2019 Ohio 5208
Ohio Ct. App.2019Background:
- William C. Sherman established two trusts (an inter vivos trust and a testamentary trust) funded primarily with Standard Register super-voting stock; Fifth Third became sole trustee in 1980.
- The trusts held concentrated Standard Register shares that conferred "negative control"; the Sherman/Clarke family resisted divestiture and litigated Fifth Third in 1986–87, settling in 1987.
- Fifth Third repeatedly investigated diversification options (reports in 1985, 1991, 2006) but did not divest because of family opposition, capital-structure hurdles, and the JQS trust’s position; Fifth Third filed a Schedule 13D in 2008 and held a beneficiary conference call about concentration.
- Standard Register declined, merged in 2013, and filed for bankruptcy in 2015; the Sherman trusts’ values fell to near zero.
- After their mother’s 2015 death the Clarke siblings became income beneficiaries and sued Fifth Third on August 31, 2015 (claims: breach of duty to diversify, breach of impartiality, breach of fiduciary duty, and unjust enrichment). The trial court granted summary judgment to Fifth Third, finding most claims time-barred; the appellants appealed.
Issues:
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether Clarke siblings’ breach-of-duty-to-diversify claim is time-barred under R.C. 5810.05(C) (4-year rule based on knowledge) | Clarke siblings: they lacked knowledge after the 1986–87 settlement and did not know trusts remained undiversified until they became income beneficiaries in 2015 | Fifth Third: beneficiaries had constructive knowledge by at least 2008 (proxy statements, Schedule 13D, beneficiary call/script), so the 4-year limitations period began then | Court: claim accrued by 2008; 2015 suit was untimely under R.C. 5810.05(C); summary judgment affirmed on this claim |
| Whether R.C. 5810.05(A) (2-year rule triggered by an adequate report with disclosure) controls accrual | Clarke siblings: the 2015 report containing the two-year disclosure restarted/triggered the limitations period, so the suit was timely | Fifth Third: 5810.05(A) shortens the period only if a beneficiary receives an adequate written report; it does not delay accrual if constructive knowledge arose earlier | Court: 5810.05(C) (4-year) controls here because beneficiaries had knowledge by 2008; 5810.05(A) does not extend accrual |
| Whether a continuing-duty theory (relying on Tibble) saves otherwise time-barred claims by focusing on breaches occurring within the limitations period | Clarke siblings: trustee’s duty to monitor is continuing, so post-accrual misconduct (e.g., 2011–2015) could give rise to timely claims | Fifth Third: beneficiaries had earlier constructive knowledge and Tibble (federal ERISA case) is distinguishable; accrual here was 2008 | Court: Tibble distinguishable (federal ERISA context and different facts); continuing-duty argument did not defeat accrual analysis |
| Whether other claims (impartiality, breach of fiduciary duty, unjust enrichment/fees) are the same "gravamen" as the diversification claim and thus time-barred | Clarke siblings: impartiality/fiduciary and fee/unjust-enrichment claims raise distinct misconduct (e.g., improper fees, inaccurate accounting) | Fifth Third: remaining claims arise from the same failure-to-diversify conduct and are therefore time-barred like the diversification claim | Court: impartiality and breach-of-fiduciary claims were essentially breach-to-diversify claims and time-barred; unjust-enrichment (fees) alleged distinct misconduct and survives summary judgment challenge (trial court erred in dismissing it) |
Key Cases Cited
- Grafton v. Ohio Edison Co., 77 Ohio St.3d 102 (summary-judgment standard governs de novo review)
- Cundall v. U.S. Bank, 122 Ohio St.3d 188 (constructive knowledge starts limitations under discovery rule)
- Flowers v. Walker, 63 Ohio St.3d 546 (discovery rule principles)
- Tibble v. Edison International, 135 S. Ct. 1823 (2015) (continuing fiduciary duty to monitor investments under ERISA)
- Ross Sinclaire & Assoc., LLC v. Huntington Natl. Bank, 106 N.E.3d 866 (beneficiary knowledge starts accrual for diversification claims)
- Hambleton v. R.G. Barry Corp., 12 Ohio St.3d 179 (look to the actual nature/subject matter to determine accrual/statute of limitations)
- Wood v. U.S. Bank, 828 N.E.2d 1072 (recognizing common-law duty to diversify as codified)
- Zook v. JPMorgan Chase Bank Natl. Assn., 85 N.E.3d 1197 (definition of "knowledge" under trust-code provision)