Osborn v. Griffin

Decision Date28 July 2017
Docket NumberNos. 16–6221/6225/6226/6227,s. 16–6221/6225/6226/6227
Citation865 F.3d 417
Parties Elizabeth A. OSBORN (16–2221 & 16–6225); Linda G. Holt, Judith E. Prewitt, and Cynthia L. Roeder (16–2221/6225/6226/6227), Plaintiffs–Appellees, v. John M. GRIFFIN, Estate of Dennis B. Griffin, and Dennis B. Griffin Revocable Trust–2012 (16–6221 & 16–6226); Martom Properties, LLC (16–6225 & 16–6227), Defendants–Appellants.
CourtU.S. Court of Appeals — Sixth Circuit

ARGUED: Gregory G. Garre, LATHAM & WATKINS LLP, Washington, D.C., for Appellants. Janet P. Jakubowicz, BINGHAM GREENEBAUM DOLL LLP, Louisville, Kentucky, for Appellee Osborn. Kent Wicker, DRESSMAN BENZINGER LA VELLE PSC, Louisville, Kentucky, for Appellees Holt, Prewitt, and Roeder. ON BRIEF: Gregory G. Garre, Melissa Arbus Sherry, Benjamin W. Snyder, Matthew J. Glover, LATHAM & WATKINS LLP, Washington, D.C., Heather A. Waller, LATHAM & WATKINS LLP, Chicago, Illinois, for Griffin Appellants. Joseph M. Callow, Jr., Thomas F. Hankinson, Jacob D. Rhode, KEATING MUETHING & KLEKAMP PLL, Cincinnati, Ohio, for Martom Appellant. Janet P. Jakubowicz, Benjamin J. Lewis, BINGHAM GREENEBAUM DOLL LLP, Louisville, Kentucky, for Appellee Osborn. Kent Wicker, DRESSMAN BENZINGER LA VELLE PSC, Louisville, Kentucky, Eva Christine Trout, TROUT LAW OFFICE PLLC, Lexington, Kentucky for Appellees Holt, Prewitt, and Roeder.

Before: MERRITT, BATCHELDER, and CLAY, Circuit Judges.

CLAY, J., delivered the opinion of the court in which BATCHELDER, J., joined. MERRITT, J. (pp. 465–72), delivered a separate dissenting opinion.


CLAY, Circuit Judge.

Defendants John M. Griffin, the Estate of Dennis B. Griffin, the Dennis B. Griffin Revocable Trust, and Martom Properties, LLC ("Defendants"), appeal from the judgment entered by the district court on April 26, 2016, requiring Defendants to pay roughly $584 million in wrongful profits disgorgement and prejudgment interest to Plaintiffs Elizabeth A. Osborn, Linda G. Holt, Judith E. Prewitt, and Cynthia L. Roeder ("Plaintiffs"). Plaintiffs, four sisters, essentially allege that Defendants, two of their brothers and a related entity called Martom Properties, cheated them out of stock and real property related to the family's business that they should have inherited under the terms of their parents' estate plans. The district court agreed with Plaintiffs after a bench trial, finding that Defendants' conduct in managing the family business and their parents' estates and trusts violated their fiduciary duties to Plaintiffs under Kentucky law. Defendants appeal, raising a litany of challenges to the district court's jurisdiction, legal conclusions, remedy, and decision to conduct a bench trial. The district court exercised subject matter jurisdiction over Plaintiffs' state law claims pursuant to 28 U.S.C. § 1367, and we have jurisdiction over this appeal pursuant to 28 U.S.C. § 1291. For the reasons set forth below, we AFFIRM the district court's judgment.

I. Factual History
A. Parties and Other Griffin Family Members

This litigation concerns a multi-million dollar inheritance dispute among the children of John L. Griffin ("John"), a long-deceased Kentucky businessman. During his lifetime, John and his wife Rosellen Griffin ("Rosellen") had twelve children. Plaintiffs are four of the couple's daughters: Elizabeth Osborn, Linda Holt, Cynthia Roeder ("Cyndi"), and Judith Prewitt ("Judy"). Id. Mirroring the parties and the district court, we refer to Elizabeth Osborn as "Betsy," and the remaining three sisters as the "Holt Plaintiffs."

Defendants are, in effect, two of John and Rosellen's sons—Dennis B. Griffin1 and John M. Griffin ("Griffy")—plus an entity they created called Martom Properties, LLC ("Martom").

The Griffins were a patriarchal family. "The Griffin children were taught that the older siblings were in charge and that the younger siblings had to respect them." (R. 856, Findings of Fact and Conclusions of Law, ¶ 4.) In practical effect, this meant that Dennis and Griffy—the eldest brothers—wielded the respect of and exercised authority over the younger children, including Plaintiffs.

B. Griffin Industries

In 1943, John founded Griffin Industries, a rendering company that primarily hauls away animal carcasses and other waste and converts this material into useful products. Griffin Industries was a family business in the truest sense of the term. "All [of] the Griffin children worked in the business after school and in summers, with the girls doing primarily office work and the boys working in the plants." (Id. ¶ 5.) "When the girls married, their husbands usually worked in the company." (Id. ) Over the second half of the twentieth century, Griffin Industries grew into a prosperous enterprise with operations in several states. Eventually, when the children were all adults, four of them (including Dennis and Griffy) worked full-time at Griffin Industries, while the others did not.

In the 1960s and 1970s, John purchased several real estate parcels in Kentucky that were used by Griffin Industries in its operations. These properties were titled in John's name. In 1981, Griffin Industries purchased Craig Protein, another rendering company based in Georgia. John personally held 1,000 shares of Craig Protein stock. At its core, this dispute concerns the ownership of: (i) John and Rosellen's Griffin Industries stock; (ii) John's real estate; and (iii) John's Craig Protein stock.

C. John's and Rosellen's 1967 Estate Plans

In 1967, both John and Rosellen prepared separate wills and revocable trusts. Rosellen's will specified that when she died, all of her Griffin Industries stock would pass first to John, and then to her trust (along with the remainder of the residue of her estate). Rosellen named the First National Bank of Cincinnati (later known as Star Bank) as her trustee, and her trust instruments provided that all assets of the trust would be divided among her eleven then-living children.

The district court described John's estate plan as follows:

[John] executed a Last Will and Testament in 1967, which provided that all his chattel property would pass to [Rosellen] and, if she predeceased him, to his eleven children in equal amounts. A first codicil in 1967 bequeathed his stock to [Rosellen], then to his 1967 Trust if she predeceased him. [John's] second codicil, executed in 1974, bequeathed his stock to [Rosellen], with the stock to be purchased by Griffin Industries if she predeceased him. In 1974, [John] executed a third codicil changing his alternate beneficiary to his children, equally. In 1975, [John] executed a fourth codicil that left his stock to [Rosellen], except for any stock purchased by Griffin Industries. If [Rosellen] predeceased [him], then the stock would be distributed equally to his children. A fifth codicil was executed in 1981 that made no changes to the distribution of the stock.
[John] also created a Trust in 1967 which, under a First Amendment executed on October 2, 1978, provided that its assets would be distributed among seven of the children when they turned thirty (or, if deceased, their living issue, if any): Cyndi, Marty, Tommy, Linda, Judy, Janet, and Betsy. These children were the seven who were not then working full-time for Griffin Industries. A further amendment in 1981 did not alter the distribution of the trust's assets.

(Id. ¶¶ 11–12.)

In sum, from the late 1960s to the early 1980s, both John's and Rosellen's respective estate plans expressed a clear and consistent desire to bequeath their property equally to their eleven living children. There was only one deviation from this intention. In the early 1980s, John recognized that because Griffin Industries was a Subchapter S corporation, "the four working children were receiving more income from Griffin Industries tha[n] the seven non-working children." (Id. ¶ 13.) John wanted to "adjust this result" by making additional stock gifts to the non-working children to restore equality amongst his heirs. (Id. ) John's intention was that if Rosellen predeceased him, "the non-working children would end up with more shares than the working children" to account for the fact that the working children received direct income from Griffin Industries. (Id. ¶ 14.)

D. Disputed Griffin Industries Stock Transactions

The events that gave rise to this lawsuit began in the mid–1980s. In 1983, John suffered a massive stroke that left him partially paralyzed and unable to speak, write, care for himself, drive, or walk without assistance. After the stroke, John had a functional IQ of 67, and the mental age of an eight-year-old. Dennis recognized his father's infirmity, and told one of his sisters to not let John "sign anything because you know he doesn't understand." (Id. ¶ 23.)

Exacerbating the family upheaval, Rosellen died in 1985 of Parkinson's disease. At the time of Rosellen's death, she owned roughly 13% of Griffin Industries' stock. In accordance with the terms of her estate plan, her stock passed to John, who owned roughly 53% of Griffin Industries' stock, giving him a combined total of 66% of the company.

In September 1985, Dennis and Griffy successfully petitioned a Kentucky probate court to: (i) make them executors of Rosellen's estate; and (ii) give them power of attorney over John. On November 14, 1985, John executed a Third Amendment to his 1967 Trust that made Dennis and Griffy his trustees. Four days later, he transferred his 53% of Griffin Industries' stock to his trust.

Dennis and Griffy then effectuated the following elaborate series of stock transactions using their authority as trustees of John's trust and executors of Rosellen's estate:

• John's six sons (but none of his daughters) purchased all of Rosellen's Griffin Industries shares;
• John's trust sold 5% of his shares to his grandchildren's trusts, who in turn gave his six sons (but none of his daughters) the opportunity to buy-back the shares at 60% of their value;
• John disclaimed all interest in the shares

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