Rose v. Mercantile National Bank of Hammond

Decision Date31 March 2006
Docket NumberNo. 56A03-0405-CV-235.,56A03-0405-CV-235.
PartiesJames ROSE and Robert Underwood, Appellants-Defendants, v. MERCANTILE NATIONAL BANK OF HAMMOND, J.R. Construction Co., and Joseph Ramacci, Appellees-Plaintiffs.
CourtIndiana Appellate Court

Kathryn D. Schmidt, Burke Costanza & Cuppy LLP, Merrillville, for Appellants.

Michael L. Muenich, Highland, for Appellees.


MAY, Judge.

James Rose and Robert Underwood appeal the trial court's judgment in favor of Mercantile National Bank of Hammond, as Trustee under Trust Agreement dated June 25, 1975, known as Trust No. 3346, J.R. Construction Co., and Joseph Ramacci (collectively, "Mercantile"). Rose and Underwood raise seven issues, which we consolidate and restate as:

1. Whether the trial court erred in denying Rose and Underwood's motion for change of venue from the judge;

2. Whether the trial court erred in allowing Mercantile to amend the complaint to add a count for treble damages;

3. Whether the trial court erred by denying Rose and Underwood a jury trial on the issue of treble damages;

4. Whether the trial court erred in finding Rose and Underwood violated the Uniform Fraudulent Transfer Act; 5. Whether the trial court erred by awarding treble damages and attorneys fees pursuant to Ind.Code § 34-24-3-1; and

6. Whether the trial court's award of attorney fees was an abuse of discretion.

We affirm in part, reverse in part, and remand with an instruction.


Jasper Newton Utility, Inc. ("Jasper") was a sub-chapter S corporation with fifty percent of its common stock owned by Rose and fifty percent owned by Underwood. In 1978, Jasper entered into an agreement with Mercantile whereby Jasper agreed to provide sewage disposal for a development owned by Mercantile, including service to a 4,000 square foot addition planned by Mercantile. Originally, Mercantile planned two retail stores for the addition. In 1995, however, Mercantile entered into an agreement to lease the entire addition as a restaurant.

On August 18, 1995, Mercantile requested sewer connections for the restaurant. Jasper denied the application for sewer service because the capacity requirement for the restaurant exceeded Jasper's capacity. On December 1, 1995, Mercantile filed a complaint against Jasper for mandate, damages, and specific performance under the 1978 agreement. The trial court conducted a bench trial on May 21, 1999, and took the matter under advisement.

On November 8, 2001, after numerous proceedings, the trial court heard oral argument on the parties' proposed findings of fact. On November 15, 2001, the trial court found in favor of Mercantile and entered a judgment against Jasper in the amount of $159,581.00. On December 17, 2001, Jasper filed a motion to correct error, which the trial court denied on December 20, 2001. On January 18, 2002, Jasper filed its Notice of Appeal. We affirmed the trial court's judgment in a memorandum decision on February 12, 2003. See Jasper Newton Utility Co. v. Mercantile Nat. Bank, 56A03-0203-CV-71, 783 N.E.2d 1282 (Ind.Ct.App. Feb. 12, 2003).

In the spring of 2000, while the original complaint against Jasper was pending, Darrin Yount contacted Rose regarding the acquisition of Jasper by Utilities, Inc. and its subsidiary, Water Services Company of Indiana, Inc. ("WSCI"). In May of 2000, Rose contacted Harry Zimmer of Utilities, Inc. and scheduled a meeting, presumably to discuss the sale of Jasper. In May or June of 2000, Yount and Zimmer inspected Jasper's facilities and reviewed its business records. Discussions between Rose and representatives of Utilities, Inc. continued through 2000. Rose provided Utilities, Inc. with various records and information regarding Jasper.

In the late fall and early winter of 2000, Jasper entered into negotiations with Carl Wenz of Utilities, Inc. regarding the sale of Jasper. On or about January 12, 2001, Rose executed an Asset Purchase Agreement on behalf of Jasper for the sale of Jasper's water and sewer utility assets for $470,000.00. Pursuant to the Asset Purchase Agreement, the closing would take place within thirty days of Indiana Utility Regulatory Commission ("IURC") approval of the sale.

In the summer of 2001, following published notice, the IURC conducted a public hearing regarding the sale of Jasper's assets. On November 20, 2001, the IURC approved the sale of Jasper's assets to WSCI.

On December 18, 2001, Jasper, and Rose and Underwood individually, executed an indemnity agreement in favor of WSCI. Pursuant to the indemnity agreement, Jasper Rose, and Underwood, jointly and severally, agreed to

protect, defend, indemnify and save harmless [WSCI] from and against all liabilities, obligations, claims, damages, penalties, causes of action, and other costs and expenses . . . imposed upon or incurred by or asserted against [WSCI] by reason of . . . [Mercantile's lawsuit]. . . .

(Appellants' App. at 299.)

Jasper and WSCI closed on the sale of Jasper's assets on December 18, 2001. Upon closing, WSCI paid Jasper approximately $470,000.00, which Rose deposited in Jasper's bank account at Kentland Bank. On December 20 or 21, 2001, Rose wrote two checks in the amount of $235,000.00 each against the funds in the Kentland Bank account. Rose made one check payable to Underwood and one check payable to himself. Rose and Underwood placed the funds in their respective personal accounts.

In March of 2002, Mercantile filed a motion for proceedings supplemental. On November 26, 2002, Mercantile filed a complaint for relief in aid of execution on judgment against Jasper as well as against Utilities, Inc., WSCI, Rose, and Underwood, as supplemental defendants. Mercantile sought to void the transfer of Jasper's assets to Utilities, Inc. and WSCI and to recover the $470,000.00 transferred from Jasper to Rose and Underwood pursuant to the Uniform Fraudulent Transfer Act, Ind.Code ch. 32-18-2.

In its complaint, Mercantile asserted that it was a creditor of Jasper pursuant to Ind.Code § 32-18-2-4, which provides "creditor means a person who has a claim." Mercantile claimed Jasper transferred its assets to WSCI and such transfer was fraudulent pursuant to Ind.Code § 32-18-2-14(1).1 Mercantile further asserted Jasper's transfer to Rose and Underwood of the proceeds from the sale of Jasper's assets was fraudulent pursuant to Ind. Code § 32-18-2-14(1), Ind.Code § 32-18-2-14(2),2 and Ind.Code § 32-18-2-15.3 In its count against Rose and Underwood, Mercantile requested relief pursuant to Ind.Code § 32-18-2-174 and Ind.Code § 32-18-2-18.5

Rose and Underwood moved for change of venue from the judge on December 17, 2002. The trial court denied the motion on December 30, 2002.

On January 17, 2003, Utilities, Inc. and WSCI filed a motion for summary judgment. On February 11, 2003, Rose and Underwood filed their answer to Mercantile's complaint but did not demand a trial by jury. On February 13, 2003, Mercantile filed a motion for summary judgment and response in opposition to Utilities, Inc. and WSCI's motion for summary judgment.

On February 14, 2003, Mercantile filed a motion for leave to amend its complaint to add a third count based on the same facts alleged in the initial complaint. In Count III, Mercantile sought compensation under Ind.Code § 34-24-3-1,6 which permits a person who suffers a pecuniary loss as a result of certain property crimes to seek treble damages and attorney fees. Mercantile alleged the defendants violated Ind. Code § 35-43-5-4, which defines criminal fraud.

On March 28, 2003, Jasper, Rose, and Underwood filed a response in opposition to Mercantile's motion for summary judgment. On April 7, 2003, Mercantile filed a reply in support of its motion for summary judgment, in which it contended it was "entitled to treble damages, costs, attorneys' fees, travel and other expenses, pursuant to Ind.Code § 34-24-3-1," (Appellants' App. at 110), as alleged in the third count of Mercantile's amended complaint.

On July 8, 2003, the trial court held a hearing on the motions for summary judgment. At that hearing, the court neither addressed nor heard argument on Mercantile's motion to amend the complaint because Rose and Underwood had not objected orally or by written motion in the four and a half months since Mercantile had filed the motion to amend. Furthermore, Rose and Underwood did not object at the hearing to Mercantile's argument regarding the treble damages claim asserted in the amended complaint.7

On July 23, 2003, Rose and Underwood tendered $181,300.00 to the Clerk of the Court.8

On July 24, 2003, the trial court entered findings of fact and conclusions of law in an order granting summary judgment to Mercantile. The court concluded:

8. As a matter of law, the payment of the sales proceeds to Rose and Underwood without a corresponding transfer of equivalent value from them, was a fraudulent transfer under Ind.Code § 32-18-2-14(2), which does not require a showing of fraudulent intent. A fraudulent transfer is conclusively established because the transfer was made without giving [Jasper] "a reasonably equivalent value in exchange for the transfer" and [Jasper]: (A) was engaged in a business or a transaction for which the remaining assets of the debtor were unreasonably small in relation to the business or transaction; and (B) intended to incur or believed or reasonably should have believed that it would incur debts beyond its ability to pay as the debts became due. Ind.Code § 32-18-2-14 (2002).

9. Because the undisputed evidence establishes that all of [Jasper], Rose, and Underwood, knew that the sale of [Jasper]'s assets and distribution of sales proceeds was effected in a manner to evade [Jasper]'s obligation to Plaintiffs, and in violation of Indiana corporate law concerning the distribution of assets, there is no...

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