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Doermer v. Oxford Financial Group, Ltd.

United States Court of Appeals, Seventh Circuit

March 7, 2018

Richard D. Doermer, Plaintiff-Appellant,
Oxford Financial Group, LTD., Defendant-Appellee.

          Argued November 29, 2017

         Appeal from the United States District Court for the Northern District of Illinois, Eastern Division. No. 16 CV 8248 Manish S. Shah, Judge.

          Before Wood, Chief Judge, and Kanne, Circuit Judge. [1]

          WOOD, Chief Judge.

         Family disputes over who owns what are depressingly common-indeed, they are the stuff of the legal practice of many an estate lawyer. Richard Doermer and his sister, Kathryn Doermer Call en, are living examples of this phenomenon. The two siblings have spent the better part of the past decade embroiled in legal disputes about how to manage their family's fortune. A little over a year ago, Richard and Kathryn appeared before this court after Richard sued his sister and his nephew on behalf of a family nonprofit foundation over which Richard sought greater control. Doermer v. Callen, 847 F.3d 522 (7th Cir. 2017). We affirmed the district court's dismissal of that action because Richard lacked capacity to bring a derivative action under Indiana law.

         Now Richard has returned. This time his suit is about the family trust, not the family foundation. And rather than suing his sister directly, Richard has targeted his sister's financial advisor, Oxford Financial Group. He alleges that Oxford gave Kathryn negligent advice, which caused her to mismanage the trust. Richard further seeks to compel Kathryn to join the suit challenging her own financial decisions, by purporting to name her an "involuntary plaintiff" in the matter.

         We need not wade into the dispute over the soundness of Oxford's financial advice or Kathryn's ultimate trust-management decisions, because Richard, once again, lacks capacity to pursue this suit under state law and thus fails to state a claim on which relief can be granted.


         Richard, who is a citizen of Illinois, and Kathryn, who is a citizen of Indiana, are the only children of Richard T. and Mary Louise Doermer. They are also the beneficiaries of a multi-million dollar trust that their now-deceased parents established for their children and grandchildren. The trust has three trustees: Richard, Kathryn, and a corporate trustee (currently Bankers Trust). When their father passed away in 2010, Richard and Kathryn fell into "irreconcilable" disputes about how to manage the trust and invest its assets. About a year later, Kathryn hired Oxford, an Indiana corporation, to advise her about how to handle the trust and resolve the feud with her brother. The trust paid Oxford's fees.

         In March 2012, Oxford advised Kathryn that the best solution to her dispute with her brother was to divide the trust in two, creating one trust for Kathryn and her children, and another for Richard and his. Richard eagerly accepted this proposal. As part of the proposal, Kathryn and Richard agreed to move the situs of the trust from Indiana to South Dakota, presumably to take advantage of South Dakota's more favorable laws.

         The siblings spent the next several months haggling over the finer details of asset division. Ultimately, they could not agree on the terms of a petition to divide the trust. When Kathryn refused to sign Richard's proposed agreement in the fall of 2012, he petitioned a South Dakota state court to order that the trust be split in half. The court did not grant his request, and the trust remains intact to this day.

         Richard complains that he has "suffered great losses from disbursements and benefits that he and his family lineage would have been entitled to receive" had he been allowed to pursue his high-risk, high-reward investment strategy in 2012. Richard alleges that the reason his sister refused to sign the trust-division agreement is because she received negligent advice from Oxford. If Oxford had not given Kathryn poor financial advice, he asserts, she would have accepted his proposed agreement and, as a result, the trust (or, rather, Richard's half of the trust) would have earned an additional $2 million in "reasonable investment opportunities during a Bull Market."

         In July 2016, Richard sued Oxford in Illinois state court on behalf of the trust; he alleged that he was suing in his capacity as both a beneficiary of the trust and a co-trustee. His complaint sets forth two counts: (1) "breach of fiduciary duty and negligence/' and (2) "gross negligence and wilful [sic] and wanton misconduct." The complaint identifies Kathryn as an "involuntary plaintiff." Aside from sending Kathryn a letter, in which a copy of the complaint and a request that she join as a plaintiff was enclosed, however, Richard took no steps to bring her into the litigation. Oxford was properly served.

         Oxford removed the case to federal court on the basis of diversity jurisdiction and then promptly moved to dismiss Richard's complaint under Federal Rule of Civil Procedure 12(b)(1). It argued that Richard lacks capacity to bring suit on behalf of the trust under state law. The district court handled Oxford's motion to dismiss under Rule 12(b)(6) rather than 12(b)(1), correctly explaining that capacity problems implicate a plaintiff's ability to state a claim, not the district court's subject-matter jurisdiction. Korte v. Sebelius,735 F.3d 654, 668 (7th Cir. 2013); see also Meyers v. Oneida Tribe of Indians of ...

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