Linda Holt v. John Griffin

RECOMMENDED FOR FULL-TEXT PUBLICATION

Pursuant to Sixth Circuit I.O.P. 32.1(b)

File Name: 17a0168p.06

UNITED STATES COURT OF APPEALS

FOR THE SIXTH CIRCUIT

ELIZABETH A. OSBORN (16-2221 & 16-6225); LINDA ┐

G. HOLT, JUDITH E. PREWITT, and CYNTHIA L. ROEDER │

(16-2221/6225/6226/6227), │

Plaintiffs-Appellees, │

│

> Nos. 16-6221/6225/6226/6227

v. │

│

│

JOHN M. GRIFFIN, ESTATE OF DENNIS B. GRIFFIN, and │

DENNIS B. GRIFFIN REVOCABLE TRUST - 2012 (16- │

6221 & 16-6226); MARTOM PROPERTIES, LLC (16- │

6225 & 16-6227), │

Defendants-Appellants. │

┘

Appeal from the United States District Court

for the Eastern District of Kentucky at Covington.

Nos. 2:11-cv-00089; 2:13-cv-00032—William O. Bertelsman, District Judge.

Argued: April 27, 2017

Decided and Filed: July 28, 2017

Before: MERRITT, BATCHELDER, and CLAY, Circuit Judges.

_________________

COUNSEL

ARGUED: Gregory G. Garre, LATHAM & WATKINS LLP, Washington, D.C., for

Appellants. Janet P. Jakubowicz, BINGHAM GREENEBAUM DOLL LLP, Louisville,

Kentucky, for Appellee Osborn. Kent Wicker, DRESSMAN BENZINGER LA VELLE PSC,

Louisville, Kentucky, for Appellees Holt, Prewitt, and Roeder. ON BRIEF: Gregory G. Garre,

Melissa Arbus Sherry, Benjamin W. Snyder, Matthew J. Glover, LATHAM & WATKINS LLP,

Washington, D.C., Heather A. Waller, LATHAM & WATKINS LLP, Chicago, Illinois, for

Griffin Appellants. Joseph M. Callow, Jr., Thomas F. Hankinson, Jacob D. Rhode, KEATING

MUETHING & KLEKAMP PLL, Cincinnati, Ohio, for Martom Appellant. Janet P.

Jakubowicz, Benjamin J. Lewis, BINGHAM GREENEBAUM DOLL LLP, Louisville,

Kentucky, for Appellee Osborn. Kent Wicker, DRESSMAN BENZINGER LA VELLE PSC,

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Louisville, Kentucky, Eva Christine Trout, TROUT LAW OFFICE PLLC, Lexington, Kentucky

for Appellees Holt, Prewitt, and Roeder.

CLAY, J., delivered the opinion of the court in which BATCHELDER, J., joined.

MERRITT, J. (pp. 56–65), delivered a separate dissenting opinion.

_________________

OPINION

_________________

CLAY, Circuit Judge. Defendants John M. Griffin, the Estate of Dennis B. Griffin, the

Dennis B. Griffin Revocable Trust, and Martom Properties, LLC (“Defendants”), appeal from

the judgment entered by the district court on April 26, 2016, requiring Defendants to pay roughly

$584 million in wrongful profits disgorgement and prejudgment interest to Plaintiffs Elizabeth

A. Osborn, Linda G. Holt, Judith E. Prewitt, and Cynthia L. Roeder (“Plaintiffs”). Plaintiffs,

four sisters, essentially allege that Defendants, two of their brothers and a related entity called

Martom Properties, cheated them out of stock and real property related to the family’s business

that they should have inherited under the terms of their parents’ estate plans. The district court

agreed with Plaintiffs after a bench trial, finding that Defendants’ conduct in managing the

family business and their parents’ estates and trusts violated their fiduciary duties to Plaintiffs

under Kentucky law. Defendants appeal, raising a litany of challenges to the district court’s

jurisdiction, legal conclusions, remedy, and decision to conduct a bench trial. The district court

exercised subject matter jurisdiction over Plaintiffs’ state law claims pursuant to 28 U.S.C.

§ 1367, and we have jurisdiction over this appeal pursuant to 28 U.S.C. § 1291. For the reasons

set forth below, we AFFIRM the district court’s judgment.

BACKGROUND

I. Factual History

A. Parties and Other Griffin Family Members

This litigation concerns a multi-million dollar inheritance dispute among the children of

John L. Griffin (“John”), a long-deceased Kentucky businessman. During his lifetime, John and

his wife Rosellen Griffin (“Rosellen”) had twelve children. Plaintiffs are four of the couple’s

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daughters: Elizabeth Osborn, Linda Holt, Cynthia Roeder (“Cyndi”), and Judith Prewitt

(“Judy”). Id. Mirroring the parties and the district court, we refer to Elizabeth Osborn as

“Betsy,” and the remaining three sisters as the “Holt Plaintiffs.”

Defendants are, in effect, two of John and Rosellen’s sons—Dennis B. Griffin1 and John

M. Griffin (“Griffy”)—plus an entity they created called Martom Properties, LLC (“Martom”).

The Griffins were a patriarchal family. “The Griffin children were taught that the older

siblings were in charge and that the younger siblings had to respect them.” (R. 856, Findings of

Fact and Conclusions of Law, ¶ 4.) In practical effect, this meant that Dennis and Griffy—the

eldest brothers—wielded the respect of and exercised authority over the younger children,

including Plaintiffs.

B. Griffin Industries

In 1943, John founded Griffin Industries, a rendering company that primarily hauls away

animal carcasses and other waste and converts this material into useful products. Griffin

Industries was a family business in the truest sense of the term. “All [of] the Griffin children

worked in the business after school and in summers, with the girls doing primarily office work

and the boys working in the plants.” (Id. ¶ 5.) “When the girls married, their husbands usually

worked in the company.” (Id.) Over the second half of the twentieth century, Griffin Industries

grew into a prosperous enterprise with operations in several states. Eventually, when the

children were all adults, four of them (including Dennis and Griffy) worked full-time at Griffin

Industries, while the others did not.

In the 1960s and 1970s, John purchased several real estate parcels in Kentucky that were

used by Griffin Industries in its operations. These properties were titled in John’s name. In

1981, Griffin Industries purchased Craig Protein, another rendering company based in Georgia.

John personally held 1,000 shares of Craig Protein stock. At its core, this dispute concerns the

ownership of: (i) John and Rosellen’s Griffin Industries stock; (ii) John’s real estate; and

(iii) John’s Craig Protein stock.

1

Dennis died in 2015, and his estate and trust were substituted as defendants in his place. For simplicity’s

sake, we refer to Dennis’ estate and trust as “Dennis.”

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C. John’s and Rosellen’s 1967 Estate Plans

In 1967, both John and Rosellen prepared separate wills and revocable trusts. Rosellen’s

will specified that when she died, all of her Griffin Industries stock would pass first to John, and

then to her trust (along with the remainder of the residue of her estate). Rosellen named the First

National Bank of Cincinnati (later known as Star Bank) as her trustee, and her trust instruments

provided that all assets of the trust would be divided among her eleven then-living children.

The district court described John’s estate plan as follows:

[John] executed a Last Will and Testament in 1967, which provided that all his

chattel property would pass to [Rosellen] and, if she predeceased him, to his

eleven children in equal amounts. A first codicil in 1967 bequeathed his stock to

[Rosellen], then to his 1967 Trust if she predeceased him. [John’s] second

codicil, executed in 1974, bequeathed his stock to [Rosellen], with the stock to be

purchased by Griffin Industries if she predeceased him. In 1974, [John] executed

a third codicil changing his alternate beneficiary to his children, equally. In 1975,

[John] executed a fourth codicil that left his stock to [Rosellen], except for any

stock purchased by Griffin Industries. If [Rosellen] predeceased [him], then the

stock would be distributed equally to his children. A fifth codicil was executed in

1981 that made no changes to the distribution of the stock.

[John] also created a Trust in 1967 which, under a First Amendment executed on

October 2, 1978, provided that its assets would be distributed among seven of the

children when they turned thirty (or, if deceased, their living issue, if any): Cyndi,

Marty, Tommy, Linda, Judy, Janet, and Betsy. These children were the seven

who were not then working full-time for Griffin Industries. A further amendment

in 1981 did not alter the distribution of the trust’s assets.

(Id. ¶¶ 11–12.)

In sum, from the late 1960s to the early 1980s, both John’s and Rosellen’s respective

estate plans expressed a clear and consistent desire to bequeath their property equally to their

eleven living children. There was only one deviation from this intention. In the early 1980s,

John recognized that because Griffin Industries was a Subchapter S corporation, “the four

working children were receiving more income from Griffin Industries tha[n] the seven non-

working children.” (Id. ¶ 13.) John wanted to “adjust this result” by making additional stock

gifts to the non-working children to restore equality amongst his heirs. (Id.) John’s intention

was that if Rosellen predeceased him, “the non-working children would end up with more shares

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than the working children” to account for the fact that the working children received direct

income from Griffin Industries. (Id. ¶ 14.)

D. Disputed Griffin Industries Stock Transactions

The events that gave rise to this lawsuit began in the mid-1980s. In 1983, John suffered a

massive stroke that left him partially paralyzed and unable to speak, write, care for himself,

drive, or walk without assistance. After the stroke, John had a functional IQ of 67, and the

mental age of an eight-year-old. Dennis recognized his father’s infirmity, and told one of his

sisters to not let John “sign anything because you know he doesn’t understand.” (Id. ¶ 23.)

Exacerbating the family upheaval, Rosellen died in 1985 of Parkinson’s disease. At the

time of Rosellen’s death, she owned roughly 13% of Griffin Industries’ stock. In accordance

with the terms of her estate plan, her stock passed to John, who owned roughly 53% of Griffin

Industries’ stock, giving him a combined total of 66% of the company.

In September 1985, Dennis and Griffy successfully petitioned a Kentucky probate court

to: (i) make them executors of Rosellen’s estate; and (ii) give them power of attorney over John.

On November 14, 1985, John executed a Third Amendment to his 1967 Trust that made Dennis

and Griffy his trustees. Four days later, he transferred his 53% of Griffin Industries’ stock to his

trust.

Dennis and Griffy then effectuated the following elaborate series of stock transactions

using their authority as trustees of John’s trust and executors of Rosellen’s estate:

 John’s six sons (but none of his daughters) purchased all of Rosellen’s Griffin Industries

shares;

 John’s trust sold 5% of his shares to his grandchildren’s trusts, who in turn gave his six

sons (but none of his daughters) the opportunity to buy-back the shares at 60% of their

value;

 John disclaimed all interest in the shares Rosellen had left to him;

 John’s six sons purchased all of the remaining Griffin Industries shares in John’s trust.

The net result of these machinations was that the six sons obtained ownership of all of John and

Rosellen’s shares, while the daughters received no stock beyond what they already owned

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through various gifts in the 1960s and 1970s. The sons thereafter controlled roughly 87% of

Griffin Industries’ stock.

After planning these maneuvers, Dennis called a pair of family meetings in November

1985 to discuss his mother’s estate. At the meetings, Dennis lied to his siblings by claiming that

Griffin Industries was on the verge of bankruptcy (it was actually profitable), and that their

parents’ estate plans called for the six sons to own all of the parents’ Griffin Industries stock.

Dennis did not show any of his sisters his mother’s estate or trust documents, and when one of

the sisters (Linda) tried to ask about her mother’s will, Dennis told her “to shut up and sit down.”

(Id. ¶ 40.) Reflecting the patriarchal nature of the family, Plaintiffs trusted and “relied on Dennis

and Griffy to handle their parents’ estate matters.” (Id. ¶ 45.)

On two subsequent occasions, Linda visited Dennis and asked to view Rosellen’s estate

documents. Each time, Dennis became angry and abusive, and refused to show her the relevant

documents.

E. Betsy’s 1990 Lawsuit

One of the sisters—Betsy—proved more insistent than Linda. In the late 1980s, she

learned that Dennis planned to transfer some of the Griffin Industries stock to his children.

When Betsy asked Dennis how he had the legal authority to do this, Dennis became angry “and

told her that stock ‘didn’t concern’ her.” (Id. ¶ 67.) When Betsy asked Griffy about the

transfers, he lied, telling Betsy that he was not familiar with Rosellen’s estate plan, and “that if

she didn’t like what [Dennis and Griffy] were doing, she should ‘sue them.’” (Id.)

On January 20, 1990, Betsy wrote a letter to Dennis and Griffy informing them that she

had read their mother’s will, and that under the will’s terms she was entitled to one-eleventh of

Rosellen’s Griffin Industries stock. None of the Holt Plaintiffs saw or reviewed this letter.

After Dennis and Griffy rebuffed her, Betsy filed a federal lawsuit against Dennis and

Griffy in the Eastern District of Kentucky. The suit challenged Dennis and Griffy’s 1986 stock

machinations, and also asserted a derivative claim on behalf of all Griffin Industries shareholders

(nominally including the Holt Plaintiffs).

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Dennis responded to the suit by berating Betsy in front of her family members, alleging

that the suit had no merit and was purely motivated by greed. Dennis told the Holt Plaintiffs that

the suit did not involve them, and declined to give any details about the nature of the suit. The

Holt Plaintiffs believed what Dennis told them about Betsy and the suit, and stopped speaking

with Betsy until the mid-2000s. Prior to the present lawsuit, the Holt Plaintiffs never learned the

nature of or participated in that suit.

On November 30, 1991, John executed both a Sixth Codicil to his will (“Sixth Codicil”),

and a Fourth Amendment to his trust (“Fourth Amendment”), both of which: (i) retroactively

approved Dennis and Griffy’s 1986 stock transactions; and (ii) provided that the remainder of

John’s property would be split equally by his five living daughters upon his death. These estate

changes came shortly after John underwent a doctor’s examination which revealed his low

functional IQ and mental age. On January 20, 1992, John purportedly executed an affidavit

which also retroactively approved Dennis and Griffy’s stock sales.

Eventually, in 1993, Betsy negotiated a settlement agreement with Dennis and Griffy that

gave her a large number of Griffin Industries shares, plus roughly $100,000 to cover past

distributions. However, because there was an outstanding derivative claim, Dennis and Griffy

were required to separately settle with the other Griffin Industries shareholders, including the

Holt Plaintiffs. Dennis called the Holt Plaintiffs into his office and ordered them to sign a

document. He did not explain that the document was a settlement agreement, and when Cyndi

asked if she could read it, Dennis refused. The Holt Plaintiffs executed a final settlement with

Dennis and Griffy on September 10, 1993 that settled their derivative claims and released all

possible tort claims against Dennis and Griffy for $10,000. Dennis lied to the Holt Plaintiffs and

told them that they had received as much compensation as Betsy received for her claims, and that

Betsy got “very damn little” from the 1990 lawsuit. (Id. ¶ 112.) The Holt Plaintiffs were never

told the terms of Betsy’s settlement.

F. Disputed Real Estate and Craig Protein Stock Sales

John died on April 9, 1995, and Dennis and Griffy became the executors of his estate. At

the time of his death, John’s estate still possessed the Craig Protein stock (the Georgia company

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John bought in 1981), as well as the real estate assets he purchased before his stroke. In

accordance with the terms of John’s Sixth Codicil and Fourth Amendment, these assets should

have been divided equally amongst his five daughters. Nevertheless, Dennis and Griffy sought

legal advice about how to acquire this property without either obtaining the prior consent of their

sisters, or violating Kentucky’s prohibition against self-dealing by fiduciaries.

Eventually, Dennis and Griffy settled on the following plan: First, they directed two of

their younger brothers (“Marty” and “Tommy”) to buy the Craig Protein stock at a substantially

undervalued price. Later, in 2002, Marty and Tommy traded the Craig Protein stock back to

Griffin Industries in exchange for Griffin Industries stock. The Griffin Industries stock they

acquired netted them more than $30 million in distributions over the succeeding years. Dennis

and Griffy never offered their sisters the opportunity to buy the Craig Protein stock, because they

wanted the stock to remain in the hands of their brothers.

Dennis and Griffy then created a new corporation, Defendant Martom,2 which purchased

all of John’s real estate, and then leased the property back to Griffin Industries. Although Dennis

and Griffy owned no shares in Martom, they effectively controlled Martom through their

ownership of Griffin Industries, as Martom had no employees of its own and was staffed entirely

by Griffin Industries personnel. Marty and Tommy—Martom’s owners—each testified that they

exercised virtually no management or control over Martom.

The net result of these transactions was that Dennis and Griffy maintained effective

control and ownership over all of the Craig Protein stock and Martom real estate. “The proceeds

from the sale of the Craig Protein stock to Marty and Tommy and the real properties to Martom

were paid into [John’s] estate and Trust and were distributed to the five sisters equally.” (Id.

¶ 142.) Thus, although the sisters received the proceeds of these transactions, they never had the

opportunity to take the stock or real-estate in-kind—something that wound up costing them

millions of dollars.

2

Martom is a mashup of the names Marty and Tommy.

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G. Genesis of This Litigation

Griffin Industries prospered greatly throughout the 1990s and 2000s. In 2010, Griffin

Industries was purchased by a company called Darling International for $840 million. While the

merger was closing, Cyndi was mistakenly faxed a document listing Griffin Industries’

shareholders and detailing the amount of stock each shareholder owned. Cyndi was shocked to

discover that she and her other sisters owned substantially less stock in the company than their

brothers (as well as Betsy, due to the 1993 settlement).

During the due diligence for the merger, Griffy became aware that he and Dennis had

forgotten to transfer one of their father’s properties (“Cold Spring”) to Martom during their 1995

real estate transactions. Using his power as John’s trustee, he conveyed the overlooked real

estate parcel to Griffin Industries for $1.

Betsy learned of Griffy’s Cold Spring transaction, and on April 27, 2011, filed suit

against Dennis and Griffy in the Eastern District of Kentucky. Betsy spoke to Linda, Judy, and

Cyndi about Dennis and Griffy’s various self-dealing transactions at a Christmas party in

December of 2011. After learning why they possessed so little Griffin Industries stock, Linda,

Judy, and Cyndi filed their own lawsuit in the Eastern District of Kentucky on March 8, 2013.

The Holt Plaintiffs’ suit alleged various state and federal law causes of action against Dennis,

Griffy, and Martom. Betsy and the Holt Plaintiffs’ respective lawsuits were consolidated into the

instant action.

II. Procedural History

Because the district court record is particularly voluminous, we will summarize the

proceedings below.

Following initial motion practice and extensive discovery, the parties filed several cross-

motions for summary judgment. After hearing oral argument on the various motions, the district

court issued a summary judgment order on September 29, 2014. Osborn v. Griffin, 50 F. Supp.

3d 772 (E.D. Ky. 2014).

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In its summary judgment order, the district court dismissed all of Plaintiffs’ various state

and federal claims except for their claims for breach of fiduciary duties under Kentucky law;

however, the district court largely found in Plaintiffs’ favor with respect to the fiduciary duty

claims. The district court concluded that there were genuine disputes of material fact as to

whether Dennis and Griffy breached their fiduciary duties with respect to the 1986 stock

transactions. Id. at 794–97. The district court further determined that there was no genuine

dispute of material fact that Defendants breached their fiduciary duties with respect to: (i) the

Craig Protein stock sale; (ii) the Martom real estate conveyances; and (iii) Griffy’s decision to

convey the Cold Spring property to Griffin Industries for $1 dollar in connection with the 2010

merger. Id. at 800–03. The district court determined that the only triable issues with respect to

these claims were on Defendants’ various affirmative defenses. Id.

The parties then proceeded to a bench trial. On March 21, 2016, the district court issued

findings of fact and conclusions of law that rejected each of Defendants’ affirmative defenses

and held Defendants liable for breaches of fiduciary duties. In essence, the district court found

that all of the disputed stock sales and real estate conveyances were self-dealing transactions in

violation of Defendants’ fiduciary duties and Kentucky law. The district court further found that

Defendants had abused their position of trust with their sisters and covered up their misdeeds to

prevent the sisters from learning of their claims. The court determined that under Kentucky law,

this abuse of trust excused Plaintiffs’ failure to bring their claims within the applicable statute of

limitations. Finally, the district court accepted the testimony and methodology of Plaintiffs’

damages expert, finding his reasoning sound, and noted that Defendants had failed to offer their

own expert to contradict his testimony.

The district court entered judgment on April 26, 2016, awarding Plaintiffs roughly $584

million in equitable disgorgement of wrongful profits and prejudgment interest. This award

consisted of: (i) $10,355,925 to each Plaintiff stemming from Defendants’ Craig Protein stock

sales, including prejudgment interest running from May 1995 until April 2016; (ii) $1,959,397 to

each Plaintiff stemming from Defendants’ Martom real estate sales, including prejudgment

interest running from July 1995 until April 2016; and (iii) $178,128,949 to each of the Holt

Plaintiffs stemming from Defendants’ illicit Griffin Industries stock transactions, including

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prejudgment interest running from January 1986 until April 2016. Defendants were held jointly

and severally liable for the entire award, and the award assessed prejudgment interest at a rate of

8% compounded annually.

After post-trial motion practice did not alter the district court’s judgment, Defendants

filed timely notices of appeal.

DISCUSSION

I. Subject Matter Jurisdiction

A. Standard of Review

“We review de novo the existence of subject-matter jurisdiction.” Watson v. Cartee,

817 F.3d 299, 302 (6th Cir. 2016).

B. Probate Exception

The district court originally asserted federal question jurisdiction over this dispute

because Plaintiffs alleged a federal RICO claim. See 18 U.S.C. § 1962, 1964(c). However, the

district court granted summary judgment dismissing the RICO claim, leaving only Kentucky tort

claims for breach of fiduciary duties. Osborn, 50 F. Supp. 3d at 809. The district court asserted

supplemental jurisdiction over these remaining state law claims pursuant to 28 U.S.C. § 1367(a).

This use of § 1367(a) was proper because the state law claims were part of the same Article III

case or controversy as the federal RICO claim, and the parties do not argue otherwise. See, e.g.,

Exxon Mobil Corp. v. Allapattah Servs., Inc., 545 U.S. 546, 558 (2005).

Where the parties disagree is whether the district court was divested of subject matter

jurisdiction by the so-called “probate exception” to federal jurisdiction. Under the probate

exception, federal courts are prohibited from exercising jurisdiction over certain conflicts

involving property subject to a state court probate proceeding. See generally Charles A. Wright

& Arthur R. Miller, et al., 13E Federal Practice and Procedure § 3610 (3d ed. 2017 supp.).

The Supreme Court has held that this exception is “of distinctly limited scope.” Marshall

v. Marshall, 547 U.S. 293, 310 (2006). The exception is “essentially a reiteration of the general

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principle that, when one court is exercising in rem jurisdiction over a res, a second court will not

assume in rem jurisdiction over the same res.” Id. at 311. It “reserves to state probate courts the

probate or annulment of a will and the administration of a decedent’s estate; it also precludes

federal courts from endeavoring to dispose of property that is in the custody of a state probate

court. But it does not bar federal courts from adjudicating matters outside those confines and

otherwise within federal jurisdiction.” Id. at 311–12. Thus, the probate exception generally does

not apply when a plaintiff: (i) “seeks an in personam judgment against [the defendant], not the

probate or annulment of a will;” and (ii) does not “seek to reach a res in the custody of a state

court.” Id. at 312.

We have further limited the probate exception’s reach. In Wisecarver v. Moore, we held

“that causes of action alleging breach of fiduciary duties . . . do not necessarily fall within the

scope of the probate exception.” 489 F.3d 747, 751 (6th Cir. 2007) (collecting cases). We

reasoned that “the principles underlying the probate exception are not implicated when federal

courts exercise jurisdiction over claims seeking in personam jurisdiction based upon tort liability

because the claims do not interfere with the res in the state court probate proceedings or ask a

federal court to probate or annul a will.” Id.

We then distinguished the sorts of remedies implicated by the probate exception from the

remedies outside of its reach. We held that the probate exception bars a plaintiff from seeking:

“(1) an order enjoining Defendants’ disposition of assets received from [the decedent’s] estate,

(2) an order divesting Defendants of all property retained by them [from the estate] . . . and (3) a

declaration that [the decedent’s] probated will be declared invalid[.]” Id. We also held that the

probate exception bars a plaintiff from seeking “money damages equal to the amount of the

probate disbursements[.]” Id. n.1. We reasoned that granting such relief “is precisely what the

probate exception prohibits because it would require the district court to dispose of property in a

manner inconsistent with the state probate court’s distribution of the assets.” Id. at 751.

However, we further held that plaintiffs may, without implicating the probate exception:

(i) challenge inter vivos transfers; and (ii) seek disgorgement of monies improperly removed

from the decedent’s estate during his or her lifetime. Id.

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Defendants argue that the district court should have invoked the probate exception and

declined to hear this case because: (i) Plaintiffs sought money damages equal to the value of the

property probated pursuant to John’s will, violating Wisecarver; and (ii) the 1986 Griffin

Industries stock sales were ratified in John’s will, and therefore Plaintiffs’ claims challenging

those sales necessarily sought to invalidate the will.

We disagree, for several reasons. First, we note that John’s Griffin Industries stock was

not part of any res distributed by a probate court. The October 20, 1995 Inventory and

Appraisement Form prepared by Dennis and Griffy for John’s probate proceedings shows that

John’s estate did not hold any Griffin Industries stock at the time of his death. As we have

recounted, John did not possess this stock in 1995 because Dennis and Griffy transferred it out of

his estate in the mid-1980s.

We thus agree with the district court that, with respect to John’s Griffin Industries stock,

Plaintiffs sought and obtained “compensation for the value of property allegedly wrongfully

transferred out of their father’s estate by [D]efendants in breach of their fiduciary duties.”

(R. 612, PageID #28041 (emphasis added, footnote omitted).) We have expressly held that such

relief does not implicate the probate exception. See Wisecarver, 489 F.3d at 751 (holding that

“the removal of [contested] assets from [the decedent’s] estate during his lifetime removes them

from the limited scope of the probate exception”). The reasoning for this rule is simple: property

that a party removes from a decedent’s estate prior to his death is not part of the res that is

distributed by the probate court. Thus, ordering a defendant to disgorge the profits acquired

from such property does not require either setting aside the decedent’s will, or redistributing

assets that were parceled out by the probate court.

That John’s Sixth Codicil and Fourth Amendment—which purported to ratify Dennis and

Griffy’s 1986 stock transactions—were included in the estate documents submitted to the

probate court does not change this analysis. The mere fact that assets are tangentially mentioned

in probated estate and trust documents is irrelevant. See Lefkowitz v. Bank of N.Y., 528 F.3d 102,

108 (2d Cir. 2007) (After Marshall, the “probate exception can no longer be used to dismiss

widely recognized torts such as breach of fiduciary duty . . . merely because the issues intertwine

with claims proceeding in state court.” (citation, quotation marks, and alteration omitted)).

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Federal jurisdiction is only destroyed when a plaintiff seeks to set aside a will or appropriate

assets that were distributed by a probate court (or their cash equivalents). Marshall, 547 U.S. at

311–12; Wisecarver, 489 F.3d at 751 n.1. Accepting Defendants’ arguments and dismissing this

suit because Plaintiffs sought the value of assets that Defendants took out of John’s estate merely

because those assets were mentioned in John’s estate plan would require expanding the probate

exception beyond its “distinctly limited scope.” Marshall, 547 U.S. at 310.

Second, with respect to Rosellen’s Griffin Industries stock, John’s Craig Protein stock,

and the real estate acquired by Martom, the district court correctly found that Plaintiffs did not

“seek money damages equal to the amount of the probate disbursements.” Wisecarver, 489 F.3d

at 751 n.1. Rather, the district court ordered Defendants to disgorge the profits they obtained

from their wrongful conduct, and used those funds to compensate their sisters—the victims of

Defendants’ scheme. These wrongful profits were significantly greater than the value of John

and Rosellen’s assets at the time their estates were probated, confirming that the district court’s

monetary award was not just a proxy for the value of probated assets. See S.E.C. v. Cavanagh,

445 F.3d 105, 117 (2d Cir. 2006) (explaining that a “district court order of disgorgement forces a

defendant to account for all profits reaped through his [wrongful conduct] and to transfer all such

money to the court, even if it exceeds actual damages to victims”); see also id. (“Upon awarding

disgorgement, a district court may exercise its discretion to direct the money toward victim

compensation . . . .”).

While the probate exception prevents a federal court from de facto redistributing probated

property by granting a plaintiff its equivalent cash value, Wisecarver, 489 F.3d at 751 n.1, it does

not prevent a court from disgorging the profits that a defendant obtains through his wrongful

possession of such property. Thus, for example, if a defendant forges a will to bequeath himself

a lottery ticket worth $1 dollar, and obtains the ticket through probate proceedings, a federal

court can neither set aside the will, nor order the defendant to pay a plaintiff $1 in compensatory

damages. But, if the defendant wins the lottery, a federal court can use any equitable authority it

possesses under the relevant substantive law it is applying to force the defendant to disgorge his

lottery winnings. The probate exception is narrowly focused on preventing federal courts from

Nos. 16-6221/6225/6226/6227 Osborn, et al. v. Griffin, et al. Page 15

upending probate proceedings; any profits a defendant may obtain after acquiring probated assets

are “matters outside [its] confines.” Marshall, 547 U.S. at 311–12.

Third, none of the relief sought by Plaintiffs required invalidating John’s will. Plaintiffs

do not argue that the will should be set aside; they merely argue that the will was not sufficient to

ratify Defendants’ breaches of their fiduciary duties under Kentucky law. Put differently,

Plaintiffs accept (as they must) the validity of John’s will, but argue that the will is insufficient

proof that John intended to ratify Defendants’ wrongful conduct. This distinction is decisive, as

federal courts are only prohibited from setting aside a will, and not from determining its legal

effect on an affirmative defense. Id.; see also Markham v. Allen, 326 U.S. 490, 494 (1946)

(holding that the probate exception does not prevent a federal court from exercising “its

jurisdiction to adjudicate rights in [probated] property where the final judgment does not

undertake to interfere with the state court’s possession”).

In sum, the probate exception does not apply here because Plaintiffs: (i) sought “an in

personam judgment against [Defendants], not the probate or annulment of a will;” and (ii) did

not “seek to reach a res in the custody of a state court.” Marshall, 547 U.S. at 311. We therefore

hold that the district court properly exercised subject matter jurisdiction over this dispute.

II. Challenges to Liability

A. Standard of Review

On an appeal from a judgment entered after a bench trial, we review the district court’s

legal conclusions de novo, and its factual findings for clear error. Moorer v. Baptists Mem.

Health Care Sys., 398 F.3d 469, 478–79 (6th Cir. 2005); James v. Pirelli Armstrong Tire Corp.,

305 F.3d 439, 448 (6th Cir. 2002); Schroyer v. Frankel, 197 F.3d 1170, 1173 (6th Cir. 1999).

“A ‘finding is clearly erroneous when although there is evidence to support it, the reviewing

court on the entire evidence is left with the definite and firm conviction that a mistake has been

committed.’” United States v. Atkins, 843 F.3d 625, 632 (6th Cir. 2016) (quoting Anderson v.

City of Bessemer City, 470 U.S. 564, 573 (1985)). “Under this standard, if ‘the district court’s

account of the evidence is plausible in light of the record viewed in its entirety, the court of

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appeals may not reverse it even though convinced that had it been sitting as the trier of fact, it

would have weighed the evidence differently.’” Id. (quoting Anderson, 470 U.S. at 573–74).

B. Statute of Limitations

Kentucky has a five-year statute of limitations for breach of fiduciary duty claims. See

Ky. Rev. Stat. § 413.120(2), (6). Neither party disputes that all of Defendants’ breaches of their

fiduciary duties occurred in the 1980s and 1990s—more than five years before these

consolidated lawsuits were filed in 2011 and 2013, respectively. However, Kentucky equitably

tolls its statute of limitations whenever the defendant’s wrongful conduct prevents a plaintiff

from discovering her claims. Ky. Rev. Stat. § 413.190(2). The parties dispute the applicability

of this tolling provision.

Before we discuss the parties’ arguments, it is helpful to separate out the district court

findings that are not at issue in this appeal. The district court found that Plaintiffs should have

discovered their claims through the exercise of reasonable diligence by the early 1990s. Osborn,

50 F. Supp. 3d at 806–08. The district court also found that Defendants failed to “disclose all the

material facts regarding [their] handling of their parents’ estate plans or their fiduciary breaches”

despite having “an affirmative duty to make full disclosures to their sisters[.]” (R. 856, ¶ 213.)

Neither party challenges these findings, although as we discuss later, Defendants deny having

had any fiduciary duties to Plaintiffs.

Instead, the parties’ statute of limitations dispute is cabined to a single legal issue: when a

defendant violates his fiduciary duties to a plaintiff by failing to disclose facts relevant to the

plaintiff’s cause of action, does the statute of limitations run from the time when the plaintiff

should have known about the breach, or the time when the plaintiff actually learns about the

breach? Defendants argue that the limitations period began running when Plaintiffs should have

learned about their claims in the early 1990s, and therefore assert that the claims are time-barred.

Plaintiffs argue, and the district court concluded, that the limitations period began running in

2010 when Plaintiffs actually learned about Defendants’ wrongful conduct. We agree with

Plaintiffs and the district court.

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Kentucky’s equitable tolling statute provides as follows:

When a cause of action mentioned in KRS 413.090 to 413.160 accrues against a

resident of this state, and he by absconding or concealing himself or by any other

indirect means obstructs the prosecution of the action, the time of the continuance

of the absence from the state or obstruction shall not be computed as any part of

the period within which the action shall be commenced. But this saving shall not

prevent the limitation from operating in favor of any other person not so acting,

whether he is a necessary party to the action or not.

Ky. Rev. Stat. § 413.190(2) (emphasis added). Ordinarily, this statute only tolls the statute of

limitations when a defendant commits an affirmative act that conceals his wrongdoing. Munday

v. Mayfair Diagnostic Lab., 831 S.W.2d 912, 915 (Ky. 1992). However, “where the law imposes

a duty of disclosure, a failure of disclosure may constitute concealment under KRS

413.190(2)[.]” Id.

Two parallel rules govern the application of Kentucky’s equitable tolling statute in cases

where the defendant conceals his wrongdoing. Typically, the limitations period begins to run

when: (i) the defendant’s wrongful concealment is revealed to the plaintiff; or (ii) the plaintiff

“should have discovered his cause of action by reasonable diligence.” Emberton v. GMRI, Inc.,

299 S.W.3d 565, 575 (Ky. 2009). “When a confidential relationship exists between the parties,

however, the statute does not begin to run until actual discovery of the fraud [or] mistake.”

Hernandez v. Daniel, 471 S.W.2d 25, 26 (Ky. 1971). “The rationale of the actual notice

requirement is that persons in a confidential relationship do not have the reason or occasion to

check up on each other that would exist if they were dealing at arm’s length.” McMurray v.

McMurray, 410 S.W.2d 139, 141–42 (Ky. 1966).

The seminal case applying Kentucky’s equitable tolling statute in the context of a

confidential relationship is Security Trust Co. v. Wilson, 210 S.W.2d 336 (Ky. 1948). In Security

Trust, the plaintiff’s uncle and guardian wrongfully appropriated property the plaintiff inherited

from her deceased father. Id. The plaintiff brought suit decades after the wrongful transfer, and

the defendant argued that the claims were time barred. Id. at 337. The Kentucky Court of

Appeals, at that time Kentucky’s highest court, disagreed, holding that a fiduciary relationship

existed between the plaintiff and her uncle, and the uncle’s failure to disclose the wrongful

transfer tolled the statute of limitations. Id. at 339.

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In explaining the rationale for its holding, the Kentucky Court of Appeals focused on the

close family relationship between the plaintiff and her uncle. The court cited the prevailing rule

from other jurisdictions that:

Where a confidential relationship exists between the parties, failure to discover

the facts constituting fraud may be excused. In such a case so long as the

relationship continues uprepudiated [sic], there is nothing to put the injured party

on inquiry, and he cannot be said to have failed to use diligence in detecting the

fraud. Thus it has been held that a complainant is not chargeable with want of

diligence in not discoverning [sic] the fraud of his guardian in concealing the

receipt and existence of property where such guardian was his step-father, in

whose family, and as whose child he was brought up, and in whom he had

implicit confidence, there being no reason to suspect that a fraud was being

practiced.

Id. at 338 (first and third emphases added; citation and internal quotation marks omitted).

Applying these principles, the court reasoned “that considering the fact that [the defendant] was

the uncle of the plaintiff . . . such a fiduciary relationship existed between the [uncle] and this

plaintiff that it would have been embarrassing for her to have questioned her uncle’s integrity, or

have demanded that he show her the bonds which he said were in his possession[.]” Id. at 339.

The court thus held that the uncle’s failure to disclose his misappropriation of her assets “tolled

the running of the statute of limitations” notwithstanding the plaintiff’s failure to discover the

wrongdoing. Id. at 340.

Defendants argue that Security Trust only applies to cases where the plaintiff has no

reason whatsoever to suspect that the defendant has engaged in any wrongdoing. Instead,

Defendants argue that the Court should follow the rule ostensibly set forth in Adams v. Ison,

249 S.W.2d 791, 793 (Ky. 1952), where the Kentucky Court of Appeals stated that the statute of

limitations “begins to run . . . when the fraud or concealment . . . should have been discovered by

the exercise of reasonable diligence by the injured [party].”

Defendants’ interpretation misreads Adams. In that case, a doctor negligently left a piece

of rubber tubing inside of a patient during surgery. Id. When the patient discovered the tubing,

the doctor told him not to worry because the tubing would eventually degrade within the body.

Id. The tubing did not erode over the course of twenty years, causing the patient to lose one of

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his lungs. Id. When the plaintiff later brought suit, the defendant argued that his cause of action

was barred by the statute of limitations.

The Kentucky Court of Appeals disagreed, holding that the limitations period was tolled

after the doctor concealed the degree of the plaintiff’s injury by advising him that the rubber tube

was not harmful. Id. The court once again placed special emphasis on the “intimate”

relationship between the plaintiff and the defendant:

The relationship of a patient to his physician is by its very nature one of the most

intimate. Its foundation is the theory that the physician is learned, skilled and

experienced in the afflictions of the body about which the patient ordinarily

knows little or nothing but which are of the most vital importance to him.

Therefore, the patient must necessarily place great reliance, faith and confidence

in the professional word, advice and acts of his doctor. It is the physician’s duty

to act with the utmost good faith and to speak fairly and truthfully at the peril of

being held liable for damages for fraud and deceit. 41 Am.Jur., Physicians and

Surgeons, Secs. 70, 73, 74; 70 C.J.S., Physicians and Surgeons, § 36; Cf. Walden

v. Jones, 289 Ky. 395, 158 S.W.2d 609, 141 A.L.R. 105. Since the relationship of

physician and patient begets confidence and reliance, a liberal attitude should be

taken in behalf of the patient. No degree of deceit or fraud by the doctor to avoid

legal liability for malpractice by enabling himself to set up the shield of the

statute of limitations should be permitted. Schmucking v. Mayo, 183 Minn. 37,

235 N.W. 633; Groendal v. Westrate, 171 Mich. 92, 137 N.W. 87, Ann.Cas.

1914B, 906; Hudson v. Shoulders, 164 Tenn. 70, 45 S.W.2d 1072. We have so

held in cases where the relationship was that of mother and son, Loy v. Nelson,

201 Ky. 710, 258 S.W. 303 and guardian and ward. Security Trust Co. v. Wilson,

307 Ky. 152, 210 S.W.2d 336.

Id. at 793–94 (emphasis added). Notably, the court did not run the statute of limitations from the

time the plaintiff reasonably should have discovered his cause of action—the instant the doctor

confirmed his malpractice. Instead, the court applied its rule from Security Trust that the

limitation period should be tolled when a defendant abuses a confidential relationship to prevent

the plaintiff from discovering her cause of action. Id.

This case closely parallels Security Trust. As in Security Trust, Plaintiffs and Defendants

were in a close family relationship that would have made it difficult for Plaintiffs to question

their brothers’ integrity or demand a detailed accounting of the brothers’ business activities. The

parties’ family dynamics were such that Plaintiffs trusted their brothers implicitly, and generally

deferred to their business judgment. Moreover, Defendants reacted aggressively and

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disparagingly whenever Plaintiffs tried to inquire into Defendants’ management of the family

business and their parents’ assets. Under these circumstances, Kentucky law excuses Plaintiffs’

failure to discover Defendants’ wrongful conduct.3 Security Trust, 210 S.W.2d at 338 (“Where a

confidential relationship exists between the parties, failure to discover the facts constituting fraud

may be excused.” (citation omitted)).

Martom separately argues that equitable tolling cannot apply to Plaintiffs’ claims against

it, because it was never in a fiduciary relationship with Plaintiffs. We reject this argument.

The district court found that Martom was created by Griffy and Dennis to wrongfully circumvent

Kentucky’s law against self-dealing. Kentucky law places persons and entities that aid or abet a

tort in the same position as the primary tortfeasor. See Steelvest, Inc. v. Scansteel Serv. Ctr.,

807 S.W.2d 476, 486 (Ky. 1991); cf. Miles Farm Supply, LLC v. Helena Chem. Co., 595 F.3d

663, 666 (6th Cir. 2010) (explaining that Kentucky follows § 876 of the Second Restatement of

Torts, which imposes aiding and abetting liability on parties that knowingly assist in a

tortfeasor’s breach of fiduciary duties). Because Martom participated in Griffy and Dennis’

wrongdoing, equitable principles prevent it from invoking the statute of limitations. Emberton,

299 S.W.3d at 573 (noting that Kentucky’s equitable tolling statute does not permit an

“inequitable resort to a plea of limitations” (quoting Adams, 249 S.W.2d at 793)).

C. Effect of Betsy’s 1990 Lawsuit

Defendants next argue that the Holt Plaintiffs’ claims are barred by: (i) the release

provision in the 1993 settlement agreement they signed terminating Betsy’s derivative claims

against Dennis and Griffy; and (ii) the doctrine of collateral estoppel.4 Once again we disagree.

3

Defendants cite Ham v. Sterling Emergency Servs. of the Midwest, Inc., 575 F. App’x 610, 614 (6th Cir.

2014), for the proposition that a party “is not obstructed or misled under [Section 413.190(2)] if the exercise of

reasonable diligence would allow him to pursue his claim,” even where the obstructive conduct is “remain[ing]

silent when the duty to speak or disclose is imposed by law.” (citation and internal quotation marks omitted).

However, Ham is distinguishable because it did not involve a confidential fiduciary relationship between family

members. Kentucky law did not require the Holt Plaintiffs to disbelieve their brothers’ representations and accuse

them of fraud in order to preserve their claims.

4

All parties concede that the 1993 settlement prevents Betsy from bringing any claims related to the 1986

stock transactions.

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The district court refused to enforce the release provision in the 1993 settlement

agreement because it found that Defendants violated their fiduciary duties to the Holt Plaintiffs

by misrepresenting the nature of Betsy’s 1990 lawsuit, failing to disclose their own wrongdoing,

and misleading the Holt Plaintiffs into signing an inequitable settlement agreement. The district

court also rejected Defendants’ collateral estoppel argument because it determined that the Holt

Plaintiffs were not adequately represented in Betsy’s lawsuit. The district court found that

Betsy’s position was adverse to the Holt Plaintiffs—at one point during the settlement

negotiations, Betsy rejected a proposal that the Holt Plaintiffs receive a portion of Griffin

Industries’ stock because doing so would have diluted her own share. Because the Holt Plaintiffs

thus did not have a full and fair opportunity to litigate their rights in the 1990 lawsuit, the district

court found that the suit could not bar their claims in this lawsuit.

On appeal, Defendants attack the district court’s determination on two grounds. First,

Defendants argue that the district court already determined in the 1990 lawsuit that Betsy was an

adequate representative for the Holt Plaintiffs, and aver that the district court’s prior

determination should govern in this case as well. Second, Defendants argue that they ceased

having fiduciary duties to the Holt Plaintiffs once Betsy brought the derivative suit, because the

Holt Plaintiffs and Defendants then became adverse parties.

Much like the district court, we do not find Defendants’ arguments persuasive. We have

reviewed the record from the 1990 lawsuit, and the district court never determined that Betsy

was an adequate representative of the Holt Plaintiffs’ interests. Instead, the district court

expressly reserved that issue for trial, and the issue was never litigated further because Betsy’s

settlement terminated the proceedings. We cannot find support for Defendants’ representations

to the contrary. Because there is no real question that the Holt Plaintiffs were not adequately

represented in the prior suit—Betsy’s litigation conduct shows that she was not trying to

maximize recovery for her sisters—Defendants cannot invoke collateral estoppel against them.

See Moore v. Commonwealth, 954 S.W.2d 317, 319 (Ky. 1997) (collateral estoppel requires that

the party have had “a full and fair opportunity to litigate” the prior suit).

Moreover, Defendants cite no authority for their dubious claim that they ceased having

any fiduciary duties to the Holt Plaintiffs once Betsy filed her 1990 derivative lawsuit. Under

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Kentucky law, fiduciary duties continue as long as the parties enjoy a confidential relationship.

See Steelvest, 807 S.W.2d at 486. The record is clear that Defendants continued to have a

confidential relationship with the Holt Plaintiffs even after Betsy filed the 1990 lawsuit; indeed,

the Holt Plaintiffs signed the 1993 settlement agreement precisely because they continued to

trust Dennis and Griffy implicitly. Moreover, it would create an entirely untenable rule if we

were to accept Defendants’ arguments. If the filing of a shareholder derivative suit relieved

management of all of its fiduciary duties to the corporation and its shareholders, then

management could plunder a corporation’s assets with impunity every time a derivative suit is

filed against them. This outcome would, of course, undermine the very purpose animating the

law of fiduciary duties, which is to assure that fiduciaries do not betray the trust reposed in them.

In arguing to the contrary, the dissent posits that Defendants had no “brotherly ‘fiduciary

duty’ to discourage settlement” with their sisters because “the parties were engaged on opposite

sides of a lawsuit in which the sisters claimed serious wrongdoing by the brothers.” Post at 57

(Opinion of Merritt, J.). This formulation misstates key facts regarding the 1993 lawsuit. The

“sisters,” plural, did not sue Defendants in 1993—Betsy did, and her settlement with Defendants

unquestionably prevents her from recovering any additional sums related to Defendants’ illicit

stock transactions. See supra, note 4. Linda, Cyndi, and Judy, by contrast, were only nominal

parties to the lawsuit because Betsy brought a derivative claim on behalf of all Griffin Industries

shareholders. The district court found that these sisters did not discover the nature of Betsy’s

lawsuit until 2010 because Defendants hid and lied about Betsy’s claims, and that Defendants

browbeat them into signing a settlement agreement that they had not read and did not understand.

Thus, contrary to the dissent’s insinuations, our holding is not that adverse parties always

continue to owe fiduciary duties to one another during litigation, or that Defendants were not

permitted to settle with the Holt Plaintiffs. Rather, it is that fiduciaries are not relieved of their

duty of loyalty towards their beneficiaries just because those beneficiaries are unknowingly

swept up in a third party’s shareholder derivative lawsuit against the fiduciaries. If Defendants

wished to settle with the Holt Plaintiffs, they were required to follow settled agency principles

and make sure that the Holt Plaintiffs understood the rights that they were signing away. See

Restatement (Second) of Contracts § 173 (1981) (“If a fiduciary makes a contract with his

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beneficiary relating to matters within the scope of the fiduciary relation, the contract is voidable

by the beneficiary, unless (a) it is on fair terms, and (b) all parties beneficially interested manifest

assent with full understanding of their legal rights and of all relevant facts that the fiduciary

knows or should know.”). Any other rule would permit widespread misbehavior by fiduciaries

subject to active derivative lawsuits, even though most of the shareholder-beneficiaries had no

role in initiating the suit—a truly damaging and illogical result.

Our conclusion that Dennis and Griffy continued to owe fiduciary duties to the Holt

Plaintiffs after Betsy’s 1990 lawsuit was filed makes clear that the brothers’ failure to disclose

the nature of the lawsuit and the 1993 settlement to the Holt Plaintiffs rendered the settlement’s

release provision invalid. Numerous cases establish that contractual releases between a fiduciary

and a beneficiary are unenforceable if the fiduciary fails to make sufficient disclosures to allow

the beneficiary to fairly determine whether to release her claims. See, e.g., Masterson v.

Pergament, 203 F.2d 315, 322 (6th Cir. 1953) (“A release obtained by a fiduciary through

concealment or misrepresentation is of no effect.”); Mazak Corp. v. King, 496 F. App’x 507, 511

(6th Cir. 2012) (Like “the vast majority of state and federal courts,” Kentucky law requires that a

“release must be set aside if the fiduciary failed to make a full disclosure of all relevant facts to

the beneficiary.”); Hale v. Moore, 289 S.W.3d 567, 582–83 (Ky. Ct. App. 2008) (holding that

release signed by beneficiaries was invalid where the beneficiaries “were not fully apprised of

the consequences of signing the [release] by” their fiduciaries).

Accordingly, we hold that the 1993 settlement agreement and the doctrine of collateral

estoppel do not bar Plaintiffs’ claims.

D. Arguments That Defendants Did Not Breach Their Fiduciary Duties

1. Liability for Sales of John’s Griffin Industries Stock

i. Choice of Law

Defendants argue that they could not have breached any fiduciary duties with respect to

the 1986 sale of their father’s Griffin Industries stock from his revocable trust, because they did

not owe any fiduciary duties to Plaintiffs at all. John’s revocable trust contains a choice of law

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clause specifying that the trust is governed by Ohio law. Under Ohio law, trustees of revocable

trusts owe fiduciary duties only to the trust’s settlor, and not to any of its beneficiaries, unless the

settlor becomes incapacitated or dies. See Ohio Rev. Code § 5806.03(A); Puhl v. U.S. Bank,

N.A., 34 N.E.3d 530, 536 (Ohio Ct. App. 2015) (“[T]he duties of the trustee are owed exclusively

to the settlor during the settlor’s lifetime.”). John did not die until 1995, and the district court

made no express finding that he became incapacitated; accordingly, Defendants arguably had no

fiduciary duties to Plaintiffs under Ohio law when the 1986 stock sales occurred. Therefore,

Defendants argue that the district court’s judgment must be vacated insofar as it penalized them

for improper sales they made as John’s trustees.

We reject Defendants’ argument because we conclude that Kentucky courts would apply

Kentucky law to this dispute notwithstanding the trust’s Ohio choice of law clause. Federal

courts exercising supplemental jurisdiction must apply the forum state’s choice of law rules to

select the applicable state substantive law. See Felder v. Casey, 487 U.S. 131, 151 (1988); see

also Palm Beach Golf Ctr.-Boca, Inc. v. John G. Sarris, D.D.S., P.A., 781 F.3d 1245, 1260 (11th

Cir. 2015); McCoy v. Iberdrola Renewables, Inc., 760 F.3d 674, 684 (7th Cir. 2014). Under

Kentucky law, the “meaning and effect of the terms of a trust . . . are determined by . . . (1) [t]he

law of the jurisdiction designated in the terms [of the trust instrument] unless the designation of

that jurisdiction’s law is contrary to a strong public policy of the jurisdiction having the most

significant relationship to the matter at issue[.]” Ky. Rev. Stat. § 386B.1-050(1) (emphasis

added).

We have uncovered no Kentucky cases applying or rejecting a choice of law clause in a

trust, and the parties have not cited any such cases. We are thus left without any binding

authority to guide us in determining whether applying Ohio law to this dispute would be

“contrary to a strong public policy of the jurisdiction having the most significant relationship to

the matter at issue.” Id. However, Kentucky has numerous cases dealing with the applicability

of contractual choice of law clauses. Because such clauses serve an identical purpose whether

they appear in trust instruments or contracts, these cases are highly relevant in fashioning our

Erie guess as to which state’s law Kentucky courts would apply to this case. See Erie R.R. Co. v.

Tompkins, 304 U.S. 64, 78 (1938).

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In the contractual context, we have recognized that “Kentucky courts will not

automatically honor a choice-of-law provision, to the exclusion of all other considerations.”

Wallace Hardware Co. v. Abrams, 223 F.3d 382, 393 (6th Cir. 2000). As we have noted on

numerous occasions, Kentucky courts have an extremely strong and highly unusual preference

for applying Kentucky law even in situations where most states would decline to apply their own

laws. See, e.g., id. at 391 (“On at least two occasions, we likewise have noted this provincial

tendency in Kentucky choice-of-law rules.”); Adam v. J.B. Hunt Transp., Inc., 130 F.3d 219, 230

(6th Cir. 1997) (noting that “Kentucky does take the position that when a Kentucky court has

jurisdiction over the parties, ‘[the court's] primary responsibility is to follow its own substantive

law.’” (alteration in original) (quoting Foster v. Leggett, 484 S.W.2d 827, 829 (Ky. 1972)));

Johnson v. S.O.S. Transp., Inc., 926 F.2d 516, 519 n. 6 (6th Cir. 1991) (“Kentucky’s conflict of

law rules favor the application of its own law whenever it can be justified.”); Harris Corp. v.

Comair, Inc., 712 F.2d 1069, 1071 (6th Cir. 1983) (“Kentucky courts have apparently applied

Kentucky substantive law whenever possible . . . . [I]t is apparent that Kentucky applies its own

law unless there are overwhelming interests to the contrary.” (emphasis in original) (discussing

Breeding v. Mass. Indem. & Life Ins. Co., 633 S.W.2d 717 (Ky. 1982))); see also Paine v. La

Quinta Motor Inns, Inc., 736 S.W.2d 355, 357 (Ky. Ct. App. 1987) (noting that Kentucky courts

“are very egocentric or protective concerning choice of law questions”), overruled on other

grounds by Oliver v. Schultz, 885 S.W.2d 699 (Ky. 1994).

In Wallace Hardware, we made an Erie guess that Kentucky courts would enforce

contractual choice of law provisions unless “the chosen state has no substantial relationship to

the parties or the transaction.” 223 F.3d at 397 (citation and internal quotation marks omitted).

Subsequently, the Kentucky Supreme Court has confirmed that it will apply its own law to a

dispute with ties to Kentucky, even in spite of an otherwise-valid choice of law clause. See

Schnuerle v. Insight Commc’ns Co., 376 S.W.3d 561, 566–67 (Ky. 2012) (applying Kentucky

law in spite of a New York choice of law provision because “Kentucky had the greater interest

in, and the most significant relationship to, the transaction and the parties”). Thus, we have had

to admit that our Erie guess in Wallace Hardware was wrong, and that Kentucky’s most-

substantial-relationship test trumps even an otherwise-valid choice of law clause when the

dispute is centered in Kentucky. See Hackney v. Lincoln Nat’l Fire Ins. Co., 657 F. App’x 563,

Nos. 16-6221/6225/6226/6227 Osborn, et al. v. Griffin, et al. Page 26

570 (6th Cir. 2016) (“Thus, as several federal district court decisions have noted, Wallace

Hardware’s assumption about the Kentucky Supreme Court’s application of [choice of law

clauses] has now proven faulty.”).

In the instant case, there can be no question that Kentucky has the most significant

relationship to John’s revocable trust. See Restatement (Second) of Conflict of Laws §§ 270, 6

(1971). John, his business, his trustees, most of his assets, and most of his trust’s beneficiaries

were all centered in Kentucky. The trust’s only apparent ties to Ohio are that: (i) it was created in

Ohio; and (ii) John’s lawyers were in Cincinnati, Ohio. Thus, Kentucky has a far more

significant relationship to the trust than does Ohio. The only remaining question is whether

Kentucky has a “strong” enough public policy to overcome the default presumption that Ohio

law applies per the terms of the trust’s choice of law provision. Ky. Rev. Stat. § 386B.1-050(1).

We believe that Kentucky courts would apply Kentucky law in determining the fiduciary

duties created by John’s trust. Kentucky’s public policy of protecting trust beneficiaries against

self-dealing trustees is so strong that Kentucky has enacted a separate statutory provision

confirming that none of its other statutes governing trusts “in any way relieve a fiduciary who

breaches his trust and causes any loss thereby of his liability under his bond, or of any civil or

criminal liability provided for by law.” Ky. Rev. Stat. § 386.150. Moreover, as stated earlier,

Kentucky also has an unusually strong preference for applying its own laws, even in the face of

valid choice of law provisions. When these factors are weighed together, we believe that

Kentucky courts would not apply Ohio law, particularly since doing so might relieve Defendants

of liability for wrongful conduct that occurred in Kentucky, where the effects of this litigation

will be mostly felt.5

5

Kentucky is alone in our Circuit in its refusal to regularly honor choice of law provisions. See Wise v.

Zwicker & Assocs., P.C., 780 F.3d 710, 715 (6th Cir. 2015) (choice of law provisions generally enforceable under

Ohio law); Town of Smyrna v. Mun. Gas Auth. of Ga., 723 F.3d 640, 645–46 (6th Cir. 2013) (same for Tennessee);

Johnson v. Ventra Grp., Inc., 191 F.3d 732, 739 (6th Cir. 1999) (same for Michigan). Nevertheless, we must

faithfully apply Kentucky’s choice of law policy even though other states may have given more deference to the

choice of law provision in John’s trust. Because Kentucky has by far the greatest interest in the subject matter of

this lawsuit, we believe that Kentucky courts would apply their own law in adjudicating this dispute, and we thus

follow suit.

Nos. 16-6221/6225/6226/6227 Osborn, et al. v. Griffin, et al. Page 27

Applying Kentucky law, we must reject Defendants’ argument that they did not have any

fiduciary duties to their sisters stemming from their positions as trustees of John’s trust. Under

Kentucky law, “a trustee has a specific duty, inherent to the trust relationship, to provide

information relating to the trust and [] this specific duty extends to [the trust’s] conditional or

contingent beneficiaries,” such as Plaintiffs. JP Morgan Chase Bank, N.A. v. Longmeyer,

275 S.W.3d 697, 701 (Ky. 2009). Moreover, fiduciary duties also attach where two parties are in

“a confidential relationship” such that one party “repos[es] a certain degree of trust and

confidence in” the other. Steelvest, 807 S.W.2d at 486. Thus, in this case, Defendants were in a

fiduciary relationship with Plaintiffs for two reasons: (i) Defendants were trustees of John’s trust,

and Plaintiffs were among the trust’s contingent beneficiaries; and (ii) Defendants assumed

responsibility for managing the family’s financial affairs, and encouraged Plaintiffs to trust that

they would fairly administer their father’s assets. We therefore hold that the choice of law

provision in John’s trust does not shield Defendants from liability.

ii. Liability Analysis

Defendants argue that even if Kentucky law applies, they did not breach their fiduciary

duties to their sisters because John ratified the 1986 stock sales in the Fourth Amendment and

Sixth Codicil to his trust and will, respectively. Those two instruments made clear that John’s

sons would get all of his interest in Griffin Industries, and that his daughters would receive any

cash left in his estate. Defendants argue that John had all of the information necessary to ratify

the past transactions because of his “life experience” and general knowledge of how he wanted

to divide up his estate.

The district court took a contrary view. As recited earlier, under Kentucky law, trustees

have “a specific duty, inherent to the trust relationship, to provide information relating to the

trust and [] this specific duty extends to conditional or contingent beneficiaries.” JP Morgan

Chase, 275 S.W.3d at 701. The district court found that Defendants violated this duty by failing

to notify their sisters (the trust’s contingent beneficiaries) of the stock transactions.

The district court further found that the Fourth Amendment and Sixth Codicil were

insufficient to ratify Defendants’ breaches of their fiduciary duties. Under Kentucky law,

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ratification of an agent or fiduciary’s wrongful “conduct requires two elements: 1) an after-the-

fact awareness of the conduct; and 2) an intent to ratify it.” Saint Joseph Healthcare, Inc. v.

Thomas, 487 S.W.3d 864, 875 (Ky. 2016). Whether the principal’s “‘conduct is sufficient to

indicate consent’ to ratification ‘is a question of fact[.]’” Pannell v. Shannon, 425 S.W.3d 58, 84

(Ky. 2014) (citation omitted). “Conduct that can be otherwise explained may not effect

ratification.” Restatement (Third) of Agency § 4.01(2) cmt. d (2006). The district court

explained its finding that John lacked intent to ratify as follows:

Based on the totality of the evidence, including [John’s] pre-stroke estate

documents, and the credibility of the witnesses, the Court concludes that, even in

the absence of the 1985 Plan, [John] would not have sold his stock to his sons

during his lifetime. Rather, as was its impression at summary judgment, the Court

concludes that [John’s] purported ratifications of those sales—in the Sixth Codicil

to his will, the Fourth Amendment to his Trust, and the affidavit he purportedly

executed on January 20, 1992 — were orchestrated by Dennis and Griffy, with

the assistance of counsel, “to obtain [John’s] post hoc imprimatur on the prior

sales that defendants orchestrated for purposes of retaining control of the

Company.” (Doc. 590 at 51). This conclusion is supported by the fact that these

actions were taken during the pendency of—and most likely in response to—

Betsy’s 1990 lawsuit.

[]The Court further concludes that, given the testimony about [John’s] condition

after his stroke, Dr. Parsons’ evaluation, and the surrounding circumstances,

[John] did not have “full knowledge of the material facts” such that any valid

ratification occurred. See Int’l Shoe Co. v. Johnson, 252 Ky. 440, 508 (Ky. 1934)

(citations omitted).

(R. 856, ¶¶ 249–50.)

In other words, the district court found that prior to his stroke, John had manifested a

consistent intention to divide his estate equally amongst his children. After his stroke, John had

a functional IQ of roughly 67, and, at the behest of his sons, started signing estate plan changes

that conveniently benefitted the sons in litigation against his daughters. The district court found

this sequence of events suspicious, and ultimately concluded that Defendants manipulated John

into functionally disinheriting his daughters. Defendants have pointed to no facts that

convincingly rebut this version of the events, and we thus cannot hold that the district court

clearly erred. In fact, the district court’s conclusion is supported by Dennis’s own statements

that John could not understand complex issues after his stroke. Accordingly, we hold that the

Nos. 16-6221/6225/6226/6227 Osborn, et al. v. Griffin, et al. Page 29

district court’s conclusion that John lacked sufficient intent to ratify Defendants’ breaches was

not clearly erroneous.

2. Liability for Sales of Rosellen’s Griffin Industries Stock

Defendants next argue that they could not have breached any fiduciary duties with

respect to the sale of Rosellen’s Griffin Industries stock, because they had no fiduciary duties to

Plaintiffs with respect to their administration of their mother’s estate. When Rosellen died in

1985, her estate plan specified that her stock would pass to John, with the residue of her estate

going to her trust. John disclaimed his interest in Rosellen’s stock, which meant that under

Rosellen’s will, her stock was supposed to flow first into her trust, and then to her children

equally. Instead of following Rosellen’s wishes, Dennis and Griffy, the executors of her estate,

sold the stock to themselves at an allegedly reduced price, and distributed the sale proceeds to

Rosellen’s trust. This was a classic case of improper self-dealing, which unquestionably violated

Defendants’ fiduciary duties to Rosellen’s estate and her trust. See, e.g., Hutchings v. Louisville

Tr. Co., 276 S.W.2d 461, 464 (Ky. 1954) (“The law does not permit a person in a fiduciary

capacity to handle the beneficiary’s property so as to further his own ends.”).

Nevertheless, Defendants argue that only the trustee managing Rosellen’s trust (Star

Bank) had the right to sue to recover property owed to Rosellen’s trust, and not any of the trust’s

beneficiaries. In support of this argument, Defendants cite Forester v. Wener, 191 S.W. 884

(Ky. 1917), and Lovell v. Nelson, 29 Ky. 247 (1831).

Neither of these cases convincingly supports Defendants’ argument. In Forester, the

Kentucky Court of Appeals briefly stated in dicta that the plaintiff beneficiary “would have no

standing in this suit to recover any part of [the property allegedly owed to the trust], because her

interest . . . is devised to trustees, and they, and not she, would be the ones to sue to recover on

it.” 191 S.W. at 885. In the very next sentence, however, the court stated that “[h]aving

determined that the [defendant] owns the income individually and not as trustee for her children,

it becomes unnecessary to consider the duties of trustees or the rights of cestui que trusts

discussed by counsel for plaintiff in his brief.” Id. (emphasis added). There is much danger in

Nos. 16-6221/6225/6226/6227 Osborn, et al. v. Griffin, et al. Page 30

drawing a sweeping rule from dicta in a century-old case where the court makes clear that it has

not fully considered the opposing party’s arguments.

Moreover, Lovell is not on point at all. In that case, the trustee conveyed a piece of real

property to a third party, and gave the third party the right to sell the land under certain

conditions. 29 Ky. at 247. In the contract with the third party, the trustee promised to

compensate the trust beneficiary if any of the land was sold. Id. The trust beneficiary sued when

the third party sold some of the land, claiming that the trustee had breached the contract with the

third party. Id. The court held that the beneficiary could not sue to enforce the contract because

it was not a party to it, and not because of any principles of trust law. Id. Even the court’s

limited contract holding in Lovell has likely been superseded by the modern law of third party

beneficiaries. See Ping v. Beverly Enters., Inc., 376 S.W.3d 581, 595–96 (Ky. 2012).

Instead, the correct rule is set out in the Second Restatement of Trusts. That treatise

states that a trust beneficiary may maintain a suit in equity against a third party for property

improperly diverted from the trust if: (i) “the trustee improperly refuses or neglects to bring an

action against the third person;” or (ii) “there is no trustee.” Restatement (Second) of Trusts

§ 282(2)–(3) (1959).

Both of these conditions are met in this case. Unquestionably, Defendants breached their

fiduciary duties to Rosellen’s trust by violating Rosellen’s will and engaging in a self-dealing

transaction to acquire her Griffin Industries stock. The trustee should have brought suit to force

Defendants to convey the shares to the trust, but neglected to do so. This omission authorized

Plaintiffs, as the trust’s beneficiaries, to sue in equity for the property owed to the trust. Id.

§ 282(2). Moreover, the record contains an affidavit from Star Bank stating its belief that the

trust was dissolved, and its duties were terminated, when all trust property was distributed in

1989. (R. 430-13, PageID #19502.) Therefore, there was no trustee anymore to sue on behalf of

the trust, and Plaintiffs were therefore authorized to bring suit themselves. Restatement (Second)

of Trusts § 282(3).

We have located no Kentucky case squarely addressing a beneficiary’s right to sue when

the trustee fails to remedy a breach of fiduciary duties. Nevertheless, we believe that the

Nos. 16-6221/6225/6226/6227 Osborn, et al. v. Griffin, et al. Page 31

Kentucky Supreme Court would adopt § 282 of the Second Restatement, because that court has

cited the Second Restatement numerous times in articulating principles of Kentucky trust law.

See, e.g., Cummings v. Pitman, 239 S.W.3d 77, 81 n.2 (Ky. 2007), overruled on other grounds

by Caesar’s Riverboat Casino, LLC v. Beach, 336 S.W.3d 51 (Ky. 2011); Hoheimer v.

Hoheimer, 30 S.W.3d 176, 179 (Ky. 2000); Rakhman v. Zusstone, 957 S.W.2d 241, 244 (Ky.

1997); First Ky. Tr. Co. v. Christian, 849 S.W.2d 534, 538 (Ky. 1993); Phillips v. Lowe,

639 S.W.2d 782, 783–84 (Ky. 1982); Eitel v. John N. Norton Mem. Infirmary, 441 S.W.2d 438,

442 (Ky. 1969). Accordingly, we hold that Plaintiffs had the right to bring suit on the harm they

suffered from Defendants’ failure to convey Rosellen’s stock to her trust.

As a last-ditch argument, Defendants assert that they could not have breached their

fiduciary duties to Rosellen’s estate or her trust (and by extension, to Plaintiffs), because

Kentucky law explicitly authorizes an executor to sell estate assets unless “distribution in kind

has been demanded prior to the sale by the . . . beneficiary entitled to such distribution in kind.”

Ky. Rev. Stat. § 395.200(3). Defendants further point out that Plaintiffs never demanded

distribution in kind at the time of Rosellen’s death. This is all true enough—but while Kentucky

law might authorize executors to sell the decedent’s property in some circumstances, it most

certainly does not authorize executors or other fiduciaries to engage in self-dealing. Hutchings,

276 S.W.2d at 464. And moreover, as the district court noted, Plaintiffs never had a fair

opportunity to demand distribution in kind because Defendants hid their illicit stock transactions

and failed to inform Plaintiffs of their machinations.

In Lucas v. Mannering, the Kentucky Court of Appeals held that Kentucky law does not

invest executors “with the unqualified authority to sell” the estate’s property. 745 S.W.2d 654,

656 (Ky. Ct. App. 1987).

An executrix is a fiduciary. KRS 395.001. More accurately, an executrix is a

trustee, and funds of the estate in her hands are trust funds. Carpenter v. Planck,

304 Ky. 644, 201 S.W.2d 908 (1947); 31 Am.Jur.2d Executors and

Administrators Section 2 (1967). The executrix represents the testatrix and to a

very great extent, the heirs, legatees or distributees, for whose benefit probate

proceedings are had. 33 C.J.S. Executors and Administrators Section 142 (1942).

See Carpenter, supra.

Nos. 16-6221/6225/6226/6227 Osborn, et al. v. Griffin, et al. Page 32

Id. In that case, the court held that the executrix violated her fiduciary duties by selling a piece

of real property rather than conveying it in kind to the beneficiaries, even though the

beneficiaries had never made a demand for in-kind transfer, because the record reflected “the

beneficiaries’ desire to take the property in-kind rather than the proceeds from a sale of it.” Id.

These same principles apply here. Once Plaintiffs found out about the 1986 stock

transactions, they immediately wanted the stock itself rather than the sale proceeds Defendants

gave the trust after their self-dealing transaction. Under these circumstances, we predict that

Kentucky law would not shield Defendants’ conduct.

3. Liability for Sales of Craig Protein Stock and Martom Real Estate

Defendants next argue that there was a genuine dispute of material fact as to whether they

breached their fiduciary duties with respect to the sales of Craig Protein Stock and Martom

Properties real estate. Defendants do not contest that those transactions were self-dealing, but

argue that summary judgment was inappropriate because they introduced expert evidence

suggesting that the sales were ultimately good for Plaintiffs.

As Plaintiffs rightly note, this argument deserves very little comment. Fiduciaries are

prohibited from clandestine self-dealing, period. Hutchings, 276 S.W.2d at 464; see also

Restatement (Second) of Trusts § 170(1) (“The trustee is under a duty to the beneficiary to

administer the trust solely in the interests of the beneficiary.”). Under this rule, “if the trustee

attempts to acquire an interest in the trust property without the consent of the beneficiary, the

beneficiary can avoid the transaction even though the transaction was fair.” Restatement

(Second) of Trusts § 170 cmt. w (emphasis added).

Moreover, as Plaintiffs point out, Defendants’ transactions were most certainly not fair.

The evidence in the record shows that the Craig Protein stock was substantially undervalued

when Defendants arranged for its sale. Marty and Tommy each separately bought 500 shares of

the Craig Protein stock from their brothers at $332,500. They were ultimately allowed to trade

those shares for Griffin Industries stock that returned $30,414,000 in distributions, a sizable

return on investment. Plaintiffs were never offered this opportunity because Defendants only

wanted their brothers to profit from the stock. In short, the evidence shows that Plaintiffs lost

Nos. 16-6221/6225/6226/6227 Osborn, et al. v. Griffin, et al. Page 33

millions of dollars in economic value because of Defendants’ inexplicable desire to exclude their

sisters from the siblings’ inheritance. We therefore affirm the district court’s grant of summary

judgment as to Plaintiffs’ claims regarding the Craig Protein stock and Martom real estate sales.

4. Martom’s Liability

Separate from the other Defendants, Martom offers two arguments for why it cannot be

liable for Dennis and Griffy’s breaches of fiduciary duties with respect to the 1995 real estate

transactions. Specifically, Martom argues that: (i) it owed no fiduciary duties to Plaintiffs, and

did not participate in Dennis and Griffy’s wrongdoing; and (ii) even if it did, it acquired the

properties through adverse possession.

We reject these arguments as well. First, under Kentucky Law, where “one purchases

land from an executor as such, he is bound to know whether or not the latter is authorized by the

will to make the sale, and if the executor has no such power the purchaser is not an innocent or

bona fide purchaser.” Buckner v. Buckner, 215 S.W. 420, 425 (Ky. 1919) (citation omitted);

Baker v. Pierce, 812 F.2d 1406, 1987 WL 36585, at *4 (6th Cir. 1987) (unpublished table

disposition) (same).

This is consistent with the common law of trusts. As the Supreme Court has explained:

Whenever the legal title to property is obtained through means or under

circumstances ‘which render it unconscientious for the holder of the legal title to

retain and enjoy the beneficial interest, equity impresses a constructive trust on

the property thus acquired in favor of the one who is truly and equitably entitled

to the same, although he may never, perhaps, have had any legal estate therein;

and a court of equity has jurisdiction to reach the property, either in the hands of

the original wrong-doer, or in the hands of any subsequent holder, until a

purchaser of it in good faith and without notice acquires a higher right, and takes

the property relieved from the trust.’

Moore v. Crawford, 130 U.S. 122, 128 (1889) (quoting 2 J. Pomeroy, Equity Jurisprudence

§ 1053, at 628–629 (1886)).

“Importantly, that a transferee was not ‘the original wrongdoer’ does not insulate him

from liability[.]” Harris Tr. & Sav. Bank v. Salomon Smith Barney, Inc., 530 U.S. 238, 251

(2000). Instead, “it has long been settled that when a trustee in breach of his fiduciary duty to

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the beneficiaries transfers trust property to a third person, the third person takes the property

subject to the trust, unless he has purchased the property for value and without notice of the

fiduciary's breach of duty. The trustee or beneficiaries may then maintain an action for

restitution of the property (if not already disposed of) or disgorgement of proceeds (if already

disposed of), and disgorgement of the third person's profits derived therefrom.” Id. at 250.

In the instant case, the district court found that: (i) Dennis and Griffy created Martom so

that they could acquire the real estate in John’s estate while skirting the law against self-dealing

transactions by executors; (ii) the Griffin Industries board agreed to the creation of Martom;

(iii) Martom was run entirely by Griffin Industries personnel; (iv) Marty and Tommy knew that

Martom was being formed as a vehicle to purchase their father’s real estate for Griffin

Industries’ use; and (v) through “their positions and ownership of Griffin Industries, Dennis and

Griffy controlled Martom from its formation to 2010.” (R. 856, ¶ 139.) The district court

therefore found that Martom—which was essentially controlled by Dennis and Griffy—was not a

bona fide purchaser for value, because it knew (as Dennis and Griffy did) that the real estate it

bought from John’s estate was being improperly conveyed. Osborn, 50 F. Supp. 3d at 802.

Defendants have offered no convincing reason why these detailed factual findings should be

ignored, and we can think of none. Accordingly, we reject Martom’s argument that it cannot be

subjected to transferee liability for Dennis and Griffy’s improper real estate transactions. Harris

Tr., 530 U.S. at 250; Buckner, 215 S.W. at 425.

Second, Martom cannot establish that it acquired adverse possession of disputed

properties under Kentucky law. One of the requirements for adverse possession is that the

possessor makes “open and notorious” use of the property. Appalachian Regional Healthcare,

Inc. v. Royal Crown Bottling Co., Inc., 824 S.W.2d 878, 880 (Ky. 1992). “To be ‘open and

notorious’ the possession must be conspicuous and not secret, so that the legal title holder has

notice of the adverse use.” Id. The district court found that Plaintiffs did not have notice of

Martom’s possession of the properties until 2010, and that Dennis and Griffy covered up their

unlawful real estate transaction. Accordingly, we hold that Martom’s use of the properties was

not “open and notorious,” even assuming that adverse possession can be a defense to an

equitable disgorgement action.

Nos. 16-6221/6225/6226/6227 Osborn, et al. v. Griffin, et al. Page 35

E. Laches

Our dissenting colleague argues that the district court should have invoked the doctrine of

laches to truncate Defendants’ liability for their illegal mid-1980s stock transactions as of

September 10, 1993—the date on which the Holt Plaintiffs arguably could have discovered

Defendants’ conduct through the exercise of reasonable diligence. See Post at 58–60 (citing

Taylor v. Commonwealth, 302 S.W.2d 583, 584 (Ky. Ct. App. 1957)). Thus, the dissent

proposes remanding to the district court to reconfigure the Holt Plaintiffs’ award, excluding any

profits or interest that accrued after September 10, 1993.

We note that although Defendants put forward and litigated a laches defense before the

district court, they have not raised or briefed that issue on appeal. Ordinarily, we limit our

consideration to the issues that the parties properly preserve and put before us. See, e.g., Powers

v. Hamilton Cty. Pub. Defender Comm’n, 501 F.3d 592, 610 (6th Cir. 2007) (“Courts generally

do not decide issues not raised by the parties.” (citation omitted)). However, because the dissent

has raised the laches issue, we will exercise our discretion to address the matter, even though the

issue has been waived.

Briefly stated, the doctrine of laches “serves to bar claims in circumstances where a party

engages in unreasonable delay to the prejudice of others rendering it inequitable to allow that

party to reverse a previous course of action.” Plaza Condominium Ass’n, Inc. v. Wellington

Corp., 920 S.W.2d 51, 54 (Ky. 1996). As the dissent correctly notes, laches may sometimes act

to limit a plaintiff’s recovery “where it appears that he could have informed himself of the facts

[giving rise to the defendant’s liability] by the exercise of reasonable diligence,” and thereby

prevented the accumulation over time of excessive monetary damages. Taylor, 302 S.W.2d at

584.6

However, because laches is an equitable defense, it is subject to the limitations imposed

by the doctrine of unclean hands. See, e.g., Precision Instrument Mfg. Co. v. Automotive

6

As it is unnecessary to the resolution of this case, we need not decide whether the equitable rule

announced in Security Trust would excuse a plaintiff’s laches when she is misled by a defendant with whom she

shares a confidential relationship, as it would excuse her failure to comply with the statute of limitations. See supra,

§ II.B.

Nos. 16-6221/6225/6226/6227 Osborn, et al. v. Griffin, et al. Page 36

Maintenance Mach. Co., 324 U.S. 806, 814 (1945) (“[H]e who comes into equity must come

with clean hands.”); United States v. Weintraub, 613 F.2d 612, 619 (6th Cir. 1979) (“[L]aches is

an equitable defense and . . . it can certainly be raised only by one who comes into equity with

clean hands.”); see also Parker v. Parker, No. 2012–CA–000079–MR, 2013 WL 2359661, at *2

(Ky. Ct. App. May 31, 2013) (invoking the unclean hands doctrine to disallow a laches

defense).7 “Under the ‘unclean hands doctrine,’ a party is precluded from judicial relief if that

party ‘engaged in fraudulent, illegal, or unconscionable conduct’ in connection ‘with the matter

in litigation.’” Mullins v. Picklesimer, 317 S.W.3d 569, 577 (Ky. 2010) (quoting Suter v.

Mazyck, 226 S.W.3d 837, 843 (Ky. Ct. App. 2007)). “In a long and unbroken line of cases [the

Kentucky Supreme Court] has refused relief to one, who has created by his fraudulent acts the

situation from which he asks to be extricated.” Id. (quoting Asher v. Asher, 129 S.W.2d 552, 553

(Ky. 1939)). Because a “trial courts [sic] decision to invoke the equitable defense of the unclean

hands doctrine rests within its sound discretion,” id., we review a district court’s decision to

disallow an equitable claim or defense because of unclean hands for abuse of discretion.

Performance Unlimited, Inc. v. Questar Publishers, Inc., 52 F.3d 1373, 1383 (6th Cir. 1995).

In the proceedings below, the district court invoked the unclean hands doctrine and

disallowed Defendants’ laches defense because it found that Defendants repeatedly and

flagrantly violated their fiduciary duties with respect to the administration of their parents’ estate

plans, and continued these violations even after they were sued by Betsy for their wrongful

conduct. The district court thus concluded that Defendants’ “decades-long refusal to fulfill their

fiduciary duty to deal fairly and openly with their sisters, and to see that the sisters received the

property left to them by their parents” should prevent “them from asserting any defense that

sounds in equity.” (R. 856, ¶ 219.) As we have already affirmed the district court’s findings and

legal conclusions with respect to Defendants’ liability, we cannot say that the district court

abused its discretion in determining that Defendants had unclean hands. This conclusion must

necessarily end the matter, because a defendant’s intentional wrongful conduct “is a dispositive,

7

Although the unclean hands doctrine “is typically employed by a defendant against a plaintiff who seeks

equitable relief, . . . it applies equally to a defendant who seeks equitable relief from the chancellor.” Weintraub,

613 F.2d at 619 n.22. “While it is not normally employed against a defendant merely brought to court by the suit of

another, insofar as [a defendant] seeks to invoke the powers of the [court] to bar [a plaintiff’s] claim due to laches,”

the unclean hands doctrine can foreclose the defendant’s laches argument. Id.

Nos. 16-6221/6225/6226/6227 Osborn, et al. v. Griffin, et al. Page 37

threshold inquiry that bars further consideration of the laches defense . . . .” Hermes Int’l v.

Lederer de Paris Fifth Ave., Inc., 219 F.3d 104, 107 (2d Cir. 2000). We therefore decline our

dissenting colleague’s invitation to invoke laches to limit the Holt Plaintiffs’ recovery.

III. Challenges to the District Court’s Remedy

A. Daubert Challenge

1. Standard of Review

We review the district court’s decision to admit expert testimony for abuse of discretion.

See, e.g., Tamraz v. Lincoln Elec. Co., 60 F.3d 665, 668 (6th Cir. 2010). “A district court abuses

its discretion if it bases its ruling on an erroneous view of the law or a clearly erroneous

assessment of the evidence.” United States v. LaVictor, 848 F.3d 428, 440 (6th Cir. 2017)

(quoting Best v. Lowe’s Home Ctrs., Inc., 563 F.3d 171, 176 (6th Cir. 2009)). “For expert

testimony to be admissible, the court must find the expert to be: (1) qualified; (2) her testimony

to be relevant; and (3) her testimony to be reliable.” Id. at 441.

“This Court reviews a district court’s decision on disgorgement for abuse of discretion.”

S.E.C. v. Johnston, 143 F.3d 260, 262 (6th Cir. 1998), overruled on other grounds by Raymond

B. Yates, M.D., P.C. Profit Sharing Plan v. Hendon, 541 U.S. 1 (2004); United States v.

Universal Mgmt. Servs., Inc., Corp., 191 F.3d 750, 762–63 (6th Cir. 1999) (“We review an

award of restitution for an abuse of discretion.”); United States v. Ford, 64 F. App’x 976, 983

(6th Cir. 2003); see also Rochow v. Life Ins. Co. of N. Am., 737 F.3d 415, 427 (6th Cir. 2013)

(explaining this Circuit’s case law regarding review of equitable disgorgement awards), vac. for

reh’g & overruled on other grounds 780 F.3d 364 (6th Cir. 2015) (en banc). “An appellate court

reviewing damages may adjust and/or correct the [trier of fact’s] award based on clear error in

calculation and based on the actual claims submitted to the [trier of fact] in closing argument.”

Arthur S. Landenderfer, Inc. v. S.E. Johnson Co., 917 F.2d 1413, 1444 (6th Cir. 1990).

2. Analysis

An equitable disgorgement award seeks to deprive the wrongdoer of his ill-gotten profits.

Universal Mgmt. Servs., 191 F.3d at 763. The district court calculated Defendants’ ill-gotten

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profits by accepting the testimony of Plaintiffs’ sole damages expert, accountant John E. Chilton.

Defendants argue that the district court should not have qualified Chilton as an expert because

his methodology was fundamentally unreliable. In particular, Defendants argue that Chilton

improperly: (i) failed to reduce Plaintiffs’ award by the amount of taxes they would have paid if

Defendants had not wrongfully deprived them of their Griffin Industries stock; (ii) manipulated

key assumptions in his analysis to maximize Plaintiffs’ award; and (iii) included sums in the

award that were not kept by Defendants, but were actually paid to innocent third parties.

After thoroughly reviewing the record and the relevant law, we conclude that none of

Defendants’ arguments establish that the district court abused its discretion in either admitting or

relying upon Chilton’s testimony.

First, Defendants and the dissent argue that Chilton should have taken into account the

unique tax structure of a Subchapter S-corporation in calculating Defendants’ profits. See Post at

61–62. Griffin Industries was an S-corporation. An S-corporation’s income taxes are paid

directly by its individual shareholders. See Maloof v. C.I.R., 456 F.3d 645, 647 (6th Cir. 2006).

Thus, an S-corporation typically distributes enough cash to its shareholders each year to pay the

taxes they owe on the S-Corporation’s earnings. Id. In calculating Defendants’ ill-gotten profits,

Chilton took into account all of the money Defendants received in disbursements from Griffin

Industries, and assessed the portion of the disbursements Plaintiffs would have received if

Defendants had not wrongfully deprived them of their shares. Defendants argue that this was

error because Defendants were required to pay most (if not all) of their disbursements to the IRS

in taxes. Defendants argue instead that Chilton should have reduced the monetary award by the

taxes Plaintiffs would have owed if they had owned the Griffin Industries shares all along.

We are not persuaded. The “general rule” is that the plaintiff’s recovery “should not be

reduced by the amount of money” saved in tax consequences avoided or incurred as a result of

the defendant’s wrongful conduct. See Burdett v. Miller, 957 F.2d 1375, 1383 (7th Cir. 1992)

(collecting cases); see also Fleischhauer v. Feltner, 879 F.2d 1290, 1301 (6th Cir. 1989)

(rejecting defendant’s argument that the plaintiff’s recovery “should be reduced by the amount of

tax benefits plaintiffs received”). In Burdett, similarly to this case, the defendant argued that the

plaintiff’s “damages for . . . breach of fiduciary duty” should “be reduced by the amount of

Nos. 16-6221/6225/6226/6227 Osborn, et al. v. Griffin, et al. Page 39

money that [the plaintiff] was able to save by deducting the loss of her investment from her

income on her tax returns.” 957 F.2d at 1382–83. The Seventh Circuit rejected this argument.

Judge Posner explained the rationale behind the rule as follows:

Suppose, to take a simpler case, that [the defendant] had tortiously destroyed [the

plaintiff’s] Ming vase worth $10,000 and [the plaintiff] had deducted this amount

as a casualty loss on her federal income tax return, garnering a tax saving of

$3,000. [The defendant] could not in the ensuing tort suit deduct the $3,000 from

the damages due [the plaintiff]. The tort caused a harm of $10,000, and the fact

that the plaintiff was able to lay off a part of the harm on someone else—the

taxpayer—is not a good reason to cut down the tortfeasor’s damages. It is true

that the result is a windfall to the plaintiff, but this is better than an equivalent

windfall to the tortfeasor . . . . [T]he only important point here is that the tax

treatment of the damages award is irrelevant to the defendant’s liability; it is a

matter between the plaintiff and the government.

Id. at 1383 (emphasis added).

In Fleischhauer, this Court adopted a similar rationale to prevent the defendant from

reducing his liability “by the amount of tax benefits [the] plaintiffs received.” 879 F.2d at 1300.

The court reasoned that equitable remedies seek “deterrence, therefore, denying defendants the

benefit of offsetting tax benefits generated by their illegal [activity] is an appropriate result.” Id.

at 1301.

The same reasoning is applicable to this case. Defendants wrongfully deprived their

sisters of a sizable inheritance. The purpose behind an equitable disgorgement award is to

deprive wrongdoers of the fruits of their tortious conduct, not to compensate the victim.

Cavanagh, 445 F.3d at 117. That purpose is served by forcing Defendants to disgorge all of cash

and assets they received through breaching their fiduciary duties. Id.; Fleischhauer, 879 F.2d at

1301. The fact that Plaintiffs would have had to pay taxes on the property they were entitled to

is irrelevant. Any tax consequences for Plaintiffs’ award “is a matter between [Plaintiffs] and the

government.” Burdett, 957 F.2d at 1383.

The dissent separately argues that Chilton’s failure to factor in the taxes Plaintiffs would

have owed on their Griffin Industries disbursements in calculating Plaintiffs’ award violated

Kentucky’s rule that “[d]amages are not recoverable for loss beyond an amount that the evidence

permits to be established with reasonable certainty.” Post at 61 (quoting Pauline’s Chicken

Nos. 16-6221/6225/6226/6227 Osborn, et al. v. Griffin, et al. Page 40

Villa, Inc. v. KFC Corp., 701 S.W.2d 399, 401 (Ky. 1985)). However, as the dissent

acknowledges, this rule applies to awards of compensatory damages because those “damages are

designed ‘[t]o restore the party injured, as near as may be, to his former position.’” Id. (quoting

Hughett v. Caldwell Cty., 230 S.W.2d 92, 96 (Ky. 1950), abrogated on other grounds by Harrod

Concrete & Stone Co. v. Crutcher, 458 S.W.3d 290 (Ky. 2015)).8 No such legal damages were

awarded here; as we have explained, the district court ordered Defendants to disgorge their ill-

gotten profits in order to prevent them from benefitting from their fiduciary duty violations.

Because the district court’s equitable award was not tied to the Holt Plaintiffs’ losses, but rather

Defendants’ gains, the reasonable certainty principle was not violated. Accordingly, we hold

that it was not erroneous for Chilton (and the district court) to calculate the award without

reference to tax consequences.

Second, Defendants argue that Chilton made certain improper and inconsistent

assumptions that greatly increased his award calculations. Specifically, in calculating

Defendants’ illicit profits from the stock transactions that concentrated Griffin Industries stock in

Defendants’ hands, Chilton applied John’s estate plan as it existed in 1986, which called for the

stock to be divided equally among his eleven children. Subsequently, in calculating the profits

from the later sales of Craig Protein stock and Martom real estate, Chilton reasoned that

Plaintiffs were each entitled to one-fifth of those proceeds, because John’s Sixth Codicil and

Fourth Amendment called for such profits to be split equally among his five daughters.

Defendants argue that Chilton (and the district court) cannot have it both ways; either: (i) the

Sixth Codicil and Fourth Amendments are valid, in which case Plaintiffs cannot recover anything

at all from the 1986 Griffin Industries stock transactions, but are entitled to one-fifth of the

proceeds from the Craig Protein stock and Martom real estate sales; or (ii) the Sixth Codicil and

Fourth Amendments are invalid, in which case John’s pre-1985 estate plan should be given

effect, and each Plaintiff should only be able to recover one-eleventh shares of the property

Defendants deprived them of.

8

For example, Pauline’s Chicken concerned whether the plaintiff could recover lost profits in a breach of

contract action, 701 S.W.2d at 401, and Hughett addressed the proper way to compensate a trespass victim for the

value of lost minerals extracted from his property, 230 S.W.2d at 94. Neither of those cases addressed awards that

sounded in equity, as is the case here.

Nos. 16-6221/6225/6226/6227 Osborn, et al. v. Griffin, et al. Page 41

We are not persuaded by Defendants’ argument, because it is based on a faulty premise.

Specifically, Defendants assume (consistent with their litigation position elsewhere) that the

district court invalidated the Fourth Amendment and Sixth Codicil because Defendants

manipulated their debilitated father into signing those estate changes. In fact, the court

invalidated neither change, because it lacked subject matter jurisdiction to disturb John’s estate

plan. Wisecarver, 489 F.3d at 751. Rather, the district court (and subsequently Chilton) gave

effect to John’s various estate plans by applying the plan terms in effect at the time Defendants

consummated each of their wrongful transactions. In this way, the district court and Chilton took

each transaction as a snapshot in time, and computed the assets that would have passed to

Plaintiffs under the then-existing estate plan if Defendants had fulfilled their fiduciary duties.

This procedure was not only proper, it was required, as the district court had no power to alter or

disregard John’s estate plan.

Finally, Defendants argue that Chilton should not have included in his disgorgement

calculation sums that Defendants wrongfully diverted from Plaintiffs, but that were ultimately

passed on to innocent third parties, such as Plaintiffs’ children. Defendants reason that since

disgorgement is meant to recoup Defendants’ illicit profits, they should not be required to pay

sums that they did not personally benefit from.

Like Defendants’ tax argument, which proceeds from a similar premise, this argument is

not supported by the law of equitable remedies. As the Second Circuit has recently explained:

As disgorgement is designed to equitably deprive those who have obtained ill-

gotten gains of enrichment, it may be imposed upon innocent third parties who

have received such ill-gotten funds and have no legitimate claim to them. [S.E.C.

v. Cavanagh, 155 F.3d 129, 136 (2d Cir. 1998)], citing SEC v. Colello, 139 F.3d

674, 677 (9th Cir. 1998). That is consistent with disgorgement’s remedial

purpose—disgorgement is imposed not to punish, but to ensure illegal actions do

not yield unwarranted enrichment even to innocent parties.

However, unjust enrichment may also be prevented by requiring the violator to

disgorge the unjust enrichment he has procured for the third party. As our case

law has indicated (and as our opinion here confirms), when third parties have

benefitted from illegal activity, it is possible to seek disgorgement from the

violator, even if that violator never controlled the funds. The logic of this . . . is

that to fail to impose disgorgement on such violators would allow them to

unjustly enrich their affiliates. Thus, ordering a violator to disgorge gain the

Nos. 16-6221/6225/6226/6227 Osborn, et al. v. Griffin, et al. Page 42

violator never possessed does not operate to magnify penalties or offer an

alternative to fines, but serves disgorgement’s core remedial function of

preventing unjust enrichment. District courts possess the equitable discretion to

determine whether disgorgement liability should fall upon third parties or

violators, a responsibility concordant with the district courts’ broad discretion to

assay disgorgement more generally.

S.E.C. v. Contorinis, 743 F.3d 296, 306–07 (2d Cir. 2014) (emphasis added).

In sum, it does not matter that Defendants gave Plaintiffs’ property to innocent third

parties; the property was not Defendants’ to dispose of. When tortfeasors unjustly enrich

themselves, courts may force them to disgorge all of their ill-gotten gains. Cavanagh, 445 F.3d

at 117. It makes no difference that Defendants have transferred the assets to innocent third

parties, just as it would make no difference if Defendants gave the assets to charity. The district

court (and by extension, Chilton) was well within its considerable discretion to order

disgorgement of these sums.

B. Burden of Proof

Defendants argue that the district court improperly shifted the burden of proof away from

Plaintiffs in calculating the appropriate disgorgement sum. Defendants argue that Chilton’s

flawed testimony was insufficient to carry Plaintiffs’ burden to establish entitlement to a remedy,

and that the district court should not have faulted them for failing to put on their own damages

expert.

This argument is premised on Defendants’ prior arguments that Chilton’s testimony was

an insufficient basis to support the district court’s equitable award. Because we reject

Defendants’ other attacks on Chilton, we reject this argument as well.

C. Prejudgment Interest

1. Standard of Review

The district court’s decision to award prejudgment interest was governed by Kentucky

law, and we review that decision for abuse of discretion. Poundstone v. Patriot Coal Co., Ltd.,

485 F.3d 891, 901 (6th Cir. 2007).

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2. Analysis

Defendants next argue that the district court erred in calculating and imposing

prejudgment interest. We disagree.

“Under Kentucky law, if the claim is liquidated, interest follows as a matter of right, but

if it is unliquidated, the allowance of interest is in the discretion of the trial court.” Hale v. Life

Ins. Co., 795 F.2d 22, 24 (6th Cir. 1986). The Kentucky Supreme Court has recently explained

that:

A damages claim is liquidated if it is “of such a nature that the amount is capable

of ascertainment by mere computation, can be established with reasonable

certainty, can be ascertained in accordance with fixed rules of evidence and

known standards of value, or can be determined by reference to well-established

market values.” [3D Enters. Contracting Corp. v. Louisville & Jefferson Cty.

Metro. Sewer Dist., 174 S.W.3d 440, 450 (Ky. 2005)] (citation omitted).

Examples include “a bill or note past due, an amount due on an open account, or

an unpaid fixed contract price.” [Nucor Corp. v. General Elec. Co., 812 S.W.2d

136, 141 (Ky. 1991)]. In contrast, an unliquidated damages claim is one which

has “not been determined or calculated, . . . not yet reduced to a certainty in

respect to amount.” Id. (citations omitted). An unliquidated claim is unspecified

and undetermined prior to a breach. In determining whether a claim is liquidated

or unliquidated, “one must look at the nature of the underlying claim, not the final

award.” 3D Enterprises, 174 S.W.3d at 450.

Ford Contracting, Inc. v. Ky. Transp. Cabinet, 429 S.W.3d 397, 414 (Ky. 2014). In general,

“[d]amages that were established by proof offered during the trial are unliquidated and not

subject to prejudgment interest.” Id. (quoting Jackson v. Tullar, 285 S.W.3d 290, 299 (Ky. Ct.

App. 2007)).

If the trial court determines that the plaintiff’s damages are liquidated, it must award

“interest at the legal rate of eight percent (8%) per annum.” Pursley v. Pursley, 144 S.W.3d 820,

828 (Ky. 2004). If the damages are unliquidated, “the trial court may award prejudgment interest

at any rate up to 8%, or it may choose to award no prejudgment interest at all, but it may not

exceed the legal rate of 8%.” Fields v. Fields, 58 S.W.3d 464, 467 (Ky. 2001). Although

“Kentucky courts rarely award prejudgment interest on unliquidated claims on equitable

grounds,” Ky. Commercial Mobile Radio Serv. Emergency Telecomms. Bd. v. TracFone

Wireless, Inc., 712 F.3d 905, 917 (6th Cir. 2013), such awards are more frequently appropriate in

Nos. 16-6221/6225/6226/6227 Osborn, et al. v. Griffin, et al. Page 44

cases where there are “allegations of bad faith.” See Journey Acquisition-II, L.P. v. EQT

Production Co., 830 F.3d 444, 462 (6th Cir. 2016) (discussing authority).

In the instant case, the district court determined that Plaintiffs’ disgorgement claims were

liquidated, and imposed prejudgment interest at 8% compounded annually. In the alternative, the

district court stated that it would have imposed the same interest award even if the claims were

unliquidated.

Plaintiffs argue that their claims were liquidated because every time Defendants

undertook one of the disputed transactions, they knew the portion of the proceeds that were

supposed to pass to Plaintiffs under John’s estate plan, and therefore the claims were reasonably

certain. However, Plaintiffs’ disgorgement claims are far afield from “a bill or note past due, an

amount due on an open account, or an unpaid fixed contract price”—the examples the Kentucky

Supreme Court has given of liquidated damages. See Nucor Corp., 812 S.W.2d at 141. Indeed,

Plaintiffs were only able to establish entitlement to their claims by providing expert testimony at

trial, a strong indication that the claims were not for liquidated sums. Ford Contracting,

429 S.W.3d at 414. We therefore hold that Plaintiffs’ claims were unliquidated.

Accordingly, we must determine whether the district court abused its discretion in

electing to award prejudgment interest on Plaintiffs’ unliquidated claims. Poundstone, 485 F.3d

at 901. Kentucky law explicitly authorized the district court to award interest at up to 8%,

Fields, 58 S.W.3d at 467, and to compound the interest annually. See Travelers Property Cas.

Co. of Am. v. Hillerich & Bradsby Co., Inc., 598 F.3d 257, 275 (6th Cir. 2010) (“Under

Kentucky law, courts have discretion to award either simple or compound prejudgment interest,

though the default is simple interest. Principles of equity are used in order to determine whether

compound interest is appropriate in a particular case, which might include unreasonable delay.”

(citation omitted)). Nevertheless, Defendants argue that the prejudgment interest award was

needlessly punitive because of its size (almost as much as the principal), and because the district

court did not appreciate its discretion to depart downward from 8%.

We disagree. The record shows that the district court gave thoughtful consideration to

the unique equities of this case in formulating its interest award. We will quote the district

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court’s analysis in full because the district court provided a succinct, but powerful summary of

what transpired here:

Before this Court is an extraordinary case, spanning decades, in which defendants

repeatedly and flagrantly violated the fiduciary duties they owed to their sisters,

who reposed great trust in their brothers.

There can be no question that prejudgment interest results in a large — very large

— recovery. But, as plaintiffs point out, this is a function of the passage of many

years since the breaches in question, during which time defendants misled their

sisters about the propriety of their actions. But for an errant mailing in 2010,

plaintiffs perhaps would never have discovered the wrongs done to them by their

brothers. It would [be] inequitable not to compensate plaintiffs for the loss of use

of millions of dollars for much of their adult lives.

(R. 1131, PageID #37716 (emphasis added).)9

Under Kentucky law, “equity and justice serve as the foundation upon which an award of

prejudgment interest rests.” Ford Contracting, 429 S.W.3d at 414. Defendants’ conduct in

manipulating their stroke-impaired father and depriving their sisters of an enormous inheritance

was highly unjust and inequitable—far more so than that of a run-of-the-mill tortfeasor. The

district court did not abuse its discretion in imposing the largest interest award permissible under

Kentucky law.

The dissent offers two arguments for reaching the opposite conclusion. First, the dissent

argues that Plaintiffs’ “damages were not ‘ascertainable’ until 2010, when the sisters filed their

claims in the district court,” and thus no prejudgment interest was permissible for any period

prior to the filing of these lawsuits.10 Post at 63 (citing Tri-State Developers, Inc. v. Moore,

343 S.W.2d 812, 817 (Ky. 1961)).

This view of the law is outdated. The rule at common law was “that prejudgment interest

[was] not awarded on unliquidated claims[.]” City of Milwaukee v. Cement Div., Nat’l Gypsum

9

One additional point bears mentioning. The district court was correct that the size of the prejudgment

interest award, which the dissent regards as noteworthy, is mostly a function of the number of years that passed

between Defendants’ conduct and the district court’s judgment. At 8% compounded annually, the interest will

always accrue rapidly. We have uncovered no Kentucky authority suggesting that tortfeasors may use wrongfully

acquired profits interest-free if they can hide their wrongdoing for many years before suit is brought.

10

Defendants failed to raise this argument in their briefing before us, and it is thus waived. We address the

dissent’s arguments for the sake of thoroughness, and not to excuse Defendants’ waiver.

Nos. 16-6221/6225/6226/6227 Osborn, et al. v. Griffin, et al. Page 46

Co., 515 U.S. 189, 197 (1995). “The rationale underlying the distinction between liquidated or

reasonably ascertainable damages and unliquidated damages [was] that the defendant should not

have to pay interest when he is unable to halt the accrual of interest by paying the damages—

damages which, if unliquidated, cannot be determined prior to judgment.” Anthony E.

Rothschild, Prejudgment Interest: Survey and Suggestion, 77 Nw. U. L. Rev. 192, 197 (1982);

see also Post at 63 (making the same argument). Over time, this view of prejudgment interest

faced “trenchant criticism,” City of Milwaukee, 515 U.S. at 197, as courts and commentators

began to realize that the “distinction . . . between cases of liquidated and unliquidated damages[]

is not a sound one.” Funkhouser v. J.B. Preston Co., 290 U.S. 163, 168 (1933) (footnote

omitted); see also Dalton v. Mullins, 293 S.W.2d 470, 477 (Ky. Ct. App. 1956) (“We are not so

much disturbed as to whether the claim is liquidated or unliquidated as we are, in accordance

with the popular trend, as to whether justice and equity demand an allowance of interest to the

injured party.”). As the Supreme Court long ago explained, whether the harms are liquidated or

unliquidated, “the injured party has suffered a loss which may be regarded as not fully

compensated if he is confined to the amount found to be recoverable as of the time of [the harm]

and nothing is added for the delay in obtaining the award of damages.” Funkhouser, 290 U.S. at

168. Thus most modern courts will permit prejudgment interest on unliquidated claims—even

though, by definition, those claims were not “ascertainable” at the time of the harm—“when the

period of time between the harm and the judgment is long or when there are other circumstances

that would make it unjust not to give interest.” See Restatement (Second) of Torts § 913 cmt (1)

(1979).

Kentucky follows the modern trend and permits prejudgment interest on unliquidated

claims in an “amount” to be determined by “the trial court weighing the equitable

considerations.” Univ. of Louisville v. RAM Eng’g & Constr., Inc., 199 S.W.3d 746, 748 (Ky.

2005). In tort cases alleging “harms to pecuniary interests,” the Kentucky Supreme Court has

held that prejudgment interest, if any, runs “from the time of the accrual of the cause of action to

the time of judgment, if the payment of interest is required to avoid an injustice.” Nucor Corp.,

812 S.W.2d at 143 (quoting Restatement (Second) of Torts § 913(1)(b)). Thus, the dissent’s

argument that the district court lacked any discretion to award prejudgment interest prior to the

commencement of this lawsuit simply does not reflect the modern state of Kentucky law.

Nos. 16-6221/6225/6226/6227 Osborn, et al. v. Griffin, et al. Page 47

Rather, the only question before us is whether the district court appropriately weighed the

equities of this case in deciding whether to award prejudgment interest. Id. As explained earlier,

we cannot find fault with the district court’s equitable consideration in light of Defendants’

brazenly wrongful conduct towards their sisters.

The dissent’s second argument is that the district court’s prejudgment interest award

poses serious due process concerns because its size is disproportionately large compared to the

gravity of the harm given Plaintiffs’ failure to timely discover their tort claims. Post at 64–65.

Defendants have not advanced a due process theory in their briefing before us, and thus any due

process arguments are waived. See, e.g., Kuhn v. Washtenaw Cty., 709 F.3d 612, 624 (6th Cir.

2013) (“This court has consistently held that arguments not raised in a party’s opening brief . . .

are waived.”). It is particularly prudent to enforce this waiver in light of our general preference

for declining to pass on unsettled constitutional issues whenever there are alternative grounds

available to dispose of a case. See, e.g., Bond v. United States, 134 S. Ct. 2077, 2087 (2014)

(“[I]t is “a well-established principle governing the prudent exercise of this Court’s jurisdiction

that normally the Court will not decide a constitutional question if there is some other ground

upon which to dispose of the case.” (quoting Escambia Cty. v. McMillan, 466 U.S. 48, 51 (1984)

(per curiam))); Adams v. City of Battle Creek, 250 F.3d 980, 986 (6th Cir. 2001) (“Supreme

Court precedent makes it clear that courts should avoid unnecessary adjudication of

constitutional issues. Where a statutory or nonconstitutional basis exists for reaching a decision

. . . it is not necessary to reach the constitutional issue.” (citations omitted)).

In any event, we are skeptical of the dissent’s due process argument. The dissent

speculates that the district court imposed its prejudgment interest award in part as punishment for

Defendants’ wrongful conduct, and analogizes this case to decisions where the Supreme Court

has invalidated excessive punitive damages awards. See Post at 64–65. However, “[p]re-

judgment interest statutes have a long history, dating at least from 1859 in this country, and have

been held to serve the legitimate purpose of making whole an injured party.” Roy v. Star

Chopper Co., 584 F.2d 1124, 1136 (1st Cir. 1978) (citations omitted). Despite the concept’s

longevity, we are aware of no case that has invalidated a prejudgment interest award as

excessively large under the Fifth Amendment’s Due Process Clause.

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To the contrary, several courts have upheld prejudgment interest regimes against due

process challenges, see, e.g., Arbon Steel & Serv. Co., Inc. v. United States, 315 F.3d 1332, 1334

(Fed. Cir. 2003) (upholding prejudgment interest award under rational basis review); Reyes-Mata

v. IBP, Inc., 299 F.3d 504, 508 (5th Cir. 2002) (same); S.E.C. v. Lauer, 610 F. App’x 813, 820

(11th Cir. 2015) (“The award of prejudgment interest has nothing to do with . . . due process, and

cannot be the basis of a motion under Rule 60(b)(4).”), even though the rate of interest awarded

was significantly higher than the interest available in the general economy. See, e.g., Citibank,

N.A. v. Barclays Bank, PLC, 28 F. Supp. 3d 174, 184 (S.D.N.Y. 2013) (upholding New York’s

statutory interest rate of 9% and observing that even “though 9% is higher than market rates in

the current economy, there is no constitutional mandate that the statutory interest rate follow

market rates point for point”); Oden v. Schwartz, 71 A.3d 438, 457 (R.I. 2013) (upholding

12% interest award). The rationale for these cases is that prejudgment interest is not punitive,11

“but a recognition that, had the plaintiff recovered immediately, they would had the entire

amount of money to use as they pleased,” and that it is rational for legislatures and courts to

compensate plaintiffs for having been deprived of the use of their property. Reyes-Mata,

299 F.3d at 508. We see no compelling reason why the Due Process Clause should pose any

barrier to the interest awarded in this case.

IV. The Seventh Amendment

A. Standard of Review

“Whether a party is ‘entitled to a jury trial under the Seventh Amendment is a question of

law’ which we review de novo.” Entergy Ark., Inc. v. Nebraska, 358 F.3d 528, 540 (8th Cir.

2004) (quoting Kampa v. White Consol. Indus., 115 F.3d 585, 586 (8th Cir. 1997)); Pandazides

v. Va. Bd. of Educ., 13 F.3d 823, 827 (4th Cir. 1994).

11

As the Third Circuit has explained, to “the extent [a] defendant has had the free use of the income-

producing ability of [the] plaintiff’s money without having to pay for it, he has been unjustly enriched. To divest

him of this unjustified benefit is not to penalize him, for it has been determined by the trial that it was never

rightfully his.” Feather v. United Mine Workers, 711 F.2d 530, 540 (3d Cir. 1983).

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B. Analysis

Finally, Defendants argue that the district court should have conducted a jury trial rather

than a bench trial for two reasons: (i) Plaintiffs sought and obtained money damages, which is a

classic species of legal relief; and (ii) Defendants’ statute of limitations defense was legal in

nature, and the district court was required to hold a jury trial on that defense. Once again, we are

compelled to disagree.

The Constitution’s Seventh Amendment provides that “[i]n Suits at common law, where

the value in controversy shall exceed twenty dollars, the right of trial by jury shall be preserved,

and no fact tried by a jury shall be otherwise re-examined in any Court of the United States, than

according to the rules of the common law.” U.S. Const. amend. VII. The Seventh Amendment’s

jury trial guarantee applies to “suits in which legal rights [are] to be ascertained and determined,

in contradistinction to those where equitable rights alone [are] recognized, and equitable

remedies [are] administered.” Curtis v. Loether, 415 U.S. 189, 193 (1974) (quoting Parsons v.

Bedford, 3 Pet. 433, 446–47 (1830) (emphasis in original)).

“Federal courts faced with a claim of entitlement to a jury trial thus must first

“compare the case at issue to ‘18th-century actions brought in the courts of

England prior to the merger of the courts of law and equity,’” Golden v. Kelsey–

Hayes Co., 73 F.3d 648, 659 (6th Cir. 1996) (citing Chauffeurs, Teamsters

& Helpers, Local No. 391 v. Terry, 494 U.S. 558, 565 (1990)), and then “examine

the remedy sought and determine whether it is legal or equitable in nature.” Id.

Wilson v. Big Sandy Health Care, Inc., 576 F.3d 329, 332 (6th Cir. 2009).

Applying this test, we hold that a jury trial was not required for Plaintiffs’ fiduciary duty

claims. The weight of authority holds that actions seeking disgorgement of ill-gotten gains are

equitable in nature. See, e.g., Chauffeurs, 494 U.S. at 570 (“[W]e have characterized damages as

equitable where they are restitutionary, such as in ‘action[s] for disgorgement of improper

profits[.]’” (quoting Tull v. United States, 481 U.S. 412, 424 (1987))); Fifty-Six Hope Road

Music, Ltd. v. A.V.E.L.A., Inc., 778 F.3d 1059, 1075 (9th Cir. 2015) (“[T]he current law

recognizes that actions for disgorgement of improper profits are equitable in nature.”);

Cavanagh, 445 F.3d at 119–20 (collecting authorities); Roberts v. Sears, Roebuck & Co.,

617 F.2d 460, 465 (7th Cir. 1980) (observing in dicta that “[r]estitution for the disgorgement of

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unjust enrichment is an equitable remedy with no right to a trial by jury”); S.E.C. v.

Commonwealth Chem. Sec., Inc., 574 F.2d 90, 95 (2d Cir. 1978) (Friendly, J.) (holding that there

is no Seventh Amendment right to a jury trial when a plaintiff seeks disgorgement because in a

disgorgement action, “the court is not awarding damages to which [a] plaintiff is legally entitled

but is exercising the chancellor’s discretion to prevent unjust enrichment”). This is because

disgorgement “is not available primarily to compensate victims,” but rather “forces a defendant

to account for all profits reaped through” his wrongful conduct, “even if it exceeds actual

damages to victims.” Cavanagh, 445 F.3d at 117 (footnote omitted). That a district court may

exercise its equitable discretion to use disgorged funds to compensate victims—as the lower

court did here—does not render such sums legal damages, because they are not awarded to the

victims as a matter of right. Id. (“Upon awarding disgorgement, a district court may exercise its

discretion to direct the money toward victim compensation . . . .”); see also S.E.C. v. First Pac.

Bancorp, 142 F.3d 1186, 1192 (9th Cir. 1998) (“The fact that the district court directed that the

disgorged funds be returned to the defrauded investors does not change the nature of the

remedy.”). Indeed, the Supreme Court has long rejected the argument that “any award of

monetary relief must necessarily be ‘legal’ relief.” Chauffeurs, 494 U.S. at 570 (quoting Curtis,

415 U.S. at 196).

In arguing that Plaintiffs’ fiduciary duty claims sought legal relief, Defendants cite

Great-West Life & Annuity Ins. Co. v. Knudson, 534 U.S. 204, 214 (2002), where the Supreme

Court held that restitution is only an equitable remedy when the plaintiff does not seek “to

impose personal liability on the defendant, but to restore to the plaintiff particular funds or

property in the defendant’s possession.” But Knudson is inapposite. As used in modern

parlance, disgorgement and restitution are distinct remedies that serve different purposes. See

William Beaumont Hosp. v. Fed. Ins. Co., 552 F. App’x 494, 498 (6th Cir. 2014) (holding that

disgorgement and restitution were separate and distinct remedies in construing an insurance

contract). As the Fifth Circuit has explained:

[D]isgorgement is not precisely restitution. Disgorgement wrests ill-gotten gains

from the hands of a wrongdoer. It is an equitable remedy meant to prevent the

wrongdoer from enriching himself by his wrongs. Disgorgement does not seek to

compensate the victims of the wrongful acts, as restitution does. Thus, a

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disgorgement order might be for an amount more or less than that required to

make the victims whole. It is not restitution.

S.E.C. v. Huffman, 996 F.2d 800, 802 (5th Cir. 1993) (citations omitted); see also Cavanagh,

445 F.3d at 117 (disgorgement’s “emphasis on public protection, as opposed to simple

compensatory relief, illustrates the equitable nature of the remedy”); S.E.C. v. Banner Fund Int’l,

211 F.3d 602, 617 (D.C. Cir. 2000) (holding that “disgorgement is an equitable obligation to

return a sum equal to the amount wrongfully obtained, rather than a requirement to replevy a

specific asset”). Accordingly, Knudson is not on point, and does not cast doubt on the wealth of

authority holding that disgorgement is an equitable remedy.

Moreover, Knudson itself recognized that the remedy of “accounting of profits” is an

“exception” to the general rule that for an action to be equitable, it “must seek not to impose

personal liability on the defendant, but to restore to the plaintiff particular funds or property in

the defendant’s possession.” 534 U.S. at 214 & n.2. The equitable disgorgement at issue in this

case is the modern analog of the “accounting of profits” remedy.

Defendants also quote Plaintiffs’ representations during the early stages of this litigation

that they were seeking money damages, and argue that these statements show that the district

court did not actually award equitable disgorgement. However, we think that the district court

accurately characterized the remedy at issue in this case as one for equitable disgorgement. (See

R. 856, ¶ 189 (“[S]ince the only remaining claim [is] the equitable claim for breach of fiduciary

duty, seeking the equitable remedy of disgorgement, there [is] no longer a right to trial by jury

that [can] be invoked by any party.” (citation and internal quotation marks omitted)).)

“Decisions about the characterization of the wrong usually are for the trier of fact, and questions

about the nature of the remedy are for the district court in the first instance.” First Nat’l Bank of

Waukesha v. Warren, 796 F.2d 999, 1001 (7th Cir. 1986) (Easterbrook, J.). The district court

was not required to accept Plaintiffs’ representations at any point during this litigation about the

nature of the remedy they sought, and acted well within its discretion in determining that

disgorgement of profits was an appropriate remedy for Defendants’ wrongful conduct.

Additionally, our understanding that an action seeking disgorgement of profits is

equitable in nature is confirmed by the historical treatment of that remedy prior to the enactment

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of the Seventh Amendment. The term “disgorgement” is relatively new to the law; in 18th

century chancery courts, what we now call disgorgement was embodied in the remedies of

“accounting, constructive trust, and restitution.” Cavanagh, 445 F.3d at 119. These remedies

were almost universally recognized as being within the ambit of courts of equity. We repeat the

Second Circuit’s detailed compilation of authorities to underscore this point:

Commentators have observed that courts of equity now have, and have had for

centuries, jurisdiction over claims arising from improper acquisition of assets.

Lord Coke wrote that “[t]hree things are to be judged in [the] Court of

Conscience: Covin, Accident, and breach of confidence.” 4 Edward Coke,

Institutes of the Laws of England 84 (London, M. Flesher 1644) (1797 ed.

reprinted 1986) (“The third is breach of trust and confidence, whereof you have

plentiful authorities in our books.”). Blackstone expressed a similar idea: “[I]t

hath been said, that fraud, accident, and trust are the proper and peculiar objects

of a court of equity.” 3 William Blackstone, Commentaries on the Laws of

England 431 (photo. reprint 1992) (1768). Although noting that the maxim

quoted oversimplified the overlapping jurisdictions of law and equity, Blackstone

wrote that a “technical trust indeed, created by the limitation of a second use, was

forced into a court of equity . . . [and] ha[s] ever since remained as a kind of

peculium in those courts.” Id. at 431-32; see also John Beames, The Elements of

Pleas in Equity 70 (New York, O. Halsted 1st Am. ed. 1824) (including

“[m]atters of trust and confidence” among subjects of equity jurisdiction); see

also Mertens v. Hewitt Assocs., 508 U.S. 248, 257 (1993) (considering distinction

between law and equity for purposes of interpreting Employee Retirement Income

Security Act of 1974 and noting that “all relief available for breach of trust could

be obtained from a court of equity”); Lessee of Smith v. McCann, 65 U.S. (24

How.) 398, 407 (1860) (indicating that in a state maintaining distinct courts of

law and equity, “the court of chancery . . . has the exclusive jurisdiction of trusts

and trust estates,” as it did in England).

Early writings on equity recognized the Chancellor’s power to compel

disgorgement of wrongly gained assets. See Joseph Story, Commentaries on

Equity Jurisprudence as Administered in England and America 423-504 (photo.

reprint 1972) (1835) (describing remedy of “account,” by which chancery ordered

an accounting of assets so that wrongly gained profits might be recovered); id. at

487-88 (equitable restitution in cases of fraud); id. at 490-91 (disgorgement of

profits upon waste); 2 John Fonblanque, A Treatise of Equity 168 (Philadelphia,

A. Small 2d Am. ed. 1820) (“[A] trustee must, especially in equity, make good

the trust.”); see also id. at 171 n. (b) (concluding that “breach of trust” is “a case

for the consideration of courts of equity”). Modern works on restitution trace the

remedy’s history to ancient cases in equity. See Restatement of the Law of

Restitution, Quasi Contracts and Constructive Trusts, Pt. I, at 5 (1937) (“Some of

the earliest bills in chancery were bills for restitution, such as bills for the

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recovery of property obtained by fraud ....”); see also 1 Dan B. Dobbs, Law of

Remedies § 4.3(1), at 587-89 (2d ed. 1993) (discussing equitable remedies of

constructive trust and accounting for profits). That the term “disgorgement” has

entered common legal parlance only recently cannot obscure that the ancient

remedies of accounting, constructive trust, and restitution have compelled

wrongdoers to “disgorge”-i.e., account for and surrender-their ill-gotten gains for

centuries. See United States ex rel. Taylor v. Gabelli, 2005 WL 2978921, at *5

(S.D.N.Y. Nov. 4, 2005) (describing disgorgement of profits from fraud as “a

‘classic’ restitutionary remedy inherently distinct from compensable damages”

awarded at law); Dobbs, ante, at 589 (noting that in cases of constructive trust, in

which remedy need not equal actual damages, “the effect can be to give the

plaintiff the gain a defendant makes from the sale of the plaintiff’s property and

any reinvestment of the funds”).

English equity courts compelled the repayment (in effect, “disgorgement”) of ill-

gotten gains in cases decided before our independence. For example, in Garth v.

Cotton, 27 Eng. Rep. 1182, 1196, 1 Ves. Sen. 524, 546 (Lord Chancellor’s Court

1753), contingent remaindermen sought relief in equity when a life tenant and

trustees conspired to defraud the remaindermen by selling timber from the

relevant estate and dividing the proceeds among themselves. The plaintiff

remainderman, who lacked a remedy at law for now-obscure reasons related to

English land law of the time, sought an order compelling the wrongdoers to give

him the proceeds of the asserted waste of the land’s assets. Id. Lord Chancellor

Hardwick obliged, holding that “a reconveyance is just” and ordering that the

proceeds of the timber sale, plus interest, go to benefit the estate. Id. at 1199; see

also Willoughby v. Willoughby, 99 Eng. Rep. 1366, 1 Term. Rep. 763 (Lord

Chancellor’s Court 1756) (ordering, at the request of a widow cheated of her

legacy by her eldest son’s collusion with a trustee and a banker, an accounting of

the estate’s assets, the sale of the estate, and payment to the widow and her other

children from the proceeds).

American courts also awarded equitable remedies similar to modern disgorgement

in cases decided around the time of our nation’s founding. For example, in

Cadwallader v. Mason, Virginia’s High Court of Chancery considered in 1793 the

case of a mortgagor who improperly retained possession of land after the

mortgage had been satisfied. George Wythe, Decisions of Cases in Virginia by

the High Court of Chancery 58 (1795), reprinted at id. 188-89 (2d ed. 1852),

2 Va. 185. The rightful owner, who had reclaimed the land through an action at

law, sought relief in equity to recover the profits the mortgagor had reaped in the

interim. Holding that the mortgagor “may [not] thus justly enrich himself,” the

court of equity demanded that the mortgagor “account for such after-taken

profits” and give restitution to the landowner. Id. The rule against unjust

enrichment compelled an award equal to the defendant’s gain, regardless of how

much money the plaintiff actually would have earned from the land during the

mortgagor’s wrongful possession.

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A Pennsylvania case of the same vintage applied similar reasoning to award

devisees the rent collected on their land during the delay between the testator’s

death and their actual possession. See Haldane v. Fisher, 2 U.S. 176 (1792) (“If a

man receives my rent, it . . . . may . . . be recovered in equity.”); see id. at 130

(Yeates, J., concurring) (“misrepresentation or concealment” is clearly “a

sufficient foundation for chancery to decree an account to be taken of the rents

and profits”) (emphasis omitted).

Id. at 118–20 (footnotes omitted). To put matters simply, we agree with Lord Coke, Blackstone,

Justice Story, the Supreme Court, and the Second and Ninth Circuits, as well as numerous other

commentators—an action seeking disgorgement is equitable in nature, even if the district court

ultimately directs the funds to the victims of the defendant’s conduct.

Finally, we also hold that Defendants were not entitled to a jury trial on their statute of

limitations defense. Generally, “when there is a disputed issue of fact as to when a plaintiff

‘discovered or should have discovered’ his cause of action, that factual issue should be resolved

by the jury in cases in which [a party] has asked for a jury.” Elam v. Menzies, 594 F.3d 463, 467

(6th Cir. 2010). However, in this case, there were no factual issues in the bench trial regarding

when Plaintiffs discovered or should have discovered Defendants’ wrongdoing. In its summary

judgment order, the district court concluded that there was no genuine dispute that Plaintiffs

should have discovered their claims in the early 1990s through the exercise of reasonable

diligence. Osborn, 50 F. Supp. 3d at 807.

Rather, the only remaining statute of limitations issue after the district court’s summary

judgment order was whether Defendants’ violations of their fiduciary duties allowed Plaintiffs to

invoke Kentucky’s equitable tolling statute. Id. at 795–96. Application of equitable tolling

principles is, by definition, an equitable issue. See, e.g., Commonwealth v. Hasken, 265 S.W.3d

215, 226 (Ky. Ct. App. 2007) (“[T]he issue regarding the equitable tolling of the statute of

limitations was one for the circuit court to decide as a matter of law.”), superseded on other

grounds by Ky. Rev. Stat. § 95A.250 (2009).

Moreover, deciding the equitable tolling issue required an assessment of whether and to

what extent Defendants breached their fiduciary duties to Plaintiffs. Osborn, 50 F. Supp. 3d at

796. (“The record in this case is replete with material factual disputes about whether defendants

Nos. 16-6221/6225/6226/6227 Osborn, et al. v. Griffin, et al. Page 55

made adequate and truthful disclosures to the plaintiffs regarding their parents’ estate plans, the

settlement of Betsy’s 1990 lawsuit, and the disputed transfers of stock and real property.”). Put

differently, the validity of Defendants’ statute of limitations defense turned on the exact same

factual issues underlying Plaintiffs’ common law fiduciary duty claims for equitable

disgorgement. Generally, defendants are not entitled to a jury trial on affirmative defenses when

those defenses turn on the same issues as the plaintiffs’ equitable claims. See, e.g., Mile High

Indus. v. Cohen, 222 F.3d 845, 857 (10th Cir. 2000) (“Our appraisal of the general nature of [the

plaintiff’s equitable] foreclosure claim and Mr. Cohen’s defenses shows [the defenses] related

directly to the basic issue of foreclosure, as initially raised in the pleadings, leaving us with the

firm conviction the issues involved here are the sort traditionally enforced in equity.”); Shubin v.

U.S. Dist. Court, 313 F.2d 250, 251–52 (9th Cir. 1963) (holding that defendants were not

entitled to a jury trial on compulsory counter-claims where the “only issue under the existing

pleadings, admissions and stipulations” was equitable, even though the claims could have raised

legal issues under other circumstances). As the Ninth Circuit has observed, an “equitable claim

may involve a legal issue of fact, or may turn on a question of fact. The existence of an issue of

fact does not per se create a ‘legal claim.’” Shubin, 313 F.2d at 251.

CONCLUSION

For the foregoing reasons, we AFFIRM the district court’s judgment.

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_________________

DISSENT

_________________

MERRITT, Circuit Judge, dissenting. The basic claims by the plaintiff sisters against

their brothers, Dennis and Griffy, have been litigated since the sisters first sued the brothers

27 years ago. I do not agree with my colleagues’ disposition of this case because: (1) the parties

settled the same basic claims in 1993; (2) even if the claims are not completely barred by the

settlement agreement, the claims are equitable in nature and the doctrine of laches should

foreclose damages after a reasonable time following the time when the sisters learned of their

brothers’ earlier breach of fiduciary duties; (3) under any circumstances, the damages ($584

million, nearly half of which are in the form of prejudgment interest at 8% compounded annually

for approximately three decades) approved by our court are excessive, unreasonable, and

probably in violation of due process.

I.

A very simple point should end this litigation: Between 1990 and 1993, the parties

before us now litigated the very same claims presented in this case now—25 years later. The

1990 action was a stockholder’s derivative suit; it claimed that the brothers engaged in fraud,

breach of fiduciary duty, and misconduct as chief officers of the corporation created by their

father. The sisters’ claims arose from the same basic facts presented in this case. The major

difference is that the corporation was much smaller 25 years ago, less valuable, and had not been

sold. The record does not reveal what the circumstances of the corporation were a generation

ago or what led to the increase in value to $840 million. The sisters and their families have

apparently already received some monies as a result of the sale.

The plaintiff sisters and the defendant brothers settled their lawsuit in September 1993,

and the parties—including each of the sisters—signed the settlement agreement. The settlement

agreement clearly releases the brothers in exchange for consideration. The brothers brought

pressure to bear on their sisters by paying them money and demonstrating anger and sorrow

about the family disagreement. In exchange for $10,000 each, the sisters released “any and all

Nos. 16-6221/6225/6226/6227 Osborn, et al. v. Griffin, et al. Page 57

claims . . . of any kind or nature whatsoever which any of the Griffin siblings may have had or

may now have, regardless of whether known or unknown,” against the two brothers. The district

court immediately conducted a fairness hearing on the settlement agreement and

contemporaneously concluded that the settlement was fair. It approved the settlement and

entered judgment dismissing the plaintiffs’ claims with prejudice.

My colleagues argue 25 years later that the settlement agreement is unenforceable

because the defendant brothers’ anger violated fiduciary duties that continued even after the

litigation. My colleagues apparently believe that the brothers had a fiduciary duty to encourage

the sisters to reject the settlement offer “precisely because [the sisters] continued to trust them.”

This so-called brotherly “fiduciary duty” to discourage settlement between litigating parties is

indeed strange since the parties were engaged on opposite sides of a lawsuit in which the sisters

claimed serious wrongdoing by the brothers. The law normally encourages the settlement of

lawsuits. See Fed. R. Civ. P. 16(a)(5) (concerning “facilitating settlement”); Fed. R. Civ. P. 16

advisory committee’s notes (citing extensive authorities that encourage settlement); In re NLO,

Inc., 5 F.3d 154, 157 (6th Cir. 1993). The parties here were adversaries in court, not fiduciaries.

The fact that 25 years later the corporation is worth hundreds of millions of dollars more in the

marketplace is not a valid basis for setting aside an agreed-upon and judicially approved

settlement agreement many years later. The settlement agreement 25 years ago arising from the

same basic claims should, therefore, stand as a bar to these claims. My colleagues’ rule would

make it impossible to settle breach-of-fiduciary-duty lawsuits once they are filed—a rule directly

contrary to the normal policy of the law encouraging settlement.

In deciding this case, we must remember that hundreds of thousands of settlements every

year terminate legal disputes. This court and other trial and appellate courts at the federal and

state level employ settlement lawyers who seek to settle cases. Lawyers themselves, outside of

the judicial process, settle many disputes before they become lawsuits. Settlements often depend

on significant pressures to settle brought to bear by judges, mediators, adversaries, family

members, the press and many others. Here, a federal judge intervened to conduct a fairness

hearing and to put his seal of approval on the settlement. The elder brothers may have brought

pressure to bear on their sisters—by paying them each $10,000 or by exhibiting anger or

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sorrow—but I do not find anything that would justify refusing to enforce the settlement several

decades later. There must be hundreds of thousands of cases in which similar types of pressure

induced settlement. See John Barkai & Elizabeth Kent, Let’s Stop Spreading Rumors About

Settlement and Litigation: A Comparative Study of Settlement and Litigation in Hawaii Courts,

29 Ohio St. J. Disp. Resol. 85, 135-39 (2014) (estimating between 50% and 60% of lawsuits are

settled nationwide). In my view, my colleagues’ holding here establishes a very bad precedent

that the judicial system cannot live with if applied elsewhere.

The alternative arguments below apply only if the settlement agreement is not dispositive

of the case. In my view, the settlement agreement should be enforced. In that case, the two

alternative arguments below need not be considered and should be pretermitted.

II.

The district court should have applied the doctrine of laches in this case. That doctrine

significantly reduces the long period for which the district court awarded damages, including its

award of interest at 8% compounded annually for decades.

The plaintiff sisters’ action against their brothers was an equitable proceeding for breach

of fiduciary duty arising from the brothers’ conduct as trustees of their father’s family trust after

their appointment in November 1985. In such equitable proceedings, the more flexible doctrine

of laches applies rather than the strict rules governing statutes of limitation. Kentucky’s highest

court has established the following more flexible standard for laches:

Ordinarily, actual knowledge on the part of the complainant, of the alleged

invasion of his rights of which he complains, is necessary in order to charge him

with laches. However, knowledge may in some circumstances be imputed to him

by reason of opportunity to acquire knowledge, or where it appears that he could

have informed himself of the facts by the exercise of reasonable diligence, or

where the circumstances were such as to put a man of ordinary prudence on

inquiry.

Taylor v. Kentucky, 302 S.W.2d 583, 584 (Ky. 1957) (emphasis added).

The district court’s own findings when it dismissed the plaintiff sisters’ RICO claim

should be conclusive on the issue of laches. With regard to the same conduct, the district court

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found that the sisters had an “opportunity to acquire knowledge” of the brothers’ wrongful

conduct and that the sisters had failed to exercise “reasonable diligence” regarding the warnings

that they had received regarding the brothers’ conduct as trustees. The district court concluded

that the plaintiffs had many opportunities to “acquire knowledge” of their brothers’ breach of

fiduciary duty and that they were on notice of facts that would “put a man [or woman] of

ordinary prudence on inquiry.” The district court found as a fact that “the Holt plaintiffs were

aware that [their sister] Betsy had filed a lawsuit against Dennis and Griffy just months before

the closure of [their] Mother’s probate estate.” The district court went on to say that “even

accepting plaintiffs’ contention that Dennis and Griffy dissuaded them from inquiring into the

substance of Betsy’s claims—which itself should arguably have alerted plaintiffs to the

possibility that Dennis and Griffy were being less than candid with them—it is undisputed that

plaintiffs could easily have obtained Betsy’s complaint, which was a public record from the time

of its filing . . . .” The district court found that plaintiffs were at fault because “they admittedly

took no action, however, to look into the matter further, even after defendants demanded that

they sign the 1993 settlement agreement [for Betsy’s and their own derivative case] without

disclosing its terms.”

There were additional reasons as well that the sisters should have been on notice that the

brothers were not treating them fairly. The sisters claim that Dennis threw a copy of their

mother’s will at them, refused to answer questions about their mother’s estate, and refused to let

them see the settlement documents he directed them to sign. Previously, in 1985, plaintiff

Cynthia Roeder’s husband told her and her sister, Betsy, that they were being “screwed” by the

brothers. Betsy repeatedly warned the Holt plaintiffs to obtain copies of their mother’s estate

documents. Nevertheless, the sisters remained willfully ignorant of their brothers’ conduct.

Had the sisters insisted that they be shown the 1993 settlement agreement they signed,

they would have read that the purpose of the agreement was “[t]o settle the derivative claim

against Griffin Industries in the Lawsuit and any tort claims that could have been asserted by the

Griffin Siblings against Dennis Griffin, John M. Griffin and Robert Griffin based on [their]

conduct in their capacities as officers and directors of Griffin Industries.” Similarly, the 1993

agreement provided:

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Although the Defendants deny any wrongdoing and liability to any of the Griffin

Siblings, the Defendants acknowledge that the pleadings in the Lawsuit alleged

tort claims against Dennis Griffin and John M. Griffin based on their conduct in

their capacities as officers and directors of Griffin Industries and that such

conduct is alleged to have resulted in personal injury and caused consequential

damages . . . .

These provisions of the settlement agreement make clear that Betsy’s original suit

accused Dennis and Griffy of tortious malfeasance in their capacities as directors of Griffin

Industries. It seems to me that “reasonable diligence” would have required the sisters to insist

upon being shown the text of the settlement agreement before signing it, especially in light of

Dennis and Griffy’s erratic behavior in connection with the administration of the mother’s estate.

Had the sisters examined the agreement, they would have learned of the nature of Betsy’s claims

against the brothers. Coupled with the brothers’ behavior, those facts would have been sufficient

to put a reasonable person on notice of his or her potential claims against the brothers.

If the

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