Jo Ann Howard and Associates v. National City Bank
868 F.3d 637
8th Cir.2017Background
- National Prearranged Services, Inc. (NPS) sold preneed funeral contracts in Missouri; Missouri law required 80% of contract proceeds to be held in preneed trusts with a bank trustee and (for large trusts) an independent investment advisor.
- Allegiant Bank served as trustee of NPS’s Missouri preneed trusts from 1998–2004; Wulf Bates & Murphy (Wulf) acted as investment advisor and used trust assets to buy life-insurance policies from Lincoln Memorial Life (Lincoln).
- Regulators later uncovered that NPS and related entities engaged in widespread fraud, including unauthorized policy loans and misreporting insurance payment amounts, depleting trust assets; Lincoln and related insurers entered receivership and state guaranty associations stepped in.
- Appellees (the special deputy receiver and guaranty associations) sued Allegiant’s successor (PNC, via acquisition) for negligence and breach of fiduciary duty (alleging trust breaches), and also pleaded aiding-and-abetting claims; they sought $355.5 million plus punitive damages and demanded a jury trial.
- The district court treated the claims as legal (tort) claims and allowed a jury trial; the jury awarded full compensatory and punitive damages. On appeal, the Eighth Circuit concluded the claims arose under trust law, should have been tried in equity, limited damages under trust-law principles, and rejected the aiding-and-abetting theory.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Nature of claim: tort vs. trust | Claims allege negligence and fiduciary breaches actionable at law; jury right applies | Claims arise from trustee duties and are breaches of trust governed by trust law | Claim is a trust-law (breach of trust) claim, not a tort claim |
| Trial forum: jury vs. bench | Even if trust-related, remedies include legal damages so jury trial proper | Breach-of-trust claims are equitable and generally tried to the court; only indebtedness claims go to jury | Should have been tried in equity; not an indebtedness claim for jury trial |
| Identity of beneficiaries | NPS is the trust beneficiary entitled to distributions | Consumers and funeral homes also have beneficial interests and are protected beneficiaries | Beneficiaries include NPS, Missouri consumers, and funeral homes performing contracted services |
| Measure of damages | Jury award of broad compensatory and punitive damages recovers full alleged losses | Damages are limited by trust-law measure (loss to trust, trustee profit, or foregone profit) and limited to Allegiant’s trusteeship period and Missouri trusts | Damages limited by Restatement/estate trust measure (trust losses/profits) and to losses caused during Allegiant’s trusteeship in Missouri |
| Defenses: authorization, in pari delicto, investment-advisor defense | If NPS was sole beneficiary, PNC could assert authorization and in pari delicto; and §436.031.2 shields trustee when investment advisor appointed | Consumers and funeral homes are beneficiaries so those defenses do not apply to them; trustee retains duty to ensure prudence even with an investment advisor | District court properly struck authorization and in pari delicto as to innocent beneficiaries; trustee remains liable if it failed to ensure investments were within a reasonably prudent trustee’s authority |
| Aiding-and-abetting tort claims | Plaintiffs alleged trustees aided/encouraged NPS and Wulf, creating tort liability under Restatement §876 concepts | Missouri law does not recognize aiding-and-abetting liability under the §876(b)/(c) theories here; claims duplicate trust remedies | Eighth Circuit affirmed dismissal: declined to predict Missouri would adopt §876(b)/(c) aiding-and-abetting cause of action in these facts |
Key Cases Cited
- Estate of Luyties v. Scudder, 432 S.W.2d 210 (Mo. 1968) (articulates trust-law measure of damages for breach of trust)
- Zafft v. Eli Lilly & Co., 676 S.W.2d 241 (Mo. 1984) (Missouri Supreme Court decision addressing concert-of-action theory and evidentiary sufficiency)
- Brown v. United Mo. Bank, N.A., 78 F.3d 382 (8th Cir. 1996) (equitable jurisdiction for breach-of-trust actions; such claims are generally for the court)
- Howard’s Estate v. Howe, 131 S.W.2d 517 (Mo. 1939) (distinguishes indebtedness claims where trustee has ministerial duty to pay a sum certain)
- Central Bank of Denver, N.A. v. First Interstate Bank of Denver, N.A., 511 U.S. 164 (U.S. 1994) (observes uncertainty in states on recognition of aiding-and-abetting tort liability)