Opinion ID: 852327
Heading Depth: 1
Heading Rank: 3

Heading: Dismissal on Statutes of Limitation Grounds

Text: The City contends the trial court erred in dismissing seven of its eight counts on the sole basis of the statutes of limitation. It complains that the court improperly resolved numerous factual inferences against the City, contrary to established standards governing motions to dismiss. (City's Br. at 28.) A motion to dismiss for failure to state a claim tests the legal sufficiency of the claim, not the facts supporting it. Charter One Mortgage Corp. v. Condra, 865 N.E.2d 602 (Ind.2007). Thus, our review of a trial court's grant or denial of a motion based on Trial Rule 12(B)(6) is de novo. Id. When reviewing a motion to dismiss, we view the pleadings in the light most favorable to the nonmoving party, with every reasonable inference construed in the nonmovant's favor. City of New Haven v. Reichhart, 748 N.E.2d 374 (Ind. 2001). Inasmuch as motions to dismiss are not favored by the law, they are properly granted only when the allegations present no possible set of facts upon which the complainant can recover. Mart v. Hess, 703 N.E.2d 190, 193 (Ind.Ct.App.1998). Put another way, a dismissal under Rule 12(B)(6) will not be affirmed unless it is apparent that the facts alleged in the challenged pleading are incapable of supporting relief under any set of circumstances. Couch v. Hamilton County, 609 N.E.2d 39, 41 (Ind.Ct.App.1993). Unsurprisingly, at this early stage of the proceedings, the claims, counterclaims, crossclaims, and the scores of factual allegations associated with them represent a considerable variety of claimed grounds for relief. As is frequently the case at this juncture, the facts that might support relief are not well developed. The trial court's stay of discovery makes the factual allegations less fulsome than they might otherwise be. That being said, the only way to evaluate the City's contention of error is to examine each dismissed claim individually. Count I. The heart of the City's allegations in Count I, styled as Breach of Fiduciary Duty, is: 78. Pannos, Cappas and possibly others, conspired with Pastrick and aided, abetted and encouraged his breach of fiduciary duty to the City and to the public by causing funds from the East Chicago riverboat that would otherwise have been paid directly to the City to be paid to Second Century, TCEF and/or ECCF. (App. at 386.) Second Century and the Foundations claim that the trial court properly dismissed this count on statute of limitation grounds because the actions on which the claim of breach centers occurred well over two years before the City filed its counterclaims on June 27, 2005. (Second Century's Br. at 21-23; Foundations' Br. at 33.) A party asserting the statute of limitation as an affirmative defense bears the burden of establishing that the action was commenced beyond that statutory period. Nichols v. Amax Coal Co., 490 N.E.2d 754 (Ind.1986). Once the asserting party makes a prima facie case, the burden shifts to the non-asserting party who is then obliged to present such facts that will prevent the running of the statute. Arnold v. Dirrim, 398 N.E.2d 426 (Ind.Ct. App.1979). Our Court of Appeals has determined that a breach of fiduciary duty is a tort claim for injury to personal property and therefore the applicable statute of limitation is two years. Del Vecchio v. Conseco, Inc., 788 N.E.2d 446, 451 (Ind.Ct.App. 2003); Ind.Code. § 34-11-2-4 (2008) (statute of limitation for injury to personal property). We have previously declared that a cause of action for a personal injury claim accrues and the statute of limitation begins to run when the plaintiff knew, or in the exercise of ordinary diligence could have discovered, that an injury had been sustained as a result of the tortious act of another. Malachowski v. Bank One, Indianapolis, 590 N.E.2d 559 (Ind.1992). Second Century contends that the language set forth in Count I undeniably refers to the activities undertaken during the administration of Mayor Pastrick when the April 8, 1994, agreement between Showboat and the City was first memorialized. Second Century further argues that the City certainly knew or should have known about the injury at that time, more than eleven years before the action containing Count I was filed. (Second Century's Br. at 23.) The City does not clearly and cognizably refute this contention in its brief or reply brief and therefore fails to bear its burden to prevent the running of the statute. It was not error to dismiss Count I on these grounds. Count II is labeled Inducement of Breach of Fiduciary Duty/Participating in Breach. It is similar to Count I and states: 84. Pannos, Cappas, Second Century, TCEF and ECCF have obtained benefits from the breaches of duties made in connection with the control of certain adjusted gross receipts from the East Chicago riverboat and other opportunities wrongfully obtained and disbursed and/or accumulated in violation of fiduciary duties owed to [the City] and its citizens and are therefore directly liable.... (App. at 387.) To the extent that Count II refers to the activities that transpired when the City and Showboat originally entered into the local development agreements, Second Century contends this claim accrued at that time, more than a decade before the City filed suit. (Second Century's Br. at 23.) To the extent that Count II refers to the activities that allegedly occurred during 1999, when the City and other parties entered into a Confirmation Agreement when the license transferred to Harrah's, Second Century argues that the City's claims accrued more than six years before they were filed. ( Id. ) Second Century further alleges that because the City was a party to the 1999 Confirmation Agreement, it knew or should have known about the injury at the time it was executed, and therefore the latest the City could have asserted its breach of fiduciary claim was February 26, 1999. (Second Century's Br. at 23-24.) The claim in Count II as pleaded appears fairly to cover breaches that might have occurred late in the 1990s as well as breaches that might have occurred in more recent years. Thus, while part of this claim might be barred, subject to further development of facts, it was error to dismiss Count II in its entirety. Count III of the complaint alleges Constructive Fraud/Unjust Enrichment. Second Century and the Foundations argue that the City's fraud claim is independently barred by a six-year limitation period of Ind.Code § 34-11-2-7 (2008). (Second Century's Br. at 24; Foundations' Br. at 32-33.) Second Century specifically contends that the allegations of Count III refer to the time when the 1994 agreements were executed and that the City's claim accrued at that time, over eleven years before it was filed. (Second Century's Br. at 24.) The City responds that a court may find constructive fraud upon a finding that any of the alleged agreements at issue are void due to their tendency ... to violate public or private confidence, or to injure public interests, quoting Budd v. Board of Comm'rs of St. Joseph County, 216 Ind. 35, 22 N.E.2d 973 (1939), to support its contention. (City's Reply and Cross-Appellee's Br. at 37-38.) In Budd, the parties disputed whether there was an unlawful exercise of discretion vested in the county commissioners when they awarded a public contract to a competitive bidder. Id. at 37-39, 22 N.E.2d at 975. Assessing the constructive fraud claim, we declared: While fraud is never presumed, if the facts alleged show fraud, either actual or constructive, no positive averments of it are necessary. Id. at 39, 22 N.E.2d at 976. Here, the legally substantive paragraph within Count III states, As set forth above, Pannos, Cappas, Second Century, TCEF and ECCF have received funds from the East Chicago riverboat under circumstances that would make the retention of the benefit unjust. (App. at 388.) This paragraph and the recitation of facts incorporated in Count III do not tend to show either actual or constructive fraud. Moreover, none of the agreements at issue seem to rescue the City from the six-year statute of limitation. Second Century seems justified in saying that the gravamen of Count III relates to the formation of the riverboat arrangements during the 1990s. The latest was the Confirmation Agreement of February 1999, more than six years before Count III was filed. The trial court properly dismissed Count III. Count IV, labeled Breach of Fiduciary Duty, states: The public funds, or some of them, paid to Second Century, TCEF, ECCF, Pannos and/or Cappas as described above have not been used for public purposes and/or have been spent without adequate financial controls, oversight and accountability to ensure that the funds were used for a public purpose. (App. at 389.) Second Century argues that the City's cause of action for Count IV accrued when the City knew or should have known of the alleged deficiencies in the April 8, 1994 agreement. (Second Century's Br. at 25.) As with Count II, we conclude that this count embraced early activities that might be time-barred and later activities that likely are not. The trial court erred in dismissing Count IV in its entirety. Count V is called Accounting. It asserts that Second Century and the Foundations both owe a fiduciary duty to the City and/or its citizens of proper use and accounting for all funds received from the riverboat operation and that the corporations failed to account for the funds by producing a report or any kind of accounting reflecting income and expenses. The Foundations assert that this claim is subject to the two-year limitation under Ind.Code § 34-11-2-4 in accordance with standard rules of discovery and accrual. (Foundations' Br. at 33.) The Foundations further argue that the City makes no precise allegation of what constituted the alleged breach and mismanagement or when precisely this unexplained conduct occurred other than the City's reference to a grand jury having subpoenaed the Foundations' records in April 2003. They say this grand jury activity put the City on notice more than two years before the City brought the claim in June 2005. (Foundations' Br. at 33.) Second Century contends only that Count V is based upon the alleged existence and breach of a fiduciary duty owed by Second Century to the City, and as such, the Count is barred by the two-year statute of limitation. (Second Century's Br. at 25.) The City replies that the fact that Foundation records were subpoenaed in April 2003 does not mean that the City knew about the subpoena. (City's Reply and Cross-Appellee Br. at 43.) It argues that grand jury proceedings are supposed to be secret. ( Id. ) We determined long ago that proceedings before a Grand Jury are secret. Dinning v. State, 256 Ind. 399, 269 N.E.2d 371 (1971). Hence, it is not apparent that the City had any notice, knew or should have known any details amounting to mismanagement of any funds at the time the records were subpoenaed. Whether there was in fact any actual knowledge and what that knowledge might have been is subject to further development of facts. It was error to dismiss Count V on these grounds. Count VI, Declaratory Judgment/Return of Public Funds, was asserted against Harrah's Resorts and the Foundations concerning the proper designee to be paid 2% of the adjusted gross receipts from the riverboat operation. The essence of this claim is that the City retained an inherent right to change the designee under the letter agreements, and upon transfer of the license to a licensee other than Showboat, the City was authorized to revise, renegotiate, or modify any aspect of the letter agreements. (App. at 392.) The City further alleges that it attempted to change the designee through the 2005 Economic Development Program. ( Id. ) It contends that any other agreement purporting to bind or restrict whom the City may select is void against public policy. (App. at 392-93.) The Foundations argue that this claim involves matters that existed from the very execution of the letter agreements of 1994 and 1995 and that the trial court properly dismissed it under the discovery rule because it was during this period when the claim accrued. (Foundations' Br. at 32.) The City's apparent counter is that [i]n a case involving failure to return funds held in trust, the cause of action does not accrue until demand is made for return of the funds or the trustee claims an interest in the trust property.  (City's Br. at 38-39.) The City cites Emerick v. Chesrown, 90 Ind. 47, 49 (1883) (bringing a suit for return of the funds is a sufficient demand) to support its contention. ( Id. ) The City contends that its demand for return of funds from the Foundations and Second Century did not occur until after Mayor Pabey took office on December 29, 2004. (City's Br. at 39.) We perceive two very different claims against the Foundations combined in Count VI. One appears aimed at ending the flow of cash to them. The other seeks return of such cash as may not have been spent in accordance with the various agreements and the terms of the Gaming Commission license. As we indicate below, the particular arrangements for advancing economic development in East Chicago made a part of the licensing conditions by the Gaming Commission may not be terminable at the City's will, but they are not immutable. As for the request to recoup funds that may have been improperly spent, the City's allegations suffice to cover ongoing activities. While some of these might turn out to be beyond the statute of limitation, we conclude that the trial court erred by dismissing this claim outright. Count VII, Declaratory Judgment/Return of Public Funds, makes allegations against Harrah's, Resorts, and Second Century as follows: 119. Any provision purporting to require payment of funds from the East Chicago riverboat directly to Second Century is void to the extent it was approved as a result of a breach of fiduciary duty. .... 121. The city's failure to exercise the right to control and operate Second Century resulted from a breach of fiduciary duty. (App. at 395.) Second Century argues that Count VII was properly dismissed because the breaches of fiduciary duty occurred in 1994 under the local development agreement and in 1999 under the Confirmation Agreement, such that any claim for alleged breach accrued over six years before it was filed. (Second Century's Br. at 25-26.) Because Count VII relates to the return of funds held in trust and not merely for a breach of fiduciary duty, Second Century did not make a prima facie case for a statute of limitation defense on this count. The Foundations contend that the City could not unilaterally delay running of limitations on its `trust' claims by not making a formal `demand' for funds distributed to and claimed by the Foundations from the outset. (Foundations' Br. at 34.) Under Indiana law, a six-year limitation period applies to claims of a constructive trust. Shafer v. Lambie, 667 N.E.2d 226 (Ind.Ct.App.1996). We determined long ago in a case involving failure to return funds held in trust, the cause of action does not accrue until demand is made for return of the funds or the trustee claims an interest in the trust property. Emerick, 90 Ind. at 49. The City's assertion that a demand occurred only after Mayor Pabey took office on December 29, 2004, is a sufficient answer for purposes of a motion to dismiss. Accordingly, it was error to dismiss Count VII on these grounds. Count VIII asserts a claim for Reformation of Contract, arising from alleged breaches of fiduciary duty when the Economic Development Agreement, 1998 Side Agreement among some of the parties, and the 1999 Confirmation Agreement were entered into. (App. at 396.) Second Century argues this claim is barred by the two-year statute of limitation for breach of fiduciary duty. (Second Century's Br. at 26.) The City does not refute this in its brief. Moreover, it appears that Count VIII is substantially similar to the City's claim for constructive fraud in Count III. It was not error to dismiss this claim. Before leaving behind the several counts which we have concluded were properly dismissed on statutes of limitation grounds, we consider the City's argument that fraudulent concealment should toll the statutes of limitation, a point it makes about most or all counts. The doctrine of fraudulent concealment is available to estop a defendant from asserting the statute of limitation when he has, either by deception or by a violation of duty, concealed from the plaintiff material facts thereby preventing the plaintiff from discovering a potential cause of action. Fager, 610 N.E.2d 246, 251 (Ind.1993). This doctrine does not establish a new date for the running of the statute, but rather works an equitable exception. Id. Instead of a full statutory limitation period within which to act, a plaintiff must exercise due diligence in commencing her action after the equitable grounds cease to operate as a valid basis for causing delay. Id. As respects those counts or parts of counts which we have held above should not survive Second Century's motion to dismiss, it is very difficult to see why equity ought to estop Second Century and the Foundations from asserting the statutes of limitation. The counts centered on attacking the formation and confirmation of the original agreements seek to challenge action taken ten or fifteen years ago in full glare of the public arena. It simply asks too much to embrace the idea that these were fraudulently concealed from the City or anyone else. [2]