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Duncan v. O'Shea

United States District Court, D. Maine

March 22, 2019

ALEXYS GRACE O'SHEA DUNCAN, Individually and as a Beneficiary of the Will and Trusts of John J.C. O'Shea Jr., Plaintiff,
v.
KATHLEEN M. O'SHEA, Individually and as Co-Executor of the Estate of Rita O'Shea, Co-Trustee of the Will and Trusts of John J.C. O'Shea Jr., et al., Defendants.

          ORDER ON THE INDIVIDUAL DEFENDANTS' MOTION TO DISMISS AND THE PLAINTIFF'S ORAL MOTION TO AMEND COMPLAINT

          JON D. LEVY CHIEF U.S. DISTRICT JUDGE

         The Plaintiff, Alexys Grace O'Shea Duncan (“Alexys”), brings this action alleging breaches of fiduciary duties, fraud, and conversion, among other claims, related to the management of two trusts created by her grandfather's estate plan. The individual defendants, John J.C. O'Shea III, Kathleen M. O'Shea, and Brian C. O'Shea, are co-trustees of the trusts, along with their sister and Alexys' mother, Kelley O'Shea, who is not a party to this case. John, Kathleen, and Brian move to dismiss (ECF No. 20) Alexys' Second Amended Complaint for failure to join necessary parties under Federal Rules of Civil Procedure 19 and 12(b)(7), for lack of subject-matter jurisdiction under Rule 12(b)(1), and for improper venue under Rule 12(b)(3).[1]

         I. BACKGROUND

         The Second Amended Complaint alleges the following facts, which I treat as true for purposes of the motion to dismiss.

         John J.C. O'Shea, Jr. (“John Jr.”) and his wife Rita O'Shea (“Rita”), both of whom are deceased, had four children: John J.C. O'Shea III (“John III”), Kelley A. O'Shea (“Kelley”), Kathleen M. O'Shea (“Kathleen”), and Brian C. O'Shea (“Brian”). The Plaintiff, Alexys, is Kelley's daughter and, therefore, John Jr. and Rita's granddaughter. John Jr. passed away in 1996 and his will was probated in Lubbock County, Texas. The will created two trusts: the O'Shea Family Trust and the O'Shea Marital Trust. Rita inherited half of John Jr.'s community property under Texas probate law, and the other half was apportioned between the two trusts. Rita was the executor of John Jr.'s estate, the trustee of the two trusts, and the primary beneficiary of the two trusts during her lifetime.

         Under the trusts' terms as established in John Jr.'s will, Rita, as the primary beneficiary, was entitled to distributions of trust income and principal to maintain her standard of living. As trustee, Rita also had the discretion to make distributions to John Jr.'s descendants[2] from the income and principal of the Family Trust to provide for their support.

         A. The First Texas Lawsuit

         In 2008, Kelley came to believe that her mother, Rita, was misusing funds derived from the sale of trust assets by keeping all of the funds for herself instead of placing one-half of the proceeds in the trusts, as Kelley believed was required by the terms of the two trusts. Kelley filed suit against Rita in Texas District Court for Lubbock County in 2009 for breach of fiduciary duties, fraud, and conversion of trust assets. Defendant Field, Manning, Stone, Hawthorne & Aycock, P.C. (“Field Manning”) represented Rita in the suit. Kelley won a partial judgment in February 2011, in which the court ordered Rita to repay approximately $250, 000 to the Marital and Family Trusts. Alexys, Kelley's daughter, was not a party to the 2009 lawsuit and was a minor during the entirety of the litigation.

         B. The Creation of Killybegs, LLC and Rita O'Shea's Death

          After John Jr.'s death, Rita and the Family Trust jointly owned a vacation house in Kennebunkport (“the Maine Property”). In March of 2009, Rita, individually and as Trustee of the Family Trust, conveyed the Maine Property to a Texas limited liability company, Killybegs, LLC, in consideration for a membership interest in the LLC. The current members of Killybegs, LLC are John III, Kelley, Kathleen, and Brian. Field Manning prepared the warranty deed that transferred the Maine Property to Killybegs, LLC, and it mailed the deed to be recorded in Maine. The Second Amended Complaint alleges that Rita formed Killybegs, LLC to protect the Maine Property from any potential future judgment that might be entered against her, that Killybegs, LLC is a “fake” LLC, and that its Company Agreement allows self-dealing and wrongful enrichment at the expense of the Family and Marital Trusts' beneficiaries. It also alleges that Killybegs, LLC failed to maintain proper financial records throughout its existence, that Rita comingled her personal finances with the Maine Property's finances, and that Rita used trust funds to make improvements to the Maine Property.

         Rita passed away in November 2013. John Jr.'s will instructed that upon Rita's death, the remaining assets in both the Family and Martial Trusts were to be divided into separate “Descendants' Trusts” to provide support for John Jr.'s descendants during his children's lifetimes. Under the terms of John Jr.'s will, any remaining assets in the Descendants' Trusts at the time of his childrens' deaths will vest in John Jr.'s grandchildren. Following Rita's death, John III, Kathleen, Brian, and Kelley became the co-trustees of the Marital and Family Trusts. Those trusts have not yet terminated, and the Descendants' Trusts have not yet been created, due to the various litigation that has enveloped the family.

         C. Kelley O'Shea's Complaint in Maine Superior Court

         In 2014, Kelley brought suit against John III, Kathleen, Brian, and Killybegs, LLC, in York County Superior Court asserting claims similar to almost all of those alleged in this action. See O'Shea v. O'Shea, No. CV-14-157, 2018 WL 2291084, at *3 (Me. Super. Apr. 4, 2018).[3] In April 2018, the court ruled on multiple motions filed by the parties, including cross-motions for summary judgment. Id. at *12-13. The court's order narrowed several of Kelley's claims, but no party prevailed at the summary judgment stage. Id. *6-12. The case is still pending in York County Superior Court, with a trial expected to take place sometime in 2019.

         D. Alexys Grace O'Shea Duncan's Complaint in Texas District Court for Lubbock County

         Sometime after Kelley's 2009 Texas lawsuit concluded, Alexys discovered that Rita had made several transfers of trust funds to her own bank accounts in Maine and Texas, and to Killybegs, LLC, Field Manning, and John III, Kathleen, and Brian, all of which, she alleges, violated the terms of the two O'Shea trusts. In total, Rita is alleged to have unlawfully transferred trust assets valued at almost three million dollars to herself and the defendants from 1996 to her death in November 2013. This sum includes the transfer of the Maine Property to Killybegs LLC, the transfer of a residence in Lubbock, Texas to Kathleen, and insurance payments, stock and cash transfers, and loans made for or to Killybegs, LLC, Brehon LC, [4] Field Manning, and the individual defendants.

         In 2016, Alexys brought suit in Texas District Court for Lubbock County against John III, Kathleen, Brian, Brehon LC, and Field Manning, for breaches of fiduciary duty, fraud, conversion, and other claims. In response to Alexys' Motion to Compel Trust and Estate Accounting, the court issued an order (“the Accounting Order”) granting Alexys' request for an accounting, but concluding that the earliest Alexys was entitled to an accounting of either the Family Trust or the Marital Trust was December 15, 2010, the date the trial in Kelley's first Texas lawsuit began. ECF No. 24-9 at 2. The court determined that, under the Texas Trust Code, Alexys was bound by the 2011 judgment issued in Kelley's case because “Kelley and [Alexys] had no conflict of interest at the time of that trial[.]” Id. About two months after the Accounting Order issued, Alexys voluntarily dismissed the action without prejudice. The Second Amended Complaint alleges that the Accounting Order violated Alexys' constitutional rights and seeks a declaratory judgment from this Court that “the laws of the State of Texas as interpreted by the Lubbock District Court, State of Texas, violated her rights under the 14th Amendment of the Constitution of the United States of America and that she retains her rights to claims against these defendants[.]” ECF No. 11 at 27.

         E. The Instant Case

         Alexys initiated this action in December 2017. She then amended her complaint twice; the first amendment removed Killybegs, LLC, as a defendant. See ECF No. 6 at 2; compare ECF No. 1 at 1, with ECF No. 7 at 1. The Second Amended Complaint asserts that this Court has both diversity and federal question jurisdiction. With respect to diversity jurisdiction, the Second Amended Complaint, which seeks more than $500, 000 in damages, alleges that Alexys is a resident of Florida, and that of the individual defendants, John III and Kathleen are residents of Texas, and Brian is a resident of California. Field Manning, the law firm defendant, is a professional corporation organized under the laws of Texas. See 28 U.S.C.A. § 1332 (West 2019). The Second Amended Complaint also asserts that federal question jurisdiction exists over Alexys' claim that the Texas Accounting Order violated her 14th Amendment rights. See 28 U.S.C.A. § 1331 (West 2019).

         The individual defendants-John III, Kathleen, and Brian-move to dismiss the Second Amended Complaint (ECF No. 20). The law firm defendant-Field Manning-has filed its own motion to dismiss (ECF No. 21), which I address in a separate order. In the course of briefing and arguing the individual defendants' motion, Alexys requested to amend her Second Amended Complaint, although she has not filed a formal motion to this effect. In her Memorandum in Opposition to the Individual Defendants' Motion to Dismiss (ECF No. 24), Alexys stated that after reviewing the motion she “realized that since she is not a member of Killybegs, LLC, its Managers/Directors do not owe her any duty simply as a beneficiary of the O'Shea Family Trust.” ECF No. 24 at 9. Therefore, she expressed her intent to voluntarily dismiss Count Two against John III, Kathleen, Brian, and the Estate of Rita O'Shea for breach of fiduciary duty as managers and directors of Killybegs, LLC. Id. at 9-10. During oral argument, Alexys' counsel reiterated her intent to dismiss Count Two and asked for leave to amend more broadly to correct any inconsistencies between the Second Amended Complaint and representations that her counsel made during oral argument regarding the relief sought as to the Maine Property owned by Killybegs, LLC:

I would agree with . . . the defendants . . . that there are places where the complaint contradicts with what we said here today, and as part of our response we've asked the Court's permission for leave to amend to correct the inconsistencies between what we've said here and what we've said in our response versus what is within the complaint itself to fix the issues that are apparent. Number one, we ...

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