Rose v. Mercantile Nat. Bank of Hammond

• Decision Date: 20 June 2007
• Docket Number: No. 56S03-0608-CV-303.,56S03-0608-CV-303.
• Citation: 868 N.E.2d 772
• Parties: James ROSE and Robert Underwood, Appellants (Defendants below), v. MERCANTILE NATIONAL BANK OF HAMMOND, a corporation, as Trustee Under the Provisions of a Certain Trust Agreement dated the 25th day of June, 1975, known as Trust Number 3346; J.R. Construction Co.; and Joseph Ramacci, Appellees (Plaintiffs below).
• Court: Indiana Supreme Court

868 N.E.2d 772

James ROSE and Robert Underwood, Appellants (Defendants below), v. MERCANTILE NATIONAL BANK OF HAMMOND, a corporation, as Trustee Under the Provisions of a Certain Trust Agreement dated the 25th day of June, 1975, known as Trust Number 3346; J.R. Construction Co.; and Joseph Ramacci, Appellees (Plaintiffs below).

No. 56S03-0608-CV-303.

Supreme Court of Indiana.

June 20, 2007.

Kathryn D. Schmidt, Merrillville, IN, Attorney for Appellants.

Michael L. Muenich, Highland, IN, Attorney for Appellees.

On Petition to Transfer from the Indiana Court of Appeals, No. 56A03-0405-CV-235

SHEPARD, Chief Justice.

Judgment creditor pursued the two shareholders of the judgment debtor through a proceeding supplemental contending fraudulent transfer, then amended the complaint to bring a new tort claim, as well. The trial court allowed the amendment and granted summary judgment to the creditor, awarding attorneys' fees and treble damages far in excess of the original judgment. Proceedings supplemental are only for collecting existing judgments, not for seeking new ones, so we reverse the trial court's grant of leave to amend the complaint.

Facts and Procedural History

Appellees Mercantile National Bank of Hammond, J.R. Construction Co., and Joseph Ramacci (collectively "Mercantile") sued Jasper-Newton Utility Company, Inc. in 1995 based on an agreement to provide water and sewer services. Jasper-Newton is a subchapter S corporation owned in equal shares by appellants James Rose and Robert Underwood. Jasper-Newton successfully moved for a change of judge in 1996 and the court held a bench trial in May 1999. On November 15, 2001, the trial court entered judgment against Jasper-Newton for $159,581. Jasper-Newton appealed, and the Court of Appeals affirmed. Jasper Newton Util. Co., Inc. v. Mercantile Nat'l Bank of Hammond, No. 56A03-0203-CV-71, 783 N.E.2d 1282, slip op. (Ind.Ct.App. Feb. 12, 2003).

Meanwhile, in the spring of 2000, an agent for Utilities, Inc. ("Utilities") contacted Rose about the possibility of acquiring Jasper-Newton. Later that fall, Jasper-Newton and Utilities began negotiating a sale, and on January 12, 2001, Rose executed an agreement for the sale of Jasper-Newton's assets to Utilities for $475,000. Utilities transferred its rights and obligations under the agreement to Water Services Company of Indiana, Inc. ("WSCI"), a wholly owned subsidiary of Utilities.

Jasper-Newton and WSCI closed the sale on December 18, 2001, after necessary approval from the Indiana Utility Regulatory Commission; Jasper-Newton, Rose, and Underwood indemnified WSCI for all claims asserted in Mercantile's complaint. Acting on behalf of Jasper-Newton, Rose deposited the $475,000 sale proceeds into Jasper-Newton's bank account and, within three days, issued checks to Underwood and himself for $237,500.

Mercantile moved for proceedings supplemental on March 15, 2002. After Mercantile's motion to show cause, the court found Jasper-Newton in contempt for failing to comply with the November 15, 2001, judgment and awarded fees and costs of $6,324.85 to Mercantile.

On November 26, 2002, Mercantile filed fraudulent transfer claims against Jasper-Newton, Utilities, WSCI, Rose, and Underwood and sought attorneys' fees under Ind.Code § 34-52-1-1. It asserted that cash and assets had been transferred out of Jasper-Newton to avoid paying the judgment. Rose and Underwood moved for a change of judge, which the trial court denied. See Ind. Trial Rule 76(B).

WSCI moved for summary judgment on January 17, 2003. Rose and Underwood filed their answer to Mercantile's complaint on February 11, 2003. Two days later, Mercantile moved for summary judgment, and simultaneously moved for leave to amend its complaint to add a third claim for treble damages and attorneys' fees under the Crime Victims' Compensation Act ("CVCA"). Jasper-Newton, Rose, and Underwood responded to Mercantile's summary judgment motion on March 28, 2003, but did not address the motion to amend the complaint.

The trial court conducted a summary judgment hearing on July 8, 2003, without ruling on Mercantile's motion to amend the complaint. On July 23, 2003, Rose and Underwood tendered $181,300 to the clerk of court. The following day, the trial court granted summary judgment to Mercantile and denied it to WSCI.¹ The court calculated damages of $180,811.83, representing the original judgment amount plus statutory interest.

On August 11, 2003, Rose and Underwood filed an objection to Mercantile's motion to amend the complaint and requested a hearing. Jasper-Newton, Rose, and Underwood filed their answer to the amended complaint on November 7, 2003, and demanded a jury trial. On November 26, 2003, the court granted Mercantile's motion to amend the complaint nunc pro tunc, dating the order March 28, 2003. Mercantile moved to strike Rose and Underwood's jury trial demand, but the court ordered a bench trial for the fraudulent transfer claims and tentatively set the CVCA claim for a later jury trial.

On March 24, 2004, when the bench trial was set to take place, the court ruled that Rose and Underwood were not entitled to a jury and proceeded to hear evidence on Mercantile's claims, including the CVCA claim. The court entered judgment for Mercantile and awarded treble damages of $542,435.49 and attorneys' fees of $162,730. (Appellants' App. at 34-35.)

Rose and Underwood challenged several of the trial court's rulings on appeal: the denial of change of judge, the grant of leave to Mercantile to add the CVCA claim, the denial of a jury trial on the CVCA claim, the finding of a fraudulent transfer, and the award of treble damages and attorneys' fees under the CVCA. The Court of Appeals affirmed in part, reversing only the attorneys' fees award, which it held to be unreasonable, and remanding for a new calculation. Rose v. Mercantile Nat'l Bank of Hammond, 844 N.E.2d 1035 (Ind.Ct.App.2006), vacated. We granted transfer.

Proceedings Supplemental Are for Enforcing Existing Judgments

Given the contorted procedural history of this case and the evident confusion about the rules in proceedings supplemental, we find it necessary first to touch on the law in this area.

A. Proceedings Supplemental Generally. Judgment creditors in Indiana have long relied on proceedings supplemental to execution to help enforce judgments. See Charles Levin, An Outline of Proceedings Supplementary, 14 Ind. L.J. 353 (1938); see also Toledo, Wabash and W. Ry. Co. v. Howes, 68 Ind. 458 (1879). With roots in equity, a proceeding supplemental offers the judgment creditor judicial resources "for discovering assets, reaching equitable and other interest[s] not subject to levy and sale at law and to set aside fraudulent conveyances." McCarthy v. McCarthy, 156 Ind.App. 416, 420-21, 297 N.E.2d 441, 444 (1973) (citation omitted).

Proceedings supplemental are generally governed by Trial Rule 69(E). A plaintiff may move for a proceeding supplemental in the court where judgment has been rendered by alleging that the plaintiff's judgment will not be satisfied and that the defendant or another party has property that ought to be applied toward the judgment. Ind. Trial Rule 69(E). And while Trial Rule 69(E) declares "[n]o further pleadings shall be required," our caselaw teaches that "when a new issue arises in a proceeding supplemental, responsive pleadings are required." Am. Underwriters, Inc. v. Curtis, 427 N.E.2d 438, 443 (Ind.1981). Nonetheless, even when no new issue arises, a responsive pleading is still permitted. Id. The court must then allow discovery and conduct a hearing, after which certain property shall be "applied towards the judgment." Ind. Trial Rule 69(E).

B. Changes of Venue in Proceedings Supplemental. In the days before the Indiana Rules of Trial Procedure, parties to the original suit could obtain a change of judge when a proceeding supplemental was filed. See Burkett v. Holeman, 104 Ind. 6, 3 N.E. 406 (1885). Modern practice has limited the availability of a change of judge to those defendants not party to the original action. See Arnold v. Dirrim, 398 N.E.2d 442 (Ind.Ct.App.1979). Moreover, third-party defendants must make a prompt motion upon learning of the trial date or else the right to change of venue will be waived. Id. at 450. "To hold otherwise would only encourage unnecessary delays occasioned by late filing of change of venue motions which have as one of their objects the postponement or avoidance of a trial." Id.

The approach demonstrated by the Court of Appeals in Arnold best merges the rationale for proceedings supplemental with the right to a change of venue. Since proceedings supplemental are merely the continuation of an original action, the original parties have already been afforded the chance to move the case to another court or judge. As the Arnold court apparently realized, the only parties who stand to have their rights substantially diminished are those defendants whose first encounter with the case occurs through proceedings supplemental. We thus affirm the rule that third-party defendants in proceedings supplemental may engage the change...