CBR Event Decorators, Inc., Gregory Rankin, Robert Cochrane and John Bales v. Todd M. Gates , 4 N.E.3d 1210 ( 2014 )


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  • FOR PUBLICATION
    ATTORNEYS FOR APPELLANT:                    ATTORNEYS FOR APPELLEE:
    PETER J. RUSTHOVEN                          RONALD J. WAICUKAUSKI
    T. JOSEPH WENDT                             CAROL NEMETH JOVEN
    Barnes & Thornburg LLP                      Price Waicukauski & Riley, LLC
    Indianapolis, Indiana                       Indianapolis, Indiana
    JANA K. STRAIN
    Indianapolis, Indiana
    Mar 03 2014, 9:24 am
    IN THE
    COURT OF APPEALS OF INDIANA
    CBR EVENT DECORATORS, INC.,                 )
    GREGORY RANKIN, ROBERT                      )
    COCHRANE and JOHN BALES,                    )
    )
    Appellants-Defendants,                )
    )
    vs.                           )      No. 49A02-1302-CT-159
    )
    TODD M. GATES,                              )
    )
    Appellee-Plaintiff.                   )
    APPEAL FROM THE MARION SUPERIOR COURT
    The Honorable Gerald S. Zore, Judge
    Cause No. 49D07-0307-CT-1289
    March 3, 2014
    OPINION - FOR PUBLICATION
    ROBB, Judge
    Case Summary and Issues
    CBR Event Decorators, Inc. (“CBR”) and its individual shareholders Gregory
    Rankin, Robert Cochrane, and John Bales (collectively, “Shareholders”) bring this
    consolidated appeal, challenging the trial court’s award of attorney fees and order requiring
    $1,000,000 from a letter of credit to be deposited with the trial court clerk. The Appellants
    raise the following issues for our review: (1) whether, following a decision by this court
    in a previous appeal in this case, the trial court erred by ordering that the Shareholders be
    personally liable for attorney fees on a claim against CBR for wrongful stop payment of a
    check; (2) whether the trial court erred by failing to hold a hearing regarding the amount
    and reasonableness of attorney fees; (3) whether the attorney fee award of $290,093 was
    unreasonable; and (4) whether the trial court erred by granting an ex parte order requiring
    $1,000,000 from a letter of credit to be deposited with the trial court clerk. We conclude
    Shareholders are not personally liable for attorney fees on the wrongful stop payment
    claim.1 However, we find the ex parte order requiring deposit of $1,000,000 with the trial
    court clerk was not reversible error. Therefore, we affirm in part and reverse in part.
    Facts and Procedural History
    This case—now nearly fourteen years in the making—stems from a contractual
    dispute between Todd Gates and CBR and Shareholders. In June 2000, Shareholders
    negotiated to purchase the assets of an event decorating company Gates owned.
    1
    Because we conclude the trial court abused its discretion by awarding attorney fees against
    Shareholders, the remaining issues regarding the amount of attorney fees and a hearing thereon are
    effectively moot. Therefore, we address only the first and fourth issues raised by Shareholders.
    2
    Shareholders, in preparation for the pending acquisition of assets, created CBR to act as
    corporate buyer in the transaction and to continue operating as an event decorating
    company after acquisition of Gates’s assets. An asset purchase agreement was signed on
    behalf of CBR, and the deal was set to close on June 26, 2000. CBR deposited $100,000
    in an escrow account as a down payment, and an additional $550,000 was to be paid on a
    promissory note over a seven-year period.
    A check for $100,000 and the signed asset purchase documents were mailed to
    Gates. Gates signed the documents and returned a copy to Shareholders. The same
    morning, Shareholders had a meeting with some of Gates’s employees, and after that
    meeting, Shareholders believed Gates had misrepresented the value of the assets.
    Eventually, payment was stopped on the $100,000 check from CBR, and CBR withdrew
    the funds from the escrow account and distributed those funds to Shareholders. Attempts
    between Gates and CBR to renegotiate the purchase agreement were unsuccessful. In
    August 2000, Gates filed suit against CBR and Shareholders.
    Gates’s amended complaint asserted claims against both CBR and Shareholders.
    The amended complaint asserted three causes of action against CBR: (1) breach of the
    asset purchase agreement; (2) wrongful stop payment of a check; and (3) breach of the
    promissory note. The amended complaint also asserted two causes of action against
    Shareholders, as individuals: (1) fraudulent conveyance and (2) wrongful withdrawal of
    capital (i.e. wrongful transfer or fraudulent transfer). Finally, Gates’s amended complaint
    sought to pierce the corporate veil and impose personal liability on Shareholders for any
    liability found against CBR. The trial court entered judgment in favor of Gates on all
    3
    counts and pierced the corporate veil. Only those counts pled against CBR—breach of
    contract and wrongful stop payment—included a requirement for defendants to pay
    attorney fees. In March 2011, the trial court approved an agreed order staying execution
    of the judgment pending appeal. As inducement for this agreed order, Shareholders
    provided Gates with an irrevocable letter of credit issued by PNC Bank in the amount of
    $1,000,000.
    Shareholders appealed the trial court’s judgment, and this court issued a published
    opinion in CBR Event Decorators, Inc. v. Gates, 
    962 N.E.2d 1276
     (Ind. Ct. App. 2012),
    trans. denied (herein, “CBR I”). In that prior appeal, Shareholders raised “a single issue
    on appeal: whether the trial court’s unchallenged findings of fact support the court’s
    decision to pierce the corporate veil.” 
    Id. at 1281
    .2 On this sole issue, CBR I held it was
    error for the trial court to pierce the corporate veil and hold Shareholders personally liable
    for judgments against CBR. 
    Id. at 1284
    .
    Immediately following the holding in CBR I, the court made these additional
    statements:
    We note that CBR does not appeal the judgment against it for breach of
    contract. The shareholders also do not appeal the judgment against them for
    fraudulent conveyance, fraudulent transfer, or wrongful stop payment. We
    therefore affirm in part and reverse in part. We affirm the trial court’s
    judgment against the shareholders for $100,000 for fraudulent conveyance,
    fraudulent transfer, and wrongful stop payment of a check. We reverse,
    however, the trial court’s judgment against the shareholders in all other
    respects. Further, we remand to the trial court to determine the portion of
    attorney fees the shareholders are liable for to Gates as a result of the
    2
    CBR did not appeal the trial court’s judgments against it for breach of contract, breach of
    promissory note, and wrongful stop payment. Further, Shareholders did not appeal the trial court’s
    judgment that they were personally liable for fraudulent conveyance and wrongful transfer. On appeal, the
    only issue was whether Shareholders were personally liable for judgments against CBR.
    4
    wrongful stop payment.
    
    Id.
     (citation omitted). These supplementary statements at the close of CBR I were the
    source of some confusion on remand and are at the root of the present appeal.
    On remand, Gates sought attorney fees from Shareholders based on his claim of
    wrongful stop payment. Shareholders opposed Gates’s motion for attorney fees, arguing
    the CBR I holding precluded their personal liability for the wrongful stop payment claim
    and related attorney fees. Following a hearing on the issue of Shareholders’ liability, the
    trial court issued an order awarding attorney fees in the amount of $290,093 and interest at
    a rate of 18%. Relevantly, the trial court found:
    1. The Court of Appeals [in CBR I] determined that the individual
    [Shareholders] are liable to [Gates] for the $100,000.00 judgment on the
    wrongful stop payment, fraudulent transfer and fraudulent conveyance
    claims.
    2. This Court lacks jurisdiction to rehear argument or evidence regarding
    the merits of the wrongful stop payment, fraudulent transfer and
    fraudulent conveyance claims and rejects [Shareholders’] request to do
    so.
    Appellant’s Appendix at 34. Shareholders filed a motion to reconsider on February 7,
    2013, which the trial court denied.
    On January 3, 2013, PNC Bank provided Gates with written notice that it would not
    extend the letter of credit, which was set to expire March 17, 2013. On February 5, 2013,
    Gates filed a Petition for Emergency Stay, for Deposit of Proceeds and for Hearing.
    Gates’s petition requested an emergency stay of the letter of credit’s expiration and also
    requested a hearing and an order requiring deposit of the $1,000,000 with the trial court
    clerk. Two days later, the trial court ordered that the funds be deposited with the trial court
    5
    clerk pursuant to the terms of the letter of credit, stating it saw “no need for a hearing.”
    Appellant’s App. at 36. On February 15, 2013, Shareholders requested a stay of the
    February 7 order, and that request was granted on March 1, 2013. On February 22, 2013,
    Gates sent a written demand to PNC Bank for the balance of the letter of credit to be drawn
    and deposited with the trial court clerk. Accordingly, those funds were deposited with the
    trial court clerk. This appeal followed.
    Discussion and Decision
    I. Award of Attorney Fees
    A. Standard of Review
    Shareholders appeal the trial court’s award of attorney fees in favor of Gates. We
    review an award of attorney fees for an abuse of discretion. Gerstbauer v. Styers, 
    898 N.E.2d 369
    , 378 (Ind. Ct. App. 2008). A trial court abuses its discretion when the decision
    is clearly against the logic and effect of the facts and circumstances or if it misapplies the
    law. 
    Id.
    B. Limited Liability and Award of Attorney Fees
    Shareholders contend the trial court improperly determined they were personally
    liable for attorney fees attributed to the wrongful stop payment claim following this court’s
    decision in CBR I. Indiana follows the American Rule, which requires that generally “a
    party must pay his own attorneys’ fees absent an agreement between the parties, a statute,
    or other rule to the contrary.” R.L. Turner Corp. v. Town of Brownsburg, 
    963 N.E.2d 453
    ,
    458 (Ind. 2012). Relevantly, Indiana Code section 26-2-7-5 provides for attorney fees in
    an action for wrongful stop payment of a check. However, the wrongful stop payment
    6
    claim in this case was pled only against CBR, not Shareholders.
    A basic precept of corporate law is limited liability. Escobedo v. BHM Health
    Assocs., Inc., 
    818 N.E.2d 930
    , 932 (Ind. 2004); see also 
    Ind. Code § 23-1-26-3
    . “[T]he
    fundamental principle of American corporate law [is] that corporate shareholders sustain
    liability for corporate acts only to the extent of their investment and are not held personally
    liable for the acts attributable to the corporation.” Escobedo, 818 N.E.2d at 932 (quoting
    Aronson v. Price, 
    644 N.E.2d 864
    , 867 (Ind. 1994)). Limited liability may be avoided and
    individual shareholder liability may be imposed only upon a determination to pierce the
    corporate veil.3 Id. at 932-33. Simply stated, Shareholders could only be liable for attorney
    fees on the wrongful stop payment claim against CBR if the corporate veil was pierced.
    This court clearly held in CBR I that the trial court’s decision to pierce the corporate veil
    was error. Therefore, Shareholders cannot be personally liable for CBR’s wrongful stop
    payment or attorney fees tied to that claim.
    Gates argues the final paragraph of CBR I, quoted above, mandates the result
    reached by the trial court. As Gates reads this court’s prior decision, Shareholders were
    ordered to pay attorney fees on the wrongful stop payment claim. Gates does not so much
    as attempt to argue that such a directive could be squared with CBR I’s actual holding.
    Instead, he maintains that regardless of any allegedly incorrect outcome, the legal doctrines
    3
    “[T]he burden is on the party seeking to pierce the corporate veil to prove that the corporate form
    was so ignored, controlled or manipulated that it was merely the instrumentality of another and that the
    misuse of the corporate form would constitute a fraud or promote injustice.” Aronson, 644 N.E.2d at 867.
    7
    of res judicata4 and law of the case preclude both the trial court and this court from
    addressing the issue of attorney fees. We find Gates’s contentions unavailing.
    First, we disagree with the premise that CBR I definitively ordered Shareholders
    personally liable for attorney fees on a judgment against CBR. The final paragraph in
    CBR I noted that CBR and Shareholders did not appeal a number of judgments against
    them—again, the only issue presented on appeal was whether the corporate veil was
    rightfully pierced—and the court purported to affirm those non-appealed judgments.
    Finally, the court “remand[ed] to the trial court to determine the portion of attorney fees
    the shareholders are liable for to Gates as a result of the wrongful stop payment.” CBR I,
    962 N.E.2d at 1184. As demonstrated above, because CBR I held the corporate veil should
    not be pierced, the portion of attorney fees for which Shareholders are personally liable as
    a result of the wrongful stop payment claim is none. In reality, CBR I never stated
    Shareholders were individually liable for any amount of attorney fees, and Gates has
    simply gleaned such a holding from CBR I where none actually existed.
    Even if CBR I could be interpreted as Gates suggests, claim preclusion, issue
    preclusion, and law of the case do not require us to find Shareholders liable for attorney
    fees. Indeed, the doctrines of claim preclusion, issue preclusion, and law of the case are
    4
    Gates’s brief refers to “res judicata,” which is also known as claim preclusion and is distinct from
    issue preclusion (also known as collateral estoppel). See Sullivan v. American Cas. Co. of Reading, Pa.,
    
    605 N.E.2d 134
    , 137 (Ind. 1992); see also BLACK’S LAW DICTIONARY 1305-06 (6th ed. 1990) (comparing
    res judicata and collateral estoppel). However, some Indiana cases have lumped the doctrines of claim
    preclusion and issue preclusion together under the term res judicata. E.g. Wells Fargo Bank, N.A. v. PNC
    Bank, N.A., 
    971 N.E.2d 1216
    , 1219 (“The doctrine of res judicata consists of two distinct components,
    claim preclusion and issue preclusion.”). Because claim preclusion and issue preclusion are separate
    doctrines with unique effect, we will refer to them individually in this opinion. Gates’s brief is unclear as
    to whether he means claim preclusion or issue preclusion—or both—apply to this case.
    8
    all similar in that they seek to prevent repetitious litigation and promote the finality of
    judgments.5 See Becker v. State, 
    992 N.E.2d 697
    , 700 (Ind. 2013) (stating claim preclusion
    and issue preclusion aim to “prevent repetitious litigation of disputes that are essentially
    the same, by holding a prior final judgment binding against both the original parties and
    their privies.”); Cutter v. State, 
    725 N.E.2d 401
    , 405 (Ind. 2000) (stating the purpose of
    law of the case is to minimize relitigation of issues after resolution by an appellate court
    and to promote finality and judicial economy). That said, each doctrine is unique and
    applied under different circumstances. None of those doctrines are applicable under the
    circumstances of this case.
    Claim preclusion and issue preclusion are pertinent only in a subsequent action or
    separate pending action, not a subsequent appeal in a single pending case. See Sullivan v.
    American Cas. Co. of Reading, Pa., 
    605 N.E.2d 134
    , 137 (Ind. 1992); see also
    RESTATEMENT (SECOND) OF JUDGMENTS § 17 (1982). Simply stated, the doctrines of
    claim preclusion and issue preclusion have no applicability where the legal issue involves
    a prior ruling in the same action. Therefore, neither claim preclusion nor issue preclusion
    could prevent us from addressing issues raised in or resulting from CBR I.
    On the other hand, law of the case is a doctrine used to facilitate the finality of issues
    decided within the same action. Law of the case provides that an appellate court’s
    determination of a legal issue is binding on the trial court and in any subsequent appeal in
    the same case and on substantially the same facts. Cutter, 725 N.E.2d at 405. Essentially,
    5
    Unlike claim preclusion and issue preclusion, which are compulsory, law of the case doctrine is
    a discretionary tool. Murphy v. Curtis, 
    930 N.E.2d 1228
    , 1234 (Ind. Ct. App. 2010), trans. denied.
    9
    law of the case means all issues decided directly or by implication in a prior decision are
    binding in all further portions of the same case. Dean V. Kruse Found., Inc. v. Gates, 
    973 N.E.2d 583
    , 590 (Ind. Ct. App. 2012), trans. denied.          However, only those issues
    conclusively determined are considered law of the case, and the issue decided in the prior
    appeal must clearly be the only possible construction of an opinion. 
    Id.
     Finally, statements
    that are not necessary in the determination of the issues presented are dicta and do not
    become law of the case. Id. at 590-91.
    The statements in CBR I relied upon by Gates are not law of the case. First, we do
    not believe Gates’s interpretation of CBR I—making Shareholders personally liable for
    attorney fees on the wrongful stop payment claim—is the only possible construction of the
    opinion. This is primarily because holding Shareholders personally liable for attorney fees
    on the wrongful stop payment claim against CBR stands in stark contradiction to the
    opinion’s actual holding which upheld the corporate veil. Moreover, the sole issue
    presented in CBR I was whether the trial court erred in piercing the corporate veil. The
    statements relied upon by Gates were unnecessary to the determination of that issue and
    are merely dicta. Therefore, law of the case is inapplicable here.
    Finally, we note that Shareholders did not seek rehearing or transfer following the
    decision in CBR I. We remind Shareholders’ attorneys that where potential ambiguity
    arises in an appellate opinion, a petition for rehearing via Indiana Appellate Rule 54 is the
    most appropriate and efficient method of resolving any uncertainty, rather than attempting
    to sort out an ambiguity with the trial court post-remand. Our ability to address the issue
    presented in this case is due only to the language in CBR I and particular circumstances
    10
    rendering law of the case doctrine inappropriate; had CBR I clearly articulated a ruling of
    attorney fees in favor of Gates, Shareholders may not have enjoyed such a favorable
    outcome. These matters should not be left to chance.
    In sum, the only legal theory under which Shareholders could be personally liable
    for attorney fees on Gates’s wrongful stop payment claim was to pierce the corporate veil,
    which CBR I clearly held was improper. Neither claim preclusion, issue preclusion, nor
    law of the case are applicable here, and thus, we are not obligated to uphold the award of
    attorney fees against Shareholders. The trial court’s award of attorney fees was an abuse
    of discretion.
    II. Trial Court’s Ex Parte Order and Deposit of Funds
    Finally, Shareholders argue the trial court’s order granting Gates’s request to deposit
    the letter of credit funds with the trial court clerk was an improper ex parte order.
    Specifically, Shareholders state that Gates did not make sufficient efforts to notify them of
    the emergency request for relief and the trial court did not have discretion to order such
    relief under the circumstances. In response, Gates contends the trial court’s order was not
    necessary to effectuate transfer of the funds to the trial court clerk and that any alleged
    error was not reversible error. We find Gates’s position persuasive.
    The terms of the letter of credit provided that in the event PNC Bank gave written
    notice of non-renewal, Gates
    shall have the right, at any time within 60 days after you receive such written
    notice, to draw down the then available balance of this letter of credit by
    providing written demand therefore to us. Upon receipt of such written
    demand, we will immediately pay the entirety of the unpaid balance of this
    letter of credit to the clerk of the Marion County Superior Court, to be held
    11
    on behalf of the individual defendants, as a cash deposit in lieu of this letter
    of credit . . . .
    Appellant’s App. at 203. In a motion before the trial court in March 2013, Shareholders
    conceded that Gates made a “legitimate demand” under the terms of the letter of credit,
    referencing Gates’s written demand to PNC Bank on February 22, 2013. Appellant’s App.
    at 231. Thus, the entire $1,000,000 was drawn on the letter of credit and deposited with
    the trial court clerk pursuant to the terms of the letter of credit that were assented to by
    Shareholders. Shareholders do not dispute that Gates had a right to demand payment of
    the funds from the letter of credit to the trial court clerk, nor do Shareholders dispute that
    Gates properly tendered a valid written demand.
    “It is well-established that an error based on a lack of notice is subject to the
    harmless error doctrine, which requires the appellant to demonstrate prejudice as a result
    of the lack of notice.” Adams v. State, 
    967 N.E.2d 568
    , 572 (Ind. Ct. App. 2012), trans.
    denied. The deposit of funds with the trial court clerk was done in accordance with the
    terms of the letter of credit supplied by Shareholders, and the deposit occurred irrespective
    of the trial court’s ex parte order. Shareholders have failed to demonstrate prejudice
    resulting from the ex parte order.
    Conclusion
    We hold the trial court abused its discretion by holding Shareholders personally
    liable for attorney fees on a wrongful stop payment claim against CBR. Further, we
    conclude the doctrines of claim preclusion, issue preclusion, and law of the case do not
    require the imposition of those attorney fees. Lastly, the trial court’s ex parte order
    12
    requiring $1,000,000 from a letter of credit to be deposited with the trial court clerk was
    not reversible error.
    Affirmed in part and reversed in part.
    NAJAM, J., and BARNES, J., concur.
    13
    

Document Info

Docket Number: 49A02-1302-CT-159

Citation Numbers: 4 N.E.3d 1210

Filed Date: 3/3/2014

Precedential Status: Precedential

Modified Date: 1/12/2023