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What Is Replevin?

In Indiana, a cause of action for “replevin” will come into play if your lending institution collateralized its loan with tangible personal property and if your borrower defaulted on such loan.  For more on the fundamentals of a claim for replevin in Indiana, keep reading.

Vocabulary.  Black’s Law Dictionary defines replevin as follows:

An action whereby the . . . person entitled to repossession of [personal property] may recover [it] . . . from one who . . . wrongfully detains such [personal property].  Such action is designed to permit one having the right to possession to recover property in specie from one who has either wrongfully taken or detained property.

In this context, a lender is the person entitled to repossession of the property, and a defaulting borrower is the one who has wrongfully detained the property. 

Indiana statute.  Ind. Code § 32-35-2 governs replevin actions.  The detailed statute provides the procedural steps to repossess personal property.  Section 1 states that grounds for an action for replevin exist:

If any personal goods, including tangible personal property constituting or representing choses in action, are: 
(1) wrongfully taken or wrongfully detained from the owner or person claiming possession of the property; or
(2) taken on execution or attachment and claimed by any person other than the defendant;
the owner or claimant may bring an action for the possession of the property.

When lenders seek to enforce a security interest in, for example, a borrower’s equipment, counsel should include a count for replevin, which will result in a court order granting the right to repossess the equipment.  A count for replevin typically will be in addition to a count for damages based upon a promissory note/credit agreement.

Indiana case law.  A handful of recent Indiana judicial opinions provide further insight into replevin actions.  “To succeed on his claim for replevin, [plaintiff] must prove by a preponderance of the evidence that the [defendant] wrongfully held or detained property that belonged to him.”  Whittington v. Indianapolis Motor Speedway Foundation, Inc., 2008 U.S. Dist. LEXIS 62760 (S.D. Ind. 2008) (Whittington.pdf) (The Court determined, in a case involving an antique car, that the transaction was a gift, rather than a loan.  Because the plaintiff failed to prove that he had a possessory interest in the car, his claim for replevin failed.)  See also, Schaefer v. Tyson, 2009 U.S. Dist. LEXIS 4536 (S.D. Ind. 2009) (Schaefer.pdf) (Replevin action dismissed by six-year statute of limitations.)  In McCready v. Harrison, 2009 U.S. Dist. LEXIS 1518 (S.D. Ind. 2009) (McCready.pdf), Judge David Hamilton noted, generally, that:

 “A replevin action is a speedy statutory remedy designed to allow one to recover possession of property wrongfully held or detained, as well as any damages incidental to the detention.”
 Reasonable loss of use damages may be recovered in a replevin action; I.C. § 32-35-2-33 provides that judgments for plaintiffs in replevin actions may be for (1) delivery of the property, or the value of the property in case delivery is not possible and (2) damages for the detention of the property. 

To repossess and, ultimately, liquidate most non-real estate loan collateral in Indiana, asset-based lenders and their legal counsel need to be familiar with I.C. § 32-35-2 and the applicable case law.

Recording Deeds In Indiana: Don't Forget The Sales Disclosure Form (Revised)

I have revised this post effective 3-23-09:  see the bold text below.

The successful bidder at an Indiana sheriff's sale, following the foreclosure of a mortgage, will obtain a sheriff's deed to the real estate.  Or, mortgagees may obtain a deed-in-lieu of foreclosure.  As the new owner of the property, you, your counsel or your title insurance company must ensure that the deed is recorded in the county recorder's office to perfect title to the real estate.   

Disclosure Form.  Many parties either do not know or sometimes forget that, as a part of the recording process, Indiana law requires a sales disclosure form to be tendered with the deed.  The form can be accessed by clicking on this state website:  http://www.stats.indiana.edu/SDF/

On-line process.  In Marion County (Indianapolis), as noted by this press release, as of 11-1-08 all sales disclosure forms must be submitted on-line through the Indiana Department of Finance via the link above.  After submitting the form on-line, it must be printed, signed by the buyer and seller, and presented to the auditor as noted below.  It's my understanding that, over time, other counties will be utilizing this on-line procedure.

Signatures.  Based upon our experience, in the event of a sheriff's sale, the attorney for the "buyer" - usually the lender/mortgagee's attorney - has been able to execute the form for both the both buyer and seller (the sheriff).  This has avoided involving the sheriff's office in the past.  The better practice, however, is to submit the form for the sheriff's signature at the same time the sheriff's deed is tendered for execution.  That way, the sheriff's office can sign both documents at once.  We recently discovered that the Marion County Sheriff's Office provided this form signature page to the assessor's office for purposes of completing sales disclosure forms after sheriff's sales.  The assessor's office has instructed our office to attach this signature to future SDF's filed in Marion County.  

In cases of agreements for deeds-in-lieu of foreclosure, lenders and their counsel should have the mortgagor sign the sales disclosure form at the time the deed and related settlement documents are signed.   

Other steps.  Although the process can vary from county to county, generally a deed and a sales disclosure form make their way through three county offices:  first the assessor, second the auditor and third the recorder.  If the documents are hand delivered, one can go to each office in succession to complete the transaction.  The process can, however, be accomplished through the mail, and it's our experience that the package should be mailed directly to the recorder's office for handling.  A fee will need to be paid to the county recorder to record the deed.  We recommend that you contact the auditor in advance to determine whether there will be a fee for the filing of the sales disclosure form and, if so, a separate check, payable to the auditor, must be submitted.  Fees for sales disclosures vary depending upon the transaction and by county.  

As always, please call or email me with any questions or comments.


Effort To Pierce The “Corporate Veil” Denied

Judge Hamilton in MFP Eagle Highlands v. American Health Network, 2009 U.S.Dist. LEXIS 1915 (S.D. Ind. 2009) (MFP.pdf) rejected, as a matter of law, plaintiff’s efforts to pierce the “corporate veil” of an Indiana limited liability company.  The opinion granting the defendants’ motion for summary judgment demonstrates how heavy the burden is for a plaintiff attempting to reach the principals of a corporate entity in Indiana.  At its heart, the case involved the assignment of, and ultimate default on, a commercial lease. 

Aronson factors.  This blog has addressed veil piercing on two prior occasions:  May 15, 2007 More From Symons:  Piercing the Corporate Veil and July 28, 2007 More On Piercing The Corporate Veil In Indiana, And The UFTA.  The proof required to pierce the corporate veil is well-settled in Indiana, as are the following eight factors to be considered:

 1. Undercapitalization;
 2. Absence of corporate records;
 3. Fraudulent representation by corporate shareholders or directors;
 4. Use of the corporation to promote fraud, injustice or illegal activities;
 5. Payment by the corporation of individual obligations;
 6. Commingling of assets and affairs;
 7. Failure to observe required corporate formalities; and
 8. Other shareholder acts or conduct ignoring, controlling or manipulating the corporate form.

Judge Hamilton labeled these the “Aronson factors” after the Indiana Supreme Court’s decision in Aronson v. Price, 644 N.E.2d 864 (Ind. 1994).  The eight factors, which are non-exhaustive, are to be analyzed in determining whether “the corporate form was so ignored, controlled or manipulated that it was merely the instrumentality of another and that the misuses of the corporate form would constitute a fraud or promote injustice.” Although the entity in MFP Eagle was a limited liability company, “the same standards apply equally to corporations and to limited liability companies.”

6 of 8.  In MFP Eagle, six of the factors weighed against piercing the corporate veil, while two of the factors may have been present:  undercapitalization (#1) and use of the limited liability forum to promote fraud, injustice or illegal activities (#8).  As to the plaintiff’s contentions regarding those two factors, Judge Hamilton summed up the Court’s position as follows:

MFP is arguing in effect that it was entitled to have personal guarantees of the lease obligation.  The short answer is that if MFP or its predecessors wanted personal guarantees of the long-term obligations, then they should have bargained for them.  They did not.  MFP is not entitled to such guarantees merely because AHN exercised its rights under the lease to assign the long-term obligations from one limited liability company (AHN) to another (LALR).

The court assumes that a reasonable trier of fact could find that LALR was created for the purpose of allowing Dr. Reitz and Dr. Adams to avoid personal liability for the lease that AHN wanted to assign to them.  This is a perfectly legitimate business goal, particularly since neither Dr. Reitz nor Dr. Adams had been personally liable for the original lease.  Because of tension within AHN, AHN wanted to terminate its agreement with the two doctors and proposed assignment the lease to them as individuals.  At that point, Dr. Reitz and Dr. Adams proposed the creation of a limited liability company to receive the lease assignment.  This device reflected only sound economic planning.  A limited liability company is a perfectly permissible form for organizing a business in Indiana, and a primary benefit is that its members are not personally liable for the debts of the limited liability company.

Heavy burden.  Judge Hamilton seems to believe fairly strongly in the protections afforded by the corporate structure:

In most instances, parties who have observed the formalities of the corporate (or limited liability company) form should be able to count on the promise of limited liability, and there will rarely be a sufficient factual basis for avoiding summary judgment on the issue based on a claim by a party who knew it was dealing with a limited liability company.

The fact is, the plaintiff in MFP Eagle never had any right to personal guarantees of the underlying lease obligations, and the lease itself allowed the defendants to transact business as they did.  As such, the evidence did not permit the Court to impose, in effect, “new personal guarantee obligations on the [defendants].”  Take that, Indiana creditors! 

“Material Alteration” Defense Rejected In Indiana Guaranty Enforcement Action

Today we build upon my March 23, 2007 post entitled “Liability Of Guarantors Or Accommodation Parties When The Original Obligation Is Materially Altered.”  That post discussed Keesling v. T.E.K. Partners, 2007 Ind. App. LEXIS 358 (Ind. Ct. App. 2007), where the Indiana Court of Appeals held that the guarantor was released from liability.  Confronted with a different set of facts, on December 10, 2008 Magistrate Judge Nuechterlein of the Northern District of Indiana ruled the opposite way, concluding that the defendant guarantor did not provide sufficient evidence to establish a release.  Conn-Selmer, Inc. v. Bamber, 2008 U.S. Dist. LEXIS 99921 (N.D. Ind. 2008) (ConnSelmer.pdf).  Keesling and Conn-Selmer are good reads for secured lenders who may be struggling with a guarantor’s contention that the underlying loan transaction was materially altered so as to release the guarantor from liability.

The parties.  Selmer Company was the lender.  The defendant/borrower was Woodwind, and the defendant/guarantor was Bamber.  Selmer Company provided credit to Woodwind.  Bamber executed a personal guaranty in favor of Selmer Company to cover repayment of the credit.  The security agreement between Selmer Company and Woodwind stated that the “guaranty shall, without further consent of or notice to the undersigned, pass to, and may be relied upon and enforced by any successor or assignee of [Selmer Company] and any transferee or subsequent holder of any indebtedness, liability or obligation.”  After the execution of the underlying security agreement and guaranty, Selmer Company changed ownership several times.  Plaintiff Conn-Selmer was the party that ultimately sued Bamber.

Guarantor’s contention.  Bamber did not dispute execution of the personal guaranty or the terms and conditions of the guaranty.  Rather, he argued that, since the liabilities under the security agreement had changed over time, he was relieved from liability under the guaranty. 

Basic rule.  Magistrate Judge Nuechterlein noted that, in Indiana, it is a general rule that:

when the principal and obligee cause a material alteration of the underlying obligation without the consent of the guarantor, the guarantor is discharged from further liability.  A material alteration which will effect a discharge of the guarantor must be a change which alters the legal identity of the principal’s contract, substantially increases the risk of loss to the guarantor, or places the guarantor in a different position.

Insufficient evidence of lack of consent.  The Court decided the Conn-Selmer case in the context of a motion for summary judgment filed by plaintiff Conn-Selmer.  In response to Conn-Selmer’s motion, Bamber was compelled to provide evidence of the material alteration and whether it was without his consent.  While the Keeling decision analyzed, and rested upon, the “material alteration” element of the defense, the Conn-Selmer decision centered upon the “lack of consent” element:

Bamber offers documentation of a few communications made between Bamber and the various successors of the Selmer Company memorializing agreed changes to the credit repayment rates and deadlines.  However, three of these documents addressed Dennis Bamber personally, and one was drafted by Dennis Bamber himself.  Further, each appears, in substance, to confirm agreements made between the Selmer Company and Dennis Bamber, on behalf of Woodwind.  As such, Bamber cannot argue that he was not privy to any changes made to the underlying security agreement.  Indeed, these documents attest that Bamber was simultaneously fulfilling both roles as “obligee” on the debt, in his professional role as head of Woodwind, and as “guarantor” under the ongoing security agreement.  Consequently, Bamber cannot, and indeed does not, argue that he did not consent to any asserted changes made to [the] security agreement.  Because lack of consent is a necessary element to relieve Bamber of liability under the personal guaranty, this Court concludes that Bamber has not provided sufficient evidence to establish release from liability under the guaranty.

Bamber was unable to prove that any material alteration of the underlying obligation was without his consent so as to discharge him from personal liability.  One of the lessons for secured lenders who may be pursuing a guaranty enforcement action in Indiana is to review your files for evidence showing that the guarantor consented to any alterations to the note/security agreement.  Armed with any such evidence, you should be able to defeat the material alteration defense as Conn-Selmer was able to.