The Thomas D. Philipsborn Irrevocable Trust dated July 10, 2005 v. Avon Capital, et al.
Filing
119
MEMORANDUM OPINION AND ORDER Signed by the Honorable Harry D. Leinenweber on 11/18/2013: For the reasons stated herein, Third-Party Defendant Financial Life Services, LLCs Motion to Dismiss for Lack of Jurisdiction [ECF No. 97] is denied. Fourth-Party Defendants Thomas Philipsborn and Andrew Philipsborns Motion to Dismiss for Failure to State Claim [ECF No. 109] is denied. Status hearing set for 12/11/2013 at 09:00 AM.Mailed notice(wp, )
IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF ILLINOIS
EASTERN DIVISION
THE THOMAS D. PHILIPSBORN
IRREVOCABLE INSURANCE TRUST,
dated July 10, 2005, and ANDREW
I. PHILIPSBORN, as Trustee on
Behalf of THE THOMAS D.
PHILIPSBORN IRREVOCABLE
INSURANCE TRUST, dated July 10,
2005,
Plaintiffs,
v.
AVON CAPITAL, LLC and DONALD
TRUDEAU, BENISTAR, LTD., and
BENISTAR ADMIN SERVICES, INC.,
Defendants.
and
AVON CAPITAL, LLC.
Third-Party Plaintiff,
v.
FINANCIAL LIFE SERVICES, LLC,
Third-Party Defendant.
and
FINANCIAL LIFE SERVICES, LLC,
Fourth-Party Plaintiff,
v.
AVON CAPITAL, LLC, THOMAS
PHILIPSBORN and ANDREW
PHILIPSBORN,
Fourth-Party Defendants.
Case No. 11 C 3274
Hon. Harry D. Leinenweber
MEMORANDUM OPINION AND ORDER
Before the Court are two Motions to Dismiss, one brought by the
Third-Party Defendant Financial Life Services (“FLS”) and one brought
by Thomas and Andrew Philipsborn (“the Philipsborns”), as FourthParty Defendants in opposition to the Fourth-Party Complaint.
For
the reasons stated herein, the Motions are denied.
I.
BACKGROUND
The factual background of this case is detailed in the Court’s
prior rulings, dated October 31, 2011 and October 1, 2012, and will
not be repeated in full.
originally
Philipsborn
as
a
See, ECF Nos. 24, 63.
contract
Irrevocable
Capital, LLC (“Avon”).
dispute
Trust
(“the
between
Trust”)
This case was filed
Plaintiff
and
Thomas
Defendant
D.
Avon
Avon filed a Third-party Complaint against
Financial Life Services, LLC (“FLS”) alleging that FLS was liable to
Avon under the contract.
FLS brought a Fourth-Party Complaint
against Andrew Philipsborn, Thomas Philipsborn, and Avon.
In the first Motion, FLS challenges this Court’s subject matter
jurisdiction on the ground that the Trust is not a legal entity, and
thus it has no capacity to sue or be sued.
Plaintiff agrees that the
Trustee is the proper party to bring the suit, and thus Andrew
Philipsborn (“the Trustee”), as trustee of the Trust, seeks to join
as plaintiff under Federal Rule of Civil Procedure 17. FLS, however,
asserts that because the Trust is incapable of bringing suit, the
Court did not have subject-matter jurisdiction when it issued its
- 2 -
prior rulings.
If that is the case, this Court would be required to
vacate those rulings.
In
the
second
Motion,
the
Philipsborns
seek
Counts II, III, and IV of FLS’s Fourth-Party Complaint.
to
dismiss
FLS has sued
for damages related to their contract for sale of a life insurance
policy.
The Philipsborns protest that FLS seeks to hold them
accountable for another party’s conduct:
Avon’s breach of the
contract between Avon and FLS.
II.
A.
ANALYSIS
Jurisdiction
As part of the “irreducible constitutional minimum of standing,”
the Plaintiff must have suffered an injury-in-fact which is concrete
and particularized.
560 (1992).
Lujan v. Defenders of Wildlife, 504 U.S. 555,
The injury requirement is satisfied only if the party
seeking review is itself among the injured.
405 U.S. 727, 734 (1972).
Sierra Club v. Morton,
The party invoking federal jurisdiction
bears the burden of establishing standing.
FLS’s Motion raises two questions:
Lujan, 504 U.S. at 561.
(1) whether a trust is
capable of suffering an injury sufficient to meet the requirements of
Article III, and (2) whether the Trust suffered an injury that would
sustain this Court’s jurisdiction over the prior motions. This Court
is not aware of any case that has analyzed whether a trust recognized
under state law – a mere collection of property – has the capacity to
suffer an injury-in-fact.
When a case is brought inadvertently by a
trust instead of the trustee, the usual practice is for the court to
- 3 -
dismiss the case and allow an amended pleading to reflect that the
trustee has joined the suit, thereby resolving any standing issues
before anything substantial happens in the case.
See, e.g., Estate
of Migliaccio v. Midland Nat’l Life Ins. Co., 436 F.Supp.2d 1095,
1100 (C.D. Cal. 2006) (dismissing case brought by trust but granting
leave to re-file with proper party named).
In this case however,
this issue was not raised until after the parties had litigated for
more than two years and the Court had issued several rulings.
The
standing issue calls those rulings into question.
To analyze a trust’s capacity to suffer an injury, this Court
must first address underlying principles of trust law.
The word
“trust” can carry different meanings in different situations, but it
refers generally to “a fiduciary relationship in which one person
holds a property interest, subject to an equitable obligation to keep
or use that interest for the benefit of another.”
Bogert’s Trusts
and Estates, Ch. 1 § 1; see also, Restatement (Third) of Trusts § 2
(2003).
A trust relationship requires trust property, or res.
Sometimes the words “trust” or “trust estate” refer specifically to
the
property,
and
sometimes
“trust”
can
refer
to
the
set
relationships between property, trustees, and beneficiaries.
of
See,
Hanson v. Birmingham, 92 F.Supp. 33, 41 (N.D. Iowa 1950) (noting
confusion over use of the term “trust”).
As a general principle, “a trust is not a juristic person and
the trustee is the only party entitled to bring suit” on behalf of
the trust.
Lazenby v. Codman, 116 F.2d 607, 609 (2d Cir. 1940).
- 4 -
For
example, courts have explained that “[h]istorically, a trust estate
was not a juridical entity, hence the observation that a suit by
strangers to the trust must be brought against the trustees thereof
individually and not against the fictional entity.”
First Union
Nat’l Bank ex rel. Se. Timber Leasing Statutory Trust v. Pictet
Overseas Trust Corp., Ltd., 351 F.3d 810, 814 (8th Cir. 2003)
(quotation omitted).
Federal courts follow this doctrine by holding
that
be
lawsuits
must
brought
in
the
name
of
the
trustee,
administrator, or executor because trusts are not the “real party in
interest.”
See, Estate of Migliaccio, 436 F.Supp.2d at 1100; FED. R.
CIV. P. 17(a)(1). But just because a trust is not a juridicial entity
– and thus not the real party in interest – does not mean that a
trust is not an entity at all, and that it is incapable of suffering
an injury.
The Federal Rules of Civil Procedure do not answer
whether Article III permits a federal court to hear a suit brought by
a trust.
The Supreme Court has explained that even though a trust is “an
abstraction,” it is “sometimes dealt with as though it had a separate
existence.”
Greenough v. Tax Assessors of City of Newport, 331 U.S.
486, 493 (1947).
When it comes to taxes, a trust is a separate
entity because “Congress has seen fit so to deal with the trust.”
Id. at 493-94.
Trusts can lose money or have losses attributed to
them for tax purposes – the sorts of injuries that one would go to
federal court to correct, if necessary. See, Anderson v. Wilson, 289
U.S. 20, 26-27 (1933).
- 5 -
Trusts are treated similarly in the ERISA context.
ERISA
provides that “[a]n employee benefit plan may sue and be sued under
this subchapter as an entity.”
29 U.S.C. § 1132(d)(1).
A benefit
plan is defined as a plan that “provides medical care . . . directly
or through insurance, reimbursement, or otherwise.”
§ 1191b(a)(1).
29 U.S.C.
The Supreme Court clarified that an ERISA “plan” is
“a set of rules that define the rights of a beneficiary and provide
for their enforcement,” including fiduciary obligations for plan
administrators.
Pegram v. Herdrich, 530 U.S. 211, 223 (2000).
Like
an ERISA benefit plan with its beneficiaries, administrators, and
benefit providers, a trust involves a set of obligations between
other entities:
the trustees, property, and beneficiaries.
benefit plan can be sued in federal court:
A
under ERISA, “a money
judgment against a plan ‘shall be enforceable only against the plan
as an entity.’”
Larson v. United Healthcare Ins. Co., 723 F.3d 905
(7th Cir. 2013) (quoting 29 U.S.C. § 1132(d)(2)).
At least in the tax and ERISA contexts, trusts (or similar
entities) can maintain suits in federal court, which means they must
be capable of suffering injuries and establishing standing.
This
Court sees no reason why Article III would require the Court to
distinguish state law trusts.
Thus, a trust recognized by state law
can suffer an injury-in-fact.
In this case, the trust has alleged sufficiently that it was
injured when contractual obligations related to the property held in
trust were unfulfilled. So, when the Court issued its prior rulings,
- 6 -
the Court’s exercise of jurisdiction over the parties did not violate
Article III.
The problem remains that, under Rule 17, this case must be
brought by the Trustee. Andrew Philipsborn, as Trustee of the Thomas
D. Philipsborn Irrevocable Insurance Trust, has ratified all actions
taken
in
this
case
in
the
name
of
the
Trust,
authorized
the
continuation of the action, and agreed to be bound by the lawsuit’s
results.
Aff. of Andrew Philipsborn, ECF No. 103-2.
Philipsborn is hereby substituted as Plaintiff.
Trustee Andrew
Thus, this action
“proceeds as if it had been originally commenced by the real party in
interest.”
FED. R. CIV. P. 17(a)(3).
The Court sees fit to note additionally that precedent supports
the idea that a complaint can be amended to name the proper party and
that a court need not nullify all prior filings and rulings to allow
the amendment. In Levinson v. Deupree, 345 U.S. 648, 649 (1953), the
plaintiff was the putative administrator of an estate and sought to
recover damages for the decedent’s wrongful death.
In fact, the
administrator’s appointment was void, and the administrator lacked
capacity to sue on behalf of the estate.
The administrator fixed the
appointment problem, but ran up against the statute of limitations
because of the delay.
The Supreme Court allowed the plaintiff to
amend the libel to fix the prior ineffective appointment so that the
suit could be maintained, even in the face of technical nonconformity
at the beginning of the suit.
Id. at 652.
- 7 -
Levinson stands for the idea that justice is better served by
replacing the real party in interest rather than dismissing a case.
Indeed,
this
“salutary
principle,”
designed
forfeiture, serves as the basis of Rule 17.
Advisory Committee’s Note.
to
protect
against
FED. R. CIV. P. 17
At the same time, the rule protects the
defendant against subsequent actions by the party actually entitled
to recover and ensures that the judgment will have its proper effect
as res judicata.
Id.
This approach – allowing the Trust to amend the case name to
include the Trustee but not dismissing and vacating for lack of
standing – is harmonious with the approach taken by at least one
other federal court.
In Estate of Migliaccio v. Midland Nat’l Life
Ins. Co., 436 F.Supp.2d 1095, 1100 (C.D. Cal. 2006), the court faced
this issue and explained that “an estate or trust is not a legal
entity and has no capacity to sue.”
However, the court perceived no
standing problem, and granted leave to amend.
Id.
Since the proper party has been substituted pursuant to Rule 17,
the Motion to Dismiss for Lack of Jurisdiction is denied.
B.
Sufficiency of the Fourth-Party Complaint
A complaint must provide a short and plain statement of the
claim showing that the plaintiff is entitled to relief.
P. 8(a)(2).
FED. R. CIV.
Detailed factual allegations are not required, but a
formulaic recitation of the elements of a cause of action will not
do.
Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007).
The
complaint must “plead[] factual content that allows the court to draw
- 8 -
the
reasonable
inference
misconduct alleged.”
that
the
defendant is
liable
for
the
Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009).
The Court construes a complaint in the light most favorable to the
plaintiff and accepts all well-pled facts as true.
Justice v. Town
of Cicero, 577 F.3d 768, 771 (7th Cir. 2009).
The Philipsborns move to dismiss Counts II, III, and IV.
The
crux of those Counts seems to be that FLS suffered damages as a
result of its agreement with Avon, which it would not have entered
had it not been for the fraudulent statements and breach of contract
by the Philipsborns.
The Philipsborns insist that there exist no
circumstances under which they would have any liability to FLS.
For
example, Andrew Philipsborn moves to dismiss Count II and asserts
that FLS is trying to impute onto him duties arising from FLS’s
contract with Avon.
However, as the Fourth-Party Complaint makes
clear, FLS asserts claims against Andrew Philipsborn that arise from
his contract with FLS, not any separate contract.
Indeed, the
Fourth-Party Complaint identifies six provisions of the agreement
between FLS and Andrew Philipsborn that he allegedly violated.
Factual issues – such as what obligations were created under the
agreement, the extent of performance, and damages caused by breach –
cannot be resolved at the pleading stage. This Court cannot say that
FLS will be unable to recover from the Philipsborns.
Andrew Philipsborn moves to dismiss Count II for another reason:
it alleges that he is liable personally for breach of contract, but
because the contract was on behalf of the Trust, the Trustee can be
- 9 -
liable only
in
his
capacity as
Trustee.
Under
“well-settled”
Illinois law, a trustee “is personally liable for his actions the
same as though he were an individual.” Piff v. Berresheim, 92 N.E.2d
113,
116
(Ill.
1950).
contract
recognizes
exempts
the
an
trustee
exception
from
for
situations
where
liability.
Miller v. Racine Trust, 382 N.E.2d 41, 48 (Ill. Ct. App.
1978).
a
Illinois
personal
Andrew Philipsborn’s reliance on Miller is misplaced because
it is not clear that the exception applies in this case – whether it
does apply is a factual question not properly resolved at the
pleading stage.
The Philipsborns also challenge Claims III and IV, the claims
based on promissory estoppel and fraud. At the pleading stage, there
is no conflict between a contract claim and a promissory estoppel
claim, or between a fraud claim a contract claim.
A party may plead
entitlement to both contract and non-contract damages, so that the
Court can award non-contract damages if no contract was formed. Dowd
& Dowd, Ltd. v. Gleason, 693 N.E.2d 358, 371 (Ill. 1998) (“A
plaintiff may plead and prove multiple causes of action, though it
may obtain only one recovery for an injury.”).
Thomas Philipsborn’s
principal challenge to this section amounts to a denial of the
charges, which does not justify dismissal for failure to state a
claim.
The Fourth-Party Complaint requests that the Court award FLS its
costs and expenses.
shifting provision
The Philipsborns argue that, under the feein
the
written
- 10 -
agreement, FLS would
not be
entitled to costs and expenses incurred when prosecuting this action.
FLS asserts that the fee provision awards costs and expenses to the
prevailing party in litigation, regardless of whether that party was
involved as plaintiff or defendant. The Court declines to reach this
contract interpretation issue at this time; it will do so only if
necessary in the context of the litigation, and as of yet there is no
“prevailing party” claiming entitlement to the fees.
The Motion to
Dismiss that prayer for relief is denied.
III.
CONCLUSION
For the reasons stated herein, Third-Party Defendant Financial
Life Services, LLC’s Motion to Dismiss for Lack of Jurisdiction [ECF
No. 97] is denied.
Fourth-Party Defendants Thomas Philipsborn and
Andrew Philipsborn’s Motion to Dismiss for Failure to State Claim
[ECF No. 109] is denied.
IT IS SO ORDERED.
Harry D. Leinenweber, Judge
United States District Court
DATE:11/18/2013
- 11 -
Disclaimer: Justia Dockets & Filings provides public litigation records from the federal appellate and district courts. These filings and docket sheets should not be considered findings of fact or liability, nor do they necessarily reflect the view of Justia.
Why Is My Information Online?