Mary Scanlan v. Marshall Eisenberg

In the
United States Court of Appeals
For the Seventh Circuit
No. 11-1657
M ARY B UCKSBAUM SCANLAN,
Plaintiff-Appellant,
v.
M ARSHALL E ISENBERG , et al.,
Defendants-Appellees.
Appeal from the United States District Court
for the Northern District of Illinois, Eastern Division.
No. 1:09-cv-05026—John F. Grady, Judge.
A RGUED S EPTEMBER 28, 2011—D ECIDED JANUARY 20, 2012
Before B AUER, W OOD and T INDER, Circuit Judges.
B AUER, Circuit Judge. Mary Bucksbaum Scanlan
(“Scanlan”) is a current beneficiary of several dis-
cretionary trusts. Scanlan brought claims of legal mal-
practice and breach of fiduciary duty against the trustee
and her lawyers. The district court dismissed all of
her claims with prejudice and ruled that Scanlan
lacked Article III standing because she did not allege
facts showing a likelihood that the trusts’ corpus were
2 No. 11-1657
insufficient to pay her discretionary distributions.
We reverse and remand.
I. BACKGROUND
A. The Trusts and the Parties
Scanlan was born in 1969 and is the daughter of Martin
Bucksbaum. Bucksbaum and his brother developed
shopping centers eventually founding General Growth
Properties, Inc. (“GGP”), one of the largest traded real
estate investment trusts in the United States, with
$34 billion in total market capitalization and $3 billion
in annual revenues. GGP currently trades around
$14 per share1 on the New York Stock Exchange under
the ticker, GGP.
Beginning when Scanlan was a child, her father and
uncle established six trusts (the “Trusts”), naming
Scanlan as the primary beneficiary. Each of the Trusts
authorizes the corporate trustee, General Trust Company
(the “Trustee”), to distribute “all or as much of the net
income or principal, or both” of the trust to Scanlan “as
the Trustee deems to be necessary for her support” or
“in her best interests.” No other person is eligible to
receive any distributions from the Trusts during
Scanlan’s lifetime, and Scanlan’s children are contingent
remaindermen.
The law firm of Neal, Gerber & Eisenberg, LLP (the “Law
Firm”), through two of its partners, Marshall Eisenberg
1
As of December 20, 2011, GGP closed at $14.52.
No. 11-1657 3
(“Eisenberg”) and Earl Melamed (“Melamed”) generally
represented Scanlan throughout her adult life when she
needed legal advice. At the same time, they represented
both the Trustee and GGP. In addition to his legal repre-
sentation of GGP, Eisenberg also served as the Secretary
of GGP from April 1993 through October 2008; Eisenberg
and Melamed both own GGP stock.
Eisenberg and Melamed personally control General
Trust Company. For example, Eisenberg is its majority
owner, its president, a member of its board of directors,
and one of the three members of its Trust Committee.
Melamed serves on General Trust Company’s board of
directors, serves as its Secretary, and is the second mem-
ber of its Trust Committee.
B. The Stock Purchases
In 2007 and 2008, the Trusts purchased hundreds of
millions of dollars of additional GGP stock. These pur-
chases were financed with the proceeds of a loan
secured by a pledge of the Trusts’ assets. At the time of
the purchases, the Trusts were already heavily invested
in GGP stock, which constituted over 65% of the
Trusts’ assets. Eisenberg and Melamed approved the
GGP stock purchases in their capacity as officers and
directors of the Trustee, and the Law Firm, together
with Eisenberg and Melamed, provided legal advice
concerning the transaction.
On April 16, 2009, GGP declared bankruptcy. Scanlan’s
Trusts suffered more than $200 million in losses due to a
drop in GGP stock purchased in 2007 and 2008.
4 No. 11-1657
C. The Lawsuit
Scanlan brought an action on August 17, 2009, naming
the Trustee, the Law firm, Eisenberg, and Melamed as
defendants (collectively, the “Defendants” or “Appellees”).
On June 30, 2010, Scanlan filed an amended complaint,
which added her children as plaintiffs based on their
status as contingent beneficiaries of the Trusts. Because
her children are minors, Scanlan is suing on their behalf.
In her amended complaint, Scanlan complains that the
Trustee’s purchases of GGP stock were not made in
her best interests, but instead to further (1) her lawyers’
own financial interest in retaining GGP as a client; (2) the
interests of other members of the Bucksbaum family
who managed GGP (whom her lawyers also repre-
sented); (3) Eisenberg and Melamed’s personal interests
as shareholders; and (4) Eisenberg’s interest as Secretary
of GGP.
Specifically, Scanlan brings claims against the Trustee
for breaching its fiduciary duties of loyalty, prudence,
and disclosure when it purchased the GGP stock in 2007
and 2008. Scanlan also brings claims against her lawyers
for breach of fiduciary duty, legal malpractice, and
aiding and abetting the Trustee’s breach of its fiduciary
duty. Lastly, Scanlan seeks equitable relief, including
(1) restoration of the Trusts’ corpus; (2) the removal of
the Trustee; (3) an accounting and books and records
request; (4) modification of the Trusts to provide her
with power to remove the Trustee; (5) the disgorgement
of attorneys’ fees; and (6) punitive damages.
No. 11-1657 5
D. Procedural Context
On October 28, 2009, the Defendants filed a Rule 12(b)(1)
motion arguing that Scanlan was improperly seeking a
direct payment of damages. In her response, Scanlan
claimed that she was seeking an order compelling the
Defendants to restore the Trusts’ corpus. During the
argument on the motion, the district court raised,
sua sponte, the issue of whether Scanlan might lack
Article III standing because she was a discretionary
beneficiary. The Trustee’s attorney all but made
Scanlan’s argument for her, first, conceding that Scanlan
had standing to seek restoration of the corpus, but then
agreeing to take that issue under advisement and re-brief
the issue if the district court preferred.
On October 14, 2010, the district court ruled that
Scanlan lacked Article III standing and dismissed all of
her claims with prejudice. Specifically, the district court
held that Scanlan lacked standing unless she could
allege “facts showing a likelihood that the corpus of
the trusts would ever be insufficient to pay all of her
discretionary distributions to which [she] might become
entitled during her lifetime.” This appeal followed.
The issue on appeal, then, is a narrow one: whether
Scanlan has constitutional standing to assert her claims
in federal court. We find that she does and reverse
the district court.
II. DISCUSSION
We review a district court’s decision to grant a
Rule 12(b)(1) motion to dismiss for lack of standing
6 No. 11-1657
de novo, accepting as true all facts alleged in the
well-pleaded complaint and drawing all reasonable
inferences in favor of the plaintiff. Family & Children’s
Ctr., Inc. v. School City of Mishawaka, 13 F.3d 1052, 1057
(7th Cir. 1994).
The burden to establish standing is on the party in-
voking federal jurisdiction—here, Scanlan—and the
elements she must show are:
(i) an injury in fact, which is an invasion of a legally
protected interest that is concrete and particularized
and, thus, actual or imminent, not conjectural or
hypothetical; (ii) a causal relationship between the
injury and the challenged conduct, such that the
injury can be fairly traced to the challenged action
of the defendant; and (iii) a likelihood that the
injury will be redressed by a favorable decision.
Lee v. City of Chicago, 330 F.3d 456, 468 (7th Cir. 2003)
(citing Lujan v. Defenders of Wildlife, 504 U.S. 555, 560-61
(1992)).
To satisfy the injury-in-fact requirement, Scanlan “must
establish that [she] has sustained or is immediately in
danger of sustaining some direct injury.” Wis. Right
to Life, Inc. v. Schober, 366 F.3d 485, 489 (7th Cir. 2004)
(quoting Tobin for Governor v. Ill. State Bd. of Elections,
268 F.3d 517, 528 (7th Cir. 2001)). “Mere speculation
is not enough to establish an injury in fact.” Id.
The district court’s standing inquiry, and more specifi-
cally, its injury-in-fact analysis, focused primarily on the
current value of the Trusts’ assets. Having found that
No. 11-1657 7
Scanlan did not allege any facts indicating that the
value of the Trusts’ corpus—approximately $800 mil-
lion—would ever be insufficient to fund any potential
“support” and “best interests” payments, the district
court concluded that Scanlan did not suffer an injury
in fact for purposes of Article III. To put it differently,
Scanlan’s legally protected interest arising out of her
status as a discretionary beneficiary, according to the
district court, is limited to her interest in potential dis-
cretionary payments made pursuant to the Trusts’ instru-
ments. And without an injury to that specific interest,
the court concluded, Scanlan has no injury in fact. We
disagree with that characterization of Scanlan’s interest.
That Scanlan must suffer an invasion of a legally pro-
tected interest is a principle of federal law. But the nature
and extent of Scanlan’s interest as a beneficiary of a
discretionary trust, and therefore, whether that interest
can form the basis of a federal suit, depend on the law
that defines the rights of a discretionary beneficiary.
FMC Corp. v. Boesky, 852 F.2d 981, 993 (7th Cir. 1988); see
also Bochese v. Town of Ponce Inlet, 405 F.3d 964, 981 (11th
Cir. 2005); Cantrell v. City of Long Beach, 241 F.3d 674,
684 (9th Cir. 2001). In this case, that is the law of Illinois.
So we look to see whether according to Illinois law
a discretionary trust beneficiary has the kind of stake
that Article III requires.
So stated, this is an issue that has meager precedent.
The Restatements (Third) of Trusts, Section 94, addresses
who may bring a suit against a trustee for breach of trust,
and therefore, provides some guidance on this topic. See
8 No. 11-1657
In re Estate of Lieberman, 909 N.E.2d 915, 922 (Ill. App. Ct.
2009). Section 94, which is entitled, “Standing to Enforce
a Trust,” provides:
A suit against a trustee of a private trust to enjoin or
redress a breach of trust or otherwise to enforce the
trust may be maintained only by a beneficiary or by
a co-trustee, successor trustee, or other person acting
on behalf of one or more beneficiaries.
The Restatements (Third) of Trusts, § 94(1).
Comment b to § 94 then explains who qualifies as
a “beneficiary” with standing to bring suit to redress a
breach of trust:
A suit to enforce a private trust ordinarily . . . may be
maintained by any beneficiary whose rights are or
may be adversely affected by the matter(s) at issue.
The beneficiaries of a trust include any person
who holds a beneficial, present or future, vested or
contingent . . . . This includes a person who is eligible
to receive a discretionary distribution . . . .
Id. § 94, cmt. b.
Clearly then, Comment b provides that a beneficiary of
a discretionary trust whose rights are “adversely af-
fected” has standing to enforce the trust. But Comment b
poses, rather than answers, the question: What does
it mean for a discretionary beneficiary’s rights to be
“adversely affected”? Again, the Appellees argue that
Scanlan’s rights as a discretionary beneficiary are not
“adversely affected” until the Trustee fails to make a
distribution in which she is entitled to under the terms
No. 11-1657 9
of the Trusts. Only after that showing will Scanlan have
standing, the Appellees claim. Such a rigid standard is
not supported by trust law authority, which indicates
that a discretionary beneficiary’s rights include some-
thing more than just an interest in potential distributions.
In Illinois, a beneficiary has an equitable interest in the
trust property. Parkway Bank & Trust Co. v. Northern Trust
Co., 572 N.E.2d 1055, 1058 (Ill. App. Ct. 1991); Farkas v.
Williams, 125 N.E.2d 600, 605 (Ill. 1955) (“The declaration
of trust immediately creates an equitable interest in the
beneficiaries . . . .”); Gordon v. Gordon, 129 N.E.2d 706, 708
(Ill. 1955); Norris v. Estate of Norris, 493 N.E.2d 121, 126 (Ill.
App. Ct. 1986). Jurisdictions examining the nature of
a discretionary beneficiary’s interest have found that,
like an ordinary beneficiary, a discretionary beneficiary
has an equitable interest in the trust property. See, e.g.,
Pritzker v. Pritzker, Case Nos. 02 CH 21426, 03 CH 7531,
at 15-16 (Cir. Ct. of Cook Cty., Ch. Div. March 5, 2004)
(“It is clear that beneficiaries of a discretional trust have
a present, existing property interest in the trust res.”);
In re Marriage of Jones, 812 P.2d 1152, 1157 (Colo. 1991)
(citing 2 A. Scott on Trusts § 130, at 409 (4th ed. 1987))
(noting that a discretionary trust beneficiary has an
equitable interest, but the beneficiary cannot force the
trustee to pay income or principal unless the beneficiary
could establish the trustee had engaged in fraud or an
abuse of discretion); Pack v. Osborne, 2008 WL 4907545,
at *3 (Ohio App. Ct. Nov. 14, 2008) (determining the
nature of the discretionary beneficiary’s interest in the
trust and concluding it was an equitable interest);
Paulson v. Paulson, 2010 ND 100, 783 N.W.2d 262, 272
(stating that a discretionary beneficiary has an equitable
10 No. 11-1657
interest in the trust assets); United States v. O’Shaughnessy,
517 N.W.2d 574, 577 (Minn. 1994) (citing Restatement
(Second) of Trusts 199 (1959)) (commenting that a dis-
cretionary beneficiary has equitable remedies against
a trustee for breach of trust).
Cases that establish a beneficiary’s equitable interest
in trust property, the Appellees argue, do not arise in
contexts involving standing and instead merely recite
general trust law principles. Yet we see no reason why
canonical principles of trust law should not be
employed when determining the nature and extent of a
discretionary beneficiary’s interest for purposes of an
Article III standing analysis. Applying those principles,
we conclude that Scanlan has an equitable interest in
the corpus of the Trusts. And it is from that equitable
interest that Scanlan acquires standing to enforce the
Trusts.
Stemming from Scanlan’s status as a beneficiary is a
fiduciary relationship between her and the Trustee that
gives rise to equitable remedies against the Trustee
for breach of trust. A trustee owes a fiduciary duty to
a trust’s beneficiaries and is obligated to carry out the
trust according to its terms and to act with the highest
degree of fidelity and utmost good faith. In re Estate of
Muppavarapu, 836 N.E.2d 74, 77 (Ill. App. Ct. 2005); Paul H.
Schwendener, Inc. v. Jupiter Elec. Co., Inc., 829 N.E.2d 818,
828 (Ill. App. Ct. 2005); Giagnorio v. Emmett C. Torkelson
Trust, 686 N.E.2d 42, 46 (Ill. App. Ct. 1997); see also Restate-
ment (Second) of Trusts § 2, cmt. b (1959); Restatement
(Second) of Trusts § 170 (1959). The fiduciary obligation
No. 11-1657 11
of loyalty flows from the relationship of the trustee and
beneficiary, and the essence of that relationship is that
the trustee is charged with equitable duties toward the
beneficiary. Home Federal Savings and Loan Ass’n of
Chicago v. Zarkin, 432 N.E.2d 831, 845-46 (Ill. 1982); Restate-
ment (Second) of Trusts § 164, cmt. h (1959); Matter of
Reiman’s Estate, 450 N.E.2d 928 (1983) (“[A] trust
involves not merely a discretionary authority, but a legal
relationship whereby the trustee is under a fiduciary
obligation to deal with property in accordance with the
instructions of the trustor for the benefit of a third
party . . . .”). So by virtue of the fiduciary relationship
between Scanlan and the Trustee, Scanlan acquires the
right to bring an action for breach of fiduciary duty.
See Parish v. Parish, 193 N.E.2d 761, 766 (Ill. 1963); Burrows
v. Palmer, 125 N.E.2d 484, 486-87 (Ill. 1955); Restatement
(Second) of Trusts § 199 (1959).
Our conclusion in this regard is further supported
by trust law that recognizes a beneficiary’s standing is
not based on an absolute entitlement or a probability
of receiving trust assets. The mere fact that a beneficiary
may ultimately never receive trust assets does not
prevent that beneficiary from bringing a claim. For ex-
ample, a contingent beneficiary can bring an action
against the trustee—even though his interest is remote
and contingent—to protect his possible eventual interest,
i.e., to protect and preserve the trust res. Barnhart v.
Barnhart, 114 N.E.2d 378, 388 (Ill. 1953). In Illinois, there-
fore, “a trustee owes the same fiduciary duty to a con-
tingent beneficiary as to one with a vested interest
insofar as necessary for the protection of the contingent
12 No. 11-1657
beneficiary’s rights in the trust property.” Burrows,
125 N.E.2d at 486-87; see also Shaw v. Weisz, 91 N.E.2d 81,
87 (Ill. App. Ct. 1950).
If a beneficiary who may never receive the trust’s
assets stands in a fiduciary relationship with the
trustee, then so should a beneficiary of a discretionary
trust. We see no reason why a beneficiary, simply by
virtue of being the beneficiary of discretionary trust,
should be denied the ordinary equitable rights that
flow from the fiduciary duty that runs from a trustee
to a beneficiary. Included in those rights is the right
to bring an action for breach of trust.
Goodpasteur v. Fried offers further support. 539 N.E.2d
207, 208 (Ill. App. Ct. 1989). In Goodpasteur, one of the
beneficiaries of a discretionary trust sought an order
requiring the trustee to provide an inventory of trust
assets and an accounting of the trust’s receipts and dis-
bursements. Id. The appellate court rejected the trustees’
argument that the discretionary beneficiary should not
be able to bring his suit because his interest in the trust
was an “expectancy” and the real party concerned was
the remainderman. Id. at 210.
In reversing the circuit court, the appellate court rea-
soned:
Plaintiff is a named beneficiary of the trust. . . .
It is conceivable that, at the death of the beneficiaries
in plaintiff’s class, no income or principal will be left
to distribute to the [remainderman]. It is incongruous
to argue that plaintiff should not be allowed to main-
tain this action because the [remainderman], which
No. 11-1657 13
will enjoy the benefits of the trust only if funds are
left at the death of plaintiff and beneficiaries in his
class, is the party “really concerned.” Such a state-
ment implies that defendants have already decided
not to make any payments to plaintiff and the bene-
ficiaries in his class.
We are of the opinion that plaintiff is a beneficiary
eligible to have the benefit of income under
the trust. As such, plaintiff is entitled to an account
showing the receipts, disbursements and inventory
of the trust estate. . . .
Id. at 210-11.
Again, no authority requires a discretionary beneficiary
to first allege that the trust corpus is insufficient to fund
a distribution when bringing a claim for breach of trust.
That sort of inquiry has a damages flavor to it, which is
a merits, not a standing, question. See Aurora Loan Servs.
Inc. v. Craddieth, 442 F.3d 1018, 1024 (7th Cir. 2006) (“The
point is not that to establish standing a plaintiff must
establish that a right of his has been infringed; that
would conflate the issue of standing with the merits of
the suit. It is that he must have a colorable claim to
such a right.”).
The Appellees argue that Illinois trust law and Article III
are not coextensive, and the mere fact that a discre-
tionary beneficiary may have a right to sue under state
law does not ensure standing. It is true that a standing
inquiry does not necessarily end with the determination
of a state right to sue. But the Supreme Court stated in
Sprint Commc’n Co., L.P. v. APCC Services, Inc. that
14 No. 11-1657
“history and tradition offer a meaningful guide to the
types of cases that Article III empowers federal courts
to consider” and that where parties have “long been
permitted to bring” the type of suit at issue, it is “well
nigh conclusive” that Article III standing exists. 554
U.S. 269, 274-75, 285 (2008). After carefully reviewing
beneficiaries’ rights, we determined that beneficia-
ries—including discretionary beneficiaries—have “long
been permitted to bring” suits to redress a trustee’s
breach of trust.
Moreover, in FMC Corp. v. Boesky, we held that the
actual or threatened injury required under Article III
can be satisfied solely by virtue of an invasion of a recog-
nized state-law right. 852 F.2d 981, 993 (7th Cir. 1988). In
Boesky, FMC brought a claim for wrongful misappropria-
tion and misuse of its confidential business informa-
tion, which forced FMC to increase its cash distribution
to its shareholders under a revised capitalization plan.
Id. at 989-90. Finding that the distribution of FMC’s
assets to the owners of those assets was merely a move-
ment of assets between owners, the district court found
there was no injury for purposes of Article III. Id.
We reversed the district court and held that the misap-
propriation of confidential information “constitutes a
distinct and palpable injury that is legally cognizable
under Article III’s case and controversy requirement.”
Id. Basing our decision, in part, on Warth v. Seldin—which
held that injury required by Article III may exist solely
by virtue of statutes creating legal rights, the invasion
of which creates standing—we concluded that “[t]he
same must also be true of legal rights growing out of
state law.” Boesky, 852 F.2d at 993 (citing Warth v. Seldin,
No. 11-1657 15
422 U.S. 490, 498 (1975)). In fact, we pointed out that
if this were not so, “federal courts sitting in diversity
could not adjudicate some cases involving only state-
law breach-of-fiduciary claims . . . because some
actions for breach of fiduciary duty do not require
the plaintiff to show an injury.” Id.
Here, Scanlan is the beneficiary of several discretionary
Trusts, and under those Trusts, she is currently eligible
to receive all of the Trusts’ corpus. We established that
Scanlan, as a beneficiary, is owed a fiduciary duty and
that she has an interest in ensuring that the Trustee
discharge its duties with fidelity and a certain degree
of care. The Trustee and her lawyers, Scanlan claims,
breached those fiduciary duties, causing the Trusts’
corpus to lose approximately $200 million. Under these
circumstances, the Trustee’s and Lawyers’ dereliction of
their fiduciary duties is a direct invasion of Scanlan’s
protected interest in the prudent and loyal administra-
tion of the Trusts. Scanlan has therefore suffered an
injury sufficient to satisfy Article III’s case and con-
troversy requirement.
This holding is consistent with the objective of the
standing doctrine. As the Supreme Court has explained,
the purpose behind the standing doctrine is to ensure
that plaintiffs have a “personal stake in the outcome”
sufficient to “assure that concrete adverseness which
sharpens the presentation of issues upon which the
court so largely depends for illumination of dif-
ficult . . . questions.” Baker v. Carr, 369 U.S. 186, 204 (1962).
The Court has also explained:
16 No. 11-1657
[T]he standing inquiry requires careful judicial ex-
amination of a complaint’s allegations to ascertain
whether the particular plaintiff is entitled to an ad-
judication of the particular claims asserted. Is the
injury too abstract, or otherwise not appropriate, to
be considered judicially cognizable? Is the line of
causation between the illegal conduct and injury
too attenuated? Is the prospect of obtaining relief
from the injury as a result of a favorable ruling too
speculative?
Allen, 468 U.S. at 752.
Scanlan has a “required stake” in her suit; she has a
legally protected interest in Trusts’ corpus and in the
proper administration of that corpus. Her claims against
her lawyers and the Trustee are brought to protect that
interest and redress her injury by seeking to remove
the Trustee, restore the Trusts’ corpus, and disgorge
attorneys’ fees. Scanlan’s injury, therefore is not “too
abstract.” Nor is the relief she seeks too speculative.
The Appellees argue that under some circumstances
a discretionary beneficiary’s present interest in the trust
property—before a trustee has made a distribution—is
too attenuated to be considered the beneficiary’s prop-
erty. The Appellees, therefore, urge us to conclude
that Scanlan only has an interest in her potential dis-
tributions, rather than the Trusts’ corpus. It is true that
in some circumstances, e.g., for purposes of public aid
eligibility and determining the bankruptcy estate, a
discretionary beneficiary’s interest in the trust assets
is too remote to count as property. See, e.g., Linser v. Office
No. 11-1657 17
of Attorney Gen., 2003 ND 195, 672 N.W.2d 643, 646;
In re Britton, 300 B.R. 155, 159 (Bankr. D. Conn. 2003);
In re Eley, 331 B.R. 353, 358 (Bankr. S.D. Ohio 2005). Like-
wise, in some cases, creditors are prevented from at-
taching the assets of a discretionary trust and have no
remedy against the trustee until the trustee distributes
the property. See, e.g., United States v. O’Shaughnessy,
517 N.W.2d 574, 577 (Minn. 1994); Harker v. Evatt,
44 N.E.2d 355, 357 (1942); Doksansky v. Norwest Bank
Neb., N.A., 615 N.W.2d 104, 106-10 (Neb. 2000); In re
Duncan’s Will, 362 N.Y.S.2d 788, 790 (Sur. 1974).
These rules, however, are the result of underlying
principles and policy considerations involving restraints
on involuntary alienation. Those concerns, which are not
present here, are distinct from the equitable principles
of trust law at work in this case; namely, a beneficiary’s
right to hold trustees accountable and ensure that
they properly discharge their fiduciary duties when
administering trust property. That in some contexts
Scanlan’s interest in the Trusts’ assets may not rise to
the level of a “property interest” does not negate the
fact that she and the Trustee stand in a fiduciary rela-
tionship. The same can be said of her relationship with
her attorneys.
We remain unpersuaded that our holding will lead to
any beneficiary having standing whether or not its
specific interest is affected. Only a beneficiary of a dis-
cretionary trust whose rights are “adversely affected” has
standing to enforce a trust. In claims for breach of trust,
the requirement that a beneficiary of a discretionary
18 No. 11-1657
trust must plead facts indicating that the diminution in
the trust assets had, or will ever have, a probable
adverse impact on discretionary distributions is too
demanding. Essentially that rule, which the Appellees
ask us to adopt, would insulate trustees from suits for
breach of trust. For instance, under that reasoning, a
trustee could mismanage a trust with impunity, substan-
tially reducing the assets over time, so long as there
were enough assets left in the corpus to fund a future
distribution. In fact, the larger the trust’s corpus, the
more likely that could happen. Take the Trusts in this
case for example: with nearly $1 billion in assets, it is
hard to imagine that there would ever be a situation
in which the corpus would be insufficient to fund
Scanlan’s “best interests” and “support” distributions.
Surprisingly, the Appellees admit this. The Trustee,
could, under the Appellees’ reasoning, reduce the assets
by 90%—to a paltry $100 million—and still be sheltered
from a breach of trust claim.
The Appellees’ rule ignores the fiduciary relationship
between a beneficiary and a trustee and is practicably
unworkable because the question inevitably becomes:
at what point is the trust’s corpus diminished to such
an extent that the trustee can no longer make a future
distribution? The Appellees cannot answer this ques-
tion. Nor can we. Scanlan’s standing should not turn on
whether her “best interests” and “support” needs, what-
ever they may be, will be met. The district court, therefore,
erred to the extent it concluded that Scanlan lacked
Article III standing because she did not suffer an injury
in fact.
No. 11-1657 19
III. CONCLUSION
For the reasons stated herein, we R EVERSE and
R EMAND for further proceedings consistent with this
opinion.
1-20-12