Paula Schmidt v. Newland & Associates PLLC
927 F.3d 1038
8th Cir.2019Background
- Mannie Lasiter was longtime COO and majority shareholder of Lasiter Construction; between 1985–2000 he transferred substantial stock to his son Michael and in 2000 executed succession, stock-purchase, and employment agreements.
- Mannie created a trust (2002) leaving all his Company stock to Michael; Mannie died in 2004 and Michael served as trustee and beneficiary.
- After Mannie’s death, Christy Schmidt and Holly Woprice (daughters) received a copy of the will and an abridged trust inventory in July 2004 and asked the family attorney, Newland, questions expressing concern about Michael’s conflicts and the stock transfers but did not retain counsel or sue.
- Michael later transferred additional Company shares into his own trust; he died in 2016 and plaintiffs filed suit in 2017 alleging fraudulent transfers, breach of fiduciary duty, and seeking rescission and monetary relief.
- Defendants moved to dismiss under Rule 12(b)(6) on statute-of-limitations grounds; district court dismissed, holding Arkansas’s three-year limitations period was not tolled by fraudulent concealment because plaintiffs had sufficient notice in 2004 and failed to exercise due diligence.
- The Eighth Circuit affirmed, applying Arkansas law on fraudulent concealment and due diligence (plaintiffs had the facts to put them on inquiry notice in 2004 and waited over a decade to sue).
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether Arkansas three‑year statute of limitations was tolled by fraudulent concealment | Tolling applies because Michael actively concealed transfers and misrepresented trust assets, preventing discovery until after limitations ran | Plaintiffs had notice in 2004 (documents, questions raised, inventory, will) and failed to exercise reasonable diligence, so tolling does not apply | Tolling not allowed; claims time‑barred and dismissal affirmed |
| Whether plaintiffs’ complaint survives 12(b)(6) given facial statute‑of‑limitations bar | Alleged facts (questions to attorney, later discovery of agreements) suffice to allege concealment and delay discovery | Face of complaint shows plaintiffs had facts to trigger inquiry; under Varner and Arkansas law plaintiffs must show due diligence to avoid dismissal | Complaint properly dismissed at Rule 12(b)(6); plaintiffs failed to meet burden of showing tolling by preponderance |
Key Cases Cited
- Varner v. Peterson Farms, 371 F.3d 1011 (8th Cir. 2004) (plaintiff must show due diligence to discover fraud when on notice)
- Cherepski v. Walker, 323 Ark. 43 (Ark. 1996) (burden on plaintiff to show tolling where complaint facially shows limitations expired)
- Bomar v. Moser, 369 Ark. 123 (Ark. 2007) (elements for fraudulent concealment: affirmative act of fraud, active concealment, and not discoverable by reasonable diligence)
- Alexander v. Flake, 322 Ark. 239 (Ark. 1995) (applying three‑year limitations to fraud and breach of fiduciary duty claims)