*1 MDHHS, supervisor liability. MDEQ, See Polk superior, Michigan, and Governor Dodson, 312, 325, 102 Boler, in Cty. Snyder v. 454 U.S. S.Ct. on the basis of Eleventh (“Section (1981) sovereign immunity. 70 L.Ed.2d Amendment RE-We on support respon- will not a claim based MAND the proceedings cases for further theory liability.”) (citing deat of in superior opinion. accordance with this Servs., Dep’t N.Y.C. Soc. Monell v. 658, 694, U.S. 98 S.Ct. 56 L.Ed.2d (1978)). respond The Plaintiffs against MDEQ
their claims these Defen on personal
dants rest conduct. own
Indeed, Complaint spe Mays the
cifically alleges in Wyant participated City the decision switch the of Flint’s (16-2221 Elizabeth A. OSBORN & 16- It supply alleges water the KWA. 6225); Holt, Linda Judith G. E. Prew expressed Shekter concern that Smith (16-2221/6225/6226/6227), itt, Cynthia L. Roeder Flint would be publicly water linked to -Appelle Plaintiffs disease, Legionnaire’s outbreak of and also es, acknowledged problems the water Flint due to “corrosion across GRIFFIN, system.” alleg John M. Estate of Complaint distribution Dennis B. Griffin, and Dennis B.
es that Busch was on notice that the Griffin Revoca water (16-6221 16-6226); ble Trust-2012 ready treatment was not & plant the time (16-6225 Properties, falsely Flint water Martom LLC & supplies, switched 16-6227), Defendants-Appellants. City told EPA that Flint was using its supply. corrosion control on water Nos. 16-6221/6225/6226/6227 Finally, Complaint alleges that both of Appeals, United States Court Busch and Smith received an EPA Shekter Sixth report concerning Circuit. elevated levels of lead un supply, Flint water and failed to Argued: April any dertake measures to address the dan July Decided and Filed:
gers public. allegations to the These con MDEQ
cern the individual conduct
Defendants, participation and their own alleged violations of the Plaintiffs’ sub process They rights.
stantive due do
rely deny respondeat superior, we request to affirm the district court’s ground.
dismissal on this
III. CONCLUSION reasons,
For RE- foregoing we
VERSE the district court’s dismissal of § precluded Plaintiffs’ 1983 claims as We,
by the AFFIRM the SDWA. dismissal against the Plaintiffs’ claims the State Mays,
Michigan against the State *10 PSC, Louisville,
LA VELLE Kentucky, Holt, Prewitt, Appellees for and Roeder. Garre, ON BRIEF: Gregory G. Melissa Sherry, Arbus Benjamin Snyder, W. Mat- Glover, thew J. LATHAM & WATKINS LLP, D.C., Washington, Heather A. Wal- ler, LLP, LATHAM & WATKINS Chica- Illinois, go, Appellants. for Griffin Joseph Callow, Jr., Hankinson, M. P. Thomas Ja- Rhode, D. cob KEATING MUETHING & PLL, Cincinnati, Ohio, KLEKAMP for Martom Appellant. Jakubowicz, P. Janet Benjamin Lewis, J. BINGHAM GREEN- LLP, Louisville, EBAUM DOLL Ken- tucky, for Appellee Wicker, Kent Osborn. DRESSMAN BENZINGER LA VELLE PSC, Louisville, Kentucky, Eva Christine Trout, PLLC, TROUT OFFICE LAW Lexington, Holt, Appellees for Prewitt, and Roeder. MERRITT, BATCHELDER,
Before: CLAY, Judges. Circuit CLAY, J., opinion delivered the BATCHELDER, J., joined. court which MERRITT, 465-72), (pp. J. delivered a separate dissenting opinion.
OPINION CLAY, Judge. Circuit Griffin, Defendants John M. the Estate Griffin, B. of Dennis the Dennis B. Griffin Trust, Properties, Revocable Martom (“Defendants”), appeal LLC from the judgment entered the district court on 26, 2016, April requiring pay roughly wrongful prof- million $584 disgorgement prejudgment its interest Osborn, to Plaintiffs Elizabeth A. Linda G. Holt, Prewitt, Garre, Cynthia Gregory ARGUED: G. LATHAM Judith E. L. (“Plaintiffs”). D.C., Plaintiffs, LLP, Washington, & WATKINS for Roeder four sis- Jakubowicz, ters, Defendants, essentially Appellants. allege Janet P. BING- ’ LLP, entity HAM GREENEBAUM DOLL two their brothers and related Louisville, Kentucky, Appellee Properties, Osborn. called Martom cheated them Wicker, Kent of stock property DRESSMAN BENZINGER out and real related *11 they patriarchal family. The Griffins were a should have family’s business taught “The Griffin children were that the parents’ the terms their inherited under siblings charge older in and agreed The district court with that the plans. estate (R. trial, younger respect siblings had to them.” finding a Plaintiffs after bench 856, Findings of Fact and Conclusions of managing in the fami- Defendants’ conduct ¶4.) Law, effect, this practical In meant ly parents’ their estates and business and Griffy—the eldest that Dennis and broth- their duties to trusts violated of and respect ers—wielded the exercised Kentucky Defendants Plaintiffs under law. children, authority younger in-' over the litany of to the
appeal, raising challenges a eluding Plaintiffs. jurisdiction, legal conclu- district court’s
sions, and decision conduct a remedy,
bench The district court exercised trial. B. Griffin Industries subject jurisdiction over Plaintiffs’ matter In founded Griffin Indus- John pursuant claims to 28 U.S.C. state law tries, a rendering company primarily jurisdiction § this and we have over hauls animal carcasses away and other § appeal pursuant to 28 U.S.C. 1291. For material waste and converts this into use- below,
the reasons set forth we AFFIRM products. ful Griffin Industries a fami- judgment. court’s district ly business in the truest sense the term.
“All children in [of] the Griffin worked BACKGROUND summers, business and in after school with girls office doing primarily work and History I. Factual ¶ 5.) boys in working plants.” {Id. married, girls “When the husbands Family
A. Parties and Other Griffin {Id.) usually company.” in the worked Over Members century, half of the twentieth second a litigation concerns multi-million This grew prosperous Griffin Industries into chil- dispute among dollar inheritance enterprise in operations with several (“John”), long- dren of L. Griffin John Eventually, states. when children were Kentucky During deceased businessman. adults, (including all of them four Dennis lifetime, his John and his Rosellen wife Griffy) and worked full-time Griffin In- (“Rosellen”) Griffin had twelve children. dustries, did not. while the others daugh- of the couple’s Plaintiffs are four 1970s, In the purchased and John 1960s Osborn, Holt, Cyn- ters: Elizabeth Linda parcels several estate in real (“Cyndi”), thia Roeder and Judith Prewitt that were in its used Griffin Industries Mirroring parties (“Judy”). Id. and the operations. properties were These titled court, district we refer Elizabeth Os- John’s In name. Griffin Industries “Betsy,” remaining born as and three Protein, purchased Craig another render- Plaintiffs.” sisters as the “Holt ing company Georgia. John per- based are, effect, 1,000 sonally Craig two of John held shares Protein core, dispute B. stock. At this Rosellen’s sons—Dennis Griffin1 its concerns the (i) (“Griffy”)—plus ownership M. Griffin an of: John and Rosellen’s Grif- John (ii) stock; estate; Proper- called fin John’s real entity created Martom Industries (iii) ties, (“Martom”). Protein Craig John’s stock. LLC sake, place. simplicity's we refer estate and For to Den- Dennis died nis' as “Dennis.” as defendants in his estate and trust trust were substituted John’s and C. Rosellen’s 1967 Estate were the seven who were not then work-
Plans ing full-time for Griffin Industries. A further amendment in 1981 did not alter both John and Rosellen pre- *12 the distribution of the trust’s assets. pared separate wills and revocable trusts. ¶¶ 11-12.) {Id. specified
Rosellen’s will that when she died, all of her Griffin Industries stock sum, In from the late 1960s early to the John, pass would first to and then to her 1980s, both John’s and respec- Rosellen’s (along trust -with the remainder of the tive plans estate expressed a clear and estate). of her residue Rosellen named the consistent desire bequeath proper- (later' First National Bank of Cincinnati ty equally to their living eleven children. Bank) trustee, known as Star as her only There was one deviation from this her trust provided instruments that all 1980s, intention. In early John recog- assets of the trust among would be divided nized that because Griffin Industries was a her then-living eleven children. Subchapter corporation, S “the four work- ing children were receiving more income
The district court described John’s es- from Griffin Industries tha[n] the seven plan tate as follows: ¶ 13.) non-working children.” {Id. John a [John] executed Last and Testa- Will “adjust wanted to this result” by making 1967, ment in provided which that all his additional gifts stock to the non-working property chattel would pass to [Rosel- children to restore equality amongst his and, predeceased him, if she len] to his {Id.) heirs. John’s intention was that if in equal eleven children amounts! A first predeceased him, Rosellen “the non-work- codicil in bequeathed his stock to ing children would end up with more [Rosellen], then to his 1967 if Trust she shares than working children” to ac- predeceased codicil, him. [John’s] second count for the fact that the working chil- 1974, bequeathed executed his stock dren received direct income from Griffin [Rosellen], with the stock pur- to be ¶ 14.) Industries. {Id. pre- chased Griffin Industries if she 1974, him. In deceased a [John] executed Disputed D. Griffin Industries Stock changing third codicil his alternate bene- Transactions children, ficiary equally. his In gave events that rise to this lawsuit executed a fourth [John] codicil that left began in In mid-1980s. John [Rosellen], his stock to except any suffered a massive stroke that left him stock purchased by Griffin Industries. If partially paralyzed speak, and unable to predeceased [him], [Rosellen] then the write, himself, drive, care for or walk with- stock would be distributed equally to his stroke, out assistance. After the had John children. A fifth codicil was executed IQ functional age the mental 1981 that changes made no to the distri- of an eight-year-old. recognized Dennis bution of the stock. infirmity, father’s and told one of his sis- also created a [John] Trust ters to “sign anything not let John because
which, under First Amendment exe- you know he doesn’t understand.” {Id. 2, 1978, cuted on provided October ¶ 23.) . its assets be among would distributed seven of the children when turned Exacerbating family upheaval, Ro- (or, deceased, thirty issue, if their living sellen died in 1985 of Parkinson’s disease.
if any): Cyndi, Linda, Marty, Tommy, death, At the time of Rosellen’s she owned Janet, Judy, and Betsy. These children roughly 13% of Griffin Industries’ stock. In meetings, siblings by Dennis lied to his of her estate with' the terms accordance on the John, claiming that Griffin Industries was passed to who owned plan, her stock (it actually verge bankruptcy profit- stock, of Griffin Industries’ roughly 53% able), parents’ plans and that their estate total of 66% of the giving him a combined for the six to own all of the called sons company.' parents’ Griffin Industries stock. Dennis Griffy September Dennis any sisters his mother’s did not show of his Kentucky probate successfully petitioned a documents, trust and when one of estate or (i) of Rosel- make them executors court to: (Linda) tried to ask her the sisters about (ii) estate; power of give them len’s will, up Dennis told her “to shut mother’s On November attorney over John. *13 ¶ (Id. 40.) Reflecting and down.” sit a Third Amendment John executed family, Plaintiffs patriarchal nature Dennis and Trust'that made to his 1967 Griffy on trusted and “relied Dennis and later, days Four he Griffy his trustees. (Id. parents’ handle their estate matters.” of Griffin Industries’ transferred his 53% ¶ 45.) stock to his trust. occasions, subsequent Linda vis- On two Griffy then effectuated Dennis and ited Dennis and asked to view Rosellen’s transac- following elaborate series stock time, documents. Each Dennis be- estate authority as trustees of using tions abusive, angry came and and refused to executors of Rosellen’s John’s trust and show her the relevant documents. estate: (but (cid:127) none of his John’s six sons Betsy’s E. 1990 Lawsuit purchased all of Rosel- daughters) sisters—Betsy—proved more One of the shares; len’s Griffin Industries 1980s, than In the late she insistent Linda. (cid:127) of his shares to John’s trust sold 5% planned that Dennis to transfer learned trusts, who in grandchildren’s his of the Griffin Industries stock to his some (but none of gave turn his six sons Betsy children. asked Dennis how When daughters) opportunity this, authority legal he had the to do Den- at 60% of their buy-back shares “and told her that stock angry nis became value; ¶ 67.) (Id. concern’ her.” When Bet- ‘didn’t (cid:127) all interest in the transfers, John disclaimed sy Griffy asked about the he him; had left to
shares Rosellen lied, telling Betsy that he was not familiar plan, estate (cid:127) and “that if with Rosellen’s purchased all of the John’s six sons Griffy] and [Dennis she didn’t like what shares remaining Griffin Industries ” (Id.) doing, she should ‘sue them.’ were in John’s trust. 20, 1990, January Betsy wrote a On
The net result of these machinations Griffy informing them letter Dennis and all ownership that the six sons obtained will, their mother’s and shares, that she had read Rosellen’s while John and that under the terms she was enti- will’s beyond what daughters received no stock tled to one-eleventh of Rosellen’s Griffin gifts they already through owned various Plain- stock. None of the Holt Industries thereaf- in the 1960s and 1970s. The sons saw or reviewed this letter. tiffs In- roughly ter controlled 87% Griffin dustries’ stock. her, Griffy rebuffed After Dennis maneuvers, Den- Betsy against Dennis filed a federal lawsuit planning
After these Griffy in the Eastern District of family meetings in Novem- nis and pair called Kentucky. challenged The suit Dennis his mother’s estate. At ber 1985 discuss machinations, ment, Griffy’s Cyndi 1986 stock also and when asked if she could it, behalf asserted a derivative claim on of all read refused. Dennis The Holt Plaintiffs (nominally Griffin Industries shareholders executed a final settlement with Dennis Plaintiffs). including Holt and Griffy September 10, 1993 that settled their derivative claims and released Dennis to the berat- responded suit possible all against tort claims Dennis and family members, ing Betsy in front of her $10,000. Griffy for Dennis lied to the Holt alleging suit that the had no merit and was Plaintiffs and told them that had re- purely by greed. motivated Dennis told the ceived compensation as much Betsy re- Holt that the Plaintiffs suit did involve claims, ceived for her Betsy got and that them, give any declined details “very damn little” from the 1990 lawsuit. about the nature of the suit. The Holt ¶ (Id. 112.) The Holt Plaintiffs never Plaintiffs believed what Dennis told them Betsy’s told the terms of settlement. suit, Betsy about and the and stopped Betsy speaking with until the mid-2000s. Disputed F. Real Craig Estate and lawsuit, present Prior to the the Holt Protein Stock Sales nature of Plaintiffs never learned the
participated in that suit. April John died on and Dennis *14 Griffy and became the executors of 30, his 1991,
On November John executed death, estate. At time (“Sixth of his John’s both a Sixth Codicil to will his estate possessed Craig still Protein Codicil”), a Fourth and Amendment to his (the (“Fourth Georgia stock Amendment”), company bought John trust both of 1981), in (i) as well the real estate assets retroactively approved which: Dennis purchased he before his In accor- transactions; stroke. Griffy’s and 1986 stock and (ii) dance with the terms of Sixth John’s Codi- provided remainder John’s Amendment, cil and Fourth these assets property split be equally would his five equally amongst should have divided been living daughters upon his These death. Nevertheless, his five daughters. Dennis
estate came after changes shortly John Griffy sought legal and about advice how underwent a doctor’s examination which acquire to property this without either ob- IQ revealed his low functional and mental sisters, taining prior consent of their January age. purported- On John or violating Kentucky’s prohibition against ly executed an affidavit which also retroac- self-dealing by fiduciaries. tively Griffy’s approved Dennis and stock
sales. Eventually, Griffy Dennis and settled on First, in
Eventually, Betsy negotiated they the following plan: directed two agreement (“Marty” settlement with Dennis and of their younger brothers and Griffy buy gave large “Tommy”) Craig her a number of to Protein stock shares, Later, roughly substantially Griffin at a plus price. Industries undervalued $100,000 past Marty Tommy to cover distributions. How- and traded the ever, outstanding Craig because there was an Protein back to Indus- stock Griffin claim, Griffy exchange derivative Dennis were tries in for Griffin Industries and required they stock separately settle with other stock. The Griffin Industries shareholders, including acquired Griffin Industries them than mil- netted more $30 succeeding Holt Plaintiffs. Dennis called the Holt lion distributions over the years. Griffy Plaintiffs into his office and ordered them and Dennis never offered sign explain opportunity buy document. He did sisters the stock, they agree- Craig the document was a settlement Protein because wanted (as Betsy, well as pany of their than their brothers in the hands to remain the stock settlement). due to the 1993 brothers. diligence merger, for the During the due a new Griffy and then created
Dennis that he and Dennis Griffy became aware Martom,2 which corporation, Defendant fa- transfer one of their forgotten had estate, real and all of John’s purchased (“Cold Spring”) to Mar- properties ther’s to Griffin property leased the back then transac- their 1995 real estate during tom Griffy Dennis and Although Industries. trustee, Using power as John’s tions. Martom, they effec- owned no shares conveyed the overlooked real estate he through their tively controlled Martom Industries for parcel to Griffin $1. Industries, as Martom ownership of Griffin of its own and was employees no had Betsy Griffy’s Spring learned of Cold entirely by per- Industries Griffin transaction, 27, 2011, staffed filed April and on Tommy—Martom’s Marty and sonnel. Griffy in Dennis and the East- against suit exercised testified owners—each Kentucky. Betsy spoke to ern District of or control over virtually management no Linda, Dennis and Judy, Cyndi about Martom. Griffy’s self-dealing various transactions in December of 2011. party a Christmas of these transactions was The net result why they so little learning possessed After maintained effec- Griffy that Dennis stock, Linda, Judy, and Industries Griffin ownership over all of the tive control and Cyndi filed their own lawsuit the East- real es- stock and Martom Craig Protein on March ern District from the sale of the proceeds tate. “The alleged various The Holt Plaintiffs’ suit Marty Tommy Protein stock to Craig causes of action state and federal law properties the real Martom *15 Dennis, Betsy Griffy, and Martom. against and estate and Trust paid into [John’s] respective Plaintiffs’ lawsuits and the Holt equal- to the five sisters distributed were instant action. consolidated into the were ¶ (Id. 142.) Thus, although the sisters ly.” proceeds of these transac- received History II. Procedural tions, to opportunity never had par- district court record is Because the in-kind— take the stock or real-estate voluminous, ticularly we will summarize up costing them something that wound proceedings below. millions dollars. ex-
Following practice initial motion and Litigation discovery, parties filed several G. Genesis This tensive Af- summary judgment. for cross-motions greatly prospered Industries Griffin hearing argument ter oral on the various and 2000s. In throughout the 1990s motions, sum- the district court issued a by a purchased Industries was Griffin mary judgment September order on for Darling called company International Griffin, F.Supp.3d 2014. Osborn merger was clos- million. While $840 (E.D. Ky. mistakenly faxed a docu- ing, Cyndi was order, summary judgment the dis- Industries’ sharehold- its listing ment Griffin Plaintiffs’ vari- each trict court dismissed all of detailing the amount of stock ers and except for ous state and federal claims Cyndi owned. was shocked shareholder fiduciary their claims for breach of duties that she and her other sisters discover law; however, the district substantially com- under less stock owned Marty Tommy. mashup names and is a 2. Martom largely found Plaintiffs’ favor with The court judgment district entered 26, 2016,
respect fiduciary April claims. duty awarding The Plaintiffs roughly equitable disgorgement million in $584 district court concluded that there were wrongful and profits disputes prejudgment of material fact as to interest. genuine (i) $10,355,925 This award consisted of: Griffy and whether Dennis breached their each stemming Plaintiff from Defendants’ fiduciary respect duties with the 1986 Craig sales, Protein stock including pre- stock transactions. Id. at 794-97. The dis- judgment interest running May from trict court further determined there 2016; (ii) $1,959,397 until April to each genuine dispute was no of material fact stemming Plaintiff from Defendants’ Mar- that Defendants breached their sales, tom real including estate prejudg- (i) Craig with to: respect duties Pro- ment July running interest from 1995 until (ii) sale; stock tein Martom real estate (iii) 2016; April $178,128,949 to each of (iii) conveyances; Griffy’s decision n the Holt Plaintiffs from stemming Defen- convey Spring property the Cold to Griffin dants’ illicit Griffin Industries stock trans- Industries dollar in for connection with $1 actions, including prejudgment interest 2010 merger. Id. at 800-03. The dis- running January from until April only trict court determined that the triable jointly Defendants were held issues with to these claims were on respect severally award, liable for the entire Defendants’ various affirmative defenses. the award prejudgment assessed interest Id. at a compounded rate of annually. 8% parties proceeded to a then bench After post-trial practice motion did not 21, 2016, trial. On March the district court alter the judgment, district court’s Defen- findings issued of fact and conclusions of timely dants appeal. filed notices of rejected law that each of Defendants’ affir- mative and held lia- defenses DISCUSSION of fiduciary
ble breaches duties. In Subject I. Matter Jurisdiction essence, the court found that all of district A. Standard of Review disputed real stock sales and estate conveyances self-dealing transactions *16 review de “We novo existence fiduciary in violation of Defendants’ duties jurisdiction.” of subject-matter Watson v. law. The court fur- district Cartee, (6th 817 F.3d Cir.
ther found that Defendants had abused Exception B. Probate position
their of trust with their sisters up prevent and covered their misdeeds to court originally The district assert learning the sisters from their of claims. jurisdiction ed federal question over this The court determined that under Ken- dispute alleged a because Plaintiffs federal tucky law, this abuse of trust excused 1962,1964(c). § RICO claim. See 18 U.S.C.
Plaintiffs’ to bring failure their claims However, granted the district court sum the applicable within statute of limitations. mary judgment dismissing the RICO Finally, accepted the district court the tes- claim, only leaving Kentucky tort claims timony methodology of Plaintiffs’ dam- Osborn, fiduciary for breach of duties. sound,
ages expert, finding reasoning court F.Supp.3d at 809. The district assert and noted that had failed to jurisdiction supplemental ed over these re expert offer own to contradict his maining pursuant state law claims to 28 1367(a). 1367(a) testimony. § §of U.S.C. use This probate further limited the ex- the state law claims We because proper Moore, v. reach. Wisecarver ception’s III case or Article part of the same alleging claim, held “that causes of action we the federal RICO controversy as ... do not nec- duties breach argue otherwise. parties and the do essarily scope probate fall of the See, within Corp. Allapattah v. e.g., Exxon Mobil (6th 546, 558, F.3d Servs., Inc., exception.” 489 125 S.Ct. 545 U.S. cases). (2005). (collecting We reasoned
2611, 162
L.Ed.2d
underlying
probate
ex-
principles
“the
parties disagree
is
Where
federal
ception
implicated
are not
when
court was divested
the district
whether
claims
jurisdiction
exercise
over
courts
by the so-called
subject
jurisdiction
matter
jurisdiction based
seeking
personam
jurisdiction.
to federal
exception”
“probate
liability
the claims do
tort
because
upon
federal
probate
exception,
Under
the res in the state court
not interfere with
exercising juris
from
prohibited
courts are
or ask a federal court
probate proceedings
involving
conflicts
over certain
diction
or annul a will.” Id.
probate
probate
subject to a state
property
distinguished
then
the sorts
reme-
We
A.
generally Charles
proceeding. See
probate exception
implicated
dies
Miller,
al.,
et
13E
& Arthur R.
Wright
from the remedies outside
its reach. We
§ 8610
Federal Practice and Procedure
probate exception
bars a
held that
(3d
supp.).
ed. 2017
“(1)
enjoin-
seeking:
order
plaintiff from
an
n
re-
disposition of assets
ing Defendants’
Supreme Court has held
The
(2)
estate,
an
from [the decedent’s]
ceived
distinctly limited
is “of
exception
that this
all
divesting
property
Defendants of
order
Marshall, 547
U.S.
scope.” Marshall
... and
them
[from estate]
retained
293, 310,
the value of ratify Griffy’s Dennis and 1986 stock will, Wisecarver; ant violating to John’s transactions—were in included the estate (ii) and Griffin stock Industries probate documents submitted to the court will, sales were ratified John’s change analysis. does not this The mere challenging therefore Plaintiffs’ claims fact tangentially that assets are mentioned necessarily sought those sales invalidate in probated estate and trust documents is the will. N.Y., See irrelevant. v. Bank Lefkowitz of (2d (After 528 F.3d First, disagree, We for several reasons. Marshall, “probate exception can no
we note that Griffin John’s Industries longer widely be used to recog dismiss any stock was of part not res distributed nized such as of fiduciary torts breach by probate a court. The October duty merely ... because the issues inter Inventory Appraisement pre- Form proceeding twine with claims pared by Griffy Dennis and John’s state (citation, marks, quotation court.” probate es- and al proceedings shows that John’s omitted)). any jurisdiction tate did not hold Griffin Industries teration Federal of only destroyed stock at the his death. time As we when a plaintiff seeks to recounted, possess John did not this stock a set aside will or appropriate assets that Griffy (or 1995 because Dennis and trans- by probate were distributed court Marshall,
ferred it out of his estate
the mid-1980s.
equivalents).
their cash
547 U.S.
311-12,
1735; Wisecarver,
at
126 S.Ct.
agree
district
We thus
with the
F.3d at 751 n.1. Accepting Defendants’ ar
that,
respect
with
Griffin
John’s
guments and dismissing this suit because
stock,
sought
Industries
Plaintiffs
and ob
sought
Plaintiffs
the value
assets that
“compensation
tained
for the
value
took
out of John’s estate mere
property allegedly wrongfully transferred
ly because those assets were mentioned in
by
out
their
estate
[Defendants
father’s
plan
require
John’s
expand
estate
would
(R.
in breach of their
duties.”
beyond
ing
probate exception
its “dis
added,
PagelD
(emphasis
#28041
Marshall,
scope.”
tinctly limited
547 U.S.
omitted).)
expressly
footnote
We have
held
310, 126
S.Ct. 1735.
implicate
pro
that such
not
relief does
Wisecarver,
bate exception. See
489 F.3d
Second, with respect to Rosellen’s Grif
at 751
that “the removal of
(holding
[con
stock,
fin
Craig
John’s
Protein
Industries
assets from
estate
tested]
[the decedent’s]
stock,
by
the real
acquired
estate
Mar-
during his lifetime removes them from the
tom,
correctly
the district court
found that
scope
probate exception”).
limited
money damages
did not
Plaintiffs
“seek
reasoning
simple: prop
for this rule is
equal
probate
to the amount of
dis
erty that a
dece
party removes from a
Wisecarver,
bursements.”
proxy (2d ratify Defen- 105, intended to proof F.3d 117 that John Cavanagh, v. S.E.C. 2006) court distinction is wrongful that a “district conduct. This (explaining dants’
Cir. decisive, only prohib- forces a defendant are disgorgement as federal courts order of through will, reaped and not from profits setting for all from aside a to account ited all and to transfer an affirma- determining legal its on [wrongful conduct] his effect court, if it exceeds Id.; even Markham v. money to see also such tive defense. victims”); 494, 296, also id. Allen, see damages
actual 66 S.Ct. 326 U.S. (1946) a district disgorgement,
(“Upon awarding
(holding
probate
that the
L.Ed.
discretion to direct
may exercise its
court
a federal
prevent
does not
exception
compensa
money toward victim
adjudi-
jurisdiction
“its
exercising
from
tion....”).
property where
rights
[probated]
cate
not undertake to
judgment
final
does
exception
probate
While
posses-
with the state court’s
interfere
from de
a federal court
prevents
facto
sion”).
property
grant
redistributing probated
value,
equivalent cash
ing
plaintiff
a
its
sum,
not
probate exception
does
n.l,
Wisecarver,
at 751
it does
489 F.3d
(i) sought
Plaintiffs:
here because
apply
disgorging
a court from
prevent
not
against
in-personam judgment
[Defen
“an
through
obtains
that a defendant
profits
a
dants],
or annulment of
probate
not the
'
property.
of such
wrongful possession
(ii)
will;”
“seek to reach a res
did not
a
Thus,
forges
if a
example,
defendant
Marshall,
a
court.”
custody
in the
state
lottery ticket
himself a
bequeath
towill
311, 126
1735. We ther
547 U.S. at
S.Ct.
dollar,
the ticket
and obtains
worth $1
properly
the district court
efore hold that
a federal
through probate proceedings,
subject
jurisdiction
matter
over
exercised
will,
nor
set aside
court can neither
dispute.
this
pay plaintiff
order the defendant
$1
But, if
damages.
the defen
compensatory
Liability
Challenges to
II.
court can
lottery, a federal
dant wins the
Review
A.
Standard
authority
possesses
it
any equitable
use
it
law is
the relevant substantive
under
judgment
appeal
On an
from
to dis
force the defendant
applying to
trial,
review the
after a bench
we
entered
probate
lottery winnings.
gorge his
novo,
conclusions de
legal
court’s
district
prevent
narrowly
is
focused
exception
findings for clear error.
and its factual
probate
upending
courts from
ing federal
Sys.,
Health
Baptist
v.
Mem.
Care
Moorer
may
any profits a defendant
proceedings;
(6th
2005);
F.3d
478-79
Cir.
are
probated assets
acquiring
obtain after
Corp.,
Armstrong Tire
James v. Pirelli
Marshall,
confines.”
[its]
“matters outside
(6th
2002);
Schroyer
Cir.
305 F.3d
311-12,
Third, sought by none of the relief support although there'is evidence invalidating John’s will. when required Plaintiffs evi it, court on the entire reviewing argue that the will should Plaintiffs do not and firm is left with the definite aside; merely that the dence they argue be set has been commit conviction that a mistake ratify Defendants’ will was sufficient ” Atkins, F.3d ted.’ United States fiduciary duties under of their breaches (6th (quoting Anderson differently, Put Plaintiffs Kentucky law. 564, 573, must) City, 470 U.S. (as City Bessemer validity of John’s v.
accept *19 (1985)). Instead, L.Ed.2d parties’ S.Ct. statute of limita- standard, if dispute “Under this ‘the district tions is cabined a single legal issue: a court’s account the evidence when defendant plausible of violates his fidu- ciary duties to a plaintiff by light entirety, failing of the record viewed in its disclose facts plaintiffs relevant to the may the court it appeals of not reverse action, cause of does the statute of limita- though even convinced that had it been tions from run the time plaintiff when the fact, sitting of as the trier it would have ” should have breach, known about the or weighed the Id. differently.’ evidence the time when the plaintiff actually learns Anderson, 573-74, 105 (quoting 470 U.S. at about the breach? argue that S.Ct. period began limitations running when Plaintiffs should have learned about their
B. Statute of Limitations 1990s, early claims in the and therefore Kentucky has a five-year statute assert the claims are time-barred.
of fiduciary duty argue, limitations for breach of Plaintiffs and the district court con- (6). 413.120(2), cluded, § claims. Ky. period See Rev. Stat. began limitations party running Neither in 2010 when disputes actually all of Defen Plaintiffs learned about wrongful dants’ their Defendants’ fiduciary breaches of duties con- agree duct. We with Plaintiffs occurred in the 1980s and and the 1990s—more district court. years than five before these consolidated lawsuits were 2011 and re filed Kentucky’s equitable tolling stat However, spectively. Kentucky equitably provides ute as follows:
tolls its statute of limitations whenever cause When a of action mentioned wrongful prevents defendant’s conduct a 413.090 to against KRS 413.160 accrues plaintiff discovering Ky. from her claims. state, a by resident this and he ab- 413.190(2). § Rev. Stat. The dis parties sconding or concealing or himself applicability provi pute tolling this any other indirect means obstructs the sion. action, prosecution the time of the continuance of the from absence argu- the parties’ Before we discuss not be comput- state or obstruction shall ments, helpful separate it is out the any part period ed as of within findings district court that are not at issue which the action shall be commenced. appeal. in this district The court found that But saving prevent this shall not Plaintiffs should have their discovered limitation from operating favor of any claims through the exercise of reasonable person acting, other not so whether he is diligence Osborn, early 1990s. necessary party to the action or not.
F.Supp.3d at 806-08. district 413.190(2) § Ky. (emphasis also found that Defendants failed “dis- Stat. Rev. add ed). close all regarding Ordinarily, only the material facts this statute tolls the parents’ their handling [their] estate statute of limitations when a defendant fiduciary despite an plans breaches” commits affirmative act conceals having duty Munday Mayfair “an affirmative full wrongdoing. Diag make (R. Lab., (Ky. disclosures to their sisters[.]” nostic S.W.2d 915- ¶ 213.) 1992). However, Neither find- party challenges imposes these “where law ings, although later, disclosure, duty as we discuss Defen- a failure disclosure deny any dants had having may duties under constitute concealment KRS 413.190(2)[.]” to Plaintiffs. Id. *20 relationship a exists govern the Where parallel
Two rules confidential Kentucky’s equitable tolling parties, between the to discover of application failure constituting may in where the defendant con the be ex- statute cases fraud facts limita wrongdoing. Typically, long the cused. In such a case so as the ceals his (i) uprepudiated to run the period begins relationship tions when: continues [sic], injured nothing put concealment is re is the wrongful there defendant’s (ii) he cannot be plaintiff party inquiry, or the said plaintiff; vealed to the in diligence of action failed to use detect- have discovered his cause to have “should that Emberton v. the fraud. it has been held diligence.” ing Thus by reasonable GMRI, chargeable with Inc., (Ky. complainant is not 299 S.W.3d 2009). relationship diligence discoveming in not a confidential want “When however, guardian the in conceal- parties, the fraud his [sic] exists between receipt property run until actual and existence of begin ing does not statute guardian step-fa- mistake.” Her was his discovery [or] of the fraud where such Daniel, (Ky. ther, family, 471 S.W.2d in whose and as whose child nandez v.
1971). the actual notice in he had brought up, “The rationale of he was and whom there, confidence, being that in a confiden no rea- requirement persons implicit is or relationship suspect being do not have the reason son to that a tial fraud up on each other that practiced. occasion to check at dealing if arm’s
would exist
(first
added;
emphases
Id. at 338
and third
McMurray, 410
McMurray v.
length.”
quotation
citation and internal
marks omit-
139, 141-42 (Ky.
S.W.2d
ted).
Applying
principles,
these
that
applying Kentucky’s
considering
case
reasoned “that
the fact
The seminal
in
of a
tolling
plain-
statute
the context
was the uncle of
equitable
[the defendant]
fiduciary
...
exist-
relationship
Security
relationship
Trust
tiff
such a
confidential
Wilson,
Ky.
plaintiff
(1948). Trust, embarrassing Security plaintiffs In that it would been wrongfully appropriat questioned integri- to have her uncle’s guardian uncle and her plaintiff ty, inherited from or have demanded that he show her the property ed plaintiff posses- deceased father. Id. The bonds which he said were her wrongful at The court thus held that brought suit decades after Id. 339. sion[.]” transfer, argued misappro- and the that the uncle’s failure to disclose his defendant running priation the claims were time barred. Id. of her assets “tolled Kentucky Appeals, at that of the statute of limitations” notwithstand- Court court, Kentucky’s highest disagreed, ing plaintiffs failure to discover the time wrongdoing. exist Id. at 340. holding relationship uncle, and plaintiff between the and her ed Security Trust argue Defendants wrongful the uncle’s failure to disclose the only applies plaintiff to cases where the transfer tolled the statute of limitations. suspect has no reason whatsoever
Id. at 339.
engaged
any wrong-
the defendant has
Instead,
argue doing.
for its hold-
explaining
the rationale
ostensibly
Kentucky
Appeals
fo-
should follow the rule
set
ing, the
Court
Court
Ison,
family relationship
on the
forth Adams v.
S.W.2d
cused
close
be-
1952),
(Ky.
where the
Court
plaintiff
tween the
and her uncle. The
Appeals
that the statute of limita-
prevailing
court cited the
rule from other
stated
...
“begins to run
when the fraud
jurisdictions that:
tions
reliance,
concealment ... should have been discov-
a liberal atti-
confidence
ered
the exercise
reasonable dili-
tude should be
taken
behalf of
*21
gence by
injured
the
[party].”
patient.
degree
No
deceit or
by
of
fraud
the
legal
doctor to
liability
avoid
interpretation
Defendants’
misreads
malpractice by enabling
to set
himself
case, a
negligently
Adams. In that
doctor
up the shield
the statute
limita-
of
of
left a
piece
tubing
rubber
inside of a
permitted.
tions should be
Schmucking
during
Id.
patient
surgery.
pa-
When the
37,
v. Mayo,
633;
183 Minn.
235 N.W.
tubing,
tient
the
the doctor
discovered
told
Westrate,
92,
Groendal v.
171 Mich.
him
worry
tubing
not to
because the
would
87,
1914B,
N.W.
Ann.Cas.
906 [Am.Ann.
eventually degrade
body.
within the
Id.
1914B, 906];
Cas.
Shoulders,
Hudson v.
The
did not
over the
tubing
erode
course
164 Tenn.
The Court disa- added). greed, holding period that the limitations Id. at (emphasis Notably, 793-94 after tolled the doctor concealed the the court did not run the statute of limita- degree plaintiffs injury by advising the plaintiff tions from the time reasonably the him rubber tube was not harmful. should have discovered his cause of ac- again placed special Id. The court once instant tion—the the doctor confirmed his emphasis relationship the “intimate” malpractice. Instead, the court applied its plaintiff between the and the defendant: Security rule from Trust that the limita- tion period should be tolled a defen- when patient his relationship phy- of a to relationship dant abuses a confidential to sician very is its nature one of the prevent plaintiff discovering from her most intimate. Its foundation is the theo- learned, ry physician that the skilled cause of action. Id. experienced and in the afflictions of the parallels This closely Security case
body patient which the ordinarily about Trust, Security Trust. As in Plaintiffs and nothing knows little or but which are of family Defendants were a close relation- vital to him. importance most There- ship would have made it difficult for fore, patient necessarily place must question integ- Plaintiffs to their brothers’ reliance, great faith and confidence in rity accounting or demand detailed word, professional advice and acts of parties’ brothers’ business activities. The physician’s duty It doctor. is the to family such dynamics were that Plaintiffs good act and with utmost faith gen- implicitly, trusted their brothers and speak fairly truthfully peril and at the erally judgment. to their business deferred being damages held liable for for fraud Moreover, reacted aggressive- Am.Jur., and Physicians deceit. and ly disparagingly and whenever Plaintiffs 70, 73, 74; C.J.S., Surgeons, Secs. manage- tried to into Defendants’ inquire
Physicians 36; § Surgeons, Cf. Wal- par- family ment of the business and their Jones, Ky. den v. 158 S.W.2d circumstances, ents’ assets. Under these 141 A.L.R. Since relation- ship physician patient begets Kentucky law excuses Plaintiffs’ failure (i) wrongful in the 1993 provision conduct.3 release settle- discover Defendants’ (“Where Trust, Security agreement they signed terminating 210 S.W.2d ment relationship exists between Betsy’s against confidential derivative claims Dennis the facts (ii) failure discover parties, Griffy; doctrine collater- (cita- may be fraud excused.” constituting estoppel.4 again disagree. al we Once omitted)). tion The district court refused enforce separately argues that
Martom in the 1993 provision release settle- apply cannot Plaintiffs’ equitable tolling agreement it found De- ment because it, it in a against because was never claims *22 fiduciary their fendants violated duties to relationship with Plaintiffs. fiduciary We by misrepresenting the Holt Plaintiffs the reject argument. The court this district lawsuit, Betsy’s nature of failing 1990 to by Griffy that Martom was created found wrongdoing, disclose their own and mis- wrongfully and to circumvent Ken Dennis leading Plaintiffs into an signing the Holt tucky’s against self-dealing. Kentucky law inequitable agreement. settlement aid or places persons law and entities that rejected district court also Defendants’ position in the same as the abet a tort argument collateral it estoppel because Steelvest, See Inc. v. primary tortfeasor. Holt determined that the Plaintiffs were Ctr., 807 486 Scansteel Serv. S.W.2d in adequately not represented Betsy’s 1991); (Ky. Miles Farm LLC v. Supply, cf. court found lawsuit. The district that Bet- (6th Co., F.3d Helena Chem. 666 sy’s position adverse to was the Holt that (explaining Kentucky Cir. fol during the point Plaintiffs—at one settle- § lows of the Second Restatement negotiations, Betsy rejected pro- ment a Torts, aiding abetting imposes which posal that the Holt Plaintiffs receive a that in liability parties knowingly assist portion of Griffin Industries’ stock be- duties). a of fiduciary tortfeasor’s breach doing cause so would diluted her Griffy participated Martom Because the Holt own share. Because Plaintiffs equitable wrongdoing, principles Dennis’ fair, thus did a full and opportu- not have prevent invoking it from the statute nity rights in litigate to their the 1990 Emberton, 299 at 573 limitations. S.W.3d lawsuit, court found the district that Kentucky’s equitable (noting tolling that suit could not their claims this law- bar an permit “inequitable does not statute suit. plea (quoting resort of limitations” 793)). Adams, appeal, On attack Defendants the dis- S.W.2d grounds. trict on two court’s determination Betsy’s C. Effect of Lawsuit First, argue that the Defendants district in the already court argue Defendants next determined 1990 law- by: Betsy adequate represen- Plaintiffs’ claims are barred suit was an Holt fiduciary Sterling Emergency relationship Ham v. involve a Defendants cite confidential Midwest, Inc., Fed.Appx. Servs. family between members. law did 2014), (6th proposition that a require not the Holt Plaintiffs disbelieve party [Sec- "is not obstructed or misled under representations and their brothers’ accuse 413.190(2)] tion if the exercise of reasonable preserve them of in order to fraud pursue him diligence would allow claims. claim,” even where obstructive conduct is "remain[ing] duty speak when the silent parties 4. All concede that the 1993 settlement (citation imposed law.” disclose is bringing any prevents Betsy re- from claims However, omitted). quotation marks internal lated to transactions. the 1986 stock distinguishable it did not Ham is because Plaintiffs, aver that entirely tative for the Holt would create an untenable rule if prior court’s determination we accept district were to arguments. Defendants’ Second, govern should this case as well. If filing of a shareholder derivative suit argue having Defendants ceased management relieved all fiduciary its to the Holt Plaintiffs once corporation duties duties to the and its sharehold- brought suit, ers, Betsy the derivative management because then plunder could a cor- the Holt Plaintiffs and Defendants then poration’s impunity every assets with time parties. became adverse suit against derivative is filed them. This would, course, outcome undermine the court, Much like the district dowe very purpose animating the law of fiducia- find arguments persuasive. Defendants’ ry duties, which is to assure that fiducia- We have reviewed the record from the ries do not betray the trust reposed lawsuit, and the district court never them. Betsy adequate an determined
representative of Holt Plaintiffs’ inter- arguing contrary, dissent Instead, expressly ests. district posits that had no “brotherly *23 trial, reserved that issue the for and issue duty” ‘fiduciary discourage to settlement” litigated Betsy’s was never further because with their parties sisters because “the the proceedings. settlement terminated We were engaged opposite a sides of law- support repre- cannot find for Defendants’ suit in which the sisters claimed serious contrary. sentations the Because there wrongdoing brothers.” Post question is no real that Holt Plaintiffs J.). Merritt, (Opinion of This formulation adequately represented were not key regarding misstates facts the 1993 prior suit—Betsy’s litigation conduct “sisters,” plural, lawsuit. The not did sue trying shows that she was not to maximize did, in 1993—Betsy Defendants and her recovery her can- for sisters—Defendants with unquestion- settlement Defendants estoppel against not invoke collateral ably her prevents any from recovering ad- Commonwealth, them. Moore See v. 954 ditional sums related to Defendants’ illicit 1997) (collateral (Ky. S.W.2d es- supra, stock transactions. See 4. Lin- note toppel requires party that the had “a have da, contrast, Cyndi, Judy, by and were full and fair opportunity litigate” the only parties nominal lawsuit because suit). prior Betsy brought a derivative claim on behalf of all Griffin Industries shareholders. The Moreover, Defendants cite no au district court found that these sisters did thority their they dubious claim that not of Betsy’s discover nature lawsuit having any ceased fiduciary to the duties until 2010 because Defendants hid and lied Betsy Holt Plaintiffs once filed her 1990 claims, Betsy’s about that and Defendants law, lawsuit. derivative Under signing browbeat them into a settlement fiduciary long duties continue as as the agreement they that had not read did parties enjoy relationship. confidential not understand. Steelvest, See at 486. The rec S.W.2d Thus, contrary ord is clear that continued to to the insinua- dissent’s tions, relationship holding par- a confidential with the our is not that adverse fiduciary Holt Betsy always Plaintiffs even after filed the ties continue owe lawsuit; indeed, during litigation, Plaintiffs duties to another Holt one signed agreement pre permitted the 1993 settlement that Defendants not were Rather, cisely they because continued to trust Den it settle with the Holt Plaintiffs. Griffy- Moreover,
nis implicitly. it are relieved of their fiduciaries fiduciary if the must be set aside lease their beneficiaries loyalty towards duty of of all rele- make a full disclosure are un- failed to beneficiaries those just because beneficiary.”); Hale facts to the party’s, in a third vant swept up knowingly Moore, (Ky. 582-83 Ct. 289 S.W.3d against lawsuit derivative shareholder (holding signed that release App. to settle If Defendants wished fiduciaries. the benefi- Plaintiffs, they re- was invalid where were beneficiaries the Holt
with fully of the con- apprised “were not agency principles settled ciaries quired to follow by” signing [release] Plaintiffs sequences the Holt make sure fiduciaries). they sign- rights understood (Second) of Restatement away. See
ing that the 1993 set- Accordingly, we hold (1981) (“If fiduciary § 178 Contracts of col- and the doctrine agreement tlement beneficiary re- contract with his makes a Plaintiffs’ do not bar estoppel lateral scope lating to matters within claims. relation, is voidable the contract (a) it is on fair beneficiary, unless by the Arguments Did That Defendants D. (b) terms, beneficially inter- parties all Fiduciary Breach Their Not with full understand- manifest assent ested Duties all relevant legal rights and of ing of their Liability for Sales of John’s fiduciary knows or should facts Industries Stock Griffin know.”). Any permit rule would other by fiduciaries sub- misbehavior widespread i. Choice of Law lawsuits, even derivative ject to active *24 argue that Defendants the shareholder-beneficia- most of though any fiduciary not have breached could initiating the suit—a no role ries had to the 1986 sale of their respect with duties illogical result. truly damaging from his Industries stock father’s Griffin trust, they not owe because did Dennis and revocable conclusion that Our at all. any fiduciary duties to Plaintiffs fiduciary duties to Griffy continued to owe trust contains a choice of revocable Betsy’s after 1990 law John’s the Holt Plaintiffs gov that the trust specifying that the broth law clause filed makes clear suit was law, Ohio trus erned Ohio law. Under the nature of failure to disclose ers’ fiduciary trusts owe tees of revocable the 1993 settlement lawsuit and settlor, trust’s and not only duties to the Plaintiffs rendered the settlement’s Holt beneficiaries, the settlor unless any cases of its invalid. Numerous provision release or dies. See Ohio incapacitated becomes releases between that contractual establish 5806.03(A); § Puhl v. U.S. beneficiary are unen Rev. Code fiduciary a and a (Ohio Bank, 530, N.A., 536 Ct. 34 N.E.3d fiduciary fails to make if the forceable 2015) (“[T]he of the trustee are App. duties allow the benefi disclosures to sufficient during settlor exclusively to the whether to re owed ciary fairly determine lifetime.”). until did not die See, settlor’s John e.g., Masterson v. lease her claims. (6th 1995, court made no ex 315, and the district Cir.
Pergament, 203 F.2d 322 1953) (“A incapacitat that he became fiduciary press finding by release obtained ed; arguably had accordingly, Defendants misrepresentation through concealment or to Plaintiffs under Ohio effect.”); King, 496 no duties Corp. Mazak v. is of no (6th 2012) (Like sales occurred. the 1986 stock 507, law when 511 Cir. Fed.Appx. Therefore, argue that the dis and federal majority of state
“the vast be vacated judgment must a “re- trict court’s courts,” Kentucky requires law
443
context,
penalized
improper
insofar as it
them for
contractual
we have rec-
ognized
sales
made as John’s trustees.
“Kentucky
courts will not au-
tomatically honor a
provision,
choice-of-law
reject
argument
We
Defendants’
to the exclusion of all other consider-
Kentucky
because we conclude that
courts
ations.”
Abrams,
Wallace Hardware Co. v.
Kentucky
dispute
would
law
apply
to this
(6th
382,
2000).
223 F.3d
393
Cir.
As we
notwithstanding the trust’s Ohio choice
occasions,
have noted
numerous
Ken-
exercising sup
law clause.
courts
Federal
tucky
extremely
courts have an
strong and
plemental jurisdiction
apply
must
the fo
highly
preference
unusual
for applying
rum
of law
state’s choice
rules to select the
law
Kentucky
even in situations where
applicable state substantive law. See Feld
most states would
to apply
decline
131, 151,
Casey,
er v.
U.S.
487
108 S.Ct.
See,
(“On
e.g.,
own laws.
id. at 391
at least
2302,
(1988);
101
123
L.Ed.2d
see also
occasions,
two
we likewise have noted this
Ctr.-Boca,
Palm Beach
Inc.
John
v.
Golf
provincial tendency in Kentucky choice-of-
D.D.S.,
Sarris,
P.A.,
1245,
G.
781 F.3d
rules.”);
law
Adam v.
Hunt Transp.,
J.B.
(11th
2015);
McCoy
Cir.
v. Iberdrola
Inc.,
(6th
1997)
F.3d
Cir.
(7th
Renewables, Inc.,
760 F.3d
(noting
“Kentucky
take
posi-
does
law,
Kentucky
Cir.
Under
tion that when a
Kentucky
juris-
has
“meaning and effect
the terms of a trust
parties,
diction over the
pri-
‘[the court’s]
(1)
... are
...
law of
determined
[t]he
mary responsibility is to follow its own
jurisdiction designated
[of
the terms
” (alteration
substantive law.’
in original)
designa
the trust
unless the
instrument]
(quoting
Leggett,
Foster v.
484 S.W.2d
jurisdiction’s
contrary
tion of that
law is
1972)));
(Ky.
Johnson
S.O.S.
strong public
jurisdiction
policy
Inc.,
(6th
Transp.,
F.2d
n. 6
significant
having
relationship
the most
1991) (“Kentucky’s
Cir.
conflict of law
Ky.
the matter at
Stat.
issue[.]”
Rev.
application
favor
its own law
.rules
386B.1-050(1)
added).
§
(emphasis
it can
justified.”);
whenever
be
Harris
uncovered no
We have
Comair, Inc.,
Corp. v.
712 F.2d
applying
rejecting
cases
a choice of law
(6th
(“Kentucky
courts have ap-
*25
trust,
clause in a
and the
parties have
parently applied Kentucky substantive law
any
cited
such cases. We are thus left
possible....
apparent
whenever
is
that
[I]t
any binding authority
without
guide
us
Kentucky applies its
law unless
own
there
in determining
applying
law
whether
Ohio
overwhelming
are
interests
the con-
dispute
“contrary
to this
be
to a
would
trary.” (emphasis
original) (discussing
in
jurisdiction
strong public policy
hav
Co.,
Breeding v. Mass. Indem.
Ins.
& Life
ing
significant relationship
the most
to the
1982)));
717 (Ky.
see also Paine
S.W.2d
However, Kentucky
matter
Id.
at issue.”
Inc.,
Inns,
Quinta
v. La
Motor
736 S.W.2d
dealing
appli
has numerous
with
cases
1987)
355,
(Ky.
App.
(noting
Ct.
that
cability
claus
of contractual choice of law
egocentric
Kentucky
very
courts “are
es.
clauses
an
Because such
serve
identical
protective
concerning
ques-
choice
law
purpose
they appear in
in
whether
trust
tions”),
grounds by
overruled on other
Oli-
contracts,
struments or
these cases are
Schultz,
(Ky.
ver v.
S.W.2d
highly
fashioning
relevant
in
our Erie
guess
Kentucky
Hardware,
as to which state’s law
made an
Wallace
we
Erie
guess
courts would
to this case'.
Erie
would
apply
Kentucky
See
that
courts
enforce
78,
R.R.
Tompkins,
provisions
Co. v.
304 U.S.
58 contractual choice of law
unless
(1938).
S.Ct.
Schnuerle Kentucky We believe that courts would (Ky. (applying S.W.3d 566-67 in apply Kentucky determining law of a New York Kentucky spite law in created trust. duties John’s provision “Kentucky because choice of law Kentucky’s public policy protecting in, and greater interest the most had , self-dealing against trust beneficiaries to, the significant relationship transaction strong Kentucky trustees is so that has Thus, parties”). we have had to statutory con- separate provision enacted a guess Erie admit our Wallace that its firming gov- that none of other statutes wrong, Kentucky’s and that Hardware erning any way trusts “in relieve a fiducia- most-substantial-relationship trumps test ry any who his breaches trust and causes an choice of law even otherwise-valid bond, liability thereby loss of his under his dispute clause when the centered criminal any liability provided or of civil or Kentucky. Hackney See Lincoln Nat’l (6th Co., § Fed.Appx. Ky. for law.” Rev. 386.150. Fire Ins. Stat. 2016) (“Thus, Moreover, earlier, dis- Kentucky as several federal stated also noted, have
trict court decisions Wallace unusually strong has an for preference assumption about the Ken- laws, Hardware’s face of applying its own even tucky application' of Supreme Court’s provisions. valid of law these choice When proven has [choice clauses] law now weighed together, factors are we believe faulty.”). Kentucky apply courts Ohio would not law, particularly re- doing might since so case,
In the there no instant can be liability wrongful lieve Defendants of sig- has the question most Kentucky, where conduct occurred relationship nificant to John’s revocable (Second) mostly litigation of this be trust. See Restatement of Con- effects will (1971). John, §§ flict of Laws his felt.5
business, trustees, assets, most of his law, Applying Kentucky we
and most his trust’s beneficiaries were reject argument must Defendants’ Kentucky. only all centered in trust’s any fiduciary duties to (i) did not ties are that: it was apparent to Ohio *26 (ii) stemming positions their from their Ohio; sisters lawyers created in and John’s Thus, Cincinnati, as of John’s Ken Kentucky trustees trust. Under were Ohio. law, relationship tucky specific duty, a far to “a trustee has a significant
has more Nevertheless, gan). faithfully apply Kentucky we is alone in our Circuit in its refus- must though regularly provisions. Kentucky’s policy law al to choice of law choice of even honor Assocs., P.C., may given other deference See Wise v. Zwicker & 780 F.3d states more 710, (6th 2015) (choice provision provi- law trust. 715 Cir. of law to the choice of in John’s law); by Kentucky greatest in- generally sions under Because has far the enforceable Ohio lawsuit, Ga., Smyrna subject Auth. terest matter we Town v. Mun. Gas 723 in the of this of of 640, 2013) (6th (same Kentucky apply F.3d Cir. for believe that courts would 645-46 Inc., Tennessee); Grp., adjudicating dispute, their law in this Johnson v. Ventra 191 own (6th 1999) (same 739 Michi- and we thus follow suit. F.3d for relationship, ic pro- duty inherent to the trust to extends to conditional contin- Chase, relating gent to the trust and Morgan vide information beneficiaries.” JP at 701. specific duty trust’s] this extends to S.W.3d The district [ ] [the court found beneficiaries,” contingent conditional or that Defendants violated this duty fail- (the Bank, Morgan ing notify such Plaintiffs. Chase to their as JP sisters trust’s con- beneficiaries) Longmeyer, tingent N.A. v. 275 S.W.3d of the stock transac- 2009). Moreover, (Ky. fiduciary duties also tions. parties attach where two are in “a confi- The district further relationship” party dential such one found that the Fourth Amendment and a certain “repostes] degree of trust and Sixth Codicil ratify were insufficient to Steelvest, in” confidence the other. fiduciary Defendants’ breaches of their Thus, case, at 486. in this S.W.2d Defen- Kentucky law, duties. Under ratification of in a with fiduciary relationship dants were agent an or fiduciary’s wrongful “conduct (i) Plaintiffs for two reasons: Defendants 1) requires two an elements: after-the-fact trust,
were trustees John’s and Plain- conduct; awareness and an intent among tiffs trust’s contingent ratify Healthcare, it.” Joseph to Saint Inc. (ii) beneficiaries; and Defendants assumed Thomas, (Ky. S.W.3d family’s responsibility managing “ the principal’s Whether ‘conduct is suffi affairs, encouraged financial Plaintiffs cient to indicate consent’ to ratification ‘is fairly to trust that would administer ” Shannon, question Pannell v. fact[.]’ their assets. hold father’s We therefore 2014) (citation (Ky. S.W.3d omit that the choice of provision law John’s ted). “Conduct can be ex otherwise trust not shield from lia- does Defendants plained may not effect ratification.” Re bility. (Third) 4.01(2) Agency § statement cmt. (2006). d court explained district its Analysis Liability ii. ratify that John lacked intent finding to argue that if even follows: applies, they law did not breach totality evidence, on the Based duties their be sisters including doc- pre-stroke estate [John’s] cause ratified 1986 stock John sales uments, credibility and the of the wit- the Fourth Amendment Sixth Codicil nesses, that, the Court concludes even in will, respectively. his trust Those Plan, the absence of the 1985 [John] two instruments made clear that John’s would not have his stock his sons sold get sons all of interest in would his Griffin Rather, during his lifetime. as was its Industries, and daughters that his would summary impression judgment, cash his any receive left in estate. Defen purported Court concludes that [John’s] argue dants that John had all of infor ratifications of sales—in Sixth those necessary ratify past mation trans will, to his the Fourth Amend- Codicil experience” “life actions because Trust, ment to his and the he affidavit general knowledge he of how wanted January purportedly executed on up divide his estate. 1992—were orchestrated Dennis and *27 counsel, a contrary The district court took view. with the of “to Griffy, assistance earlier, law, As Kentucky post imprimatur recited under obtain hoc [John’s] specific duty, trustees have “a to prior inherent the sales that defendants orches- relationship, provide the trust to informa- of control purposes retaining trated (Doc. tion to the relating specif- Company.” [ trust and this of the 590 at This ] 446 fiduciary fact that no to Plaintiffs with supported by
conclusion the had duties respect to their administration of their during pen- taken the these actions were mother’s estate. When Rosellen died dency likely response most of—and specified plan her estate that her to—Betsy’s lawsuit. John, pass stock would to with the residue that, Court further concludes [ ]The going her to trust. John estate her con- testimony the about given [John’s] stock, interest in disclaimed his Rosellen’s stroke, Dr. Parsons’ dition after his will, under which meant that Rosellen’s evaluation, surrounding circum- and into her stock flow first supposed stances, “full did not have [John]' trust, equally. her to her children and then knowledge material facts” such of the wishes, following Instead of Rosellen’s any ratification occurred. See
that
valid
Griffy,
and
Dennis
executors
her
Johnson,
Ky.
Int’l Shoe
Co.
estate,
an
sold the stock to themselves at
1934) (citations
(Ky.
447 children, for trustee her it becomes unnec- convey trust, dants to to shares but to essary consider the duties or neglected trustees to do so. This omission author- que Plaintiffs, the rights cestui trusts discussed ized beneficiaries, as the trust’s (em- plaintiff counsel in his Id. to sue in for equity the property to owed for brief.” added). 282(2). phasis danger There is much Moreover, § the trust. Id. the rec- a drawing sweeping rule from dicta in a ord contains an affidavit from Star Bank century-old where stating case the court makes its belief the trust was dis- fully solved, clear that it has not considered the terminated, and its duties were arguments. opposing party’s when all property trust was distributed in (R. 430-13, #19502.) 1989. PagelD There- Moreover, point Lovell is not on all. at fore, there was no anymore trustee to sue case, In conveyed the trustee a piece trust, on behalf of the and Plaintiffs were property a party, gave real to third therefore bring authorized to suit them- party right the third sell to the land (Second) selves. Restatement of Trusts Ky. under certain conditions. 29 282(3). § the contract with the third party, the trus- promised compensate tee to the trust ben- have We located Kentucky no ease any if eficiary of the land was sold. Id. The squarely addressing a beneficiary’s right beneficiary trust par- sued when third to sue when the trustee remedy fails to a land, ty claiming sold some of the that the fiduciary Nevertheless, breach of duties.
trustee had breached the contract with the we believe that the Kentucky Supreme party. third Id. The court held that adopt § Court would 282 of the Second beneficiary could not sue to enforce the Restatement, because that court has cited it, it was a party contract because to the Second Restatement numerous times any principles not because of of trust in articulating principles of Kentucky trust law. Even Id. the court’s limited contract See, e.g., Cummings Pitman, law. v. 239 has holding likely supersed- Lovell been 77, 2007), (Ky. S.W.3d 81 n.2 on overruled party ed law of modern third bene- grounds other by Caesars Riverboat Casi Enters., Inc., See v. Ping Beverly ficiaries. no, Beach, LLC v. (Ky. S.W.3d 2012). 581, (Ky. 595-96 S.W.3d 2011); Hoheimer, v. Hoheimer 30 S.W.3d 2000); Zusstone, (Ky. Rakhman Instead, set the correct rule is out in the 1997); (Ky. Ky. S.W.2d First Second Restatement of That trea- Trusts. Christian, Tr. v.Co. 849 S.W.2d beneficiary may tise states that a trust 1993); Lowe, (Ky. Phillips v. 639 S.W.2d equity maintain suit in a third against 1982); 783-84 (Ky. Eitel v. N. John party property improperly diverted Infirmary, Norton Mem. 441 S.W.2d (i) from the trust if: “the improper- trustee (Ky. Accordingly, we hold that ly neglects bring refuses or to an action right bring Plaintiffs had the suit (ii) against the person;” third or “there they harm suffered from Defendants’ fail (Second) no trustee.” Restatement convey ure to Rosellen’s stock to her trust. (1959). 282(2)-(3) § Trusts Both these conditions are met in this As a argument, last-ditch Defen Unquestionably, case. Defendants breach- dants assert could not have fiduciary ed their duties Rosellen’s trust breached their duties Rosel- (and by violating by extension, Rosellen’s will and engaging len’s estate her trust Plaintiffs), self-dealing acquire transaction explic her because law Griffin itly Industries stock. The trustee authorizes an to sell executor estate suit brought should to force Defen- unless “distribution in kind assets has been *29 448 proceeds ... rather than the from a sale it.” prior to the sale the
demanded in Id. beneficiary to such .distribution entitled 395.200(8). § Defen- Ky. Rev. Stat.
kind.” principles here. Once apply These same that nev- point further out Plaintiffs dants Plaintiffs found out about the 1986 stock in at the distribution kind er demanded transactions, they immediately wanted the This is all true of Rosellen’s death. time proceeds rather than the sale stock itself - Kentucky might while law enough—but gave the trust after their self- Defendants sell the decedent’s authorize executors to these circum- dealing transaction. Under circumstances, it most some property stances, Kentucky predict law we authorize executors or certainly does not conduct. would not shield Defendants’ engage self-dealing. other fiduciaries to Liability Craig for Protein Sales of Hutchings, 276 at And more- S.W.2d Stock and Martom Real Estate noted, over, as the district court Plaintiffs fair opportunity had a demand never argue next that there was a in kind because Defendants distribution genuine dispute of material fact as to illicit transactions and hid their stock they fiduciary whether breached their of their machina- to inform Plaintiffs failed respect Craig duties with the sales tions. Properties Protein Stock Martom real estate. Defendants do not contest Mannering, In Lucas v. the Ken self-dealing, those transactions were but held that tucky Appeals Court argue summary was judgment inap- not executors the law does invest “with propriate expert introduced because authority to sell” the estate’s unqualified sales suggesting evidence the (Ky. 745 656 Ct. S.W.2d property. ultimately good for Plaintiffs. App. note, rightly As Plaintiffs this ar fiduciary. An executrix is a KRS 395.001. gument very comment. Fi deserves little an executrix a trus accurately, More prohibited are from duciaries clandestine tee, and funds the estate her hands self-dealing, period. Hutchings, S.W.2d Planck, Carpenter trust are funds. (Second) 464; also Restatement see (1947); Ky. 201 S.W.2d 170(1) (“The § under Trusts trustee is Executors and Administra Am.Jur.2d duty beneficiary to the to administer the (1967). rep Section executrix tors trust in the solely interests of benefi very great to a resents testatrix and ciary.”). rule, this “if the Under trustee extent, heirs, legatees distribu acquire an in the attempts to interest trust tees, probate proceed whose benefit property of the benefi without consent had. ings are 33 C.J.S. Executors ciary, beneficiary can avoid the trans (1942). Administrators Section See though action even the transaction was supra. Carpenter, (Second) of Restatement .Trusts fair.” added). § (emphasis wcmt. case, In that the court held that the Id. Moreover, out, point violated her duties as Plaintiffs Defen-
executrix certainly dants’ selling piece property real rather than transactions were most beneficiaries, it in fair. shows that conveying kind to The evidence the record though Craig substantially never Protein stock even beneficiaries had transfer, arranged in-kind when Defendants made a demand for be- undervalued Marty Tommy sepa- each reflected “the beneficia- for its sale. cause Record rately Craig property bought in-kind 500 shares of Pro- ries’ desire take $832,500. legal tein stock from their brothers at Whenever the title to property is *30 They ultimately obtained through were allowed to trade means or under cir- for cumstances ‘which render those shares Griffin Industries stock it unconscien- 'for $30,414,000 distributions, tious the holder of legal that the title to returned interest, and enjoy retain the a beneficial sizable return investment. Plaintiffs equity impresses a constructive trust on opportunity never offered this be- property acquired the thus in favor of only cause Defendants wanted their broth- truly one the who is and equitably enti- short, ers to from profit the stock. the same, may never, tled to the although he that evidence shows Plaintiffs lost millions perhaps, any have had legal estate dollars economic value because of therein; juris- and a court of equity has inexplicable Defendants’ desire to exclude diction to reach the property, either in siblings’ from sisters the inheritance. original hands of wrong-doer, the the We affirm therefore the district court’s any holder, in the hands of subsequent grant summary judgment as to Plain- purchaser a until of it in faith good and regarding Craig tiffs’ claims the Protein acquires without notice higher right, stock and Martom real estate sales. takes property
and
the
from
relieved
trust.’
Liability
4. Martom’s
122, 128,
v. Crawford,
Moore
130 U.S.
9
from
Separate
the other Defen
447,
(1889)
S.Ct.
why it cannot be liable Dennis (1886)). 628-629 Griffy’s fiduciary breaches of duties with “Importantly, that a transferee respect 1995 real estate transac original was not ‘the wrongdoer’ does not (i) Specifically, argues tions. Martom that: liability!.]” him insulate from Tr. Harris & Plaintiffs, it fiduciary owed no duties to Inc., Sav. Bank v. Barney, Salomon Smith participate and did not in Dennis and Grif 238, 251, 2180, U.S. S.Ct. (ii) fy’s did, wrongdoing; even if it it (2000). Instead, L.Ed.2d 187 long “it has acquired properties through adverse been settled when trustee breach possession. duty to the beneficiaries reject arguments these as We property person, transfers trust to a third First,
well. Kentucky Law, under where person the third the property takes sub purchases “one land from an executor trust, ject purchased unless he has such, he is bound to know whether or not the property for value and without notice the latter by is authorized the will to make fiduciary’s of duty. breach The trus sale, and if the executor has no such may tee or beneficiaries then maintain an power an purchaser is not innocent or (if action for property restitution of the not Buckner, bona fide purchaser.” Buckner v. of) already disposed or disgorgement of (1919) Ky. 215 S.W. (if of), proceeds already disposed and dis (citation omitted); Pierce, Baker v. 812 gorgement profits third person’s (6th F.2d at *4 WL derived therefrom.” Id. at 120 S.Ct. (unpublished disposition) table (same). case, In the instant the district court (i)
This is consistent with the common law that: Griffy found Dennis and created of trusts. As the Supreme Court ex- so that they acquire has Martom could the real plained: skirting estate John’s estate while notorious,” assuming self-dealing “open ex even against
law transactions (ii) ecutors; possession can be a defense Industries board adverse Griffin (iii) Martom; disgorgement to an action. equitable agreed to creation entirely run Griffin Indus Martom was E. Laches (iv) Marty Tommy personnel; tries dissenting colleague argues Our being formed as a
knew Martom court should have invoked the district purchase their father’s real es vehicle *31 laches Defen the doctrine of to truncate (v) use; tate for Griffin Industries’ and liability illegal dants’ for their mid-1980s positions through ownership “their and 10, September as of stock transactions Industries, Griffy and con Griffin Dennis 1993—the date on which the Holt Plaintiffs its to trolled Martom from formation have Defen arguably could discovered ¶ (R. 139.) 856, court 2010.” district through dants’ of rea conduct the exercise therefore found that Martom—which was (cit diligence. See Post at 467-69 sonable essentially by Dennis controlled and Grif Commonwealth, ing Taylor v. 302 S.W.2d purchaser not a for fy—was bona fide 1957)). 583, Thus, the (Ky. App. 584 Ct. (as value, because it knew Dennis and proposes remanding dissent to the district did) Griffy bought that real estate it Plaintiffs’ reconfigure to the Holt being improperly from John’s estate was award, any profits interest excluding Osborn, conveyed. F.Supp.3d at 802. 50 10, September 1993. accrued after convincing Defendants have offered no factual why findings reason detailed these note that although We ignored, can should be and we think of put litigated and a laches defense forward Accordingly, reject none. we Martom’s ar court, not the district have before subjected it gument cannot be appeal. raised or briefed issue Griffy’s liability transferee for Dennis and Ordinarily, we limit our consideration real improper estate transactions. Harris parties properly pre the issues that the Tr., 250, 2180; at 530 U.S. 120 S.Ct. Buck See, put e.g., serve and before us. Powers ner, 215 S.W. Comm’n, v. Pub. Cty. Hamilton Defender (6th (“Courts 592, 610 F.3d Cir. Second, Martom cannot estab generally do not decide not raised issues acquired possession it lish that adverse (citation omitted)). by the parties.” Howev properties under disputed law. er, the lach- because the dissent has raised requirements pos of the One adverse issue, es we will exercise our discretion “open is that the possessor session makes matter, even the issue though address the notorious” of the property. Appa use has been waived. Healthcare, Regional Roy lachian Inc. v. Co., Inc., stated, Bottling Briefly
al Crown
824 S.W.2d
the doctrine
878,
1992).
(Ky.
be
laches
in circum
‘open
“To
“serves to bar claims
possession
conspic
party
notorious’ the
must be
in unrea
engages
stances where
secret,
delay
prejudice
and not
so that the
title
to the
of others
legal
uous
sonable
rendering
inequitable
party
holder has notice of the adverse use.” Id.
it
to allow that
action.”
previous
The district court found that Plaintiffs did to reverse a
course of
Ass’n,
possession
have notice
Plaza
of Martom’s
Condominium
Inc. Well
1996).
51,
properties
ington Corp.,
(Ky.
until
and that Dennis
920 S.W.2d
notes,
Griffy
correctly
may
up
covered
their unlawful real As
dissent
laches
recovery
Accordingly,
limit a plaintiffs
estate transaction.
we hold sometimes act to
in
properties
appears
that Martom’s use of the
“where it
he could
Ky.
(1939)).
formed
[giving
himself
facts
rise to
129 S.W.2d
Be
liability] by
defendant’s
exercise of
cause “trial courts [sic] decision to invoke
diligence,”
thereby pre
reasonable
the equitable defense of the unclean hands
discretion,”
vented the accumulation over time of ex
doctrine rests within its sound
id.,
monetary
Taylor,
cessive
damages.
we review a district
decision
court’s
5.W.2d at 584.6
disallow an
claim
equitable
or defense be
cause of unclean hands for
abuse
discre
However,-because laches is an
Unlimited,
tion.
Ques
Inc. v.
Performance
defense,
equitable
it is
subject
the limi
Publishers,
Inc.,
tar
52 F.3d
imposed
tations
the doctrine of unclean
(6th
See, e.g.,
hands.
Precision Instrument
Mfg. Co. v.
below,
Automotive Maintenance
proceedings
the dis
Co.,
806, 814,
Mach.
U.S.
65 S.Ct.
trict court invoked the unclean hands doc
(1945) (“[H]e
Remedy
Analysis
2.
Challenge
A. Daubert
equitable
disgorgement
An
of Review
Standard
wrongdoer of
deprive
award seeks to
court’s
Mgmt.
review
district
ill-gotten profits.
We
Universal
his
expert
testimony
Servs.,
decision
admit
2017)
Best v. Lowe’s Home
(quoting
improperly:
that
argue
Defendants
Chilton
2009)).
(6th
171,
Inc.,
(i)
563
176
Cir.
by
F.3d
to
the
failed
reduce Plaintiffs’ award
admissible,
testimony to
expert
“For
be
if
they
paid
would have
amount
taxes
(1)
court
find the
to be:
expert
the
must
wrongfully deprived
Defendants had not
(2)
relevant;
(ii)
testimony
stock;
her
to be
qualified;
of their
them
Griffin Industries
(3)
testimony
her
to be
Id.
assumptions
analy
and
rehable.”
manipulated key
in his
(iii)
award;
441.
to
Plaintiffs’
sis maximize
in the
that
not
included sums
award
were
reviews a district
“This Court
Defendants,
by
actually paid
kept
but were
disgorgement
court’s decision on
for abuse
parties.
to innocent third
Johnston,
discretion.”
v.
143 F.3d
S.E.C.
thoroughly reviewing
After
the record
(6th
260,
1998),
262
on other
Cir.
overruled
law,
that
the
we conclude
relevant
M.D.,
Yates,
by
B.
P.C.
grounds
Raymond
arguments
establish
none
Defendants’
Hendon,
Sharing Plan v.
541 U.S.
Profit
the
its discretion
district
abused
1330,
(2004);
1, 124 S.Ct.
2003);
in calculating
v.
Ins.
Defen
chapter S-corporation
see also Rochow
Co. Life
2013)
(6th
Am.,
profits.
Post at 469-70. Griffin
N.
737 F.3d
Cir.
dants’
See
S-corporation. An S-
regard
an
(explaining this Circuit’s case law
Industries was
equitable
paid
income taxes are
direct
ing
disgorgement
corporation’s
review of
awards),
Maloof
reh’g
.ly by
&
on
its
shareholders. See
vac.
overruled
individual
(6th
(6th
C.I.R.,
F.3d
Cir.
grounds
tributes cash to its shareholders could not year ensuing each the taxes owe on the tort pay suit deduct $3,000 In S-Corporation’s earnings. damages Id. calculat plain- [the from due $10,000, ing ill-gotten profits, Defendants’ Chilton The caused tiff]. tort a harm of money all took into account Defen and the that the plaintiff was able fact from lay dants received disbursements Grif apart the harm someone off Industries, portion fin taxpayer—is a good assessed of. else—the not rea- the disbursements Plaintiffs would have son to cut down the dam- tortfeasor’s wrongfully received if Defendants had not ages. It is true that result is a deprived them of their shares. Defendants plaintiff, windfall to the this is but better argue that this was error because Defen equivalent than an to the tort- windfall (if all) pay dants not required only most ... important point [T]he feasor.
of their disbursements the IRS taxes. here is tax treatment of the argue instead Chilton damages to the award irrelevant de- monetary should liability; have reduced award it is a matter be- fendant’s by the government. taxes Plaintiffs would owed if tween plaintiff and the they had the Griffin Industries owned added). Id. at 1383 (emphasis shares all along. Fleischhauer, adopted this Court persuaded. “gen We are prevent similar rationale the defendant plaintiffs recovery eral rule” is that liability from reducing “by amount “should not reduced the amount of be plaintiffs of tax [the] benefits received.” tax money” consequences saved in avoided 879 F.2d at The court reasoned or incurred result of the defendant’s equitable “deterrence, remedies seek Miller,
wrongful See conduct. Burdett therefore, denying defendants the benefit (7th 1992) (collect F.2d of offsetting tax benefits generated *34 eases); ing see also Fleischhauer v. Felt [activity] their illegal is an re- appropriate (6th ner, 879 F.2d sult.” Id. at 1301. (rejecting argument defendant’s that the plaintiffs recovery by “should be reduced reasoning The same to applicable this the tax plaintiffs amount of benefits re wrongfully deprived case. Defendants their ceived”). Burdett, case, similarly In to this sisters of pur- a sizable inheritance. The argued plaintiffs the defendant that pose equitable disgorgement behind an fiduciary “damages duty” for ... breach of deprive award is wrongdoers to by should “be reduced the amount mon conduct, not to fruits of their tortious com- ey to plaintiff] by that was able save [the pensate Cavanagh, 445 F.3d at victim.
deducting
loss of
her investment from
117.
purpose
forcing
That
is served
her income on her tax returns.” 957 F.2d
disgorge
of cash
Defendants to
all
rejected
at 1382-83. The Seventh Circuit
through breaching
assets
received
argument. Judge
explained
this
Posner
Id.; Fleischhauer,
their
duties.
fiduciary
rationale behind the rule as follows:
Suppose, simpler pay prop- that would have had taxes tortiously destroyed erty they [the had were entitled to defendant] is irrelevant. $10,000 plaintiffs] Ming Any tax consequences
[the
vase worth
for Plaintiffs’ award
plaintiff] had deducted this
“is a matter
and the
[the
[Plaintiffs]
between
Burdett,
casualty
government.”
amount as a
loss
her federal
957 F.2d
on
that Chil-
in
called
the stock
separately argues
existed
which
The dissent
among
equally
divided
his eleven
Plaintiffs
be
factor
the taxes
ton’s failure to
Subsequently,
calculating
children.
on their
Indus
would have owed
Griffin
Craig
from
Pro-
profits
the later sales of
Plain
calculating
tries disbursements
estate,
real
tein stock
Martom
Chilton
Kentucky’s rule that
violated
tiffs’ award
reasoned
Plaintiffs
each entitled
“[djamages
not
for loss
are
recoverable
proceeds,
those
because
to one-fifth of
per
beyond an amount
the evidence
Sixth
and Fourth Amend-
John’s
Codicil
cer
to be
with reasonable
mits
established
split
profits
ment called for such
to be
Pauline’s
tainty.”
(quoting
Post at
daughters.
his five
Defen-
equally among
Villa, Inc. v.
Corp.,
Chicken
KFC
(and
argue the district
dants
Chilton
1985)). However,
(Ky.
as
S.W.2d
court)
(i)
ways;
cannot
it
both
either:
acknowledges,
applies
the dissent
this rule
the Sixth Codicil and Fourth Amendments
compensatory damages be
to awards of
valid, in
case
cannot
are
which
Plaintiffs
“damages
designed ‘[t]o
cause
are
those
anything at all from the 1986
recover
injured,
may
as
party
restore the
as near
”
transactions,
stock
but
Griffin Industries
be,
position.’
(quoting
Id.
former
proceeds
are entitled
one-fifth of
Hughett
Cty.,
Ky.
v.
Caldwell
stock
Craig
from
Protein
and Martom
(1950),
abrogated
on other
S.W.2d
(ii)
sales;
real estate
Codicil
Sixth
grounds by Harrod Concrete & Stone Co.
invalid,
Fourth
Amendments are
2015)).8
Crutcher,
(Ky.
1998)], Colello, district citing F.3d SEC (9th within its That is consis- was well considerable discretion pur- tent with disgorgement’s disgorgement remedial sums. order of these pose—disgorgement imposed not to
punish, illegal but to ensure actions do B. Burden of Proof yield unwarranted enrichment even argue district court parties. innocent improperly proof shifted the burden of
However, unjust *36 may enrichment also be calculating away ap- from Plaintiffs prevented by requiring to the violator propriate disgorgement sum. Defendants disgorge unjust he enrichment has argue testimony that Chilton’s flawed was procured party. for the third As case our (and carry insufficient Plaintiffs’ burden to law opinion has indicated as our remedy, confirms), entitlement to a and that here when third establish parties illegal activity, pos- benefitted from is court not have faulted it district should 456 an unpaid price.” [Nucor on their dam- fixed contract failing put own
them for Co., Corp. v. General Elec. 812 S.W.2d expert. ages 1991) 136, contrast, In (Ky. 141 an ]. on argument premised Defen- This is damages is one which unliquidated claim testi- prior arguments Chilton’s dants’ calculated, has been determined or “not insufficient to support an basis mony was certainty ... yet not reduced to a equitable award. Be- the district court’s (citations respect to amount.” Id. omit reject other cause Defendants’ attacks we ted). unspeci unliquidated An claim is Chilton, reject argument this on we prior fied and to a breach. undetermined well. determining liqui In a claim is whether unliquidated, dated or “one must look at Prejudgment Interest C. claim, underlying the nature of the 1. of Review Standard Enterprises, the final award.” 3D 174 The district court’s decision 450. S.W.3d at governed prejudgment interest award Contracting, Ky. Transp. Ford Inc. v. Cab law, by Kentucky and we review that deci inet, 397, (Ky.App.2014). 414 429 S.W.3d for abuse of discretion. Poundstone v. sion general, “[d]amages that were estab Co., Ltd., 891, 485 F.3d 901
Patriot Coal lished offered the trial by proof during are 2007). (6th Cir. unliquidated subject and not to prejudg ment (quoting interest.” Id. Jackson v. Analysis 290, Tullar, (Ky. 299 Ct. App. 285 S.W.3d argue 2007)). that the Defendants next district in calculating imposing erred court If the trial court determines disagree. interest. We
prejudgment liquidated, plaintiffs damages are legal it “interest rate must award at the law, Kentucky if the “Under (8%) Pursley eight percent per annum.” v. liquidated, claim is interest as a follows 2004). 820, Pursley, (Ky. 144 S.W.3d If right, if unliquidated, matter of it is but are “the damages unliquidated, trial the allowance interest the discre may prejudgment court award interest at trial v. tion of the court.” Hale Ins. Life 8%, any or up may rate it choose to (6th Co., 795 F.2d Cir. all, prejudgment award no interest but Supreme recently Court has ex may it rate of legal not exceed 8%.” that: plained Fields, (Ky. Fields v. S.W.3d if damages liquidated A claim is it is “of 2001). Although “Kentucky rarely courts capa such a nature that the amount is prejudgment unliquidat- award interest on mere computa ble ascertainment equitable grounds,” Ky. ed claims Com tion, can be established with reasonable Radio Emergency mercial Mobile Serv. certainty, can accor be ascertained in Wireless, Bd. v. Telecomms. TracFone dance with fixed rules of evidence and (6th Inc., 2013), 712 F.3d Cir. such value, or known standards of can be frequently appropriate awards are more determined reference well-estab “allegations cases there are where bad lished market [3D values.” Enters. Con L.P. Journey Acquisition-II, faith.” See tracting Corp. v. Louisville & Jefferson EQT Co., Production 830 F.3d Dist., Cty. Metro. Sewer S.W.3d (6th authority). (discussing 2005)] omitted). (citation (Ky. Ex case, due, amples past include “a or note In the instant district bill account, disgorge- amount an Plaintiffs’ open an due on determined *37 imposed simple ment claims and interest. liquidated, Principles equity were are prejudgment compounded interest 8% used in order to determine whether com- alternative, the district annually. pound appropriate interest is in a particu- would imposed case, court stated that it have lar might which include unreasonable (citation even if omitted)). the same interest award the claims delay.” Nevertheless, unliquidated. were argue that the prejudgment needlessly interest award punitive be- their argue Plaintiffs that claims were (almost cause of its size as much as the every liquidated because time Defendants principal), and the district because disputed undertook one of the transac- did not appreciate its depart discretion to tions, they portion knew of the pro- downward from 8%. supposed ceeds that to pass were plan,
Plaintiffs under John’s estate disagree. We The record shows that the were reasonably therefore the claims cer- district court gave thoughtful consider- However, tain. Plaintiffs’ disgorgement ation to unique equities this case in claims far from “a are afield bill or note formulating its interest award. We will due, past open an amount due on an ac- quote the analysis district court’s in full count, or an fixed contract unpaid because provided the district court a suc- price”—the Kentucky examples Su- cinct, but powerful summary of what tran- preme liquidated given Court has dam- spired here:
ages. Corp., See Nucor 812 S.W.2d at Before this Court an extraordinary is Indeed, only Plaintiffs were able to case, decades, in spanning which defen- establish entitlement their claims dants repeatedly flagrantly violated trial, providing testimony at expert duties owed to their strong indication the claims were sisters, great reposed who trust in their liquidated Contracting, for sums. Ford brothers.
Poundstone, Kentucky at 901. F.3d their actions. But an errant mailing explicitly law authorized the district court plaintiffs would perhaps never 8%, Fields, up to award interest at wrongs discovered the done to compound S.W.3d at the inter them It would [be] brothers. annually. est Property See Travelers Cas. inequitable compensate plaintiffs not to Co., Bradsby Co. Am. v. Hillerich & for the loss of use of millions of dollars (6th Inc., 257, 275 598 F.3d for much of their adult lives. (“Under law, courts have discre (R. 1131, tion to simple award either or compound PagelD (emphasis #37716 add- ed).) interest, prejudgment though the default is point mentioning. 9. One bears additional tween Defendants’ conduct the district judgment. compounded district court was correct the size of the court’s annual- At 8% award, prejudgment ly, always rapidly. interest which the accrue We dis- interest will regards noteworthy, mostly Kentucky authority sug- sent func- have uncovered no years passed gesting may tion of the number of wrongfully be- use tortfeasors *38 458 criticism,” law, City and interest faced “trenchant “equity Under of Milwaukee, 197, 115 515 U.S. S.Ct. upon which the foundation
justice serve as 2091, began commentators as courts and rests.” interest prejudgment of an award ... between the “distinction realize at 414. De 429 S.W.3d Contracting, Ford unliquidated dam- liquidated their cases manipulating conduct fendants’ v. a sound one.” Funkhouser ages[ is not depriving ] their father and stroke-impaired 163, 168, Co., 54 290 Preston U.S. was J.B. inheritance enormous sisters an. (1933) (footnote 134, L.Ed. 243 78 more so S.Ct. inequitable—far unjust and
highly
Mullins,
omitted);
Dalton v.
293
see also
tortfeasor.
run-of-the-mill
that of a
than
1956) (“We
470,
(Ky.
App.
Ct.
its discre S.W.2d
not abuse
court did
The district
as to whether
not so much disturbed
are
largest interest award
in imposing
tion
liquidated
unliquidated
or
the claim is
Kentucky law.
under
permissible
are,
popular
in accordance with
we
for
arguments
two
offers
The dissent
trend,
justice
equity
as to whether
First, the
opposite conclusion.
reaching the
to the
an allowance of interest
demand
“damages
that Plaintiffs’
argues
dissent
injured party.”).
Supreme
As the
Court
until
when
were not ‘ascertainable’
harms are
ago explained, whether the
long
district
their claims
sisters filed
injured
“the
liquidated
unliquidated,
or
interest
no
court,”
prejudgment
and thus
may
a loss which
be
has suffered
party
to the
any period prior
permissible
if he is
fully compensated
as not
regarded
(citing
at 470
lawsuits.10Post
filing of these
found to be recov-
confined to the amount
Moore,
Inc. v.
Developers,
Tri-State
harm]
the time of [the
erable as of
1961)).
(Ky.
S.W.2d
delay
obtaining
for the
nothing is added
of the law is outdated.
This view
Funkhouser,
damages.”
the award of
prejudg-
“that
common law was
rule at
mod-
134. Thus most
U.S. at
S.Ct.
unliq-
not awarded on
interest [was]
ment
inter-
permit prejudgment
courts will
ern
City Milwaukee
uidated claims[.]”
though,
unliquidated
claims—even
est
Co.,
Div.,
515 U.S.
Gypsum
Nat’l
Cement
definition,
claims were not “ascer-
those
189, 197,
ond) 913(l)(b)). Thus, § preme of Torts precedent dis- Court makes it clear that argument sent’s the district court courts should unnecessary avoid adjudica any lacked prejudg- discretion award tion of constitutional issues. Where a stat ment interest to the prior utory commencement or nonconstitutional basis exists for of this simply reaching lawsuit does not reflect the a decision ... it is not necessary Rather, modern (cita state of law. to reach the constitutional issue.” only omitted)). question before us is whether tions district court appropriately weighed the event, In any skeptical we are equities deciding this case in whether to argument. dissent’s due process The dis prejudgment award interest. Id. As ex- sent speculates that the district court im
plained earlier, we cannot find fault with posed its prejudgment interest award in the district equitable court’s consideration part punishment for Defendants’ wrong in light brazenly wrongful Defendants’ conduct, ful analogizes this case to conduct towards sisters. Supreme decisions where the Court has punitive invalidated excessive damages argument The dissent’s second However, awards. See Post at 471-72. that the district prejudgment court’s inter “[p]re-judgment interest statutes have a poses process est award due serious con long history, dating at least from 1859 in cerns is disproportionately because its size country, this been held to serve large compared gravity harm legitimate purpose making whole an given timely Plaintiffs’ failure discover injured party.” Co., Star Roy Chopper v. their tort at 471-72. claims. Post Defen (1st 1978) (cita 1124, 584 F.2d 1136 Cir. process dants have not advanced a due omitted). tions Despite concept’s lon theory briefing us, in their before gevity, we are aware of no case that has any thus process arguments due are invalidated a prejudgment interest award See, waived. v. e.g., Kuhn Washtenaw as excessively large under the Fifth (6th 2013) 612, Cty., 709 F.3d Cir. Amendment’s Due Process Clause. (“This consistently court has held that ar guments party’s in a To the opening contrary, up- raised several courts have waived.”). brief ... It is particularly prejudgment regimes against are held interest see, prudent in light process e.g., to enforce this waiver of due challenges, Arbon Co., States, our general preference declining to Steel & Serv. v. Inc. United (Fed. 2003) pass on unsettled constitutional issues 315 F.3d Cir. (up- holding grounds prejudgment whenever there are alternative interest award under See, IBP, review); Reyes-Mata available of a rational dispose e.g., case. basis — (5th States, Inc., U.S. —, Bond v. United F.3d Cir. (2014) (same); Lauer,
S.Ct. 610 Fed.Appx. 189 L.Ed.2d S.E.C. v. (“[I]t 2015) (“The (11th principle gov is a well-established award of Analysis nothing to do B. interest has
prejudgment cannot be the process, ... with due Finally, argue 60(b)(4)”), Rule of a motion under basis have conducted a the district should rate awarded though the of interest even trial for jury trial rather than a bench two interest higher than the significantly (i) sought and reasons: Plaintiffs obtained See, e.g., n money general economy. in the available damages, species *40 which is a classic Bank, PLC, Citibank, 28 Barclays N.A. v. relief; (ii) legal and Defendants’ of statute 2013) (S.D.N.Y. 174, (up- 184 F.Supp.3d nature, in legal limitations was of defense rate statutory York’s interest holding New required and the district hold observing “though 9% that even of 9% again, jury a trial on defense. Once we current than market rates in the higher is compelled disagree. are man- economy, there is no constitutional Seventh Constitution’s statutory rate follow that the interest date provides Amendment Suits at “[i]n point Oden v. point”); rates for market law, where in common the value controver (R.I. 2013) Schwartz, 438, A.3d 457 71 dollars, twenty right exceed of sy shall award). The ratio- 12% interest (upholding by jury shall preserved, trial be no prejudgment these cases nale for jury aby fact tried shall be otherwise re recognition a punitive,11 interest is not “but any in of the examined Court United that, plaintiff immedi- had the recovered States, according to the rules of the than of they would had the amount ately, entire common law.” U.S. Const. amend. VII. The they and that it money pleased,” to use as jury guarantee trial Seventh Amendment’s legislatures for and courts to is rational applies legal rights to “suits which [are] plaintiffs having for been de- compensate determined, in to be ascertained and con Reyes- of prived property. of the use equitable where tradistinction those
Mata,
compel-
at
299 F.3d
see no
We
equita
alone
rights
recognized,
[are]
why the
Process Clause
ling reason
Due
remedies
administered.” Curtis v.
[are]
ble
any
pose
barrier
to the interest
should
193,
Loether,
189,
1005,
415 U.S.
94 S.Ct.
in this case.
awarded
(1974) (quoting
Bedford, 3 Pet. 28 U.S. 7 The Seventh Amendment IV. (1830) (emphasis original)). L.Ed. 732 “Federal courts with a claim faced of A. of Standard Review jury entitlement to a trial thus must party ‘compare is ‘entitled to first the case at issue to “18th- “Whether century actions courts jury brought trial under Amendment Seventh prior merger of law1 review de question England is a which we to the ’ Ark., Nebraska, Entergy equity,” v. 358 courts of law novó.” Inc. Golden v. (6th (8th 2004) 528, 648, Co., (quoting Kelsey-Hayes 540 F.3d 659
F.3d Cir. 73 Indus., (citing Chauffeurs, 115 F.3d Kampa v. White Consol. Cir. Teamsters (8th 585, 1997)); Helpers, Terry, Cir. Pandazides v. Va. 391 v. 586 & Local No. 494 (4th Educ., 558, 1339, 13 F.3d Cir. U.S. S.Ct. 108 [110 Bd. of 1994). (1990)), L.Ed.2d and then ‘examine 519] him, unjustified penalize explained, Third to “the this is not to 11. As the Circuit has benefit extent defendant had the free use of for it has been determined the trial it [a] has plain- income-producing ability rightfully v. United [the] was never his.” Feather it, Workers, (3d money pay he having without Mine 711 F.2d Cir. tiff's 1983). unjustly been enriched. To divest him has remedy legal sought damages, and determine such sums are because it is in na- legal equitable whether not awarded victims as a matter of Id.” ture.’ (“Upon right. awarding Id. disgorgement, may a district court exercise Care, its discretion Inc., Big Sandy Wilson Health (6th money to direct toward compen victim 576 F.3d Cir. ...”); sation. see also S.E.C. v. First Pac. test, jury this that a Applying we hold (9th 142 F.3d Bancorp, required
trial was not for Plaintiffs’’fidu 1998) (“The fact that the district court duty weight authority claims. The ciary the disgorged directed that re funds be that actions seeking disgorgement holds turned to the defrauded investors does ill-gotten gains equitable are nature. nature change remedy.”). In
See,
e.g., Chauffeurs,
494 U.S.
deed,
Supreme
rejected
Court has long
(“[W]e
dam
S.Ct.
characterized
*41
argument
“any
monetary
that
award of
equitable
as
restitu-
ages
they
where
are
necessarily
relief
‘legal’
must
be
relief.”
tionary,
in
disgorge
such as
for
‘action[s]
”
570, 110
Chauffeurs,
S.Ct.
L.Ed.2d 365
Music,
A.V.E.L.A.,
Hope Road
Six
Ltd. v.
arguing
fiduciary duty
Plaintiffs’
2015)
1059,
(9th
Inc., 778 F.3d
1075
Cir.
relief,
legal
sought
claims
cite
(“[T]he
recognizes
current law
that actions
Annuity
&
v.
Great-West
Ins. Co.
Life
disgorgement
profits
are
improper
Knudson,
204, 214,
708,
U.S.
122
534
S.Ct.
nature.”);
equitable
Cavanagh, 445 F.3d
(2002),
151
635
L.Ed.2d
where the Su
authorities);
(collecting
at 119-20
Roberts
preme
only
held that
Court
restitution is
Sears,
460,
Co.,
v.
Roebuck
617 F.2d
465
&
equitable remedy
an
when
plaintiff
1980)
(7th
(observing
Cir.
in dicta that
impose personal liability
does not
“to
seek
for the
of un
disgorgement
“Restitution
defendant,
on the
but to
restore to
just
equitable remedy
enrichment
is an
plaintiff
funds or
particular
property in
right
by jury”);
no
to a trial
S.E.C. v.
with
possession.”
defendant’s
But Knudson is
Inc.,
Sec.,
574 F.2d
Commonwealth Chem.
inapposite. As used in
parlance,
modern
(2d
J.)
1978)
(holding
(Friendly,
95
Cir.
and restitution
disgorgement
are distinct
right
that there is no Seventh Amendment
that serve different purposes.
remedies
jury
seeks
plaintiff
to a
trial when a
dis
Hosp.
See
Beaumont
William
v. Fed. Ins.
gorgement
disgorgement
because in a
ac
(6th
2014)
Co.,
Fed.Appx.
Cir.
tion,
damages
“the
awarding
court is not
(holding
disgorgement and
restitution
plaintiff
legally
is
but is
[a]
which
entitled
separate
distinct remedies
exercising the chancellor’s discretion to
contract).
construing an insurance
theAs
enrichment”).
unjust
is
prevent
This
be
explained:
Fifth
has
Circuit
disgorgement
pri
cause
“is not available
not
[D]isgorgement
precisely
is
restitu-
marily
victims,”
but rather
compensate
tion. Disgorgement
ill-gotten
wrests
a
all prof
“forces defendant to account for
gains from the hands of a
It
wrongdoer.
conduct,
reaped through”
its
his wrongful
equitable remedy
is an
meant to prevent
if
damages
it exceeds actual
to vic
“even
from
(footnote
wrongdoer
enriching
himself
Cavanagh,
S.E.C. v.
(7th
1986)
Warren,
Cir.
796 F.2d
1993) (citations omitted);
Cav
see also
Cir.
J.).
(Easterbrook,
The district court was
(disgorgement’s
anagh, 445 F.3d
required
accept
represen-
Plaintiffs’
opposed
public protection,
“emphasis
any point
tations at
during this litigation
relief, illustrates
compensatory
simple
about
the nature of
remedy
remedy”);
nature
equitable
sought, and acted well within its discretion
Int’l,
Fund
211 F.3d
Banner
S.E.C.
determining
disgorgement
prof-
(D.C.
(holding that “dis
remedy
appropriate
its was an
for Defen-
equitable obligation, to
is an
gorgement
wrongful conduct.
dants’
wrong
amount
equal to the
return a sum
obtained,
requirement
than a
fully
rather
Additionally,
understanding that an
our
asset”). Accordingly,
specific
replevy
is
disgorgement
profits
seeking
action
and does not cast
point,
not on
Knudson is
confirmed
in nature is
equitable
authority holding
the wealth
doubt on
remedy prior
of that
historical treatment
remedy.
an equitable
disgorgement
Amend
enactment of the Seventh
to the
Moreover,
recognized
Knudson itself
“disgorgement”
term
is relative
ment. The
*42
“accounting
profits”
of
remedy
law;
of
century chancery
that the
to the
in 18th
ly new
general
courts,
to the
rule that
“exception”
disgorgement
an
was
is
what we now call
it
equitable,
“must seek
“accounting,
for an action to be
in
of
embodied
the remedies
liability on the de-
personal
trust,
impose
not to
and restitution.” Cav
constructive
fendant,
plaintiff par-
to the
to restore
anagh,
but
sentations centuries, money jurisdiction over claims seeking for litigation that arising improper acquisition from of as- that these statements damages, argue and actual- Lord wrote that “[t]hree court did not sets. Coke that the district show of things judged Howev- are to be Court disgorgement. [the] ly equitable award Covin, Accident, and breach court accu- Conscience: er, that the district we think Coke, 4 Insti- remedy at issue of confidence.” Edward rately characterized (Lon- England 84 equitable disgorge- tutes the Laws case as one for this of of 1644) (1797 ¶ (“[S]ince don, (See 856, only reprint- M. Flesher ed. ment. R. 1986) (“The third is breach of trust equitable claim for ed claim
remaining [is] confidence, plenti- you and whereof fiduciary-duty, seeking equi- of breach books.”). Black- ful authorities our disgorgement, there remedy [is] of table idea: hath expressed “[I]t stone a similar by jury trial that right [can] longer no accident, (citation said, and fraud, trust been by any party.” be invoked omitted)).) objects of a peculiar proper “Deci- are marks quotation internal Blackstone, equity.” of 3 William characterization of the court about sions (b) England Laws Commentaries on the id. at 171 n. (concluding that of 1992) (1768). (photo, reprint Al “breach of trust” “a case for the con though noting quoted the maxim sideration of of equity”). courts Modern oversimplified overlapping jurisdic remedy’s works on restitution trace the of equity, tions law and Blackstone history to ancient cases in equity. See indeed, that a wrote “technical trust cre Restitution, Restatement Law of of use, of a ated the limitation second Quasi Contracts and Constructive equity forced into a of ... Trusts, (1937) (“Some I, Pt. at 5 ha[s] ever since remained as a [and] earliest chancery bills in for were bills peculium of kind in those courts.” at Id. restitution, such bills for the recov 431—32; Beames, see also John Ele ery property obtained (New York, Equity ments Pleas in ”); Dobbs, fraud.... also 1 see Dan B. 1824) O. Halsted 1st Am. ed. (including § 4.3(1), Law Remedies at 587-89 trust confidence” “[m]atters (2d 1993) ed. (discussing equitable rem subjects jurisdiction); among equity edies of constructive trust and account- Assocs., also see Mertens v. Hewitt ing profits). for That the term “dis S.Ct. [113 U.S. gorgement” legal has entered common (1993) (considering 161] L.Ed.2d distinc parlance only recently cannot obscure equity pur- tion between law and for accounting, the ancient remedies of Employee poses interpreting Retire- trust, constructive and restitution have Income Act of 1974 Security ment compelled, wrongdoers to “disgorge”— noting that available “all relief ie., account for and surrender—their of trust could obtained from a breach be ill-gotten gains for centuries. See Unit equity”); court of Smith v. Lessee of Taylor Gabelli, ed States ex rel. (24 How.) McCann, 65 U.S. 407 [16 (S.D.N.Y. *5 WL Nov. (1860) (indicating L.Ed. in a 714] disgorgement *43 (describing prof of of maintaining state distinct courts law its “a from fraud as ‘classic’restitution- equity, of chancery and “the court ... ary remedy inherently distinct from jurisdiction the has exclusive of trusts law); compensable damages” awarded at estates,” trust did in England). and as it Dobbs, ante, (noting at that in cases 589 Early writings equity recognized on the trust, remedy of in constructive which power compel disgorge- to Chancellor’s ef equal damages, need not actual “the wrongly of gained ment assets. See Jo- give plaintiff gain fect can be to the the Story, seph Equity Commentaries a from the defendant makes the sale of Jurisprudence as Administered in plaintiffs any property reinvest England (photo: and America 423-504 funds”). ment of the 1972) (1835) reprint (describing remedy English re equity compelled courts the “account,” by chancery of which or- (in effect, payment of “disgorgement”) an accounting dered of assets so that ill-gotten gains in cases decided before wrongly gained profits might be recov- our in ered); independence. example, For (equitable id. at restitu 487-88 fraud); Cotton, Eng. v. 27 Rep. in Garth cases of id. at tion 490-91 (Lord waste); Ves. Sen. Chan (disgorgement upon of profits 1753), contingent cellor’s Court remain- Fonblanque, Equity A Treatise John of in a sought equity dermen relief (Philadelphia, 2d Am. when A. Small ed.
1820) (“[A] must, de especially conspired in life tenant and trustees to trustee trust.”); fraud equity, good selling make the see also the remaindermen tim during from land the estate and divid would have earned the from relevant ber among wrongful themselves. the ing proceeds mortgagor’s possession. the remainderman, who lacked a plaintiff vintage A case of same Pennsylvania reasons remedy at law for now-obscure award devi- applied reasoning similar time, land law of English related land sees the rent collected on their compelling wrong an sought order delay during the between the testator’s proceeds him the of the give doers possession. death and their actual See land’s of the assets. Id. asserted waste Fisher, 2 Dall. Haldane v. U.S. 176 [2 obliged, Hardwick Lord Chancellor (1792) (“If man 338] 1 L.Ed. a reconveyance just” is holding that “a rent, ... my may receives it.... be proceeds of the ordering that equity.”); at 130 recovered see id. interest, sale, go to benefit plus timber (Yeates, J., concurring) (“misrepresenta 1199; see estate. at also Wil Id. clearly tion or concealment” is “a suffi Willoughby, Eng. Rep. v. loughby for chancery cient foundation to decree (Lord Rep. Term. Chancel an to be taken the rents and account of 1756) (ordering, at the re lor’s Court omitted). profits”) (emphasis legacy of a widow cheated her quest her eldest son’s collusion with a trus (footnotes omitted). put Id. 118-20 To banker, accounting and a an tee Coke, agree simply, matters we with Lord assets, estate, estate’s the sale Blackstone, Story, Supreme Justice payment widow her other Court, Circuits, and the Second and Ninth proceeds). children from the as well numerous other commentators— equitable courts also awarded American seeking equita- an action is disgorgement modern disgorge- remedies similar to nature, if ble even the district court decided around the time ment cases ultimately directs the funds to the victims founding. For example, of our nation’s conduct. defendant’s Mason, Virginia’s High Cadwallader Finally, we hold that De also Chancery, considered in 1793 Court jury were not to a trial fendants entitled case of a who mortgagor improperly on their statute of limitations defense. possession retained of land after Generally, disputed “when there issue mortgage George had been satisfied. plaintiff of fact as when ‘discovered
Wythe, in Virginia Decisions Cases action, should discovered’ his cause *44 High by Chancery the Court 58 of by the factual issue should resolved be (2d (1795), reprinted at id. 188-89 ed. jury in in has asked party] [a cases which
1852), owner, rightful Va. The 185. Menzies, for a jury.” Elam v. 594 F.3d had the land an through who reclaimed (6th case, However, in this Cir. law, sought equity action at relief to there no factual in the bench issues the profits mortgagor recover the had trial regarding when Plaintiffs discovered reaped Holding interim. that the the or should have discovered Defendants’ mortgagor “may thus justly enrich [not] judgment or wrongdoing. summary its himself,” equity the court of demanded der, that there the district court concluded mortgagor the “account for such Plaintiffs genuine dispute was no profits” give after-taken restitution in the should have discovered their claims the Id. The against landowner. rule early through the of reason unjust compelled enrichment an award 1990s exercise Osborn, at gain, diligence. F.Supp.3d able equal regardless defendant’s money plaintiff actually of how much 807. 1963) (9th
Rather, only remaining of (holding statute Cir. that defendants after the district court’s jury limitations issue were not entitled to a trial on compul summary order judgment sory was whether counter-claims “only where the issue fiduciary of Defendants’ violations their existing under the pleadings, admissions Ken- duties allowed Plaintiffs invoke and stipulations” was equitable, even tucky’s equitable tolling statute. Id. though the claims legal could have raised Application equitable tolling 795-96. of circumstances). issues under other As the is, definition, principles by an equitable observed, Ninth Circuit has an “equitable See, Hasken, issue. e.g., Commonwealth v. fact, claim involve a may legal issue of 2007) (Ky. App. 265 S.W.3d Ct. may question turn on a of fact. The exis (“[T]he regarding equitable issue toll- tence of an issue of fact not per does se ” ing of the one for statute limitations was Shubin, ‘legal create a claim.’ 313 F.2d at the circuit decide as a matter
law.”), by Ky. on superseded grounds other (2009). §
Rev. Stat. 95A.250 CONCLUSION reasons, foregoing For the we AFFIRM Moreover, deciding equitable court’s judgment. district tolling required an issue assessment
whether what and to extent Defendants DISSENT
breached their duties Plain (“The Osborn, F.Supp.3d tiffs. at 796. MERRITT, Judge, dissenting. Circuit is replete record this case with material claims plaintiff basic sisters factual disputes about whether defendants brothers, against their and Griffy, Dennis made and truthful adequate disclosures to litigated have been since the sisters first the plaintiffs regarding parents’ es years ago. brothers 27 I sued the do not plans, tate the settlement of Betsy’s agree my colleagues’ disposition with lawsuit, disputed and the transfers of stock (1) this because: parties case settled differently, property.”). and real Put (2) 1993; basic same claims even if validity of limita Defendants’ statute of are completely claims barred tions defense turned on the same exact agreement, the settlement the claims are underlying factual issues com Plaintiffs’ equitable in nature and the doctrine of fiduciary duty equita mon law claims for damages laches should foreclose after a disgorgement. Generally, ble defendants following reasonable time the time when jury are not to a trial on entitled affirma the sisters learned of their brothers’ earli- tive defenses those when defenses turn (3) duties; of fiduciary any er breach under plaintiffs’ the same as the equitable issues ($584 circumstances, million, the damages See, High claims. Mile v. Co e.g., Indus. nearly half which are in the form of (10th hen, 222 F.3d prejudgment compounded interest at 8% (“Our appraisal general nature decades) *45 annually approximately for three plaintiff’s equitable] [the claim foreclosure excessive, by our court approved are un- and Mr. defenses de Cohen’s shows [the reasonable, probably and in violation of directly related to the basic issue fenses] process. due foreclosure, initially in raised the pleadings, leaving us with the firm convic I. tion the involved here sort issues are the in
traditionally equity.”); simple point enforced A end this liti- very Shubin should Court, gation: parties U.S. Dist. 313 F.2d 251-52 the Between and very fiduciary duty encourage same to the litigated the sisters to us now before reject “precisely in now—25 the settlement offer be- this case presented claims to cause continued trust [the sisters] was a stock- years later. The action brotherly “fiduciary This them.” so-called suit; it claimed that the holder’s derivative duty” to discourage settlement between fraud, fidu- engaged breach of brothers litigating parties strange is indeed since chief officers ciary duty, and misconduct as parties engaged opposite on the father. corporation of the created their in which the sides of lawsuit sisters the same claims arose from The sisters’ by the wrongdoing claimed serious broth- The presented facts in this case. basic the normally encourages ers. The law set- major corporation difference is that the tlement of lawsuits. See Fed. R. Civ. P. ago, less valu- years much smaller 16(a)(5) “facilitating (concerning settle- able, and had not been sold. The record ment”); advisory Fed. R. P. 16 Civ. com- reveal what circumstances of does not (citing mittee’s notes extensive authorities corporation generation ago were a settlement); NLO, encourage In re led to the increase in value to what $840 (6th Inc., 5 F.3d The million. The sisters and their families court, here were adversaries parties already monies received some apparently years fact that 25 not fiduciaries. The la- of the sale. as a result corporation ter the is worth hundreds of defendant plaintiff The sisters and the millions of dollars more in the market- Septem- brothers settled lawsuit place setting is not a for valid basis aside parties—including and the each ber agreed-upon judicially approved an and sisters—signed the settlement many years agreement settlement later. agreement. agreement settlement years agreement ago The settlement clearly exchange releases the brothers should, from the claims arising same basic brought consideration. The brothers therefore, claims. stand to these as a bar by paying bear on pressure to their sisters it My colleagues’ impos- rule would make money demonstrating anger them breach-of-fiduciary-duty sible to settle family disagreement. In sorrow about they once filed—a rule lawsuits are di- $10,000 each, sisters re- exchange for contrary policy rectly the normal “any any and all ... of kind leased claims encouraging law settlement. any or nature whatsoever which case, deciding must this we remem- may may now siblings have had or Griffin ber that hundreds of thousands settle- have, or un- regardless whether known every year legal disputes. ments terminate known,” The dis- against two brothers. appellate This court and other trial and a fair- immediately trict court conducted courts at the federal and state level em- hearing agreement on the ness settlement lawyers settlement who seek settle ploy that the contemporaneously concluded themselves, Lawyers outside of cases. fair. the settle- approved settlement was It judicial process, many disputes settle be- dismissing the judgment ment and entered fore become lawsuits. Settlements of- prejudice. claims with plaintiffs’ significant pressures on depend ten set- My colleagues argue years mediators, later that brought by judges, tle bear agreement adversaries, members, is unenforcea- family press the settlement Here, anger brothers’ many judge ble because defendant others. a federal hearing duties that continued a fairness violated intervened conduct litigation. My colleagues approval put after the and to seal of even *46 may had a settlement.-The elder brothers have apparently believe that the brothers bear on brought pressure rights to their sisters— sion of his of which he complains, $10,000 by paying by them each or exhibit- necessary charge in order to him with ing I find anger However, or sorrow—but do not knowledge may laches.
anything justify refusing that en- would imputed some circumstances be to him later. force the settlement several decades of opportunity reason to acquire of There must be hundreds of thousands knowledge, or appears where it that he types pressure similar of cases which himself could have informed of the facts induced settlement. See John Barkai & exercise diligence, the of reasonable Kent, Stop Spreading Elizabeth Ru- Let’s the where circumstances were such A Litigation: mors About Settlement and put ordinary prudence as to a man of on Comparative Study Settlement and Lit- inquiry. Courts, igation St. J. in Hawaii Ohio Taylor Kentucky, 302 S.W.2d (2014) Disp. (estimating Resol. 135-39 added). (Ky. (emphasis 60% of set-
between 50% and lawsuits are findings The district court’s own when it nationwide). view, my my In col- tled plaintiff the dismissed sisters’ RICO claim leagues’ very holding here establishes a should be conclusive on the issue of laches. judicial the precedent system that can- bad conduct, regard With the same the dis- not live with if elsewhere. applied trict found court that the sisters had an arguments apply The alternative below “opportunity to acquire knowledge” of the only agreement if the is not settlement wrongful brothers’ conduct and that view, dispositive my case. In of the had sisters failed to exercise “reasonable agreement settlement should be enforced. diligence” regarding warnings that case, argu- that two In alternative they regarding had received the brothers’ ments below need be considered and conduct as trustees. court The district con- pretermitted. be should plaintiffs many that the had oppor- cluded “acquire knowledge” tunities of their II. fiduciary duty brothers’ breach of and that applied The district court should have on notice that were of facts would the doctrine of in this That laches case. “put ordinary pru- [or a man woman] long pe- significantly doctrine reduces the inquiry.” dence on The district found for riod which the district court awarded plaintiffs as a that fact “the Holt were damages, its including award of interest Betsy aware that had [their filed a sister] compounded annually for 8% decades. against Griffy just lawsuit Dennis plaintiff action against sisters’ months before closure Moth- [their] equitable proceeding brothers was an probate er’s estate.” The district court duty arising breach from say accepting plain- went on “even conduct as trustees of their fa- brothers’ and Griffy tiffs’ contention Dennis family appointment trust after their ther’s inquiring them from into dissuaded equitable pro- such November 1985. Betsy’s substance of claims—which itself ceedings, the more flexible doctrine arguably plaintiffs should have alerted applies laches rather than the strict rules possibility Griffy Dennis Ken- governing statutes limitation. than being less candid with them—it is tucky’s highest court has established plaintiffs easily undisputed could following more-flexible standard for laches: Betsy’s complaint, obtained which was a
Ordinarily, knowledge part public actual record from time of its fil- complainant, alleged ing....” of the inva- The district court found that *47 “they in and caused personal injury at ad- resulted were fault because plaintiffs however, action, consequential damages.... to look mittedly took no further, matter even after defen- into the provisions These of the settlement the 1993 they sign dants demanded Betsy’s original make agreement clear Betsy’s and agreement [for settlement Griffy tortious suit accused Dennis and of disclos- derivative without case] their own in their as directors capacities malfeasance ing its terms.” It to me that of Griffin Industries. seems diligence” have re- “reasonable would as well were additional reasons There upon being quired the sisters to insist on notice that the sisters should have been agree- of shown the text the settlement treating them were not that the brothers it, signing especially light ment before Dennis threw fairly. The sisters claim that Griffy’s of Dennis and erratic behavior them, their copy mother’s will with the administration of the connection about their questions refused to answer estate. sisters examined mother’s Had the estate, them refused to let mother’s and they learned of agreement, the would have he directed see the settlement documents against the Betsy’s the nature claims sign. plaintiff Previously, them be- Coupled brothers. with the brothers’ and Cynthia Roeder’s husband told her havior, facts been suffi- those would have sister, Betsy, they being her put person cient to on notice reasonable Betsy by the re- “screwed” brothers. her the potential against of his or claims to ob- peatedly plaintiffs wárned the Holt brothers. of their estate docu- copies tain mother’s If the enforcement of the settlement Nevertheless, the sisters remained ments. case, agreement does not I would end con-
willfully ignorant of their brothers’ judgment and remand the case vacate duct. to the district court instructions to with they the sisters insisted that be Had Septem- the doctrine of from apply laches they agreement the 1993 settlement shown plain- the Holt ber date that they pur- would have read that signed, would have of the substance tiffs learned agreement settle pose “[t]o Betsy’s against Griffy claims Dennis and against claim Industries derivative Griffin they diligence. had exercised reasonable any in the Lawsuit and tort claims instruct the district Specifically, I.would have been asserted the Griffin could duty to plaintiffs court that the Holt had a Griffin, M. against John Siblings Dennis into their after inquire brothers’ conduct [their] and Robert based on Griffin Griffin they signed agreement the 1993 settlement capacities officers and conduct in their as $10,000 they from received checks for Similarly, of Griffin directors Industries.” Industries “derivative.” Griffin marked agreement provided:
the 1993 represents possible That date latest reasonably could relied moment any deny Although upon their brothers’ characterizations any wrongdoing liability dispute Betsy. with Siblings, ac- Griffin the Defendants
knowledge that pleadings III. alleged against claims Den- Lawsuit tort to calculate nis Griffin and John M. Griffin based The district also failed offi- capacities damages prejudgment conduct in the. and the interest their specificity degree of Griffin Industries in this case with the cers directors alleged Accordingly, to have under required that such conduct is law.
469 would remand the case further fact- Industries has elected to I be taxed under finding Subchapter Chapter reconsideration of both S of 1 of the Internal agreement not amounts if the settlement all Revenue Code at relevant times. So- enforced. “S corporations” called are taxed at the opposed shareholder level as the corpo- to
A. way, rate level. Put another the corpo- S respect With to its calculation of the pay ration does not taxes on its yearly damages the rather, associated with defendants’ earnings; its shareholders are re- fiduciary duty, breach of the district court sponsible for paying the taxes associated plaintiffs’ reducing erred not the recov- corporation’s with the earnings. According ery by paid the amount that the brothers to expert testimony trial and consistent directly to the IRS in satisfaction of the practice with the corpora- common of S liability Griffin tax associated with Indus- tions, Griffin Industries would make annu- earnings. I the yearly tries’ would remand al to disbursements its shareholders in fact-finding on ques- case for further that order to cover tax liability the associated tion. corporation’s with the earnings for the year; the then shareholders would forward
“Damages are not for loss recoverable directly those disbursements the to Inter- beyond per- an amount that the evidence nal fact Despite Revenue Service. the that mits to cer- be established with reasonable Villa, plaintiff the sisters would been tainty.” Chicken Inc. v. re- Pauline’s to Corp., (Ky. quired KFC send all S.W.2d tax-related disburse- (Second) (quoting IRS, Contracts along Restatement ments to the court district 352). Kentucky’s § of requirement reason- damages calculated the on of the basis all certainty require able does not absolute disbursements made between 1985 and precision calculating mathematical when accounting seeking without for or it damages, does require an award of but proof regarding portion of those dis- cognizance of fact take that finder that made in bursements were satisfaction virtually facts that “eliminate ascertainable liability. Indeed, tax of Griffin Industries’ all the uncertain variables.” Id. This rule specifically refused to district squares principle with the “bottom paid by evidence taxes Griffin consider Kentucky, which damages” law of is that stockholders over the relevant Industries compensatory damages designed “[t]o are time a cross-examination of period. After injured, may as near party restore the as damages expert about plaintiffs’ be, to position.” Hughett his former failure to account for the disbursements Cty., Ky. 230 S.W.2d Caldwell that made to the to shareholders (1950), abrogated grounds on other liability their tax satisfy Griffin Indus- Crutcher, & Co. v. Harrod Concrete Stone tries, held that squarely the district court (Ky. S.W.3d any figure it not to attempt “would make everybody’s despite out taxes” defen- damages
The court’s calculation district request dants’ that court account for of specificity does not meet this standard made cover the disbursements light failure to account for dis- its liability corpo- stockholders’ tax on the S In- bursements that were made Griffin to con- ration. district court’s failure the tax lia- dustries’ stockholders cover liability sider of the tax resulted bility proof with associated Griffin Industries’ plaintiffs; they were award- corporation. windfall earnings subchapter-S (and compensation 8% over 30 at trial ed interest The evidence showed Griffin § Eades, Damages 7:9 Kentucky Law would years) for disbursements (2017). end, court in highest To absent to their benefit even have inured it cautioned that repeatedly has fiduciary duty. breach the defendants’ prejudg- of discretion award is an abuse court’s the district I hold would *49 claims for unliquidated on ment interest has not been established damages award damages are “ascertain- time before the certainty” required “reasonable with the Moore, Inc. v. Developers, able.” Tri-State it does not Kentucky law because under 1961). 812, (Ky. In broad 343 S.W.2d money that the an offset for the include strokes, damages are not “ascertainable” obliged to remit to would have been sisters have notice of the until the defendants the Accordingly, I would remand the IRS. with damages final amount of associated regarding fact-finding further case for (holding dam- alleged their breach. See id. that were of the disbursements proportion over-bud- with a late and ages associated satisfy Griffin Industries’ in order to made not “ascer- project construction were get 2010 if the liability 1985 and tax between finished until the contractor had tainable” not enforceable. agreement is settlement This limita- project). on the construction especially interest is prejudgment tion on B. when, here, plaintiff has important discre- court also abused its The district “delayed filing Corp., suit.” Nucor interest on awarding prejudgment tion in (Sec- (quoting at 144 Restatement S.W.2d highest rate damages at the unliquidated a). ond) § cmt. of Torts period nearly a by law over authorized Here, damages not “ascertain I reverse the district thirty years. would until the sisters filed able” when in- prejudgment to award court’s decision claims in the district court. The dam terest. Griffy’s Dennis and ages associated with damages, involving unliquidated In cases ongoing accrued on an basis wrongdoing interest rests prejudgment the award remedy of the district court’s chosen under of the trial the discretion within disgorgement,”1 precise so the “equitable .court. Co., v. Elec. 812 S.W.2d Corp. damages
Nucor Gen. this case re amount of 1991). Kentucky law disfa- (Ky. plaintiffs until the filed mained unknown In against not disallow—the award their claims the defendants. vors—but does ' involving analogous the facts here are way, interest in cases prejudgment Developers case de Ronald those the Tri-State damages. See W. unliquidated possess opinion courts disgorgement” ed as an on whether “equitable 1. The idea of authority disgorgement in SEC en vintage to order very used in SEC of a recent doctrine proceedings cases, or on whether courts forcement Circuit. primarily in the Second fraud disgorgement princi properly applied have Cavanagh, 116-20 v. 445 F.3d See SEC context.”). ples in this (2d The doctrine is used to'remove gains traders because from insider unlawful colleagues happy glad my are to stand I am damages any dis cases do not cause such Coke, Blackstone, Story, Justice with Lord theory applicable to plaintiffs. The is not crete distinguished lawyers on this mat other in which there are identifi ter, cases of this kind men would never have but those famous damages. right Rather, victims with a to recover able "equitable disgorgement.” heard of Indeed, theory may applicable even not be that the Lord would have understood longer light money for much power in SEC contexts award retained Chancellor opinion involving on the Supreme damages Court’s recent a breach of fidu in cases SEC, - U.S. -, Murphy, Misclassi ciary duty. Colleen P. matter. See Kokesh See Restitution, n.3, (2017) fying Monetary 55 SMU L. Rev. L.Ed.2d 86 S.Ct. (2002). interpret opinion 1598-1600 ("Nothing in this should be by Kentucky’s highest percent.” court. Tri its Despite recognition cided of that State, fact, Appeals the Court court awarded at the interest 8% rejected plaintiffs’ claim that the dam level used plaintiffs expert without ages any associated with a late and over-bud or effort explanation to determine “the get project construction were ascertainable market rate of interest” over the same project. completion before the Tri- It clear period. seems district Developers, State 343 S.W.2d 817. The court do compen- intended to more than supported finding its nonascer- sate sisters for the time-value of their tainability reasoning damages the defen applied awards when it an 8% anticipated rate, dants could prejudgment presume interest so I judgment against amount of the them— the prejudgment award of interest was *50 and, intended, liability their for in consequently, pre part, at least a sort as of judgment they completed punishment interest—until for the wrongful defendants’ Similarly, project. the See id. the defen acts. anticipated dant brothers could not have damages Civil awards imposed pun as judgment
the size
in
case until
of the
this
ishment for a
wrongful
defendant’s
actions
Thus,
very
2010 at
the
the
earliest.
dam
subject
scrutiny
are
under the Due Pro
ages in
ease were not ascertainable
this
cess
Fifth
Clause of the
Amendment.2 See
until
the
2010 and
district court’s award of State
v. Camp
Farm Mut. Auto. Ins. Co.
in prejudg
of millions of dollars
hundreds
408,
bell,
416-18,
538 U.S.
123 S.Ct.
preceding
years
ment
for the
interest
(2003);
Am.,
155 L.Ed.2d
N.
BMW of
of
was an abuse
discretion under
574-75,
Gore,
v.
Inc.
517 U.S.
law. I
reverse the district court’s
would
(1996).
Specifi
S.Ct.
Finally, skeptical I am of the constitu- an sessing damages whether award of is tionality the district award of of court’s grossly arbitrary, excessive courts ex in prejudgment interest excess of mil- $250 “guideposts” amine the set out three of compensatory approxi- lion on a award First, importantly, most courts Gore: mately million. This case raises due degree reprehensibility $330 assess “the process Gore, concerns because circum- defendant’s conduct.” 517 U.S. suggest prejudg- Second,
stances that the award we examine S.Ct. punish more to compensatory damages ment interest was intended the ratio of the compensate than to Id. punitive damages defendants award to the award. Third, plaintiffs punitive damages compare for time-value dis- we Indeed, or im penalties bursements involved in this case. award to “civil authorized None of recognized applying posed comparable the district court cases.” Id. rather, they probably dispositive; return these factors
an 8% annual “would be is are one deter higher” against than returns on the market over balanced another mining punitive an award of dam years judgment, noting the 30 before its whether ages treasury paying grossly that “a bill one is excessive. [was then] reasoning Campbell expressly guage Supreme
2. The Court Gore and has never suggest gov- process same standards held that the same due standards that the should damages ern a federal court’s award of articulated under the Fourteenth Amendment wrongful punishment con- applicable government are to the un- defendant’s federal Amendment, duct. der the Fifth but clear lan- ap that the same standard Assuming ostensibly com in a case where
plicable DONAVAN, Petitioner- R. Joshua punish remedies are used pensatory Appellant, compensate than to rather defendant this award skeptical I am
plaintiff, it is true process. While comports with due their sisters’ abuse of that the brothers’ America, UNITED STATES that the it is also true wrongful, trust was Respondent-Appellee. we diligence not exercise sisters did No. 16-1493 it came people when expect of reasonable after interests protecting Appeals, States Court United Betsy’s grievances with informed of Circuit. Seventh between the Griffy. The ratio Dennis punitive damages and the compensatory 5, 2016 December Submitted trou particularly in this case is damages million an award of On $830 blesome. February Decided nearly recovered plaintiffs
damages, *51 interest. prejudgment sum
the same previously has noted Supreme Court one, cases, involving ex like this awards, impo compensatory
tremely high damages at even a 1-to-l punitive
sition Donavan, Pro R. Se. constitutionally problematic. Joshua can be ratio 123 S.Ct. Campbell, 538 U.S. Mott, Attorney, Office of Linda J. weigh factor does not The final Gore States, NM, for Re- Albuquerque, United unconstitutionality as finding-of of a favor spondent-Appellee. imposition of civil permits law upof to double the de monetary penalty WOOD, Judge, P. Chief Before DIANE felony involving in a gain case
fendant’s KANNE, Judge, S. Circuit MICHAEL Ky. Rev. Stat. by deception. theft WILLIAMS, Circuit by deception), ANN CLAIRE (defining §§ theft 514.040 monetary fines in (setting default Judge 534.030 cases) (2017). factors
felony While these equipoise, the com appear largely to be ORDER judgment compared
parative size of interest prejudgment with the award pleaded guilty Donavan In 2011 Joshua the sisters’ failure exercise coupled with distributing conspiring to distribute me doubtful of diligence leave reasonable death, resulting in see oxycodone, constitutionality of the district court’s (b)(1)(C), 841(a)(1), though § U.S.C. interest. prejudgment award of that the death was toxicology report stated above, I re- the reasons articulated For and cocaine. Donavan by oxycodone caused dissent. spectfully motion under 28 U.S.C. filed an initial voluntarily year, but he
§ 2255 the next argued government it after the withdrew’ his collateral- Donavan had waived plea agreement. in his rights attack