Keybank Nat. Ass'n v. Shipley

• Decision Date: 26 April 2006
• Docket Number: No. 02A03-0509-CV-440.,02A03-0509-CV-440.
• Citation: 846 N.E.2d 290
• Parties: KEYBANK NATIONAL ASSOCIATION, Appellant-Plaintiff, v. Grant F. SHIPLEY, Appellee-Defendant.
• Court: Indiana Appellate Court

846 N.E.2d 290

KEYBANK NATIONAL ASSOCIATION, Appellant-Plaintiff, v. Grant F. SHIPLEY, Appellee-Defendant.

No. 02A03-0509-CV-440.

Court of Appeals of Indiana.

April 26, 2006.

Steven L. Blakely, Acton & Snyder, LLP, Danville, for Appellant.

Cathleen M. Shrader, Barrett & McNagny, LLP, Fort Wayne, for Appellee.

OPINION

VAIDIK, Judge.

Case Summary

KeyBank National Association ("KeyBank") appeals the trial court's grant of summary judgment in favor of attorney Grant Shipley on its negligence claim. Specifically, KeyBank contends that Shipley, who was the attorney for a receiver, owed a duty to KeyBank, a creditor of the receivership. Although a receiver owes a duty to a creditor, Indiana courts have not yet addressed whether an attorney for a receiver owes a duty to a creditor. After analyzing our case law, the law of other states, and various public policies, we conclude that a receiver's attorney does not owe a duty to a creditor and therefore cannot be held liable for negligence. Instead, the creditor's remedy is to sue the receiver, which in turn can sue its attorney for malpractice. We therefore affirm the trial court.¹

Facts and Procedural History

This is the fourth appeal stemming from the receivership of Friction Material Company, Inc. ("FMCI"). The lengthy and complicated facts that underlie this appeal were set forth by this Court in KeyBank National Ass'n v. Michael, 737 N.E.2d 834 (Ind.Ct.App.2000) (KeyBank I), and we now summarize those facts here.

FMCI, a Delaware corporation with its operations in Huntington, Indiana, defaulted on a loan made by KeyBank. KeyBank had a first priority lien on most of FMCI's assets, including inventory, accounts receivable, equipment, and real estate. As a result of FMCI's default, KeyBank demanded immediate repayment of the outstanding balance of the loan ($891,776.08) plus interest and collection expenses. KeyBank then instituted proceedings in the Huntington Circuit Court requesting foreclosure of FMCI and the appointment of a receiver pursuant to Indiana Code § 34-38-1-1. The trial court scheduled a hearing for November 4, 1999.

On November 3, 1999, New Friction Material Company, Inc. ("New Friction"), as the purported successor by merger to FMCI, filed a petition for voluntary dissolution and appointment of a receiver pursuant to Indiana Code § 23-1-47-1. Also on November 3, the trial court held a hearing on the dissolution of New Friction without notice to KeyBank. New Friction had been incorporated "for the sole purpose of transferring FMCI's assets, in which KeyBank had security interests, to New Friction, [an] Indiana corporation, in order to voluntarily dissolve the corporation under the laws of Indiana." KeyBank I, 737 N.E.2d at 845. New Friction's articles of dissolution asserted that it was incorporated on November 2, 1999.

On November 3, 1999, the trial court granted New Friction's petition for dissolution, and the corporation was dissolved effective as of that date. The court concluded that New Friction's business and affairs should be wound up and liquidated in accordance with the relevant statutory provisions. The court also consolidated KeyBank's action with the action commenced by New Friction. A hearing was held on November 10, 1999, and two days later, the trial court ordered the appointment of a receiver pursuant to New Friction's request. The court appointed Stephen J. Michael as receiver, and Michael posted bond in the amount of $900,000.00. The court later granted Michael's application to employ Grant Shipley as attorney for the receiver. Shipley had appeared for New Friction and FMCI at various stages of the proceedings. KeyBank, which was not consulted and did not approve of Shipley's appointment, petitioned the court to disqualify Shipley on grounds of conflict of interest. The court denied the motion.

In December 1999, the receiver filed a motion for leave to obtain secured credit, to grant a security interest in collateral, and to subordinate KeyBank's previous secured claims in favor of a new lender. In response, KeyBank: (1) challenged the validity of the merger between FMCI and New Friction; (2) argued that the trial court erred by denying KeyBank's petition for a receiver and by granting New Friction's petition for a receiver; (3) objected to the subordination of its claims; (4) petitioned the trial court to disqualify Shipley as counsel for the receiver on grounds of conflict of interest; and (5) challenged the payment of attorney fees and expenses to Shipley from the receivership estate. Thereafter, the trial court entered an order, which provided that: (1) there was a valid merger between FMCI and New Friction; (2) KeyBank was judicially estopped from challenging the appointment; (3) the receiver was allowed to obtain secured credit in an amount not to exceed $350,000.00 and to subordinate KeyBank's prior security interest; (4) there was no conflict of interest in Shipley's role as counsel for the receiver of New Friction; and (5) the receiver's application of payment for fees and expenses to Shipley was granted.

KeyBank sought an interlocutory appeal of the Huntington Circuit Court's order. On appeal, we held that the merger between FMCI and New Friction was not valid because New Friction had dissolved by the time the merger occurred² and that the trial court abused its discretion by granting New Friction's petition for a receiver pursuant to Indiana Code § 23-1-47-1 and by failing to grant KeyBank's petition for a receiver pursuant to Indiana Code § 34-48-1-1. Id. at 845-847. We also held that the trial court erred by allowing the receiver to subordinate KeyBank's security interest in favor of a new lender without KeyBank's consent. Id. at 849-851. We concluded that Shipley, who had served as counsel for both FMCI and New Friction, had an inherent conflict in properly serving the interests of KeyBank on behalf of the receiver and was disqualified to serve as such. Id. at 851-53. Finally, we held that because Shipley was not qualified to serve as counsel for the receiver, he was without authority to act; therefore, we reversed the court's order granting payment of fees and expenses to Shipley and remanded the case for further proceedings consistent with our opinion. Id. at 853-54.

Pursuant to KeyBank I, the Huntington Circuit Court terminated the New Friction receivership in November 2000. Thereafter, the trial court appointed a receiver for FMCI.

The second appeal commenced when KeyBank filed a "Verified Petition for Writ in Aid of Appellate Jurisdiction and/or Writ of Mandate" in this Court. The facts underlying this petition are as follows. In August 2001, Shipley filed a "Motion to Correct Chronological Case Summary and Other Parts of the Record, Trial Rule 60(A)" in the Huntington Circuit Court. KeyBank Nat'l Ass'n v. Michael, 770 N.E.2d 369, 373 (Ind.Ct.App.2002), trans. denied ("KeyBank II"). In that motion, Shipley acknowledged that he was formerly counsel for New Friction and the receiver and that he was "alleged" to be an attorney for FMCI. Id. He asked the trial court to correct its records to reflect that he had not acted as an attorney in any proceedings for FMCI. KeyBank opposed the motion,³ but the trial court granted it. KeyBank then requested the trial court to certify its order for interlocutory appeal under Indiana Appellate Rule 14(B), but the trial court denied its request.

KeyBank then filed its petition for writ. On appeal, we held that the error Shipley sought to correct was one of substance and therefore not a proper subject of an Indiana Trial Rule 60(A) motion. Id. at 375. We also held that pursuant to the doctrine of res judicata, the trial court could not revisit the issue upon remand. Id. at 376. As such, we concluded that the trial court "acted contrary to our ruling on the merits of a contested issue" and granted KeyBank's motion to issue to the trial court a Writ in Aid of Appellate Jurisdiction with instructions to deny Shipley's motion to correct the CCS and to conduct future proceedings in a manner consistent with our appellate decisions. Id.

In November 2001, KeyBank filed a two-count complaint (which was amended in October 2002) against Shipley in Allen Superior Court. Count I alleged a claim of negligence, and Count II alleged a claim of conversion. Regarding the negligence claim, KeyBank alleged that Shipley owed a duty to KeyBank — as a known, secured creditor of the receivership estate — to act in an impartial and unbiased manner and to protect and preserve the assets of the receivership estate, including KeyBank's collateral.⁴ As for the conversion claim, KeyBank alleged that Shipley had been paid over $70,000.00 in attorney fees and expenses from the receivership estate that he refused to return in violation of this Court's opinion in KeyBank I. In January 2003, Shipley filed a motion for summary judgment on several issues. A hearing was held on July 8, 2003. At the hearing, the trial court orally ruled on some of the issues and took the remainder of the issues under advisement. Specifically, one of the trial court's oral rulings concerned the repayment of attorney fees and return of them to the Huntington Circuit Court, and the trial court took under advisement whether Shipley owed a duty to KeyBank.

After no further ruling was received from the trial court, in September 2003 Shipley filed an Indiana Trial Rule 53.1 motion to withdraw submission of the case from the trial court. The trial court then issued a written summary judgment order, backdated to July 8, 2003, memorializing its earlier oral rulings. Thereafter, the Indiana Supreme Court appointed a special judge, and the special judge ultimately determined that the trial court's written summary judgment order was a proper nunc pro tunc order. Shipley sought an interlocutory appeal.

On appeal, Shipley first argued that the trial court erred in granting his motion for summary judgment on the issue of...