Cartwright v. Garner

• Decision Date: 16 May 2014
• Docket Number: No. 12–6314.,12–6314.
• Citation: 751 F.3d 752
• Parties: Alan C. CARTWRIGHT, Plaintiff–Appellant, v. Alan L. GARNER, et al., Defendant–Appellee.
• Court: U.S. Court of Appeals — Sixth Circuit

751 F.3d 752

Alan C. CARTWRIGHT, Plaintiff–Appellant,

v.Alan L. GARNER, et al., Defendant–Appellee.

No. 12–6314.

United States Court of Appeals, Sixth Circuit.

Argued: July 25, 2013.

Decided and Filed: May 16, 2014.

ARGUED:Justin E. Mitchell, Thomason, Hendrix, Harvey, Johnson & Mitchell, Memphis, Tennessee, for Appellant. David Wade, Martin, Tate, Morrow & Marston, P.C., Memphis, Tennessee, for Appellees. ON BRIEF:Justin E. Mitchell, Jerry E. Mitchell, Thomason, Hendrix, Harvey, Johnson & Mitchell, Memphis, Tennessee, for Appellant. David Wade, Andrew Gardella, Martin, Tate, Morrow & Marston, P.C., Memphis, Tennessee, for Appellees.

Before: BOGGS and SILER, Circuit Judges; DOWD, District Judge.^*

OPINION

DOWD, District Judge.

The parties in this case have been engaged for years in multiple lawsuits in multiple jurisdictions concerning trusts that were established by James Cartwright before his death. An understanding of both the background facts and litigation history is useful to understanding the issues presently before the court on appeal.

I. BACKGROUND

A. The Parties

Plaintiff-appellant Alan C. Cartwright (“Alan Cartwright”) is the adopted son of James Cartwright and Betty Goff Cartwright. Alan Cartwright is the beneficiary of several trusts established by his adoptive parents, and issues surrounding those trusts are the subject of this litigation.

Alan Cartwright's sister, defendant-appellee Alice Cartwright Garner, is also adopted and also the beneficiary of several trusts established by James Cartwright and Betty Goff Cartwright. Defendant-appellee Alan Garner is Alice Cartwright Garner's husband.

Several legal entities are also defendants-appellees in this case. The role of these parties is better understood in the context of the trusts at issue in this case, which is explained below. The trusts themselves are not parties to this action.

B. The Trusts

Plaintiff-appellant's father, James Cartwright, was an attorney, entrepreneur, and investor who established a number of trusts for the benefit of his two children, Alan Cartwright and Alice Cartwright Garner. All of the trusts in which plaintiff has a beneficial interest are Tennessee trusts governed by the laws of the State of Tennessee.

According to the complaint Alan Cartwright filed in the district court below, “Alan C. Cartwright did not possess the same powerful intellect of his adoptive father” and he graduated from boarding school “without distinction or a substantial education.” James Cartwright sought to ensure that his son, Alan Cartwright, would be provided with lifetime support and income through a trust mechanism limiting Alan Cartwright's access to funds outside of trust protection.

Towards this end, Alan Cartwright as settlor, and his father as trustee, entered into the Alan Cook Cartwright (ACC) Grantor Trust agreement. The language of the ACC Grantor Trust reflects Alan Cartwright's parents' desire to limit his access to funds that were not protected by a trust. Specifically, the ACC Grantor Trust states that Alan Cartwright “is not experienced in financial matters” and that the trust needs “to provide for his personal financial security by preserving his property against his own spend thrift actions.”

The ACC Grantor Trust was amended several times during the lifetime of the ACC Grantor Trust trustee, James Cartwright. After James Cartwright's death, the ACC Grantor Trust was further amended by Alan Cartwright, as settlor, and Betty Goff Cartwright, as trustee. Alice Cartwright Garner is the sole trustee of the ACC Grantor Trust since the death of Betty Goff Cartwright in 2005; however,in this case she has not been sued by her brother in her capacity as a trustee.

Alan Cartwright is the life beneficiary of the ACC Grantor Trust. He is also the beneficiary of several trusts established by his father known as “Crummey Trusts.” ¹ The ACC Grantor Trust and the Crummey Trusts provide for distributions of a certain percentage of trust income each year to Alan Cartwright.

Alan Cartwright and his sister Alice Cartwright Garner are also the beneficiaries of two trusts created from the after-tax residue of the James B. Cartwright Marital Trust No. 1 and No. 2.² These trusts also provide for periodic distributions to the beneficiaries. The various trusts of which plaintiff is a beneficiary relevant to this action will be collectively referred to as “the trusts.”

As part of their estate planning, the Cartwright family established family limited partnerships. The trusts are limited partners of defendant Jackson Capital Partners, LP (“JCP”). Plaintiff does not dispute that the trust documents permit the trustees to invest trust assets in family limited partnerships.

Defendants Alan Garner and Alice Cartwright Garner are also limited partners of JCP, as well as the only partners of defendant Jackson Capital Management, LLC (“JCM”), which is the general partner of JCP. Alan Cartwright is not a limited partner of JCP. Plaintiff claims that defendants Alice Cartwright Garner and Alan Garner are the exclusive owners of defendant FSTW, LLC, to which plaintiff Alan Cartwright alleges assets from the trusts have been wrongfully diverted.

C. The Tennessee state court actions

Several years of litigation involving the Cartwright trusts preceded the federal-court action now before us. In order to analyze the issues on appeal, it is necessary to review the Tennessee state court actions and rulings rendered before Alan Cartwright filed his federal case.

1. Shelby County Chancery Court action

The state court litigation over the various Cartwright trusts began in June 2004 with a lawsuit filed by Betty Goff Cartwright (Alan Cartwright's mother) in the Shelby County Chancery Court in Tennessee against Alan Cartwright, Alice Cartwright Garner, Alan Garner, and others. Betty Goff Cartwright's complaint challenged the family tax-planning structure put in place by her and her husband, James Cartwright, before his death. Betty Goff Cartwright was 84 at the time. She died in 2005, and the defendants settled her estate's claims.

In December 2004, before Betty Goff Cartwright died and her claims were settled, Alan Cartwright filed a cross-claim in the Shelby County Chancery Court action against JCM, JCP, Alice Cartwright Garner, and Alan Garner. In his cross-claim, Alan Cartwright sought to have the trusteesof the trusts of which he is a life beneficiary replaced and the family's limited partnership dissolved. Alan Cartwright continued to pursue his cross-claim after Betty Goff Cartwright's claims were settled and dismissed.

2. Shelby County Circuit Court action

Later in October 2007, Alan Cartwright filed a new, separate action in the Shelby County Circuit Court sounding in tort against all of the defendants in the Chancery Court action. In the Circuit Court lawsuit, Alan Cartwright alleged that the defendants conspired to convert plaintiff's trust funds to their own benefit, wrongfully deprive him of his property, and use defendant JCP as a vehicle to convert plaintiff's trust funds for defendants' own benefit. The Shelby County Circuit Court transferred the Circuit Court action to the Chancery Court, finding that the Chancery Court action was a related action.

3. Shelby County Chancery Court action after transfer of Circuit Court action

Alan Cartwright's Tennessee Circuit Court case was transferred to the Chancery Court, whose judge could hear the case by designation as a Circuit Court judge. However, the Chancery Court, finding that the Chancery Court and Circuit Court cases “both [arose] out of the same subject matter, that is, claims of breach of fiduciary duties in the context of administration of certain trust obligations created by written trust instrument and involve the same parties,” ³ dismissed the transferred Circuit Court action without prejudice and allowed Alan Cartwright to amend his cross-claim in the pending Chancery Court action to include his tort allegations from the Circuit Court action.

With leave of court, Alan Cartwright amended his cross-complaint in the Chancery Court to include the tort claims from his Circuit Court case. Discovery battles ensued. The Chancery Court ultimately bifurcated Alan Cartwright's inadequate distribution and breach of fiduciary duty claims from his tort claims of conspiracy, self dealing, and manipulation of trust fund assets to his detriment.

Alan Cartwright then filed two motions for partial summary judgment in the Chancery Court. Cross-defendants also moved for summary judgment, arguing that the trustees had complied with the trust documents and that Alan Cartwright had received all of the distributions required by the trust documents, and therefore the trustees could not be in violation of their fiduciary duties.

The Chancery Court denied Alan Cartwright's motions and granted the cross-defendants' motion for summary judgment. After the Chancery Court ruled, Alan Cartwright voluntarily dismissed without prejudice the tort claims in his amended cross-claim, “which included all of the tort allegations first raised in the 2007 Circuit Court complaint and which are now included as part of the Complaint in this [case],” ⁴ and appealed the Chancery Court's summary-judgment ruling in favor of cross-defendants.

D. District Court Action

While Alan Cartwright's appeal of the Chancery Court's decision was pending, he filed the action in the United States District Court for the Western District of Tennessee that is now before this panel on appeal. As described by plaintiff-appellant in his appellate brief, “[t]his [federal] lawsuit deals specifically with the allegations that were [voluntarily dismissed] from the Chancery Court in 2011” with the addition of a new defendant, FSTW, LLC.⁵

1. The Complaint

In his district court complaint, plaintiff Alan Cartwright alleges various tort claims against the defendants, including conversion, misrepresentation, mismanagement, and conspiracy with respect to trust assets and his...