Shaw v. First Interstate Bank of Wisconsin, NA

• Decision Date: 23 September 1988
• Docket Number: No. 88-C-542-S.,88-C-542-S.
• Citation: 695 F. Supp. 995
• Parties: Leon SHAW, Trustee of the Vilas L. Sengstock Family Trust, Plaintiff, v. FIRST INTERSTATE BANK OF WISCONSIN, N.A., and First Interstate Trust Company of Wisconsin, Defendants.
• Court: U.S. District Court — Western District of Wisconsin

695 F. Supp. 995

Leon SHAW, Trustee of the Vilas L. Sengstock Family Trust, Plaintiff, v. FIRST INTERSTATE BANK OF WISCONSIN, N.A., and First Interstate Trust Company of Wisconsin, Defendants.

No. 88-C-542-S.

United States District Court, W.D. Wisconsin.

September 23, 1988.

Frank J. Bucaida and Timothy D. Fenner of Axley Brynelson, Madison, Wis., for plaintiff.

Henry A. Field of Boardman, Suhr, Curry & Field, Madison, Wis., and Donald K. Schott of Quarles & Brady, Milwaukee, Wis., for defendants.

MEMORANDUM AND ORDER

SHABAZ, District Judge.

Plaintiff, Leon Shaw, Trustee of the Vilas L. Sengstock Family Trust, brings this action for monetary damages based upon negligence and breach of fiduciary duty alleging inadequate supervision by the defendants, First Interstate Bank of Wisconsin, N.A., and First Interstate Trust Company of Wisconsin, former trustees of the Vilas L. Sengstock Family Trust. The action is currently before the Court on defendants' motion to dismiss the complaint for lack of subject matter jurisdiction pursuant to Rule 12(b)(1), Federal Rules of Civil Procedure, and for failure to join a necessary party pursuant to Rule 12(b)(7) and 19. Defendants alternatively request this Court to abstain from taking jurisdiction of this matter in order to avoid duplicative proceedings.

On a motion under Rule 12(b)(1) this Court may appropriately consider facts outside the pleadings presented by affidavit. Pintozzi v. Scott, 436 F.2d 375, 378 n. 3 (7th Cir.1970). Accordingly, the undisputed facts set forth below were derived from such affidavits as well as from the complaint in this matter.

FACTS

The plaintiff, Leon Shaw, is the duly qualified and acting trustee of the Vilas L. Sengstock Family Trust, and a resident of Florida. The defendant First Interstate Bank of Wisconsin, N.A., ("First Interstate") is a banking corporation organized under the laws of the United States, engaged in the business of banking in Wisconsin, with its principal offices in Wisconsin. Defendant First Interstate Trust Company of Wisconsin, N.A., (Trust Company) is a corporation organized under the laws of the United States engaged in the business of providing trust services in Wisconsin, with its principal place of business in Wisconsin.

Vilas L. Sengstock died on May 24, 1978, as a resident of Wisconsin. Pursuant to his Will the residue of his estate funded the Vilas L. Sengstock Family Trust. The terms of the Will provided that the Trustee was to hold, manage and reinvest the trust corpus and pay net income to Ruby A. Sengstock during her lifetime and further provided that James and Sally Sengstock were to be remainder beneficiaries.

Under the terms of the Will defendant First Interstate, f/k/a American National Bank & Trust Company of Eau Claire, and Don F. Galloway were named as co-trustees. The Eau Claire County Court, Probate Branch, issued letters of trust accordingly. On December 22, 1978, Don F. Galloway resigned as co-trustee of the trust, his resignation was accepted by the Eau Claire County Circuit Court, and he was discharged by order of that court on January 9, 1979. First Interstate continued to serve as the sole trustee from the date of Galloway's discharge until February 28, 1986.

On February 28, 1986, defendant Trust Company applied to the Wisconsin Commissioner of Banking to be substituted as the fiduciary for all trusts administered by First Interstate. This application was granted and defendant Trust Company has acted as Trustee from February 28, 1986 to June 8, 1988.

At the time of his death, Vilas L. Sengstock owned 238 shares of the common stock of Eau Claire Garot-Christman Agency, Inc., a Wisconsin corporation in the business of procuring insurance. The Estate of Vilas Sengstock agreed to sell these 238 shares for $200,000 in cash and a promissory note in the amount of $1,500,000 secured by the 238 shares of stock. This promissory note was transferred from the Estate to the Trust and became the principal asset in the Trust.

From December 13, 1978 through August 1987 payments were made as required in compliance with the terms of the note. On September 1, 1987, the Garot-Christman Agency ceased making payments on the note and since that time no further payments have been made. The value of the collateral shares in May 1978 was approximately $2 million, and the shares are worthless today.

Under the terms of the stock purchase agreement to which the Trust succeeded, the Trust had the right to assess the books, records and accounts of Garot-Christman Agency. Defendants have never requested such access to the books of the Garot-Christman, nor inquired into its business practices.

In addition to the actions of the Circuit Court for Eau Claire County set forth above, the Court also received the Trustee's inventory and annual accounts for the Trust. The Court ordered a hearing on the accountings of the Trustee on March 30, 1983, and approved the accounts through December 31, 1982 on May 4, 1983.

On February 5, 1988, defendant Trust Company petitioned for an order accepting resignation, appointing successor Trustee, dispensing with appointment of guardian ad litem, approving and allowing accounts, and discharging the Trustee. On March 15, 1988, the Trustee filed its account from December 31, 1987 to March 15, 1988 with the Eau Claire County Circuit Court. On March 16, 1988 the plaintiff filed his acceptance of appointment of successor trustee. On March 21, 1988, the defendant Trust Company and all beneficiaries stipulated to the following: (1) resignation of the Trust Company; (2) appointment of the plaintiff as successor Trustee; (3) dispensing with appointment of guardian ad litem; (4) allowance of the accounts through December 31, 1987, subject to reservation; and (5) release and discharge of the Trust Company subject to reservations of any claims of any parties arising out of the Trust Company's administration of the Trust. On March 25, 1988, Ruby Sengstock Shaw and Sally Sengstock filed a 19-page brief in response to the petition filed by defendant Trust Company. In the brief they object to the discharge of the defendant Trust Company on the grounds that it breached its fiduciary duty in administering the Trust. On March 30, 1988, the Eau Claire County Circuit Court approved the parties' stipulation. On April 12, 1988, the court approved the Trustee's account through May 15, 1988, subject to reservation. On June 8, 1988, the Circuit Court ordered that the Trust Company be released and discharged from all responsibility with respect to the Trust, unless on or before June 30, 1988, the successor Trustee or beneficiaries filed written objections with the Probate Court, subject to reservation. On June 15, 1988, the plaintiff, Ruby Sengstock Shaw, and Sally Sengstock filed objections to the release and discharge of the defendant.

On June 23, 1988 the plaintiff objected to any further proceedings in the Eau Claire Circuit Court. On June 27, 1988, Judge Barland stated that the Eau Claire Circuit Court would "not relinquish any jurisdiction which this Court has relating to the supervision of the Trust, including the discharge of the Trustee...."

On August 29, 1988, a hearing was held in Eau Claire Circuit Court before Judge Thomas Barland concerning the exercise of that Court's jurisdiction over the discharge of the trustees. In that context Judge Barland stated:

Well, I think I have concluded that this court does have jurisdiction. And whether or not the federal court has jurisdiction, I think is for the federal court to decide because it is for this, it is not for this court to get involved in that issue.... And if the federal court decides that it doesn't have jurisdiction, clearly we would have to go forward with whatever there is left of the issue in this court.

(Transcript of August 29, 1988 hearing, at page 2).

The action presently before the Court was commenced on June 15, 1988, and presents issues which are similar to those raised in objection to the discharge of the Trustee before the Eau Claire County Circuit Court.

MEMORANDUM

The decision in favor of the defendants on their 12(b)(1) motion would necessarily render all other arguments moot. Menchaca v. Chrysler Credit Corp., 613 F.2d 507, 512 (5th Cir.1980). This Court therefore considers first whether exclusive jurisdiction of this case lies with the courts of the State of Wisconsin. To the extent that the jurisdiction of the Court is challenged as a factual matter, the party invoking jurisdiction has the burden of proof. Grafon Corp. v. Hausermann, 602 F.2d 781, 783 (7th Cir.1979).

The diversity of citizenship between the parties and the amount in controversy are not disputed by the defendants and are properly alleged in the complaint. The sole issue before the Court under Rule 12(b)(1) is whether under the doctrine set forth in Princess Lida of Thurn and Taxis v. Thompson, 305 U.S. 456, 59 S.Ct. 275, 83 L.Ed. 285 (1939), the Circuit Court for Eau Claire County, Wisconsin, has exclusive jurisdiction over the present dispute. This Court, having reviewed Princess Lida, as well as subsequent cases in this jurisdiction applying Princess Lida, finds the facts of this case indistinguishable and therefore finds that it does not have subject matter jurisdiction over the dispute.

In Princess Lida a trust beneficiary brought suit against trustees requesting that they be removed, requesting an accounting, and demanding that they restore to the trust funds lost by their negligent conduct. The dispute was simultaneously presented to the probate court in Pennsylvania and to the federal district court in Pennsylvania. The United States Supreme Court held that where a suit involved contentions solely related to "administration and restoration of corpus" and where jurisdiction of the trust had been taken by the state court, such state court had exclusive jurisdiction and a federal court could not acquire subject matter jurisdiction over the...