American Heritage Banco, Inc. v. McNaughton

• Decision Date: 24 January 2008
• Docket Number: No. 76A03-0706-CV-272.,76A03-0706-CV-272.
• Parties: AMERICAN HERITAGE BANCO, INC., Alan W. Sidel, and Sheila Schimmele, Appellants-Plaintiffs, v. Earl Ford McNAUGHTON, Pamela S. McNaughton, George McNaughton, Parkway Mission Industrial Accommodations LLC, MacNeachdain, Inc, Inveraray, Inc., Dunderade, Inc., Southern Indiana Historical Preservation, Inc, Batten Kill, Inc., Illmont Parked Properties, Inc., Anne M. Mounts, Ted W. Walter, Earlford Foy McNaughton, David G. Schimmele, Thomas L. Christlief, Neil L. Patterson, Harold A. Arndt, Carl Akers, Jr., William Roebel, James Penner, Freemont Plastics, Inc., Lyndon Tucker, John Pichon, Jr., and Richard Wells, Appellees-Defendants.
• Court: Indiana Appellate Court

879 N.E.2d 1110

AMERICAN HERITAGE BANCO, INC., Alan W. Sidel, and Sheila Schimmele, Appellants-Plaintiffs, v. Earl Ford McNAUGHTON, Pamela S. McNaughton, George McNaughton, Parkway Mission Industrial Accommodations LLC, MacNeachdain, Inc, Inveraray, Inc., Dunderade, Inc., Southern Indiana Historical Preservation, Inc, Batten Kill, Inc., Illmont Parked Properties, Inc., Anne M. Mounts, Ted W. Walter, Earlford Foy McNaughton, David G. Schimmele, Thomas L. Christlief, Neil L. Patterson, Harold A. Arndt, Carl Akers, Jr., William Roebel, James Penner, Freemont Plastics, Inc., Lyndon Tucker, John Pichon, Jr., and Richard Wells, Appellees-Defendants.

No. 76A03-0706-CV-272.

Court of Appeals of Indiana.

January 24, 2008.

Martin T. Fletcher, Sr., Daniel G. McNamara, David E. Bailey, Eilbacher Fletcher, LLP, Fort Wayne, IN, Attorneys for Appellants.

Debra H. Miller, James R. Fisher, Miller & Fisher, LLC, Indianapolis, IN, Attorneys for Appellees.

OPINION

ROBB, Judge.

Case Summary and Issue

American Heritage Banco, Inc., ("AHB") appeals the trial court's partial dismissal of its claims against Fremont Plastics, Inc., and Lyndon Tucker, contending the trial court erred in determining that AHB had failed to state a claim upon which relief could be granted. Concluding that the trial court properly dismissed AHB's claims for fraud and civil conspiracy to commit fraud, but improperly dismissed AHB's claim for treble damages, we affirm in part and reverse in part.

Facts and Procedural History

The First National Bank of Fremont ("FNBF") was a wholly owned subsidiary of AHB from 1995 to 2005, at which time FNBF sold substantially all of its assets and liabilities to a bank in LaGrange, Indiana, and merged with AHB. AHB is a closely held corporation for which Earl McNaughton is the majority shareholder. McNaughton was also the president, chairman of the board of directors, and chief executive officer of FNBF. In 1997, FNBF gave Fremont Plastics¹ a $100,000 revolving line of credit. Tucker is the president of Fremont Plastics.

On September 28, 2001, Fremont Plastics drew $100,000 on its line of credit. On that same date, Tucker signed a promissory note to FNBF for $75,020. The proceeds from the Fremont Plastics draw and the Tucker loan were used to purchase a $175,000 cashier's check from FNBF, signed by Thomas Christlieb, vice-president, senior lender, and director of FNBF, payable to another FNBF customer who had an outstanding loan with FNBF.

On December 4, 2001, David Schimmele, vice-president of FNBF, signed a FNBF cashier's check from FNBF payable to John Pichon in the amount of $405,578.19. Pichon purchased another cashier's check in the amount of $151,481.61 with the proceeds of the first cashier's check. The proceeds from the second cashier's check were used on December 7, 2001, to pay down Fremont Plastics's loan by $75,326.03, and to pay off the Tucker loan.

When new management took over FNBF, the series of loan transactions described above was reviewed² and it was determined that the loans FNBF had made to Fremont Plastics and Tucker could not properly have been paid with proceeds from later loans. Accordingly, the entries reflecting that the Fremont Plastics and Tucker loans had been paid were reversed and the loans were reinstated as unpaid obligations.

AHB filed its Second Amended Complaint on October 26, 2006. Count III of the complaint asserts claims against Fremont Plastics and Tucker, among others, for the transactions described above. Specifically, AHB alleged:

112. Each of the defendants named in this Count acted together in a concerted effort to defraud FNBF through their respective roles in the fraud and schemes detailed above. FNBF suffered damages as a result of this concerted and unlawful activity.

113. FNBF was a state or federally chartered or federally insured financial institution. Each of the defendants named in this Count knowingly executed multiple schemes to obtain money from FNBF through false pretenses by participating in the transactions described in this Second Amended Complaint. FNBF suffered pecuniary loss as a result of the execution, or attempted execution, of the schemes. Defendants are therefore guilty of defrauding a financial institution, in violation of Ind.Code § 35-43-5-8. FNBF is entitled to bring a civil action to recover treble damages, costs, and fees for such pecuniary loss pursuant to Ind.Code § 34-24-3-1.

114. Each of the defendants in this Count, at a minimum, misrepresented the purpose of the transactions described here, the true identity of the borrowers, and the source of repayment of the funds borrowed with intent to defraud. Each of the defendants named in this Count knowingly provided, endorsed, or supported false loan applications, supporting loan documentation, and payment information to allow for the funding of the loans. The defendants identified in this Count, knowingly and intentionally made false and misleading written statements with intent to obtain property, and misapplied entrusted property of a credit institution in a manner they knew was unlawful and involved substantial risk of loss or detriment to FNBF and AHB, which loss did occur. Such conduct constitutes criminal deception, in violation of Ind.Code § 35-43-5-3, and entitled FNBF to bring a civil action for treble damages pursuant to Ind.Code § 34-24-3-1.

115. Each of the defendants named in this Count knowingly and intentionally caused FNBF to suffer pecuniary loss through the deceptive and fraudulent scheme described above. Such conduct constitutes criminal mischief pursuant to Ind.Code § 35-43-1-2 and entitled FNBF to bring a civil action for treble damages pursuant to Ind.Code § 34-24-3-1.

116. Those defendants named in this Count who were FNBF officers breached their fiduciary duties to FNBF by their conduct as described here.

Appellant's Appendix at 66-67.

On November 21, 2006, Fremont Plastics and Tucker filed a motion to dismiss Count III of AHB's complaint, alleging that under the facts as pled, the fraud or deception required to show violation of one of the criminal statutes cannot exist because the actions "were induced by, and taken with express knowledge of, FNBF through Earl McNaughton, its president, chairman of the board of directors, and chief executive officer." Id. at 126. Fremont Plastics and Tucker contended that the knowledge of McNaughton and other corporate officers should be imputed to FNBF. See id. at 133-34. AHB filed a response, alleging not only that Count III states claims under the crime victims statute that withstand Trial Rule 12(B)(6) scrutiny, but also states a claim for unpaid promissory notes. Following a hearing, the trial court ordered, in part, that the motion to dismiss filed by Fremont Plastics and Tucker "shall be granted in part and denied in part. [AHB has] asserted enough factual allegations to justify proceeding further on [its] claim against Fremont Plastics, Inc. and Lyndon Tucker for unpaid promissory note or notes." Id. at 18. At Fremont Plastics and Tucker's request, pursuant to Trial Rule 54(B), the trial court entered an order expressly determining that there is no just reason for delay in the entry of final judgment and expressly directing that final judgment of dismissal be entered in favor of Fremont Plastics and Tucker on all claims under Indiana Code section 34-24-3-1 and all other claims, except the claim on an unpaid promissory note. See id. at 20. AHB now appeals.

Discussion and Decision

I. Standard of Review

In reviewing a motion to dismiss granted pursuant to Trial Rule 12(B)(6), our standard of review is well-settled:

A 12(B)(6) motion to dismiss for failure to state a claim upon which relief can be granted tests the legal sufficiency of a claim, not the facts supporting it. Therefore, we view the complaint in the light most favorable to the nonmoving party, drawing every reasonable inference in favor of that party. In reviewing a ruling on a motion to dismiss, we stand in the shoes of the trial court and must determine if the trial court erred in its application of the law. The trial court's grant of a motion to dismiss is proper if it is apparent that the facts alleged in the complaint are incapable of supporting relief under any set of circumstances. In determining whether any facts will support the claim, we look only to the complaint and may not resort to any other evidence in the record. Further, under notice pleading, a plaintiff need only plead the operative facts involved in the litigation.

Godby v. Whitehead, 837 N.E.2d 146, 149 (Ind.Ct.App.2006) (citations omitted), trans. denied. We review a trial court's grant of a Rule 12(B)(6) motion to dismiss de novo. First Nat. Bank & Trust v. Indianapolis Pub. Hous. Agency, 864 N.E.2d 340, 350 (Ind.Ct.App.2007).

II. Legal Sufficiency of AHB's Claims

A. Fraud and Conspiracy to Commit Fraud

AHB contends that Count III of its complaint states a claim for fraud and for civil conspiracy to commit fraud. We address the two together because civil conspiracy is not an independent cause of action.³ Winkler v. V.G. Reed & Sons, Inc., 638 N.E.2d 1228, 1234 (Ind.1994). The essential elements of common law fraud are: 1) a material representation of past or existing facts which 2) was false 3) was made with knowledge or reckless ignorance of its falsity 4) was made with intent to deceive 5) was rightfully relied upon by the complaining party and 6) proximately caused injury to the complaining party. Bilimoria Computer Sys., LLC v. America Online, Inc., 829 N.E.2d 150, 155 (Ind.Ct.App.2005). Actual fraud may not be based on representations of future conduct, on broken promises, or on representations of existing intent that are not executed. Wallem v. CLS Indus., Inc., 725 N.E.2d 880, 889 (Ind.Ct.App.2000).

AHB's complaint alleges that Fremont Plastics obtained a line of credit from FNBF with the stated purpose of operating expenses, that Fremont Plastics drew on the line...