Evans v. Pearson Enterprises, Inc.
| Decision Date | 19 January 2006 |
| Docket Number | No. 04-2229.,04-2229. |
| Citation | 434 F.3d 839 |
| Parties | Jane P. EVANS, Plaintiff-Appellant, v. PEARSON ENTERPRISES, INCORPORATED, a Michigan Corporation; Ervin Industries, Incorporated, a Michigan Corporation; Bank One Trust Company N.A.; Bank One National Association; John Pearson, an individual; James Meretta, an individual, Defendants-Appellees. |
| Court | U.S. Court of Appeals — Sixth Circuit |
ARGUED: Dominic J. Campisi, Evans, Latham & Campisi, San Francisco, California, for Appellant. I.W. Winsten, Honigman, Miller, Schwartz & Cohn, Detroit, Michigan, for Appellees. ON BRIEF: Dominic J. Campisi, Evans, Latham & Campisi, San Francisco, California, Donald J. Gasiorek, James N. McNally, Sommers, Schwartz, Silver & Schwartz, Southfield, Michigan, for Appellant. I.W. Winsten, Honigman, Miller, Schwartz & Cohn, Detroit, Michigan, Bruce T. Wallace, Susan T. Cannell, Hooper, Hathaway, Price, Beuche & Wallace, Ann Arbor, Michigan, for Appellees.
Before: SILER, CLAY, and ROGERS, Circuit Judges.
CLAY, J. (pp. 854-857), delivered a separate concurring opinion.
This diversity action concerns claims for breach of trust, shareholder oppression, and common-law fraud and misrepresentation as governed by Michigan law. It also presents an interesting federal question as to the breadth of the "probate exception" to federal jurisdiction. Plaintiff Jane Evans has an interest in three trusts, whose primary assets are voting and nonvoting stock in Ervin Industries, a family-owned corporation. Evans' family members, who have interests in two of the three trusts, are the other beneficiaries of the voting-stock trust. In 2001, Evans sued her siblings, the trust company defendant Bank One, and defendant Ervin Industries in Michigan probate court. The essence of her claim was that Bank One's lending relationship with Ervin Industries caused Bank One to have a conflict of interest and abdicate its responsibilities as trustee in the course of three business transactions, occurring in 1993, 1996, and 1999. The probate court dismissed her suit, and the Michigan Court of Appeals recently affirmed.
Before the probate court dismissed her suit, Evans brought similar claims in federal district court. She alleged tortious conduct in connection with the same three business transactions and sued Ervin Industries, Pearson Enterprises, Bank One Trust Company, Bank One N.A., her brother John Pearson, and Bank One trust officer James Meretta. The district court dismissed all of her claims in response to defendants' motions to dismiss. The district court held that the "probate exception" to federal jurisdiction divested it of jurisdiction to entertain Evans' claim for breach of trust. The court dismissed all of Evans' other claims on grounds of collateral estoppel or inadequate pleading. The lower court also refused or declined to consider Evans' requests to amend her complaint. Evans appeals, challenging (1) the dismissal of her claims for breach of trust, shareholder oppression, and fraud and (2) the denial of her request to amend her complaint. For the following reasons, we affirm.
In reviewing the grant of a motion to dismiss under Rule 12(b)(6), we "must accept all well-pleaded factual allegations of the complaint as true and construe the complaint in the light most favorable to the plaintiff." E.g., Benzon v. Morgan Stanley Distribs., Inc., 420 F.3d 598, 605 (6th Cir.2005). Doing so, we conclude that dismissal was proper, in part, on collateral estoppel grounds and, in part, for failure to plead with sufficient particularity.
There are three trusts involved in this litigation. Two of these trusts are testamentary. The first testamentary trust was created by John Ervin, who founded defendant Ervin Industries, which manufactures steel abrasives. Ervin Industries is a Michigan corporation with its principal place of business in Michigan, and Ervin's grandson, defendant John Pearson, is its current president, CEO, and director. The primary asset of Ervin's testamentary trust was Ervin Industries' Class A voting stock. His daughter and four grandchildren are the income beneficiaries, and two of those grandchildren, plaintiff Evans and defendant Pearson, are parties to this suit. This substantial trust was divided into five separate trusts in 1987 so that each beneficiary had his or her own trust. The second testamentary trust was established by Ervin's wife, and its primary asset was the remaining Class A voting stock in Ervin Industries. Evans and her siblings have beneficial interests in this testamentary trust as well.
The final trust at issue in this case is not testamentary. Evans established her own revocable trust in 1995. The res of the revocable trust is Class B nonvoting stock in Ervin Industries. Evans named herself the income beneficiary of her revocable trust and another trust company as the remainder beneficiary of any trust property in existence at her death. Because Evans' trust is revocable, she concedes that she has control over the trust.
Defendant Bank One Trust Company N.A. (Bank One Trust) is the sole trustee of the testamentary trusts. Therefore, Bank One Trust controls all of the Class A voting stock in Ervin Industries by acting as trustee of all shareholder-voting rights. Bank One Trust was also the co-trustee, along with Evans, of the revocable trust. Defendant James Meretta is employed as a trust officer for Bank One Trust, and he also serves on the board of directors of both defendants Pearson Enterprises and Ervin Industries. The district court found that Meretta was the trust officer for the revocable trust. It is unclear from the record whether he is also the trust officer for the other trusts. Bank One Trust, Bank One, and Meretta have the same counsel and are referred to collectively as the "Bank One defendants."
Pearson Enterprises was incorporated in Michigan in 1993 and has its principal place of business there. Pearson Enterprises was a participant in two of the three transactions at issue in this case. John Pearson is also the president, CEO, and director of Pearson Enterprises. John Pearson, Pearson Enterprises, and Ervin Industries have the same counsel and are referred to collectively as the "Pearson defendants."
Evans' claims arise out of three business transactions. The first transaction was a 1993 acquisition of Barton Abrasives, a company located in the United Kingdom for $17.65 million. The defendants created a limited partnership to complete this transaction. The general partner was the then-newly incorporated Pearson Enterprises, and the limited partner was Ervin Industries. Evans purchased more than 25,000 shares of stock in Pearson Enterprises with over $1.5 million that she had received in trust distributions. Evans alleges that she ultimately lost all of this investment. Evans' complaint alleged that the defendants had false valuation reports prepared, made false descriptions of write-offs, charged her an excessive price in the acquisition, failed to supervise agents, failed to perform due diligence, concealed material facts, and negotiated unreasonably. Evans alleged that Bank One and Meretta approved this transaction. She also alleged that the defendants concealed their misrepresentations until 2001.
The second transaction was Ervin Industries' and Pearson Enterprises' 1996 acquisition of a 40% interest in Ervin Leasing Company from Great Lakes Bancorp. Evans alleged that she purchased an additional $500,000 worth of Pearson shares to help finance the acquisition. According to her complaint, she invested her $500,000 "directly and through" her revocable trust. Evans alleges that she also lost this entire investment because of the defendants' misrepresentations and concealment. She also alleged that the defendants failed to disclose that the acquisition was a "poor investment" and that Evans would not receive "dividend income for the foreseeable future." Her allegations continue that the defendants failed to engage in due diligence and that Bank One failed to inform her of its conflict of interest, which resulted from its and its affiliates' loans to Ervin Leasing Company. Evans again alleged that the defendants concealed the misrepresentations until 2001.
The final transaction at issue is Ervin Industries' 1998 acquisition of the Barnsteel Company for $15 million. Evans alleged that Bank One Trust and Meretta failed to perform due diligence, disclose that the terms of the transaction were unreasonable and imprudent, and disclose that Bank One Trust had a conflicting lending relationship. Barnsteel's closure in 2001 resulted in a substantial loss to Ervin Industries and to the value of Evans' stock. Evans has not alleged that she invested any of her own money in this transaction.
Evans first brought suit in Michigan probate court on August 31, 2001, for the removal and surcharge of Bank One Trust as the trustee of the testamentary trusts. Ervin Industries and John Pearson were also parties to the suit. In connection with the three transactions described above, Evans alleged that she suffered substantial lost income because Bank One Trust (1) had a conflict of interest due to its lending relationship with Ervin Industries, (2) failed to perform due diligence, and (3) administered the trusts in contravention of its fiduciary duties. The parties filed cross-motions for summary judgment.
The probate court, on December 30, 2003, ruled in favor of Bank One Trust. The probate court held that Bank One Trust's loans to Ervin were proper under Michigan law. That court also determined that Evans' claims were barred by the applicable statutes of limitation and by principles of res judicata...
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