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Winner Road Properties, LLC v. BMO Harris Bank, N.A.

United States District Court, E.D. Missouri, Eastern Division

June 3, 2019

WINNER ROAD PROPERTIES, LLC, Plaintiff/Counter-Defendant,
v.
BMO HARRIS BANK, N.A., Defendant/Counter-Claimant/Cross-Claimant
v.
JO ANN HOWARD & ASSOCIATES, P.C., Cross-Defendant

          MEMORANDUM AND ORDER

          CHARLES A. SHAW UNITED STATES DISTRICT JUDGE

         This matter is before the Court on Cross Defendant Jo Ann Howard & Associates, P.C.'s motion to abstain or, alternatively, motion to abate and motion for more definite statement. Plaintiff Winner Road Properties, LLC and defendant BMO Harris Bank, N.A., oppose the motion. The motion is fully briefed and ripe for review. For the following reasons, the motion is granted in part. The Court will abstain from this case and stay the matter until resolution of the concurrent receivership litigation in Texas state court.

         Background

         This case arises out of a fraud scheme perpetrated by the Cassity family. The Cassity family owned and operated National Prearranged Services, Inc. (“NPS”), which sold pre-need funeral contracts. The Cassity family also owned two Texas-based life insurance companies, Lincoln Memorial Life Insurance Company (“Lincoln”) and Memorial Service Life Insurance Company (“Memorial”).

         On June 13, 2016, plaintiff Winner Road Properties, LLC (“Winner Road”) filed this action in the Circuit Court of Jackson County, Missouri, against Defendant BMO Harris Bank, N.A. (“BMO”), seeking declaratory relief and restitution. BMO removed the case to the United States District Court for the Western District of Missouri on the basis of diversity jurisdiction. The case was transferred to this district on a motion for change of venue pursuant to 28 U.S.C. § 1404(a), based primarily on the fact that there has been ongoing, related litigation in this district, including Jo Ann Howard & Assocs., P.C. v. Cassity, 4:09-CV-1252 ERW (E.D. Mo. filed Aug. 6, 2009) (the “Jo Ann Howard Litigation”).

         The case at bar case arises from the aftermath of the criminal prosecution of the Cassity family and their scheme to defraud consumers through the sale of pre-need funeral contracts, and the misuse of those proceeds. At issue in this case are three trusts from the Mount Washington Cemetery in Kansas City, Missouri: the Third Amended and Restated Agreement for Mount Washington Cemetery Preneed Trust (the “Merchandise and Services Trust”); the Second Amended and Restated Agreement for Mount Washington Cemetery Endowed Care Trust (the “Endowed Care Trust”); and the Mount Washington Forever, LLC Custody Account (5012) (the “Special Care Trust”), together referred to as “the Mount Washington Trusts.”

         In its petition, Winner Road alleges that it obtained, via a judicial foreclosure, first priority lien rights against Mount Washington Forever, LLC's real and personal property, and thereby became the successor to the rights and certain obligations of Mount Washington Forever, LLC.[1] Thus, according to Winner Road, it is a beneficiary to the Mount Washington Trusts, for which defendant BMO is the trustee. Winner Road claims that as to the Mount Washington Trusts, BMO breached its fiduciary duties, failed to maintain effective operation of the trusts for their intended purposes, failed to ensure that the trust corpuses were maintained, and failed to pay out on contractual obligations. In its petition, Winner Road brings the following claims against BMO: Determination of Rights in and Representation for the Merchandise and Services Trust: Request for Restoration of Trust Assets and Other Relief (Count I); Determination of Rights in and Representation for the Endowed Care Trust and Request for Trust Administration Rulings (Count II); Determination of Rights in and Representation for the Special Care Trust and Request for Trust Administration Rulings (Count III); and Petition for Restitutionary Award Against Trustees for Breaching Trustee Duties Relating to the Mount Washington Trusts (Count IV). Winner Road seeks to recover alleged losses to the three trusts, requests trust administration rulings with regard to the trusts, and further requests that BMO be removed as trustee of the trusts.

         In response to plaintiff's petition, BMO filed a motion to dismiss. BMO argued Counts I and IV of the petition were barred by the doctrine of res judicata, because BMO had already litigated and settled the two claims in the Jo Ann Howard Litigation. BMO also argued that Counts I, III, and IV were time barred, and Count IV should be dismissed because it fails to state any duty BMO owed to Winner Road. The Court granted BMO's motion to dismiss with regard to Counts I and IV. Doc. 84.

         As background, in 2008 a Texas court in State of Texas v. Memorial Service Life Insurance Company, et al., No. D-1-GV-08-000945 (250th Dist. Ct., Travis Cnty, Tex. filed Sept. 12, 2008) (the “Texas Receivership Litigation”), entered an order approving a joint liquidation plan with respect to Lincoln, Memorial, and NPS. Doc. 91 at 35. That plan and underlying Texas statutes established the authority of the Special Deputy Receiver (“SDR”), Jo Ann Howard & Associates, P.C. (“Jo Ann Howard”), to collect monies and pay creditors as a result of the Cassity fraud scheme. Id. Under the liquidation plan, state guaranty associations, which had guaranteed payments under the insurance policies, were assigned claims by present or future recipients of benefits under the insurance policies in trust accounts, including the Merchandise and Services Trust. Doc. 51, Ex. H at 13-14.

         From the record, it appears to be undisputed that assets in the Merchandise and Services Trust from the sale of pre-need funeral contracts were substituted for life insurance policies issued by Lincoln, which is now insolvent. Doc. 151, Ex. 3 at 9. The Cassity family was allowed to withdraw trust funds for the purchase of Lincoln Memorial life insurance policies, which were then listed as non-cash assets of the trust. The SDR, as the receiver for Lincoln, continues to administer life insurance claims submitted under the Merchandise and Services Trust. Doc. 151, Ex. 9 at 1-2.

         The state guaranty associations and the SDR brought the Jo Ann Howard Litigation, a $600 million lawsuit, in this District Court against trustee bank defendants, including BMO and its predecessors. The SDR is the court-appointed representative to bring claims on behalf of funeral homes and consumers for losses under the trusts arising from alleged breaches of fiduciary duty by BMO. The Jo Ann Howard plaintiffs' claims for breach of fiduciary duty, negligence, and gross negligence by trustee banks were brought by “the individual state guaranty associations from Missouri . . . and the SDR on behalf of NPS, funeral homes, and consumers.” Doc. 84 at 10. The Jo Ann Howard Litigation explicitly included claims against bank trustees for losses to the Mount Washington Merchandise and Services Trust.

         The plaintiffs in the Jo Ann Howard Litigation and BMO reached a settlement agreement, and on December 16, 2014, they filed a stipulation of dismissal with prejudice in that case. In ruling on BMO's motion to dismiss, the undersigned found that the Jo Ann Howard Litigation dismissal was a final judgment on the merits, the SDR was in privity with Winner Road and Winner Road's interests were properly represented by the SDR, and both suits were based on the same claims and causes of actions. Doc. 84. The Court, therefore, found res judicata applied and dismissed Counts I and IV of Winner Road's petition. Count II, Determination of Rights in and Representation for the Endowed Care Trust and Request for Trust Administration Rulings, and Count III, Determination of Rights in and Representation for the Special Care Trust and Request for Trust Administration Rulings, remain in this suit.

         BMO answered the petition and filed a counterclaim against Winner Road. In its counterclaim, BMO admits that it is trustee for the Mount Washington Trusts but asks, pursuant to Mo. Rev. Stat. § 456.2-202, that the Court approve BMO's accounts, remove BMO as a trustee, and approve the appointment of a successor trustee for the three Mount Washington Trusts. BMO also asks that the Court resolve whether Winner Road is the only beneficiary of three Mount Washington Trusts, and whether BMO must release the trusts from any purported freeze by virtue of ongoing litigation in the Texas Receivership Litigation.

         According to BMO, representatives of the SDR have instructed BMO's representatives that the liquidation order in the Texas Receivership Litigation operates as a freeze on all accounts associated with the Mount Washington Cemetery, because they are potential property of the estates of the three Cassity-owned businesses. Doc. 98 at 4-5. BMO complied with the SDR's instructions and froze the Mount Washington Trusts. Despite Winner Road's repeated requests, BMO has not allowed withdrawals from or deposits to any of the trust accounts.

         On May 31, 2018, defendant BMO moved for leave to join Jo Ann Howard & Associates, P.C. as a necessary party and cross defendant. BMO maintains that the dispute between BMO and Winner Road cannot be resolved without the involvement of the SDR.[2] BMO's motion, which was unopposed, was granted, and BMO filed an Amended Counterclaim and Cross-claim. BMO alleges in its pleadings that “[a]s a result of the litigation concerning the three trusts at issue, their administration has become the subject of substantial controversy between BMO and Winner Road, and between Winner Road and the SDR. Moreover, BMO cannot accede to Winner Road's demands without a substantial controversy and dispute with, and potentially liability to, the SDR.” Doc. 116 at 12. BMO further alleges that it “hopes to obtain from this Court relief that will fully discharge and terminate BMO's responsibility with respect to the trusts at issue, and order their transition to a successor trustee, ” and that it is petitioning the Court “for instructions for the administration of the trusts.” Id. BMO brings the following claims against Winner Road and the SDR: Petition for Approval of Accounts, Removal, or Instructions for the Administration of the Mount Washington Preneed Trust (Count I); Petition for Approval of Accounts, Removal, or Instructions for the Administration of the Mount Washington Endowed Care Trust (Count II); and Petition for Approval of Accounts, Removal, or Instructions for the Administration of the Mount Washington “Special Care Trust” Custody Account (Count III). BMO also brings a claim for attorneys' fees pursuant to Mo. Rev. Stat. § 456.10-1004 against Winner Road.

         Winner Road filed an answer to BMO's counterclaim. The SDR entered an appearance and filed a motion to abstain or, in the alternative, motion to abate and motion for more definite statement, which is the motion at bar. The SDR argues that BMO is seeking relief from an order entered in the Texas Receivership Litigation. The SDR points out that it is the appointed receiver of insurance entities that are subject to delinquency proceedings in the Texas Receivership Litigation. The SDR argues that Texas has established a complex regulatory scheme for the liquidation of insolvent insurance entities, and the resolution of this case requires specialized knowledge and the application of complicated state law and, therefore, the Court should abstain pursuant to Burford v. Sun Oil Company, 319 U.S. 315 (1943). Alternatively, the SDR argues that this case should be abated because BMO failed to seek relief from the automatic stay that is in place in the Texas Receivership Litigation. Finally, in the event the Court denied the motions to abstain or abate, the SDR moves that the Court order BMO to provide a more definite statement of its claims and the relief it seeks.

         Discussion

         The SDR moves that the Court abstain from hearing this case under the discretionary abstention doctrine first articulated in Burford, 319 U.S. 315. The Burford doctrine arose in a case challenging the Texas Railroad Commission's decision to grant the defendant, G.E. Burford, drilling rights on a plot of land on the East Texas Oil Field. Id. at 317. Plaintiff, Sun Oil Company, sued the defendant in federal court asserting a constitutional due process claim, as well as state law claims. Id. Under Texas law at the time, the Texas Railroad Commission was charged with administering oil and gas regulations, which including the spacing of oil wells and the amount of production. Id. at 320. The endeavor was complicated and required a comprehensive scheme, because oil wells tap into a common reservoir under the surface and can drain oil located miles away under property owned by other entities. Id. at 319. Because there was a significant amount of litigation concerning oil wells, Texas had developed a special, exclusive system of judicial review for such cases. Id. at 325. The Supreme Court found Texas state courts' review of commission decisions to be “expeditious and adequate, ” id. at 327, and because federal court ...


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