Seventh Circuit Considers Diversity Jurisdiction in Trust Dispute

12 March 2018 Wisconsin Appellate Law Blog
Authors: Thomas L. Shriner Jr

In Doermer v. Oxford Fin’l Group, Ltd., No. 17-1659 (7th Cir. Mar. 7, 2018), the Seventh Circuit had before it an example of what Chief Judge Diane Wood called a “depressingly common” type of litigation: “[f]amily disputes over who owns what.” In resolving the appeal, the court resolved a couple of interesting diversity jurisdictional issues that such disputes can present.

Brother Richard and sister Kathryn don’t get along. Richard previously sued Kathryn over control of a family foundation, but the case was dismissed because Richard lacked capacity under Indiana law to bring a derivative action; the Seventh Circuit affirmed in Doermer v. Callen, 847 F.3d 522 (7th Cir. 2017).

This time Richard sued Kathryn’s financial advisor for allegedly giving her negligent advice that caused her to mismanage a family trust, of which they are the two beneficiaries, as well as two of the three trustees. Richard, a citizen of Illinois, sued the advisor in state court in that state. The advisor, a citizen of Indiana, removed to federal court, invoking diversity jurisdiction. Richard objected to removal on two grounds—that he had named Kathryn (also a citizen of Indiana) as an “involuntary plaintiff,” so that there were Indiana citizens on both sides of the litigation; and that the “real party in interest” is the trust, which takes its citizenship from that of both trustees, so that (again, in his view) there were Indiana citizens on both sides of the litigation. The Seventh Circuit rejected both arguments.

First, the court noted that joinder of parties is a procedural matter governed by federal law in federal courts, and that law doesn’t permit a plaintiff to compel another party to join the litigation as an involuntary plaintiff. Nothing in Fed. R. Civ. P. 19 would allow Richard to join Kathryn as a party, and, to the extent that the issue is one of capacity rather than joinder, state law also would not permit him to make her a plaintiff involuntarily.

On the second issue, Richard fared no better. Traditional trusts like the one involved here cannot sue or be sued in their own name, so they are not “real parties in interest.” Litigation involving such trusts must be brought by or against the individual trustees. So, even though Richard claimed to be suing on behalf of the trust, his citizenship was all that mattered, and it was diverse from that of the advisor. Diversity jurisdiction was secure.

Ultimately, the court affirmed dismissal of this case for essentially the same reason as in the foundation case: Richard lacked capacity, either as a beneficiary or as one of the trustees, to bring this action on behalf of the trust.

This blog is made available by Foley & Lardner LLP (“Foley” or “the Firm”) for informational purposes only. It is not meant to convey the Firm’s legal position on behalf of any client, nor is it intended to convey specific legal advice. Any opinions expressed in this article do not necessarily reflect the views of Foley & Lardner LLP, its partners, or its clients. Accordingly, do not act upon this information without seeking counsel from a licensed attorney. This blog is not intended to create, and receipt of it does not constitute, an attorney-client relationship. Communicating with Foley through this website by email, blog post, or otherwise, does not create an attorney-client relationship for any legal matter. Therefore, any communication or material you transmit to Foley through this blog, whether by email, blog post or any other manner, will not be treated as confidential or proprietary. The information on this blog is published “AS IS” and is not guaranteed to be complete, accurate, and or up-to-date. Foley makes no representations or warranties of any kind, express or implied, as to the operation or content of the site. Foley expressly disclaims all other guarantees, warranties, conditions and representations of any kind, either express or implied, whether arising under any statute, law, commercial use or otherwise, including implied warranties of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Foley or any of its partners, officers, employees, agents or affiliates be liable, directly or indirectly, under any theory of law (contract, tort, negligence or otherwise), to you or anyone else, for any claims, losses or damages, direct, indirect special, incidental, punitive or consequential, resulting from or occasioned by the creation, use of or reliance on this site (including information and other content) or any third party websites or the information, resources or material accessed through any such websites. In some jurisdictions, the contents of this blog may be considered Attorney Advertising. If applicable, please note that prior results do not guarantee a similar outcome. Photographs are for dramatization purposes only and may include models. Likenesses do not necessarily imply current client, partnership or employee status.

Related Services

Insights

Will Other Tech Companies Join Microsoft in Honoring CCPA Across the U.S.?
18 November 2019
Internet, IT & e-Discovery Blog
Get Off My Lawn! Employers Gain Expanded Rights to Keep Unions Away from Their Property
18 November 2019
Labor & Employment Law Perspectives
Debunking Conventional Labor and Employment Wisdom
18 November 2019
Labor & Employment Law Perspectives
Oncology Care First: What You Need to Know About the Proposed Oncology Care First Model
18 November 2019
Health Care Law Today
PATH Summit 2019
18-20 December 2019
Arlington, VA
Madison CLE Days
18-19 December 2019
Madison, WI
MedTech Impact Expo & Conference
13-15 December 2019
Las Vegas, NV
Review of 2020 Medicare Changes for Telehealth
11 December 2019
Member Call