Antitrust Law Daily Wrap Up, RICO—MDGa: Claimed Trustees and Beneficiary May Intervene in RICO Case Against Controllers of Trust, (Feb 20, 2013)

By Tobias J. Gillett, J.D., LLM.

Individuals claiming to be trustees and a beneficiary of a trust may intervene as of right in a Racketeer Influenced and Corrupt Organizations (RICO) Act case against individuals and entities claimed to have controlled the trust and made improper distributions from it, the federal district court in Columbus, Georgia has ruled (Gill v. Hartshorn, February 19, 2013, Land, C.). The court had supplemental jurisdiction over the intervenors’ claims because the plaintiffs in the original suit had asserted a claim under the federal RICO Act, the intervenors’ claims “ar[o]se out of the same common nucleus of operative fact,” and the intervenors satisfied the test for granting intervention as of right.

The Gill Family Cornerstone Trust receives distributions from approximately three hundred single asset property trusts, and in turn makes distributions to certain beneficiaries. The plaintiffs had claimed to be beneficiaries of the trust, and had filed suit against various defendants alleging that they had controlled the trust, had received improper distributions from it, and had made improper distributions to other individuals and entities. The plaintiffs asserted a variety of claims, including claims under the federal and Georgia RICO Acts.

In the present motion, three individuals sought to intervene in the action as additional plaintiffs. Two of the individuals claimed to be trustees of the Cornerstone Trust, and sought to represent its interests, while one of the individuals asserted that he was an associate minister of the Healing Water Ministry of the International Academy of Life, and claimed that the ministry was a beneficiary of the trust.

The intervenors sought to intervene as of right under Federal Rule of Civil Procedure 24(a)(2) or, in the alternative, under Rule 24(b)(1)(B). The plaintiffs opposed their motion, arguing that their intervention could deprive the court of jurisdiction over their state law claims.

Supplemental Jurisdiction. The court observed that it first had to establish that it had jurisdiction over the intervenors’ claims. The court concluded that, since the intervenors did not assert federal claims, the court did not have federal question jurisdiction, and, since the minister and two of the defendants were all citizens of the state of Washington, complete diversity was lacking. Therefore, the court analyzed whether it would have supplemental jurisdiction over the intervenors’ claims.

The court noted that where a district court’s original jurisdiction is based solely on diversity of citizenship, the court would not have supplemental jurisdiction over “claims by persons . . . seeking to intervene as plaintiffs under Rule 24.” However, since the plaintiffs had asserted a claim under the federal RICO Act, the court could have supplemental jurisdiction over the intervenors’ claims, but only if the claims “ar[o]se out of a common nucleus of operative fact with the plaintiffs’ federal RICO claims.”

The court determined that the intervenors’ claims did “arise out of a common nucleus of operative fact.” Like the plaintiffs, the intervenors claimed that the defendants had “improperly converted assets of the Cornerstone Trust for their own use,” and requested the court to order the defendants to return to the trust any improper distributions. Therefore, the court had supplemental jurisdiction over the intervenors’ claims.

Intervention as of Right. Having established that it had jurisdiction over the intervenors’ claims, the court proceeded to analyze whether the intervenors should be permitted to intervene in the action. The court explained that it must grant intervention as of right where four requirements are met: “(1) the application to intervene is timely; (2) the applicant has an interest relating to the property or transaction which is the subject of the action; (3) the applicant is so situated that the disposition of the action, as a practical matter, may impede or impair his ability to protect that interest; and (4) the applicant’s interest will not be represented adequately by the existing parties to the suit.”

Here, the plaintiffs did not argue that the motion to intervene was untimely or that the asserted trustees did not have an interest in the trust which was the subject of the action. Although the plaintiffs disputed whether the minister was a valid representative of a trust beneficiary, the court observed that it could not decide the merits of that assertion at that stage of the litigation, and therefore the minister had an interest for purposes of the motion to intervene.

Moreover, although a decision in the case would not prevent the intervenors from bringing their claims for breach of trust and declaratory judgment in a separate action, the court concluded that proceeding without the intervenors could make “vindicat[ing] their rights in a separate action” more difficult.

Furthermore, the plaintiffs did not adequately represent the interests of the intervenors. The plaintiffs claimed that one of the defendants was the only trustee of the trust, a position opposed to the position that the trustee intervenors were also trustees. The plaintiffs also claimed that the International Academy of Life did not have an interest in the Cornerstone Trust, a position opposed to the position that the minister represented a beneficiary of the trust.

Therefore, the court granted the motion to intervene, but noted that its supplemental jurisdiction was “based solely on the existence of plaintiffs’ federal RICO claims.” If those claims were ever dismissed, the intervenors would “have to establish subject matter jurisdiction by some other method.”

The case is No. 4:12-CV-77 (CDL).

Attorneys: Richard Allen Childs for Karen Gill. Bridget A. Zerner (Markham & Read) for Kevin Hartshorn.

Companies: Gill Family Cornerstone Trust; International Academy of Life

Cases: RICO GeorgiaNews