Index: lib/Parse/ParseDeclCXX.cpp
===================================================================
--- lib/Parse/ParseDeclCXX.cpp
+++ lib/Parse/ParseDeclCXX.cpp
@@ -2824,6 +2824,9 @@
           Parent = Parent->getParent();
         if (Parent->isClassScope())
           break;
+        // Classes defined inside lambda functions are local as well.
+        if (S->getFlags() & Scope::BlockScope)
+          break;
       }
     }
   }
Index: test/SemaCXX/cxx1y-generic-lambdas.cpp
===================================================================
--- test/SemaCXX/cxx1y-generic-lambdas.cpp
+++ test/SemaCXX/cxx1y-generic-lambdas.cpp
@@ -948,3 +948,30 @@
 
 auto x = f(0)();
 }
+
+namespace PR13987 {
+class Enclosing {
+  void Method(char c = []()->char {
+    int d = []()->int {
+        struct LocalClass {
+          int Method() { return 0; }
+        };
+      return 0;
+    }();
+    return d; }()
+  );
+};
+
+
+class Enclosing2 {
+  void Method(char c = [](auto x)->char {
+    int d = []()->int {
+        struct LocalClass {
+          int Method() { return 0; }
+        };
+      return 0;
+    }();
+    return d; }(0)
+  );
+};
+}