Doermer v. Oxford Fin. Grp., Ltd.
884 F.3d 643
| 7th Cir. | 2018Background
- Siblings Richard (Illinois) and Kathryn Doermer (Indiana) are co-beneficiaries and co-trustees of a multimillion-dollar family trust; a corporate trustee also serves.
- Kathryn hired Oxford Financial Group (Indiana) in 2011–12 to advise on trust management; Oxford recommended splitting the trust and moving situs to South Dakota.
- Richard sought a trust division in South Dakota state court in 2012; the court denied his petition and the trust remained intact.
- In July 2016 Richard sued Oxford in Illinois state court (removed to federal court), alleging negligent advice caused Kathryn to refuse his division plan and thus caused financial losses; he named Kathryn as an "involuntary plaintiff."
- District court applied Illinois choice-of-law rules, concluded South Dakota substantive law governed (though outcome would be the same under either state), and dismissed Richard’s complaint for lack of capacity to sue on behalf of the trust.
- On appeal the Seventh Circuit affirmed, holding Richard lacked capacity both as trustee (no majority trustee consent) and as beneficiary (no allegation that trustees improperly refused to sue), and rejected arguments that Kathryn’s presence destroyed diversity or that an "involuntary plaintiff" could be forced into the suit.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Capacity to sue as co-trustee | Richard claimed he could sue Oxford as a co-trustee and as beneficiary. | Oxford argued a trustee may act only with majority co-trustee consent and Richard lacked that consent. | Court: Richard cannot sue as trustee because statute and trust require majority trustee consent, which is absent. |
| Capacity to sue as beneficiary on behalf of trust | Richard argued beneficiaries can sue third parties on trust’s behalf (or compel trustee to join) and named Kathryn an "involuntary plaintiff." | Oxford argued beneficiaries generally cannot sue third parties for the trust absent a trustee breach or improper refusal to sue; Richard did not allege such breach. | Court: Beneficiary exception unavailable; Richard alleged no trustee breach and waived beneficiary theory by not raising it below. |
| Forcing Kathryn into suit / diversity destruction | Richard contended he could force Kathryn to be an involuntary plaintiff, and that her Indiana citizenship destroyed diversity jurisdiction. | Oxford argued federal joinder rules do not permit unilateral creation of an involuntary plaintiff and Rule 19 doesn’t mandate joinder that defeats diversity. | Court: No procedural or substantive doctrine allows forcing Kathryn in as plaintiff; her citizenship does not defeat diversity. |
| Whether trust’s citizenship defeats diversity | Richard argued the trust is the real party in interest and its trustees’ citizenships (including Kathryn’s) determine diversity. | Oxford relied on precedent that traditional trusts are not separate entities; trustee’s citizenship controls. | Court: Traditional trust is not a separate citizen; only Richard’s citizenship matters for diversity, so diversity jurisdiction exists. |
Key Cases Cited
- Doermer v. Callen, [citation="847 F.3d 522"] (7th Cir. 2017) (previous related suit addressing Richard's capacity issues)
- Americold Realty Trust v. Conagra Foods, [citation="136 S. Ct. 1012"] (U.S. 2016) (traditional trusts are not separate entities for diversity purposes)
- Navarro Savings Ass'n v. Lee, [citation="446 U.S. 458"] (U.S. 1980) (trustee's citizenship controls diversity jurisdiction)
- Independent Wireless Telephone Co. v. Radio Corp. of America, [citation="269 U.S. 459"] (U.S. 1926) (historical rule permitting involuntary plaintiff in certain equitable actions, superseded by Rule 19)
- Korte v. Sebelius, [citation="735 F.3d 654"] (7th Cir. 2013) (capacity issues concern plaintiff's ability to state a claim, not subject-matter jurisdiction)
- Doss v. Clearwater Title Co., [citation="551 F.3d 634"] (7th Cir. 2008) (dismissals without prejudice typically non-final for appellate jurisdiction)
- Townsend v. Sears, [citation="879 N.E.2d 893"] (Ill. 2007) (Illinois courts may apply foreign substantive law under choice-of-law principles)