Williams v. Security Nat. Bank

Decision Date26 April 2004
Docket NumberNo. C03-4034-MWB.,C03-4034-MWB.
Citation314 F.Supp.2d 886
PartiesJohn Franklin WILLIAMS, Peter Martin Williams, and James Oliver Williams, Plaintiffs, v. SECURITY NATIONAL BANK, Defendant.
CourtU.S. District Court — Northern District of Iowa

Dana A. Dwiggins, Mark A. Solomon, Lionel, Sawyer & Collins, Las Vegas, NV, Jay Elliott Denne, Stanley E. Munger, Munger, Reinschmidt & Denne, Sioux City, IA, for Plaintiffs.

Glianny Fagundo-Toro, Michael P. Bruyere, Lord, Bissell & Brook, LLP, Atlanta, GA, Maurice B. Nieland, Rebecca A. Nelson, Rawlings Neiland Probasco Killinger Ellwanger Jacobs, et al, Sioux City, IA, for Defendant.

MEMORANDUM OPINION AND ORDER REGARDING DEFENDANT'S MOTION FOR CONTINUANCE AND STAY

BENNETT, Chief Judge.

TABLE OF CONTENTS
                I. INTRODUCTION .......................................................888
                   A. Factual Background ..............................................888
                   B. Procedural Background ...........................................889
                      1. The probate action in state court ............................889
                      2. This federal action ..........................................891
                II. LEGAL ANALYSIS ....................................................892
                   A. Arguments Of The Parties ........................................892
                   B. Applicable Law ..................................................895
                      1. An overview of the "first-filed rule" and "Colorado River
                abstention" ................................................895
                      2. Which doctrine applies? ......................................897
                      3. Application of the doctrine ..................................898
                         a. Parallelism ...............................................898
                         b. Other factors .............................................900
                III. CONCLUSION .......................................................901
                

Not for the first time the undersigned wishes that legal terms, like "parallel litigation," could be defined with the same precision as mathematical terms, like "parallel lines." In the present dispute, the defendant trustee asserts emphatically that this federal lawsuit, alleging breach of fiduciary duty by the trustee in the management of a trust, merely "parallels" a probate action that the trustee had already filed in state court for disgorgement of improper distributions from the trust to the income beneficiary. Consequently, the trustee seeks a stay of this federal action in favor of the probate action in state court. The plaintiffs, the remainder beneficiaries of the trust, contend, just as vehemently, that the two lawsuits are at most "overlapping," but certainly not "parallel," so that this action should proceed. One key to the parties' difference of opinion, it seems, is how each side defines "parallel," while another is which "parallel litigation" doctrine applies, the "first-filed rule" or the "Colorado River abstention doctrine."

I. INTRODUCTION
A. Factual Background

This court has addressed some of the pertinent background to this litigation in a prior published ruling, Williams v. Security National Bank of Sioux City, IA., 293 F.Supp.2d 958 (N.D.Iowa 2003). However, some of that background bears repeating here, and some additional facts are also relevant to the present dispute over whether this federal action should be stayed in favor of a probate action in state court.

On August 16, 1982, Dorothy Pritchard Williams established a trust, later amended on February 29, 1984, which the court, like the parties, will describe as the DPW Trust. At times pertinent to this litigation, defendant Security National Bank (SNB) was a co-trustee of the DPW Trust. The parties agree that part of the investment portfolio of the DPW Trust consisted of stock in closely-held Pritchard family corporations, identified as Pritchard Investment Corporation (PICO), Pritchard Associates, and Roanoke Realty Company.1 Upon Dorothy Williams's death in 1984, Charles Williams became the life income beneficiary of the DPW Trust. Plaintiffs John, Peter, and James Williams are the remainder beneficiaries of the DPW Trust. Therefore, the plaintiffs will be described collectively herein as the Remainder Beneficiaries.

Pursuant to Charles Williams's instructions, the income payments from the DPW Trust were automatically transferred to the Charles K. Williams Trust (the CKW Trust), which Charles had created in 1972. SNB was also the Trustee of the CKW Trust from the time of its inception until 2003. Charles himself was the life beneficiary of the CKW Trust. After Charles's death, one-half of the assets of the CKW Trust were held in trust for the benefit of his surviving spouse, Pilar Williams, who received all of the income, with any undistributed income at the time of her death to be paid to her estate. The remainder beneficiaries of the CKW Trust, who were to receive the remaining assets of the CKW Trust upon Charles's death, are the Remainder Beneficiaries of the DPW Trust and four additional beneficiaries, Marcia Williams Cortese, Richard Gale Williams, Deborah Williams Fisher, and Patricia Williams Eichelberger.

At the heart of the litigation in both the present action and a related action in Iowa probate court is what happened when PICO, one of the investments of the DPW Trust, was partially liquidated in 1991. At the time of the partial liquidation of PICO, over $1.4 million of funds from that liquidation were paid to the DPW Trust. The parties apparently do not now dispute that some or all of this sum represented "return of principal" rather than "income" to the DPW Trust. Nevertheless, at the time, SNB distributed all of that sum from the DPW Trust to the CKW Trust as "income distributions." Further sums from the PICO liquidation were also distributed from the DPW Trust to the CKW Trust over the following years as "income distributions." The Remainder Beneficiaries contend that, ultimately, SNB improperly distributed in excess of $1.7 million in DPW Trust principal to the CKW Trust as income distributions in violation of the terms of the DPW Trust and Iowa law.

SNB contends that it learned on February 4, 1992, that it might have improperly treated some of the PICO funds as income to the DPW Trust, rather than return of principal, and consequently, might have improperly distributed those funds to the CKW Trust. SNB notified Charles Williams of that possibility by letter dated February 19, 1992. That letter also stated that the overpayment resulting from return of principal treated as income would be corrected as soon as the final figures were determined. However, SNB took no legal action to correct the problem until SNB filed a lawsuit in Iowa probate court on December 18, 2002, in its capacity as Trustee of the DPW Trust, seeking return from the CKW Trust of the improper distributions.

When Charles Williams died on May 7, 2002, the Remainder Beneficiaries allege that they became entitled to distribution of the remainder of the DPW Trust. This lawsuit involves claims by the Remainder Beneficiaries against SNB for its alleged mismanagement of the DPW Trust over the last two decades, including claims based on improper distributions of DPW Trust principal as "income distributions" to the CKW Trust.

B. Procedural Background
1. The probate action in state court

On December 18, 2002, SNB filed a petition in probate court in the Iowa District Court for Woodbury County pursuant to IOWA CODE § 633.6202, denominated "In the Matter of The Dorothy Pritchard Williams Trust, and Concerning the Charles K. Williams Trust," Probate No. TRPR 048802. The Remainder Beneficiaries contend that SNB only initiated this suit, because of their inquiries regarding the propriety of some "income" payments that SNB had made from the DPW Trust to the CKW Trust during Charles Williams's lifetime.

In its original Petition, SNB prayed principally for the following:

1. For an Order determining that [SNB] has made an overpayment from the Dorothy Pritchard Williams Trust into the Charles K. Williams Trust in the amount of $517,666.00, and that the Charles K. Williams Trust should pay said amount to the Dorothy Pritchard Williams Trust.

SNB's Exhibit 2, Original Petition in Probate No. 048802, Prayer at ¶ 1.2 In an Amended Petition filed May 12, 2003, after this federal action had been commenced, SNB again prayed for a determination that it had made an "overpayment" from the DPW Trust to the CKW Trust in the amount of $517,666.00, and for an order requiring the CKW Trust to pay this amount to the DPW Trust. Id., Amended Petition in Probate No. 048802, Prayer at ¶ 2. In addition, SNB prayed for an order determining that SNB had made additional overpayments from the DPW Trust to the CKW Trust for tax years 1993, 1994, 1995, 1996, 1997, and 1999 totaling $288,542.00, and requiring the CKW Trust to pay this amount to the DPW Trust. Id. at ¶ 2.3 Finally, in a Second Amended and Substituted Petition, filed February 4, 2004, SNB prayed for the following:

1. For an order determining that it has made overpayments from the Dorothy Pritchard Williams Trust to the Charles K. Williams Trust in the total amount of $1,753,152.00 and that the Charles K. Williams Trust should pay said amount to the Dorothy Pritchard Williams Trust.

2. For an Order setting the time and place of hearing and prescribing notice to all of the beneficiaries of the Charles K. Williams Trust and the Co-Trustee of the Dorothy Pritchard Williams Trust, as set forth above.

3. For such other and further relief as may be just and proper in the premises.

SNB's Exhibit 2, Second Amended Petition in Probate No. TRPR 04882, Prayer, ¶ ¶ 1-3.

The plaintiffs in this federal action filed an objection and motion for continuance in the state probate action on January 13, 2003, based on SNB's alleged conflict of interest, arising from SNB's position as the Trustee of both the DPW Trust and the CKW Trust. On January 27, 2003, the Iowa Probate Court entered an order...

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