Collecting From Related Companies - The Two Prongs Of Indiana’s Alter Ego Doctrine

Lesson. The alter ego doctrine requires a causal connection between the misuse of the corporate form and an injustice.

Case cite. Perez v. Reitz, 2022 U.S. Dist. LEXIS 177250 (N.D. Ind. 2022)

Legal issue. Whether two companies acted as alter egos such that the corporate veil could be pierced to hold both liable for damages.

Vital facts. Perez stems from a wrongful death action following a fatal truck accident. “Driver” of a tractor-trailer struck the decedent’s vehicle. Defendant “Transfer Co” owned the tractor-trailer and employed Driver. Two brothers started the company in 2010 to haul certain construction materials. Transfer Co owned trucks/trailers and employed 12 drivers. “Farm Co,” also named as a defendant, was created in 1991 and specialized in the transportation of certain farm products. Farm Co had about 47 trucks and 62 employees. The two brothers that owned Transfer Co also owned Farm Co.

Procedural history. The Plaintiff estate, after settling with Transfer Co, sought to hold Farm Co liable for the accident. Farm Co filed a motion for summary judgment.

Key rules. Generally, in Indiana, the “alter ego doctrine” provides that one corporation can be liable for another corporation’s actions “when the one so organizes or controls the other's affairs as to use it as a mere instrumentality or adjunct, often with the goal of shielding itself from liability.” The fact-intensive, two-pronged analysis must establish that the two corporations “are acting as the same entity” and that the “misuse of the corporate form would constitute a fraud or promote injustice.” However, Indiana is “reluctant to disregard the corporate form.”

Prong one looks to many factors, including the “intermingling of business transactions, functions, property, employees, funds, records, and corporate names in dealing with the public.” Further, courts look to whether “(1) similar corporate names were used; (2) the corporations shared common principal corporate officers, directors, and employees; (3) the business purposes of the corporations were similar; and (4) the corporations were located in the same offices and used the same telephone numbers and business cards.”

Prong two (fraud/injustice) must result from the misuse of the corporate form. “Only when the corporations ‘disregard the separateness of [their] corporate identity and when that act of disregard causes the injustice or inequity or constitutes the fraud that the corporate veil may be pierced.’”

Holding. The U.S. District Court for the Northern District of Indiana granted the motion for summary judgment and dismissed Farm Co from the case.

Policy/rationale. The Court reasoned that, while there was evidence Transfer Co and Farm Co may have acted as alter egos (prong one), the misuse of the corporate form did not cause an inequity or injustice (prong two). There was no nexus between acts of the alter egos and the alleged injustice, which was that Plaintiff could not fully collect on the judgment. In fact, the Plaintiff offered no evidence of inequity or injustice at all, “much less a causative link back to the alleged acts of a merged identity.” The Court reasoned:

Nothing on this record indicates that [Transfer Co] has proven defunct, insolvent, or incapable of financing a settlement or judgment to make the estate whole. Nothing on this record indicates that [Farms Co] erected or used [Transfer Co] as a shield (or vice versa) to evade liability or that the estate would be inequitably foreclosed from recovery.

Please review the opinion for more details applicable to the fact-sensitive analysis of the Court. Perez is an example of the challenges facing litigants who are trying to pierce the corporate veil, particularly where, as here, the alter ego nature of the business relationship may not have been designed to harm, or otherwise avoid liability to, the Plaintiff.

Related posts.

• Indiana Federal Court Dismisses Alter Ego Claim Against Affiliated Company
• Indiana Collection Theories Of Piercing The Corporate Veil, Alter Ego, Successor Liability And Mere Continuation: Part I

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Part of my practice involves the representation of parties in post-judgment collection actions. 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.

Lender Permitted To Praecipe For Sheriff’s Sale 12 Years Post-Judgment

Lesson. Sheriff’s sales can occur even after an Indiana judgment lien expires.

Case cite. U.S. Bank Tr. Bank Tr. Nat'l Ass'n v. Dugger, 193 N.E.3d 1015 (Ind. Ct. App. 2022).

Legal issue. Whether a mortgage lender’s right to a sheriff’s sale ceased to exist ten years after the entry of judgment.

Vital facts. Original lender obtained a foreclosure decree against Joshua Dugger (“Joshua”) in 2009. Three subsequent sheriff’s sales were cancelled. In 2010, Joshua filed a Chapter 7 bankruptcy and received a discharge in January 2011. Joshua transferred the mortgaged property to Steven Dugger (“Steven”) in 2016. Later, the Baldridges (“Owners”) purchased the real estate from Steven. Apparently nothing of any significance occurred in the foreclosure case until 2021, at which point the current lender (“Lender”) acquired the original lender’s interest in the mortgage, appeared in the action, and asked the court for permission to praecipe for a sheriff’s sale. Notably, Lender’s initiative in 2021 occurred over ten years after the entry of judgment in 2009.

Procedural history. The trial court denied Lender’s motion for leave to file a praecipe for a sheriff’s sale.

Key rules.

Indiana Code 34-55-9-2 states that final judgments for money create a lien that exists for ten years. Importantly, however, “although the judgment lien expires after ten years, [the] judgment still exists for at least another ten years.”

I.C. 34-55-1-2(a) essentially provides that execution on a judgment over ten years old can occur but only “on leave of court” (i.e., a judge’s permission). The court’s ruling on such a motion is discretionary. The Court in Dugger explained:

[A] creditor holding a judgment that is more than ten years old may, only with leave of court, execute the judgment against the debtor's real estate during the remainder of the life of the judgment. See, e.g., Ind. Code § 34-55-1-3(1) (1998) (one of three kinds of execution of judgments is execution against property of judgment debtor).

Here is a reminder of the dual nature of most mortgage foreclosure judgments:

    “A mortgage is an interest in real property that secures a creditor’s right to repayment.” As such, a party’s action to foreclose a mortgage is, by definition, an in rem (i.e. against the property) proceeding.

    Creditors also may pursue a debtor’s in personam (i.e. personal) liability for under a promissory note or credit agreement. This includes the enforcement of a judgment against the debtor’s personal property assets.

    A debtor may protect herself from this personal liability only by obtaining a Chapter 7 bankruptcy discharge. A mortgage lien, which is a right against real estate, survives and remains enforceable, however.

Holding. The Indiana Court of Appeals reversed the trial court, paving the way for a sheriff’s sale.

Policy/rationale. Owners first contended that Lender’s judgment ceased to exist because Lender did not “renew” the lien before the ten-year deadline. The Court reasoned that, while a judgment may be renewed, there is no legal requirement to do so. Lender’s course of action in Dugger was thus appropriate.

Owners’ second allegation was deception on the part of Lender when it requested the court to convert the 2009 judgment into an in rem judgment. However, the judgment had both in personam and in rem elements. When Joshua received his Ch. 7 BK discharge, the law eliminated only his personal liability under the loan. Lender’s right to collect against the mortgaged real estate still was enforceable. As such, Lender’s request to amend the judgment - which in my opinion probably was unnecessary - nevertheless did not constitute deception.

Related posts.

• An “In Rem” Judgment Limits Collection To The Mortgaged Property
• Contents of Indiana Foreclosure Judgment/Decree
• Mortgage Liens Survive Chapter 7 Bankruptcy Discharge, Allowing In Rem Foreclosures
• Indiana Judgment Lien (10 Years) and Judgment Enforcement (20 Years) Statutes Of Limitation

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I represent parties involved 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.

In Indiana, Prejudgment Attachment Requires A Bond

Lesson. When considering the remedy of prejudgment attachment – i.e. freezing a defendant’s assets during the pendency of a lawsuit - make sure you evaluate the statutory bond requirement.

Case cite. Wayne Mfg. LLC v. Cold Headed Fasteners & Assemblies Inc., 2022 U.S. Dist. LEXIS 122685 (N.D. Ind. July 12 2022)

Legal issue. Whether Plaintiff was entitled to prejudgment attachment.

Vital facts. Plaintiff sued Defendant for breach of contract associated with the supply of auto parts, including custom bolts and fasteners. Defendant countersued for Plaintiff’s failure to pay for the allegedly non-confirming products.

Procedural history. The Wayne Mfg. opinion arises out of Plaintiff’s motion for writ of prejudgment attachment of Defendant’s assets.

Key rules. Federal Rule 64(a) states: “at the commencement of and throughout an action, every remedy is available that, under the law of the state where the court is located [here, Indiana law], provides for seizing a person or property to secure satisfaction of the potential judgment." Rule 64(b) provides that the remedies available under section (a) include, among others, attachment.

Indiana authorizes prejudgment attachment under Indiana Code 34-25-2-1 and Trial Rule 64. Please click on the links to review in full.

I.C. 34-25-2-4 also is relevant as it outlines the affidavit required to be filed by the Plaintiff seeking prejudgment attachment.

Moreover, I.C. 34-25-2-5 states that a bond must be posted in order to obtain the relief. Plaintiff shall:

[E]xecute a written undertaking, with sufficient surety, to be approved by the clerk, payable to the defendant, to the effect that the plaintiff will: (1) duly prosecute the proceeding in attachment; and (2) pay all damages that may be sustained by the defendant if the proceedings of the plaintiff are wrongful and oppressive.

Holding. United States Magistrate Judge Collins denied Plaintiff’s motion based on the failure to meet the surety requirements in I.C. 34-25-2-5(2).

Policy/rationale. Plaintiff pursued prejudgment attachment because it sought a sizable judgment in Indiana against an Ohio corporation. Plaintiff filed the statutory affidavit in support, but the Court’s opinion did not focus on the factual bases for the requested relief. Instead, the Court concentrated on the bond requirement. Plaintiff stipulated it was prepared to post a cash bond of 300k. The Court found that amount to be “woefully inadequate.” Defendant argued that attachment “would drastically impact its business and ability to continue operations.” Defendant’s affidavit detailed that the bond offered by Plaintiff would not cover Defendant’s projected damages of over $2 million. Further, Defendant’s affidavit specified that that attachment would cause its business to fail altogether. The fact that Defendant had a pending counterclaim for damages bolstered its position.

Related posts.

• Pre-Judgment Seizure of Property: Attachment Fundamentals
• Assets Cannot Be Frozen By An Injunction

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Part of my practice involves the collection of business debts. 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.