Engle et al v. Regions Bank et al
Filing
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ORDER denying 7 Motion to Dismiss. Signed by District Judge Carlton W. Reeves on 01/05/2015. (AC)
IN THE UNITED STATES DISTRICT COURT
FOR THE SOUTHERN DISTRICT OF MISSISSIPPI
NORTHERN DIVISION
PAUL E. ENGLE, IV; SAMUEL M.
ENGLE
PLAINTIFFS
V.
CAUSE NO. 3:13-CV-816-CWR-FKB
REGIONS BANK; CYNTHIA B. ENGLE;
UNKNOWN LEGAL ENTITIES A, B, AND
C; UNKNOWN JOHN DOE
DEFENDANTS A, B, AND C
DEFENDANTS
ORDER
Before the Court is Regions Bank’s motion to dismiss. Docket No. 7. Having reviewed
the allegations, arguments, and applicable law, the motion will be converted to one for summary
judgment, and denied.
I.
Factual and Procedural History
Paul E. Engle, III passed away in 1996. In accordance with his will, one-third of his
estate went to his wife, Cynthia B. Engle, while the remaining two-thirds funded a trust he had
established for the benefit of their two minor children, Paul E. Engle, IV and Samuel M. Engle
(the “Children’s Trust”). Life insurance proceeds also went into the Children’s Trust. All said,
the Children’s Trust was initially funded with about $600,000.
Cynthia Engle was not the trustee, nor was she the executrix or alternate executrix of
Engle’s estate.1 According to the plaintiffs, those facts suggest that Engle did not trust his wife to
manage money meant for their children. The trustee was Deposit Guaranty National Bank, which
later became Regions Bank.
In this suit, plaintiffs Paul E. Engle, IV and Samuel M. Engle allege that Regions
wrongfully allowed their mother to receive and spend funds intended for them. They specifically
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In his will, Engle named Phil B. Abernathy as executor and Regions as alternate executor.
claim that Regions provided their mother with a monthly income “which bore no relation” to
their needs, did not assess their needs, failed to follow the Children’s Trust guidelines, failed to
contact Paul E. Engle, IV when he turned 21, and blindly accepted their mother’s word to their
detriment. As a result of these errors, they say, the Children’s Trust was spent down to $0 and
closed in September 2009.
The plaintiffs filed suit in the Chancery Court of Hinds County, Mississippi on August
12, 2013. Their causes of action included breach of fiduciary duty, gross negligence, and breach
of contract, among others. Regions removed the case to this Court on December 31, 2013,
alleging diversity jurisdiction due to the improper joinder of Cynthia Engle, who has never been
served.
Regions now presents two arguments for dismissal. First, it contends that the plaintiffs
filed suit after the three-year statute of limitations expired, even after applying the minor’s
savings clause. Second, Regions argues that the statute of limitations was not tolled by the
doctrine of fraudulent concealment. In this latter theory, Regions claims in part that it cannot be
liable to the plaintiffs for breaching its fiduciary duty to them because it was entitled to send
“distributions, accountings, and notices” to their mother, whose receipt, knowledge, and
decisions were binding on her children. Docket No. 8, at 7.
In response, the plaintiffs say they did not know the Children’s Trust existed until their
paternal grandmother told them about it in July 2012, and then did not know that it had been
improperly administered until September 21, 2012. Alternatively, they contend that Samuel
Engle’s claim was timely filed. Finally, they argue that fraudulent concealment applies because
in mid-2012, the Regions employee responsible for administering the Children’s Trust allegedly
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told them he had never heard of it. They have attached two affidavits and correspondence with
Regions to their response.
Perhaps unaware of the plaintiffs’ ignorance of the Children’s Trust, Regions’ reply
sidesteps its first argument and presses part of its second: that the plaintiffs are barred from suit
because their mother’s decision to draw down the Children’s Trust is imputed to them.
II.
Legal Standard
Because the Court will consider material outside the pleadings, “the motion must be
treated as one for summary judgment under Rule 56.” Fed. R. Civ. P. 12(d); see Stokes v.
Dolgencorp, Inc., 367 F. App’x 545, 547 (5th Cir. 2010) (unpublished).
Summary judgment is appropriate when “the movant shows that there is no genuine
dispute as to any material fact and the movant is entitled to judgment as a matter of law.” Fed. R.
Civ. P. 56(a). A party seeking to avoid summary judgment must identify admissible evidence in
the record showing a fact dispute. Id. at 56(c)(1); see Tran Enterprises, LLC v. DHL Exp. (USA),
Inc., 627 F.3d 1004, 1010 (5th Cir. 2010) (“With respect to an issue on which the nonmovant
would bear the burden of proof at trial, if the movant for summary judgment correctly points to
the absence of evidence supporting the nonmovant with respect to such an issue, the nonmovant,
in order to avoid an adverse summary judgment on that issue, must produce sufficient summary
judgment evidence to sustain a finding in its favor on the issue.”).
The Court views the evidence and draws reasonable inferences in the light most favorable
to the nonmovant. Maddox v. Townsend and Sons, Inc., 639 F.3d 214, 216 (5th Cir. 2011). But
the Court will not, “in the absence of any proof, assume that the nonmoving party could or would
prove the necessary facts.” McCallum Highlands, Ltd. v. Wash. Capital Dus, Inc., 66 F.3d 89, 92
(5th Cir.), as revised on denial of reh’g, 70 F.3d 26 (5th Cir. 1995).
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III.
Discussion
The plaintiffs were children when the Children’s Trust was created and funded. They
were children for the vast majority of years during which funds in the Children’s Trust were
drawn down by their mother. The statute of limitations was tolled during these years by
Mississippi’s minor’s savings clause. Miss. Code Ann. § 15-1-59; see Shelnut v. Dep’t of Human
Servs., 9 So. 3d 359, 366 (Miss. 2009).
According to Paul E. Engle, IV’s sworn affidavit, he did not know that the Children’s
Trust existed until his grandmother told him about it in July 2012. His statute of limitations was
therefore also tolled by the discovery rule, which provides that a plaintiff’s time to sue begins
only when he “discovers, or should have discovered by the exercise of reasonable diligence, that
he probably has an actionable injury.” Smith v. Sanders, 485 So. 2d 1051, 1052 (Miss. 1986).2
All said, Paul E. Engle, IV had until July 2015 to file this suit. Since it was filed in
August 2013, it was timely. The application of the fraudulent concealment doctrine need not be
considered.
Regions nevertheless presses the notion that it satisfied its obligations to the plaintiffs by
sending Children’s Trust funds, accountings, and notices to their mother, whose decisions were
imputed to her children. This theory relies upon a now-repealed Mississippi statute which read as
follows:
The guardian or conservator of the estate of a beneficiary under legal disability, or
the parents or surviving parent or parent having custody of a minor beneficiary for
whose estate no guardian has been appointed, may be given any notice provided
for in this article and may act for such beneficiary in making any appointment,
approving any accounting, and giving any direction under this article. Any such
notice, appointment, approval, or other direction shall be fully binding on
the beneficiary.
Miss. Code Ann. § 91-9-209.
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Regions’ opening memorandum acknowledges the discovery rule. Docket No. 8, at 5 n.4.
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Even on its own terms, the application of Regions’ theory would not fully resolve this
case. Although Section 9.2 of the trust agreement requires adult beneficiaries to receive an
accounting, Paul E. Engle, IV claims to never have received one despite turning 21 before the
Children’s Trust was closed. Docket No. 1-1, at 6, 29. At least at that point, sending accountings
solely to the plaintiffs’ mother was not sufficient.
The more significant question is not about accountings, though, but instead whether
Cynthia Engle’s (allegedly excessive) requests for funds from Regions constituted “direction[s]”
under the former statute, such that Regions could honor those requests even if they harmed the
plaintiffs. On this question, and at this early juncture, the Court is not persuaded that the former
statute encompasses situations where the interests of a trust’s beneficiaries diverge from the
interests of the beneficiaries’ parent. Here, for instance, by placing third parties (e.g., Phil
Abernathy and Regions) as executor, alternate executor, and trustee of his estate and the
Children’s Trust, it may be that Engle trusted his wife to continue to rear his sons, but did not
trust her to manage their financial affairs or to be completely loyal to their interests. In such
circumstances – when a parent directs the trustee to turn over funds and the trustee acquiesces
despite contrary language in the trust agreement – can it really be said that the minor beneficiary
has no cause of action against the trustee when she comes of age and has no assets at her
disposal?
Mississippi law suggests that the answer is “no.” The Mississippi Supreme Court has
found it “well known that a trust must be administered according to the intent of the settlor.”
Gulf Nat’l Bank v. Sturtevant, 511 So. 2d 936, 937 (Miss. 1987) (citations omitted). Determining
the settlor’s intent can be a fact-specific inquiry. See Hart v. First Nat’l Bank of Jackson, 103 So.
2d 406, 410 (Miss. 1958). That intent informs the duties a trustee owes to beneficiaries. “A trust
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and its terms must be for the benefit of its beneficiaries as the interests of such beneficiaries are
defined under the terms of the trust.” Miss. Code Ann. § 91-8-404. And those duties exist
regardless of what a third party may desire or demand. “Perhaps the most fundamental duty of a
trustee is that he must display throughout the administration of the trust complete loyalty to the
interests of the beneficiary and must exclude all selfish interest and all consideration of the
interests of third persons.” Bogert’s Trusts and Trustees § 543 (updated Sept. 2014); see also
Jackson & Miller, 8 Encyclopedia of Miss. Law § 73:8 (updated Sept. 2014) (“Upon
appointment as trustee, and once administration of the trust has begun, the trustee is under a duty
of loyalty to the beneficiaries.”).
The terms of the Children’s Trust provided that disbursements could be made “as the
Trustee may determine” in light of the beneficiaries’ educational, medical, and other material
needs. Docket No. 1-1, at 11 (emphasis added). The trust agreement also required the trustee to
semi-annually consult with Paul E. Engle, III’s “good friend,” Phil Abernathy, regarding the
beneficiaries’ needs. Id. at 11, 43. Taken together, the terms recognized that a parent like Cynthia
was an appropriate person to receive disbursed funds, accountings, and notices, but nevertheless
did not give her discretion to draw down the funds at will or dictate the trustee’s determination of
the plaintiffs’ needs. If the terms had done so, there would have been little purpose in setting up
a trust in the first place; Cynthia could have simply received 100% of Engle’s estate and life
insurance proceeds in 1996.3
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Therein lies the dilemma. One of the reasons banks enter into trust agreements is to earn management fees over the
years or decades the trust is funded. The fees are earned in exchange for promising settlors that the bank will honor
the trust agreement’s terms with respect to the named beneficiaries. In other words, banks will demonstrate complete
loyalty to the interests of the beneficiaries. If a bank can disregard the settlor’s intent and allow a surviving parent to
draw down funds to the detriment of the beneficiaries, however, then it is not clear why the management fees should
be paid out over those years or decades. And over time, obviously, banks which accept fees without honoring
settlor’s intent risk deterring future clients from establishing trusts.
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Whether Regions satisfied its duties to the plaintiffs in accordance with the terms of the
trust agreement it entered into with Engle requires asking a series of questions to the plaintiffs,
Cynthia Engle, Phil Abernathy, and Regions employees. Answers to these questions must be
ferreted out in robust discovery.
IV.
Conclusion
Summary judgment is not appropriate on Regions’ statute of limitations defense because
this suit was timely filed at least as to Paul E. Engle, IV. The motion is denied. Within 10 days,
the parties shall contact the Magistrate Judge to schedule a Case Management Conference.
SO ORDERED, this the 5th day of January, 2015.
s/ Carlton W. Reeves
UNITED STATES DISTRICT JUDGE
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