Douglas W. Klemz v. Horizon Bank (mem. dec.), 64A05-1611-TR-2617

Background

Larry Klemz created a trust (Business Trust owning Home Mountain Publishing (HMP) and 5-K Run, LLC; and a Residuary Trust) naming Douglas and Larry as co-trustees and Douglas, Justin, and Brian as beneficiaries; Douglas had a 90% option to purchase the Business Trust assets.
After Larry died, Douglas acted as sole trustee and manager of HMP/5-K Run; he quitclaimed a trust-owned real property to an LLC he owned and paid off its mortgage with trust funds, prompting beneficiary concerns.
Beneficiaries Justin and Brian petitioned to remove Douglas; the court appointed Horizon Bank as Successor Trustee while Douglas remained HMP manager.
Horizon and Douglas executed asset and real estate purchase agreements (Aug. 24, 2015) for HMP and related real estate, subject to contingencies (financing, 1st Source Bank approval, and court approval); closing was later set effectively May 31, 2016 by the trial court.
1st Source Bank later moved to foreclose, obtained appointment of a receiver, and HMP/5-K Run assets entered receivership and were sold; Horizon asked the court to approve its proposed allocation of trust assets (giving business and real estate to Douglas and distributing remaining funds to Justin and Brian).
The trial court adopted Horizon’s proposed distribution; the Court of Appeals reversed, holding the Agreements were unenforceable because the subject assets were lost to receivership and therefore there was no consideration to support the sale, and remanded to recalculate distributions under the trust instrument.

Issues

Issue	Plaintiff's Argument	Defendant's Argument	Held
Whether the trial court properly approved distribution of Trust assets per Horizon’s proposed allocation based on the Aug. 24, 2015 Agreements	Klemz (Douglas) argued the Agreements were unenforceable: contingencies (notably 1st Source Bank consent) were unsatisfied and receivership/foreclosure deprived the Trust of the assets, so no consideration existed	Horizon and beneficiaries argued the court had set an effective closing date (May 31, 2016) and that distribution/transfer could be calculated as of that date and thus should be approved	Reversed: Agreements lacked consideration because assets were in receivership and could not be transferred; trial court erred in approving distribution under those Agreements; remanded to recalculate distributions under the trust instrument
Whether Douglas breached fiduciary duties as trustee (cross-appeal)	Justin and Brian argued Douglas breached duties by transferring trust property, keeping income, and failing to notify beneficiaries	Douglas and Horizon contended the trial court previously found no breach in its March 8, 2016 order and that fiduciary claims were not properly preserved for this appeal	Court of Appeals declined to reach merits of cross-appeal (majority): held the fiduciary- duty claim was effectively decided by the trial court’s March 8 order and the cross-appeal is not properly before the court; concurrence disagreed and would consider the claim later after final judgment

Key Cases Cited

Ind. Dept. of State Revenue v. Belterra Resort Indiana, LLC, 935 N.E.2d 174 (Ind. 2010) (elements of contract formation and nature of consideration)
OVRS Acquisition Corp. v. Cmty. Health Servs., Inc., 657 N.E.2d 117 (Ind. Ct. App. 1995) (consideration requires benefit or detriment; bargained-for exchange)
Fisher v. State, 878 N.E.2d 457 (Ind. Ct. App. 2007) (courts may judicially notice related court records)
In re Estate of Stayback, 38 N.E.3d 705 (Ind. Ct. App. 2015) (standard of review for findings/conclusions)
UFG, LLC v. Southwest Corp., 848 N.E.2d 353 (Ind. Ct. App. 2006) (specific performance unavailable when subject matter has been sold to third party)
Bernel v. Bernel, 930 N.E.2d 673 (Ind. Ct. App. 2010) (impossibility as an affirmative defense to contract performance)
Pigman v. Ameritech Pub., Inc., 650 N.E.2d 67 (Ind. Ct. App. 1995) (judicial notice of records beyond current case)
Keck v. Walker, 922 N.E.2d 94 (Ind. Ct. App. 2010) (interlocutory order appealability and waiver principles)
Shuler v. Estate of Botkins, 970 N.E.2d 164 (Ind. Ct. App. 2012) (probate orders are not final until estate closure)