Searching over 5,500,000 cases.


searching
Buy This Entire Record For $7.95

Download the entire decision to receive the complete text, official citation,
docket number, dissents and concurrences, and footnotes for this case.

Learn more about what you receive with purchase of this case.

Culver Educational Foundation v. Blythe

March 9, 2006

THE CULVER EDUCATIONAL FOUNDATION, AN INDIANA NOT-FOR-PROFIT CORPORATION, PLAINTIFF,
v.
C. DANIEL BLYTHE, MICHAEL X. CRONIN, JOHN M. TIERNAN, FRANK A. TROIKE, RICHARD UGOLINI, INDIVIDUALLY AND AS TRUSTEES OF THE JAMES R. LOWENSTINE TRUST DATED AUGUST 17, 1981 AND THE CONSERVE SCHOOL TRUST THEREUNDER, RUSH UNIVERSITY MEDICAL CENTER, AN ILLINOIS NOT-FOR-PROFIT CORPORATION, DOING BUSINESS AS RUSH MEDICAL COLLEGE OF RUSH UNIVERSITY, AND THE CONSERVE SCHOOL CORPORATION, A WISCONSIN NOT-FOR-PROFIT CORPORATION, DEFENDANTS.



The opinion of the court was delivered by: Judge Virginia M. Kendall

MEMORANDUM OPINION AND ORDER

Plaintiff, the Culver Educational Foundation ("Culver"), brought suit for breach of fiduciary duty against five individuals, both personally and in their capacity as trustees of a testamentary trust (the "Trustees"), and against the Conserve School Corporation.*fn1 The Trustees and the Conserve School Corporation (together the "Defendants"), moved to dismiss the complaint pursuant to Federal Rule of Civil Procedure 12(b)(1) for lack of subject matter jurisdiction. Because Culver has pled sufficient facts to refute the probate exception to federal jurisdiction, the Court denies the motion.

Legal Standard for a Motion to Dismiss

A motion to dismiss under Federal Rule of Civil Procedure 12(b)(1) challenges a court's jurisdiction over the subject matter at issue. The party seeking to bring suit in a federal forum bears the burden of establishing federal subject matter jurisdiction. United Phosphorus, Ltd. v. Angus Chemical Co., 322 F.3d 942, 946 (7th Cir. 2003). When considering a motion to dismiss for lack of subject matter jurisdiction, the Court accepts all well-pleaded factual allegations in the complaint as true, and draws all reasonable inferences from those allegations in favor of the plaintiff. Storm v. Storm, 328 F.3d 941, 943 (7th Cir. 2003).

Allegations of the Complaint

According to the Complaint, James R. Lowenstine established the James R. Lowenstine Trust (the "Trust") during his lifetime, and executed a Second Restatement of the Trust (the "Trust Instrument") a few months prior to his death. Complaint at ¶ 10. Mr. Lowenstine was a resident of Illinois at the time of his death. Id. at ¶ 11. The Trust's primary asset is a collection of stock comprising a controlling interest in the Central Steel and Wire Company ("Central Steel"), a Delaware Corporation with its principal place of business in Chicago, Illinois. Id. at ¶ 13. The Trust Instrument states that so long as the Trust owns the controlling interest in Central Steel, the individual directors of Central Steel automatically will be the individual trustees of the Trust. Id. at ¶ 15 - 16. The Trustees have been the directors (and the Trustees) since Mr. Lowenstine's death. Id. at ¶ 16.

The Trust Instrument provided for individual distributions to certain individuals upon Mr. Lowenstine's death, and directed the Trustees to place the remainder of Mr. Lowenstine's assets in a separate trust known as the Conserve School Trust, also administered by the Trustees. Id. at ¶ 19- 20. If certain conditions were met, the Conserve School Trust income and principal would be used to establish and operate a private school in northern Wisconsin named the Conserve School (the "School"). Id. If the conditions set forth in the Trust Instrument were not met, then subject to certain other conditions, the Trust Instrument directed the Trustees to sell the Central Steel Stock, and distribute the principal of the Conserve School Trust in part to Rush, and in part to Culver. Id. at ¶ 21-22.

The Trust Instrument directed the Trustees that the Conserve School should not be established "if for any . . . reason the trustees determine at any time that it is legally impossible or otherwise impractical to operate the Conserve School. . ." Id. at ¶ 23.*fn2 The Trust Instrument also directed the Individuals not to expend the principal of the Conserve School Trust until making determinations that the earnings of the Conserve School Trust, along with other sources of income, would be sufficient to maintain and operate the School. Id. at ¶ 24. The Trustees built the school and opened it for classes in September 2002. Id. at ¶ 30.

Culver alleges that the Individual Trustees breached their fiduciary duty in three respects. First, the Trustees allegedly failed to examine the feasibility of the School prior to building it, or determine whether the income from the Trust would be sufficient to maintain and operate the School in the future. Id. at ¶¶ 25-26. Second, the Trustees allegedly breached their fiduciary duty by funding the ongoing operations of the School with distributions from the principal of the Conserve School Trust, in violation of the terms of the Trust Instrument. Id. at ¶ 31-32. Third, Culver alleges that because the Trustees breached their fiduciary duty by failing to sell the shares of Central Steel, the value of Conserve School Trust deteriorated after Mr. Lowenstine's death. Id. at ¶ 47.

Culver alleges that it has been damaged by these breaches because it is the contingent beneficiary of the Conserve School Trust. The Trust Instrument directed the Trustees to sell the shares of Central Steel and distribute principal of the Conserve School Trust to Culver once it became clear that the School could not operate without invading the principal of the Conserve School Trust. Id. at ¶¶ 33-35. By failing to follow these instructions, and by failing to sell the Central Steel shares as would a prudent investor, the Conserve School Trust principal has deteriorated. Culver seeks both damages from the Trustees and specific performance of the terms of the Trust Instrument, whereby Culver would receive the distribution of the Conserve School Trust.

Discussion

Defendants move to dismiss the Complaint on two grounds.*fn3 First, Defendants claim that the controversy is covered by the "probate exception" to federal jurisdiction. Second, Defendants suggest as an alternative that the Court should abstain from hearing the case in deference to the state courts of Illinois. Because the Court does not find that this case falls within the probate exception, and because there is no ongoing proceeding from which the Court should abstain, Defendants' motion is denied.*fn4

The Probate Exception

A federal court "has no jurisdiction to probate a will or administer an estate." Markham v. Allen, 326 U.S. 490, 494, 66 S.Ct. 296, 298 (1946). Under the holding of Markham, known as the "probate exception," even a case that meets the requirements of diversity jurisdiction cannot be heard by the federal courts if it is a probate matter. Storm, 328 F.3d at 943. The precise contours of the exception have not been well-defined; the exception applies easily to "pure" probate matters, such as the administration of an estate governed by a will, but becomes increasingly difficult to apply to matters that may be "ancillary" to probate. Id. The probate exception should be construed narrowly, as it is a judicially created exception to the statutory grant of federal diversity jurisdiction. Georges v. Glick, 856 F.2d 971, 973 (7th Cir. 1988). The parties agree on three facts relevant to the issue of jurisdiction: (i) the Trust has been probated by the Illinois state courts; (ii) the probate proceedings in Illinois state court have closed; and (iii) the Trust Instrument is a validly probated document. Beyond this, however, agreement between the parties ends. Culver argues that the legal issue before the Court is solely one of breach of fiduciary duty, and therefore completely outside the probate exception. Defendants contend that the scope of the Trustee's duties and authority under ...


Buy This Entire Record For $7.95

Download the entire decision to receive the complete text, official citation,
docket number, dissents and concurrences, and footnotes for this case.

Learn more about what you receive with purchase of this case.