Morris v. Bank One, Indiana, NA

• Decision Date: 29 May 2003
• Docket Number: No. 54A01-0204-CV-139.,54A01-0204-CV-139.
• Citation: 789 N.E.2d 68
• Parties: Debra L. MORRIS, Appellant-Defendant, v. BANK ONE, INDIANA, N.A., successor to Bank One, Crawfordsville National Association, Appellee-Plaintiff.
• Court: Indiana Appellate Court

789 N.E.2d 68

Debra L. MORRIS, Appellant-Defendant, v. BANK ONE, INDIANA, N.A., successor to Bank One, Crawfordsville National Association, Appellee-Plaintiff.

No. 54A01-0204-CV-139.

Court of Appeals of Indiana.

May 29, 2003.

James E. Ayers, Wernle, Ristine & Ayers, Crawfordsville, IN, Attorney for Appellant.

Julia Blackwell Gelinas, Alan S. Brown, Allison S. Avery, Locke Reynolds LLP, Indianapolis, IN, Attorneys for Appellee.

OPINION

MATTINGLY-MAY, Judge.

Debra Morris appeals a judgment against her¹ and in favor of Bank One on the bank's complaint on promissory notes, to foreclose mortgage, and for replevin. She asserts on appeal that the trial court improperly denied her request for a jury trial and improperly denied her husband Kenneth's motion for change of venue from the judge.

We affirm.²

FACTS

The Morrises bought land with the intention of developing it as a subdivision and they obtained from the bank a $370,000 business line of credit. Kenneth and Debra jointly executed the line of credit agreement and a promissory note. To secure the loan they jointly executed a mortgage to the bank on several lots in the subdivision. The note provides that "Any extension of new credit to any of us, or renewal of this note by all or less than all of us will not affect my duty to pay this note." (Supp.App. in Support of Br. of Appellee at 111) (hereinafter "Bank App.").

On May 25, 1994, in connection with a renewal of the note, Debra executed an unlimited and unconditional guaranty of all of Kenneth's existing and future obligations to the bank, which included a number of other notes. Kenneth and Debra defaulted on all the notes.

The bank brought its complaint on December 4, 1995 and amended it twice. Morris counterclaimed, asserting among other things that the bank fraudulently caused Morris to execute the guaranty; that the guaranty document itself was false and fraudulent; that Morris unknowingly signed it; that the bank unlawfully altered it after it was executed; that the bank constructively defrauded her by abusing its fiduciary relationship with Morris; and that the bank's fraudulent representations that subsequent loans would be available caused Kenneth's development business to fail. Kenneth's obligations on certain of the notes were discharged in bankruptcy but the discharge did not affect Morris' obligations on the notes as guarantor. Morris has since filed for bankruptcy.

DENIAL OF JURY TRIAL³

The bank's complaint was for repayment of a number of promissory notes, for possession of equipment that secured the notes, for foreclosure of mortgages that secured other notes, and other related relief. Morris asked for a jury trial. The bank moved to strike the jury demand on the ground that the underlying claims were equitable and Morris was therefore not entitled to a jury trial on her counterclaims. Its motion was granted.

A party is generally entitled to a jury trial on legal matters but not on equitable matters. See, e.g., Songer v. Civitas Bank, 771 N.E.2d 61 (Ind.2002)

. Where equity takes jurisdiction of the essential features of a cause it will determine the whole controversy even though there are incidental questions of a legal nature. Id. at 65. This rule is known as the equitable "cleanup doctrine."

Morris appears to argue this doctrine is no longer the law in Indiana. She asserts relatively recent decisions by this court applying that doctrine are in conflict with Ind. Trial Rule 38 and earlier decisions by our supreme court. Our supreme court recently addressed this question in Songer, a decision issued after Morris' brief was submitted but before her reply brief was submitted. The Songer decision indicated this court and our supreme court have on occasion applied the cleanup doctrine too broadly, but it leaves no doubt the doctrine is still with us.

Article I, section 20 of our state constitution preserves the right to a jury trial as it existed at common law, and a party is not entitled to a jury trial on equitable claims. Id. at 63. This is reflected in T.R. 38(A):

Issues of law and issues of fact in causes that prior to the eighteenth day of June, 1852, were of exclusive equitable jurisdiction shall be tried by the court; issues of fact in all other causes shall be triable as the same are now triable. In case of the joinder of causes of action or defenses which, prior to said date, were of exclusive equitable jurisdiction with causes of action or defenses which, prior to said date, were designated as actions at law and triable by jury—the former shall be triable by the court, and the latter by a jury, unless waived; the trial of both may be at the same time or at different times, as the court may direct.

Songer distilled Rule 38(A) into three principles. First, suits for which jurisdiction was exclusively equitable prior to June 18, 1852, are to be tried by the court. Second, issues of fact in all other suits are to be tried "as the same are now triable." Finally, when both equitable and legal causes of action or defenses are joined in a single case, the equitable causes of action or defenses are to be tried by the court while the legal causes of action or defenses are to be tried by a jury. 771 N.E.2d at 64.

T.R. 38 did not do away with the equitable "cleanup doctrine": "Where equity takes jurisdiction of the essential features of a cause, it will determine the whole controversy, though there may be incidental questions of a legal nature." Id. at 65 (quoting Field v. Brown, 146 Ind. 293, 295, 45 N.E. 464, 464 (1896)) (emphasis added by Songer). The Field statement did not, however, mean that numerous causes of action stated in various paragraphs of complaint may not be severed, and those of an equitable nature tried by the court, and those of a legal character tried by a jury.⁴ 771 N.E.2d at 66. The Songer court emphasized that the inclusion of an equitable claim does not by itself warrant drawing an entire case into equity. Something more than the mere presence of an equitable claim is necessary. Id. at 68.

Songer personally executed promissory notes in which he promised to pay Civitas approximately $500,000 plus interest. He also granted Civitas a mortgage on real property owned by his corporation. Songer made only one payment on the promissory notes and defaulted. Civitas' complaint listed two counts. In count one, Civitas sought to collect the principal on the notes, accrued interest, costs and attorneys' fees. In count two, it sought an order authorizing it to liquidate Songer's collateral, a determination of lien priority in the collateral if required, an extinguishment of rights of all parties claiming an interest in the collateral, and for other relief.

In his answer, Songer asserted six affirmative defenses: (1) lack of consideration, (2) conversion, (3) forgery, (4) estoppel, (5) fraud, and (6) lack of holder-in-due-course status. He requested a jury trial on the entire subject matter of Civitas' complaint, and the trial court denied the request.

The Songer court phrased the question as whether the essential features of the suit are equitable:

To determine if equity takes jurisdiction of the essential features of a suit, we evaluate the nature of the underlying substantive claim and look beyond both the label a party affixes to the action and the subsidiary issues that may arise within such claims. Courts must look to the substance and central character of the complaint, the rights and interests involved, and the relief demanded. In the appropriate case, the issues arising out of discovery may also be important.

Id. at 68.

Our supreme court noted the "vast weight of authority" holding foreclosure actions are essentially equitable. Id. And being essentially equitable, the whole of the claim is drawn into equity, including related legal claims and counterclaims.⁵ Id. The crux of Songer's argument was that Civitas' desire to foreclose the lien was only incidental to its primary goal of recovering a money judgment against Songer for the collection of the promissory notes. The court agreed that Civitas' core objective was to regain the funds it lent but noted

this was not through a money judgment. The purpose of count one was to establish the amount Civitas was entitled to collect out of the collateral it possessed, including interest and attorneys' fees.... It was not a judgment lien Civitas sought, but rather court authorization to liquidate the collateral it held.... At its heart, this was a suit to foreclose a lien on property.

Id. Songer was therefore not entitled to a jury trial.

The Songer reasoning dictates the same result in the case before us. Morris, like Songer, asserted legal defenses of fraud and forgery to the equitable action for foreclosure. The bank's "core objective," like that of Civitas, was "to regain the funds it lent" and the promissory notes to the bank were secured by the mortgage on the lots in the subdivision the Morrises were developing.

Morris points to Hartlep v. Murphy, 197 Ind. 222, 150 N.E. 312 (1926) as a decision that preserved the right to jury trial in a "similar situation ... where a surety denied the execution of a surety agreement in a counterclaim." (Br. of the Appellant at 10-11.) There, the surety denied executing the notes sued upon and asked for a jury trial. The trial court denied the request.

Our supreme court reversed, noting that while the case involved a mortgage the plaintiff sought to foreclose,

"The mortgage sought to be foreclosed did not purport to have been signed by appellant, nor did the complaint or cross-complaint charge him with having executed it ... whatever right, in equity, these facts might give the creditors to foreclose as against the land, they could give no right to recover anything from the appellant. Plaintiffs' right of action to recover a personal judgment against him depended wholly upon the alleged fact that appellant was indebted to plaintiff by reason of having executed the notes

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