December 27, 2018

A Legal Issue Can Be A Claim Or Defense, And Defenses Cannot Be Time-Barred; Gittings v. Deal

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The law is generally a detail-oriented business, and facts matter when they are being applied to the law. The Indiana Supreme Court demonstrates that principle in this opinion when dealing with a claim for fraudulent concealment.

Brenda and William were stepsiblings. Their parents, Nile (Brenda’s father) and Georgia (William’s mother) executed mirror trusts as part of their estate planning. Each agreement set up a Primary Trust, a Trust A, and a Trust B. The primary trusts were inter vivos trusts, holding Nile’s and Georgia’s primary trust estates during each of their lives. Once the settlor died, the assets of that primary trust estate would be distributed to the respective Trust A and/or Trust B.

Trust A was designed to provide for the surviving spouse’s support, maintenance, and health. Once the surviving spouse died, assets remaining in Trust A would go into Trust B. Trust B was to receive two additional classes of assets: those transferred directly to Trust B by the decedent settlor’s last will, and those remaining in the settlor’s primary trust estate after its distribution to Trust A.

The initial trustees were the settlor and the spouse. But if the settlor died first, the surviving spouse would not be the sole trustee of Trust A and Trust B. Rather, Brenda and William would also be co-trustees of Trust A and Trust B.

Nile passed first, leaving Georgia as the surviving spouse. In 1995, Georgia amended her trusts, removing Brenda and her son as beneficiaries. Georgia did not tell Brenda about this, and asked Brenda to transfer some property from Nile’s trusts to Georgia’s trusts. Brenda complied with this request. Georgia and William then signed similar documents to complete the transfer from Nile’s trust to Georgia’s trust.

Georgia died in 1997, which trigged the distribution of Nile’s trust assets. Not long after Brenda signed the final account of this distribution (but still in 1997), the attorney who handled the administration of Georgia’s estate sent Brenda a copy of Georgia’s amended trust documents. Brenda learned that she had been eliminated as a beneficiary from that trust. That fall, Brenda’s husband— with Brenda there—asked William about any more inheritance. William responded that there wasn’t anything left after Georgia’s medical, nursing home, and funeral bills had been paid.

About thirteen years later, in 2010, the property in West Virginia that William received from the GLR trust began producing significant income from oil and gas leases. Brenda had an attorney send William a letter, making claims on the property. William then recorded the deeds that he and Brenda signed in 1995.

In 2013, William filed a petition asking for a declaratory judgment approving the transfers of the land and mineral interests from Nile’s trust to Georgia’s trust. Brenda then counterclaimed, arguing that the transfers were void. The trial court found that Brenda’s counterclaims were time-barred and that the transfers were proper. The Court of Appeals affirmed.

The Court dealt with the statute of limitations issues first on transfer. And when doing so, it distinguished between claims and defenses. Citing an 1884 case, the Court noted that it had “long ago announced that statutes of limitations bar actions but not defenses.” The Court then explained that the label a litigant put on a legal issue was not the test for whether an issue was a claim or defense for statute-of-limitations-purposes.

[W]hether a statute of limitations applies to a claim depends on the claim’s function as an action or as a defense, not on the claimant’s label of the claim as one or the other. To identify how a claim functions, we look to the facts alleged and the relief sought. A claim is a “pure defense”—to which statutes of limitations do not apply—when it contests the opposing party’s claim; but if a claim is a basis for affirmative relief, then it “form[s] a foundation for a counter-claim or cross complaint,” and is thus subject to statutes of limitations.

When a legal issue has a “dual character,” i.e., that it could be both a claim and a defense, then Trial Rule 13(J) applies. And under that Rule, a statute of limitations does not preclude a legal issue as a defense, even if that same issue is precluded as a claim. Thus, Brenda’s claims were properly barred, unless the statute of limitations was tolled.

Brenda argued that fraudulent concealment tolled the statute in this case. But the Court disagreed. It noted that Brenda knew all of the facts necessary to bring a claim in 1997.

Here, we need not determine whether the Gittingses carried their burden to show that William and Brenda remained in a fiduciary relationship after NDR Trust B closed. That is because both forms of fraudulent concealment—active and failure-to-disclose—exist only if the cause of action is concealed from the party entitled to bring it. And by mid-July 1997, the Gittingses’ causes of action were not concealed. Brenda had everything she needed—in the deeds, the trust agreements, and the final accounting—to know about not only Georgia’s and William’s alleged wrongdoing but also the injury that the Gittingses now claim they sustained as a result: the loss of Brenda’s and Marc’s interests in the property.

And William’s statement in the fall of 1997 that “there was nothing left” did not change this analysis.

Nor did William actively conceal the Gittingses’ causes of action with misinformation after NDR Trust B was closed. William’s statement that there was nothing left to distribute after Georgia’s end-of-life expenses was accurate as to the NDR trusts—the only trusts in which the Gittingses had any interest after Georgia amended the GLR Trust Agreement. William did not need to remind them that their “inheritance” did not include any property in the GLR Primary Trust; the amended GLR Trust Agreement revealed that information.

Thus, Brenda’s affirmative claims were barred. But this did not mean that she could not use her arguments about the invalidity of the transfers. The Court noted that a petition under the Trust Code should be treated as a complaint, so William bore the burden of proof and Brenda’s issues were defenses. And under these facts, the transfers were improper.

Here, there was a clear conflict of interest: Georgia could designate her son William as sole beneficiary of the GLR Primary Trust. But because she was not the settlor of the NDR Trust Agreement, Georgia could not remove Brenda and Marc as beneficiaries of NDR Trust B—the trust that would receive leftover assets from NDR Trust A after Georgia’s death. Thus, Georgia’s transfer of property from NDR Trust A to the GLR Primary Trust required court approval, which Georgia did not obtain.

Thus, Brenda did not succeed on her claims against William, but William does not get court approval for the transfers.

One could reasonably ask what this means for the future. For example, who gets the proceeds from the mineral leases on a going-forward basis if the transfers from Nile’s trust to Georgia’s trust were improper? The Court does not say. Instead, it remanded the case back to the trial court for further proceedings.

Lessons:

  1. A legal issue can be either a claim or defense, and its status depends on its function, not its label.
  2. If a legal issue has a dual character as a claim and a defense, then its status as a defense is unaffected by a statute of limitations that may bar the claim.
  3. A defendant’s statements that dissuade a plaintiff from bringing a claim do not support a claim of fraudulent concealment, so long as the plaintiff knew all of the facts necessary to bring a claim.