Malachowski v. Bank One, Indianapolis
| Decision Date | 14 April 1992 |
| Docket Number | No. 49S02-9204-CV-271,49S02-9204-CV-271 |
| Parties | Louise Noel MALACHOWSKI, Nancy Noel Kosene, H. Jerome Noel, Jr., Irma Noel Rand, William H. Noel, Carol Noel Madrick, William H. Failey, Jr., and John Noel Failey, Appellants (Plaintiffs Below), v. BANK ONE, INDIANAPOLIS, Formerly American Fletcher National Bank & Trust Company, Appellee (Defendants Below). |
| Court | Indiana Supreme Court |
The beneficiaries of a trust, Louise Noel Malachowski, Nancy Noel Kosene, H. Jerome Noel, Jr., Irma Noel Rand, William H. Noel, Carol Noel Madrick, William H. Failey, Jr., and John Noel Failey (Plaintiffs-Appellants below) (hereinafter "Beneficiaries"), seek transfer after the Court of Appeals affirmed summary judgment against them and in favor of the trustee, Bank One, Indianapolis (Defendant-Appellee below) ("Bank One"). Malachowski v. Bank One, Indianapolis (1991), Ind.App., 570 N.E.2d 65. The Beneficiaries' claims arise from Bank One's sales of Eli Lilly & Company common stock ("Lilly stock") held by the trust. We grant transfer because we find questions of fact precluding summary judgment on the issues before us:
(1) Whether the Beneficiaries' claim is barred by the statute of limitations;
(2) Whether the trustee committed a breach of trust;
(3) Whether Bank One should be removed as Trustee; and
(4) Whether the Trust corpus should be divided.
Plaintiffs are Beneficiaries and Bank One 1 is Trustee of an irrevocable intervivos trust ("the Trust") created by Harry S. Noel in 1935. Income from the Trust was to be paid to the settlor's wife during her lifetime. Upon her death, income was to be paid in equal shares to the settlor's three children, Harry J. Noel, Barbara L. (Noel) Seawell, and Carol A. (Noel) Failey, or to their surviving issue. The Trust is to terminate on the death of the survivor of these three children with the corpus to be distributed to the surviving issue of those children. Two of the settlor's children have died. Harry J. Noel died in 1986, leaving six children, H. Jerome Noel, Jr., Nancy (Noel) Kosene, William H. Noel, Carol (Noel) Madrick, Louise (Noel) Malachowski, and Irma (Noel) Rand, all of whom are plaintiffs in this action. Carol A. (Noel) Failey died in 1961, leaving two children, John Noel Failey and William H. Failey, Jr., both of whom are plaintiffs here. Barbara L. (Noel) Seawell is still living, and has two children. Neither Mrs. Seawell nor her children are parties to this action.
When the Trust was created, its only asset was life insurance policies payable on the death of the settlor. The Trustee was authorized to purchase property from the settlor's estate and was totally indemnified from any liability for those transactions. The settlor also had established a testamentary trust in his Will and named Bank One as trustee. At the settlor's death, the testamentary trust was funded with Lilly stock.
The settlor died in 1943. Proceeds from the life insurance policies held by the Trust were lent to the estate. That loan was repaid in 1947 with 1,564 shares of Lilly stock valued at $35,000. From that time until 1972, the corpus of the Trust consisted entirely of Lilly stock. In 1972, Bank One began selling Lilly stock to diversify the Trust holdings apparently over the objections of some of the settlor's children. At the time diversification began, the value of the Lilly stock and Trust corpus held by the Trust was $2,400,000. Sales of the stock continued intermittently for eight years until December 1985. The Beneficiaries assert that the value of the corpus in 1985, if no Lilly stock had been sold, would have been approximately $360,000 greater.
In February 1988, this action was filed against Bank One. The Beneficiaries sought various forms of relief, including the restoration of Lilly stock sold by Bank One to the Trust, removal of Bank One as Trustee, and division of the Trust corpus into three shares. Bank One moved for summary judgment. The trial court found that the sale of Lilly stock and Bank One's refusal to divide the Trust into separate portions did not violate the terms of the Trust or constitute any breach of trust. The trial court did not decide whether the Beneficiaries' claim was barred by the statute of limitations.
The Beneficiaries appealed. The Court of Appeals held that the action was barred by the statute of limitations and did not address the substance of the claims presented to the trial court. The Beneficiaries now seek transfer. Additional facts will be added as necessary.
This matter is before us on the propriety of the grant of summary judgment and, therefore, we apply the same standard applicable in the trial court. Webb v. Jarvis (1991), Ind., 575 N.E.2d 992, 994-5. We must consider the pleadings and evidence sanctioned by Ind. Trial Rule 56(C) without deciding its weight or credibility. Id. Rational assertions of fact and reasonable inferences therefrom are deemed to be true. Id. Any doubt about the existence of a fact or the inference to be drawn from it is to be resolved in favor of the nonmoving party. Id. Only if such evidence shows that there is no genuine issue of material fact and that the moving party is entitled to judgment as a matter of law should summary judgment be affirmed. Id.
The parties dispute both the applicable limitation period and whether the claim was filed within that period. The Court of Appeals decided that the claims were governed by a two-year limitation period that expired at the latest in December 1987, two years after the last sale of Lilly stock from the Trust. We find fact issues precluding summary judgment on whether the claim is time-barred.
The Beneficiaries first argue that the applicable limitation period is three years after the final accounting as provided in Ind.Code Sec. 30-4-6-12. Because no final accounting has been made, they reason, their claim is not barred. The statute provides:
Unless previously barred by adjudication, consent or limitation, any right against a trustee for a breach of trust shall be barred as to any beneficiary who has received a final account or other statement fully disclosing the matter and showing termination of the trust relationship between the trustee and the beneficiary unless a proceeding to assert the right is commenced within three years after receipt of the final account or statement.
Relying on Mack v. American Fletcher Nat'l. Bank (1987), Ind.App., 510 N.E.2d 725, 738, trans. den., for the proposition that the statute implies the existence of a statute of limitations apart from the three-year limitation period that begins after a final accounting is submitted, the Court of Appeals rejected the Beneficiaries' argument. The court determined that claims for breach of trust are subject to a two-year limitation period because a breach of trust action is premised upon an injury to the interest of the beneficiaries in the trust and, as such, is an injury to personal property. We agree.
Accepting the Beneficiaries' argument would have the practical effect of allowing trust beneficiaries to refrain from filing any claim they might have against a trustee until a final account is rendered. We do not perceive that this is the intent of the legislature as expressed in Ind.Code Sec. 30-4-6-12. By providing for a three-year statute of limitations for breach of trust claims "unless previously barred by ... limitation," the legislature recognized that other limitation periods may also be applied to such claims. Thus, we hold that this statute provides for a three-year limitation period after a final account, but that the statute does not extend the limitation period for an action against a trustee for breach of trust which accrues before a final account is given.
Having decided that Ind.Code Sec. 30-4-6-12 is not the exclusive statute of limitation applicable to such actions, we must now determine what statute governs. The Court of Appeals properly analyzed the nature of a breach of trust claim in Mack and determined that such actions are torts. The court in Mack continued its analysis and concluded that the statute of limitations applicable to a breach of trust claim against a trustee is the two-year statute that controls claims for injuries to personal property. We agree with this conclusion and the legal reasoning that leads to it.
The question in the present case, therefore, becomes: When did the breach of trust action accrue? By letter dated November 19, 1971, a trust officer advised the Beneficiaries that Bank One had been "mandated by the National Bank Examiner's Audit Staff and by our own Internal Trust Committee to either diversify [the 100 per cent concentration of Lilly stock in the Trust] or seek indemnity from all interested parties against any loss due to its retention." Bank One began selling Lilly stock in 1972. Sales continued through 1980, and were stopped for a period of time until 1984, when they were reinstituted. The final sale occurred in December 1985. In 1987, after the death of H. Jerome Noel, Sr., his son, H. Jerome Noel, Jr., a party herein, asked Bank One to furnish a copy of the National Bank Examiner's audit which mandated the diversification. In July 2, 1987, Mr. Noel was advised by a trust officer that no such documentation was in the account file. The complaint was filed February 22, 1988. 2 Based on these facts, the Beneficiaries contend that the limitation period was tolled by Bank One's misrepresentation regarding the existence of the mandate.
On the other hand, Bank One urges and the Court of Appeals agreed that because the last disputed sale of Lilly stock occurred in December 1985, the statutory period expired no later than two years after the last sale, in December 1987....
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