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Helton v. Fifth Third Bank

Court of Appeals of Ohio, First District, Hamilton

December 18, 2019

FIFTH THIRD BANK, Defendant-Appellee.

          Appeal From: Hamilton County No. 2015-003814 Court of Common Pleas, Probate Division.

          Schlicter Bogard & Denton, Jerome J. Schlicter, Nelson G. Wolff and Andrew D. Schlicter, and Christopher R. Heekin Co. LLC and Christopher R. Heekin, for Plaintiffs-Appellants,

          Vorys, Sater, Seymour and Pease LLP, Victor A. Walton, Jr., Nathaniel Lampley, Jr., Jacob D. Mahle, James B. Lind and Jessica K. Baverman, for Defendant-Appellee.


          Myers, Judge.

         {¶1} Plaintiffs-appellants Helen Clarke Helton, Catherine T. Clarke, James W. Clarke, Mary Zigo, and Bridget Murphy, (collectively referred to as "the Clarke siblings") appeal from the trial court's order granting summary judgment to defendant-appellee Fifth Third Bank on their complaint asserting various claims regarding Fifth Third's management of two trusts of which they are beneficiaries.

         {¶2} Because the trial court correctly determined that the Clarke siblings' claim for breach of the duty to diversify was barred by the applicable statute of limitations, and that their claims for breach of the duty of impartiality and breach of trust/fiduciary duty were in essence additional claims for breach of the duty to diversify that were filed outside of the limitations period, we affirm its grant of summary judgment on those claims. But because the Clarke siblings' claim for unjust enrichment was supported by different allegations of misconduct than those supporting the claim for breach of the duty to diversify, we find that the trial court erred in determining that it stemmed from the alleged breach of the duty to diversify, and we reverse the trial court's grant of summary judgment on that claim.

         Factual and Procedural Background

         {¶3} The Clarke siblings are current income beneficiaries of two trusts established by their great uncle William C. Sherman. In 1939, Sherman created an irrevocable inter vivos trust. As relevant to this appeal, the income beneficiaries of this trust were his niece Helen Hook Clarke (the Clarke siblings' mother) and her descendants, and Sherman's brother, John Q. Sherman ("JQS"), and his descendants. While their mother was alive, the Clarke siblings were remainder beneficiaries of this trust, but they became income beneficiaries when their mother passed away in 2015.

         {¶4} Sherman also established a testamentary trust for the benefit of his sister Helen Sherman Hook and her descendants, who were Helen Hook Clarke (her daughter) and the Clarke siblings. As with the inter vivos trust, the Clarke siblings were remainder beneficiaries of this trust until their mother passed away in 2015, at which time they became income beneficiaries.

         {¶5} Fifth Third was named in the trust documents as a successor trustee for both trusts, and in 1980, it became the sole trustee. Both the inter vivos trust and the testamentary trust granted the trustee broad discretion over the trusts' investments and provided that the trustee had discretion "to retain and continue to hold as a part of the Trust Estate any property or investment owned by [Sherman] at the date of [his] death without liability for depreciation or loss occasioned by doing so."

         {¶6} Sherman funded the trusts with shares from Standard Register, a paper company that he had founded with JQS. Pursuant to Standard Register's corporate documents, shares in the company owned by the trusts or family members of the Sherman and Clarke families had "super-voting" rights, which granted them five votes per share. But if the shares were sold to the general public, they were converted to common stock, possessing only one vote per share. With these super-voting rights, the two trusts established by Sherman controlled approximately 33 percent of the voting power of Standard Register. A separate trust established by JQS for the benefit of his descendants, (the "JQS trust"), also had super-voting rights and controlled approximately 40 percent of Standard Register's voting power. This percentage of voting power gave both the Sherman trusts and the JQS trust "negative control" over the company and allowed them to block certain actions taken by the company.

         {¶7} Income beneficiaries of the trusts received ongoing distributions. Between 1981 and her death in 2015, Helen Hook Clarke received approximately 72 million dollars in distributions from the two trusts.

         {¶8} After becoming sole trustee, Fifth Third in 1980 was concerned with the trusts' concentration in Standard Register stock, and in 1985 it hired Morgan Stanley to prepare a report on possible ways to diversify the trusts. Morgan Stanley's report discussed the pros and cons of diversifying the trust in the following manners: a rule 144 sale; private placement; a leveraged buyout; company repurchase of trust stock; a secondary offering; a secondary offering/share repurchase; and a sale of the company. The report noted that a sale of the company would be unlikely absent cooperation from the JQS trust.

         {¶9} The Clarke family was adamantly opposed to diversification. In 1986, the Clarke siblings, along with their mother and brother, David Clarke, III, sued Fifth Third to prevent it from selling any Standard Register stock held by the two trusts unless the sale was a part of a coordinated sale of all stock held by both trusts and the JQS trust. The lawsuit was resolved when the parties entered into a settlement agreement in 1987.

         {¶10} In 1991, Fifth Third again engaged Morgan Stanley to prepare a report on the feasibility of diversification. This report suggested a secondary offering of the stock, as well as a combination of a secondary offering and a stock repurchase. Fifth Third did not feel that a secondary offering was a viable option because the Clarke family would lose the negative control over Standard Register that it possessed.

         {¶11} The value of Standard Register stock declined over time. Fifth Third monitored Standard Register's performance and continued to consider diversification. In 2006, Fifth Third hired a management consultant to examine Standard Register and advise Fifth Third on potential diversification options for the trusts. This consultant advised that the only feasible way to diversify was a complete sale of Standard Register. Fifth Third had various discussions regarding Standard Register's declining performance with members of the Clarke family, particularly David Clarke, III, who was a member of the Standard Register Board and was viewed by Fifth Third to be the Clarke family representative. In 2007, several Fifth Third representatives met with Helen Hook Clarke, her husband, and David Clarke, III. At this meeting, the Fifth Third representatives expressed concern about the deteriorating values of the trusts and discussed diversification. Fifth Third records indicate that the Clarkes seemed to understand their concerns, but were not particularly troubled by them. Fifth Third had prepared printed materials expressing the concerns, which they gave to the Clarkes in attendance. They also gave the Clarkes copies of these materials to give to the Clarke siblings.

         {¶12} While Fifth Third agreed that a sale of the entire company was the best way to diversify, no such sale occurred during this time period, and Fifth Third ultimately never diversified the trusts. This was due to a variety of circumstances, including the potential loss of negative control that would result from certain means of diversification; the Clarke family's perceived ongoing opposition to diversification, which was predominately derived from the parties' history and discussions with David Clarke, III; the capital structure of Standard Register, which allowed for internal family control and resulted in a loss of interest from potential investors; potential capital gains loss; a requirement in one of the trusts to act in concert with the JQS trust; and the JQS trust shareholders' refusal to sell.

         {¶13} In 2008, after learning that Standard Register had rejected a 2007 offer to sell, which would have diversified the trusts, Fifth Third filed a Schedule 13D with the SEC. This filing disclosed the number of shares held in the trusts. It also stated:

In the exercise of their fiduciary duties to their clients, the Reporting
Persons are considering their alternatives with respect to the holdings of Common Stock in the accounts held by them in their fiduciary capacity for their clients. Representatives of the Reporting Persons have met with the management of Standard Register and expect to maintain a dialogue with management regarding, among other things, Standard Register's operations, strategic direction, the extent to which it is achieving its current business plan, its capital structure and corporate governance and the Reporting Persons' expectation that management of Standard Register will pursue appropriate measures to enhance shareholder value. In addition, the Reporting Persons may communicate with other persons regarding Standard Register, including, without limitations, the board of directors of Standard Register, other shareholders of Standard Register and potential strategic partners.

         {¶14} The filing also disclosed that Fifth Third would take an active role, including proposing a merger, reorganization, or sale if it thought prudent. And it stated that Fifth Third would continue to review its Standard Register holdings in accordance with its fiduciary duties.

         {¶15} Fifth Third also scheduled a conference call in 2008 with all current and remainder beneficiaries of the Sherman trusts to discuss the SEC filing and the trusts' concentration in Standard Register stock, and it mailed the beneficiaries a copy of the script that was used during the conference call. As discussed later in this opinion, the lack of diversification was a topic of conversation.

         {¶16} Due to Standard Register's declining performance, the dividend issued to Standard Register shareholders was reduced in 2009.

         {¶17} Standard Register merged with Workflow One in 2013. Workflow One was the same company that had made an offer to purchase Standard Register in 2007.

         {¶18} In 2014, Fifth Third sent the Clarke siblings a letter asking for their input as to whether the trusts should be diversified. Three of the Clarke siblings were in favor of diversification, while two siblings indicated that they were against diversification.

         {¶19} Standard Register filed for bankruptcy in 2015, and it was subsequently purchased by another company. The values of the two trusts ...

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