Michigan Court of Appeals Holds Breach of Trust Claims Barred Under Statute of Limitations
On April 17th, 2014, the Michigan Court of Appeals held in a family trust case that the plaintiff's breach of trust claims are barred under the 1 year statute of limitations because the plaintiff knew or had reason to know that the claims existed and that plaintiff failed to file a timely complaint on those claims.
In Ducharme v Ducharme, Docket No. 314736, the Michigan Court of Appeals addressed an appeal from the trial court's grant of summary disposition in defendant's favor.
The Court begain by stating that
[p]laintiff and defendant are siblings and beneficiaries of two trusts established by their parents. Defendant is the appointed successor trustee of the trusts. Plaintiff alleges that defendant violated her fiduciary duties as trustee. In lieu of an answer to plaintiff’s complaint, defendant filed a motion for summary disposition, which was granted by the probate court pursuant to MCR 2.116(C)(7) (statute of limitations). Plaintiff appeals as of right. We affirm.
The Court next gave a brief statement of the facts of the case.
Donald Ducharme and Marlene Ducharme established trusts in their names on December 23, 1997. Plaintiff and defendant were the beneficiaries of the trusts. Each parent was the initial trustee of their own nominal trust. Marlene passed away in 2005 and the Marlene R. Ducharme Family Trust ([']Family Trust[']) was created. The Family Trust contained funds in excess of the federal estate tax exemption. Donald passed away March 11, 2009. Defendant was appointed successor trustee to both the Family Trust and the Donald R. Ducharme Trust ([']Donald Trust[']) on March 18, 2009. She administered the trusts and issued annual reports from 2009 through 2011.
On June 10, 2011, defendant provided to plaintiff a copy of the [']Amended First Annual Account of the Donald Trust.['] On June 16, 2011, defendant provided to plaintiff a copy of the final account of the Donald Trust through June 15, 2011. Also on June 16, 2011, defendant provided to plaintiff the final account of the Family Trust through June 15, 2011. On June 21, 2011, defendant provided to plaintiff amended final accounts for both the Donald Trust and the Family Trust that reflected past due legal fees and account advisor fees that had been overlooked. On July 14, 2011, plaintiff replied and indicated that he wished distributions to continue, but that he had several remaining unanswered questions. On November 2, 2011, defendant sent to plaintiff supplements to the final account for both the Donald Trust and the Family Trust, [']indicating minor adjustments since June 15, 2011['] and including checks reflecting [']full satisfaction of Donn R. Ducharme’s interest['] in both the Donald Trust and the Family Trust. The annual accounts for both the Donald Trust and the Family Trust included a disclaimer that a beneficiary may not bring an action against a trustee for breach of trust if more than a year has elapsed since the sending of a report. Neither the amended report nor the supplement to the final account for either the Donald Trust or Family Trust contained such a disclaimer.
Plaintiff filed a five-count complaint against defendant on October 31, 2012, alleging claims for breach of fiduciary duty, conversion of assets, commingling of assets of companies and trusts, violation of impartiality as trustee, and fraud and misrepresentation. In lieu of an answer, defendant filed a motion for summary disposition under MCR 2.116(C)(7), (C)(8), and (C)(10). The probate court found that reports provided to plaintiff no later than June 22, 2011, disclosed each of these potential claims. The court held that the claims were properly categorized as breaches of trust and thus time-barred by the applicable one-year statute of limitations set forth in MCL 700.7905(1)(a)."
The Court's analysis followed.
Plaintiff’s allegations clearly involve claims that defendant breached her duty as trustee in her administration of the trust. Indeed, plaintiff’s standing relies upon his interest in the trust as a trust beneficiary. Thus, plaintiff alleged in each count a [']violation by a trustee of a duty the trustee owes to a trust beneficiary.[']MCL 700.7901(1).
To the extent these claims were disclosed on an accounting, they are subject to the exclusive one-year statute of limitations set forth in MCL 700.7905(1)(a):
A trust beneficiary shall not commence a proceeding against a trustee for breach of trust more than 1 year after the date the trust beneficiary or a representative of the trust beneficiary was sent a report that adequately disclosed the existence of a potential claim for breach of trust and informed the trust beneficiary of the time allowed for commencing a proceeding.
Contrary to plaintiff’s contention, the statute does not require that the trust be terminated or that a final report be issued in order for the one-year statute of limitations to begin running. Rather, the statute clearly articulates two requirements: (1) the trust beneficiary was sent a report which disclosed the existence of a potential claim and (2) the report informed the trust beneficiary of the timeframe for filing the claim. The record reflects, and plaintiff does not dispute, that the reports for both the Donald Trust and the Family Trust disclosed the one-year period for claims alleging breach of trust. Therefore, the remaining element is whether the report adequately disclosed the existence of a potential claim.
Under the Michigan Trust Code, a person has knowledge of a fact if 1 or more of the following apply:
(a) The person has actual knowledge of it.
(b) The person has received a notice or notification of it.
(c) From all the facts and circumstances known to the person at the time in question, the person has reason to know it. [MCL 700.7104(1).] . . .
Further, plaintiff’s own communications and affidavit disclose knowledge of the claims. In a July 14, 2011, letter plaintiff, through his counsel, asserted that several questions remained unanswered but that he wanted the distributions to continue. The letter noted specifically the removal of items from the cottages, an issue with the Oxford Trust, an error with the M & D distribution attributable to defendant, and the specifics regarding legal and accounting fees. Several of these issues form the basis of plaintiff’s alleged claims. Further, in his affidavit dated January 17, 2013, plaintiff noted that he objected to every accounting, which indicates that the accountings provided sufficient detail to form the basis of an objection. Further, he asserts that the Legend Woods property was distributed at a $170,000 valuation, but that the final account disclosed Michelle Ducharme was disbursed the appraised value of $336,000. Because the reports adequately disclosed the existence of a potential claim for breach of trust and informed the trust beneficiary of the time allowed for commencing a proceeding, the trial court properly granted summary disposition pursuant to MCR 2.116(C)(7) on the ground that the claims were time-barred under MCL 700.7905(1)(a).