T breached its fiduciary duties with respect to the Children's Trusts by liquidating the Tyco stock in those trusts without adequate consent of the co-trustee, (2) whether M&T breached its fiduciary duties with respect to the Grandchildren's Trust by liquidating the Tyco stock in those trusts without adequate consent of the co-trustees, and (3) whether M&T breached its fiduciary duties to both trusts by refusing to timely release the trust assets to the successor trustee. The principal issues of liability regarding Gority and Stauffer are whether their actions in early June 2002 aided and abetted M&T's breaches of fiduciary duty with respect to the liquidation of Tyco stock from all four trusts on June 12, 2002. Gority and Stauffer are not charged with aiding and abetting M&T's breach in refusing to release the trust assets to the successor trustee. The principal issues regarding damages is the proper measure and whether there should be any offsets. Petitioners should be made whole by compensating them for the difference between the price at which M&T sold the Tyco shares out of the trusts and the price at which Tyco stock may be purchased on the date judgment is entered (or the date on which M&T is required to release the trust assets to the successor trustee). Respondents argue that Petitioners could have mitigated damages by repurchasing Tyco shares into the trust accounts, but Petitioners do not have unilateral authority to reinvest the trusts assets, they exercised the 4 unilateral authority they do have to appoint a successor trustee to reinvest the assets, M&T would not have allowed them to repurchase Tyco shares into the trust accounts while the accounts were at M&T, and M&T has not released the trust assets so that the successor trustee may reinvest them. Respondents argue that Petitioners breached their own fiduciary duties by not diversifying the trusts prior to June 12, 2002, but there was no per se duty to diversify the assets in the trusts, they appropriately considered diversification within the context of all the facts and circumstances, and they acted in good faith on their best judgment. Petitioners' specific arguments regarding the principal issues of liability and damages are described in significantly greater detail in the Hearing Brief. III. Summary of Legal Issues Regarding Admissibility of Evidence Petitioners do not presently foresee any disputes regarding the admissibility of evidence. IV. List of Witnesses Petitioners Expect to Call Petitioners expect to call the following witnesses to testify. Avery brief summary of their expected testimony is provided as requested, without intending to limit their actual testimony at the hearing. Petitioner Joseph Brenner Sr., is expected to testify about the history of the trusts, the decline in his physical and mental health, and the events of June 2002. Brenner Sr. is expected to testify that he originally acquired the Amp stock used to fund the trusts while he was employed at Amp and that such stock was subsequently converted to Tyco stock. Brenner Sr. is expected to testify that he believed in the fundamental soundness of Amp and Tyco's businesses, that he was concerned about the tax consequences of selling Tyco stock, that he was reluctant to diversify Tyco shares in the trusts except in a disciplined and careful manner, and that he did not know M&T was considering resigning as co-trustee over the diversification issue. Brenner Sr. is expected to testify that his mental acuity has deteriorated in recent years, that he relies on others to assist him with certain tasks, and that he in particular relies on Bushey and Brenner Jr. to assist 5 him with financial matters. Brenner Sr. is expected to testify that he could not hear the person on the speakerphone clearly during the June 12 meeting, that he did not understand and still does not understand what a stop loss order is or why it would be used in connection with the family trusts, that he was not told and did not understand the rationale for the $9.00 trigger price for the stop loss order, that he was not told and did not understand that the Blakely Trust was at issue on June 12, and that he did not understand the documents he was given to sign at the June 12 meeting. 2. Petitioner Margaret Bushey is expected to testify about her observations of her father's physical and mental health, about the assistance she provides to her father, about her attendance at meetings involving the family trusts, about her communications with Respondents regarding diversification over time, and about her specific communications with Respondents in June 2002. Bushey is expected to testify that her father's health and mental acuity has declined substantially over time, that she provides him significant assistance with his financial and other affairs, that she has made a practice of attending any substantive meetings about the trusts, that she did so pursuant to an agreement she made with Gority in 1998 at his initiation, that she did not know M&T was considering resigning over the diversification issue, that she was not invited to the June 12 meeting, that she was shocked when Gority called on June 12 and told her what her father had purportedly agreed to, that the telephone call was very short, that Gority did not describe the rationale for the recommendation being made, that Gority did not discuss the tax implications of the sale with her, that Gority did not make clear that he was asking for her consent to a similar course of action for the Grandchildren's Trust, that Gority said it was a "done deal," and that Gority did not give her an opportunity to talk to her father or brother before making a decision. Bushey is expected to testify about her conversation with her father on the afternoon of June 12 when she attempted to explain to him what had happened to the Tyco shares in the trusts, and about subsequent attempts she has made to explain to her father how the Tyco shares came to be sold out of the trusts. Bushey is expected to testify regarding the decision to appoint a successor trustee to replace M&T and her unsuccessful attempts to get the assets 6 transferred. 3. Petitioner Joseph Brenner Jr., is expected to testify about his observations of his father's physical and mental health, about his and Bushey's attendance at meetings involving the family trusts, about his communications with Respondents regarding diversification over time, and about his specific communications with Respondents in June 2002. Brenner Jr. is expected to testify that he has witnessed a substantial decline in his father's physical and mental abilities, that he made a practice of attending any substantive meetings about the trusts with his father, that he did so in part because he understood there was an agreement to that effect between Bushey and Gority, that he did not know M&T was considering resigning over the diversification issue, that he was not invited to the meeting on June 12, that he was extremely surprised when Gority called on June 12 and told him what his father and sister had purportedly agreed to, that the telephone call was very short, that Gority did not describe the rationale for the recommendation being made, that Gority did not discuss the tax implications of the sale with him, that he told Gority he did not like the stop loss order and needed to talk to his father and sister, that Gority did not respond to his concerns about the stop loss order or give him an opportunity to talk to his father and sister before making a decision, that he subsequently called Gority after talking to Bushey but had to leave a message because Gority was at lunch, and that Gority did not return his call until after the stop loss order was executed and all the shares sold. 4. Petitioners expect to call Dr. Joseph Brazel as a fact and expert witness. Dr. Brawl is Joseph Brenner Sr.'s physician and has treated him for many years. Dr. Brawl is expected to testify regarding his specific observations and diagnoses of Mr. Brenner, including that Mr. Brenner suffers from hearing loss, vision problems, and dementia associated with his advanced age. Dr. Brawl is expected to testify that Mr. Brenner does not have, and did not have in June 2002, sufficient mental capacity to give consent for medical treatment or to conduct business affairs. 7 Petitioners expect to call David Steele as an expert witness on fiduciary issues. Petitioners will provide Mr. Steele's credentials at the hearing. Mr. Steele is expected to testify regarding the standard of care for the conduct of a trust officer, and to testify that it is his opinion, assuming the facts alleged by Petitioners are true, that Respondents breached their fiduciary duties in connection with the four trusts through their conduct leading up to and on June 12, 2002, and their subsequent failure to release the trust assets to the successor trustee. 6. Petitioners expect to call James P. Quinlan as an expert witness. Petitioners will provide Mr. Quinlan's credentials at the hearing. Mr. Quinlan is expected to testify regarding the purpose and function of a stop loss order, alternatives to the use of a stop loss order, the factors that should be considered prior to recommending a stop loss order or setting the trigger price for a stop loss order, and how a stop loss order should be presented to a client. Mr. Quinlan is expected to testify that, based on the deposition transcripts and documents in this case, Respondents do not appear to have adequately evaluated the appropriateness of a $9.00 stop loss order prior to recommending it, and do not appear to have provided Petitioners with sufficient information to meaningfully respond to the recommendation. 7. There are also several witnesses who Petitioners will call to testify if they are present at the hearing and not otherwise called by Respondents. If present and not called to testify by Respondents, Petitioners will call John Klubosicky, Dan Magee, and Cornell Babcock. John Klubosicky attended by telephone the June 12, 2002, meeting between Gority, Stauffer, and Brenner Sr., and can also testify regarding M&T's policies, including that the sell order issued by M&T's analysts was not discretionary and that Tyco stock could not have been repurchased into the trust accounts. Dan Magee and Cornell Babcock had no direct contact with Petitioners, but can testify regarding M&T's internal processes and policies, both generally and specifically in connection with the Brenner accounts. Petitioners will also call David Gority and Curt Stauffer to testify in the unlikely event that they are not called by Respondents. If any of the persons named in this paragraph are not present at the hearing, Petitioners will enter their deposition 8 testimony into the record. V. List of Exhibits Petitioners Expect to Enter Petitioners expect to enter some or all of the following exhibits at trial. • Amendment and Restatement to Declaration of Trust, dated 11/23/94. Amends and restates document creating Children's Trusts. No Bates number. • Irrevocable Agreement of Trust, dated 11/23/94. Creates Grandchildren's Trust. No Bates number. • Letter from David Gority (Farmers Trust), to Mr. & Mrs. Brenner, dated 11 /29/94, regarding bank's administration of Grandchildren's Trust. M&T 01268. • Letter from Nancy Blakely to Financial Trust Services Company, dated 9/8/98, regarding tender offer and Blakely Trust. M&T 01362. • Letter from Joseph Brenner Sr. to Financial Trust Services Company, dated 9/8/98, regarding tender offer and Jane "C" Trust. M&T 01784. • Letter from Joseph Brenner Sr. to Financial Trust Services Company, dated 9/8/98, regarding tender offer and Jane "B" Trust. M&T 01786. • Account review information regarding Jane "C" Trust, dated 9/11/98. M&T 017123. • Letter from David Gority, to Joseph Brenner Jr. and Margaret Bushey, dated 11/16/98, regarding Amp tender. M&T 200391. • Account review information regarding Grandchildren's Trust, dated 2/18/99. M&T 01270 - 01272. • Recommendation to liquidate 20% of Tyco shares in Grandchildren's Trust, dated c. 6/21/99. M&T 01249. • Fax from Sheryl Hoff, to David Gority, dated 7/1/99, regarding Brenner analysis. • Letter from David Gority to Margaret Bushey and Joseph Brenner Jr., dated 7/16/99, regarding sale of 11,116 shares of Tyco stock from Grandchildren's Trust. M&T 01264. • Direction to liquidate 40% of Tyco shares in Grandchildren's Trust, dated c. 7/19/99. M&T 01245. • Account review information regarding Jane "B" Trust, dated 9/28/99. M&T 01828. • Account review information regarding Jane "C" Trust, dated 1/21/00. M&T 01715. • Account review information regarding Grandchildren's Trust, dated 1/21/00. M&T 01273. • Information regarding sale of 11,116 Tyco shares from Grandchildren's Trust, dated 2/17/00. M&T 01196. 9 • Account review information regarding Grandchildren's Trust, dated 1/21/00. M&T 01273. • Three letters from Joseph Brenner to Keystone Financial, dated 8/20/00, regarding retention of Tyco shares in the Jane "B," Jane "C," and Blakely Trusts. M&T 01838, M&T 01933, and M&T 01357. • Account review information regarding Jane "B" Trust, dated 9/15/00. M&T 01824. • Memorandum from David Gority regarding Children's and Grandchildren's Trusts, dated 1/2/01. M&T 200386-90. • Memorandum from Curt Stauffer to Bud Babcock, cc'd to David Gority, dated 1/11/O1, re Brenner Family Trust Accounts. M&T 200384-85. • Durable General Power of Attorney for Joseph Brenner Sr., dated 3/28/01, with handwritten note "JD & JW Brenner 1075." M&T 01174 - 001181. • Durable General Power of Attorney for Joseph Brenner Sr., dated 3/28/01, with handwritten note "Jane Brenner C 1075." M&T 01671- 01678. • Policy Exception Report for Blakely Trust, dated 6/13/01. No Bates. • Email from Curt Stauffer to David Gority, cc Dan Magee, dated 8/10/01, regarding Brenner. • Handwritten note re: Brenner Accounts, dated 9/10/01. M&T 200021. • Brenner Accounts Tyco International Reduction Plan, dated 9/11/01. M&T 200006 - 200008. • Brenner Accounts Tyco International Reduction Plan, dated 9/11/01, with handwritten notes. M&T 200374 - 200375. • Brenner Family Trust Accounts, with handwritten notes and attached documents, undated. M&T 200376 - 200383. • Policy Exception Report, dated 9/18/01, regarding Jane "B" Trust. M&T 01822 - 01823. • Policy Exception Report, dated 9/18/01, regarding Jane "C" Trust. M&T 01721 - 01722. • Handwritten Note re: Brenner account, dated 9/21/01. M&T 200022. • Brenner Accounts Tyco Concentration Strategies, dated 9/21/01. M&T 200002 - 200005. • Brenner Accounts Tyco Concentration Strategies, dated 9/21/01, with handwritten notes. M&T 200333 - 200335. • Account review information, dated 9/21/01, regarding Jane "B" Trust. M&T 01819. • Account review information, dated 9/21/01, regarding Jane "C" Trust. M&T 01718. • Brenner Family Accounts Tyco International Concentration Plan presentation, dated 11/13/01. M&T 01201 - 01231. 10 • Memo from David Gority to file regarding Tyco Concentration Mtg 11-13-01, dated 11/14/01. M&T 01256. • Email from David Gority to Lynette Berger, dated 11/14/01, and attached documents, regarding Brenner Family Trusts. M&T 200326 - 200332. • Letter from David Gority to Joseph Brenner Sr., cc to Margaret Bushey, Joseph Brenner Jr., and Curt Stauffer, regarding Children's Trusts, dated 2/1/02. No Bates. • Handwritten note re: "Call to Curt," dated 2/8/02. M&T 200023. • Letter from Curt Stauffer to Joseph Brenner Sr., cc to Margaret Bushey, Joseph Brenner Jr., and David Gority, dated 8/16/02, regarding Tyco. No Bates. • Email from Curt Stauffer to John Klobusicky, dated 5/6/02, regarding concentration holdings. M&T 1911?. • Memo from T. Pierce, J. Thorne, and K. Hanrahan, to M&T Asset Management Group to M&T Asset, dated 6/7/02, regarding Changes to the Large-Cap Core (Icblend) Model. M&T 200269. • Harris Insight, dated 6/10/02, regarding Tyco stock. M&T 1953 - 1954. • Letter from Joseph Brenner Sr. to M&T, dated 6/12/02, regarding liquidation of Tyco shares from Jane "B" and Jane "C" Trusts. M&T 01940. • Letter from Joseph Brenner Sr. to M&T, dated 6/12/02, regarding liquidation of Tyco shares from Blakely Trust. M&T 01389. • Fax from Merrill Lynch, dated 9/12/02, regarding sale of Tyco stock on 6/12/02. No Bates. • Stop loss order, dated 6/12/02, regarding Children's and Grandchildren's Trusts. No Bates. • Letter from David Gority to Margaret Bushey and Joseph Brenner Jr., dated 6/12/02, regarding written authorization for sale of Tyco shares from Grandchildren's Trust. No Bates • Letter from Curt Stauffer to Joseph Brenner Sr., dated 6/13/02, regarding sales of Tyco stock. No Bates. • Letter from Gority to Bushey re: Trust Documentation, dated 6/13/02. No Bates. • Trade documentation, dated 6/14/02, regarding Jane "B" Trust. No Bates. • Trade documentation, dated 6/14/02, regarding Jane "C" Trust. No Bates. • Email from Curt Stauffer to John Klobusicky, dated 6/19/02, regarding Brenner Update. M&T 200036. • Email from Dan Magee to John Klobusicky, dated 6/19/02, regarding call to Bushey and Brenner Jr. M&T 200001. • Chronology of Event and Contact with the Brenner Family, by Curt Stauffer and David Gority, dated 6/7/02. M&T 200302 - 200305. 11 • Email from James Mikosz to Bill Dwyer and John Klobusicky, dated 6/19/02 regarding Brenner Update. M&T 200283. • Trade documentation, dated 6/30/02, regarding Children's and Grandchildren's Trusts. No Bates. • Email from David Gority to Cornell Babcock, dated 7/3/02, regarding Brenner accounts. M&T 200290. • Selected Documents from Curt Stauffer's personnel file, various dates. No Bates. • Unsigned letter from John Klobusicky to Margaret Bushey and Joseph Brenner Jr., dated 1/9/03, regarding Grandchildren's Trust. M&T 200027 - 200030. • Unsigned letter from John Klobusicky to Joseph Brenner Sr., dated 1/9/03, regarding Children's Trusts. M&T 200037 - 200038. • Draft letter from Klobusicky, to unnamed recipient, undated, regarding Blakely Trust. M&T 200039 - 200040. • Letter from Rick Martson to Mark Bradshaw, dated 4/15/04, regarding release of trust assets. No Bates. • Letter from Rick Martson to Mark Bradshaw, dated 6/17/04, regarding release of trust assets. No Bates. • Transcription of telephone message form Mark Bradshaw to Rick Martson, dated 6/17/04, regarding release of trust assets. No Bates. • Email from Mark Bradshaw to Rick Martson, dated 7/8/04, regarding release of trust assets. No Bates. • Email from Thomas Pierce to Cornell Babcock, dated 7/23/04, regarding Tyco litigation. No Bates. DATED this 21st day of October, 2004. TONKON TORP LLP By c . ~~~1 ~~ William F. artson, Jr., OSB No. 72163 Robyn E. Ridler, OSB No. 00016 Attorneys for Petitioners 12 CERTIFICATE OF SERVICE I hereby certify that I served the foregoing PETITIONERS' SUPPLEMENT TO HEARING BRIEF AS REQUESTED BY AUDITOR on: Mark D. Bradshaw Stevens & Lee P. O. Box 11670 Harrisburg, PA 1710$-1670 Of Attorneys for Respondents ^ 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; ^ 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; ® 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 ^ by faxing a copy thereof to each attorney at each attorney's last-known facsimile number on the date set forth below. DATED this 21st day of October, 2004. TONKON TORP LLp gy ~~ William F. artson, Jr., OSB No. 72163 Robyn E. Ridler, OSB No. 00016 Attorneys for Petitioners 031590\00001\595309 V001 13