Bose McKinney and Evans, LLP, Blog

The Court of Appeals reversed the trial court and held that student loan funds that are deposited into a personal bank account are exempt from being attached by a judgment creditor.

Nikki Brindle and Patrick J. Arata entered into an agreed judgment whereby Brindle would pay Arata for legal services provided. Arata initiated proceedings to seek funds from Brindle’s bank account at National City Bank, at which time contained $3,367.01. A week later, Brindle filed an exemption claim and requested a hearing. At the hearing, Brindle introduced a voucher from the Academy of Art University stating that she would receive a check in the amount of $3,268.00 which was the amount left over after her tuition was paid to the university. The trial court denied Brindle’s exemption claim and ordered all funds except $300.00 to be transferred. The court stated the funds lost their exempt status when they were deposited into her bank account. Brindle appealed.

In Nikki Brindle v. Patrick J. Arata, No. 02A05-1004-SC-239, the Court of Appeals held that under U.S.C. Title 20 section 1095a, regarding wage garnishments, the plain language of the statute was clear that student loan funds and property traceable to those funds were exempt from garnishment or attachment. Furthermore, because there were no provisions to terminate this status, a contrary decision would render section 1095a meaningless, which the Court doubted was Congress’ intent. It stated that almost every recipient of student funds deposits their funds into a personal bank account and that it “could not imagine that Congress wishes those who receive student loans to stuff their mattresses with their rent money to prevent judgment creditors from attaching it.” Additionally, it distinguished the garnishment of retirement funds after they were deposited from the garnishment of student loan funds. The federal statutes are only extended to protect from the collection of student loans. The Court stated that "not being able to give something away is quite different from having it protected from being taken away." Retirement fund statutes do not apply to student loans. Therefore, the trial court’s holding was erroneous because the student loan funds that Brindle deposited into her bank account were protected, and Arata was prohibited from attachment. Trial court’s holding is reversed.
 

The Indiana Court of Appeals held that a master homeowners’ association was required to be established by the controlling ordinances for a planned unit development (“PUD”) and that a swimming pool was within the scope of the association’s responsibilities.

The City of Greenwood adopted a zoning ordinance for planned unit developments which provided “there shall be established a homeowners association to provide for the control and maintenance of all common areas.” A developer submitted the Master Plan for The Pines of Greenwood’s PUD, and it consisted of five communities with two types of homes and densities, the Pines of Greenwood (“POG”) and the Village Pines (“VP”). The Master Plan did not contain any definitions, but was approved by the Greenwood Common Council in an ordinance that amended the city’s zoning ordinance (“Master Plan Ordinance”). Later, covenants and restrictions were recorded establishing two separate homeowners’ associations for the POG and VP communities. However, a master homeowners’ association was never established for The Pines as a whole. 

A swimming pool was built in the POG community, but not in the VP community. The POG covenants stated that only POG property owners could use the pool. The VP community filed a complaint seeking to reform the POG covenant because it “mistakenly omitted a provision whereby the residents of VP would be permitted to use the community swimming pool” located in the POG area. The VP community argued that a master homeowners’ association should be established for maintenance and operation of the common areas. The trial court held that the creation of a master homeowners’ association to control the common areas was not expressly stated in the documents reflecting the development of The Pines. VP appealed.

The issue in The Village Pines at the Pines of Greenwood Homeowners' Assn. Inc. v. The Pines of Greenwood Homeowners' Assn. Inc., Case No. 41A01-0912-CV-568, was whether the Master Plan Ordinance required a master homeowners’ association, and if required, what areas this association would control. The Court read the PUD zoning ordinance and the Master Plan Ordinance together because they contained the same subject matter and, thus, should be read together to come to a “harmonious statutory scheme.” Both the PUD ordinance and Master Plan Ordinance discussed a master homeowners’ association. Thus, a master homeowners’ association was required for The Pines. Furthermore, when deciding if the master homeowners’ association responsibilities included the swimming pool, it looked at the terms “amenities” and “park area” contained in the ordinances. Although the terms were not defined, it used the plain, ordinary and usual meanings of the words. It held that the swimming pool was within the definition of the terms because a pool is an “amenity or park area available as a recreation area to all residents.” Therefore, it was within the master homeowners association’s responsibilities to properly control, maintain and operate it. The Court reversed the trial court’s holding and ordered the parties to engage in mediation.

The Indiana Court of Appeals encourages cooperation and conflict resolution among attorneys to resolve issues outside of court, but time extensions still require formal relief given directly by the court.

Mary Booher slipped and fell in a Hampton Inn bathtub. Her accident was the first in nearly 5 months after Hampton Inn had covered its bathtubs with a non-skid surface in compliance with safety standards. Mary and her husband filed suit. After receiving two time extensions to reply to Hampton Inn’s motion for summary judgment, another time extension was needed because the Boohers’ attorney was facing major surgery and their expert needed extra time to complete his report. The attorney contacted Hampton Inn’s counsel to explain that another extension would be needed. Hampton Inn’s counsel agreed to the extension, and relying on this out-of-court agreement, the attorney never filed a formal request with the trial court. Three weeks after the second extension deadline had passed, the Boohers submitted their reply to the trial court. Hampton Inn moved to strike based on Trial Rule 56, which the trial court granted. It later granted summary judgment in favor of Hampton Inn. The Boohers appealed.

In Mary Booher, et al. v. Sheeram, LLC, No. 20A03-1005-CT-338, the Indiana Court of Appeals held that the trial court did not err in its decision to strike the Boohers’ reply and properly entered summary judgment in favor of Hampton Inn. Under Trial Rule 56, a trial court does not have the discretion to accept late-filed documents. The Court stated that the attorney’s reliance on the out-of-court agreement was not sufficient to extend the due date, and that he should have filed a motion for a time extension with the trial court. It stated that even under the extraordinarily difficult circumstances in this case, the court’s “proverbial hands were tied” as the Supreme Court made it clear that trial courts have no discretion to accept untimely filed documents. Additionally, because Hampton Inn applied a non-skid coating which complied with industry standards, it protected its business invitees from foreseeable dangers. Hampton Inn fulfilled its duty to exercise reasonable care, and therefore, there were no issues of material fact. Thus, the Court affirmed the trial court’s holding.
 

The Indiana Court of Appeals held, as a matter of first impression, that the definition of a “courthouse” for a notice statute can be a temporary courthouse in which the courts convene while a permanent county courthouse is undergoing repairs.

In August 2009, the Grant County Courthouse was undergoing repairs. Due to the repairs, the court was relocated to a temporary site. Around this time, Claudette Gee’s home was ordered into foreclosure. The Grant County Sheriff’s Department posted notice of the foreclosure on a bulletin board located next to the door of the temporary courtroom. A week after Gee’s property was purchased, Gee moved to set aside the sheriff’s sale. She argued that the sheriff’s office failed to post notice of the sale “at the door of the courthouse” as required by Indiana statute. The trial court denied Gee’s motion and Gee appealed to the Indiana Court of Appeals.

In Claudette Gee v. Green Tree Servicing LLC, No. 27A02-1003-MF-304, the issue on appeal was whether the sheriff followed the correct procedure when the sheriff posted notice of the sale at the temporary county court offices and not at the permanent county courthouse. The Court held that the sheriff complied with Indiana’s notice statute because a “courthouse” is defined as a place where judges convene to adjudicate disputes and administer justice. The Court relied on Black’s Law Dictionary for this definition, as it was not defined in a statute. Because the temporary courtroom was the place where three of the four county courts convened during renovations, the Court determined that the plain meaning of the statute also applied to temporary courtrooms. Therefore, the sheriff followed the proper notice procedure and the foreclosure sale was valid. The court noted, however, that Gee did not argue that the sheriff was required to post notice at both sites, and thus, the Court did not consider this issue. Affirmed.

The Indiana Supreme Court held that a contribution by a parent corporation to the capital of its subsidiary is not automatically excluded from the Indiana sales and use tax. Instead, the Court looked at whether consideration was given for the capital contribution. If the contribution was made with consideration, then there was a retail sale, and thus, Indiana sales or use tax would be imposed.

In Indiana Department of State Revenue v. Belterra Resort Indiana, LLC, Case No. 49S10-1010-TA-519, Pinnacle Entertainment, Inc. had a riverboat casino manufactured. It bought the riverboat in Alabama for $34,689,719.00 and, in exchange, received title and possession of the riverboat. Pinnacle paid no Alabama sales tax on this transaction. The next day, while in the international waters off the Gulf of Mexico, Pinnacle transferred title and possession of the riverboat to Belterra Resort Indiana, LLC. Prior to the transfer, Pinnacle owned a 97% interest in Belterra. A couple days after the transfer, Pinnacle subsequently obtained the remaining 3%. This gave Pinnacle 100% ownership of Belterra, its subsidiary. Afterwards, the riverboat floated to its new home in Indiana. In 2002, the Indiana Department of Revenue conducted a sales and use tax audit of Belterra. It issued a use tax assessment against Belterra in the amount of $1,869,783.00 plus penalty and interest. Both parties later filed cross motions for summary judgment, and after a hearing, the Tax Court granted Belterra’s motion and denied the Department’s. Thereafter, the Indiana Supreme Court granted review.

The issue before the court was whether the transfer of the riverboat from Pinnacle to Belterra was done without either side receiving consideration. In this case, Belterra submitted an affidavit in which the Board of Directors’ Resolution declared “[ ] the company hereby approves the transfer of ownership of the Riverboat Miss Belterra from Pinnacle Entertainment, Inc. to Belterra Resort Indiana, LLC as a capital contribution and without consideration being paid to Pinnacle Entertainment…”. A question of law, such as whether consideration exists, is decided by the court. To have “consideration,” one must receive a benefit to the detriment of another. A benefit is defined as a legal right given from one person to another, where the person receiving the right would not otherwise be entitled. Money is not the only benefit one can receive from consideration. To determine whether there was any benefit, the Court evaluated the transaction closely. “A transaction structured solely for the purpose of avoiding taxes with no other legitimate business purpose will be considered a sham for taxation purposes.” To analyze the companies’ motive for the transaction, the court used the “step doctrine,” which is divided into the “end results” and “interdependence” tests. The end result of Pinnacle and Belterra’s transactions appears, from the outset, to be intended to avoid paying the Indiana use tax while maintaining complete control over the riverboat. Additionally, the series of transactions were so interdependent that it is unreasonable to conclude that the whole series would have been completed if not for the purpose of avoiding the sales and use taxes. After this application, the court determined that there was consideration and treated the acquisition of the riverboat from the manufacturer as a retail transaction subject to the Indiana use tax.   Therefore, the Tax Court’s holding was reversed and summary judgment was granted in favor of the Department.

The Indiana Supreme Court split in a 3:2 decision on the issue of whether an “occurrence” under a commercial general liability (CGL) policy covered a subcontractor’s faulty workmanship under the insured’s contract.

Sheehan Construction Company was a general contractor on the Crystal Lake residential project, and was responsible for hiring subcontractors to build the houses. During the period when the houses were being built, Sheehan was insured by Continental Insurance Co. under a CGL policy that covered all damages the insured was legally obligated to pay because of “bodily injury” or “property damage” that were caused by an “occurrence” in the coverage territory. This policy excluded coverage for damages to the insured’s property and work that arose out of work performed on “your behalf by a subcontractor.” Sheehan was also insured by Somerville Construction, one of Sheehan’s subcontractors, under their CGL policy through Indiana Insurance Company.

In April 2000, Vincent B. Alig and his wife Mary Jean Alig purchased a home in Crystal Lake. A few years later, the Aligs experienced leaking windows, water damage, and other issues in their home and notified their homeowner insurance carrier, who later found that the problems resulted from faulty workmanship of Sheehan’s subcontractors. In November 2004, the Aligs filed suit against Sheehan alleging violation of Indiana Code sections 32-27-3-1 to 14 (concerning cause of action for construction defects). Later, more homeowners in the Crystal Lake subdivision joined and created a class-action suit. The class and Continental Insurance settled.   Continental filed for declaratory judgment claiming that Sheehan’s claims were not covered under the policy. Sheehan and the class filed a third-party complaint against Indiana Insurance and MJ Insurance, Sheehan’s insurance broker. The trial court granted summary judgment in favor of Continental, MJ, and Indiana Insurance. The Court of Appeals affirmed.

In Sheehan Construction Co., Inc., et al. v. Continental Casualty Co., et al., No. 49S02-1001-CV-32, Justices Robert Rucker, Brent Dickson, and Theodore Boehm held that CGL policies can cover an insured’s liability for a subcontractor’s faulty workmanship. The issue the Court grappled with was whether faulty workmanship is an “accident” within a standard CGL policy’s definition of an “occurrence.” The majority determined that faulty workmanship is an accident if the damage is the result of an unexpected or unforeseeable event. The Court defined an “accident” as an unexpected happening without intention or design. Implicit in this definition is a lack of intent. If the faulty workmanship was the product of unintentional conduct, then the resulting damage would be unforeseeable and would be an accident within the CGL policy’s definition of an “occurrence.” This analysis is fact specific and should be determined on a case-by-case basis. In this case, the trial court did not conclude on the issue of whether the faulty workmanship was intentional or unintentional and the trial court’s judgment was reversed and remanded for further proceedings.

Dissent:

Chief Justice Shepard: This opinion leads Indiana to the wrong result because CGL policies are not designed or priced to cover any demand an insured may face. Oral argument suggested that an insurance product that covers an insured’s faulty work may not even exist. Therefore, CGL policies should not cover faulty subcontractor work as an accident within standard coverage of a CGL policy’s definition of an “occurrence.”  

Justice Sullivan: An “occurrence” under a CGL policy is an accidental damage caused by an insured or an insured’s subcontractors, to property owned by third-parties, but not the costs of repairing work performed. Instead, a party who wishes to insure against damages from faulty workmanship should obtain protection from a performance bond.

In May 2003, attorney Kenneth E. Lauter was retained by a client to pursue an employment discrimination claim. The client signed a written “Attorney Services Contract” agreeing to a contingency fee based on the amount recovered. On the bottom margin of a page in the contract there was a hand written “additional retainer fee.” It stated that after the attorney completed his “due diligence,” if the client and attorney agreed to file litigation in federal court, that the client would pay an additional retainer fee. The client initialed the additional retainer fee provision and paid an initial engagement fee of $750.00. The attorney filed the claim with the Equal Employment Opportunity Commission (EEOC), which issued a finding of no probable cause in December 2003. The attorney then received the details of the investigation by filing a Freedom of Information Act (FOIA) request in February 2004. The attorney referred to this as his “due diligence.” The next day, he called the client to discuss pursuing the case in federal court. At this time the attorney reminded his client that there would be an additional cost of $4250.00. This was the first time that the client knew the exact amount of the “additional” retainer fee. The client agreed; however, this was never reduced to writing, nor did the attorney recommend that the client seek independent counsel. Three days later the client wrote a check for the additional retainer fee. In March 2006, the client’s claim was successfully settled for $75,000.00. 

Disciplinary proceedings were later brought against the attorney. A hearing officer concluded that the attorney did not violate the Indiana Professional Conduct (IPC) Rules 1.5(b), 1.5(c), or 1.8(a). The Supreme Court Disciplinary Commission sought review.

In the Matter of Kenneth E. Lauter, Case No. 55S00-0906-DI-267, the Supreme Court held that: (1) the attorney’s fee agreement violated the IPC rules, and (2) that public reprimand was warranted. The Court stated that attorneys need to clearly disclose the fee in writing after completing their due diligence, with the consent of the client. Because the attorney did not indicate to the client what the additional retainer would be or how it would be determined, he violated IPC Rules 1.5(b) and 1.5(c). 

An attorney is required to communicate the fee basis by placing the fee agreement in writing and having it signed by the client. It also needs to state the method by which the fee is to be determined and, at a minimum, should give the client an idea of the client’s possible exposure by disclosing a range with an upper limit. This way a client has the ability to “attorney shop” if they determine the fee is too high. The purpose of this is to protect the lay client who is unfamiliar with legalese and industry standards. 

When the additional retainer fee is undetermined, the attorney will have the burden of fair dealing and allotment of risk because an attorney has a more sophisticated understanding of fee agreements. The Court declined to find the attorney violated Rule 1.8(a) because the attorney violated rule 1.5(b) from the outset. Therefore, the attorney committed professional misconduct and the Court imposed a public reprimand.

Dissent by Justices Dickson & Rucker: The Supreme Court Disciplinary Commission did not prove a charged violation by clear and convincing evidence. Therefore, the hearing officer correctly found no violation in recommending a finding in favor of Lauter.

            Lost Creek is a not-for-profit organization that has been operating a shooting range since 1934 in a rural area of Vigo County, Indiana. Shooting activities at Lost Creek’s shooting range increased after September 11, 2001, because members of Vigo County’s law enforcement began using their range. On July 17, 2007, the homeowners who lived near Lost Creek filed a complaint for injunctive relief seeking to abate the nuisance of the shooting range. 

            In Phyllis Woodsmall, et al. v. Lost Creek Township Conservation Club, Inc., Case No. 84A01-1001-PL-33, the trial court refused to enjoin Lost Creek because the homeowners failed to establish their burden of proof. Accordingly, the homeowners appealed, from a negative judgment, and the case was reviewed by the Indiana Court of Appeals under the clearly erroneous standard. To prevail under this standard, the homeowners had to establish that the conclusion reached by the trial court was contrary to the law.

            In Indiana, the statute defines an actionable nuisance as: “Whatever is (1) injurious to health; (2) indecent; (3) offensive to the senses; or (4) an obstruction to the free use of property; so as essentially to interfere with the comfortable enjoyment of life or property [.]” IC § 32-30-6-6. The homeowners’ statutory nuisance complaint concerned the legal use of land that affected a finite number of people. Thus, they alleged a private, per accidens nuisance against Lost Creek.

In February 2000, Commercial Coin entered into a ten-year written real estate lease agreement with an owner of an apartment complex. However, the lease agreement was never recorded. In 2005, Park P purchased the apartment complex where Commercial Coin’s coin-operated laundry machines had been previously installed pursuant to the lease agreement. Since the installation of its laundry machines, Commercial Coin has had signs on the laundry room walls and labels on each machine displaying that the machines were owned and operated by Commercial Coin pursuant to a written lease agreement. After Park P’s purchase, Commercial Coin continued to maintain the facilities. 

In 2008, Park P filed a complaint to quiet title and sought declaratory judgment alleging that the lease agreement was void because it was never recorded as required by Indiana statute. Trial court granted summary judgment in favor of Park P and held that there was not a genuine issue of material fact because the lease agreement was not properly filed. Commercial Coin appealed.

In Crown Coin Meter Company, et al. v. Park P, LLC, Case No. 34D04-0802-PL-229, the issue was whether Park P was a bona fide purchaser, and therefore, bought the apartment complex without notice of Commercial Coin’s lease agreement with the previous owner. To qualify as a bonafide purchaser in Indiana, one has to purchase in good faith, for valuable consideration, and without notice of the outstanding rights of others. If Park P did not have notice, the agreement would be void as a matter of law. In Indiana, a lease in excess of three-years that is not recorded is void against a bona fide purchaser.