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Adams v. Regions Bank

United States District Court, S.D. Mississippi, Northern Division

April 27, 2015

KAY HOOD ADAMS, et al., Plaintiffs,
REGIONS BANK, a/k/a Regions Bank, Inc.; et al., Defendants.


DANIEL P. JORDAN, III, District Judge.

This diversity case is before the Court on Defendants Regions Bank and Regions Investment Service, Inc.'s ("Regions Trust") (collectively, "Regions") Motion to Dismiss [11] and Motion to Dismiss Intervenor's Complaint [33] pursuant to Federal Rule of Civil Procedure 12(b)(6). The Court, having considered the memoranda and submissions of the parties, along with the pertinent authorities, finds that the Motions [11, 33] should be granted in part. The motions are otherwise denied without prejudice.

I. Facts and Procedural History

The following averments from the First Amended Complaint ("FAC") are considered true for the purposes of this Rule 12(b)(6) motion. On March 2, 2004, Warren Alton Hood, Sr., died testate, leaving each of his four children 25% of his estate. FAC [6] ¶¶ 6-7. The will placed Plaintiff Kay Hood Adams's quarter of the estate into the "Kay Hood Adams Family Trust" (the "KHAF Trust") for the benefit of Adams and her descendants.[1] Id. ¶¶ 8, 10. The will also provided that Adams's quarter of the estate would include Hood's partnership interest in Kay Hood Adams Properties, L.P. ("KHAP")-the interest also to be held by the KHAF Trust. Id. ¶ 8. Article X of the KHAF Trust, Plaintiffs contend, created a "Spendthrift Trust, " the "primary purpose [of which] was to protect trust assets from claims of creditors of the beneficiaries." Id. ¶¶ 11-12.

At the heart of this dispute is Regions account no. XXXXXXXXXX, which held certain securities owned by KHAP prior to Hood's death (the "Regions Account"). Id. ¶¶ 14-15. At some point after Hood's death, the Regions Account, as a liquidated asset of KHAP, became part of the KHAF Trust. Although the Regions Account did not contain Regions Bank stock at the time of Hood's death, id. ¶ 15, in April 2008, 292, 439 shares of Regions Bank stock were transferred into the Regions Account, allegedly in violation of Regions's internal policy prohibiting such a transfer, id. ¶¶ 30-32.

Regions's connection to the KHAF Trust deepened the following month, when Plaintiff Adams took out a personal loan from Regions. Adams was a shareholder, officer, and director of Hazlehurst Lumber Company, Inc. ("Hazlehurst"), a sawmill located in Hazlehurst, Mississippi. Id. ¶¶ 16-17. On May 23, 2008, following Hazlehurst's financial difficulties, Adams received a personal loan from Regions to cover Hazlehurst's debt. Id. ¶ 21. In order to secure the personal line of credit, Adams pledged the securities held in the Regions Account through a commercial Pledge Agreement. Id. ¶ 22. The securities were then worth $7.2 million. Id. ¶ 28. Then, at some point prior to February 2010, Regions became the trustee of the KHAF Trust. It is not clear from the record whether Regions became trustee of the KHAF Trust before or after the Regions Account became part of the KHAF Trust, and it is likewise unclear whether the Regions Account was part of the KHAF Trust at the time it became encumbered pursuant to the Pledge Agreement.

Regardless, by July 2011, Regions was trustee of the KHAF Trust, which held the Regions Account, which in turn held Regions Bank stock. That month, Adams discussed with Regions Trust diversifying the assets of the KHAF Trust, id. ¶ 38, but by August 2011, Regions Trust had taken no steps to diversify, id. ¶ 40. Subsequently, Regions Trust disbursed funds from the Regions Account to satisfy Hazlehurst's financial debts, and the stock's value continued to decline. Id. ¶¶ 44-45. Finally, on November 10, 2011, Regions seized the assets of the Regions Account, thus depleting the KHAF Trust of all value. Id. ¶¶ 50-52.

On August 7, 2014, Plaintiffs filed suit in this Court against Regions for claims of breach of fiduciary duties, negligence, breach of contract, conversion, unjust enrichment, and punitive damages. Compl. [1]. Plaintiffs subsequently amended their Complaint to add a claim for minority-shareholder oppression. FAC [6]. Regions then filed its Motion to Dismiss [11], Plaintiffs responded [20], and Regions replied [24]. In addition, Stephen Smith, Chapter 7 Trustee for Adams in her separate bankruptcy action, moved to intervene [10], and, following briefing, the Court granted the motion to intervene, Order [26]. After Smith filed his Intervenor Complaint [28], alleging the same grounds for relief as Plaintiffs, Regions moved to dismiss [33] the Intervenor Complaint as well. Finally, on April 17, 2015, the Court held a status conference with the parties to discuss issues that arose during the briefing process. The Court has personal and subject-matter jurisdiction and is now prepared to rule.

II. Standard of Review

In considering a motion under Rule 12(b)(6), the "court accepts all well-pleaded facts as true, viewing them in the light most favorable to the plaintiff.'" Martin K. Eby Constr. Co. v. Dall. Area Rapid Transit, 369 F.3d 464, 467 (5th Cir. 2004) (quoting Jones v. Greninger, 188 F.3d 322, 324 (5th Cir. 1999) (per curiam)). To overcome a Rule 12(b)(6) motion, Plaintiffs must plead "enough facts to state a claim to relief that is plausible on its face." Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007). "Factual allegations must be enough to raise a right to relief above the speculative level, on the assumption that all the allegations in the complaint are true (even if doubtful in fact)." Id. at 555 (citation and footnote omitted). "A claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged." Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (citing Twombly, 550 U.S. at 556). It follows that "where the well-pleaded facts do not permit the court to infer more than the mere possibility of misconduct, the complaint has alleged-but it has not show[n]'-that the pleader is entitled to relief.'" Id. at 679 (quoting Fed.R.Civ.P. 8(a)(2)). "This standard simply calls for enough fact to raise a reasonable expectation that discovery will reveal evidence of' the necessary claims or elements." In re S. Scrap Material Co., LLC, 541 F.3d 584, 587 (5th Cir. 2008) (citing Twombly, 550 U.S. at 556).

Finally, dismissal under Rule 12(b)(6) may be proper "where it is evident from the plaintiff's pleadings that the action is [time] barred and the pleadings fail to raise some basis for tolling or the like." Jones v. Alcoa, Inc., 339 F.3d 359, 366 (5th Cir. 2003) (cited in Jaso v. Coca Cola Co., 435 F.Appx. 346, 351-52 (5th Cir. 2011) (per curiam) (also citing 5B Charles Alan Wright & Arthur R. Miller, Federal Practice & Procedure § 1357 (3d ed. 2004) ("[T]he inclusion of dates in the complaint indicating that the action is untimely renders it subject to dismissal for failure to state a claim."))).

III. Analysis

A. Clarifying the Claims

As noted, Plaintiffs include the following seven counts in the FAC: (1) breach of fiduciary duties (including 12 subparts); (2) minority-shareholder oppression; (3) negligence; (4) breach of contract; (5) conversion; (6) unjust enrichment; and (7) punitive damages. FAC [6] ¶¶ 59-81. Rather than separately addressing these specific causes of action, their legal standards, and the ...

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