J.P. Morgan Securities LLC et al v. Black et al
Filing
197
MEMORANDUM Opinion and Order Signed by the Honorable Andrea R. Wood on 9/29/2021. Mailed notice (dal, )
IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF ILLINOIS
EASTERN DIVISION
JPMORGAN CHASE BANK, NATIONAL
ASSOCIATION, et al.,
Plaintiffs-in-Interpleader,
v.
BERNARD S. BLACK, et al.,
Defendants-in-Interpleader.
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No. 18-cv-03447
Judge Andrea R. Wood
MEMORANDUM OPINION AND ORDER
In this interpleader action brought pursuant to 28 U.S.C. § 1335, Plaintiffs JPMorgan
Chase Bank, National Association, and J.P. Morgan Securities LLC (collectively, “JPMorgan”)
hold several million dollars in assets originating from Renata Black (“Renata”), who passed away
in 2012. Those assets are subject to conflicting claims by the seven named Defendants, who
include Renata’s son, Defendant Bernard Black (“Bernard”), her daughter, Defendant Joanne
Black (“Joanne”), and Bernard’s son, Defendant Samuel Black (“Samuel”). 1 The conflicting
claims have led to extensive, highly-contentious litigation over the assets in multiple jurisdictions
and have resulted in numerous court judgments and arbitration awards. The present Memorandum
Opinion disposes of several motions and requests for relief pending before this Court.
BACKGROUND
This case concerns several million dollars in assets that JPMorgan holds in bank and
brokerage accounts. (Compl. ¶ 1, Dkt. No. 1.) The assets came from Renata, who is Bernard and
Joanne’s mother. (Id. ¶ 2.) Before her death in 2012, Renata established two trusts with
This case involves several members of the Black family, to whom the Court refers by their first names to
distinguish them.
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JPMorgan. (Id.) Bernard and his children are the beneficiaries of the Issue Trust (“IT”), and
Joanne, who is disabled, is the beneficiary of the Supplemental Needs Trust (“SNT,” collectively
“Trusts”). (Id. ¶¶ 2, 5–6.) At the time JPMorgan filed the Complaint, Bernard, his son Samuel, and
Joanne’s cousin Anthony Dain were co-trustees of the SNT, and Bernard and Samuel were cotrustees of the IT. (Id. ¶¶ 5–6.) When Renata died, Bernard was appointed as the executor of her
estate. (Id. ¶ 28.) Renata died with about $3.5 million in her brokerage accounts. (Id. ¶ 29.) Her
will provided that one-third of her estate would go to the IT and two-thirds would go to the SNT.
(Id. ¶ 28.) Unbeknownst to Defendants, however, Renata had executed payable-on-death (“POD”)
beneficiary designations on her brokerage accounts directing that almost all the funds in the
accounts be passed directly to Joanne, bypassing the Trusts. (Id. ¶ 29.)
Since Renata’s death, there has been extensive litigation over the ownership of the
disputed funds in Colorado, Illinois, and New York. (Id. ¶ 3.) For convenience, the seven
Defendants in this interpleader suit can be classified as belonging to three competing groups. (Id.
¶ 4.) The first group consists of Joanne, Dain, and Jeanette Goodwin (Joanne’s conservator, as
appointed by the Denver Probate Court). (Id. ¶ 5.) The second group consists of Bernard and
Samuel. (Id. ¶ 6.) The third group consists of Kate Litvak, who is Bernard’s wife, and Dal, who is
Litvak’s cousin. (Id. ¶ 7.) Through litigation in various forums, these groups have obtained orders
from state courts and arbitration panels that present JPMorgan with conflicting duties. (Id. ¶ 8.)
JPMorgan sought joint instructions from Defendants but they have been unable to agree on how
the conflicts should be resolved. (Id. ¶ 12.) The procedural history of the various lawsuits and
arbitrations, as alleged in the Complaint, is as follows.
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I.
Colorado State Court Proceedings
Joanne was living in Colorado when Renata died in 2012. (Id. ¶ 30.) When Bernard
learned of the POD designations, he successfully petitioned the Denver Probate Court (“DPC”) to
appoint him as Joanne’s conservator. (Id.) As conservator, Bernard disclaimed the POD assets on
Joanne’s behalf and directed the deposit of about $1.5 million from Renata’s estate into the IT and
about $2 million into the SNT. (Id.) Those assets (“Interpleaded Assets”), which initially totaled
about $3.5 million, constitute the disputed property that is the subject of this action. (Id.)
In September 2015, the DPC found that Bernard had breached his fiduciary duty and
committed civil theft by depositing $1.5 million of the POD assets into the IT for the benefit of
himself and his children. (Id. ¶ 31.) The court surcharged him approximately $1.5 million and
assessed treble damages of approximately $4.5 million. (Id.) Nonetheless, the DPC did not reverse
Bernard’s actions; the funds he deposited into the IT remain there. (Id.)
After finding Bernard liable for surcharges and damages, the DPC appointed Goodwin as
Joanne’s new conservator and authorized Dain to act as the sole trustee of the SNT. (Id. ¶ 32.)
Bernard, meanwhile, appealed the DPC’s orders that assessed surcharges and damages against
him. (Id. ¶ 33.) In January 2018, the Colorado Court of Appeals affirmed the DPC’s assessment of
surcharges and damages against Bernard in Black v. Black (“Black I”), 422 P.3d 592 (Colo. App.
2018). It also affirmed the DPC’s decision not to reverse Bernard’s disclaimer of the POD assets.
(Id.)
In February 2016, the DPC ordered that Dain could use SNT funds to pay professional fees
owed by Joanne for litigation matters between her and Bernard and Samuel. Bernard appealed that
order as well, contending that the DPC did not have jurisdiction over the SNT’s assets. A division
of the Colorado Court of Appeals concluded that, although “the [DPC] has subject matter
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jurisdiction over the administration of the conservatorship,” the DPC erred by failing to make
factual findings regarding jurisdiction, which prevented the appellate court from determining
whether the DPC had jurisdiction over Bernard, Samuel, and the SNT. Black v. Black (“Black II”),
16CA0625, 2018 WL 549917, ¶¶ 22, 27–31 (Colo. App. Jan. 25, 2018). 2 Because the DPC could
not authorize distributions from the SNT without first making express findings establishing its in
rem jurisdiction over the SNT’s funds, the DPC’s February 2016 order was vacated and the case
remanded so that the DPC could make jurisdictional determinations. Id. ¶¶ 32–33.
The DPC entered further orders. In January 2018, the DPC suspended Bernard and Samuel
as trustees from all trusts benefitting Joanne, ruled that Bernard and Samuel were not allowed to
act in regard to the Trusts’ assets, and authorized Dain to use SNT funds to pay Joanne’s
professional fee expenses. See Black v. Black (“Black III”), 482 P.3d 460, 471 (2020). Then, in
April 2018, the DPC made jurisdictional findings that (1) it held continuing in rem jurisdiction
over the POD assets, which it determined had been wrongly transferred out of the conservatorship
by Bernard, and (2) it had personal jurisdiction over Bernard because he presented himself to the
DPC as a trustee, thereby invoking its jurisdiction (and waiving his objections thereto). See id. at
471–72. The DPC also concluded that it had jurisdiction over Samuel because it retained
jurisdiction over conservatorship funds belonging to Joanne and because of Samuel’s fiduciary
breaches. See id. at 472. The DPC vacated its March 2013 order authorizing Bernard to disclaim
the POD assets—the process by which those assets were routed to the SNT and IT—and ordered
Bernard to pay those funds back into the court’s registry. See id.
The Black II opinion is unpublished and the version cited here does not contain the text of the opinion;
the cited paragraphs were referenced in a subsequent opinion of the Colorado Court of Appeals. See Black
v. Black, 482 P.3d 460, 470 (2020).
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Bernard and Samuel again appealed on several grounds, including (as relevant here) the
DPC’s jurisdiction over them and the Trusts, whether it properly voided the POD disclaimers, its
authorization for Dain to use SNT assets to pay Joanne’s professional fees, and its suspension of
Bernard and Samuel as SNT trustees. 3 Id. The Colorado Court of Appeals agreed that the DPC
lacked authority to void the POD disclaimers because it entered its order while Black I was
pending review before the Colorado Supreme Court, divesting the DPC of jurisdiction at the time
it entered its order. Id. The appellate court also reversed the DPC’s decision to suspend Samuel as
a trustee of the SNT, determining that the DPC failed to respect Samuel’s due process rights by
discharging him as a trustee of the SNT without giving him notice of that proceeding. Id.
The appellate court otherwise affirmed the DPC’s orders. Specifically, the appellate court
held that the DPC had in rem jurisdiction over the Trusts because the POD assets were wrongfully
diverted from the conservatorship. Id. at 474. Likewise, the DPC had personal jurisdiction over
Bernard because he submitted to the DPC’s jurisdiction and also because he accepted appointment
as Joanne’s conservator. Id. at 475–80. The DPC also had authority to authorize distributions from
the SNT to pay Joanne’s professional fees because those funds “were at all times assets of
Joanne’s conservatorship.” Id. at 482. Finally, according to the appellate court, the DPC did not
err in suspending Bernard as a trustee of the SNT, finding that Bernard’s actions to deprive Joanne
of her inheritance and violations of DPC orders constituted an emergency warranting Bernard’s
suspension as trustee “to protect the conservatorship’s assets.” Id. at 483–84. The Colorado
Supreme Court subsequently denied certiorari on an appeal of Black III. In re Black, No.
20SC554, 2021 WL 1030354 (Colo. Mar. 15, 2021).
There is a third trust at issue in some of the cases discussed here: the “2013 Trust,” which Bernard
created to receive Joanne’s workers’ compensation benefits and Social Security disability insurance
benefits. Black III, 482 P.3d at 483–84. That trust is not at issue in the litigation before this Court.
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Proceedings remain ongoing before the DPC. On April 17, 2021, the DPC ordered the
parties to schedule a hearing regarding whether the disclaimers should be voided and to address
other issues following the Black III decision. (Defs.’ Joint Status Report at 1, Dkt. No. 183.) In
those proceedings, Bernard has contended that any further action by the DPC requires (1) a
motion under Colorado civil procedure to reopen past decisions regarding the disclaimed funds,
and (2) permission from this Court to allow an action involving withdrawal of the Interpleaded
Assets to proceed. (Id. at 1–2.) Joanne also reminded the DPC of this Court’s orders preventing
withdrawals or transfers of the Interpleaded Assets without its permission. (Id. at 2.) On May 10,
2021, the DPC ordered Joanne to file motions regarding whether the disclaimers should be voided
and how to dispose of the other issues that Joanne had identified, including exercising in rem
jurisdiction over the POD assets, suspending Bernard and Samuel as trustees of all of the trusts
(the IT, SNT, and 2013 Trust), and pursuing tort liability against Samuel. (Id.)
II.
Other Proceedings
Dal previously sued Bernard and Samuel in the Circuit Court of Cook County alleging
that, as trustees of the Trusts, they owed her about $342,538 for funds she advanced to the Trusts
pursuant to a promissory note. 4 (Compl. ¶ 42.) The Illinois state court entered an agreed judgment,
with Bernard’s and Samuel’s consent, in the amount of $348,936 in October 2017. (Id. ¶ 43.)
Based on that agreed judgment, Dal sent out citations to discover assets and the Illinois state court
imposed liens of about $697,873 on the Trusts’ accounts. (Id. ¶ 44.) The liens are still in effect.
(Id.) In November 2017, Dain moved to vacate the agreed judgment and quash the citations, and
Goodwin intervened to join Dain’s motion. (Id. ¶ 45.) But the judgment was upheld on appeal and
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Dal also sought repayment from the 2013 Trust. (Compl., Ex. 9, Dal Agreed Judgment, Dkt. No. 1-9.)
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is now final. Dal v. Black, 2020 IL App (1st) 191348-U, ¶¶ 32–65 (Ill. App. Ct. 2020). The liens
in Dal’s case conflict with the DPC’s orders. 5
The same month that Dal filed her claims in Illinois state court, Goodwin—acting as
Joanne’s conservator—petitioned the Circuit Court of Cook County to register the foreign
judgment against Black from the DPC. (Compl. ¶ 48.) In February 2018, Goodwin served
citations to discover assets against Bernard, resulting in the imposition of liens in the amount of
$8,611,639.38 on accounts associated with Bernard, including some of the Trusts’ accounts. (Id.
¶¶ 49, 51.) Bernard has moved to vacate the registration of the Colorado judgment in Illinois state
court. (Id. ¶ 50.) Nonetheless, Bernard consented to the entry of an agreed order that froze all of
the accounts at issue until further order of the court. (Id. ¶ 52.)
Bernard and Samuel also filed two demands for arbitration against JPMorgan for
conversion, breach of fiduciary duty, and breach of contract before the Financial Industry
Regulatory Authority (“FINRA”). (Id. ¶¶ 53–54.) A panel of arbitrators held an evidentiary
hearing in February 2018 and issued an arbitration award the following month. (Id. ¶ 55.) That
award dismissed all of Bernard and Samuel’s claims. (Id. ¶ 55.) It also froze all of the Trusts’
funds, with exceptions for some personal needs of Joanne and of Bernard’s children, until a final
order directing otherwise is issued by the Colorado courts or the trustees all agree to unfreeze the
funds. (Compl., Ex. 2, FINRA Arbitration Award at 6–7, Dkt. No. 1-2.)
III.
Proceedings Before this Court
In April 2018, Bernard and Samuel’s counsel sent JPMorgan a letter stating that they
would hold it responsible if it took any action toward the SNT’s accounts, including implementing
orders from the DPC. (Compl. ¶ 59.) On May 1, 2018, JPMorgan sought joint instructions from all
Litvak also pursued an agreed judgment against Bernard and Samuel as trustees, but that judgment was
vacated as a product of fraud. Litvak v. Black, 147 N.E.3d 835 (Ill. App. Ct. 2019).
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parties on how to proceed. (Id. ¶ 61.) But the parties were unable to agree. (Id. ¶ 12.) JPMorgan
then filed this interpleader suit, seeking to resolve the risk of conflicting liabilities and multiple
litigation.
In its Complaint, JPMorgan asks this Court to order Defendants to interplead and resolve
their respective legal rights to the Interpleaded Assets in this Court, to restrain Defendants from
using other forums to affect the Interpleaded Assets, and to dismiss JPMorgan from the case and
discharge it from liability. Defendants have appeared and filed crossclaims and counterclaims,
which are not at issue in the pending motions. (Dkt. Nos. 19, 32.) In August 2018, the Court
allowed JPMorgan to post a $4.2 million bond instead of depositing the disputed assets with the
Court. (Dkt. No. 37.) In May 2019, the Court waived the requirement for JPMorgan to renew that
bond. (Dkt. No. 68.) The Court also forbade JPMorgan from allowing withdrawals from the
Interpleaded Assets or following instructions about the Interpleaded Assets from any person
without the Court’s approval and all parties from using litigation in other forums to effect a
turnover or withdrawal of the Interpleaded Assets. (Dkt. No. 69.)
DISCUSSION
I.
Subject-Matter Jurisdiction
The Court first turns to the threshold issue of subject-matter jurisdiction. Dain and
Goodwin move to dismiss this interpleader action pursuant to Federal Rule of Civil Procedure
12(b)(1) for lack of subject-matter jurisdiction. (Dkt. No. 160.) They contend that this Court
cannot dispose of the Interpleaded Assets because the DPC has already taken in rem jurisdiction
over those assets.
Under Rule 12(b)(1), a party may make either a factual or facial challenge to subjectmatter jurisdiction. Silha v. ACT, Inc., 807 F.3d 169, 173 (7th Cir. 2015). A facial challenge
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requires “only that the court look to the complaint and see if the plaintiff has sufficiently alleged a
basis of subject matter jurisdiction.” Apex Digit., Inc. v. Sears, Roebuck & Co., 572 F.3d 440, 443
(7th Cir. 2009). By contrast, “a factual challenge lies where the complaint is formally sufficient
but the contention is that there is in fact no subject matter jurisdiction.” Id. at 444 (internal
quotation marks omitted). Where, as here, a defendant mounts a factual challenge, “the court may
look beyond the pleadings and view any evidence submitted to determine if subject matter
jurisdiction exists.” Silha, 807 F.3d at 173. Ultimately, the proponent of jurisdiction bears the
burden of proving by a preponderance of the evidence that jurisdiction exists. NLFC, Inc. v.
Devcom Mid-Am., Inc., 45 F.3d 231, 237 (7th Cir. 1995).
A.
Elements of Statutory Interpleader
As an initial matter, JPMorgan has properly pleaded the jurisdictional requirements for an
interpleader action and Defendants have not challenged the factual accuracy of those allegations.
Pursuant to 28 U.S.C. § 1335(a), district courts have original jurisdiction over interpleader cases
in which the stakeholder possesses money or property worth $500 or more if two conditions are
met. 6 The first condition is that there are least two claimants who have adverse claims to the
money or property and are of diverse citizenship. Id. § 1335(a)(1). Those claims must create a
“real and reasonable fear of double liability or conflicting claims” for the stakeholder. Aaron v.
Mahl, 550 F.3d 659, 663 (7th Cir. 2008). The second condition is that the plaintiff must either
deposit the money or property with the district court registry or “give[] bond payable to the clerk
of the court in such amount and with such surety as the court or judge may deem proper,
conditioned upon the compliance by the plaintiff with the future order or judgment of the court
Filing an interpleader case pursuant to these statutes is known as “statutory interpleader.” Federal Rule of
Civil Procedure 22 also authorizes the filing of interpleader cases; such actions are known as “rule
interpleader.” Here, no party has raised any issue concerning rule interpleader.
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with respect to the subject matter of the controversy.” 28 U.S.C. § 1335(a)(1). To effect its
purpose of protecting stakeholders from multiple liability or conflicting claims, the interpleader
statute must “be liberally construed.” State Farm Fire & Cas. Co. v. Tashire, 386 U.S. 523, 533
(1967) (liberally construing 28 U.S.C. § 1335 to conclude that a stakeholder need not wait for
claimants to obtain final judgments before initiating an interpleader action).
JPMorgan has established the prerequisites for subject-matter jurisdiction. It has pleaded
that the property at issue is worth several million dollars—far more than the $500 required.
Defendants’ answers confirm the approximate value of the property, as do the state court orders
and arbitration award attached to JPMorgan’s Complaint. 7 (See Compl., Exs. 1–13, Dkt. Nos. 1-1–
1-13.) There are multiple Defendants who have adverse claims to the Interpleaded Assets and are
of diverse citizenship. Goodwin, Dain, and Joanne are citizens of Colorado, California, and New
York, respectively. They are adverse to Bernard, a citizen of Illinois; Samuel, a citizen of
Maryland; Litvak, a citizen of Illinois; and Dal, a citizen of Washington State. Therefore, there are
at least two diverse claimants with adverse claims. And the adverse claims have put JPMorgan in
reasonable fear of multiple liability. See Aaron, 550 F.3d at 663. JPMorgan does not need to show
which, if any, of the claims will be meritorious. See Union Cent. Life Ins. Co. v. Hamilton Steel
Prods., Inc., 448 F.2d 501, 503–04 (7th Cir. 1971). So far, the adverse claims have generated
conflicting orders from two state courts and one arbitration panel. That is more than sufficient to
show a reasonable fear of multiple liability.
By depositing a bond in accordance with this Court’s orders, JPMorgan satisfied the final
jurisdictional requirement of either depositing the disputed property or posting a bond. See 28
U.S.C. § 1335(a)(1). True, the Court later waived the requirement that JPMorgan renew the bond
The Court may take judicial notice of these state court orders and arbitration awards, which are matters of
public record. See Northfield Ins. Co. v. City of Waukegan, 701 F.3d 1124, 1128 n.2 (7th Cir. 2012).
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and did not order JPMorgan to deposit the disputed property. But the existence of subject-matter
jurisdiction over an interpleader action is determined at the outset of the case and is not disturbed
by subsequent events. See Walker v. Pritzker, 705 F.2d 942, 944 (7th Cir. 1983); Smith v. Widman
Trucking & Excavating, Inc., 627 F.2d 792, 798–99 (7th Cir. 1980).
B.
Prior Exclusive Jurisdiction Doctrine
Next, Dain and Goodwin contend that this case must be dismissed pursuant to the prior
exclusive jurisdiction doctrine, which holds that:
[If] two suits are in rem, or quasi in rem, so that the court . . . has possession or
must have control of the property which is the subject of the litigation in order to
proceed with the cause and grant the relief sought the jurisdiction of the one court
must yield to that of the other.
Princess Lida of Thurn & Taxis v. Thompson, 305 U.S. 456, 466 (1939). The court holding prior
jurisdiction need not “actually seiz[e]” the disputed property; it is enough that the earlier suit was
“brought to marshal assets, administer trusts, or liquidate estates, [or was a] suit[] of a similar
nature where, to give effect to its jurisdiction, the court must control the property.” Id. at 466. But
both suits must be in rem or quasi in rem for the doctrine to apply. See Hammer v. U.S. Dep’t of
Health & Hum. Servs., 905 F.3d 517, 536 (7th Cir. 2018).
The DPC has in rem jurisdiction over the Interpleaded Assets. 8 In Black III, the Colorado
Court of Appeals explained:
[A] probate court may exercise in rem jurisdiction over conservatorship property
that was transferred outside the state through its continuing jurisdiction over such
property . . . Bernard’s unilateral acts—seeking a Colorado conservatorship over
Joanne and then improperly transferring assets from the conservatorship to out-ofThe Black III decision affirmed the DPC’s conclusion that “all of the funds Bernard Black transferred
into the [Trusts] that are at issue in this action were sourced from the [POD] accounts naming Joanne
Black as the sole or primary beneficiary.” 482 P.3d at 474. The record indicates that almost all of Renata’s
estate consisted of the POD assets, but there were other assets that would have flowed to the IT and SNT,
such as her residual estate. Black I, 422 P.3d at 597. In any event, the Interpleaded Assets, as defined by
JPMorgan in the Complaint, consist entirely of the POD assets. (Compl. ¶ 30.)
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state trusts—did not convert the assets from conservatorship assets into assets of
the Trusts, or mean that those assets never touched Colorado.
482 P.3d at 474–75. Thus, the DPC continues to hold in rem jurisdiction over the Interpleaded
Assets, which are now held in accounts belonging to the Trusts.
JPMorgan asserts that the DPC lacks in rem jurisdiction because it does not have actual
control over the Interpleaded Assets, which are held by JPMorgan. It notes that the funds are held
in Illinois, outside of a Colorado probate court’s jurisdiction. But the Colorado Court of Appeals
rejected this argument, noting that the only reason the funds were located in Illinois was because
Bernard had deposited them there. Id. at 475. That court emphasized that finding otherwise
“would be absurd: it would immunize Bernard’s wrongful conduct from the probate court’s
oversight through a jurisdictional shield that his own actions created.” Id. JPMorgan likewise
asserts that the DPC lacks jurisdiction over the POD assets because it allowed Bernard to disclaim
them in 2012 and later declined to void that disclaimer in 2015. But this question has already been
resolved by Black III: the DPC has held continuing in rem jurisdiction over those assets from the
start. Id. at 474–75.
However, this Court’s jurisdiction is neither in rem nor quasi in rem. For one thing, the
United States Supreme Court has held that interpleader actions are in personam. See N.Y. Life Ins.
Co. v. Dunlevy, 241 U.S. 518, 521 (1916). The First Circuit recently reiterated that holding. See
Metro. Prop. & Cas. Ins. Co. v. Shan Trac, Inc., 324 F.3d 20, 25 (1st Cir. 2003) (“Interpleader
actions are in personam, not in rem, and cannot resolve the rights of non-parties to anything.”
(citation omitted)). And at least one other district court has rejected the argument that the Princess
Lida doctrine applies to statutory interpleader actions, observing that “[the] concern for the
stakeholder in an interpleader action is to avoid personal liability for an amount over and above
that of the fund in the stakeholder’s possession.” JPMorgan Chase Bank, N.A. v. Neu, No. 17-
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3475, 2017 WL 2290142, at *6 n.8 (D.N.J. May 24, 2017). Although some courts have found that
interpleader actions are in rem, that authority is not binding on this Court and is less persuasive.
See Gen. Atomic Co. v. Duke Power Co., 553 F.2d 53, 57 (10th Cir. 1977) (stating in dicta that
statutory interpleader “is an in rem or quasi in rem suit in its nature,” but ultimately finding no
subject-matter jurisdiction due to failure to meet statutory requirements, not on grounds of prior
exclusive jurisdiction); Cmty. State Bank v. Wilson, No. 4:18-CV-4078, 2019 WL 4647260, at *3
(W.D. Ark. Sept. 24, 2019) (concluding that statutory interpleader is in rem “[i]n the absence of
any argument to the contrary”). Dain and Goodwin also cite cases applying the prior exclusive
jurisdiction doctrine to interpleader actions under state law, but those cases do not address the
application of the doctrine to federal statutory interpleader. See Roland v. Hickman, 2:15-CV1133-JCM-VCF, 2016 WL 1183085 (D. Nev. Mar. 28, 2016); Brown v. Sperber-Porter, CV-1602801-PHX-SRB, 2018 WL 10196506 (D. Ariz. Aug. 2, 2018).
The United States Supreme Court has stated that Princess Lida applies to cases “where, to
give effect to its jurisdiction, the court must control the property.” 305 U.S. at 466. That language
seems to apply to statutory interpleader, where there is a statutory, jurisdictional requirement for
the plaintiff to deposit the stake with the Court to proceed. If the Court is not given the stake, or a
bond for such, the action fails. But this tension is mitigated by the Supreme Court’s directive to
construe the interpleader statute liberally. Tashire, 386 U.S. at 533. Construing statutory
interpleader to be in rem or quasi in rem would frustrate the ability of interpleader plaintiffs to
avoid multiple liability and conflicting court orders. It would go against “the very essence of
an interpleader action, which requires that a court attack the legal hydra and cauterize each
relevant issue.” Howell v. Union Producing Co., 392 F.2d 95, 98 (5th Cir. 1968).
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Another sign that interpleader actions are in personam is that a stakeholders’ liability is
not necessarily limited to the value of the stake. See Lee v. W. Coast Life Ins. Co., 688 F.3d 1004,
1013 (9th Cir. 2012) (holding that interpleader does not “shield tortfeasors from liability for their
negligent mistakes and limit their total financial exposure to the value of the stake”); Ashton v.
Josephine Bay Paul & C. Michael Paul Found., Inc., 918 F.2d 1065, 1069 (2d Cir. 1990) (“[W]e
reject the argument that interpleader jurisdiction is improper where claims against the stakeholder
potentially exceed the value of the interpleaded fund.”). Thus, liberally construing the interpleader
statute, the Court concludes that this is not an in rem or quasi in rem action for purposes of
triggering the prior exclusive jurisdiction doctrine.
C.
Probate Exception
The Court also considers another question regarding its subject-matter jurisdiction that has
not been raised by the parties. See Arbaugh v. Y&H Corp., 546 U.S. 500, 506 (2006) (noting that
federal courts may raise issues of subject-matter jurisdiction on their own initiative). The probate
exception prohibits federal courts from probating a will or administering an estate. See Markham
v. Allen, 326 U.S. 490, 494 (1946). Here, as discussed further below, the disposition of the
Interpleaded Assets is connected to the administration of the conservatorship established by the
DPC. The administration of a conservatorship, in turn, is the kind of “peculiarly local function
which federal courts are ill equipped to perform.” Hamilton v. Nielsen, 678 F.2d 709, 710 (7th
Cir. 1982). Thus, the Court considers whether the probate exception divests this Court of
jurisdiction.
A federal court “may exercise its jurisdiction to adjudicate rights in such property where
the final judgment does not undertake to interfere with the state court’s possession save to the
extent that the state court is bound by the judgment to recognize the right adjudicated by the
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federal court.” Markham, 326 U.S. at 494. The Supreme Court has clarified that the probate
exception is “essentially a reiteration of the general principle that, when one court is exercising in
rem jurisdiction over a res, a second court will not assume in rem jurisdiction over the same res.”
Marshall v. Marshall, 547 U.S. 293, 311 (2006). There is no conflict where a party seeks an in
personam judgment, as opposed to “probate or annulment of a will,” and where the party does not
“seek to reach a res in the custody of a state court.” Id. at 312.
Ultimately, so long as this Court does not take on the probate functions of the DPC—for
example, by administering an estate or overseeing a conservatorship—it will not violate the
probate exception. In fact, as clarified in Marshall, the issue of the probate exception is essentially
the same as the prior exclusive jurisdiction issue—it prevents this Court from taking in rem
jurisdiction where another court has already done so. Id. at 311. Thus, this Court’s jurisdiction is
secure “so long as [it] does not interfere with the probate proceedings or assume general
jurisdiction of the probate or control of the property in the custody of the state court.” Markham,
326 U.S. at 494. 9
II.
Deposit of Assets and Discharge from Liability
JPMorgan has moved for: (1) an order allowing it to sell the Interpleader Assets and
deposit the proceeds with the Court, (2) a discharge from liability regarding the disputed property,
and (3) a permanent injunction preventing the claimants from using litigation in other forums to
affect the disputed property. (Dkt. No. 79.) The Court addresses the first two requests here, but
Another reason not to apply the probate exception is that it is not apparent that the DPC has “custody” of
the Interpleaded Funds, which are currently held by JPMorgan on behalf of the Trusts, not by the
conservator. See John Hancock Variable Life, Ins. Co. v. 1st Source Bank, No. 3:09-CV-430-TS, 2010 WL
1541181, at *4 (N.D. Ind. Apr. 16, 2010) (holding that where asset was not in state court custody and
interpleader sought to deposit asset with interpleader court to avoid multiple liability, interpleader
jurisdiction was appropriate because any federal judgment “would not purport to dispose of property in the
custody of a state probate court”).
9
15
JPMorgan’s request for injunctive relief intersects with other pending motions and will be
discussed later in this opinion.
Generally, actions in statutory interpleader proceed in two stages. First, the Court
determines whether the jurisdictional requirements have been met. Exec. Risk Indem. Inc. v. Speltz
& Weis, LLC, No. 09 C 2750, 2009 WL 3380972, at *2 (N.D. Ill. Oct. 16, 2009). If so, discharge
is generally granted so long as “the stakeholder legitimately fears multiple litigation over a single
fund.” Id. Second, the Court adjudicates the merits of the claimants’ claims to the property. Aaron,
550 F.3d at 663. The Court may issue an “order restraining [the claimants] from instituting or
prosecuting any proceeding” in a state or federal court affecting the property at issue in the
interpleader action. 28 U.S.C. § 2361. And the Court may discharge the plaintiff from further
liability, issue a permanent injunction restraining the parties from taking part in other legal actions
affecting the property at issue, and “make all appropriate orders to enforce its judgment.” Id.
JPMorgan seeks a Court order requiring it to sell the marketable securities included in the
Interpleaded Assets and to place the proceeds into the Court’s registry. Four claimants (Bernard,
Samuel, Litvak, and Dal) oppose that request, and three claimants (Dain, Goodwin, and Joanne)
express qualified support. The opponents want to keep the assets invested in securities to
maximize investment gains while this case is pending and to avoid triggering capital gains taxes
for the current tax year. 10 The supporters are willing to accept the risk of missing out on
investment gain, but they still think a sale is appropriate only if the tax consequences can be
The opponents of selling the assets also contend that the Court lacks the power to order the sale of the
assets because that would conflict with existing state-court and arbitration-panel orders. But the Court has
the power to enjoin the parties from using any other suit to affect the Interpleaded Assets and to issue all
orders necessary to enforce its judgments. See 28 U.S.C. § 2361; Ill. Emps. Ins. of Wausua v. Mihalcik, 801
F.2d 949, 950–51 (7th Cir. 1986). Thus, the Court may order the sale of the assets even if that order
conflicts with existing orders from state courts and arbitration panels.
10
16
managed by offsetting capital gains with attorneys’ fees. No party contends that it is feasible or
desirable for JPMorgan to deposit the actual securities into the Court’s registry.
Although there is little caselaw to guide the Court in its decision, the Court concludes that
an order requiring a sale of the marketable securities would not be appropriate. JPMorgan has not
indicated that it would incur substantial costs by continuing to hold the Interpleaded Assets. In
contrast, a forced sale of the securities could create substantial costs for whoever is entitled to the
Interpleaded Assets. Reducing the securities to cash now—in the middle of what is already a
multiyear suit—could force the assets’ owners to miss out on gains in the market. A sale could, of
course, have the opposite effect and prevent losses. But the Trusts, which were created to provide
for Joanne’s needs as a disabled person and for Bernard and his children, are meant to exist for the
long term. And there is no effective way to manage the tax consequences if the Court orders a sale
now, which also weighs in favor of keeping the assets invested in securities. 11
In the alternative, JPMorgan asks to post a bond and be released from liability. Here, it is
appropriate to discharge JPMorgan from further liability related to the disputed assets it holds.
Courts normally discharge a stakeholder after it deposits the property with the Court. See, e.g.,
Metro. Life Ins. Co. v. Harris, 446 F. Supp. 936, 938 (E.D. Wis. 1978). The parties have not
identified caselaw in which a district court granted a discharge after requiring a bond in lieu of
deposit. But 28 U.S.C. § 2361 gives the Court the authority to “discharge the plaintiff from further
liability” without limiting that power to plaintiffs who deposit the disputed assets instead of
posting a bond.
JPMorgan contends that considering tax and investment consequences of a sale inappropriately adds a
requirement to the interpleader statutes. But the Court is not adding any requirements, just considering the
equitable implications of forcing a sale of the assets. Moreover, the single case that JPMorgan cites is
inapposite. See Speltz & Weis, 2009 WL 3380972, at *1 (holding that stakeholder was not required to
interplead additional parties who claimed no right to the disputed fund).
11
17
Most of the claimants do not oppose a discharge for JPMorgan. The ones who do, Bernard
and Samuel, propose that JPMorgan remain a party for the purposes of discovery and for any
orders regarding the disposition of the assets. As to the former issue, Bernard and Samuel have not
identified any discovery they would seek from JPMorgan that is not available from the other
claimants, and Bernard and Samuel could of course seek third-party discovery from JPMorgan.
And as to the latter issue, the Court has already conditioned the discharge on JPMorgan’s
compliance with future orders about the disposition of the disputed assets. Therefore, the Court
discharges JPMorgan from further liability for the disputed assets, effective on the date that
JPMorgan posts a bond in compliance with the Court’s requirements.
Generally, the posting of a bond by JPMorgan should safeguard the claimants’ interests,
especially because the Court may adjust the bond requirement based on a rise or fall in the value
of the Interpleaded Assets. However, the Court qualifies its discharge in two regards. First,
JPMorgan must continue to safeguard the Interpleaded Assets and follow this Court’s orders
regarding their disposition. If JPMorgan mishandles the assets, it may be held liable to the extent
that the bond it has posted does not cover the losses. Second, JPMorgan must report on the value
of the Interpleaded Assets as directed by the Court and comply with further orders of this Court.
Thus, JPMorgan shall post a bond that is equivalent to the total value of the Interpleaded
Assets on the day that this Memorandum Opinion and Order issues. The bond is conditioned on
JPMorgan complying with any future order or judgment of the Court with respect to the subject
matter of this suit. See 28 U.S.C. § 1335(a)(1). JPMorgan must pay the premium on the new bond
out of its own assets, but the Court will entertain requests for reimbursement from the
Interpleaded Assets at an appropriate stage in these proceedings. If there is a substantial rise or fall
18
in the value of the assets, the Court will entertain motions from JPMorgan or the claimants to
adjust the value of the bond.
III.
Bernard and Samuel’s Motions
Bernard and Samuel previously sought and was granted a rule to show cause why Joanne
should not be held in contempt for pursuing a contempt order against Bernard before the DPC.
(Dkt. No. 101.) Bernard and Samuel alleged that Joanne violated this Court’s order barring parties
from enforcing any court order requiring, or otherwise seeking to effectuate, any turnover or
withdrawal of the Interpleaded Assets. The Court held show cause proceedings on November 19,
2019 and January 7, 2020, and received supplemental briefs from the parties. Bernard and Samuel
filed related motions for injunctive relief, seeking a preliminary injunction directing Goodwin,
Dain, and Joanne to (a) discontinue their efforts to have Bernard held in contempt before the DPC,
(b) make reasonable efforts to have the DPC’s bench warrant for Bernard vacated, and (c) stop all
litigation efforts in other forums seeking a turnover of funds from the Interpleaded Assets. (Dkt.
Nos. 100, 154.)
Beginning with the rule to show cause, this Court’s civil contempt power rests on its
inherent authority to enforce compliance with its orders. See United States v. Dowell, 257 F.3d
694, 699 (7th Cir. 2001). The Court may hold a contempt proceeding if Bernard and Samuel can
show that Joanne violated an order setting forth an unequivocal command. See id.
In May 2019, the Court entered an order forbidding JPMorgan from turning over the
Interpleaded Assets without the Court’s permission. (Dkt. No. 68.) In June 2019, the Court
amended the order also to “preclude any party from seeking to enforce any court order requiring,
or otherwise seek to effectuate, any turnover or withdrawal of the Interpleaded Assets from the
accounts held by Plaintiff, without first filing a motion with this Court.” (Dkt. No. 69.) Joanne had
19
been served in this case at that point, but she had not yet appeared. At the time the Court entered
those orders, proceedings before the DPC had been ongoing for several years. As discussed above,
the DPC had found Bernard liable for civil theft and breach of fiduciary duty and entered an order
surcharging him $4.5 million. It also appointed Goodwin as Joanne’s new conservator and
suspended Bernard as a trustee of the SNT.
On May 10, 2019, Joanne moved for a citation for contempt of court against Bernard
before the DPC. (Mot. for Rule to Show Cause, Ex. B, Contempt Mot., Dkt. No. 100.) Joanne
contended that Bernard had willfully refused to comply with the Colorado state court’s order to
remove funds from the Trusts and place them in the DPC’s registry. In October 2019, the
Colorado state court held a contempt hearing, which Joanne’s counsel attended. At that hearing,
Joanne’s counsel told the state court about this Court’s June 2019 order and stated that Joanne did
not seek a turnover of any assets from the Trusts. (Resp. in Opp’n to Mot. for Rule to Show
Cause, Ex. A, Contempt Citation Tr. at 3:16–20, Dkt. No. 126.) Joanne’s counsel stated that her
client wanted the state court to hold an evidentiary hearing on Bernard’s alleged violations of the
DPC’s orders. (Id. at 7:5–11.) But even though the state court had a preexisting order requiring
Bernard to attend all hearings in person, neither Bernard nor his counsel appeared at the contempt
hearing. (Id. at 2:8–12, 7:12–17.) Therefore, at the request of Joanne’s counsel, the Colorado state
court issued a bench warrant for both Bernard and his counsel. (Mot. for Rule to Show Cause, Ex.
G, Order Issuing Bench Warrant, Dkt. No. 100.)
Based on this record, it was Joanne who moved for a contempt citation in the DPC and
asked that court to issue a bench warrant. Dain and Goodwin do not appear to have been involved.
Goodwin is Joanne’s conservator, but there is no evidence that she directed or was involved in the
actions of which Bernard and Samuel complain. The same is true of Dain, who is a trustee of the
20
SNT but who is not—as far as the record shows—empowered to make litigation decisions for
Joanne when she acts in her personal capacity. Because they have not presented evidence of Dain
and Goodwin’s involvement, Bernard and Samuel have not demonstrated a likelihood of success
on the merits against those two persons.
As for Joanne, she filed the motion for contempt in the DPC before she had appeared in
this case and before the Court had even entered an order enjoining the parties from pursuing
turnover of the Interpleaded Assets. Although Joanne initially sought contempt based on
Bernard’s failure to turn over the Interpleaded Assets, Joanne’s counsel later made clear—
repeatedly—that she did not seek any turnover of the Trusts’ assets and did not want Bernard held
in contempt for failing to turn those assets over to the state court. If Joanne had gone forward on
the original basis for her motion, she might have violated this Court’s order barring the use of
other litigation to force a turnover of the Interpleaded Assets. But Joanne did not go forward on
that basis before the state court. Instead, she asked for an evidentiary hearing on various failures
by Bernard to follow the DPC’s orders. Joanne’s actions before the state court therefore did not
violate this Court’s order because Joanne clearly expressed that she did not want the state court to
order Bernard to turn over Interpleaded Assets or to hold him in contempt for failing to do so.
Bernard and Samuel therefore have not shown that Joanne violated an express directive from the
Court.
Turning to the request for a preliminary injunction, Bernard and Samuel’s request focuses
on (1) contempt proceedings related to Bernard’s failure to appear before the DPC, and (2)
litigation efforts in other forums seeking a turnover of the Interpleaded Assets. They must
demonstrate that they have “some likelihood of succeeding on the merits,” that they have no
adequate remedy at law, and that they would suffer irreparable harm without preliminary relief.
21
Abbott Labs. v. Mead Johnson & Co., 971 F.2d 6, 11 (7th Cir. 1992). If they can establish those
prerequisites, the Court must then balance the harm that they would suffer without an injunction,
the harm that Joanne, Dain, and Goodwin would suffer if the injunction were granted, and the
public interest (consequences to non-parties). Id. at 11–12.
Regarding the contempt proceedings, as discussed above, Bernard and Samuel have not
shown that Joanne acted inappropriately before the DPC. The DPC issued a bench warrant
because it ordered Bernard to appear before it, and he refused. Bernard had an obligation to follow
that order even if he intended to assert a defense. The warrant was justified by Bernard’s failure to
appear as duly ordered. Bernard and Samuel have not established that they are likely to prevail on
this issue and their request for injunctive relief is therefore denied. Their final request for
injunctive relief—which would enjoin Joanne, Dain, and Goodwin from pursuing litigation in
other forums—is also denied. Because there is substantial overlap between this portion of Bernard
and Samuel’s motion and JPMorgan’s request for injunctive relief, the Court’s resolution of this
issue is addressed in greater detail below.
IV.
Dal’s Motion to Proceed
Having obtained a final judgment against the Trusts, Dal seeks leave to proceed with
supplemental proceedings in the Circuit Court of Cook County that would allow her to collect
against the Interpleaded Assets. (Dkt. No. 171.) Dal holds an agreed judgment for $348,936.93
against Bernard and Samuel in their capacities as trustees. (Suppl. to Am. Mot. for Leave to
Proceed, Ex. A, Agreed Judgment, Dkt. No. 179.) She contends that she is first in line to collect
against the Interpleaded Assets because her agreed judgment was entered on October 12, 2017
(before any other judgments) and is now final.
22
Although Dal contends that her judgment is res judicata and not subject to further
challenge, that is not the central issue in her motion to proceed. The Court acknowledges that Dal
holds a final judgment against the Trusts. Instead, the issue is whether (1) Dal may collect against
the Interpleaded Assets, which are under the in rem jurisdiction of the DPC, and (2) whether Dal’s
judgment holds priority over final judgments held by other parties.
The Interpleaded Assets were stolen from Joanne. That is the final order of the DPC,
which concluded that Bernard had committed civil theft by disclaiming the POD assets that now
make up most or all of the Interpleaded Assets. Black I, 422 P.3d at 605–09. Another final order
from the Colorado Court of Appeals held that “Bernard’s unilateral acts of transferring assets from
Joanne’s conservatorship to the Trusts do not alter the essential nature of the funds as
conservatorship property.” Black III, 482 P.3d at 477. Indeed, Black III established that the POD
assets “are not the rightful property of the Trusts.” Id. at 480. Thus, at this stage it would be
inappropriate to allow Dal to collect against the Interpleaded Assets, which consist of the POD
assets as transferred to the Trusts by Bernard. Cf. Schak v. Blom, 777 N.E.2d 635, 639 (Ill. App.
Ct. 2002) (holding that proceedings to enforce a judgment may only properly target the assets of a
judgment debtor or a third party holding assets belonging to the judgment debtor); Belisle v.
Plunkett, 877 F.2d 512, 515 (7th Cir. 1989) (finding that, in the context of bankruptcy
proceedings, “[i]f the debtor possesses a stolen diamond ring, the real owner’s rights would trump
those of a judgment creditor”).
There are also competing claims to the assets. First, there is the $4.5 million judgment
against Bernard, which may be executable against part or all of the Interpleaded Assets. Black I,
422 P.3d 592. The registration of that judgment in Illinois has become final. Estate of Black v.
Black, 133 N.E.3d 61 (Ill. App. Ct. 2019). There is also the final order stemming from the FINRA
23
arbitration. On March 23, 2018, a panel of arbitrators ordered JPMorgan to freeze assets in the
Trusts for purposes of litigation expenses, paying monetary damages assessed against Bernard, or
repaying loans to Bernard, and that this order would remain in effect until (1) the Colorado Courts
enter a final order, or (2) the SNT and IT trustees mutually agree in writing to withdrawals.
(FINRA Arbitration Award at 6–7.)
Thus, Dal is not the only party to hold an enforceable final judgment. The purpose of a
statutory interpleader action is to provide for an equitable proceeding to reach a just outcome
where there are overlapping and conflicting claims to a single res, and to ultimately “determine
rights to a specific fund.” Hebel v. Ebersole, 543 F.2d 14, 18 (7th Cir. 1976). The Court is not yet
in a position to make further determinations regarding rights to the Interpleaded Assets, and Dal
identifies no authority allowing her to jump the line. Her motion is denied.
V.
Injunctive Relief
The Court now returns to JPMorgan’s request for a permanent injunction. By statute, the
Court has the power to issue a permanent injunction barring the claimants from “instituting or
prosecuting any proceeding in any State or United States court affecting” the disputed property.
28 U.S.C. § 2361. Such injunctions are commonplace in interpleader actions. See, e.g., Exec. Risk
Indem., 2009 WL 3380972, at *2–3; Sec. First Network Bank v. C.A.P.S., Inc., No. 01 C 342,
2002 WL 485352, at *3 (N.D. Ill. Mar. 29, 2002); Ill. Emp’rs Ins. of Wausau v. Rapco Foam, Inc.,
No. 83 C 3440, 1985 WL 4906, at *2 (N.D. Ill. Nov. 25, 1985). The Court has already entered an
order restraining the claimants from using any other action in state or federal courts to affect the
disputed property. (Dkt. No. 69.) This case has involved litigation before numerous state courts,
federal district courts, and an arbitration panel. There is a serious risk that a party or parties will,
at some point, attempt to use other state or federal courts to affect the disputed property.
24
That said, interpleader is an equitable action, which means that the Court can consider
whether it would be just to stay all other proceedings involving the Interpleaded Assets. One
initial concern is whether the Court can appropriately enjoin the parties from proceeding with the
DPC action. That in rem proceeding involves the administration of a conservatorship in probate,
which has been described as a “fight[] over a thing of value that is in the court’s control” in which
“another court should not try to elbow its way into the fight.” Jones v. Brennan, 465 F.3d 304, 307
(7th Cir. 2006). Similarly, “state courts are assumed to have developed a proficiency in these
matters [and] to have procedures tailored to them;” generally, parties will not be well-served by
federal courts administering conservatorships or other in rem probate actions. Id.; cf. Union Pac.
R.R. Co. v. Bolton, 840 F. Supp. 421, 428 (E.D. La. 1993) (“[N]othing in the text, language or
history of the federal interpleader statute remotely indicates that Congress intended the
interpleader statute to be an exception to the rule that federal courts are not equipped to adjudicate
things like divorce, support or paternity.”).
With these considerations in mind, other circuit and district courts have concluded that a
district court may partially abstain from adjudicating claims to an interpleaded fund. See Am.
Airlines, Inc. v. Block, 905 F.2d 12, 15 (2d Cir. 1990) (concluding on appeal that the district court
“should have abstained in part from adjudicating [interpleader] action” and that it was not
appropriate for the court to “immerse itself in domestic relations matters that are properly the
province of the state courts”); NYLife Distribs., Inc. v. Adherence Grp., Inc., 72 F.3d 371, 380–81
(3d Cir. 1995) (explaining that because statutory interpleader is an equitable action, federal
interpleader courts have discretion to dismiss or stay the case and “defer to state court proceedings
for the sake of judicial administration and efficiency”). The Court has authority to prevent the
parties from enforcing judgments against the Interpleaded Assets while allowing certain
25
proceedings to continue. In Tashire, the Supreme Court allowed for continued litigation in other
forums that would lead to judgments against an insured party while authorizing an order
“restrain[ing] [the] claimants from seeking to enforce against the insurance company any
judgment obtained against its insured, except in the interpleader proceeding itself.” 386 U.S. at
535; see also Buckeye State Mut. Ins. Co. v. Moens, 944 F. Supp. 2d 678, 701–02 (N.D. Iowa
2013) (entering “piecemeal” restraint on execution of judgments against interpleaded fund but not
enjoining state court proceedings affecting fund).
If the Court stayed the DPC proceedings and took up the issue pending there—whether to
undo the disclaimer of the POD assets—it would complicate and delay the matter of whether and
how Joanne’s assets will be returned to her. The DPC has had much to unravel. As noted in Black
III, “Bernard placed Joanne’s diverted conservatorship funds into twenty-five different accounts in
the names of one or more of the Trusts, which . . . could only be likened to a shell game.” 482
P.3d at 479. Bernard also previously transferred $258,000 from the SNT—for which Joanne is the
sole beneficiary—to one of his personal accounts, violating a prior order of the SNT. Id. at 484.
And after several years and multiple appeals, the DPC is poised to determine whether Bernard’s
disclaimer of the POD assets—the fraud that initiated countless legal actions across numerous
forums—should be undone, and the assets returned to the conservatorship. The DPC is in the best
position to trace the disputed assets. For one thing, it has already analyzed Bernard’s disposition
of the POD assets, supported by a forensic accounting. (Compl., Ex. 11, Attachment A: DPC
March 2016 Order, Dkt. No. 1-11.) There is no equitable reason to repeat those proceedings here.
Thus, the Court enters the following injunction. JPMorgan shall not allow any withdrawals
of the Interpleaded Assets or execute any instructions with regard thereto without prior approval
from this Court. Such approval shall be sought by written motion with due notice provided to all
26
parties. The parties may continue to litigate the disposition of the POD assets in the DPC
proceedings. Otherwise, no party may seek to effectuate any turnover or withdrawal of the
Interpleaded Assets from the accounts held by Plaintiff, or seek to enforce any court order
requiring such, without first filing a motion with this Court.
This order balances several factors, including the risk of multiple liability faced by
JPMorgan, the DPC’s holding that the POD assets belong to the conservatorship and are not
property of the Trusts, the need to efficiently determine the proper disposition of the Interpleaded
Assets, and the goal of concentrating litigation instead of allowing for its continued dispersal
across several forums.
VI.
Motion to Compel
Finally, the Court turns to Bernard and Samuel’s motion to compel. (Dkt. No. 134.) With
their motion, Bernard and Samuel contend that Dain and Goodwin wrongfully have withheld
numerous documents under the common-interest doctrine. Bernard and Samuel also object to
Dain and Goodwin’s failure to produce a privilege log or confirm whether they have withheld
documents based on privilege. 12
As a threshold matter, the parties dispute whether the applicable common-interest doctrine
is based in Illinois law, Colorado law, federal common law, or some combination thereof.
Because this action was brought pursuant to the Court’s diversity jurisdiction, the Court “applies
the choice-of-law rules of the forum state to determine which state’s substantive law applies.”
Auto-Owners Ins. Co. v. Websolv Computing, Inc., 580 F.3d 543, 547 (7th Cir. 2009). Illinois
Initially, Bernard and Samuel also complained that Dain and Goodwin had not produced any documents
from certain email addresses likely to contain responsive materials and that Dain and Goodwin had not
produced attorneys’ bills. In their response brief, Dain and Goodwin represented that they had made, or
would make, appropriate responsive productions, and Bernard and Samuel did not further address the issue
in their reply. So the Court concludes that the issue has been resolved.
12
27
applies the Restatement (Second) of Conflict of Laws to choice-of-law issues regarding privileged
communications. People v. Allen, 784 N.E.2d 393, 394 (Ill. App. Ct. 2003). The Restatement
provides that communications will be admitted if they are (1) “not privileged under the local law
of the state which has the most significant relationship with the communication,” or (2) even if it
is privileged under the local law of the state with the most significant relationship with the
communication, if it is “not privileged under the local law of the forum” and there is no “special
reason why the forum policy favoring admission should not be given effect.” Restatement
(Second) of Conflict of Laws § 139 (1971). Here, Colorado is closer to the center of the disputed
communications, as it is the state of the conservatorship and the residence of several parties
participating in the disputed communications. Thus, Dain and Goodwin’s assertion of the
common-interest privilege succeeds only if the communications at issue are privileged under the
laws of both Colorado and Illinois; or if disclosure would be permitted under Colorado law but
not Illinois law, if there is some special reason why the Illinois law favoring admission should not
apply.
In Illinois, the common-interest doctrine requires a common interest on at least one topic
between the parties asserting a common interest, although it does not require complete
alignment—parties may “harbor materially different views” on other issues even to the extent that
“the disagreement results in a subsequent controversy.” Selby v. O’Dea, 90 N.E.3d 1144, 1161
(Ill. App. Ct. 2017) (internal quotation marks omitted). The privileged communications must “be
in furtherance of that common interest.” Id. at 1162. The doctrine includes communications
between the lawyers of the aligned parties, between one party and another party’s lawyer, and
between one party and another with counsel present. Id. at 1163–66. At least “some form of
agreement” must exist between the parties to invoke the common-interest privilege. Ross v. Ill.
28
Cent. R.R. Co., 129 N.E.3d 641, 653 (Ill. App. Ct. 2019). Of course, to be privileged,
communications must also satisfy the usual requirements of attorney-client privilege. Id. And the
party withholding the communication bears the burden of establishing privilege. Consolidation
Coal Co. v. Bucyrus-Erie Co., 432 N.E.2d 250, 257 (Ill. 1982). Meanwhile, under Colorado law,
the common-interest doctrine applies to confidential communications that are “intended and
reasonably believed to be part of an on-going and joint effort to set up a common legal strategy.”
Black v. Sw. Water Conservation Dist., 74 P.3d 462, 469 (Colo. App. 2003).
Bernard and Samuel contend that they are trying to obtain thousands of withheld
communications that Dain and Goodwin have not demonstrated to be privileged. The universe of
those communications is established by a privilege log created by Dain’s law firm, Procopio,
which was subpoenaed by Bernard and Samuel in this action. That privilege log identifies
numerous communications for which a privilege under the common-interest doctrine is claimed.
But Dain and Goodwin have not presented facts establishing that the parties to these
communications actually operated under a mutual agreement or understanding to maintain
confidential communications in furtherance of their common interest. Certainly, under Illinois and
Colorado law, it is at least plausible that such a mutual understanding could be established without
a written agreement. See Ross, 129 N.E.3d at 653 (declining to determine whether a written
agreement is required to establish a common-interest defense to waiver of privilege under Illinois
law); Marianist Province of U.S., Inc. v. Century Indem. Co., No. 08-CV-01760-WYD-MEH,
2010 WL 3938355, at *2 (D. Colo. Oct. 5, 2010) (oral agreements and “tacit understanding” can
establish common-interest defense under Colorado law.) But generally, communications between
parties without their attorneys present are not privileged. See Selby, 90 N.E.3d at 1165 (“As a
general matter, of course, if one party speaks to another party, no attorney-client privilege would
29
attach—there is no attorney present.”). And here, Bernard and Samuel assert, and Dain and
Goodwin do not dispute, that numerous communications that were withheld did not involve any of
the parties’ attorneys. Dain and Goodwin have not explained how such communications could be
privileged, and therefore have not met their burden of justifying the withholding of such
documents.
Perhaps unsurprisingly, whether privilege applies to these disputed communications has
been litigated before—multiple times. In one such action, a court in this District determined that
the common-interest doctrine applied to certain communications between Dain and parties
connected to Joanne. (Resp. to Mot. to Compel, Ex. B, 17-cv-101 Judge Kennelly Order of Nov.
15, 2018, Dkt. No. 135-2.) That order noted that Dain was not a party to the litigation but often
provided input “as an attorney.” (Id.) But whether Dain gave input “as an attorney” makes no
difference unless Dain’s input as an attorney was in the context of representing one of the
involved parties; attorney-client privilege requires that the attorney be attached to a client. See
People v. Adam, 280 N.E.2d 205, 207 (Ill. 1972) (noting that privilege requires provision of legal
advice to a client “from a professional legal adviser in his capacity as such”). Because Dain and
Goodwin have not suggested that Dain represented any other party to the communications, the
fact that he may have applied his legal knowledge in these conversations is irrelevant. In short,
Dain and Goodwin hold “the burden of showing the facts which give rise to the privilege,” and
they have not done so here. Krupp v. Chi. Transit Auth., 132 N.E.2d 532, 536 (Ill. 1956). 13
Also, Dain and Goodwin have not produced a privilege log addressing the responsive
documents in their possession, if any, that they have not already produced (beyond those
A Magistrate Judge in the Eastern District of New York also concluded that Dain and Goodwin failed to
establish that they held a common-interest agreement prior to 2018, although Dain and Goodwin note that
they moved for reconsideration of that order. (Bernard & Samuel Mot. to Suppl., Ex. A, E.D.N.Y Order,
Dkt. No. 143.)
13
30
encompassed by the Procopio log). They offer no explanation for this omission; therefore, they
will be ordered to confirm the status of their search for responsive documents and whether they
are withholding any additional responsive documents on any basis.
However, the Court is not convinced that all the documents sought by Bernard and Samuel
are properly within the scope of discovery. Discovery properly encompasses “any nonprivileged
matter that is relevant to any party’s claim or defense and proportional to the needs of the case,
considering . . . [among other things] whether the burden or expense of the proposed discovery
outweighs its likely benefit.” Fed. R. Civ. P. 26(b)(1). At this stage of the case, the primary issue
before the Court is whether the Interpleaded Assets must be returned to the conservatorship and
the priority of claims against the Interpleaded Assets, which include Dal’s judgment against the
Trusts and the conservatorship’s judgment against Bernard. The validity of those judgments is not
at issue; this Court “must give the same res judicata effect to a state court judgment that would be
given by courts of that state.” Gen. Ry. Signal Co. v. Corcoran, 921 F.2d 700, 708 n.11 (7th Cir.
1991). It is not clear what import, if any, the disputed communications have regarding the
pertinent matters. Further, the record indicates that a considerable portion of the money Renata
left in her estate has been spent in the ever-expanding litigation between the parties to this case. It
is unclear that further inquiry into the communications targeted by Bernard and Samuel will
produce a likely benefit that is outweighed by the costs and burdens of production. Accordingly,
before ordering production of documents based on the motion to compel, the Court will entertain
input from the parties regarding the relevance and proportionality of the production.
Thus, Bernard and Samuel’s motion to compel is granted in part and denied in part. Dain
and Goodwin must confirm whether they have searched their own records for any responsive
documents, whether they have completed that search, and whether they are withholding any
31
documents not encompassed by the Procopio privilege log. The Court concludes that Dain and
Goodwin have not sufficiently established that the documents withheld in the Procopio privilege
log are protected by attorney-client privilege subject to the common-interest doctrine. However,
the Court will not order further production of such documents at this time, as it is not apparent that
they are properly within the scope of discovery in this action. Finally, the Court declines to award
costs or fees to Bernard and Samuel. When a motion to compel is granted in part and denied in
part, as here, the Court has discretion to award expenses. Fed. R. Civ. P. 37(a)(5)(C).
CONCLUSION
For the reasons given above, JPMorgan’s motion for an order regarding interpleader
assets, for a permanent injunction, and discharge (Dkt. No. 79) is granted in part and denied in
part; Bernard and Samuel’s motions for injunctive relief (Dkt. Nos. 100, 154) are denied; Bernard
and Samuel’s motion to compel production of documents (Dkt. No. 134) is granted in part and
denied in part; Dain and Goodwin’s motion to dismiss (Dkt. No. 160) is denied; and Dal’s motion
for leave to proceed (Dkt. Nos. 170, 171) is denied. Pursuant to the Court’s rule to show cause
(Dkt. No. 107), the Court determines that Joanne did not violate the Court’s order, she will not be
held in contempt, and the rule is discharged.
ENTERED:
Dated: September 29, 2021
__________________________
Andrea R. Wood
United States District Judge
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