Loading...
HomeMy WebLinkAbout21-04-87 OrphansJOSEPH D. BRENNER, SR., JOSEPH D. BRENNER, JR. and MARGARET B. BUSHEY, Petitioners VS. MANUFACTURERS AND TRADERS TRUST COMPANY, a New York Corporation, DAVID C. GORITY, and Individual, and CURT R. STAUFFER, an Individual, Respondents IN THE COURT OF COMMON PLEAS OF CUMBERLAND COUNTY, PENNSYLVANIA ORPHANS' COURT DIVISION NO. 21-04-087 PRELIMINARY OBJECTIONS OF THE RESPONDENTS BEFORE HESS. J. OPINION AND ORDER The respondents have filed various preliminary objections to this action for surcharge. The factual allegations of this case are as follows. On August 22, 2003, petitioners Joseph D. Brenner, Sr., Joseph D. Brenner, Jr., and Margaret B. Bushey, filed a civil complaint against respondents, Manufacturers and Traders Trust Company (M&T), David C. Gority and Curt R. Stauffer. Joseph D. Brenner Jr. and Margaret Bushey are two of the four children of Joseph D. Brenner Sr., and his wife Jane Brenner, deceased. David C. Gority is vice president and trust officer at M&T. Curt R. Stauffer was assistant vice president and portfolio manager at M&T. In the early 1990s, Brenner Sr. and his wife, Jane Brenner, created several trusts for the benefit of their children and grandchildren, the sole asset of the trusts being Amp, Inc. stock which was subsequently converted to Tyco International Ltd. Stock. In November 1994, Brenner Sr. and Jane Brenner executed an Irrevocable Agreement of Trust for the benefit of their NO. 21-04-087 four children and, upon their deaths, to their children. Bushey and Brenner Jr. have been co- trustees of the Grandchildren's Trust since October 24, 1997. In November of 1994, Jane Brenner executed four trusts for the benefit of Brenner Sr. and the four Brenner children. Since October 24, 1997, M&T and Brenner Sr. have been co-trustees of the Children's Trusts. Gority had been primarily responsible for working with Brenner Jr., Bushey and Brenner Sr. as co- trustees of the Grandchildren's Trust and the Children's Trusts. Beginning in the fall of 2001, Stauffer assisted Gority with the administration of both trusts. On January 23, 2002, Gority and Stauffer, in the course of their duties at M&T, recommended that the Children's Trusts and Grandchildren's Trust diversify by liquidating some of the Tyco stock. As co-trustees, petitioners agreed to liquidate twenty percent of the stock. After further discussion between all of the trustees, forty percent of the Tyco stock was sold from the Grandchildren's Trust during the first half of 2002. No stock was sold from the Children's Trusts. In March, 2002, as a result of market events that negatively impacted the market value of the Tyco Stock, Gority and Stauffer recommended liquidation of the stocks in the Children's Trusts. Brenner Sr. did not consent. Tyco stock to sharply drop in value. Subsequently, the CEO of Tyco was arrested, causing the M&T's employees then recommended to the co-trustees a further diversification of the assets in the trusts. In early June, 2002, Gority and Stauffer met with Brenner Sr. to discuss diversifying the Children's Trusts. Brenner Sr. executed an agreement consenting to immediate liquidation of one-third of the Tyco stock in the Children's Trusts and to place a stop on loss order at nine dollars a share on the remaining stocks. Brenner Jr. and Bushey did not attend that meeting. After obtaining the approval of Bushey and Brenner, Jr. to liquidate the shares and diversify both trusts, Gority and Stauffer implemented the agreed- upon plan for the liquidation of all of the Tyco shares from the Children's Trusts and the 2 NO. 21-04-087 Grandchildren's Trust. On June 12, 2002, as a result of the stop loss order, all remaining shares of Tyco stock were sold from the trusts. As to M&T, petitioners allege: (1) The bank had an obligation to deal honestly with its co-trustees; (2) it had an obligation to act in the best interests of the trusts; (3) its "panic decision to liquidate the entirety of the Tyco stock held in the trusts on June 12, 2002, was not in the best interest of the beneficiaries, and was a breach ofM&T's fiduciary duty to the beneficiaries," and (4): In light of Brenner Sr.'s failing health and reduced capacity, and pursuant to the agreement reached between Gority and Bushey, M&T had an obligation to take appropriate and necessary measures to protect the assets and beneficiaries of the Children's Trusts, including, inter alia, involving Bushey and/or Brenner Jr. in any substantive decisions regarding the Children's Trusts. M&T breached its fiduciary duties of the Children's Trusts by capitalizing on its co- trustee Brenner Sr.'s reduced physical and mental condition in order to accomplish its unilateral plan to liquidate all Tyco stock held by the trusts. M&T disposed of the entirety of the assets in the Children's Trusts without the informed consent and agreement of its co-trustee. M&T breached its fiduciary duty by failing to include either Bushey or Brenner Jr. in the meeting of June 12, 2002, which was in fact the most important, most substantive meeting ever held regarding the Children's Trusts. If either Brenner Jr. or Bushey had been present to explain what M&T wanted to their father, Brenner Sr. would not have "agreed" to M&T's liquidation plan or signed M&T's documents. As to the Grandchildren's Trust, petitioners allege: M&T breached its fiduciary duties to the Grandchildren's Trust by misleading and coercing its co-trustees Brenner Jr. and Bushey to accede to its unilateral decision to liquidate all Tyco stock held by the trust. M&T disposed of the entirety of the assets in the Grandchildren's Trust without the informed consent and agreement of its co- trustees. As to Gority and Stauffer, petitioners allege that they "aided and abetted M&T's breach of fiduciary duty with respect to the [trusts]." Petitioners sought the following damages: (1) 3 NO. 21-04-087 $764,573 against M&T for alleged breach of its fiduciary duty as co-trustee of the Children's Trusts, (2) $199,605 against M&T for alleged breach of its fiduciary duty as co-trustee of the Grandchildren's Trust, (3) $764,573 against Gority and Stauffer for allegedly aiding and abetting M&T's breach of fiduciary duty in regard to the Children's Trusts, and (4) $199,605 against Gority and Stauffer for allegedly aiding and abetting M&T's breach of fiduciary duty in regard to the Grandchildren's Trust. Petitioners also sought punitive damages against M&T for allegedly acting "with intent or reckless indifference." Additionally, petitioners demanded a jury trial. Respondents filed preliminary objections. On January 21, 2004, this court struck petitioners complaint and pursuant to 20 Pa. C.S.A. § 711 transferred the action to Orphans' Court. Petitioners filed in Orphans' Court on February 2, 2004. The petition is substantially identical to the previous civil complaint. Respondents filed preliminary objections on March 9, 2004. The preliminary objections seek to strike the petitioners' demand for a jury trial, their demand for specific damages and for punitive damages. The preliminary objections also seek to strike the claim against respondents Gority and Stauffer in their individual capacities.. A. Petitioners' demand for a jury trial in this action is authorized by statute and will not be stricken. The right to trial by jury in Orphans' Court is governed by 20 Pa.C.S.A. § 777. It provides in pertinent part: (a) Title to property.- -When a substantial dispute of fact shall arise concerning the decedent's title to property, real or personal, any party in interest shall be entitled to a trial of such issue by a jury. The verdict of the jury shall have the same effect as the verdict of a jury in a case at law. (b) Determination of incapacity.- -Any person against whom proceedings have been instituted to establish his incapacity shall be entitled to a trial of 4 NO. 21-04-087 such issue by a jury. The verdict of the jury shall have the same effect as the verdict of a jury in a case at law. (c) Will contest and other matters.- -When a contest shall arise concerning the validity of a writing alleged to be testamentary, or concerning any matter other than as provided in subsections (a) and (b) of this section, the orphans' court division, in its discretion at any stage of the proceedings may impanel a jury to decide any question of fact, but the verdict of the jury shall be advisory only. (emphasis added) The current action is a surcharge. It is not under the ambit of § 771 (a) or (b). Instead, subsection (c) applies. The Orphans' Court may, in its discretion, provide a trial by jury. The jury's verdict is only advisory. Section 771 (d) provides that a person desiring a jury trial "shall make demand therefor in writing." Additionally, the petitioners acknowledge that their "demand" for a jury trial does not entitle them to a jury trial. (Petitioners' Response Brief in Opposition to Respondents' Preliminary Objections at 3.) In the meantime, there is no reason to strike petitioners' demand for a jury trial. B. Petitioners' demand for specific damages is in violation of Pa.R.C.P. 1021(b) and will be stricken Pa.R.C.P. 1021 controls claims for relief.~ 1021(b) provides: Any pleading demanding relief for unliquidated damages shall not claim any specific sum. Petitioners are demanding relief and have claimed damages in the amount of $764,573 and $199,605. Therefore, this portion of the petition is in violation of 1021(b) and should be stricken pursuant to Pa.R.C.P. 1028(a)(2). The complaint, however, does go on to indicate that the amounts are simply estimates. Were this an action at law, the court would allow the petitioners to amend the ~ Since neither party has addressed the issue, we decline to consider the overarching question of whether Pa.R.C.P. 1021, governing "pleadings" has application to "petitions" filed in the Orphans' Court. NO. 21-04-087 pleading to comply with Pa.R.C.P. 102 l(c) requiring the petitioners to state "whether the amount claimed does or does not exceed the jurisdictional amount requiring arbitration referral by local rule." There will be, of course, no referral of this Orphans' Court matter to a Board of Arbitrators. Thus, while the specific dollar amounts will be stricken from the petition sub judice, the petitioners' assertion of damages and prayer for award of damages will remain, nonetheless. The actual damages must, of course, be proven at trial. C. Petitioners' request for punitive damages should be stricken because they are not appropriate in a surcharge action. Petitioners allege that M&T acted "with intent or reckless indifference," and request punitive damages. Respondents argue that punitive damages are not permitted in a surcharge action. The Pennsylvania Supreme Court has never addressed whether punitive damages are appropriate in a surcharge action. Petitioners rely on Lemke Trust, 13 Fiduc. Rptr.2d 328, 18 Pa. D.&C. 4th 417 (Dauphin 1993). In Lemke, the court found that punitive damages are recoverable in a surcharge action as a matter of law. Lemke, Fiduc. Rptr. 2d at 328, 18 Pa. D & C at 418. The Lemke court saw no reason to allow trustees to exercise their fiduciary duties recklessly or with impunity, while subjecting other fiduciaries to punitive damages for similar misconduct. Id. In Packard v. Provident National Bank, 994 F.2d 1039 (3d Cir. 1993), the Third Circuit, addressed the availability of punitive damages in a surcharge action in Pennsylvania. The question was a state issue which a federal court must resolve by reference to the law as set by that state's legislature or highest court. See Erie R.R. Co.v. Tompkins, 304 U.S. 64 (1938). Because the Pennsylvania Supreme Court had not addressed the issue, the Third Circuit predicted how the Pennsylvania Supreme Court would decide the issue if it was confronted with 6 NO. 21-04-087 the problem. See McKenna v. Ortho Pharmaceutical Corp., 622 F.2d 657, 661 (3d Cir. 1980). In predicting that the Pennsylvania Supreme Court would decide that punitive damages are not available in surcharge actions, the Third Circuit noted that trustees are treated different than other fiduciaries. Unlike the Lemke court, the Third Circuit saw valid reasons to treat trustees differently than other fiduciaries like attorneys. An attorney's liability for punitive damages is predicated on Pennsylvania's adoption of § 908(2) of the Restatement (Second) of Torts, which provides for punitive damages. Packard, 994 F.2s at 1048. Trustees are not subject to § 908. Id. Pennsylvania trust law is codified in Probate, Estates and Fiduciary Code (PEFC). Id~. The PEFC does not authorize punitive damages against a malfeasant trustee. Id~. In reaching its holding, the Third Circuit looked to Freedman Estate, 1 Fiduc. Rptr. 2d 60 (Allegheny 1980)(en banc). In Freedman, certain trust beneficiaries sought punitive damages against their trustee for willful breach of fiduciary duties and misrepresentation. The court noted that Orphans' Court is "a court of equity governed in minute detail by the PEFC." 1 Fiduc. Rptr. 2d at 67. In holding that punitive damages were not available, the court stated: Nowhere in the PEFC is it provided that a willfully, reckless fiduciary is also subject to exemplary damages although such a fiduciary might be required to pay for actual losses, counsel fees for the objectors and litigation costs. He may also be barred from other compensation. But none of these remedies which have accrued over hundreds of years of practice may be called punitive damages .... The objection to punitive damages is sustained and such allegation will be stricken from the complaint. Id. at 68. We find the holding of the Allegheny County Court to be persuasive and, accordingly, will grant the preliminary objection to punitive damages. D. The petitioners have stated claims against individual respondents Gority and Stauffer. 7 NO. 21-04-087 The petitioners allege two counts of"aiding and abetting" a breach of fiduciary duty against respondents, David Gority and Curt Stauffer. As the respondents observe, this is a surcharge action against an institutional fiduciary. Messrs. Gority and Stauffer were employed at M & T when they committed the acts complained of. There is logical appeal to the respondents' argument that a fiduciary cannot "aid and abet" itself. We agree with the petitioners that the situation at bar is analogous to an allegation of respondeat superior liability in which the agent would be liable as well as the principal. This type of liability, however, is generally seen in tort cases and in certain types of contract actions. See B& L Asphalt Industries v. Fusco, 753 A.2d 264 (Pa. Super. 2000). Neither party has cited any authority supporting a direct claim in Orphans' Court against the employees of an institutional fiduciary. For the purpose of their argument, however, the respondents take for granted Mr. Gority and Mr. Stauffer "did not take any individual action in relation to the trusts; rather all their actions were done in their capacity as employees ofM & T." (Respondents' Brief, p. 9) This matter is before the court on preliminary objections. At this early stage of the proceedings, the precise nature of the role played by the individual respondents is simply not known. Although the respondents' arguments on the matter of individual liability are, on their faces, persuasive, we do not believe the record has been sufficiently developed as to dismiss the individual respondents from the case at this time. It is well established that where preliminary objections would result in the dismissal of a cause of action, they should be sustained only where the right to such relief is clear and free from doubt. PJS v. Penna. State Ethics Com'n, 669 A.2d 1105 (Pa. Cmmw. 1996). NO. 21-04-087 ORDER AND NOW, this 18th day of June, 2004, the preliminary objection of the respondents to a demand for specific damages is SUSTAINED, the court noting, however, that a viable claim for damages remains. The respondents' preliminary objection to the request for punitive damages is SUSTAINED and said claim is STRICKEN. The remaining preliminary objections of the respondents are DENIED. BY THE COURT, Keith O. Brenneman, Esquire William F. Martson, Esquire For the Petitioners Mark D. Bradshaw, Esquire For the Respondents :rlm Kevin A. Hess, J. 9 JOSEPH D. BRENNER, SR., JOSEPH D. BRENNER, JR. and MARGARET B. BUSHEY, Petitioners VS. MANUFACTURERS AND TRADERS TRUST COMPANY, a New York Corporation, DAVID C. GORITY, and Individual, and CURT R. STAUFFER, an Individual, Respondents IN THE COURT OF COMMON PLEAS OF CUMBERLAND COUNTY, PENNSYLVANIA ORPHANS' COURT DIVISION NO. 21-04-087 IN RE: PRELIMINARY OBJECTIONS OF THE RESPONDENTS BEFORE HESS. J. ORDER AND NOW, this 18th day of June, 2004, the preliminary objection of the respondents to a demand for specific damages is SUSTAINED, the court noting, however, that a viable claim for damages remains. The respondents' preliminary objection to the request for punitive damages is SUSTAINED and said claim is STRICKEN. The remaining preliminary objections of the respondents are DENIED. BY THE COURT, Keith O. Brenneman, Esquire William F. Martson, Esquire For the Petitioners Mark D. Bradshaw, Esquire For the Respondents Kevin A. Hess, J.