# U n i t e d S t a t e s C o u r t o f A pp e a l s
For the Eig hth Circu it

_ _ _ _ __ _ _ _ _ _ _ _ _ __ _ _ _ _ _ _ _ _ _ _ _

No . 1 8 -2 0 83

_ _ _ _ __ _ _ _ _ _ _ _ _ __ _ _ _ _ _ _ _ _ _ _ _

Pau l a Ch ri s t y

L. Sch m i d t; Ho l l y

W o p ri ce

l l l l l ll l ll l l l l l l l l ll l Pl a i n t if

f s - Ap p el l an t s

v

.

Ri ch ard Newl an d , Tru s tee o f t h e M i ch ael Al l en Las i t er Tru s t

, Am en d ed an d

Res t at ed Feb ru ary

1 9 , 2 0 16 ; J o h n Do e, as Pers o n al Rep res en tat i ve o f t he Es t at e o f
Mi ch ael Al l en Las it er, Deceas ed

l l ll l l l l l l l l l l l l l l l l l Def

en d an t s

Newl an d & As s o ci at es PLLC, Tru s t ee o f t h e M ich ael Al l en Las i t er Rev o cab l e Tru s t , Am en d ed an d Res t at ed Feb ru ary 1 9 , 2 0 1 6 ; Rel y an ce Ban k N.A., as

Pers o nal Rep res en t at i v e o f t h e Es t at e o f M ich ael Al l en Las i t er, Deceas ed

l l l l l l ll l l l l l l l l l l l l l Def

en d a n t s - Ap p el l ees

_ __ _ _ __ _ __ _ _
Ap p eal fro m

Un i t ed St at es Di s t ri ct Co u rt fo r t h e Eas t ern Di s t ri ct o f Ark an s as - Li t t l e Ro ck

_ __ _ _ __ _ __ _ _

Su b m it t ed : Ap ri l 1 6, 2 0 1 9
Fi l ed : J un e 2 6 , 2 0 1 9

_ __ _ _ __ _ __ _ _

Befo re SHEPHERD, M ELLOY, an d GRASZ, Ci rcu i t J u d g es

.

_ __ _ _ __ _ __ _ _

SHEPHERD, Ci rcu i t J u dg e.Ch ri st y Sch m i dt an d Ho l l y W o p ri ce f i l ed an act i o n i n U ni t ed St at es Di s t ri ct

Co u rt fo r frau d an d b reach o f fi d u ci ary d u t y ag ai ns t Newl an d & As so ci at es , PLLC,

t ru s t ee o f th e M i ch ael A l l en Las i t er Rev o cab le Tru s t

, an d Rel y an ce Ban k

, N.A.,

p ers o n al rep res en t at i v e o f M i ch ael Las i t e r ’s es t at e. Th e d i s t ri ct co u rt

, 1 s i t t i n g in

d i v ers i t y p u rs u an t to 2 8 U.S.C. § 1 3 3 2, d i s m i s s ed Ch ri s t y an d H o l l y ’ s cl ai m s as

b arred b y t h e ap p l i cab l e Ark an s as s t at u t e o f l i m i t at i o n s

. W e h av e j u ri s d i ct i o n

p u rs u an t t o 2 8 U.S.C. § 1 2 91 , an d we affi rm

.

I.

M an n i e Las it er fo u nd ed an d was t h e ch i ef o p erat i ng o f f i c e r o f Las i t er

Co n s t ru ct i o n , In c. (fo rm erl y Las i t er A s p h al t M ai nt en an ce Co m p an y ) fro m t h e

Co m p an y ’ s i n co rp o rat i o n i n 1 9 8 5 u n t il 20 0 0. W h il e M an ni e ori g i n al l y h el d al l o f t h e

1 ,0 00 o u t s t a n d i n g sh ares of s t o ck i n t h e Co m p an y , h e t ran s ferred 1 7 6 o f hi s s h ares

t o hi s s on M i ch ael b et ween 1 98 5 an d 19 9 2

. M an n ie’ s 19 9 9 Fed eral Gi ft Tax Ret u rn ,

s i gn ed b y t h e prep arer o n Oct o b er 1 6

, 2 0 0 2, s h ows t h a t M an n i e g av e Mi ch ael 3 1 4

m o re s h ares o f t he Co m

p an y i n 1 9 9 9

.

On Sep t em

b er 15

, 20 0 0

, M an n i e an d M i c hael en tered i n t o a s ucces s i o n

ag reem en t t h at d et erm i n ed t h e fat e o f t h e Co m p an y o n ce Man ni e ret i red as COO.

Th e ag reem e nt la id o u t t erm s fo r M an n i e’ s co n ti n u ed em p l o y m en t wi t h t h e Co m

p an y ;

p ro v id ed fo r t ran s fer o f al l M an n i e’ s st o ck to M i ch ael t h ro u g h g i ft s , s al e, an d

i n h eri t an ce; an d en s u red M an n i e wo ul d b e rel eas ed fro m l i ab i l i t y o n ce r t a i n l o a n s

. On Oct o b e r 1 9

, 2 0 0 0

, p u rs u an t t o t h e s u cces s i o n ag reem en t

, M an n i e an d M i ch ael

s i gn ed a s t ock p u r c h a s e ag reem en t b y wh ich M an n i e ag reed t o s el l M i ch ael

“ co n t ro l l i n g i n t eres t ” i n t h e Co m p an y fo r $ 5 0 ,0 0 0

. Mi ch ael al s o ag reed t o p u rch as e

1 Th e Ho n o rab l e Bi l l y Ro y W i ls o n, U n i t ed St at es D i s t ri ct J u d g e fo r t h e Eas t ern Di s t ri ct o f Ark an sas

.

-2

-t h e rem ai n d er of M a n n i e ’s Co m p an y s t o ck wh en M an ni e ret ired

. Th at sam e d ay , M an n i e p u rp o rt ed l y

t ran s ferred 4 1 0 s h ares o f Co m p an y s t o ck t o M i ch ael

.

M an n i e an d M i ch ael al s o s i g n ed an em p l o y m en t ag reem en t

, w h i ch g u aran t eed

M an n i e em

p l o y m en t wi t h th e Co m

p an y u nt i l J u l y 3 1

, 2 0 0 5 at a s al ary of $ 1 1 0 ,0 0 0

an n ual l y

. Th e em

p l o y m en t ag reem e n t a d d i t i o n al l y g uaran t eed Man ni e fi v e fu rt h er

y ears of em

p l o y m en t at $ 65 ,0 0 0 an n u al l y

. M a n n i e c o n t i n u ed t o wo rk fo r t h e

Co m p an y u n t i l a few m o nt h s b efo re h i s d eat h i n 2 0 0 4. Hi s i n co m e t ax ret u rn s fo r t h e

rel ev an t p eri o d co n s i s t en t l y s h ow an n ual co m p en s at i o n fro m t h e Co m

p an y t h at fal l s

s h o rt o f t h e p ro m i s ed $ 1 1 0 ,0 0 0

.

On Sep t em

ber 1 7, 2 0 0 2 , M an n i e creat ed t h e M an ni e Las it er Tru s t , fo r wh i ch

h e serv ed as t ru s t ee u n t i l h i s d eat h

. Th e Tru s t p ro v i d ed t hat

, aft er Man n i e’ s d eat h,

al l h i s s t ock in t h e Co m

p an y wo u l d g o t o M i ch ael

. Th e rem ai nd er o f M an n i e’ s es t at e

wo u l d b e s pl it b et w een M i ch ael

, M an n i e’ s g ran d ch i l d ren , an d M an ni e’ s d au g h t ers , Ch ri s t y an d H o l l y. Man n i e al s o ex ecu t ed a wi l l

, wh ich left h is en t i re es tat e t o t h e

Tru s t an d n am ed M i ch ael as t ru s t ee.

M an n i e d i ed o n J u n e 2 8

, 2 00 4

. O n J u l y 2

, Man ni e’ s at t orn ey , Ri ch ard

Newl an d

, m et wi t h Ho l l y , Ch ri s t y , an d M i ch ael fo r a read i n g o f t h e wi l l

. Ho l l y an d

C hri s t y were p ro v id ed wi t h an ab ri d g ed v ers i o n o f t h e Tru s t an d a l i s t o f T r u s t

p ro p ert y . M an n ie’ s wi l l was n ev er ad m i t t ed t o p ro b at e.

On J u l y 1 5, 2 0 0 4

, Ho l l y em ai l ed Newl an d req u es t i n g a co p y of M an n i e’ s wi l l

an d a co m

pl et e co p y o f t he Tru s t

. N e w l a n d p ro v id ed Ch ri s t y an d Ho l l y wi t h t h e

req u es t ed co p i es an d t ol d t h em t h at al l l eg al fees fo r t h e es t at e wo u ld be p ai d fro m t h e

Tru s t

. Newl an d al s o i n fo rm ed Ch ri s t y an d Ho l ly t h at h e was M an n i e’ s at t o rn ey an d

t h at i t was h i s jo b t o carry o ut M a n n i e’ s wi s hes

, b u t h e as s ured t h em t h at h e co u ld

an s wer q u es t i o n s f

o r t h e m as l o n g as t h o s e q u es t i o ns wo ul d n o t h arm an y o t h er

b en efi ci ary

o f t h e Tru s t

. Ch ri s t y an d Ho l l y res p o n d ed b y as k in g s peci fi c q u es t i on s

-3

-ab o ut t h e Tru s t

, t h e em p l o y m en t ag reem en t

, an d t h e w il l, an d b y ex p res s in g co n cern

t h at M i ch ael h ad a co n fl i ct o f i n t eres t b y act in g as t ru s t ee w h en h e w as a b en efi ci ary

o f t h e Tru s t

. D es pi te t h ei r co n cern s , Ch ri s t y an d H o l l y n ev er h i red i n d ep en d en t

co u ns el o r t o ok an y

l eg al act i o n

.

In Feb ru ary 2 0 1 6

, M i ch ael t ran s ferred 8 2 4 s h ares o f h i s Co m p an y s t ock t o h i s

o wn t ru s t

, t h e M i ch ael A l l en Las i t er Tru s t (t h e MALT). M ich ael d i ed o n M ay 3 1,

2 0 1 6

, a n d t h e M ALT co n t ract ed t o co n v ey away 7 50 s h ares o f Co m pan y s t o ck t h e

n ex t m o n t h

.

Ho l l y an d Ch ri s t y al l eg e t h ey di s co vered t h e em p l o y m en t ag reem en t

,

s u cces s i o n ag reem en t

, an d s t o ck p u rch as e ag reem en t at s om e u n s p eci fi ed p o i n t aft er

M i ch ael ’ s deat h

. In O ct o b er 2 0 1 7

, t h ey fi l e d s u i t ag ai ns t M i ch ael ’ s es t at e an d t h e

M ALT. Th ey l at er am en d ed t h ei r Co m p l ai n t

, i d en t i fy i n g t he d efen d an t s as Newl an d

& As s o ci at es , t ru s t ee o f t he M A LT, an d Rel y an ce Ban k

, p ers on al rep res en t at i v e o f

M i ch ael ’ s es t at e. Ho l l y an d Ch ri s t y al l eg ed Mi ch ael h ad b reach ed h i s fi d u ci ary d u t y

as t ru st ee o f M an ni e’ s t ru s t b y m i s rep res en t i n g t ru s t as set s an d i nt en t i o nal l y fai l i n g

t o d i s c l o se t h o s e as s et s t o th em

. Th ey fu rt h er cl ai m ed t h at Mi ch ael recei v ed 7 2 4

s h ares o f Co m

pan y st o ck fro m M an n ie t h ro u gh frau du l en t t ran s fers

, 2 t h at t hes e s h ares

act u al l y bel o n g ed to M an ni e’ s es t at e , an d t h at M an n ie d i ed i n tes t at e. Becau s e

M an n i e o wn ed 1 0 0 s hares o f Co m p an y s t o ck at h i s d eat h

, Ho l ly an d Ch ri s t y cl ai m ed

8 2 4 sh ares o f Co m

pan y st o ck s h o u l d h a v e b een di s t ri b u ted t o t h em an d M i ch ael

acco rd i n g t o i n t es t acy

i n s t ead o f u n i l at eral l y

t ran s ferred t o M i ch ael

.

Bas ed o n t he se cl ai m s , Ho l l y an d Ch ri s t y req ues t ed t h at t h e d i st ri ct co u rt

r e s c i n d t h e al l eg ed ly -frau d u len t t ran s fers of t h e 7 24 s h ares o f s t o ck

. Th ey e a c h

s o u g ht th e s al es pro ceed s fro m 2 7 4 .6 7 s h ares o f s to ck ap i ece, o r on e-t h i rd o f t h e 8 2 4

2 Ho l l y an d Ch ri s t y al l eg e t h at th e 1 99 9 t ran s fer o f 3 1 4 s h ares an d t h e 2 0 0 0

t ran s fer o f 4 1 0 s h ares w ere frau d u l en t

.

-4

-s h ares th ey al l eg ed M an ni e o wn ed at h i s d eat h

. In ad di t i o n , t h ey s o u g h t p ay m en t o f

a l l d i v i d en d s p ai d o n t h o se s h ares fro m 20 0 4 u n t il 2 01 6

, p reju d g m en t i n t eres t

,

res ci ss i o n o f t h e s u cces s i o n ag reem en t

, m on et ary d am a g e s f

o r M i ch ael ’ s b reach o f

fi du ci ary d u t y , at t o rn ey ’ s fees , an d co s t s

.

Newl an d & As s o ci at es m o v ed t o d i s m i s s fo r fai l ure t o s t at e a cl ai m p u rs u an t

t o Fed

. R. Ci v

. P. 1 2 (b )(6 ). Rel y an ce Ban k jo i n ed t h e m o t i on

. T h e p art i es ag reed t h at

Ark an s as ’ s t hree-y ear s t at u te o f l i m i t at i o n s f a c ia lly ba r r e d C hr isty a n d Ho l l y ’ s cl ai m s

. See Ark

. Co d e An n

. § 1 6 -5 6 -1 0 5 (i m p l em en t i n g a t h ree-y ear s t at u t e o f l i m it at i o n s );

Al ex an der v

. Fl ak e, 3 2 2 Ark

. 2 3 9

, 2 4 1

, 9 1 0 S.W .2 d 19 0

, 1 91 (1 9 9 5) (ap p l y i n g § 1 6

-
5 6 -1 05 to frau d an d b reach o f fi d u ci ary d u t y cl ai m s ). Ch ri s t y an d Ho l l y arg u ed

, h o wev er, t h at M i ch ael ’ s frau d u l en t co n c e al m en t o f h i s act i o n s t o ll ed t h e s t at u te o f

l i m i tat i on s

. Th e d i s t ri ct co u rt fo u n d t h at Ch ri s ty an d Ho l l y co u ld h av e b ro u g h t t h ei r

cl ai m s i n 2 0 0 4 b as ed o n i n fo rm at i o n t h ey p o s s es s ed at t h at t i m e. In s t ead

, t h e s i s t ers

wai t ed o v er a d ecad e t o fi l e s u i t

. Acco rd i n g l y , th e d i s t ri c t c o u r t h e l d t h at t h e

l i m i tat i on s p eri o d was n o t t o l led

, an d i t g ran t ed t h e m o t i o n t o di s m i s s

. Ho l l y an d

Ch ri s t y ap p eal

.

II.

W e re v i ew a d i s t ri ct co urt ’ s d eci s i o n t o g ran t a m o t io n t o d i s m i s s d e n o v o.

Varn er v

. Pet ers on Farm s , 3 7 1 F.3 d 1 0 1 1, 1 0 16 (8 t h Ci r. 2 0 0 4 ). If a d efen d an t rai s es

a s t at ut e o f l i m i t at i o n s d efen s e an d t he face of t h e c o m p l ai nt i n d icat es t h at t h e

l i m i tat i on s p e r i o d h as ex p i red

, t h e p l ai n t i ff can o n l y s u rv i v e a 1 2 (b )(6 ) m o t i o n to

d i s m i s s b y s h o wi n g , b y a p r ep o n d eran ce, t h at t h e s t at u t e o f l i m it at i o n s was t o l l ed

. See i d .; see al s o Ch erep sk i v. W al k er, 3 2 3 Ark

. 4 3

, 5 0, 9 1 3 S.W

. 2 d 7 6 1

, 7 6 5 (1 9 9 6 ).

Un d er A rk an s as l aw, t o to l l a l im it at i o n s p eri o d b ecau se o f frau d ul en t co n ceal m en t

,

a pl ai n t i ff m

u s t s h o w “ (1 ) a p o si t i v e act o f frau d (2 ) t h at i s act i v el y co n ceal ed

, an d (3 )

i s n o t di s co v erab le b y r e a s o n ab l e d i l ig en ce.” Bo m ar v. M o s er, 3 6 9 Ark

. 1 2 3

, 1 3 2,

2 5 1 S.W .3 d 2 3 4 , 2 4 2 (2 0 0 7 ).

-5

-In Varn er v . Pet ers on Farm s , t h i s Co urt ap p l i ed Ark an s as l aw an d co n cl u d ed

p l ai n t i ffs co u ld n o t to l l t h e s t at u t e o f l i m i t at i o ns wh en t h ey s u s p ect ed frau d befo re t h e

l i m i tat i on s p eri o d ex p i red b u t fai l ed t o ex erci se reas o nab l e d i l i g en ce t o d i s co v er t h e

al l eg ed frau d . 3 7 1 F.3 d at 1 0 1 7 -1 8 . Th e Varn er p an el s t at ed

,

[W ] e d o n ot in q u i re as t o wh en t he p l ai nt i ffs s h o u ld h av e d i s co v ered o r

d i d d i s co v er t he al l eg ed frau d u len t co n d u ct

. I n s t e a d

, t h e q ues t i o n i s

wh et h er t he p l ai n ti ffs us ed d u e d i li g en ce t o d i s co v er t h e al l eg ed frau d

. Th e b u rd en i s o n t h e p lai n t iff t o ex erci s e d u e d il i g en ce t o d i s co v er t he

frau d i f ap p ri s ed of fact s t h at s h o u l d p l ace t h e p l ai nt i ff o n n o t i ce. Th e

b en efi ci ari es ’ ig no ran ce o f t h ei r ri g h ts d o es n o t p rev en t t h e o p erat i o n o f

t h e s t at u t e o f l i m i t at i on s

.

Id

. (ci t at i o n s o m i t t ed ); s ee al so Al ex an d er v

. Fl ak e, 3 22 Ark

. 2 3 9

, 2 4 2

, 9 10 S.W .2 d

1 9 0 , 1 9 1 (1 9 9 5).

On ap p eal

, Ho l l y an d Ch ri s t y es s en ti al l y res t o n t he fact u al al l eg at i on s

co n tai n ed i n t h ei r Am en ded Co m p l ai n t an d as s ert t h at th es e fact s s h o w t h e ex i s t en ce

o f frau d u l en t co n ceal m en t b y M i ch ael wh i ch wo u ld t o l l t h e ru n n i n g o f t h e l i m i t at i on s

p eri o d

. See Bo m ar, 3 6 9 Ark

. at 1 3 2

- 3 3

, 2 5 1 S.W .3 d at 2 4 2 -4 3 (h o l d i n g t h at t h e pla i ntif f s h o wed p o ss i b l e frau d u l en t co n ceal m en t an d co u l d t ol l t h e li m i tat i o n s p eri o d

wh en t h e d efen d an t s , hi s at to rn ey s , t o l d h i m th at two co rp o rat i o n s were t h ei r cl i en t s

wh en t h e co rp o rat i o n s were act u al l y t he at t orn ey s’ al t er eg o s , an d t h e o n l y way t h e

p l ai n t i ff co u l d h av e d i s co v ered t h e t ru t h was b y ex am i ni n g fi n an ci al reco rd s h e co u ld

n o t acces s ). Ap p el l ees res p o n d t h at Ho l l y a n d C h ri s t y ex p res s ed co ncern s ab o ut

M i ch ael ’ s co n du ct i n 2 0 0 4 b u t fai l ed t o ex erci s e reas o n ab le di l ig en ce in i n v es t i g at i n g

t h o s e co n cern s

. W e ag ree wi t h Ap p el l ees an d t h e d i st ri ct co u rt t hat H o l l y an d Ch ri s t y

p o s s es s ed en ou g h i n fo rm at io n i n 2 0 0 4 to p u t t h em o n n o t i ce o f M i ch ael ’ s al l eg ed l y

frau du l en t co n du ct

.

-6

-Ho l l y an d Ch ri s t y n o w as s ert t h at t h ey were en t i t l ed t o rel y o n M i ch ael ’ s

rep res en t at i o ns as t h e t ru s t ee an d d i d n o t h av e t o i nv es t ig at e fu rt h er. Ho wev er, t h e

ex h ib i t s at t ach ed t o t h e A m en d ed Co m p l ai n t sh o w t h at

, i n 2 0 0 4

, Ho l l y an d Ch ri s t y

ex p res s ed co n cern s ab o ut Mi ch ael ’ s act i v it i es wi t h res p ect t o t h e Co m p an y , i t s s t o ck

, M an n i e’ s Tru s t

, an d M i ch ael ’ s d eal i n g s wi t h M an n i e. Th ey as k e d N e w l a nd que s t i on s

ab o ut t h e em

pl o y m en t ag reem en t

, t h e v al u e o f t h e s t o ck M an n i e g av e Mi ch ael

, an d

t h e m at h b eh i n d t h e d i vi si o n o f M an n i e’ s as set s

. Ho l l y an d Ch ri s t y fu rt h er ex p res s ed

t o Newl an d t h at th ey fel t M i ch ael h ad a co n fl i ct of in t eres t a s b o t h t ru s t ee an d a

b en efi ci ary o f t h e Tru s t

. Th ey i n d icat ed

, ho wev er, t h at t h ey d id n o t wan t M i ch ael to

k n o w ab o u t t h ei r q ues ti o n s “ i n o rd er t o av o i d creat i n g a fu s s ab o u t s om et h i n g [t h ey

m i g h t ] deci d e n o t t o ad d res s o n ce [t h ey k n ew] t h e an s wer.” Am . Co m p l . 1 0 2

, Di s t

. Ct . Dk t

. 2

.

Fu rt her, wi t h i n a m on t h of M an n i e’ s d eat h i n 2 0 0 4, Ho l l y an d Ch ri s t y recei v ed

a li s t of Tru s t as s et s an d co p i es o f b o t h M an ni e’ s wi l l an d t h e Tru s t. Bo t h th e Tru s t

an d M an n i e’ s w i l l m en ti o n ed t h e em pl o y m en t ag reem en t

— wh i ch Ho l l y an d Ch ri s t y
d i d n ot req u es t

— an d in di cat ed t h at M i ch ael was t o recei v e a l l o f M an n ie’ s s t o ck

. Th u s, i n 2 0 0 4

, at t h e lat es t

, Ho l l y an d Ch ri s t y k new ab o u t t he em p l o y m en t ag reem en t

, k n ew t hat Mi ch ael recei v ed a l l o f M an n i e’ s s t o ck

, an d ex p res s ed co ncern s ab o ut

M i ch ael ’ s b eh av i o r as t ru s t ee o f t h e Tru s t an d h i s p o t en t i al co n fl i ct o f i nt eres t

.

Des p i t e bei n g ex p res s l y t o l d i n J u ly 20 0 4 t h at Newl an d w as M an n i e’ s at t o rn ey ,

n o t th ei rs , Ho l l y an d Ch ri s t y d i d n o t en g ag e i n dep en d en t co u n sel an d d i d n o t t ak e an y

l eg al act i o n un t i l 2 0 1 7

— t h i rt een y ears aft er t h ey wer e p u t on n o t i ce o f p o s s i b l e

m i s co n du ct an d a d ecad e aft er t h e s tat u t e o f l i m i t at i o ns ex p i red

. Bas ed o n t h es e fact s , cl earl y d el i n eat ed i n t h e reco rd

, we fi n d t h at Ch ri st y an d H ol l y , h ad t h ey ex erci s ed

d u e d i li g en ce, co u l d h av e di s co v ered M i ch ael ’ s al l eg ed frau du l en t m i s co n d u ct i n

2 0 0 4

. W e ag ree wi t h th e d i s tri ct co u rt th at Ho l l y an d Ch ri s t y ’ s t o l l i n g arg u m en t i s

wi t h o u t m eri t an d t hei r cl ai m s are b arred b y t h e l i m it at i o n s

.

Th e ju d g m en t o f t h e d i s t ri ct co u rt i s affi rm ed

.

__ _ _ _ _ __ _ _ __ _ _ __ _ __ _ _ _ _ _ __ _ _ _ _

-7

-