United States District Court, W.D. Kentucky, Louisville Division
CHARLES G. MIDDLETON III, Plaintiff,
PNC BANK, N.A., Defendant.
BOOM, DISTRICT JUDGE
matter is before the Court on motion of the Defendant, PNC
Bank, N.A. (“PNC”), to dismiss plaintiff's
Complaint in its entirety for failure to state a claim
pursuant to Fed. R. Civ. P 12(b)(6). For the reasons stated
herein, the Court will GRANT defendant's
basis of this action begins in 1933, with the execution of
two trusts by Lawrence L. Jones, Sr. [R. 1-6, at pp. 2 - 3]
The first trust was executed to benefit Lawrence L. Jones,
Sr.'s three daughters and their progeny and has come to
be known as the “Daughters' Trust” (or
“Trust”). Id. at p. 2. This Trust
remains intact today. The second trust, which is not at issue
in this litigation, was executed to benefit Lawrence L.
Jones, Sr.'s son, Lawrence L. Jones, Jr., and his
progeny, which includes the plaintiff, Charles G. Middleton,
more than eighty years, issues surrounding the Daughters'
Trust have generated much litigation, culminating in the
Complaint filed by Middleton in this action in December of
2017. An overview of prior litigation related to this case is
essential to the disposition of the motion before the
History of Prior Litigation
2004, during PNC's trusteeship of the Daughters'
Trust, PNC filed a declaratory judgment action (“2004
Declaratory Judgment Action”) in Jefferson Circuit
Court in Jefferson County, Kentucky (PNC Bank, N.A. v.
Helen Hickman Wickes, No. 04-CI-002325). That action
sought to determine whether the descendants of Lawrence L.
Jones, Jr. were included in the class of remainder
beneficiaries to the Daughters' Trust. The action
included the plaintiff as a party defendant. [R. 1-6, at p.
three years later, in 2007, the plaintiff and Lawrence J.
Middleton (together, “the Middletons”), both
descendants of Lawrence L. Jones, Jr., filed an unrelated
lawsuit in Jefferson Circuit Court against PNC (Charles
G. Middleton III and Lawrence J. Middleton v. PNC Bank, N.A.,
in its individual capacity for its actions as Trustee under
the Lawrence L. Jones, Sr. Trust dated December 20,
1933, No. 07-CI-10053). The complaint alleged that PNC
breached its fiduciary duties in its administration of the
Daughters' Trust. [R. 1-6, at p. 2] Throughout this
Opinion, this action will be referred to as the “2007
2004 Declaratory Judgment Action was eventually settled in
2007 pursuant to the terms of a settlement agreement
(“Settlement Agreement”). [R. 1-1] As part of the
Settlement Agreement, the descendants of the Daughters'
Trust paid a sum of money to the descendants of Lawrence L.
Jones, Jr., which include the Middletons. In return, the
Middletons gave up their rights as potential remainder
beneficiaries in the Daughters' Trust. [R. 1-6, at p. 3]
The following provision was included in the Settlement
Charles G. Middleton, III and Lawrence J. Middleton hereby
covenant and agree to hold harmless and indemnify the
Daughters' Descendants, the Daughters' Trust and the
Daughters' Trust under Will and the Joneses from any and
all claims, causes of action, demands or suits of any kind
arising directly or indirectly from any damages and/or claims
asserted in [the 2007 Middleton Action], including but not
limited to, any claims for attorneys' fees and costs and
any claims by other Defendants in [the 2007 Middleton
1-1, at ¶ 17] The Settlement Agreement was approved by
court order in January 2008. [R. 1-6, at p. 4]
giving up any potential interest as remainder beneficiaries
in the Daughters' Trust, the Middletons were permitted to
continue prosecuting the 2007 Middleton Action. The
Middletons filed a motion to disqualify PNC's attorneys,
arguing that PNC was not being sued in its capacity as
trustee of the Daughters' Trust, but in its individual
capacity. Id. The Middletons also argued that
PNC's use of Trust funds to defend the 2007 Middleton
Action created a disqualifying conflict of interest.
Id. The Jefferson Circuit Court rejected this
argument and found that the PNC attorneys were representing
PNC as trustee. Id. The court likewise found that
PNC, as trustee of the Trust, had the authority to pay its
counsel with Trust funds. Id. Further, the Jefferson
Circuit Court found that “pursuant to the Settlement
Agreement, the Middletons will be required to refund to the
Trust the attorneys' fees expended in PNC's defense,
in the event that PNC prevails in the case at bar.”
Id. at p. 5.
during the ongoing litigation of the 2007 Middleton Action
against PNC, PNC was removed as trustee of the Daughters'
Trust. Pursuant to an amended order entered in March of 2012
in the Probate Division of Jefferson District Court, the
motion to appoint Commonwealth Bank & Trust
(“CB&T”) as successor trustee was granted.
[R. 1-2, R. 1-6, at p. 5, n. 3] PNC was ordered to transfer
the Daughters' Trust assets to CB&T. However, PNC
also was ordered to “retain $1.325 million from the
Trust in an interest-bearing money market account.”
Id. Of that amount, $75, 000 would be
“available to pay for expenses incurred by PNC in
transferring the Trust to [CB&T].” The other $1.25
million was to be “available for PNC to pay costs and
attorneys' fees incurred by PNC in [the 2007 Middleton
Action], subject to review and further Order by the Circuit
Court. . .” Id.
December 2012, following significant briefing (“at
least fifteen separate memoranda and oral argument”),
the Jefferson Circuit Court granted summary judgment in favor
of PNC and dismissed all of the Middletons' claims in the
2007 Middleton Action. [R. 1-6, at p. 5] PNC subsequently
filed a motion to alter or amend to join CB&T as a party
in the action. PNC also sought clarification and guidance
from the Court on the Middletons' indemnity obligations,
pursuant to the Settlement Agreement, after the final
disposition of any appeals in the 2007 Middleton Action.
Id. at pp. 5 - 6.
March 2013, the Jefferson Circuit Court declined to join
CB&T as a party to the 2007 Middleton Action, but did
find against the Middletons. The Jefferson Circuit Court
Since this Court found against the Middletons, PNC has
prevailed in this action… As such, pursuant to the
settlement agreement, the Middletons will have to reimburse
the Daughters' Trust for all attorneys' fees,
expenses and costs paid on behalf of PNC in defending this
lawsuit. That obligation will certainly follow the final
disposition of any appeals.
1-6, at p. 6] The court also outlined the procedure for
enforcing the Middletons' indemnity obligation: the
trustee was to send a letter to the Middletons requesting the
payment of attorneys' fees. Id. If the
Middletons did not pay the fees in response to the letter,
the trustee was to institute a suit to recover the fees. The
Court held that “any request by [CB&T] to reimburse
the Daughters' Trust and resulting action in the event
that the Middletons do not pay would be separate and apart
from the action before this Court.” Id.
Middletons appealed the Jefferson Circuit Court's grant
of summary judgment against them in the 2007 Middleton
Action,  which was affirmed by the Kentucky Court
of Appeals in October of 2014. Id. at p. 7. The
Middletons then filed a motion for discretionary review ...