Scott County v. Vaughn
| Decision Date | 23 December 1998 |
| Docket Number | No. 72A05-9805-CV-271,72A05-9805-CV-271 |
| Citation | 704 N.E.2d 1029 |
| Parties | SCOTT COUNTY, Indiana, Appellant, v. James O. VAUGHN, et al., and State of Indiana, Appellees. |
| Court | Indiana Appellate Court |
Defendant-Appellant Scott County, Indiana (Scott County) appeals from the negative judgment in favor of Plaintiffs-Appellees James and Malinda Vaughn (The Vaughns). Defendant below, the State of Indiana, joins this appeal as an appellee. 1
We affirm.
Scott County raises two issues for our review which we re-state as:
1. Whether the State's use of a loan receipt agreement as a settlement tool is contrary to Article XI, Section 12 of the Indiana Constitution, which prohibits the State from loaning state funds to private individuals.
2. Whether the State's use of a loan receipt agreement in this case is contrary to public policy as it was used as a settlement tool to the detriment of a political subdivision of the State.
The accident underlying this appeal occurred on October 14, 1992, when Malinda Vaughn was traveling on County Road 150 South in Scott County. Tonya Vaughn, Malinda's daughter, was a passenger in the vehicle. Third party plaintiff below Ike and Cathy Routts' daughter, Jennifer Routt, was also a passenger in Malinda's vehicle. As Malinda approached the intersection of County Road 150 South and State Road 3, Malinda's vehicle entered the intersection and was struck by a northbound vehicle traveling on State Road 3. The Vaughns assert that Malinda was not able to see the intersection itself or the stop sign located at the intersection until she had crested the hill and was parallel to the stop sign. Upon impact, Jennifer Routt and Tonya Vaughn were thrown out of the rear window of Malinda's 1991 Chevrolet Blazer. Malinda Vaughn and Jennifer Routt were severely injured, and Tonya Vaughn was killed as a result of the accident.
On March 7, 1994, the Vaughns filed suit against the State of Indiana and Scott County alleging negligence against both defendants for failure to exercise reasonable care in the design, construction, and maintenance of the intersection. The State and Scott County filed separate answers to the Vaughns' complaint in April of 1994. The Routts were joined into the lawsuit as a necessary party in May of 1994, and the Routts subsequently filed their third party complaint for damages against the State and the County. In December of 1994, the County filed its motion for summary judgment against both plaintiffs arguing that it owed no duty to either plaintiff. Following a hearing, the trial court granted the County's motion.
In September of 1995, the decision of the trial court was reversed by this court in a memorandum decision. In our unpublished memorandum decision, we held that the State and the County had a simultaneous duty with respect to the safety of the intersection and the alleged inadequacy of the signage. Hence, we held that genuine issues of material fact existed with regard to whether breach of the duties proximately caused the injuries alleged. Vaughn/Routt v. State of Indiana/Scott County, No. 72A01-9506-CV-194 (Robertson, J., Sept. 27, 1995).
Following negotiations, the Routts and the Vaughns entered into loan receipt agreements with the State. Specifically, on October 20, 1995, the Routts entered into a loan receipt agreement whereby the State advanced the sum of $200,000.00 to the Routts, and on April 10, 1996, the Vaughns entered into a loan receipt agreement whereby the State advanced the sum of $400,00.00 to the Vaughns. Both agreements contained a provision providing for the repayment of the loan if the plaintiffs should collect money damages from any other entity, including Scott County.
On November 6, 1997, the County filed a motion to set aside the loan receipt agreements arguing that they were unconstitutional. The State intervened, and responses were filed. Following a hearing, the trial court denied the County's motion to set aside. The County petitioned to certify the issue for interlocutory appeal, which petition was granted by the trial court. We subsequently accepted jurisdiction on June 9, 1998. This appeal ensued.
The County contends that the trial court erred in denying its motion to set aside the loan receipt agreements, because they were entered into in violation of Article XI, Section 12 of the Indiana Constitution.
We first found reference to the "loan receipt" instrument in Klukas v. Yount, wherein this court in 1951 stated that "[a] loan receipt is an instrumentality which permits the insurer to pay an insured speedily and yet press in court to recoup its losses from the wrongdoer without the insurer appearing by name, thereby avoiding some of the consequences of subrogation." 121 Ind.App. 160, 98 N.E.2d 227, 229 (Ind.Ct.App.1951).
Loan receipt agreements or "partial settlement agreements," as they are sometimes referred to, were described by Judge Robertson in Burkett v. Crulo Trucking Co, Inc. as follows:
A loan receipt agreement, in its simplest form, provides that one with potential liability to a claimant will advance funds in the form of a non-interest loan to the claimant in order that the claim may be prosecuted against another who is also potentially liable for the claim. In return for the funds advanced, the claimant agrees that he will not sue or will not seek to enforce a judgment against the lender and will repay the loan according to some formula based upon the claimant's recovery against the other party. Such an agreement, then, serves to limit the liability of one against whom a claim might be pressed and, at the same time, gives the claimant an immediate 'bird in hand' instead of forcing him to await but possible recovery following protracted litigation.
171 Ind.App. 166, 355 N.E.2d 253, 258 (Ind.Ct.App.1976). The judicial policy of this State strongly favors the use of partial settlement agreements. Manns v. State, Dept. of Highways, 541 N.E.2d 929, 932 (Ind.1989).
The loan receipt agreement entered into between the State and the Vaughns provides in pertinent part as follows:
The State of Indiana will advance to Malinda Vaughn the sum of FOUR HUNDRED THOUSAND DOLLARS ($400,000.00), as a loan, without interest, repayable to the extent Malinda Vaughn ... collects money in damages from any other person, firm, organization or other entity, including Scott County, for the injuries sustained by her and/or her daughter as a direct and proximate result of the aforementioned collision.
Malinda Vaughn ... agrees to repay the full extent of the loan ($400,000.00) by forwarding to the State SEVENTY PERCENT (70%) of the entire amount collected from any other party, person, organization or entity, including, but not limited to, Scott County, LESS 30% attorney fees.
In no event shall the amount repaid to the State by Malinda Vaughn ... exceed FOUR HUNDRED THOUSAND DOLLARS ($400,000.00).
Malinda Vaughn ... will dismiss with prejudice her claims against the State of Indiana only, expressly reserving her right to proceed against Scott County ...
(R. 567-568).
Specifically, the County argues that the State has loaned public funds to private individuals in contravention of Article XI, Section 12 of the Indiana Constitution. Article XI, Section 12 of the Indiana Constitution states as follows:
The State shall not be a stockholder in any bank; nor shall the credit of the State ever be given, or loaned, in aid of any person, association or corporation; nor shall the State become a stockholder in any corporation or association.
Questions arising under the Indiana Constitution are to be resolved by "examining the language of the text in the context of the history surrounding its drafting and ratification, the purpose and structure of our constitution, and case law interpreting the specific provisions." Boehm v. Town of St. John, 675 N.E.2d 318, 321 (Ind.1996) (quoting Ind. Gaming Comm'n v. Moseley, 643 N.E.2d 296, 298 (Ind.1994)). In construing the constitution "a court should look to the history of the times, and examine the state of things existing when the constitution or any part thereof was framed and adopted, to ascertain the old law, the mischief, and the remedy." Boehm, 675 N.E.2d at 321 (quoting Bayh v. Sonnenburg, 573 N.E.2d 398, 412 (Ind.1991), cert. denied). It is well-settled that constitutions are to be liberally construed. State v. Nixon, 270 Ind. 192, 384 N.E.2d 152, 156 (Ind.1979). Constitutions are afforded liberal construction because the powers and restraints dealt with in constitutions are unlimited. Id. Constitutions are expected to operate over a long period of time. Id. The "pole-star in the construction of [the] constitutions is the intention of the makers and adopters." Id. at 157 (quoting United States v. Lefkowitz, 285 U.S. 452, 52 S.Ct. 420, 76 L.Ed. 877 (1932)).
Northern Indiana Bank and Trust Co. v. State Bd. of Finance of Indiana, involved an action for declaratory judgment regarding whether a statute permitting state and municipal corporations to deposit funds in deposit-type savings associations violated Article XI, § 12 of the Indiana Constitution. Ultimately, the supreme court held that the State had not become a stockholder in violation of Article XI, § 12 by reason of its deposit of public funds in savings associations which were not depositories under the Depository Act of 1937. 457 N.E.2d 527, 529 (Ind.1983). In so holding, the court reviewed the pertinent history surrounding the ratification of Article XI, § 12. Although the case dealt...
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