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INRE:
ESTATE OF LOY T. HEMPT
IN THE COURT OF COMMON PLEAS
CUMBERLAND COUNTY, PENNSYLVANIA
NO. 21-77-231
ORPHANS' COURT DIVISION
KALBACH OBJECTORS'
PRE-TRIAL MEMORANDUM
I. SUMMARY CASE OVERVIEW
Gerald L. Hempt is simultaneously the Trustee of the Loy T. Hempt Residuary Trust, a
remainder beneficiary of the Trust, Guardian of the Estate and Person of Jean D. Hempt and a
Beneficiary of the Jean Hempt Estate. Gerald Hempt was appointed Trustee of the Loy T.
Hempt Residuary Trust without notice to the remainder beneficiaries and in proceedings which
did not identify the Loy T. Hempt Trust or Loy T. Hempt Estate in the caption or docket
numbers. Gerald Hempt has multiple conflicts of interest. He has an antagonistic relationship
with a remainder beneficiary, Robert Kalbach. Finally, and most importantly, Gerald Hempt, as
Trustee, has engaged in a pattern of conduct for his personal benefit that violates his fiduciary
obligations to remainder beneficiaries and constitutes an abuse of his discretion.
As Trustee of the Loy T. Hempt Residuary Trust, Gerald Hempt has purportedly divided
the Trust into three (3) trusts, one for the benefit of his family (40%), one for the benefit of the
Mark family (40%) and one for the benefit of the Kalbach family (20%). He then manipulated
the valuation and allocation of Trust assets into the separate trusts so that he could obtain those
specific Trust assets he desired (closely held family business interests), while simultaneously
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depriving those Trust assets from another remainder beneficiary, Robert Kalbach. These actions,
purportedly as Trustee, were implemented solely for his personal benefit and the benefit of his
close family members, to the detriment of Robert Kalbach, and constitute a most egregious abuse
of discretion and violation of his fiduciary obligations.
Further, since becoming Trustee in 1996, Gerald Hempt continued the practice of the
prior trustee (his father, Max Hempt) of distributing assets of the Loy T. Hempt Residuary Trust
to the Estate of Jean Hempt, knowing full well that Jean Hempt (who is an adjudged
incapacitated person in a custodial living arrangement) had (and has) assets well in excess of
those needed for her to live in her customary manner. After making these distributions for years,
Gerald Hempt, wearing the hat of the Guardian of the Estate of Jean D. Hempt, then petitioned
this Court for permission to make gifts from the Jean Hempt Estate to himself and the other Jean
Hempt Estate beneficiaries, asserting that Jean had more than enough assets for her to live in her
customary manner and that a gifting program was appropriate. This funneling of funds from the
Loy T. Hempt Residuary Trust to the Jean Hempt Estate deprived Robert Kalbach of twenty
(20%) percent of the transferred assets since he is a remainder beneficiary of the Loy T. Hempt
Trust but is not a beneficiary of the Jean Hempt Estate.
Under these circumstances the Kalbach Objections to the Accounting must be sustained
and the relief requested therein be granted. Most importantly, Gerald Hempt must be removed as
Trustee of the Loy T. Hempt Residuary Trust, the Loy T. Hempt Residuary Trust must be
reconstituted as a single trust from the separate trusts allegedly created by Gerald Hempt, and
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finally, Gerald Hempt must be surcharged those distributions made from the Loy T. Hempt
Residuary Trust to the Jean Hempt Estate so that the Loy T. Hempt Residuary Trust is made
whole.
II. POTENTIAL WITNESSES
1. Robert Kalbach
2. Robert Kalbach, Jr.
3. Richard Kalbach
4. Gerald Hempt
5. George Hempt
6. Robert Freedman, Esquire
7. W. Robert Mark
8. Forrest H. Mark
9. Steven E. Mark
Expert Witness
1. John Stoner, CPA, CV A
III. POTENTIAL EXHIBITS.
1. Loy T. Hempt Will dated December 8, 1964 and a Codicil dated December 12,
1969.
2. Hempt family tree.
3. Proceedings docket for the Loy T. Hempt Estate.
I The parties have entered into a confidentiality agreement which encompasses many of these potential exhibits. A
procedure should be discussed whereby confidentiality of these documents, if deemed necessary, is maintained
during these proceedings.
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4. Petition for Appointment of Successor Trustee and Successor Guardian of the
Estate and Person in "In the Matter of Jean Doris Hempt, an Incompetent," filed on or about July
3, 1996, including Final Decree dated September 3, 1996.
5. Petition for Appointment of Successor Co-Trustee and Successor Co-Guardian of
Estate and Person in "In Re: Estate of Jean Doris Hempt, an Incompetent Person," filed on or
about May 18, 2001.
6. Petition for Permission to Make Gifts Pursuant to Section 5536(b), Probate,
Estates and Fiduciaries Code in "In Re: Estate of Jean Doris Hempt, an Incompetent Person,"
filed on or about May 18, 2001.
7. Jean D. Hempt expenses and income summary prepared by Accounting Party.
8. Jean D. Hempt Form 1040, federal tax returns for 1982 - 2002.
9. Chart of Jean Hempt annual income from other sources outside Loy's Trust per
income tax returns.
10. Merrill Lynch portfolio summary review for Jean D. Hempt Trust as of May 30,
2003.
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11.
1,2001.
Limited Summary Appraisal Report for Valley Land Company, Inc. dated January
12.
December 31, 2000 valuation report for C.A. Hempt Estate, Inc.
13. C.A. Hempt Estate, Inc. valuation letter from Robert Freedman, Esquire dated
August 21,2001..
14.
Hempt Brothers, Inc. Buy-Sell Agreement.
15.
7,2001.
Compass Capital Partners, Ltd. valuation of Hempt Brothers, Inc. dated December
16. Valuation methodology of Hempt Brothers, Inc., contained in Form 706 for the
Estate of Max C. Hempt.
17. Letter from Robert Freedman, Esquire to Gerald L. Hempt and George F. Hempt
dated March 1, 2001.
18. Letter from Robert Freedman, Esquire to Gerald L. Hempt dated March 21,2001.
19. Letter from Robert Freedman, Esquire to Gerald L. Hempt dated April 11, 2001.
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20. Letter from Robert Freedman, Esquire to Gerald L. Hempt dated May 7., 2001.
21. Letter from Robert Freedman, Esquire to Gerald L. Hempt dated May 15,2001.
22. Letter from Robert Freedman, Esquire to Gerald L. Hempt and George F. Hempt
dated May 15,2001.
23. Letter from Robert Freedman, Esquire to Gerald L. Hempt dated April 23, 2002.
24. Letter from Robert Freedman, Esquire to Gerald L. Hempt dated July 12, 2002.
25. Various documents relating to the valuation of Hempt Brothers, Inc. by the
Kalbach Objectors' expert witness, John Stoner, were reviewed and relied upon. The Kalbach
Objectors do not believe that all of these documents need to be matters of record in these
proceedings. However, Kalbach Objectors reserve the right to utilize any of these documents as
necessary .
26. Kalbach Objectors .believe that the Accounting, Petition for Adjudication,
Kalbach Objections and Mark Objections are already filed as documents of record and do not
need to be introduced as separate exhibits in these proceedings.
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IV. PROPOSED STIPULATIONS2
1. Loy T. Hempt died on March 19, 1977.
2. Loy T. Hempt made a Will dated December 9, 1964 and one Codicil dated
December 12, 1969.
3. Loy T. Hempt's Codicil appointed Max C. Hempt and Margaret Hempt as trustees
of the trust created under Item Fifth of his Will (the "Loy Hempt Residuary Trust").
4. ITEM FIFTH of the Loy Hempt Residuary Trust states, in pertinent part:
"FIFTH: I devise and bequeath all the rest of my estate, of whatever kind
and whatever situate, to my trustees hereinafter named, in trust as follows:
(1) During such time as either or both of my wife, Margaret,
and my niece, Jean Hempt, are living, trustees shall pay to
or expend directly for the benefit of either or both of my
wife and my niece such parts or all or none of the net
income and principal as trustees may determine in their
sole and absolute discretion, to provide for their care,
support, and welfare, . . .
(2) Upon the death of the survivor of my wife, Margaret, and
my niece, Jean Hempt, . . . trustees shall transfer the
remaining principal as follows:
(a) Forty (40%) percent thereof to my nephew,
Max C. Hempt, ifhe is then living, but if he
2 These proposed stipulations are currently being reviewed for accuracy by the Kalbach Objectors and are submitted
for consideration with the qualification that this review could result in modification.
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is then dead, to his then living issue, per
stirpes.
(b) Forty (40%) percent thereof to my niece,
Dorothy Mark, if she is then living, but if
she is then dead, to her then living issue, per
stirpes.
(c) Twenty (20%) percent thereof to my
nephew, Robert Kalbach, ifhe is then living,
but if he is then dead, to his then living
issue, per stirpes."
5. Jean D. Hempt was Loy T. Hempt's niece.
6. Max C. Hempt was Loy T. Hempt's nephew.
7. Margaret Hempt was Loy T. Hempt's wife and she died in 1988.
8. When Margaret Hempt died in 1988, Dorothy Hempt, Loy Hempt's niece,
became the successor co-trustee pursuant to the Codicil.
9. Dorothy Hempt, a/k/a Dorothy H. Mark, was the mother of W. Robert Mark,
Forrest H. Mark and Steven E. Mark.
10. When Dorothy Hempt died in 1995, Max Hempt became the sole trustee of the
Loy T. Hempt Residuary Trust.
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11. Max C. Hempt, a remainderman of the Loy T. Hempt Residuary Trust, died on
May 3, 1999 survived by his children, Gerald L. Hempt, George F. Hempt, Martha H. Bair and
Marian H. Semoff.
12. Dorothy Mark, a remainderman of the Loy T. Hempt Residuary Trust, died on
June 15, 1995 survived by her three children, Robert Mark, Forrest Mark and Steven Mark.
13. Robert Kalbach, a remainderman of the Loy T. Hempt Residuary Trust, survives
today, as do his two children, Robert Kalbach, Jr. and Richard Kalbach.
14. Jean Doris Hempt was born on January 24, 1927 and, because of her disability,
she has since September 13, 1938 been a resident at The Woods School and Residential
Treatment Center, Langhorne, Pennsylvania, a private facility.
15. Jean Doris Hempt is unmarried and has no children. Her parents are deceased.
16. By Final Decree of the Court of Common Pleas of Cumberland County,
Pennsylvania dated March 8, 1985, entered to No. 117 Orphans 1985, Jean Doris Hempt was
adjudged an incompetent and Max C. Hempt and Dorothy H. Mark were appointed guardians of
Jean's estate, with no bond required.
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17. By Final Decree of the Cumberland County Court, dated Mary 10, 1990, Max C.
Hempt and Dorothy H. Mark were appointed guardians of the person of Jean, with no bond
required.
18. It is anticipated that Jean Doris Hempt will, during the balance of her life,
continue to reside at The Woods School and Residential Treatment Center.
19. Jean Doris Hempt had two siblings, Dorothy H. Mark and Max C. Hempt.
20. Because of her incompetency, Jean Doris Hempt never had and never will have
the capacity to make a valid will. The assets held in her guardianship account will pass to her
intestate heirs upon her death.
21. The intestate heirs of Jean Doris Hempt are the surviving children of Max C.
Hempt and Dorothy H. Mark. Specifically, her next of kin are as follows:
Issue of Max C. Hempt
Issue of Dorothy H. Mark
George F. Hempt
Gerald L. Hempt
Marian H. Semoff
Martha D. Bair
W. Robert Mark
Forrest H. Mark
Steven E. Mark
22. Robert Kalbach is not an intestate heir of Jean Doris Hempt and is entitled to no
proceeds of her estate upon her death.
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23. In early July, 1996, Max C. Hempt and Gerald L. Hempt filed a Petition for
Appointment of Successor Trustee and Successor Guardian of Estate and of Person in the Court
of Common Pleas, Cumberland County, Pennsylvania (the "1996 Co-Guardianship Petition").
24. The 1996 Co-Guardianship Petition was captioned only "In the Matter of Jean
Doris Hempt, an Incompetent."
25. The 1996 Co-Guardianship Petition only references the following docket
numbers:
No. 2008 of 1942, which is the will of Jean's father, George L.
Hempt, in the Office of the Register of Wills of Cumberland
County.
No. 253 of 1977, which is the proceeding in the matter of the
testamentary trust under the Will of George L. Hempt for the
benefit of Jean.
No. 117 of 1985, Orphans' Court Division, the proceeding
adjudicating Jean Doris Hempt an incompetent and appointing
Max C. Hempt and Dorothy H. Mark guardians of her estate.
26. The 1996 Co-Guardianship Petition does not reference any of the docket numbers
for the Estate ofLoy T. Hempt or the trust under the will ofLoy T. Hempt, which is Estate No.
21-77-231.
27. Notice of the filing of the 1996 Co-Guardianship Petition was not provided to
Robert H. Kalbach, Sr. or to his sons, Richard C. Kalbach and Robert H. Kalbach, Jr.
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28. Notice of the filing of the 1996 Co-Guardianship Petition was not provided to
Robert W. Mark, Forrest H. Mark or Steven E. Mark.
29. The Final Decree signed by the Honorable Harold E. Sheeley in response to the
1996 Co-Guardianship Petition purports to appoint Gerald L. Hempt as a co-trustee with Max C.
Hempt of the testamentary trust for the benefit of Jean Doris Hempt under the will ofLoy T.
Hempt.
30. By Decree of the Court of Common Pleas of Cumberland County dated
September 3, 1996, Gerald Hempt was appointed as Co-Guardian (with his father, Max C.
Hempt) of the estate and of the person of Jean Hempt.
31. Since Max Hempt's death on May 23, 1999, Gerald L. Hempt has been sole
Guardian of the estate and of the person of Jean Hempt.
32. In a "Petition for Appointment of Successor Co-Trustee and Successor Co-
Guardian of Estate and Person" filed in the Court of Common Pleas of Cumberland County on or
about May 18,2001, Gerald L. Hempt and his brother, George F. Hempt, sought, inter alia, to
have George F. Hempt appointed as Co-Guardian (with Gerald L. Hempt) of the estate and of the
person of Jean Hempt (the "2001 Co-Guardianship Petition").
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33. The 2001 Co-Guardianship Petition was captioned only "IN RE: ESTATE OF
JEAN DORIS HEMPT, an Incompetent Person" and was docketed only to No. 117 ORPHANS'
1985.
34. The 2001 Co-Guardianship Petition also sought to have George F. Hempt
appointed as co-trustee of the Loy T. Hempt Residuary Trust.
35. The Co-Guardianship Petition was not docketed or indexed in any docket relating
to the Loy T. Hempt Estate or the Loy T. Hempt Residuary Trust.
36. Advance notice of the filing of the 2001 Co-Guardianship Petition was provided
to Marian D. Semoff, Martha D. Bair, Forrest H. Mark, W. Robert Mark and Steven E. Mark.
37. No notice of the filing of the 2001 Co-Guardianship Petition was provided to
Robert H. Kalbach, Sr., Robert H. Kalbach, Jr., or Richard C. Kalbach.
38. Advancement of the Co-Guardianship Petition has been stayed by agreement.
39. The value of the Jean Doris Hempt Estate as of May 30, 2003, is approximately
One Million Nine Hundred Thirty-Seven Thousand Four Hundred Sixty-Nine ($1,937,469.00)
Dollars, not including her shares of Hempt Brothers, Inc. ("Hempt Brothers") and C.A. Hempt
Estates, Inc. ("C.A. Hempt Estate"), closely-held family businesses.
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40. The Jean Hempt Estate owns 1,547 shares of Hempt Brothers stock.
41. Both Gerald L. Hempt and George G. Hempt are significant shareholders of
Hempt Brothers.
42. Both Gerald L. Hempt and George F. Hempt are officers of Hempt Brothers and
are actively involved in the management and operation of Hempt Brothers.
43. A valuation of Hempt Brothers stock was performed by Compass Capital
Partners, Ltd. in 2001 (the "Compass Valuation") at the request of George Hempt, President of
Hempt Brothers.
44. The Compass Valuation valued the Hempt Brothers stock at $643.49 per share as
of August 31,2001.
45. The value of the Jean Hempt Estate's Hempt Brothers stock, based solely on the
Compass Valuation, was $995,479.03 as of August 31, 2001.
46. The Jean Hempt Estate owns 2,000 shares of C.A. Hempt Estate.
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47. The other shares ofC.A. Hempt Estate are owned as follows:
Robert Kalbach
Trust FBO Martha D. Hempt
Gerald Hempt
George Hempt
Robert Mark
Forrest Mark
Steven Mark
Loy Hempt Residuary
Trust
6,000 shares
2,000 shares
3,000 shares
3,000 shares
667 shares
667 shares
666 shares
6,000 shares
48. For purposes of a purported trust division as of April 25, 2002, Gerald L. Hempt,
the purported trustee of the Loy T. Hempt Residuary Trust, who is also the guardian of the Jean
Hempt Estate, valued a share of C.A. Hempt Estate at $104 (the "Trustee Valuation").
49. The value of the C.A. Hempt Estate stock owned by the Jean Hempt Estate, based
solely on the Trustee Valuation, is $208,000.
50. The value of the Jean Hempt Estate, based solely on the valuations identified
herein, is $3,140,948.
51. The costs of residential care for Jean Doris Hempt at The Woods School and
Residential Treatment Center for the five years ending 2001 are as follows:
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1997 - $43,795
1998 - $48,096
1999 - $49,170
2000 - $58,601
2001 - $54,300
52. Jean Doris Hempt has assets well in excess of those needed for her to live in her
customary manner.
53. On or about May 18,2001, Gerald L. Hempt and George F. Hempt, purporting to
be Guardians of the Estate of Jean Doris Hempt, filed a petition in the Court of Common Pleas of
Cumberland County entitled "Petition for Permission to Make Gifts Pursuant to Section 5536(b),
Probate, Estate and Fiduciaries Code (the "Petition to Make Gifts"). In the Petition to Make
Gifts, George F. Hempt and Gerald L. Hempt allege that, "If Jean Doris Hempt was able to use
her judgment, Petitioners believe she would make lifetime gifts to her intestate heirs."
54. No notice of the filing of the Petition to Make Gifts was provided to Robert H.
Kalbach or his sons.
55. In the Petition to Make Gifts, Petitioners further requested that the Court
authorize them as Guardians of the Estate of Jean Doris Hempt ''to make outright gifts in the
amount ofTen Thousand ($10,000.00) Dollars per year to each of the seven (7) intestate heirs of
Jean Doris Hempt. Specifically, the current intestate heirs are the four (4) surviving children of
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her brother, Max C. Hempt, and the three surviving children of her sister, Doris Hempt Mark, all
seven (7) of whom would share per capita her estate upon her death."
56. In the Petition to Make Gifts, Gerald L. Hempt and George F. Hempt further
requested "that the Court approve a plan of annual giving beginning retroactively in 2000 and
continuing until Jean Doris Hempt's death, which said plan will authorize Petitioners (in their
capacity as Guardians of the Estate of Jean Doris Hempt) to make annual gifts in the amount of
Ten Thousand ($10,000.00) Dollars to each of the above-described nephews and nieces of Jean
Doris Hempt."
57. In the Petition to Make Gifts, George F. Hempt and Gerald L. Hempt further
"request this Court to approve a one-time gift to her nieces and nephews of Jean Doris Hempt in
the amount of Six Hundred Seventy-Five Thousand ($675,000.00) Dollars.
58. Upon the death of Jean Hempt, the assets of her estate will be distributed in equal
shares to her intestate heirs, George F. Hempt, Gerald L. Hempt, Marian H. Semoff, Martha D.
Bair, W. Robert Mark, Forrest H. Mark and Steven E. Mark.
59. Upon the death of Jean Hempt, the Loy T. Hempt Residuary Trust will terminate,
and by its provisions the assets will be distributed forty (40%) percent to the issue of Max C.
Hempt (George F. Hempt, Gerald L. Hempt, Marian H. Semoff and Martha D. Bair), forty (40%)
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percent to the issue of Dorothy Mark (W. Robert Mark, Forrest H. Mark and Steven E. Mark)
and twenty (20%) percent to Robert H. Kalbach.
60. Whether assets are distributed from the Loy T. Hempt Residuary Trust or from
the Jean Hempt Estate upon the death of Jean Hempt has a direct financial impact on Robert H.
Kalbach since he would receive 20% of the assets of the Loy T. Hempt Residuary Trust, whereas
he would receive nothing if those assets were instead distributed from the Jean Hempt Estate.
61. Assets of the Loy T. Hempt Residuary Trust include two thousand one hundred
thirty-two (2,132) shares of stock in Hempt Brothers, Inc., a closely-held family business.
62. Assets of the Loy T.Hempt Residuary Trust include six thousand (6,000) shares
of stock in C.A. Hempt Estate, Inc., a closely-held family business.
63. Assets of the Loy T. Hempt Residuary Trust include eighty-nine (89) shares of
common stock in Valley Land Co. out of a total of one hundred (100) shares of common stock of
Valley Land Co. issued and outstanding, a closely-held family business.
64. The remaining eleven (11) shares of Valley Land Co. common stock are owned
by Gerald L. Hempt.
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65. If the Loy T. Hempt Residuary Trust had not been divided, after the death of Jean
Hempt the stock of Valley Land would be held as follows:
Robert H. Kalbach
Mark Brothers
Objectors' Shares
Gerald L. Hempt
Gerald L. Hempt Siblings
Hempt Family Shares
Total Shares
17.8 shares
35.6 shares
53.4 shares
19.9 shares
26.7 shares
46.6 shares
100.0 shares
66. If the Loy T. Hempt Residuary Trust had not been divided, after the death of Jean
Hempt the stock of C.A. Hempt Estate would be held as follows:
Robert H. Kalbach
Mark Brothers
Objectors' Shares
Max Hempt Children's and
Widow's Shares
Total Shares
7,200.00 shares
5.257.14 shares
12,457.14 shares
11.542.86 shares
11.542.86 shares
24,000.00 shares
67. By document dated April 25, 2002, Gerald L. Hempt, purported Trustee of the
Loy T. Hempt Residuary Trust, purported to divide the Loy T. Hempt Residuary Trust into three
(3) separate trusts, one for the benefit of the issue of Max Hempt, the second for the benefit of
the issue of Dorothy Mark and the third for the benefit of Robert H. Kalbach.
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68. Gerald L. Hempt is, simultaneously, purported Trustee of the Loy T. Hempt
Residuary Trust, a beneficiary of the Loy T. Hempt Residuary Trust, Guardian of the Jean
Hempt Estate, and a beneficiary of the Jean Hempt Estate.
69. Gerald L. Hempt, with his father Max, from 1996 to 1999 and solely since 1999,
has controlled the distribution of assets from the Loy T. Hempt Residuary Trust to the Jean
Hempt estate.
70. During the five (5) years preceding and including 2001 (the same year Gerald L.
Hempt requested the Court to approve distributions exceeding $800,000 from the Jean Hempt
Estate to himself, his siblings and his Mark cousins), Gerald L. Hempt directed the transfer of
$315,000 from the Loy T. Hempt Residuary Trust to the Jean Hempt Estate.
71. Gerald L. Hempt received and relied upon the advice of legal counsel, Robert L.
Freedman, Esquire, to divide and distribute the assets of the Loy T. Hempt Residuary Trust to
the three trusts.
72. In a letter to Gerald L. Hempt and George F. Hempt dated March 1,2001, Mr.
Freedman advised that he had "done a preliminary analysis of the assets held in the trust under
Loy's Will to determine how the assets can be divided now into separate trusts to reflect the
eventual division after Jean's death according to the terms ofLoy's Will."
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73. In his March 1, 2001 letter, Mr. Freedman further stated, "It was not possible to
apportion all of the Hempt Bros. stock to you. It had to be divided among you, your sisters and
the Marks' family because it has a relatively high basis as compared to the other assets."
74. As of March 1,2001, Mr. Freedman contemplated that Robert Kalbach would
receive all 6,000 shares of the C.A. Hempt Estate stock held in the Loy T. Hempt Residuary
Trust.
75. Mr. Freedman wrote again to Gerald L. Hempt on April 11, 2001 in which he
"reanalyzed" potential division of the assets held in the Loy T. Hempt Residuary Trust.
76. In his April 11, 2001 letter, Mr. Freedman wrote, "I also considered various other
transactions in order to help you and George acquire greater positions in some of your family's
businesses. "
77. In his April 11, 2001 letter to Gerald L. Hempt, Mr. Freedman wrote:
It is my understanding based on our meeting that you want to
increase your ownership in Valley Land Company ("Valley Land")
from 11 % (11 shares) to 51 % ( 51 shares) and in C .A. Hempt from
12.5% (3,000 shares) to 37.5% (9,000 shares). This means you
need to acquire an additional 40 shares of Valley Land and an
additional 6,000 shares of C.A. Hempt. At the same time, you and
George would like to ensure that Robert Kalbach not receive any
additional shares of Hempt Brothers., Inc. ("Hempt Bros.").
George wants to receive as many additional shares of Hempt Bros.
as possible.
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78. In his April 11, 2001 letter to Gerald L. Hempt, Mr. Freedman stated, "Therefore,
it is impossible to get all of the Valley Land, Hempt Bros. and C.A. Hempt stock into the right
hands as the assets are now."
79. In his April 11, 2001 letter to Gerald L. Hempt, Mr. Freedman identified six
potential alternatives for division of the Loy T. Hempt Residuary Trust assets.
80. In his April 11, 2001 letter to Gerald L. Hempt, Mr. Freedman identified that a
"positive side" of his alternative number 1 was that Robert Kalbach would not receive shares of
Hempt Brothers.
81. With respect to alternative number 2 of Mr. Freedman's letter to Gerald L. Hempt
dated April 11, 2001, Mr. Freedman described the outcome as, "[W]e accomplished your goals
of gaining 51 % of V alley Land, getting George a significant amount of Hempt Bros. stock and
not giving Robert Kalbach any additional shares of Hempt Bros."
82. In all of the alternatives presented by Mr. Freedman to Gerald L. Hempt on April
11,2001, Robert Kalbach would receive shares of Valley Land or C.A. Hempt Estate or both.
83. In a letter dated May 15,2001, Mr. Freedman wrote to George F. Hempt and
Gerald L. Hempt proposing another division of the assets of the Loy T. Hempt Residuary Trust
into three separate trusts.
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84. In his May 15, 2001 letter to George F. Hempt and Gerald L. Hempt, Mr.
Freedman stated, "In dividing the assets, my two main goals were to have you receive equally
the maximum number of Hempt Bros. shares as possible and not to have any Hempt Bros. shares
go to Robert Kalbach."
85. In his May 15, 2001 letter to GeraldL. Hempt and George F. Hempt, Mr.
Freedman further stated, "It is not possible to get a larger amount ofHempt Bros. into your
hands through a simple division of the Trust because of the different ratios between basis and fair
market value of each asset."
86. The May 15, 2001 letter to George F. Hempt and Gerald L. Hempt from Mr.
Freedman enclosed a spreadsheet labeled on top "Maximum Shares of Hempt Bros. to George &
Gerry Equally."
87. The spreadsheet attached to the May 15, 200 I letter to George F. Hempt and
Gerald L. Hempt from Mr. Freedman proposed that Robert Kalbach would receive twenty (20)
shares of Valley Land Co. and one thousand three hundred (1,300) shares ofC.A. Hempt Estate.
88. In a separate letter dated May 15,2001 addressed only to Gerald L. Hempt, Mr.
Freedman "did a revision ofa basic division of the trust with the goals of you and George
receiving equally the maximum number of shares of Hempt Bros. and Robert Kalbach not
receiving any shares of Hempt Bros."
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89. In his revision set forth in the May 15, 2001 letter addressed only to Gerald L.
Hempt, Robert Kalbach received six (6) shares of Valley Land stock and one hundred (100)
shares ofC.A. Hempt stock.
90. In a letter dated April 23, 2002 to Gerald 1. Hempt, Mr. Freedman provided to
Mr. Hempt a document to divide the Loy T. Hempt Trust into separate trusts.
91. In his April 23, 2002 proposed distribution, Mr. Freedman utilized, for the first
time, a value of Hempt Brothers in accordance with the buy/sell agreement. In this proposed
division, Robert Kalbach did not receive any shares of Hempt Brothers, Valley Land or C.A.
Hempt Estate.
92. In a letter to Gerald 1. Hempt dated July 12,2002, Mr. Freedman sent to Gerald
Hempt a new document to supersede the document provided on April 23, 2002 because Mr.
Freedman had mistakenly omitted the basis of Valley Land in the prior document.
93. In the July 12, 2002 letter to Gerald L. Hempt, Mr. Freedman wrote, "As a result
the division is changed slightly, as shown on the enclosed. Kalbach continues to receive no
family businesses."
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94. As a result of the final division of the Loy T. Hempt Residuary Trust performed
by Gerald Hempt as Trustee, Robert Kalbach received no interest in Hempt Brothers, Valley
Land or C.A. Hempt Estate.
95. In his May 15, 2001 letter to George F. Hempt and Gerald L. Hempt, Mr.
Freedman proposed a distribution of the stock in the closely-held family businesses owned by the
Loy T. Hempt Residuary Trust as follows:
Asset HemDt Trust Mark Trust Kalbach Trust
Hempt Bros. Stock 1 , 100 1,023 0
Valley Land Stock 40 29 20
C.A. Hempt Estate 2,500 2,200 1,300
Stock
96. In the fmal purported split and distribution of assets owned by the Loy T. Hempt
Residuary Trust by the purported Trustee on April 25, 2002, the distribution of the closely-held
family business stock was as follows:
Asset Hempt Trust Mark Trust Kalbach Trust
Hempt Bros. Stock 1,328 795 0
Valley Land Stock 70 19 0
C.A. Hempt Estate 1,235 4,765 0
Stock
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97. In determining the value of the shares ofHempt Brothers stock allocated to the
issue of Max Hempt and to the issue of Dorothy Mark, Gerald L. Hempt used the book value of
the Hempt Brothers stock purportedly justified by a buy-sell agreement dated October 19, 1964.
98. Gerald Hempt allocated no stock of Hempt Brothers, C.A. Hempt Estate and
Valley Land Co. to Robert Kalbach because of his belief that Robert H. Kalbach has been
"hostile" to the family members running those businesses, and such hostility bodes ill for the
future smooth management of those family companies should Robert H. Kalbach become a
stockholder.
v. PRIMARY LEGAL ISSUES3
1. Did the Trustees of the Loy T. Hempt Residuary Trust breach their fiduciary
obligations to the remainder beneficiaries and abuse their discretion by making distributions to
the Jean Hempt Estate when the Trustees knew at all times that Jean Hempt had assets well in
excess of those needed for her to live in her customary manner?
2. Did the current Trustee of the Loy T. Hempt Residuary Trust, who is also a
remainder beneficiary of the Trust as well as a beneficiary of the Jean Hempt Estate, breach his
fiduciary obligations to a remainder beneficiary and abuse his discretion by making distributions
3 The Kalbach Objectors have listed herein the primary legal issues in these proceedings. See also the issues set
forth in the Objections to Accounting.
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to the Jean Hempt Estate when the result of the distributions is to his personal benefit and at the
expense of another remainder beneficiary of the Trust?
3. Did the Trustee of the Loy T. Hempt Residuary Trust breach his fiduciary
obligations to the remainder beneficiaries and abuse his discretion by dividing the Trust into
three separate trusts and then allocating the assets among those three trusts in the manner
described in the Accounting?
4. May the Trustee, who is also a remainder beneficiary of the Trust, utilize 20 Pa.
C.S.A. ~7191(a) to divide the trust into separate trusts, and then allocate specific Trust assets he
wishes to receive to himself, thereby deliberately depriving those specific Trust assets from
another remainder beneficiary?
5. May 20 Pa. C.S.A. ~7191(a) be utilized to distribute assets into divided trusts
when those assets are composed primarily of interests in closely-held businesses whose values
are disputed, are not readily determinable, and which require complex, subjective and disputed
valuation methodologies?
6. Should the Trustee of the Loy T. Hempt Residuary Trust be removed when the
Trustee has multiple conflicts of interest, was appointed without notice, has an antagonistic
relationship with a remainder beneficiary, and has demonstrated a pattern of conduct for his
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personal benefit that violates his fiduciary obligations to remainder beneficiaries and constitutes
an abuse of discretion?
METTE, EVANS & WOODSIDE
By:
~1-~
Daniel L. Sullivan, Esquire
Sup. Ct.J.D. 34548
Howell C. Mette, Esquire
Sup. Ct.J.D. 7217
Vicky Ann Trimmer, Esquire
Sup. Ct. J.D. 49679
3401 North Front Street
P.O. Box 5950
Harrisburg, P A 1711 0-0950
(717) 232-5000
Attorneys for Kalbach Objectors
DATED: d \ .-\1 lY~
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