Wagner v. Spurlock

• Decision Date: 26 February 2004
• Docket Number: No. 45A03-0303-CV-86.,45A03-0303-CV-86.
• Parties: Paula Jo WAGNER, Appellant-Defendant, v. Roy E. SPURLOCK, Jr., as Trustee of the Roy E. Spurlock, Sr. Irrevocable Trust Agreement and Roy E. Spurlock, Jr., and Susan Erwin-Toma, Individually, Appellees-Plaintiffs.
• Court: Indiana Appellate Court

803 N.E.2d 1174

Paula Jo WAGNER, Appellant-Defendant, v. Roy E. SPURLOCK, Jr., as Trustee of the Roy E. Spurlock, Sr. Irrevocable Trust Agreement and Roy E. Spurlock, Jr., and Susan Erwin-Toma, Individually, Appellees-Plaintiffs.

No. 45A03-0303-CV-86.

Court of Appeals of Indiana.

February 26, 2004.

David M. Henn, Stowers Weddle & Henn, Indianapolis, IN, Attorney for Appellant.

Curtis E. Shirley, Indianapolis, IN, James T. Walker, James W. Martin, Martin & Martin, Merrillville, IN, Attorneys for Appellees.

OPINION

BAKER, Judge.

This appeal arises from an action to enforce a settlement agreement obtained through mediation. Appellant-defendant Paula Jo Wagner (Paula) appeals the judgment entered in favor of the appellees-plaintiffs, Roy E. Spurlock, Jr., (Roy) and Susan Erwin-Toma (collectively, the appellees) in an amount of $139,791.98 plus post-judgment interest. The parties in this appeal are all children of the decedent, Roy E. Spurlock, Sr. (Spurlock). Raising a number of issues, Paula contends that (1) a general release executed by the parties in accordance with a settlement agreement barred any additional claims by the appellees for amounts that were allegedly owed to them under a trust created by Spurlock; (2) the trial court erroneously entered an order for a "constructive dividend" from a corporation when such a remedy was not provided for in the settlement agreement; (3) the trial court erred in ordering Paula to pay attorney fees to the appellees; (4) Paula was erroneously ordered to pay Roy an amount for wages because she was not his employer and, thus, Roy's claim did not fall within the purview of Indiana's wage statute; (5) the trial court erred in ordering Paula to reimburse the appellees' legal counsel in the amount he paid Paula's attorney to settle a claim for malicious prosecution that had been lodged against him; and (6) the finding that Paula perpetrated a fraud upon the appellees was not supported by the evidence.

Concluding that the trial court erred in ordering Paula to reimburse the appellees' counsel for the settlement amount that was paid to Paula's attorney on the malicious prosecution claim, we reverse that portion of the judgment. We also remand this case to the trial court so that it may hear additional evidence as to the amount of appellate attorney fees to which the appellees may be entitled and to calculate the post-judgment interest that is due and owing. Finding that no reversible error occurred with respect to the remaining issues, we affirm in part, reverse in part, and remand this cause to the trial court for further proceedings consistent with this opinion.

FACTS

The facts most favorable to the judgment are that Spurlock, a resident of Lake County, died on June 2, 1998. He was a widower and is survived by his three children, Paula, Roy and Susan.

During Spurlock's lifetime, he owned the majority stock in B & B Corporation, Fabricators Corp. (Fabricators), and Schererville Steel Corp. (Schererville). Spurlock had executed a will that called for distribution of his property into a testamentary trust for 15 years in equal shares to his three children. Spurlock also funded a 1990 irrevocable trust that contained majority control of B & B. This corporation owned the real estate that Schererville and Fabricators used. Spurlock signed this irrevocable trust agreement on October 29, 1990, wherein he appointed Paula as trustee. The terms of the trust provided that all of his children were to be treated equally.

Spurlock funded this trust with sixty shares of B & B's common stock, and the trust was to provide quarterly income to Spurlock's children along with a right to invade the trust for their health, maintenance and support. When trouble brewed regarding Paula's handing of the assets, the appellees filed a petition for the removal of Paula as the trustee, and to require an accounting. The Lake Circuit Court ultimately granted the petition on July 29, 1999, and Paula was removed.

Spurlock funded a July 17, 1997 trust for the benefit of Susan with two shares of Schererville Steel's common stock. Attorney R. Brian Woodward and his law firm had represented Spurlock and his corporations. Specifically, Woodward drafted and supervised the signing of Spurlock's estate planning documents and supervised the legal operations of the corporations. Woodward also represented Paula by drafting her power of attorney for Spurlock, by representing the trust over which Paula was the trustee, and by representing her interests as the beneficiary of Spurlock's estate plans and agreements.

On April 1, 1998, Spurlock purportedly signed a new revocable trust agreement with Paula as trustee. Additionally, in accordance with a stock purchase agreement, Spurlock purportedly sold all of his stock in Fabricators to Paula for $150,000, to be paid in equal installments over twenty-five years and bearing interest at the rate of 8%. Under this agreement, Paula purportedly sold to herself all of the stock in Schererville Steel for $1,294,995, to be paid in equal installments over a period of twenty-five years and bearing interest at the rate of eight percent. Spurlock apparently rendered his approval, and both stock purchase agreements were to be secured by a promissory note and pledge agreement. Susan and Roy apparently had no knowledge that Paula executed any of the documents.

Thereafter, on May 7, 1998, Woodward wrote Susan stating that the two shares of Schererville Steel were valued at $10,000. Then, on July 1, 1998, approximately one month after Spurlock's death and two months after the letter had been written, Paula offered to purchase Roy's three and one-third shares for $6,666.66.

On August 11, 1999, the appellees filed a complaint against Paula and others for breach of trust, conversion, negligence of an attorney and an accountant, and for the rescission of a stock purchase agreement that gave Paula control of Spurlock's corporations.¹ The allegation for breach of trust complained that Paula, Woodward and others wrongfully depleted trust assets, damaged the trust, and deprived the appellees of income that was owed to them. The complaint further alleged that Paula, along with others, misappropriated Spurlock's property, committed waste, engaged in self-dealing and committed fraud. All of Paula's actions were allegedly accomplished with the assistance of Woodward and the accountant who worked with the Spurlock finances.

It was eventually revealed that Spurlock funded various trusts that afforded Paula control over corporate assets for much less than their fair market value. Specifically, Shererville Steel was valued at nearly $2,464,983, and Paula purchased it for $1,294,995 with payment terms over the next twenty-five years at an interest rate of 8%. Fabricators was worth nearly $417,650, and Paula bought that corporation for $150,000 under the same terms.

After the complaint was filed, the parties appeared for mediation and signed a handwritten agreement, with settlement contingent on Paula obtaining the necessary financing to pay Roy and Susan $1.7 million. The parties adjourned the mediation upon memorializing the settlement that was signed by all the parties. The agreement also contained mutual releases, dismissals, non-compete agreements, and other standard provisions. As part of the agreement, Paula agreed to continue paying Roy his salary as a full-time employee in Schererville's shop. Once Roy and Susan received their inheritance, however, the agreement provided that Roy would resign or retire from Schererville Steel and forego any grievances that he may have had against the union.

On July 25, 2000, the parties signed a typed settlement agreement, and Paula transferred $1,642,500 to the appellees. Of this amount, the appellees' legal counsel, Curtis Shirley, retained $200,000 in his trust account in the event that additional taxes would be assessed. Although Paula eventually transferred the money, the settlement agreement contained a number of provisions that required further attention.

It was determined that the appellees were to receive $200,000 when the IRS sent a closing letter showing that Spurlock's estate did not owe any additional taxes. While the letter from the IRS was sent on October 30, 2000, indicating that no further taxes were due and owing, the appellees did not receive that correspondence until December 28, 2000. While Paula was aware that the estate tax amount was final, she did not disclose that information to the appellees. Instead, Paula had sent a new settlement proposal to Roy as to how the amount held in escrow should be distributed. In essence, Paula wanted to be paid $100,000 and in exchange, "Roy, Jr. and Susan [would] not be responsible for any increase in the net estate taxes, interest or penalties." Appellee's Br. p. 3. By then, however, Paula was aware that there would be no increase in estate taxes, interest or penalties. In light of Paula's actions, the appellees did not receive the $200,000 disbursement until January 4, 2001, instead of on November 1, 2000.

As set forth above, Paula agreed to continue paying Roy the amount of $1,000 per week for his employment at Schererville until the $1.7 million was fully paid. Roy was owed $2,098.80 which was payable by August 8, 2000. However, Paula did not pay Roy until May 16, 2001. The parties were also to docket the grandchildrens' trust, choose new trustees, and divide the "cash on hand" and trust property among the children.

The appellees subsequently filed a petition to enforce the agreement on September 11, 2000, and the trial court ultimately entered an order compelling the parties to comply with the negotiated settlement agreement. Thereafter, a bench trial was conducted that concluded on October 4, 2002. Shortly before the trial commenced, however, Woodward threatened to sue Roy and his attorneys for malicious prosecution. In response, Shirley and Woodward negotiated a written...