Corrado v. Life Investors Insurance Co. of America
878 F.3d 648
| 8th Cir. | 2018Background
- John Corrado and Federal City Region, Inc. (FCR) were participants in the Life Investors Owners Participation Trust (the Trust); Corrado later died and his widow Charleen was substituted.
- Corrado and FCR sued the Trustees and Life Investors in Maryland alleging breaches of fiduciary duty, failure to provide documentation, and wrongful refusal to allow withdrawals; the Maryland court granted summary judgment to defendants.
- Life Investors had advanced funds to the Trustees to pay their defense costs in the Maryland litigation and later sought reimbursement under Trust § 11.9, which permits trustees to charge a participant’s account for defense costs when a participant sues the trustees and loses.
- The Trustees voted to enforce § 11.9 and deducted $431,925.49 from Corrado’s and FCR’s Trust accounts, paying that amount to Life Investors.
- Corrado and FCR sued in Iowa alleging breach of fiduciary duty, deprivation of vested interests, failure to provide notice, unreasonable fees, and conversion; the district court granted summary judgment to defendants, and the plaintiffs appealed.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether Trust § 11.9 authorized charging participants for defense fees advanced by Life Investors | § 11.9 does not apply because the Trustees did not personally incur defense costs (Life Investors advanced them) and another provision (§11.10) bars charging when Participating Companies pay | § 11.9 plainly authorizes charging participants who sued and lost; who initially advanced fees is irrelevant; §11.9 controls over §11.10 for trustee litigation | Court: §11.9 applies; Trustees could charge accounts and reimburse Life Investors for advanced fees |
| Whether charging the accounts gave Life Investors an "interest" in Trust assets or deprived participants of vested interests (Trust §14.3 & §4.2) | Deduction created an impermissible interest in favor of Life Investors and defeated 100% vested participant interests | §11.9 creates a lien/charge against participant accounts, not a transfer of an interest to Life Investors; vesting is subject to indebtedness and trust restrictions (§8.7) | Court: No interest in favor of Life Investors; participants’ interests were not indefeasibly vested because indebtedness under §11.9 affected net trust assets |
| Whether Trustees breached fiduciary duties by failing to give advance notice of deduction | Trustees owed a duty to inform beneficiaries before enforcing trust provisions | Plaintiffs had the Trust document and knew §11.9; no Iowa authority requires advance notice of enforcing express trust provisions | Court: No fiduciary breach for lack of notice; Trust terms provided sufficient notice |
| Whether fees were unreasonable or conversion occurred | Fees amount and conversion claim were disputed; plaintiffs contend fees may be unreasonable and seizure was wrongful | Plaintiffs failed to challenge reasonableness below; conversion fails because plaintiffs lacked indefeasible possessory right once lien applied | Court: No genuine issue on reasonableness (not timely challenged); conversion claim fails because participants had no superior possessory right |
Key Cases Cited
- Gilkerson v. Neb. Colocation Ctrs., LLC, 859 F.3d 1115 (8th Cir. 2017) (standard of review for summary judgment)
- In re Steinberg Family Living Tr., 894 N.W.2d 463 (Iowa 2017) (trust interpretation guided by settlor intent and plain language)
- Hanrahan v. Kruidenier, 473 N.W.2d 184 (Iowa 1991) (trust terms can authorize payment of legal expenses from trust)
- Maxa v. John Alden Life Ins. Co., 972 F.2d 980 (8th Cir. 1992) (no affirmative duty to individually warn plan members about plan provisions absent controlling authority)
- Blackford v. Prairie Meadows Racetrack & Casino, Inc., 778 N.W.2d 184 (Iowa 2010) (elements of conversion)
- In re Estate of Bearbower, 426 N.W.2d 392 (Iowa 1988) (conversion elements explained)
- Edworthy v. Iowa Sav. & Loan Ass’n, 86 N.W. 315 (Iowa 1901) (definition of vested right)
- In re Lunt, 16 N.W.2d 25 (Iowa 1944) (beneficiary’s interest may be charged for debts owed to trustee)