Opinion
Court of Appeals Case No. 21A-EU-1484
02-22-2022
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
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
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.
Indiana Code Section 23-18-2-4(a) provides that "[a]t least one (1) person" may form an LLC and that person need not be a member of the LLC at the time of or after formation. Although the articles of organization must contain the name of the LLC's registered agent, it need not contain a list of members. See Ind. Code § 23-18-2-4(b).
[3] In 2012, 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.
We note that the subsequent facts and procedural history regarding the alleged business relationship between Joel and Arnett are highly disputed and are provided only for necessary context as to underlying bases for the parties’ claims against one another. Many of these factual assertions come from Arnett's verified affidavit submitted in opposition to partial summary judgment and were stricken by the trial court upon the Estate's motion to strike pursuant to the Dead Man's Statute. We will discuss the motion to strike more fully later in our opinion.
[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. 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.
The trial court denied partial summary judgment on the other issue raised by the Estate regarding ownership of the Residence. Neither party challenges that portion of the trial court's ruling in this appeal, so we decline to discuss it further.
[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 properly excluded those portions of his affidavit testimony regarding and referencing alleged business arrangements, transactions and interactions that took place between Joel and himself during Joel's lifetime. [13] Arnett maintains that much of his affidavit testimony was improperly stricken because it could not have been refuted by Joel. We find this assertion disingenuous. For example, Arnett claims his statement in paragraph 9 of his affidavit that "[t]o [his] knowledge, no other Operating Agreement was ever executed for Stewart Properties" could not have been refuted by Joel because it is based on Arnett's own personal knowledge. Appellants’ Br. at 16-17. However, this statement presupposes that an operating agreement was in fact executed between Joel and Arnett, which of course is a fact that Joel could refute if alive. Arnett makes several similar arguments in which he attempts to parse a refutable claim that is interwoven with an irrefutable claim, but these arguments fail. While we can envision a more artfully crafted affidavit in which some of the challenged testimony would be admissible, that is not what was presented to the trial court here. The trial court did not abuse its discretion.
To the extent that Arnett also challenges the trial court's decision to strike what he claims to be certain undisputed facts (e.g., paragraph 3, in which he states that he was "responsible for managing four of the properties owned by Stewart Properties[,]" Appellants’ App. Vol 3 at 26), he has failed to demonstrate prejudicial error, as these facts have no real bearing on the relevant partial summary judgment issue. Moreover, we disagree with Arnett that such facts are undisputed. Indeed, there is some evidence that Joel and Jill, and not Stewart Properties, may have owned at least one of the properties as tenants by the entireties up until Joel's death. Again, Arnett's inartfully crafted affidavit interweaves undisputed facts (Arnett's management duties) and refutable facts (ownership of the four properties).
Section 1.2 – The trial court did not abuse its discretion in striking portions of Ryder's affidavit and supplemental affidavit.
[14] Arnett also challenges the trial court's decision to strike paragraph 7 of Ryder's affidavit, which states, "On June 14, 2019, I received an email from Joel Beavins with an executed copy of an Operating Agreement entered into between Joel Beavins and David Arnett. A true and accurate copy of the email and the attachment are attached here as Exhibit A." Appellants’ App. Vol. 3 at 30. The trial court concluded that neither the email nor its attachment was properly authenticated and therefore found them inadmissible. We agree.
[15] Indiana Evidence Rule 901(a) provides, "[t]o satisfy the requirement of authenticating or identifying an item of evidence, the proponent must produce evidence sufficient to support a finding that the item is what the proponent claims it is." "Authentication of an exhibit can be established by either direct or circumstantial evidence." Pavlovich v. State , 6 N.E.3d 969, 976 (Ind. Ct. App. 2014) (citations omitted), trans. denied. Letters and words set down by electronic recording and other forms of data compilation are included within Evidence Rule 901(a). Hape v. State , 903 N.E.2d 977, 989-90 (Ind. Ct. App. 2009), trans. denied. Evidence Rule 901(b) provides examples of evidence that satisfy the authentication requirement, including: "(1) Testimony of a Witness with Knowledge. Testimony that an item is what it is claimed to be by a witness with knowledge[,]" and "(4) Distinctive Characteristics and the Like. The appearance, contents, substance, internal patterns, or other distinctive characteristics of the item, taken together with all the circumstances." Evidence Rule 901(b)(4) is one of the most frequently used means to authenticate electronic data, including emails. See Hape , 903 N.E.2d at 990-91. [16] In considering what constitutes "distinctive characteristics" for the purposes of this rule, this Court has acknowledged that:
In some cases, the purported sender actually admitted to authorship, either in whole or in part, or was seen composing it. In others, the business records of an internet service provider or a cell phone company have shown that the message originated with the purported sender's personal computer or cell phone under circumstances in which it is reasonable to believe that only the purported sender would have had access to the computer or cell phone. Sometimes the communication has contained information that only the purported sender could be expected to know. Sometimes the purported sender has responded to an exchange of electronic communications in such a way as to indicate circumstantially that he was in fact the author of the particular communication, the authentication of which is in issue. And sometimes other circumstances, peculiar to the facts of the particular case, have sufficed to establish at least a prima facie showing of authentication.
Pavlovich , 6 N.E.3d at 977 (quoting Tienda v. State , 358 S.W.3d 633, 640-641 (Tex. Crim. App. 2012) ).
[17] Here, Ryder averred in paragraph 7 that he received an email from Joel with an attachment, and that the email and its purported attachment were included with his affidavit as Exhibit A. First, the one-word email ("FYI") was proffered without any authentication, that is, "evidence sufficient to support a finding that the item is what the proponent claims it is." Ind. Evidence Rule 901. Other than providing a copy of an email with a typed signature block from an email address bearing Joel's name, and a conclusory statement from Ryder that he received that email from Joel, Arnett offered no foundation or other evidence to support a finding as to the authenticity of the email. Arnett offered no evidence of the contents, substance, or other distinctive characteristics of the email (such as evidence that the email was part of a chain or in response to a larger exchange of electronic communications) that would indicate circumstantially that Joel was in fact the author of that particular communication.
An email address alone "might be insufficient to authenticate any text or email messages as having been authored by the person linked to the cell phone number or email address, given that ‘computers can be hacked, protected passwords can be compromised, and cell phones can be purloined....’ " Pavlovich , 6 N.E.3d at 976 (quoting Tienda , 358 S.W.3d at 641-642 ) (noting that majority of courts have held that mere fact that an email purports to come from a certain person's email address, without more, is insufficient to authenticate the message as having been written by that person).
[18] More significantly, Arnett sought to offer an attachment to the unauthenticated email into evidence. The attachment is a purported operating agreement for Stewart Properties executed between Joel and Arnett giving Arnett substantial majority ownership of the company. Arnett offered no evidence whatsoever to authenticate the operating agreement itself. Ryder is not a witness with knowledge of the alleged execution of the operating agreement, nor is he a witness who could attest that the email attachment is a true and accurate copy of the operating agreement, nor could he validate the signatures on the agreement as genuine. As noted by the trial court, the authentication of the purported operating agreement is a highly contested issue in this case. Without more, the email and the attachment were properly stricken by the trial court for lack of authentication. [19] Finally, Arnett challenges the trial court's decision to strike paragraph 4 of Ryder's supplemental affidavit, in which Ryder stated: "It was my understanding while working with Joel Beavins that he was the sole member of Stewart Properties ...." Appellants’ App. Vol. 3 at 41. As determined by the trial court, no foundation is established for this conclusory statement. "Mere assertions in an affidavit of conclusions of law or opinions will not suffice. An affidavit need not contain an explicit recital of personal knowledge when it can be reasonably inferred from its contents that the material parts thereof are within the affiant's personal knowledge." Kader v. Dep't of Corr. , 1 N.E.3d 717, 724 (Ind. Ct. App. 2013) (citation omitted). Contrary to Arnett's assertions, Ryder's statements in his initial affidavit that indicated that he worked in a "business-related capacity" with Joel and Arnett do not lay an adequate foundation for any personal knowledge as to the membership of Stewart Properties. Appellants’ Br. at 21. The trial court did not abuse its discretion when it struck Ryder's conclusory statement.
Arnett concedes that Ryder would not be permitted to testify that Joel in fact was the sole member of Stewart Properties, but he argues that Ryder should have been permitted to testify as he did regarding "his own understanding of the situation." Appellant's Br. at 22. However, absent a foundation for any actual knowledge, Ryder's "understanding" of the membership issue is of no relevance to the issue presented here, and we are not persuaded by Arnett's arguments to the contrary.
Section 2 – The trial court did not err in granting partial summary judgment in favor of the Estate regarding the ownership of Stewart Properties.
[20] Arnett further challenges the trial court's entry of partial summary judgment in favor of the Estate on the issue of the ownership of Stewart Properties. We review a summary judgment ruling de novo, applying the same standard as the trial court. Singh v. Singh , 155 N.E.3d 1197, 1204 (Ind. Ct. App. 2020). "The moving party bears the initial burden of making a prima facie showing that there are no genuine issues of material fact and that it is entitled to judgment as a matter of law." Id. (italics omitted). "Summary judgment is improper if the moving party fails to carry its burden, but if it succeeds, then the nonmoving party must come forward with evidence establishing the existence of a genuine issue of material fact." Id. "We construe all factual inferences in favor of the nonmoving party and resolve all doubts as to the existence of a material issue against the moving party." Id. "[O]ur review is limited to those facts designated to the trial court[.]" Converse v. Elkhart Gen'l Hosp., Inc. , 120 N.E.3d 621, 624 (Ind. Ct. App. 2019). "Summary judgment is a ‘blunt instrument’ preventing the non-prevailing party from resolving its case at trial." Glon v. Mem'l Hosp. of S. Bend, Inc. , 111 N.E.3d 232, 237 (Ind. Ct. App. 2018) (citation omitted). Because of this, our supreme court has cautioned that summary judgment "is not a summary trial" and courts on appeal should carefully "assess the trial court's decision to ensure [a party] was not improperly denied his [or her] day in court." Id. (citing Hughley v. State , 15 N.E.3d 1000, 1003-04 (Ind. 2014) ).
[21] The Estate moved for partial summary judgment asserting that there is no genuine issue of material fact that Arnett does not have any "ownership in Stewart Properties, LLC." Appellants’ App. Vol. 2 at 96. Specifically, the Estate argues that the designated evidence demonstrates that Joel and Jill were the original members/owners of Stewart Properties and that Jill never consented to any new members; thus, because Indiana statutory law and the articles of organization of Stewart Properties provide that the limited liability company cannot gain a new member without the written consent of all members, Arnett is not a member/owner of Stewart Properties. We agree.
In its brief, the Estate begins by raising judicial estoppel as a basis to affirm the trial court's entry of partial summary judgment. We agree with Arnett that the Estate's judicial estoppel argument is without merit, and we decline to address it further.
[22] Indiana Code Section 23-18-6-1 provides:
(a) Subject to subsection (b), a person may become a member in a limited liability company:
(1) in the case of a person acquiring an interest directly from the limited liability company, upon compliance with the operating agreement or if the operating agreement does not provide in writing, upon the written consent of all members; and
(2) in the case of an assignee of an interest, as provided in section 4 or 4.1 of this chapter.
(b) The effective time of admission of a member to a limited liability company is the later of the following:
(1) The date the limited liability company is organized.
(2) The time provided in the operating agreement, or if no time is provided, when the person's admission is reflected in the records of the limited liability company.
Indiana Code Section 23-18-6-4.1(a) provides in pertinent part:
(a) A limited liability company formed under this article after June 30, 1999, is governed by this section.
(b) Except as otherwise provided in a written operating agreement, if a limited liability company has at least two (2) members, an assignee of an interest may become a member only if the other members unanimously consent. The consent of a member may be evidenced in any manner specified in writing in an operating agreement, but in the absence of a specification, consent must be evidenced by a written instrument, dated and signed by the member. If a limited liability company has one (1) member, an assignee of an interest may become a member in accordance with the terms of an agreement between the assignor and the assignee.
[23] The articles of organization of Stewart Properties specifically state: "Admission of New Members. With the written unanimous consent of the members, new members may be admitted into the LLC upon the payment of such capital contributions and upon such terms as the members unanimously decide." Appellants’ App. Vol. 2 at 66.
[24] The Estate designated Jill's verified affidavit, in which she averred that she currently owns "10% of Stewart Properties, LLC and ha[s] since Stewart Properties, LLC was formed on August 14, 2001." Id. at 105. She further stated that she "never consented in writing to allow David L. Arnett to become a member of Stewart Properties, LLC." Id. Arnett admitted in his answers to interrogatories that the articles of organization for Stewart Properties require the written unanimous consent of all members for the admission of any new member to the LLC. The Estate also designated the 2018 federal income tax return filed by Stewart Properties which indicated that Joel owned 90% of Stewart Properties and that Jill owned 10%. Certified public accountant Greg Mahler averred that he has provided tax, accounting, and financial planning services to Stewart Properties for the entire eighteen years the company has been in existence and that the "Members of Stewart Properties, LLC, have not changed over these years and are as follows: 90% Joel Beavins, 10% Jill Beavins." Id. at 107.
Neither the Estate nor Arnett produced any other corporate records of Stewart Properties that included a list of each original member, or subsequent new member (if any), of the LLC. See Ind. Code § 23-18-4-8 (requiring an LLC to "keep at its principal office" "[a] list with the full name and last known mailing address of each member and manager, if any, of the [LLC] from the date of organization."). This suggested to the trial court, as it does to this Court, that there are no such corporate records of Stewart Properties.
[25] We agree with the trial court that the Estate's designated evidence, including the affidavits of Jill and Mahler, and Stewart Properties’ 2018 tax return, are sufficient to make a prima facie showing that Jill was an original member of Stewart Properties and, because Jill's consent was required for admission of any new member pursuant to the articles of organization and by statute, and she testified that she did not give that consent, Arnett could not have acquired valid membership in Stewart Properties in 2019. Arnett has designated no relevant or admissible evidence to rebut this showing. Therefore, we conclude as a matter of law that Arnett is not a member of Stewart Properties. The trial court did not err in granting partial summary judgment in favor of the Estate.
This includes Arnett's proffered evidence regarding Joel's alleged execution of an operating agreement with Arnett and Joel's behavior surrounding that transaction, which, Arnett claims, shows that Joel had the authority as an agent/member of Stewart Properties to grant him membership. As noted above, pursuant to the Dead Man's Statute, Arnett is not a competent witness as to any such transactions/interactions with Joel. Because such evidence would be necessary to establish Joel's inherent or apparent authority, Arnett has failed to rebut the Estate's prima facie showing that he is not a member of Stewart Properties. See Menard, Inc. v. Dage-MTI, Inc. , 726 N.E.2d 1206, 1211, 1214 (Ind. 2000) (noting that for inherent authority the court looks to "the agent's indirect or direct manifestations" to determine whether third party could have "reasonably believe[d]" that agent was authorized to act" and for apparent authority, the court looks to "the principal's indirect or direct manifestations" to determine whether third party could have reasonably believed that principal had authorized the acts of its agent).
[26] Affirmed.
Bradford, C.J., and Tavitas, J., concur.