Evans v. Greenfield Banking Co.
| Decision Date | 22 December 2014 |
| Docket Number | No. 13–3054.,13–3054. |
| Citation | 774 F.3d 1117 |
| Parties | Dorothy J. EVANS, et al., individually and as Personal Representative of the Estate of William Louis Evans, Jr., deceased, Plaintiffs–Appellants, v. GREENFIELD BANKING COMPANY and Joana Springmier, Defendants–Appellees, and Robert A. McDonald, Secretary of Veterans Affairs, Party–in–Interest. |
| Court | U.S. Court of Appeals — Seventh Circuit |
OPINION TEXT STARTS HERE
Amanda Couture, John K. Henning, Ogletree, Deakins, Nash, Smoak & Stewart, P.C., Indianapolis, IN, for Plaintiffs–Appellants.
Andrew B. Miller, Starr, Austen & Miller, LLP, Logansport, IN, for Defendants–Appellees.
Jill Z. Julian, Office of the United States Attorney, Indianapolis, IN, for Party–in–Interest.
Before RIPPLE and WILLIAMS, Circuit Judges, and ST. EVE, District Judge.**
After the United States Department of Veterans Affairs determined William L. Evans, Jr. was no longer competent to manage his veterans' benefits, it appointed his daughter as the federal fiduciary. The VA later terminated her appointment and appointed the Greenfield Banking Company. Evans's wife and daughter filed this suit asserting breach of fiduciary duty and conversion by the Bank. They also seek the creation of a constructive trust. The complaint alleges that the Bank complied with the terms of its obligations to the VA as federal fiduciary but that doing so meant it breached its fiduciary duty to Evans. The complaint does not make any allegations of misuse of funds, mismanagement depriving him of the use of any funds, embezzlement, or the like. We conclude that the district court properly dismissed this case for lack of jurisdiction because the allegations made in the complaint are outside the scope of state court review, and therefore ours as well. We affirm.
Because this is an appeal from the grant of a motion to dismiss, we take the narrative that follows from the allegations in the complaint and draw all reasonable inferences in it in the' favor. See Virnich v. Vorwald, 664 F.3d 206, 212 (7th Cir.2011). Evans was a United States military veteran who received approximately $3,900 each month in benefits from the VA. In July 2009, the VA determined that Evans was no longer competent to manage his VA benefits and appointed Carolyn Stump, Evans's daughter, as his “federal fiduciary” to manage his VA benefits. The VA terminated Stump's federal fiduciary appointment in early October 2010, and, on October 7, 2010, appointed the Bank as Evans's federal fiduciary. Stump had not known that the Bank would be appointed.
In the meantime, Stump had requested and received an Indiana state-court order on October 1, 2010 appointing her as Evans's permanent guardian. She had already been his attorney-in-fact since 2005 pursuant to a Durable Power of Attorney. Although Stump was no longer Evans's federal fiduciary in November and December 2010, she made expenditures on his behalf in those months. The Bank requested VA approval in January 2011 to reimburse Stump for expenditures she made on behalf of Evans in November and December 2010, but the complaint alleges that Stump was not fully reimbursed.
On October 13, 2011, Evans's wife and daughter filed a complaint in Indiana state court against the Bank and one of its employees with counts alleging breach of fiduciary duty and conversion, and another seeking a constructive trust. The complaint alleged among other things that the Bank had breached its fiduciary duty to Evans or succumbed to a conflict of interest by complying with the terms of its federal fiduciary agreement with the VA. The Secretary of Veterans Affairs moved to intervene as a party in interest and filed a motion to dismiss the state court action for lack of jurisdiction or in the alternative to stay the action pending resolution of Stump's case that was then pending in the United States Court of Appeals for the Federal Circuit.1
In October 2012, the plaintiffs filed an “Emergency Motion for Hearing to Appoint a Replacement Fiduciary” which stated in part that “[t]he underlying conflict concerned whether [the Bank] and the VA's actions were consistent with the law.” Six days later, the Secretary removed the case to federal district court, noting that prior to the emergency motion the plaintiffs had repeatedly asserted they were not pursuing claims against the VA in the case. The Secretary then filed in federal court its pending motion to dismiss for lack of jurisdiction or in the alternative to stay.
The Bank resigned as federal fiduciary for Evans's VA benefits in April 2012, and an attorney was appointed as the replacement fiduciary. Evans passed away on December 23, 2012. Stump was appointed the personal representative of Evans's estate and continued the litigation on the estate's behalf. The district court granted the motions to dismiss without prejudice, ruling that it lacked jurisdiction to decide the claims in the complaint because the plaintiffs had not exhausted their administrative remedies.
The question on appeal is whether the district court properly dismissed this case for lack of jurisdiction. The plaintiffs maintain that their claims for breach of fiduciary duty, conversion, and constructive trust are state-law claims cognizable in Indiana state court and therefore in the federal district court on removal. The Bank and VA, on the other hand, contend that the allegations the plaintiffs make in their complaint demonstrate that the state court, and as a result the federal district court on removal, lacked jurisdiction over this case.2 We review the grant of a motion to dismiss de novo, accepting all of the factual allegations in the complaint as true and drawing all reasonable inferences in the plaintiffs' favor. Chasensky v. Walker, 740 F.3d 1088, 1093 (7th Cir.2014).
But first we must discuss what this case does not involve. This case does not present the broad question of whether there can ever be a state-law cause of action for breach of fiduciary duty against one who is a “federal fiduciary” for purposes of veterans' benefits. The complaint here does not allege, for example, that the federal fiduciary mismanaged how Evans's funds were used for him or that the fiduciary misappropriated or embezzled his funds. Our case also does not involve any allegation that the Bank was appointed a fiduciary or guardian by the state court, and it is not a case where the plaintiffs have identified any source of state court authority over a fiduciary relationship between the Bank and Evans. Rather, this case involves a complaint which alleges that the Bank breached its fiduciary duties by complying with the terms of its federal fiduciary agreement with the VA. Our question is a narrow one, limited by the specific allegations made in this complaint.
Congress has given the Secretary of Veterans Affairs the power to appoint a fiduciary to receive and disburse a beneficiary's VA benefits:
Where it appears to the Secretary that the interest of the beneficiary would be served thereby, payment of benefits under any law administered by the Secretary may be made directly to the beneficiary or to a relative or some other fiduciary for the use and benefit of the beneficiary, regardless of any legal disability on the part of the beneficiary....
38 U.S.C. § 5502(a)(1). The implementing regulations provide that payment of benefits to a duly recognized fiduciary may be made on behalf of a person who is mentally incompetent. 38 C.F.R. § 13.59(a). The VA is authorized to “select and appoint (or in the case of a court-appointed fiduciary, to recommend for appointment) the person or legal entity best suited to receive Department of Veterans Affairs benefits in a fiduciary capacity for a beneficiary who is mentally ill (incompetent) or under legal disability by reason of minority or court action, and beneficiary's dependents.” 38 C.F.R. § 13.55(a).
Congress also provides the Secretary with authority for supervising fiduciaries:
Whenever it appears that any fiduciary, in the opinion of the Secretary, is not properly executing or has not properly executed the duties of the trust of such fiduciary or has collected or paid, or is attempting to collect or pay, fees, commissions, or allowances that are inequitable or in excess of those allowed by law for the duties performed or expenses incurred, or has failed to make such payments as may be necessary for the benefit of the ward or the dependents of the ward, then the Secretary may appear ... in the court which has appointed such fiduciary, or in any court having original, concurrent, or appellate jurisdiction over said cause, and make proper presentation of such matters. The Secretary ... may suspend payments to any such fiduciary who shall neglect or refuse, after reasonable notice, to render an account to the Secretary ... or who shall neglect or refuse to administer the estate according to law.... The Secretary may appear or intervene ... in any court as an interested party in any litigation instituted by the Secretary or otherwise, directly affecting money paid to such fiduciary under this section.
38 U.S.C. § 5502(b). The implementing regulations for § 5502(b) found in 38 C.F.R. § 13.100 are entitled “Supervision of fiduciaries” and further discuss the Secretary's authority to supervise the fiduciaries he appoints. When the Secretary deems it necessary to protect the beneficiary's interests, the Secretary may require a fiduciary to provide an accounting, 38 C.F.R. § 13.100(a)(1), or may terminate the appointment of a fiduciary and appoint a successor fiduciary, id. § 13.100(a)(2). If the federal fiduciary has “failed to use Department of Veterans Affairs funds for the benefit of the beneficiary or the beneficiary's dependents” or “has otherwise failed or neglected to properly execute the duties of his or her trust,” and informal efforts to correct the situation prove unsuccessful, then the matter will be referred to the...
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