Ray v. Raj Bedi Revocable Trust
| Decision Date | 11 March 2020 |
| Docket Number | CAUSE NO. 3:19-CV-711 DRL-MGG |
| Citation | 611 F.Supp.3d 567 |
| Parties | John RAY et al., Plaintiffs, v. RAJ BEDI REVOCABLE TRUST, Vikram Bedi, trustee, Defendant. |
| Court | U.S. District Court — Northern District of Indiana |
Andrew M. Hicks, Warrick and Boyn LLP, Bradford R. Shively, Jonathan R. Slabaugh, Sanders Pianowski LLP, Elkhart, IN, for Plaintiffs.
Irina N. Kashcheyeva, Pro Hac Vice, Norman C. Ankers, Pro Hac Vice, Felicia S. O'Connor, Foley & Lardner LLP, Detroit, MI, Nicholas J.P. Meros, Pro Hac Vice, Foley & Lardner LLP, Tallahassee, FL, for Defendant.
Two individuals evenly owned two Indiana corporations, C.F.B., Inc. and C.F.B. Real Estate Corporation. One died. The surviving shareholder sought to purchase the other's shares (now owned in trust after his death). Buy-sell agreements established procedures for valuation. The valuation became contested. The trust wanted more than what the surviving shareholder would pay.
Unresolved, the trust sued in Michigan state court. The case proceeded in Michigan until the state court ordered arbitration and appraisal before the trust could pursue its claims. Two fronts for litigation were not enough, so the surviving shareholder (and two corporations) filed a declaratory judgment action in Indiana state court. They wanted answers about share valuation, qualifications of arbitrators, and details about alternative valuation procedures. The trust removed the case here.
Both sides now want this court to abstain—they just disagree how. The court has been invited to this bout only to be asked immediately to leave once it decides which door will serve as its exit. That alone favors federal abstention, as the thrust of the argument now is which abstention doctrine the court should use to halt this case—not to decide a controversy of consequence that will actually move the parties closer toward a resolution of their buyout dispute. A choice of abstention doctrines is not the intended purpose of the Declaratory Judgment Act. The court dismisses this case.
Raj Bedi and John Ray were each 50 percent shareholders in C.F.B., Inc. and C.F.B. Real Estate Corp., two Indiana entities. ECF 2 ¶ 11. On September 18, 2000, Raj Bedi and John Ray executed buy-sell agreements for C.F.B. and C.F.B. Real Estate shares. Both agreements state:
7. Death of a SHAREHOLDER. Upon the death of either SHAREHOLDER, the other SHAREHOLDER may purchase from the estate of the deceased SHAREHOLDER and the personal representative of the estate of the deceased SHAREHOLDER'S estate shall sell, surrender, and transfer to the other SHAREHOLDER all shares of the CORPORATION, or any interest therein, owned by the deceased SHAHOLDER at the time of his death. The terms and purchase price for the shares shall be in accordance with the provisions of paragraph 10 of this Agreement and shall be paid to the estate of the said deceased SHAREHOLDER.
ECF 5-5 ¶ 7; ECF 5-6 ¶ 7. Indiana law governs these contracts. ECF 5-5 ¶ 35; ECF 5-6 ¶ 35.
The agreements identify two different methods for calculating the value of C.F.B. and C.F.B. Real Estate shares in the event the shareholders are unable to agree on their value. ECF 5-5 ¶ 10(A); ECF 5-6 ¶ 10(A). The C.F.B. agreement contemplates arbitration, where each shareholder chooses an arbitrator; if the two arbitrators do not agree, the party-arbitrators appoint a third arbitrator, and a majority decision by the three arbitrators becomes binding. ECF 5-5 ¶ 10(F). The C.F.B. Real Estate agreement envisions an appraisal process whereby each shareholder chooses a "competent real estate and personal property appraiser," and the two party-appraisers then choose a third appraiser. ECF 5-6 ¶ 10(A). The three appraisers decide the share value by averaging the two written appraisals that are closest in value. Id.
Raj Bedi passed away in 2017, leaving the Raj Bedi Revocable Trust the 50 percent owner of C.F.B. and C.F.B. Real Estate stock. ECF 2 ¶¶ 13-14. Mr. Ray exercised his rights under Paragraph 7 of the buy-sell agreements and made an offer to purchase the Trust's shares. ECF 5-7. Mr. Ray offered $2,288,000 for the 250 shares in C.F.B. and an additional $486,691 for the 100 shares in C.F.B. Real Estate. Id. Vikram Bedi, as trustee, rejected both offers and counteroffered to sell the shares in C.F.B. for $2,802,206.39 and the shares in C.F.B. Real Estate for $1,904,230. ECF 1-4. Mr. Ray rejected the counteroffer and maintains that the shares are worth the values listed in his original offer. Therein lies the dispute over valuation.
In May 2018, Mr. Bedi, individually and as trustee, filed suit in Michigan state court against Mr. Ray, C.F.B., C.F.B. Real Estate, and several other parties. ECF 5-8. The complaint alleged breach of contract, shareholder oppression, breach of fiduciary duty, and conspiracy to deprive the Trust of the fair value of its interests in C.F.B. and C.F.B. Real Estate. Id. The Trust requested the court award it the share price for C.F.B. and C.F.B. Real Estate. Id. In response, Mr. Ray, C.F.B., and C.F.B. Real Estate filed summary disposition motions. All claims against them were dismissed, albeit without prejudice. ECF 5-3. The court dismissed the claims as premature because the Trust had not followed the buy-sell agreements' arbitration/appraisal provisions. Id. The Michigan court further ordered the parties to engage in the valuation processes. Id. at 5. In a later order, the Michigan court tolled the statute of limitations as to all claims dismissed without prejudice so that arbitration and the appraisal process could unfold without prohibiting the refiling of these claims once these alternative dispute resolution procedures concluded. ECF 5-9 ¶ 7.
The parties soon discovered they disagreed about the proper procedure for the valuation processes. To settle these disputes, Mr. Ray and the C.F.B. entities informed the Michigan court during a hearing on June 17, 2019 that they would seek declaratory judgment from either the Indiana Commercial Court or this court.1 ECF 17-4 at 20:15-22.
On July 30, 2019, the Trust filed a motion to compel court supervision over the valuation processes with the Michigan state court. ECF 5-12. The motion requested the court to supervise the valuation processes and specifically to order (1) that the Trust's chosen appraiser, Mauricio Kohn, was competent to serve in such a role under the buy-sell agreement, and (2) that Mr. Ray pay his original offer—$2,774,691—before the valuation was complete (an "interim buyout") and allow the Trust to seek additional payment in the event the share value was determined higher than the offer. Id.
One week later, on August 7, 2019, Mr. Ray, C.F.B., and C.F.B. Real Estate filed this action for a declaratory judgment against the Trust in Elkhart Superior Court, Indiana, marked for the commercial court docket. ECF 2. The complaint requested a judgment "[d]etermining, fixing, declaring and enforcing the terms and provisions" of the buy-sell agreements and "[e]stablishing and implementing appropriate procedures for the performance of, and compliance with, their respective rights, duties, obligations, responsibilities, and legal relations under" the agreements. Id. The complaint alleged that the parties "disagree[d] as to the value of the shares" and sought a declaratory judgment about the "rights and obligations of the parties under the [ ] Agreement[s], timelines, valuation of shares, purchasing procedures, qualifications and competency of arbitrators and appraisers, and details regarding the arbitration and appraisal process." Id. ¶¶ 23, 26, 31, 31.
On December 9, 2019, though the Michigan state court denied the pending motion for supervision, it decided one of the issues now being presented to this court, saying it was the court's "opinion that Mauricio Kohn is competent as a real estate appraiser" under the C.F.R. Real Estate buy-sell agreement. ECF 28-1. The Michigan state court denied the defendant's request to order Mr. Ray to pay an interim amount apparently because the issue was before this court, id. , though it appears issues of valuation are actually before the arbitrators and appraisers, and no party cites to any contractual provision that this court should interpret to authorize an interim payment.
Turning to the procedural history of this federal declaratory action, the Trust removed the complaint from the Indiana Commercial Court based on diversity jurisdiction. The Trust promptly moved to dismiss or stay this action, asking the court to abstain. In response, Mr. Ray and the C.F.B. entities filed a motion to remand, asking this court to abstain on different grounds.
In this case, the parties do not dispute the court's subject matter jurisdiction; rather, they argue that the court should abstain from exercising jurisdiction over this lawsuit. A district court has a near-unwavering obligation to hear claims within its jurisdiction. See R.R. Street & Co., Inc. v. Vulcan Materials Co. , 569 F.3d 711, 716 n.6 (7th Cir. 2009). That said, several judicially-created doctrines permit the court, in narrow circumstances, to abstain from exercising its jurisdiction, see Courthouse News Serv. v. Brown , 908 F.3d 1063, 1071 (7th Cir. 2018), including when federal jurisdiction would disrupt state efforts to establish sound policy on substantial public concerns—what courts call Burford abstention, named after Burford v. Sun Oil Co. , 319 U.S. 315, 63 S.Ct. 1098, 87 L.Ed. 1424 (1943).
Federal courts are separately imbued by statute with the discretion to decline jurisdiction in certain circumstances, as is the case under the Wilton / Brillhart doctrine. See Wilton v. Seven Falls Co. , 515 U.S. 277, 115 S.Ct. 2137, 132 L.Ed.2d 214 (1995) ; Brillhart v. Excess Ins. Co. of Am. , 316 U.S. 491, 62 S.Ct. 1173, 86 L.Ed. 1620 (1942) ; Envision Healthcare, Inc. v. PreferredOne Ins. Co. , 604 F.3d 983, 986 (7th Cir. 2010). This discretion comes from the text of the ...
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...Raj Bedi Revocable Tr., where the parties sought a declaration about their rights and obligations under buy-sell agreements. 611 F.Supp.3d 567, 575 (N.D. Ind. 2020). In the court declined to abstain because it was “merely the interpretation of contracts between the parties.” Id. at 576. But......