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Pilkington v. Pilkington

Court of Appeals of Indiana

March 2, 2017

Michael R. Pilkington, Appellant-Plaintiff,
v.
Karen A. Pilkington, Appellee-Defendant.

         Appeal from the Delaware Circuit Court. Cause No. 18C05-1510-PL-24 The Honorable Thomas A. Cannon, Jr., Judge.

          Attorneys for Appellant Thomas M. Beeman Alexander M. Beeman Beeman Law Anderson, Indiana

          Attorney for Appellee Donald K. McClellan Muncie, Indiana

          Shepard, Senior Judge

         [¶1] Michael Pilkington sued his stepmother, alleging she breached her duties as trustee of a trust created by her late husband, Michael's father. The trial court dismissed the complaint with prejudice for lack of subject matter jurisdiction. We conclude that the court has authority to adjudicate Michael's complaint, and reverse.

         Facts and Procedural History

         [¶2] Flannan and Karen Pilkington were married until Flannan's death in 2006. At the time of his death, Flannan, Karen, Michael, and Patrick each owned percentage interests in five limited liability corporations that held real property. Flannan's will was probated and Karen was named trustee of a trust Flannan created by last will. The trust contained Flannan's interest in the five limited liability corporations (the "LLCs"). Karen was entitled to income from the trust during her life. Upon her death, the trust assets passed to her stepsons Michael and Patrick Pilkington. The trust contained a spendthrift provision: "No creditor of my wife or any residual beneficiary shall have the right to invade this trust for the purpose of satisfying the debts of my wife or any residual beneficiary." Appellant's App. p. 12, Last Will and Testament of Flannan M. Pilkington.

         [¶3] In 2009, Michael filed Chapter 7 bankruptcy. By request of the bankruptcy trustee, his interest in the LLCs were sold to Karen for $20, 000. The description of the interest sold was not specific, e.g., deeds prepared by the bankruptcy trustee quitclaimed to Karen "any interest [Michael] may have in the . . . described real property." See Defendant's Exhibits A, B, C, and D.

         [¶4] In 2015, Michael filed a complaint against Karen in the Delaware Circuit Court, alleging (among other things) that she breached her duties as trustee. Michael also alleged that he retained his beneficiary interest in the trust and that only his "entity interests" in the LLCs were sold to Karen during the bankruptcy. Appellant's App. pp. 6-7. Michael sought (among other things) an accounting of all trust activity, Karen's removal as trustee, and an order requiring Karen to restore trust assets and make up for any losses. Id. at 9.

         [¶5] Separately, Patrick sued Karen in the Delaware Circuit Court over the management, operation, and ownership of the trust assets. They entered into a settlement in April 2015, agreeing to sell all of the properties held by the LLCs and divide the proceeds 51% to 49% in favor of Patrick. Michael was not a named party and did not intervene in the action.

         [¶6] On February 9, 2016, Karen moved to dismiss Michael's complaint for lack of subject matter jurisdiction. She argued that the bankruptcy court's order and the quitclaim deeds divested Michael of any interest he had in the LLCs, including his remainder interest; that Michael's complaint stemmed from the bankruptcy court's sale of his interest in the LLCs; and that the Delaware Circuit Court, a court of general jurisdiction, had no subject matter jurisdiction over what Karen characterized as "a bankruptcy court determination." Id. at 38-39. According to Karen, the bankruptcy court first needed to determine whether Michael retained a remainder interest in the trust before the state court could act on his complaint against her.

         [¶7] Michael responded by saying that his "complaint [contained] no claims which would fall under the jurisdiction of the bankruptcy court." Id. at 54. He then argued his remainder interest in the trust was not included in the bankruptcy sale because of the spendthrift provision, and that under applicable law the remainder interest could not be sold by the bankruptcy trustee.

         [¶8] Following a hearing, the trial court granted Karen's motion and dismissed Michael's complaint with prejudice, finding that it was an improper collateral attack on the judgment issued in the litigation between Patrick and Karen, and that Michael could have intervened in that litigation but did not. It also noted that he could have sought relief from the bankruptcy court.

         Issue

         [¶9] Michael argues on appeal that the trial court erred in concluding that the Delaware Circuit Court ...


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