United States District Court, S.D. Indiana, Indianapolis Division
RECTOR, WARDENS, AND VESTRYMEN OF CHRIST CHURCH CATHEDRAL OF INDIANAPOLIS, Plaintiffs,
JPMORGAN CHASE AND COMPANY, et al. Defendants.
ORDER ON DEFENDANTS' MOTION TO DISMISS
LARRY J. McKINNEY, District Judge.
Defendants JPMorgan Chase and Company ("Parent") and JPMorgan Chase Bank, N.A. ("Chase") (collectively, "Defendants") have moved to dismiss Count I, which alleges constructive fraud, and Count III, which alleges violation of the Indiana Securities Act ("ISA"), of Plaintiffs Rector, Wardens, and Vestrymen of Christ Church Cathedral of Indianapolis's (the "Church's") Complaint on the merits; Parent has moved to dismiss all Counts against it. Dkt. No. 15. For the reasons stated herein, Defendants' Motion to Dismiss is GRANTED, with prejudice in part and without prejudice in part.
I. MOTION TO DISMISS STANDARD
Under the Supreme Court's directive in Bell Atlantic Corp. v. Twombly, 550 U.S. 544 (2007), to survive Defendant's motion for failure to state a claim upon which relief may be granted, the Church must provide the grounds for its entitlement to relief with more than labels, conclusions or a formulaic recitation of the elements of a cause of action. Id. at 555 (citing Papasan v. Allain, 478 U.S. 265, 286 (1986)). The Court assumes that all the allegations in the Complaint are true, but the "allegations must be enough to raise a right to relief above the speculative level." Id. The touchstone is whether the Complaint gives Defendants "fair notice of what the... claim is and the grounds upon which it rests." Id. (quoting Conley v. Gibson, 355 U.S. 41, 47 (1957)). Legal conclusions or conclusory allegations are insufficient to state a claim for relief. McCauley v. City of Chicago, 671 F.3d 611, 617 (7th Cir. 2011). The Court may also consider documents attached to the Complaint and documents referenced in the Complaint, as well as take judicial notice of publicly available documents to decide the motion. See Williamson v. Curran, 714 F.3d 432, 436 (7th Cir. 2013).
Both Counts I and III allege fraud; therefore, they are subject to the heightened pleading standard of Rule 9(b) of the Federal Rules of Civil Procedure ("Rule 9(b)"). Schleicher v. Wendt, 529 F.Supp.2d 959, 961 (S.D. Ind. 2007). Rule 9(b) states: "In alleging fraud or mistake, a party must state with particularity the circumstances constituting fraud or mistake. Malice, intent, knowledge, and other conditions of a person's mind may be alleged generally." To allege fraud with particularity, the Church must allege "the who, what, when, where, and how: the first paragraph of any newspaper story." United States v. Lockheed-Martin Corp., 328 F.3d 374, 376 (7th Cir. 2003) (citation omitted).
II. FACTUAL ALLEGATIONS
The factual allegations in the Complaint follow.
In his Last Will and Testament, Eli Lilly created three trusts for the principle benefit of the Church. Compl. ¶¶ 34-35. The three original trustees were Merchants National Bank & Trust company of Indianapolis, Indiana National Bank, and American Fletcher National Bank and Trust Company. Id. ¶ 35; Dkt. No. 1-1, Last Will & Testament of Eli Lilly ("Lilly Will"), at 10. At the time the Trusts were created, banks had separate trust departments that were conservative and were required to adhere to very strict guidelines for management of a trust. Compl. ¶¶ 38-39. The Lilly Will directed each trustee to invest and reinvest property and to regularly distribute income to the church for the purpose of allowing the Church to carry out its religious, charitable and educational purposes. Dkt. No. 1-1, Lilly Will at 11.
The Lilly Will further provided:
The Trustee shall at all times have the right to... deal with any and all of the securities and other property, personal or real, with the same freedom that an absolute owner of such securities or property would have, all without any authorizing or confirming order or orders of court or notice or other formalities and without the consent of the beneficiary of the trust and notwithstanding any provisions of the laws or regulations of any state or of the United States of America, statutory or otherwise, in that respect.
Id. Item IX, Clause 5(d), at 12. And, the Lilly Will provided:
The Trustee is specifically authorized to hold and retain and to invest and reinvest the property of the trust in such securities, including the stock of the Trustee Bank, or the stock of any other corporation owning the stock of said Bank, or other real or personal property, including common and preferred stocks and investment trusts, as the Trustee shall determine, without the consent of any beneficiary and without any authorizing order of court, notwithstanding any regulation, statutory or otherwise, respecting legal investments of trust funds.
Id., Item IX, Clause 5(c), at 12. The Church understood "that it had no legal right or authority to make investment decisions on behalf of the Trusts, and it could not terminate [a] trusteeship." Compl. ¶ 82.
Moreover, the Lilly Will stated that "the Trustee shall not be liable for any losses which may be sustained or shrinkages in value which may occur in the administration of the trust except in the event of a willful breach of trust." Id., Item IX, Clause 5(a) at 12.
Through a series of mergers, by July 1999, Bank One Trust Company N.A. ("Bank One") had become Trustee of two of the Trusts, which are the Trusts at issue herein. Dkt. No. 1-2, Order Granting Joint Petition for Instruction as to Construction of Trust Instrument ("Trust Order"), at 1. Although as originally written the Trusts provided for distributions only of income to the Church, in July 1999, the Marion County Probate Court modified the Trusts to permit the Church to receive distributions of "realized and unrealized net appreciation in value of the Trusts' assets, as well as from income." Dkt. No. 1-2, Trust Order at 2. In accordance with the Trust Order, the Church became entitled to receive annual distributions equal to 5% of the aggregate value of the Trusts' assets. Id. The amount increased to 6% in years in which the Standard & Poor's 500 Index or the Consumer Price Index for All Urban Consumers showed that the economy had underperformed. Id. at 3.
Although the Church had no investment decision making authority, it monitored the Trusts' assets closely and constantly. The Church's Investment Committee reviewed the Trusts' asset allocations and performance. Compl. ¶ 71. The Church assessed the Trusts' performance in comparison to what the Church considered appropriate benchmarks. Id. The Church also employed "independent experts and consultants" in addition to its Investment Committee to "advise [it] on the investments." Id. ¶¶ 74-76, 97.
In July 2004, Chase became the successor trustee of the Trusts when it merged with Bank One. Compl. ¶ 77. During the period between July 2004 and late 2007, Chase made very few changes to the investment portfolio of the Trusts, ...