COA: Trial court misinterpreted right of first refusal language in family trust

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(IL file photo)

A man who had a right of first refusal to his late mother’s home should have been allowed to receive the home at its value at the time of his mother’s death, rather than the value of a purchase offer, the Court of Appeals of Indiana has ruled in reversing part of a lower court’s decision.

Carol Daubenspeck wanted her children, Daniel Beach and Teresa Spiech, to receive equal shares of her property upon her death, with the exception that she wanted Beach to receive her home as part of his share if he wished. Daubenspeck placed her assets within the Dauby Family Trust, named her two children as equal beneficiaries and gave Beach a right of first refusal to receive the home.

Beach lived with Daubenspeck at the home in exchange for performing general maintenance and upkeep. When Daubenspeck died in 2020, Beach had been living at the home for several years.

Spiech became trustee upon Daubenspeck’s death.

Spiech discussed the sale of the home with a realtor but didn’t inform Beach of the discussion or notify him of his right of first refusal to the home.

Beach generally obstructed any effort to appraise the home or catalogue the personal property inside. He also barred appraisers from entering more than once.

Six months passed until Beach was given notice of the opportunity to exercise his right of first refusal. In the notice, Spiech demanded that Beach pay her $225,000 for her share of the home, which she valued at $450,000.

Beach responded with a letter through counsel saying he intended to exercise his right of first refusal but disputed the value assigned to the home.

About a year later, the trust received an offer to purchase the home for $455,000. Spiech accepted the offer and entered into a purchase agreement, triggering a three-day window for Beach to exercise his right of first refusal.

When Beach didn’t comply with the deadline and refused to honor the sale, Spiech docketed the trust with the Hamilton Superior Court to determine the status of Beach’s right of first refusal and, if necessary, to order him to vacate the home.

Beach answered by seeking damages and attorney fees due to Spiech’s alleged violation of her fiduciary duties as trustee.

The primary issue revolved around the interpretation of the trust’s right of first refusal language, but both parties also sought to introduce evidence of the home’s value and the behavior of the other party as it related to the trust.

Spiech argued that Beach had obstructed and delayed her work as trustee by preventing access to the home. Beach alleged that Spiech had abused her position as trustee by unreasonably delaying the distribution of the trust’s assets.

As for the value of the home, Spiech’s appraisal came in at $387,000, and Beach’s came in at $270,000.

The trial court ruled for Spiech, finding a right of first refusal is only activated by the receipt of a bona fide third-party offer. The court concluded that Beach must pay the value set by the $455,000 offer on the home to exercise his right of first refusal.

The court believed that Beach’s position — that he should receive the home as part of his distribution from the trust at its value as of Daubenspeck’s death — required it “to ignore legal precedent” on the meaning of a right of first refusal. The court also determined Spiech had met her obligations as trustee and denied Beach’s requests for damages and attorney fees.

Beach appealed, arguing the trial court erred in interpreting the trust’s right of first refusal provision. He also argued the trial court erred in its handling of the evidentiary hearing and in denying his request for attorney fees and other sanctions.

The Court of Appeals agreed with Beach’s argument that the trial court misinterpreted the trust’s right of first refusal provision but affirmed the trial court’s other decisions.

In agreeing with Beach, the Court of Appeals said it had “no difficulty” ascertaining Daubenspeck’s intent from the plain language of the trust, which said Beach could elect “to receive” the home as part of his share of the trust’s assets.

“As Spiech is still entitled to half of the Trust assets, the home would necessarily come in lieu of any other property or assets Beach may have received,” the court said. “But so long as Spiech receives her half of the Trust’s assets, Beach is entitled to the home upon validly exercising his right of first refusal. The confusion here stemmed from a mistaken understanding of how this right of first refusal operated.”

The Court of Appeals said the trial court erred in trying to “shoehorn” the right of first refusal provision into definitions spelled out in two other cases — Hyperbaric Oxygen Therapy Sys., Inc. v. St. Joseph Med. Ctr. of Ft. Wayne, Inc., 683 N.E.2d 243 (Ind. Ct. App. 1997), and Beiger v. Heritage Corp. v. Est. of Kilbey, 667 N.E.2d 184 (Ind. Ct. App. 1996) — rather than giving effect to the provision’s plain language.

The court said the same logic applies to the language giving Beach the right “to receive” the home “as part of his residuary distribution.”

“While Spiech and the trial court were correct in arguing that a right of first refusal typically requires the existence of a bona fide third-party offer, applying that result here ignores the Trust’s plain language which requires Beach to be notified of his right upon Daubenspeck’s death,” the court said.

The court remanded with instructions to assess the value of the home at the time of Daubenspeck’s death so the trust assets can be evenly divided among the siblings.

However, the court disagreed with Beach’s argument that the trial court violated his due process rights by setting a schedule for the evidentiary hearing that denied him the opportunity to present three witnesses on the issue of Spiech’s alleged breach of her fiduciary duty as trustee. The court interpreted Beach’s argument as saying the trial court denied him his “opportunity to be heard.”

“Beach was not denied an opportunity to be heard,” the court said. “The record reflects that the trial court not only appropriately conducted the hearings, but that Beach agreed to the very hearing schedule of which he now complains.”

The court also disagreed with Beach’s argument that the trial court erred in declining to award him damages and attorney fees for Spiech’s alleged breach of the trust and conduct as trustee. Beach based his request on a breach of trust claim against Spiech for not promptly liquidating and dispersing the trust’s assets.

The court said there were two problems with Beach’s theory. First, the trust’s instructions for dispersing property “were opaque,” and second, the evidence supports the trial court’s determination that Beach’s “obtrusive behavior” contributed to the delay.

Judge Leanna Weissmann wrote the opinion. Judge Terry Crone and Judge Melissa May concurred.

The case is Daniel Kay Beach v. Teresa Spiech, Trustee of the Dauby Family Trust, 22A-TR-1779.

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