Arnett v. Estate

184 N.E.3d 679

David L. ARNETT, Individually, and d/b/a Auto Annex, Inc., Appellants-Defendants/Counterclaimants

v.The ESTATE OF Joel S. BEAVINS, BY Its Personal Representative, Jill E. BEAVINS, and Stewart Properties, LLC, Appellees-Plaintiffs/Counterclaim Defendants

Court of Appeals Case No. 21A-EU-1484

Court of Appeals of Indiana.

FILED February 22, 2022

Attorneys for Appellants: Peter S. French, Nadine E. McSpadden, Kimberly S. DalSanto, Taft Stettinius & Hollister LLP, Indianapolis, Indiana

Attorneys for Appellees: David W. Stone IV, Stone Law Office & Legal Research, Anderson, Indiana, Peter Campbell King, Peter King Law, Columbus, Indiana

Crone, Judge.

Case Summary

[1] The Estate of Joel S. Beavins, by its personal representative Jill E. Beavins, and Stewart Properties, LLC (collectively the Estate), filed a complaint against David L. Arnett, individually and d/b/a Auto Annex, Inc. (collectively Arnett), alleging multiple claims involving certain rental properties, including claims for possession, accounting, conversion, treble damages, and past due rent. Arnett counterclaimed alleging conversion, deception, breach of contract, interference with a business relationship, and unjust enrichment. The Estate filed a motion for partial summary judgment and designation of evidence on two issues, one of which centered upon whether Arnett is a member of Stewart Properties. Arnett submitted his designated evidence in opposition to summary judgment, and the Estate filed multiple motions to strike much of that evidence. Following a hearing, the trial court issued an order in favor of the Estate granting in part the motions to strike and an order granting partial summary judgment in favor of the Estate on the membership issue. Arnett now brings this interlocutory appeal from those orders. We affirm.

Facts and Procedural History

[2] In August 2001, Joel filed articles of organization for Stewart Properties with the Indiana Secretary of State. He was listed as the organizer and registered agent of Stewart Properties, but no members were listed.¹

[3] In 2012,² Joel and Arnett, old high school friends, began conducting business together. Arnett was responsible for managing four of the properties that he believed were owned by Stewart Properties, including three rental properties (the Rental Properties) and another property in which Arnett himself resided and used for his Auto Annex business (the Residence). Among other things, Arnett collected rents, executed leases with tenants, made capital improvements, performed maintenance, and paid utility bills.

[4] On May 31, 2019, Joel and Arnett met with commercial loan broker Charles Ryder and signed a letter of intent for a private commercial loan that would finance a transfer of ownership of the Rental Properties to Arnett. In addition, on June 13, 2019, Joel and Arnett allegedly executed an operating agreement for Stewart Properties. Pursuant to the operating agreement, Arnett would own eighty-two percent of Stewart Properties and Joel would own the remaining eighteen percent. The agreement also provided, "ownership will be equal among the 2 owner agents, each with one vote and decisions decided by majority vote." Appellants’ App. Vol. 3 at 33-34. The effective date of the agreement was December 8, 2017.

[5] No commercial loan was ever made; instead, on August 17, 2019, Joel, on behalf of Stewart Properties, and Arnett, on behalf of Auto Annex, Inc., signed a promissory note whereby Auto Annex promised to pay to Stewart Properties the sum of $280,000 plus interest, to be paid in full by August 31, 2029. The first payment under the note was to be made on November 1, 2019. Id. at 43. Joel died following a plane crash on October 5, 2019, prior to any payment being made on the note. After Joel's death, Arnett continued to manage and take care of the Rental Properties and the Residence.

[6] In March 2020, the Estate, by its personal representative and Joel's widow, Jill, filed a complaint against Arnett requesting possession of the Residence, an accounting from Arnett for rent collected at all four properties, conversion against Arnett for rents collected, treble damages, and past due rent. Arnett counterclaimed against the Estate alleging conversion, deception, breach of contract, interference with a business relationship, and unjust enrichment.

[7] On October 12, 2020, the Estate filed a motion for summary judgment on two issues, one of which was whether Arnett was a member of Stewart Properties.³ In support of its motion, the Estate alleged that the articles of organization, as well as Indiana statutory law, require the unanimous consent of the LLC's members in order to admit a new member, Jill has been a member of Stewart Properties from its inception, and that she never consented in writing to the admission of Arnett as a member. Appellants’ App. Vol. 2 at 90-93. On January 19, 2021, Arnett filed his designation of evidence in opposition to summary judgment. He argued that Jill's membership in Stewart Properties remains a genuine issue of fact, that Joel had authority to enter into the operating agreement and promissory note, and that Joel's actions as a member of Stewart Properties are binding by statute. Appellants’ App. Vol. 3 at 3-5. On February 1, 2021, the Estate filed a reply in support of its summary judgment motion and filed multiple motions to strike the evidence designated by Arnett in opposition to summary judgment.

[8] The trial court held a hearing on the motions to strike and motion for partial summary judgment on March 31, 2021. On May 14, 2021, the trial court issued an order in favor of the Estate granting in part the motions to strike and a detailed order granting the Estate partial summary judgment on the membership issue. This interlocutory appeal ensued.

Discussion and Decision

Section 1 – The trial court did not abuse its discretion in striking portions of Arnett's designated evidence.

[9] Arnett first challenges the trial court's order granting in part the Estate's motions to strike affidavits from himself and Ryder that he designated in opposition to summary judgment. Regarding summary judgment, Indiana Trial Rule 56(E) provides in pertinent part, "[s]upporting and opposing affidavits shall be made on personal knowledge, shall set forth such facts as would be admissible in evidence, and shall show affirmatively that the affiant is competent to testify to the matters stated therein." It is well established that a trial court has broad discretion in ruling on motions to strike in the summary judgment context. Hamilton v. Hamilton , 132 N.E.3d 428, 431-32 (Ind. Ct. App. 2019). The lower court's decision will not be reversed unless prejudicial error is clearly demonstrated. Id. Here, Arnett contends that the trial court abused its discretion when it struck portions of his own affidavit pursuant to the Dead Man's Statute. He further asserts that the trial court abused its discretion in striking certain portions of Ryder's affidavit on the basis of insufficient authentication as well as striking a statement in Ryder's supplemental affidavit. We will address each assertion in turn.

Section 1.1 – The trial court did not abuse its discretion in striking portions of Arnett's affidavit.

[10] In ruling on the Estate's motion to strike certain portions of Arnett's affidavit regarding business transactions that occurred between Arnett and Joel, the trial court determined that Arnett "would not be a competent witness pursuant to the Dead Man's Statute." Order on Mtn. to Strike at 3. We review a trial court's ruling on witness competency for an abuse of discretion. In re Unsupervised Estate of Harris , 876 N.E.2d 1132, 1135 (Ind. Ct. App. 2007). An abuse of discretion occurs if the trial court's decision contravenes the logic and effect of the facts and circumstances before it or if the trial court has misinterpreted the law. Id.

[11] Indiana Code Section 34-45-2-4, commonly referred to as the Dead Man's Statute, prohibits testimony by survivors in certain circumstances in proceedings involving a decedent's estate. The general purpose of the Dead Man's Statute is to protect a decedent's estate from spurious claims. Gabriel v. Gabriel , 947 N.E.2d 1001, 1009 (Ind. Ct. App. 2011). The statute specifically "guard[s] against false testimony by a survivor by establishing a rule of mutuality, wherein the lips of the surviving party are closed by law when the lips of the other party are closed by death." Id. (citation and quotation marks omitted). When an executor or administrator of an estate is one party, adverse parties are generally not competent to testify about transactions concerning the decedent that took place during the lifetime of the decedent. Id. Specifically, the statute provides that "a person (1) who is a necessary party to the issue or record; and (2) whose interest is adverse to the estate; is not a competent witness as to matters against the estate." Ind. Code § 34-45-2-4(d). The Dead Man's Statute establishes as a matter of legislative policy that claimants to an estate of a deceased person should not be permitted to present a court with their version of their dealings with the decedent. Koch Dev. Corp. v. Koch , 996 N.E.2d 358, 370 (Ind. Ct. App. 2013) (citing In re Estate of Rickert , 934 N.E.2d 726, 731 (Ind. 2010) ). The statute does not render the claimant incompetent for all purposes; instead, application of the Dead Man's Statute "is limited to circumstances in which the decedent, if alive, could have refuted the testimony of the surviving party." Bergal v. Bergal , 153 N.E.3d 243, 254 (Ind. Ct. App. 2020) (citation omitted), trans. denied (2021).

[12] Here, it is unquestionable that Arnett is a necessary party to the current suit as both a defendant and a counterclaimant and that his alleged membership interest in Stewart Properties is clearly adverse to the interest of the Estate. Thus, we have little difficulty concluding that the trial court...