In Indiana, Is “Piercing The Corporate Veil” An Independent Cause Of Action?

[Personal and professional commitments have prevented me from posting this past month. Rest assured that I and my beloved blog are alive and well. I wish you and your families a Happy Thanksgiving, and I appreciate you visiting this site, which turned 18 on November 1st.]   

Lesson. Piercing the corporate veil is an equitable remedy rather than an independent claim.

Case cite. Elpers Bros. Constr. & Supply Inc. v. Smith 230 N.E.3d 920 (Ind. Ct. App. 2024)

Legal issue. Whether the plaintiffs could proceed against the defendant purely to pierce the corporate veil without an underlying, independent cause of action against that defendant.

Vital facts. Husband and wife (Plaintiffs) sued a group of contractors (Builders) and a homeowners’ association (HOA) in a dispute related to the design and construction of a subdivision’s drainage system. The technical, construction-related facts, which are dense, are immaterial to this post. What matters is that Plaintiffs based one of the theories in their complaint on the idea that the HOA merely was operating as the Builders’ “alter ego,” such that Plaintiffs could “pierce the HOA's corporate veil.” Although not explicitly stated in the Court’s opinion, it seems that the goal of the Plaintiffs’ veil piercing theory was to hold the HOA liable for the damages caused by the Builders.

Procedural history. In connection with the HOA’s motion for summary judgment, the trial court essentially concluded that there were fact questions surrounding whether the HOA was the alter ego of the Builders such that the veil piercing theory must proceed to trial. The HOA appealed.

Key rules. The Court in Elpers Bros. identified the following common law rules:

• The corporate alter ego doctrine is a device by which a plaintiff attempts to demonstrate that two corporations are so closely connected that the plaintiff should be able to sue one for the actions of the other.
• A court "pierces the corporate veil" to furnish a means for a [plaintiff] to reach a second corporation … upon a claim that otherwise would have existed only against the first corporation.
• Courts will not provide the protection of limited liability to an entity "that is a mere instrumentality of another and engages in misconduct in the function or use of the corporate form."
• Courts invoke the equitable doctrine of piercing the corporate veil to "protect innocent third parties from fraud or injustice."

As it pertained to the theory in Elpers Bros., the Court proclaimed:

Although our courts have not had occasion to specifically address whether piercing the corporate veil under an alter ego theory constitutes an independent claim for substantive relief, the jurisdictions that have addressed this issue have determined that piercing the veil is not a theory of liability. Rather, such is a remedy and a means of imposing liability on an underlying cause of action like a tort or breach of contract. We adhere to that determination and conclude that piercing the corporate veil is an equitable remedy rather than an independent cause of action.

Holding.  The Indiana Court of Appeals reversed the trial court.

Policy/rationale.  The trial court granted summary judgment in favor of the HOA on Plaintiffs’ independent causes of action for breach of contract and negligence but denied summary judgment on the veil piercing issue. The Indiana Court of Appeals held that, because of the trial court’s dismissal of Plaintiffs’ contract and negligence claims, so too must the veil piercing theory. “Inasmuch as the alter ego theory is not an independent cause of action, the remedy of piercing the corporate veil would be futile, and the HOA must necessarily be dismissed as a named party.” Although not directly expressed in its opinion, it appears that the Court essentially followed the principle that veil-piercing is a post-judgment collection tool, not a pre-judgment cause of action. Stated differently, Plaintiffs prematurely sought a remedy against the HOA without first obtaining a judgment against the Builders.

Related posts.

• Indiana Claims To Pierce The Corporate Veil Should Be Post-Judgment
• Veil-Piercing Claim Better Left For Proceedings Supplemental
• Collecting From Related Companies - The Two Prongs Of Indiana’s Alter Ego Doctrine

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Part of my practice involves representing parties in commercial collection disputes. If you need assistance with a similar matter, please call me at 317-639-6151 or email me at [email protected]. Also, don’t forget that you can follow me on Twitter @JohnDWaller or on LinkedIn, or you can subscribe to posts via RSS or email as noted on my home page.

What Does “Accord and Satisfaction” Mean In The Context Of Cashing A Borrower’s Check?

Lesson. Even when a check is cashed and that check contains a notation that cashing it shall be considered “settlement in full” of a disputed debt, accord and satisfaction is not automatic.

Case cite. Mayes v. Goldman Sachs Bank USA, 232 N.E.3d 1164 (Ind. Ct. App. 2024)

Legal issue. Did Borrower satisfy Ind. Code § 26-1-3.1-311’s requirements for an accord and satisfaction?

Vital facts. Borrower and Lender entered into an installment loan agreement. Among other provisions, the loan agreement provided that Lender “may process a … partial payment or a payment marked with any restrictive language” and that, by processing such payment, such action “will have no effect on [Lender’s] rights and the restrictive language will have no force or effect.” Following a default, Lender issued Borrower a demand letter for the amount due ($9,235). In response, Borrower sent Lender a $200 check in a letter stating that cashing the check would be “considered settlement in full” of the outstanding balance. The memo on the check also referenced “settlement.” Lender cashed the check.

Procedural history. Lender sued for the entire balance due, and Borrower asserted counterclaims and defenses surrounding the notion that the disputed debt had been settled by virtue of the check being cashed. The trial court granted Lender’s summary judgment motion, and Borrower appealed.

Key rules. The Court noted that “accord” means “an express contract between two parties by means of which the parties agree to settle some dispute on terms other than those originally contemplated.” The term “satisfaction,” in turn, “donates performance of the contract.”

Ind. Code § 26-1-3.1-311 applies when one attempts an accord and satisfaction by tender of a negotiable instrument (i.e. a check):

if a person against whom a claim is asserted proves:

(1) that person in good faith tendered an instrument to the claimant as full satisfaction of the claim;
(2) the amount of the claim was unliquidated or subject to a bona fide dispute; and
(3) the claimant obtained payment of the instrument

then the claim is discharged "if the person against whom the claim is asserted proves that the instrument or an accompanying written communication contained a conspicuous statement to the effect that the instrument was tendered as full satisfaction of the claim."

Holding. Borrower asserted the defense of “accord and satisfaction” under Section 311. The Court rejected it. While the check and letter did contain a “conspicuous statement,” the Court rejected the idea that $200 to settle a $9,235 debt was “good faith.” Even if it were, Borrower failed to prove that the amount was unliquidated (uncertain, and not definite or fixed) or subject to a bona fide dispute. The balance was not unliquidated because Lender established the specific amount due. As for the existence of a bona fide dispute, the mere assertion in a letter that the debt was disputed did not constitute evidence of such dispute. Also important to the Court’s reasoning were the terms of the loan agreement that specifically provided partial or late payments would not affect Lender’s rights.

Related posts.

• Settlement Agreement Between Lender And Guarantors Did Not Release The Contribution Rights Of The Guarantors
• Effectiveness Of A Release In An Indiana Forbearance Agreement

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Part of my practice involves representing parties in disputes arising out of loans that are in default. If you need assistance with a similar matter, please call me at 317-639-6151 or email me at [email protected]. Also, don’t forget that you can follow me on Twitter @JohnDWaller or on LinkedIn, or you can subscribe to posts via RSS or email as noted on my home page.

Expired Judgment Lien Must Be Renewed Before Foreclosure Can Occur

Lesson. Judgment creditor must obtain an order to renew an expired judgment lien before trying to execute on that lien.

Case cite. Chitwood v. Guadagnoli, 230 N.E.3d 932 (Ind. Ct. App. 2024)

Legal issue. Whether summary judgment for Plaintiff in lien foreclosure action was erroneous because the 10-year lien had expired.

Vital facts. Plaintiff obtained a money judgment via default on 9/21/06. On 10/14/08, Plaintiff filed a separate action to foreclose his judgment lien against Defendant’s real estate. Defendant then filed a Chapter 13 bankruptcy case that stayed the foreclosure action. The BK case later was dismissed due to lack of payments. Many years later, in 2019, Plaintiff filed a motion for summary judgment to foreclose the original judgment lien.

Procedural history. The trial court granted Plaintiff’s motion for summary judgment. Defendant appealed.

Key rules. Indiana Code § 34-55-9-2 provides that all final judgments for the recovery of money constitute a lien on the judgment debtor’s real estate in the county until the expiration of ten years.

The Court in Chitwood stated: “While a judgment may be renewed before the expiration of the lien, we are unaware of any requirement to renew. Rather, it has been noted that ‘[b]ecause of the confusing complexity of execution and proceedings supplemental, and the added uncertainty caused by [long delays], most sophisticated judgment creditors 'renew' their judgments shortly before the expiration of the first (and each successive) decade after judgment.’"

Although the lien expires after ten years, the judgment persists for at least another ten years. See, I.C. § 34-11-2-12 (judgment is considered satisfied after twenty years). That said, the judgment is not “utterly destroyed” after 20 years.

My posts noted below talk about these rules and periods of time in more detail.

Holding. The Indiana Court of Appeals reversed the trial court.

Policy/rationale. Defendant’s primary argument was that the time to foreclose the judgment lien had expired. “Focusing on Indiana Code § 34-55-9-2, [Defendant asserted] that, since the default judgment was granted on September 21, 2006, and was not renewed within a ten-year period, the judgment expired on September 21, 2016.” The Court essentially agreed, but concluded that the ten-year period effectively was tolled while Defendant was in bankruptcy (until dismissal 7/24/12). This meant that, although the lien did not expire until June 2020, it had in fact expired in this case.

The Court continued: “while the judgment lien has expired, [Plaintiff's] default judgment against [Defendant] has not. And, as the designated evidence does not reflect that [Plaintiff] renewed the judgment prior to the expiration of the judgment lien, he must obtain leave of the trial court in order to execute on the judgment.” Because renewal had not occurred, the Court reversed the summary judgment and remanded for further proceedings.

Related posts.

• Judgment Lien Principles Courtesy Of The Indiana Supreme Court
• Indiana Judgment Lien (10 Years) and Judgment Enforcement (20 Years) Statutes Of Limitation

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Part of my practice involves representing parties in lien-related disputes. If you need assistance with a similar matter, please call me at 317-639-6151 or email me at [email protected]. Also, don’t forget that you can follow me on Twitter @JohnDWaller or on LinkedIn, or you can subscribe to posts via RSS or email as noted on my home page.

Mortgage Lender Entitled To Attorneys’ Fees Despite Not Foreclosing Against Borrower

Lesson. Assuming a default, a defendant lender need not file a claim to enforce its loan against a borrower to recover attorneys’ fees incurred for litigation impacting its mortgage lien.

Case cite. Edgerock Dev. LLC v. C.H. Garmong & Son Inc., 227 N.E.3d 907 (Ind. Ct. App. 2024)

Legal issue. Whether a judicial determination of a default is necessary to trigger a lender’s right to recover attorneys’ fees under the loan documents.

Vital facts. In Edgerock, a mortgage lender for the developer of a commercial project was caught up in a construction dispute, which forced the lender to engage in mechanic’s lien litigation and incur attorneys’ fees to protect its lien priority. The lender did not itself appear to file a claim to enforce its rights against the developer/borrower under the subject loan, however, despite the fact that the loan was in default. The Court’s opinion sets out the controlling attorney fee provisions in the loan documents.

Procedural history. Among other things, on cross-motions for summary judgment, the trial court ruled that certain mechanic’s liens had priority over the mortgage. The trial court also denied the lender’s request for attorney’s fees. Certain parties, including the lender, appealed.

Key rules.

In Indiana, the so-called American rule applies to claims for attorneys’ fees, meaning that “in general, a party must pay his own attorneys' fees absent an agreement between the parties, a statute, or other rule to the contrary."

But, a “contract allowing for recovery of attorneys’ fees is enforceable, if the contract is not contrary to law or public policy." (By the way, a mortgage is a contract.)

The amount of fees, if any, awarded “is left to the sound discretion of the trial court,” but must be supported by the evidence.

Holding. The Indiana Court of Appeals held that the mechanic’s liens were invalid, which rendered the lien priority dispute moot. Further, the Court reversed the trial court’s denial of the lender’s claim for fees.

    Note: The case has been appealed to the Indiana Supreme Court, which accepted transfer on 5/23/24, Case No. 24S-PL-184, meaning that for now the opinion has been vacated. In the event the Supreme Court disturbs to Court of Appeals’ ruling on attorneys’ fees, I will follow-up.

Policy/rationale. The Edgerock opinion explained that the premise of the challenge to the recovery of fees was that the lender did not seek a judicial finding that the borrower had defaulted under the loan. However, the operative language in the relevant loan documents did not require such a judicial determination. Instead, the wording simply indicated that fees were “due and payable immediately following a default.” Since the two loan defaults, one of which was a maturity default, were uncontested, the Court concluded: “pursuant to the terms of the [mortgage], [the lender] adequately demonstrated that [borrower] had defaulted on the parties' agreement, and, as a result, is entitled to attorney's fees pursuant to the express terms of the mortgage agreement.”

Related posts.

• Commercial Construction Mortgages Stand Tall Over Later-Recorded Mechanic’s Liens In Indiana
• Attorney Fee Awards in Indiana
• Another Indiana Decision Concerning Attorney’s Fees In A Foreclosure Action
• Lender’s Recovery Of Attorney’s Fees Related To Collateral Actions Denied

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Part of my practice involves representing parties in lien-related disputes. If you need assistance with a similar matter, please call me at 317-639-6151 or email me at [email protected]. Also, don’t forget that you can follow me on Twitter @JohnDWaller or on LinkedIn, or you can subscribe to posts via RSS or email as noted on my home page.

What Is A “Body Attachment” And When Does It Expire?

Lesson. A body attachment is a judicial tool that essentially operates as an arrest warrant for compelling a judgment debtor, who is in contempt, to appear in court. These writs may not issue until a prior “show cause” order to appear has been personally served on the defendant, and ignored by that defendant. If validly issued, a writ of body attachment must sufficiently identify the defendant and state the writ’s expiration date, which is 180 days after its issuance.

Case cite. Murphy v. Cook, 225 N.E.3d 217 (Ind. Ct. App. 2023)

Legal issue. Whether a writ of body attachment was valid.

Vital facts. A small claims court entered a money judgment against Defendant. The court issued an order requiring Defendant to appear in court to answer as to her assets. Having failed to appear, the court next issued a “show cause” order that once again required Defendant to come to court and explain her prior failure to appear. What followed was the court’s issuance of a writ of body attachment. Over a year later, a sheriff’s deputy stopped Defendant because her license plate was not visible. Dispatch advised the deputy that there was an active warrant for a body attachment, so the deputy arrested Defendant, who spent the weekend in jail.

Procedural history. Defendant later moved to set aside the writ of body attachment. The trial court denied Defendant’s motion.

Key rules. In instances of collection proceedings, a writ of body attachment essentially is an arrest warrant for a judgment debtor to be hauled into court. For example, if a judgment debtor failed to be present for post-judgment collection proceedings, the court could issue a body attachment.

Indiana Trial Rule 64(A) controls. Subsections (2) and (4) were at issue in Murphy. Two key components of the rule are (a) the pre-writ “show cause” order must be served upon the defendant personally and (b) the writ automatically expires after 180 days, which expiration must appear on the face of the writ. In addition, the writ must sufficiently identity the defendant.

Holding. The Indiana Court of Appeals reversed the trial court’s order and remanded the case for purposes of setting aside the body attachment.

Policy/rationale. Writs of body attachment are a judgment creditor’s last resort to get a judgment debtor in court to answer as to his or her assets. They usually come into play after the judgment debtor has ignored at least two orders to appear. In Murphy, however, not only were the requirements of Rule 64(A) not satisfied, but the writ, even if valid, had expired at the time of the arrest. The Court’s opinion, prompted by an appeal handled by Indiana Legal Services, a charitable organization, serves as a cautionary tale:

[we] urge [trial] courts to be mindful of the provisions and requirements of Trial Rule 64(A) with respect to issuing a body attachment including the provision that such an attachment for a person expires 180 days after it is issued and the requirement that the expiration date shall appear on the face of the writ.

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Part of my practice involves representing parties in post-judgment collection proceedings. If you need assistance with a similar matter, please call me at 317-639-6151 or email me at [email protected]. Also, don’t forget that you can follow me on Twitter @JohnDWaller or on LinkedIn, or you can subscribe to posts via RSS or email as noted on my home page.

When Does The Defense Of “Laches” Apply?

Lesson. Laches, based on the maxim that equity does not aid those who slumber on their rights, does not apply to claims for the recovery of money (i.e. promissory note enforcement). The doctrine of laches may come into play in actions for equitable relief (i.e. mortgage foreclosure), however. Among other things, a defendant must show a delay that was unreasonable and that caused prejudice or injury.

Case cites. Forty Acre Coop. v. Delliquadri, 225 N.E.3d 175 (Ind. Ct. App. 2023) and Foster v. First Merchs. Bank N.A., 235 N.E.3d 1251 (Ind. 2024)

Legal issue. Whether the doctrine of laches operated to bar a plaintiff’s claim.

Vital facts. The recent Forty Acre and Foster cases have materially different sets of facts, but both disputes involved the enforcement of promissory notes and how the defense of laches might affect the outcome. Both cases dealt generally with delays by the plaintiffs in asserting their rights.

Procedural history. In Forty Acre, an Indiana Court of Appeals opinion, defendant sought to set aside a default judgment based on laches. Foster, a decision by the Indiana Supreme Court, examined a trial court’s order dismissing an action by junior lienholders against a bank. The junior lienholders claimed the bank failed to conduct a commercially reasonable sale of the underlying loan collateral. The Foster dismissal in favor of the bank was grounded on laches.

Key rules.

The Foster opinion noted that the doctrine of laches “bars a plaintiff from seeking equitable relief.”

The doctrine's "principal application was, and remains, to claims of an equitable cast for which the Legislature has provided no fixed time limitation." Because the [junior lienholders] are seeking legal relief in the form of money damages, they argue that laches does not apply. The bank does not squarely address this argument, responding instead that the [junior lienholders] "abandoned" their claim and thus laches applies as an "equitable defense." But "abandonment" is not an explicit element of laches.

The Forty Acre opinion summarized Indiana’s doctrine of laches:

The doctrine of laches may bar a plaintiff's claim if a defendant establishes the following three elements of laches: (1) inexcusable delay in asserting a known right; (2) an implied waiver arising from knowing acquiescence in existing conditions; and (3) a change in circumstances causing prejudice to the adverse party. A mere lapse of time is not sufficient to establish laches; it is also necessary to show an unreasonable delay that causes prejudice or injury. Prejudice may be created if a party, with knowledge of the relevant facts, permits the passing of time to work a change of circumstances by the other party.

Black’s Law Dictionary helps explain the important distinction between an “equitable” claim and a “legal” claim. “Equitable relief” means “that species of relief sought in a court with equity powers as, for example, in the case of one seeking an injunction or specific performance instead of money damages.”

Holding. The Court of Appeals affirmed the trial court’s denial of defendant’s motion to set aside a default judgment in Forty Acre. In Foster, our Supreme Court reversed the trial court’s dismissal of the junior lienholder’s case. Both opinions rejected the application of laches.

Policy/rationale.

The Indiana Supreme Court in Foster articulated its rationale as follows:

The [junior lienholders] seek damages for the bank's alleged failure to conduct a commercially reasonable sale—a claim for legal, not equitable, relief. The bank has not identified a single case from our appellate courts, and we are aware of none, in which laches barred an otherwise timely legal claim for money damages. Though we recognize that other jurisdictions have held that laches can apply to some legal claims ... the U.S. Supreme Court has consistently "cautioned against invoking laches to bar legal relief." The bank has provided no reason either below or on appeal for us to disregard that caution here.

The Court in Forty Acre explained its decision as follows:

There is no indication that [Plaintiff], with knowledge of the relevant facts, permitted the passing of time to work a change of circumstances by the other party…. Moreover, we see nothing in the record that could reasonably be characterized as an implied waiver of a known right by [Plaintiff]…. Punishing [Plaintiff] for granting [Defendants] an additional two months in which to respond to [the] complaint—when they were under no obligation to do so and when there is no evidence that [Defendants] were prejudiced thereby—would be anything but equitable.

Related posts.

• Apparent Windfall Not Enough to Set Aside Federal Foreclosure Sale or Negate Deficiency Judgment
• Are Borrowers Entitled To Jury Trials On Their Counterclaims?

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My practice involves representing parties in disputes arising out of loans that are in default. If you need assistance with a similar matter, please call me at 317-639-6151 or email me at [email protected]. Also, don’t forget that you can follow me on Twitter @JohnDWaller or on LinkedIn, or you can subscribe to posts via RSS or email as noted on my home page.