Chilton et al v. Chilton et al

Filing 63

ORDER denying as moot plaintiffs' 2 MOTION for a temporary restraining order; denying as moot plaintiffs' 4 MOTION for expedited discovery; denying Chilton defendants' 12 MOTION to dismiss; denying the corporate defendants' 19 MOTION to dismiss Count VIII; denying as moot plaintiffs' 25 MOTION for a preliminary injunction; denying United Bank's 29 MOTION to dismiss for failure to state a claim; denying corporate defendants' 31 MOTION to dismiss fo r failure to join required parties; denying as moot United Bank's 36 MOTION to exclude testimony or evidence; denying Chilton defendants' 41 MOTION to dismiss; denying plaintiffs' 46 MOTION to file surreply; denying plaintiffs� 39; 48 MOTION to revise scheduling order; granting as unopposed plaintiffs' 49 MOTION to enter preliminary injunction order; further directing the parties to fully brief all issues concerning joinder of any necessary but absent persons and e ntities, file appropriate motions, and, if required, tender evidence in support of any additional motions; and further striking the phrase "an individual" from the designation of both Chilton defendants in the case caption. Signed by Judge Thomas E. Johnston on 3/29/2013. (cc: attys; any unrepresented party) (jap)

IN THE UNITED STATES DISTRICT COURT
FOR THE SOUTHERN DISTRICT OF WEST VIRGINIA
CHARLESTON DIVISION

WILLIAM RUFFNER CHILTON, et al.,
Plaintiffs,

v.

CIVIL ACTION NO. 2:12-cv-02090

ROBERT MAXWELL CHILTON, et al.,
Defendants.

MEMORANDUM OPINION AND ORDER
This dispute centers on long-standing and rancorous sibling feuding concerning various
family trusts and assets. The Plaintiffs are William Ruffner Chilton and his sister, Cynthia
Chilton Wilson. Two of the Defendants are Plaintiffs’ siblings, Robert Maxwell Chilton and
Alice Chilton Zuber (sometimes referred to as the “Chilton Defendants”).

Defendant United

Bank, Inc. and United Bankshares Inc. (referred to collectively as “Defendants United Bank”)
serve as trustees to the trusts involved in this matter. Kanawha Village Apartments, Inc. (“KVA”)
and Twelve Sixty-Six Corporation (“1266 Corporation”) (sometimes referred to collectively as the
“corporate Defendants”) are the two closely-held Chilton family corporations. These entities are
the sole or primary assets of the various Chilton family trusts.
On June 15, 2012, the Plaintiffs filed a forty-five page Complaint alleging that for the past
fifteen years the Chilton Defendants (Defendant Robert Maxwell Chilton in particular) and

Defendants United Bank have abused their positions as trustees over various trusts that were
established for the benefit of the Chilton siblings by their now-deceased parents, William E.
Chilton II and Nancy Maxwell Ruffner Chilton. Plaintiffs also allege that Defendant Robert
Maxwell Chilton, and at times Defendant Alice Zuber, have allegedly engaged in numerous acts of
self-dealing. At the heart of this dispute is Plaintiffs’ contention that they and their children have
not received their fair share of the Chilton family’s wealth.
A dozen pretrial motions are pending, which the Court resolves as follows:

I. SUMMARY OF DECISION
(1)
(2)
(3)
(4)
(5)
(6)
(7)
(8)
(9)
(10)
(11)
(12)
(13)

(14)

Plaintiffs’ motion for a temporary restraining order [ECF 2]—DENIED AS MOOT;
Plaintiffs’ motion for expedited discovery [ECF 4] —DENIED AS MOOT;
The Chilton Defendants’ motion to dismiss [ECF 12] DENIED;
The Corporate Defendants’ motion to dismiss Count VIII [ECF 19]—DENIED;
Plaintiffs’ motion for a preliminary injunction [ECF 25]—DENIED AS MOOT;
Defendants United Bank’s motion to dismiss for failure to state a claim [ECF
29]—DENIED;
The Corporate Defendants motion to dismiss for failure to join required parties [ECF 31]—
DENIED;
Defendants United Bank’s motion to exclude testimony or evidence [ECF 36] —DENIED
AS MOOT;
The Chilton Defendants’ motion to dismiss [ECF 41]—DENIED;
Plaintiffs’ motion to file surreply [ECF 46] — DENIED;
Plaintiffs’ motion to revise scheduling order [ECF 48]—DENIED;
Plaintiffs’ motion to enter preliminary injunction order [ECF 49]—GRANTED as
unopposed;
The Court DIRECTS the parties to fully brief, as directed infra, all issues concerning
joinder of any necessary but absent persons and entities, file appropriate motions, and, if
required, tender evidence in support of any additional motions as directed in this Opinion;
and
The Court STRIKES the phrase “an individual” from the designation of both Chilton
Defendants in the case caption.

2

II. BACKGROUND
A. Parties
According to Plaintiffs’ Complaint, Plaintiff William Ruffner Chilton, a Michigan
resident, and his sister, Cynthia Chilton Wilson, of Kentucky, are “the beneficial and/or legal
owners of at least ten percent of the outstanding shares” of the two closely held West Virginian
family corporations, Defendants 1266 Corporation and KVA. (ECF 1 at 4.) Plaintiff states that
the family corporations are joined as Defendants only because they are required to name them
under West Virginia Code § 31D-8-809(c) and, in their prayer for relief, Plaintiffs do not seek any
relief from these corporate Defendants.

Defendant Robert Maxwell Chilton is a West Virginia

resident and his sister, Defendant Alice Chilton Zuber, resides in Illinois. Although not entirely
clear, it appears from the Complaint that Defendant Robert Chilton is the president of both 1266
Corporation and KVA and is chairman of 1266 Corporation’s board of directors. Alice Zuber is
the vice-president of both corporations. Both Chilton Defendants sit on both corporate boards of
directors.
Plaintiffs allege that 1266 Corporation and KVA are the principal assets of trusts created
by Plaintiffs for their own benefit, as well as certain other family trusts in which Plaintiffs have
beneficial interests, and that Defendant Robert Maxwell Chilton is either a sole trustee or
co-trustee of many, if not all, of these trusts.

Defendants United Bank, West Virginia

corporations, are the successors to the original co-trustee of trusts created by the Chilton siblings’
deceased parents, William E. Chilton, II and Nancy Maxwell Ruffner Chilton for the benefit of
their five children. (The oldest of the Chilton children was, Nancy Chilton Nelson Knapp. Ms.

3

Knapp died in 1975 prior to the death of her parents. Ms. Knapp’s heirs own shares in 1266
Corporation and KVA.)
B.

Defendants 1266 Corporation and Kanawha Village Apartments, Inc.
1. Defendant 1266 Corporation

The Complaint states that 1266 Corporation and KVA were formed by the Chilton
siblings’ parents and, over time, various transfers of stock occurred. Defendant 1266 Corporation
is named for the Chilton family’s stately and historic family residence located at 1266 Louden
Heights Road, Charleston, West Virginia. It is the childhood home of the Chilton siblings. It is
also the current residence of Defendant Robert Chilton, a fact, which, as discussed later, engenders
much irritation for the Plaintiffs. 1266 Corporation has a total of 500 shares of stock. These
shares, according to Plaintiffs, are allocated as follows:
100 shares are owned by the Cynthia Chilton Park trust (“Plaintiff Cynthia Wilson’s
trust”), a trust established for Plaintiff Cynthia Wilson’s benefit and of which Defendant
Robert Chilton serves as the trustee;
100 shares are owned in total by: the William Ruffner Chilton trust (“Plaintiff William
Chilton’s trust”), a trust established for Plaintiff William Chilton’s benefit (24 shares) and
which Defendant Robert Chilton serves as the trustee; and four of Plaintiff William
Chilton’s children (19 shares each);
100 shares are owned in total by the Alice Chilton Zuber Trust (52 shares) and, the Court
assumes, two of her children (24 shares each);
100 shares are owned in total by: Defendant Robert Chilton (1 share); three trusts that
appear to be somehow connected with Robert Chilton (8 shares each); three, presumably,
of Robert Chilton’s children or grandchildren (a total of 65 shares), and Robert Chilton’s
wife, Jane Cline Chilton (10 shares);
100 shares are owned in total by the estate of Caroline C. Franklin, Kristina Nelson Rucker,
and Oscar Nelson III (33.33 shares each), presumably, children of the Chilton siblings’
deceased sister, Nancy.

4

Accordingly, each of the five Chilton children, their children or heirs, or trusts in which they are
beneficiaries, have, directly or indirectly, equal twenty-percent stakes in 1266 Corporation.
Plaintiffs contend that the 100 shares that purportedly owned by Plaintiff Cynthia Wilson’s trust
are in fact owned by her directly. Plaintiffs contend that their father actually gave the stock
certificates for these shares to Cynthia, but that Defendant Robert Chilton “improperly” placed this
in Cynthia’s trust. As it presently stands, at least on 1266 Corporation’s books, the total shares
owned by both Plaintiffs’ trusts (124 shares) are controlled by Defendant Robert Chilton because
he is the trustee of both trusts. These 124 shares, coupled with the Chilton Defendants’ combined
200 shares, constitute 65% of the shares of 1266 Corporation, a fact which, according to Plaintiffs,
has permitted the Chilton Defendants to exercise “complete control” over 1266 Corporation.
2.

Defendant Kanawha Village Apartments, Inc.

Defendant KVA owns “an extensive portfolio of commercial and residential rental real
estate in the Charleston, West Virginia area.” (ECF 1 at 11.) Unlike 1266 Corporation, which
appears to generate no income and requires substantial funds to maintain the Chilton family
residence, the rental properties that comprise KVA generate substantial income. Defendant KVA
has a total of 2,550 shares. Plaintiffs claim that 400 of these shares are improperly listed as an
asset of the Cynthia Noyes Chilton trust. Plaintiffs claim that in 1978 these shares were placed in
a trust for her benefit denominated as “The Cynthia C. Quattrochi Trust”.1 Plaintiffs’ father and
Defendant Robert Chilton served as trustees of this trust. Plaintiffs assert that in 1990 Defendants
United Bank advised Plaintiff Cynthia Wilson that this trust had been closed for ten years and that
the 400 shares in KVA were given to Plaintiffs’ mother to pay off a $35,000 debt purportedly owed

1

Apparently, Plaintiff Cynthia Wilson was formerly known as Cynthia C. Quattrochi.

5

by Cynthia Wilson. Plaintiffs claim that United Bank has failed to respond to their demands for
documentation corroborating these events. It appears that in October 2010, Cynthia Wilson wrote
United Bank, “revoked her 1978 trust and demand[ed] delivery of her stock.” (Id. at 12.)
Plaintiffs claim that the 400 shares were then placed in trusts for her benefit which named her
father, Defendant Robert Chilton, and Defendants United Bank as co-trustees. Upon her father’s
death, Plaintiff Cynthia Wilson “designated herself as co-trustee” of the trust that holds the 400
shares.
The shares in Defendant KVA are, at least as far as KVA records are concerned, allocated
as follows:
90 shares are owned by Plaintiff Cynthia Wilson’s trust;
90 shares are owned by Plaintiff William Chilton’s trust;
490 shares are owned by Defendant Alice Zuber (458 shares) and, presumably, her
children (32 shares total);
458 shares in total are owned by Defendant Robert Chilton (304 shares); three trusts that
appear to be somehow connected with Robert Chilton (90 shares); and two of Robert
Chilton’s children (32 shares each);
522 shares in total are owned by the heirs of the Chilton siblings’ deceased sister, Nancy
Knapp;
500 shares in total are owned by the William E. Chilton II trust (a trust established by the
Chilton siblings’ father and in which Defendant Robert Chilton and Defendants United
Bank are co-trustees); and
400 shares are owned by the Cynthia Noyes Chilton trust (another trust where Defendant
Robert Chilton serves as trustee).

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III.

PLAINTIFFS’ CLAIMS

Plaintiffs sprinkle a variety of claims throughout ten separately numbered sections of their
forty-five page Complaint. 2 (See Sections designated “V” through “XII”).

These claims

generally assert sundry acts of self-dealing by the Chilton Defendants, including: (1) Defendant
Robert Chilton’s rent-free occupation of the Chilton family’s Louden Heights residence; (2)
Defendant Robert Chilton’s execution of a $147,000 promissory note to Defendants United Bank
in the name of 1266 Corporation that included personal debts of Robert Chilton and was secured
by a deed of trust on the Chilton family home and assignment of rents from KVA; and (3) the
Chilton Defendants’ purported siphoning of funds from KVA to pay for capital improvements to
the Chilton family home, as well as their charging a variety of Defendant Robert Chilton’s basic
living expenses (e.g. utilities, real estate taxes, and residential maintenance costs such as grass
cutting and small repairs) to 1266 Corporation. (See id. at Section “V”.)
Another form of alleged self-dealing concerns breaches of fiduciary duties of the various
trustees and corporate officers and directors.

These claims assert that the “Defendants”

(presumably including Defendants United Bank) failed to diversify the investment portfolios of
the trusts created for Plaintiffs’ benefit. Plaintiffs posit that if the portfolios had been properly
managed, Plaintiffs would have had annual income triple that of the approximately $18,000
Plaintiffs have received on average over the past decade or so. Plaintiffs further claim that the
Chilton Defendants have purposely held back payment of income to current beneficiaries because

2 Plaintiffs’ lengthy and often rambling Complaint is not the paradigm of effective pleading. The Complaint fails to
separate the Plaintiffs’ formal claims into in specific counts in the customary manner. Rather, the Complaint
contains fifteen numbered sections, some of which contain purely factual allegations and background, and others
appear to assert actual claims.

7

the future beneficiaries do not include Plaintiffs’ children, a fact that Plaintiffs attribute to
Defendant Robert Chilton’s duplicity.
Section “VI” of the Complaint, concerns the Chilton Defendants’ planned merger of 1266
Corporation and KVA. Plaintiffs oppose the merger. They claim that the valuations of 1266
Corporation and KVA are skewed and unfair to Plaintiffs.

They assert that the Chilton

Defendants, as trustees of Plaintiffs’ trusts, have a conflict of interest in voting the shares held in
the Plaintiffs’ trust in favor of the merger. Plaintiffs also claim that Defendant Robert Chilton has
“caused the boards of directors” of both family corporations to vote in favor of the proposed
merger and that the directors’ decisions are voidable under W. Va. Code § 31D-8-831 because,
among other things, of the Chilton Defendants’ domination and control over the other board
members, all of whom are family members. Other allegations asserted by Plaintiffs are that the
proposed stock exchange ratio for the corporate merger is not supported by a competent appraisal,
that notice to the shareholders of the proposed merger was deficient, and the merger plan omitted
material facts, all in violation of West Virginia law.
The remaining sections of the Complaint are somewhat more efficiently pleaded. Section
“VII” requests an order from the Court removing, pursuant to West Virginia Code § 44D-7-706,
the Chilton Defendants as trustees from all trusts established for Plaintiffs’ benefit. Plaintiffs also
request an order, pursuant to West Virginia Code § 31D-8-809, removing and barring the
re-election of the Chilton Defendants as officers and directors of 1266 Corporation and KVA.
Section “VIII” requests, pursuant to West Virginia Code § 31D-14-1430, appointment of a
receiver and judicial dissolution of 1266 Corporation and KVA, as well as the appointment of “an
interim trustee of all trusts for the express purpose of insuring that all trust beneficiaries receive

8

their fair share of the proceeds from the dissolution of the closely-held corporations.” (ECF 1 at
34.)

Section “IX” requests an accounting of all transactions in the trusts created for Plaintiffs’

benefit and for which the Chilton Defendants serve as trustees.

This section requests

compensatory damages and “punitive damages in an amount appropriate under controlling judicial
decisions in this jurisdiction, but at an amount of not less than three times the amount of
compensatory damages.” Plaintiffs further request an order evicting Defendant Robert Chilton
from the Louden Heights residence, damages relating to his “decade-long, rent-free occupation” of
the Chilton family home, and an order barring his removal of personal property belonging the
siblings’ parents.
Section “X” alleges that Defendant Robert Chilton misappropriated “hundreds of
thousands of dollars” of life insurance proceeds from insurance policies relating to the siblings’
maternal grandfather, Robert E. Lee Ruffner. (Id. at 37.)

Plaintiffs claim that these funds

should have been included in various family trusts of which Plaintiffs are beneficiaries.
Section “XI” alleges that Defendant Robert Chilton used “undue influence to cause his
parents to revise their trusts in 1989, at a time when his parents lacked adequate mental capacity, to
cut [Plaintiffs’ children] out of any inheritance.” (Id.)
Section “XII” alleges that the Chilton Defendants breached their fiduciary duties in a
variety of ways including mismanaging and misappropriating trust assets relating to Plaintiffs’
individual trusts and the family trusts established for their benefit. The Chilton Defendants
allegedly violated West Virginia Code § 44-6C-1, et seq. and common law by failing to exercise
reasonable care in the investment and management of the trust assets.

9

Section “XIII” alleges that the Chilton Defendants violated their duties under West
Virginia Code § 44-6C-6 to treat the beneficiaries of the trusts with impartiality. Plaintiffs allege
that the Chilton Defendants paid to themselves, directly or indirectly, “grossly disproportionate
shares of the income and other assets of the collective trusts” or from the family corporations.
Plaintiffs ask the Court to order that the Chilton Defendants make “catch-up” payments to
Plaintiffs.
Finally, section “XIV” alleges that Defendants United Bank breached their fiduciary duties
in no fewer than twenty-four enumerated ways, all in violation of West Virginia Code
§44D-7-703(g).
The final section (erroneously enumerated as section “XIII”) sets out Plaintiffs’ prayer for
relief, which reiterates the various requests for relief set out elsewhere in the Complaint, as well as
a request for attorneys’ fees, costs, and interest.
IV.
A.

PENDING MOTIONS

Motions Relating to Requests for Temporary and Preliminary Injunctions

On June 15, 2012, the same day they filed their Complaint, Plaintiffs filed a motion for a
temporary injunction order [ECF 2] and a motion for expedited discovery in aid of the temporary
injunction order [ECF 4]. On June 22, 2012, the Court conducted a hearing on the motions and,
based on the parties’ standstill agreement, the Court scheduled a preliminary injunction hearing for
July 18, 2012. On July 6, 2012, Plaintiffs filed their motion for preliminary injunction order [ECF
25]. On July 13, 2012, Defendants United Bank moved to exclude certain evidence at the July 18,
2012 preliminary injunction hearing [ECF 36].

10

At the July 18, 2012 hearing, the parties advised the Court that they had entered into
agreements respecting the Plaintiffs’ motions and that agreement eliminated the need for a
hearing. On February 27, 2013, Plaintiffs filed a motion requesting the Court enter one of two
proposed versions of a permanent injunction order [ECF 49]. No Defendant responded to the
motion.
Accordingly, in light of the foregoing, the Court DENIES AS MOOT Plaintiffs’ motions
for temporary and permanent injunctions [ECF 2, 25] and their motion for expedited discovery
[ECF 4]. The Court also DENIES AS MOOT Defendants United Bank’s motion to exclude
evidence [ECF 36]. The Court GRANTS as unopposed Plaintiffs’ motion to enter preliminary
injunction order [ECF 49].
B.

Defendants’ Motions to Dismiss
1.

Chilton Defendants’ Motion to Dismiss

The Chilton Defendants filed two motions to dismiss [ECF 12 & 41].3 In their first
motion to dismiss, they argue that dismissal is appropriate on two grounds: (1) the Complaint
fails to state a claim on which relief may be granted under Rule 12(b)(6) of the Federal Rules of
Civil Procedure; and (2) pursuant to Federal Rule of Civil Procedure 12(b)(7), Plaintiffs failed to
join required, absent persons under Federal Rule of Civil Procedure 19.
a.

Chilton Defendants’ Rule 12(b)(6) Argument

In support of their failure to state a claim argument, the Chilton Defendants contend that
because Plaintiffs are not “shareholders” as defined under the West Virginia Business Corporation
3 Both of these motions violate the Court’s Local Rules of Civil Procedure and the provisions of the Court’s
Administrative Procedures for Electronic Case Filing (rev. Nov. 2012) because they do not contain separate
memoranda in support of the motions. See L.R. Civ. P. 7.1(a)(1) & (2) and Section 10 of the Court’s Administrative
Procedures for Electronic Case Filings. Counsel are cautioned to adhere to the Court’s rules in future filings.

11

Act [West Virginia Code §§ 31D-1-101, et seq.], they cannot bring a shareholder derivative suit.
In response, Plaintiffs contend that the statutory definition of “shareholder” under the West
Virginia Business Corporation Act does not apply to them because their shareholder derivative suit
is rooted in common law and is not statutorily based. As such, Plaintiffs reason that they have
standing to bring a derivative shareholders suit because Plaintiffs have beneficial interests in the
trusts and, under Felsenheld v. Bloch Bros. Tobacco Co., 192 S.E. 545 (W. Va. 1937), may
prosecute a shareholders’ derivative suit as beneficial owners of those interests.
Prior to the enactment of the West Virginia Business Corporation Act of 2002, shareholder
derivative suits were governed by West Virginia Code § 31-1-103.

This statute provided

corporations with some protection from frivolous derivative lawsuits by the requirement that a
shareholder be a “holder of record of shares or of voting certificates” at the time of alleged
transactions. An exception to this rule afforded standing if a plaintiff’s present shares or voting
certificates were inherited from a person who was a shareholder at the time of the complained
events. W. Va. Code § 31-1-103 (2001). Moreover, a judge could award attorneys’ fees and
costs in cases brought without reasonable cause, and a defendant could require a plaintiff holding
less than five percent of the shares (if valued at $25,000 or less) to post security. Id. In 2002,
however, the West Virginia State Legislature repealed § 31-1-103 leaving nothing other than
common law to guide future derivative shareholder actions. See Heather Flanagan, The Difficulty
of a Plaintiff’s Playground being truly “Open for Business”: An Overview of West Virginia’s
Corporate Law Governing Derivative Suits, 110 W. Va. L. Rev. 883, 898 (2008).
Prior to the repeal of § 31-1-103 there was some authority that this statute permitted
persons with beneficial ownership of shares to bring a derivative shareholder action pursuant to

12

§31-1-103 and Rule 23.1 of the Federal Rules of Civil Procedure even though the person was not a
shareholder of record. In Silling v. Erwin, 881 F. Supp. 236 (S.D. W. Va. 1995), the plaintiff
inherited his father’s majority shareholder interest (50.1%) in the father’s corporation. Id. at 238.
During the father’s lifetime, he never declared a dividend. Id. The plaintiff contended that
dividends should have been paid when the corporate debt had been paid off. Id. The plaintiff,
even though his father was the majority shareholder, brought a derivative shareholder claim
against the corporation for suppressing dividends. Id. The parties agreed that “beneficial
ownership of shares is sufficient to bring a derivative action under Rule 23.1 of the Federal Rules
of Civil Procedure and West Virginia Code Section 31-1-103.”

Id. at 239.

The parties

disagreed, however, whether plaintiff was in fact a beneficial owner. Id. In answering this
question Chief Judge Haden turned to Felsenheld v. Bloch Bros. Tobacco Co., the case cited by the
Chilton Plaintiffs, and noted that Felsenheld stood for the proposition that persons with “a clear
beneficial interest in a corporation may bring a derivative suit without being shareholders of
record.” Id. Judge Haden further found that beneficiaries of a trust holding stock are equitable
shareholders who may bring an action against the corporation.

Id.

The court concluded

however, that the plaintiff’s claim was too remote to be considered “beneficial” because he was
not the beneficial owner of the shares at the time of the alleged wrongful actions.
Here, Plaintiffs are indisputably have (and have had) a beneficial interest in trusts that hold
stock in 1266 Corporation and KVA. Indeed, Plaintiff Cynthia Wilson asserts that she is in fact
the legal owner of the stock in 1266 Corporation and that the stock was improperly placed in trusts
for her benefit. She further contends that she is a co-trustee of her individual trust. Because
there is not any

much less conflicting

statutory scheme governing derivative shareholder suits
13

in West Virginia, the appropriate source of law governing this matter is West Virginia common
law. Based on Felsenheld and Silling it is clear that Plaintiffs have standing to prosecute a
derivative shareholders action against the Defendants. Accordingly, the Chilton Defendants’
motions to dismiss [ECF 12 & 41] are DENIED as to the argument that Plaintiffs lack standing to
bring a derivative shareholder suit.
b. Chilton Defendants’ Rule 12(b)(6) Argument
As for their failure to join required parties argument under Federal Rule of Civil Procedure
12(b)(6), Defendants contend that Plaintiffs have failed to join John Barrett, a co-trustee to one of
the Chilton family trusts of which Plaintiffs are beneficiaries. In response, Plaintiffs argue that
the Court must deny the Chilton Defendants’ motion to dismiss because John Barrett is not an
“indispensable” party for the simple reason that he is a West Virginia resident whose presence, if
joined as a party, would not destroy diversity. Stated differently, Plaintiffs essentially argue that
“indispensability” is a term of art that only applies if the party is both necessary under Rule 19(a)
and is of such importance to the interests at stake that the action should be dismissed under Rule
19(b) if he cannot be joined. Plaintiffs contend that a motion to dismiss under Rule 12(b)(7) can
only succeed if the Defendants can show that the absent person is necessary, cannot be joined for
jurisdictional reasons, and whose interests are so weighty that the case cannot proceed in his or her
absence and must be dismissed.
Plaintiffs clearly have the better argument here. Under Rule 19(a)(1) of the Federal Rules
of Civil Procedure a person
who is subject to service of process and whose joinder will not deprive the court of
subject-matter jurisdiction must be joined as a party if:

14

(A)

in that person’s absence, the court cannot accord complete relief among
existing parties; or

(B)

that person claims an interest relating to the subject of the action and is so
situated that disposing of the action in the person’s absence may:
(i)

as a practical matter impair or impede the person’s ability to protect
the interest; or

(ii)

leave an existing party subject to a substantial risk of incurring
double, multiple, or otherwise inconsistent obligations because of
the interest.

The Court must order such “necessary” persons be made parties. Fed. R. Civ. P. 19(a)(2).
Moreover, a person “who refuses to join as a plaintiff may be made either a defendant or, in a
proper case, an involuntary plaintiff.” Id. Thus, if the Court finds that a party is “necessary”
under Rule 19(a), the Court must order that such a person be made a party, not dismiss the case.
Dismissal is, however, one of two options under Rule 19(b) if the joinder of a necessary party is
not feasible. In that event the Court must determine “whether, in equity and good conscience, the
action should proceed among the existing parties or should be dismissed.” Fed. R. Civ. P. 19(b).
In making that determination, the following factors are considered:
(1)

the extent to which a judgment rendered in the person's absence might
prejudice that person or the existing parties;

(2)

the extent to which any prejudice could be lessened or avoided by:
(A)
(B)
(C)

protective provisions in the judgment;
shaping the relief; or
other measures;

(3)

whether a judgment rendered in the person's absence would be adequate;
and

(4)

whether the plaintiff would have an adequate remedy if the action were
dismissed for nonjoinder.
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Fed. R. Civ. P. 19(b)(1) (4).
It is apparent that John Barrett’s presence as a party in this suit will not destroy this Court’s
diversity jurisdiction. The question, however, remains whether Mr. Barrett is a “necessary” party
to this case. It appears that he is a co-trustee to one of the Chilton family trusts that is under attack
by Plaintiffs in this case. Based on the record as it now stands and inadequate briefing by the
parties, the Court lacks sufficient evidence to make this finding and for this reason, the Court
DENIES the Chilton Defendants’ motions to dismiss [ECF 12, 41] to the extent that they are
predicated on dismissal under Rule 12(b)(7).
The issue of whether John Barrett is in fact a necessary party is important to resolve.
Also, although not the subject of any of the Defendants’ motions, the Court is concerned that,
given the broad scope of Plaintiffs’ allegations and relief they request (e.g. orders blocking the
merger of 1266 Corporation and KVA (ECF at 21-32), declaring the meaning of corporate by-laws
(ECF at 30), removing the Chilton Defendants as trustees and corporate officers of closely-held
family companies (ECF at 32-33), appointing an interim trustee of “all trusts” and terminating “all
trusts” (ECF at 33-34)), the Court has grave concerns that there are other persons perhaps many
other persons who interests are affected in a manner requiring their joinder under Rule 19. For
example, there are more than two dozen persons and entities that appear to own shares in 1266
Corporation and KVA. There are a half a dozen persons who serve on the corporate boards who
are not presently parties in this case. Plaintiffs’ Complaint references more than a dozen Chilton
trusts. Although it may well be that all, some, or none of these persons and entities are necessary
parties, their interests should be carefully examined in light of the extraordinary breadth of the
relief Plaintiffs seek.
16

Accordingly, the Court DIRECTS the parties to fully brief these issues by appropriate
motions and, if necessary, tender evidence in support of any such motions on or before April 22,
2013. Responses and replies will be due according to Local Rules.
c.

Chilton Defendants’ Argument Regarding Plaintiffs’ Failure to
Name the Chilton Defendants in their Fiduciary Capacities

In their second motion to dismiss [ECF 41], the Chilton Defendants expand upon their
argument that Plaintiffs failed to join required parties. This time they contend that, while
Plaintiffs named the Chilton Defendants in their individual capacities, they failed to name them in
their fiduciary capacities. In light of the nature of Plaintiffs’ claims, the Chilton Defendants argue
that this omission renders the Plaintiffs’ Complaint fatally deficient.
Plaintiffs argue that their Complaint plainly and repeatedly makes clear that the Chilton
Defendants are in fact being sued in the fiduciary capacities. Plaintiffs affirmatively state more
than once that their lawsuit “is not a suit against the trust. (ECF 44 at 8-9.) Rather, it is a suit
against the “trustees for breaches of duties in their administration of the trust” and that a judgment
against the Chilton Defendants for breach of their fiduciary duties will be collected from the
Chilton Defendants personally. (Id. at 8.)
In the caption of their Complaint, Plaintiffs identify Defendant Robert Maxwell Chilton as
“an individual”. (ECF 1 at 1.) The same form is applied to Defendant Alice Chilton Zuber. (Id.)
The Court observes that pursuant to Federal Rule of Civil Procedure 9(a)(1), generally a pleading
need not allege a party’s capacity to be sued. In light of Plaintiffs’ explicit concession that they
intend to prosecute their claims against the Chilton Defendants in their individual and fiduciary
capacities, the Court will construe Plaintiffs’ allegations against the Chilton Defendants to be
against these Defendants as individuals and fiduciaries. Thus, the Court STRIKES the phrase
17

“an individual” from the designation of both Chilton Defendants in the case caption. This was the
sensible remedy the district court in Castleglen, Inc. v. Commonwealth Savings Ass’n, 118 F.R.D.
515, 516 (D. Utah 1988) employed under similar circumstances.

Accordingly, the Court

DENIES the Chilton Defendants’ motions to dismiss [ECF 12, 41] to the extent they are
predicated on Plaintiffs’ failure to name the Chilton Defendants’ in their capacity as fiduciaries.
2. Defendants 1266 Corporation’s and KVA’s Motions to Dismiss
Defendants 1266 Corporation and KVA move to dismiss Count VIII of the Complaint for
failing to state a claim under Federal Rule of Civil Procedure 12(b)(6).4 [ECF 19.] Defendants
reason that Plaintiffs cannot obtain judicial dissolution of the two family corporations because they
are not shareholders under the statutory definition of that term. Under West Virginia Code
§31D-1-150(21) a “shareholder” is “the person in whose name shares are registered in the records
of a corporation or the beneficial owner of shares to the extent of the rights granted by a nominee
certificate on file with a corporation.” Because Plaintiffs are merely beneficiaries of trusts that
own shares in the corporations, Defendants 1266 Corporation and KVA argue Plaintiffs lack
standing to seek judicial dissolution.
The problem with the corporate Defendants’ argument, as Plaintiffs point out, is that the
Complaint alleges that Plaintiffs “are the beneficial and/or legal owners of at least ten percent of
the outstanding shares” of the corporate Defendants. (ECF 1 at 4.)

Plaintiffs allege that in the

course of discovery they will ascertain that the 100 shares of 1266 Corporation stock purportedly

4 As with the Chilton Defendants’ motions, the corporate Defendants’ motions violate the Court’s Local Rules of
Civil Procedure and the provisions of the Court’s Administrative Procedures for Electronic Case Filing (rev. Nov.
2012) because they do not contain separate memoranda in support of the motions. See L.R. Civ. P. 7.1(a)(1) & (2)
and Section 10 of the Court’s Administrative Procedures for Electronic Case Filings. Counsel are cautioned to
adhere to the Court’s rules in future.

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held in trust for Plaintiff Cynthia Chilton were in fact given to her by her father. (See ECF 1 at
10.) Plaintiffs also contend that Plaintiff Cynthia Wilson is a co-trustee of her individual trust
and, thus, is a legal owner on the books and records of [KVA].” (Id. at 11.)
It is fundamental that in reviewing a motion to dismiss under Rule 12(b)(6), the Court must
assume “the truth of all facts alleged in the complaint and the existence of any fact that can be
proved, consistent with the complaint’s allegations.” E. Shore Markets, Inc. v. J.D. Associates
Ltd. Partnership, 213 F.3d 175, 180 (4th Cir. 2000). When considering a motion to dismiss, a
court “accept[s] as true all well-plead allegations and view[s] the complaint in the light most
favorable to the plaintiff.” Sec. of State for Defence v. Trimble Navigation Ltd., 484 F.3d 700, 705
(4th Cir. 2007); see also Schatz v. Rosenberg, 943 F.2d 485, 489 (4th Cir. 1991).
Based on these principles and the record as it now stands, the Court DENIES the corporate
Defendants’ motion to dismiss Count XIII [ECF 19].
Defendants 1266 Corporation and KVA also move to dismiss based on the Plaintiffs’
failure to join required parties under Federal Rule of Civil Procedure 19. [ECF 31.] Their
argument is similar to that made by the Chilton Defendants supra. The Court DENIES the
motion to dismiss [ECF 31] for the same reasons given in connection with the denial of the Chilton
Defendants’ motion.
C.

Miscellaneous Motions

Also pending are: (1) Plaintiffs’ motion to file a surreply to the Chilton Defendants’ Reply
[ECF 45] in support of their motion to dismiss [ECF 46] and (2) Plaintiffs’ motion to revise the

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scheduling order [ECF 49.] These motions are DENIED.
IT IS SO ORDERED.
The Court DIRECTS the Clerk to send a copy of this Order to counsel of record and any
unrepresented party.
ENTER:

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March 29, 2013