Prime Mortgage Usa, Inc. v. Nichols

Decision Date23 April 2008
Docket NumberNo. 49A04-0610-CV-586.,49A04-0610-CV-586.
Citation885 N.E.2d 628
PartiesPRIME MORTGAGE USA, INC., and David M. Law, Appellants-Defendants, v. Delie T. NICHOLS, Appellee-Plaintiff.
CourtIndiana Appellate Court

Mark J.R. Merkle, Anthony W. Mommer, Krieg DeVault LLP, Michael W. Hile, Bernard L. Pylitt, Ronald G. Sentman, Katz & Korin, PC, Indianapolis, IN, Attorneys for Appellants.

Linda L. Pence, Mary T. Doherty, Sommer Barnard PC, Indianapolis, IN, Attorneys for Appellee.


ROBB, Judge.

Case Summary

Prime Mortgage USA, Inc. ("Prime"), and David Law (referred to collectively as the "Defendants") appeal following the trial court's order of default judgments in favor of Delie Nichols as a penalty for the Defendants' discovery violations. The trial court held a hearing on damages, and awarded roughly eight million dollars to Nichols. In a subsequent proceedings supplemental, the trial court issued an order of garnishment on a life insurance policy held by Law.


1. Whether Nichols's claim under Indiana Code section 34-24-3-1 (the "Crime Victims Statute") is barred by the statute of limitations;

2. Whether the Defendants were entitled to a jury trial on the amount of damages under the Crime Victims Statute;

3. Whether the trial court abused its discretion in ordering default judgments as a sanction for discovery violations;

4. Whether the trial court's award of damages was proper and supported by the evidence;

5. Whether sufficient evidence existed to hold the Defendants liable under the Crime Victims Statute;

6. Whether the trial court's award of attorney's fees was improper;

7. Whether the trial court improperly determined that Nichols's unpaid compensation constituted "wages" under Indiana Code sections 22-2-5-1 and -2;

8. Whether Nichols's claims are barred by the doctrine of unclean hands; and

9. Whether the trial court's garnishment order was improper under either Indiana Code section 27-1-12-14(e) or Indiana Code section 27-1-12-17.1(f).

We affirm in most respects, but reverse the trial court's judgment against Prime on Nichols's claim for breach of fiduciary duty and the garnishment order and remand for further proceedings.

Facts and Procedural History

In 1990, Nichols, Law, and two other people formed Prime, which issued 200 shares of stock. After a few years, the other two people left the company, leaving Nichols and Law each in control of 100 shares of Prime stock. At some point, the business relationship between Nichols and Law deteriorated and Nichols informed Law that she wished to sell her stock in Prime. The parties failed to negotiate a buyout, and on May 31, 2001, Nichols filed a complaint seeking the appointment of a receiver and dissolution of Prime, alleging that she and Law were 50/50 shareholders in Prime, in which corporate deadlock existed, and seeking unpaid wages. In their response, the Defendants claimed that Nichols did not have a 50% interest in Prime, as Law had previously issued Prime stock to his daughter and another company employee. The Defendants further claimed that Nichols had authorized such a transaction pursuant to a Share Authorization Document (the "SA Document"), which they claimed Nichols had signed. On April 23, 2003, Nichols filed her amended complaint, adding a claim of breach of fiduciary duty and alleging that Law improperly induced Nichols to sign the SA Document. On April 7, 2005, the trial court granted Nichols permission to file her Third Amended Complaint, in which Nichols deleted the allegation that Law induced her to sign the SA Document and instead claimed that Law forged her signature on the SA Document. Nichols had discovered this forgery by comparing another corporate document, signed in 1993, in which she and Law had amended Prime's Articles of Incorporation (the "Written Consent"). The signature blocks on the Written Consent and the SA Document were identical, leading Nichols to believe that Law had affixed the signature block from the Written Consent and electronically pasted it onto the SA Document. Clarke Mercer, a forensic document analyst, testified that there was "no doubt" that the SA Document was a forgery. Transcript at 177.1 Nichols now sought treble damages pursuant to the Crime Victims Statute. The Defendants filed a motion for summary judgment on the Crime Victims Statute count, and the trial court denied this motion on October 14, 2005.

Unhappy with Law and Prime's responses to her discovery requests, Nichols also filed a motion for sanctions. On December 8, 2005, the trial court entered an order granting Nichols's motion for sanctions (the "Sanctions Order"), dismissing the Defendants' counterclaims, and granting default judgments against the Defendants on counts III (breach of fiduciary duty), VI (unpaid wages), and VII (forgery) of Nichols's complaint. The trial court based its Sanctions Order on the grounds that the Defendants produced the SA Document, which the trial court found to be forged, and their "contumacious disregard" of discovery obligations. On January 30, 2006, the trial court denied Law and Prime's motion to certify the Sanctions Order for interlocutory appeal on the issue of whether the Defendants were entitled to a jury trial on the amount of damages under the Crime Victims Statute.

On October 16, 2006, the trial court entered its judgment awarding Nichols $2,500,000 in compensatory damages for the value of her 50% ownership in Prime, trebled to $7,500,000; $6,330.02 in unpaid wages, trebled to $18,990.06; and $402,891.28 in attorney's fees. Prime and Law now appeal. More facts appear below.

Discussion and Decision2
I. Statute of Limitations

This court has previously held that because "the substance of a claim under [the Crime Victims Statute] is punitive rather than compensatory," such claims are subject to a two-year statute of limitations. Browning v. Walters, 616 N.E.2d 1040, 1046 (Ind.Ct.App.1993), adhered to in relevant part on reh'g, 620 N.E.2d 28; see also Clark v. Univ. of Evansville, 784 N.E.2d 942, 945-46 (Ind.Ct.App.2003). Nichols filed her Third Amended Complaint on April 6, 2005. She argues that because she did not discover the forgery until February 2005, she filed this complaint well within the statutory period. The Defendants argue that because Nichols knew she had sustained an injury because of the SA Document in 2001, her claim for forgery accrued at this point and had run well before she filed her Third Amended Complaint.3

A. Effect of Default Judgment

Initially, we must determine whether the Defendants may make this argument after the trial court entered a default judgment as a sanction. If we determine the Defendants may still argue this affirmative defense, we must determine when the cause of action accrued. Although research has disclosed no Indiana case directly addressing this point, a federal district court has held a party may not raise a statute of limitations defense after a trial court has entered a default judgment as a sanction. United States v. Veal, 365 F.Supp.2d 1034, 1038 (W.D.Mo.2004) ("[A]ny statute of limitations defense they might have asserted was waived when their pleadings were struck and a default judgment was entered.").

The trial court here did not strike the Defendants' answers and affirmative defenses, but ordered only that default judgments be entered against the Defendants on Nichols's claims and judgments of dismissal be entered against the Defendants on their counterclaims. Cf. Temora Trading Co., Ltd. v. Perry, 98 Nev. 229, 645 P.2d 436, 437-38 (1982) (where trial court ordered default judgment, appellate court examined defendant's statute of limitations argument based on facts as alleged in plaintiff's complaint, but declined to examine defenses of res judicata and collateral estoppel, as they were affirmative defenses, which were stricken by the trial court), cert. denied, 459 U.S. 1070, 103 S.Ct. 489, 74 L.Ed.2d 632 (1982).

Also, in this case, the Defendants filed a motion for summary judgment on the issue of whether Nichols's claim under the Crime Victims Statute was barred by the statute of limitations. The trial court denied this motion on October 14, 2005, before issuing the Sanctions Order. We believe this procedural posture is important, as the denial of a motion for summary judgment is not immediately appealable as of right, but may be appealed after the trial court issues its final judgment. Keith v. Mendus, 661 N.E.2d 26, 35 (Ind. Ct.App.1996), trans. denied. As the trial court denied the Defendants' motion for summary judgment prior to its issuance of a default judgment, we will address the issue of whether the trial court properly denied the motion.4

B. Standard of Review

Summary judgment is appropriate when the evidence shows that "there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." Ind. Trial Rule 56(C). The trial court's grant of a motion for summary judgment comes to us cloaked with a presumption of validity. Rodriguez v. Tech Credit Union Corp., 824 N.E.2d 442, 446 (Ind.Ct.App.2005). However, we review a trial court's grant of summary judgment de novo, construing all facts and making all reasonable inferences from the facts in favor of the non-moving party. Progressive Ins. Co. v. Bullock, 841 N.E.2d 238, 240 (Ind.Ct.App.2006), trans. denied. When the action accrued is a question of law, as "it is well-established in Indiana law that it is the courts' responsibility to determine, based on the facts of each case, when the cause of action accrues." Autocephalous Greek-Orthodox Church of Cyprus v. Goldberg and Feldman Fine Arts, Inc., 917 F.2d 278, 288 (7th Cir.1990).

C. When the Cause of Action Accrued

Actions under the Crime Victims Statute are subject to the discovery rule, under which "a cause of action accrues, and the statute of limitations begins to run, when the plaintiff knew or, in the exercise of ordinary diligence, could have discovered that an...

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