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Middleton v. PNC Bank, N.A.

United States District Court, W.D. Kentucky, Louisville Division

November 13, 2018

CHARLES G. MIDDLETON III, Plaintiff,
v.
PNC BANK, N.A., Defendant.

          MEMORANDUM OPINION

          CLARIA BOOM, DISTRICT JUDGE

         This 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 motion.

         I. BACKGROUND

         The 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, III (“Middleton”).

         For 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 Court.[1]

         A. History of Prior Litigation

         In 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.[2] 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. 2]

         Approximately 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 Middleton Action.”

         The 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 Agreement:

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 Action].

         [R. 1-1, at ¶ 17] The Settlement Agreement was approved by court order in January 2008. [R. 1-6, at p. 4]

         Despite 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.

         Meanwhile, 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.

         In 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.

         In 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 concluded:

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.

         [R. 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.

         The Middletons appealed the Jefferson Circuit Court's grant of summary judgment against them in the 2007 Middleton Action, [3] 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 ...


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