Thomas H. Kramer, Member and Manager of Domus Property Investments, LLC v. Mark Kramer, and Domus Property Investments, LLC ( 2014 )

Pursuant to Ind. Appellate Rule 65(D), this
Memorandum Decision shall not be
regarded as precedent or cited before any May 30 2014, 7:36 am
court except for the purpose of establishing
the defense of res judicata, collateral
estoppel, or the law of the case.
ATTORNEYS FOR APPELLANT: ATTORNEY FOR APPELLEES:
LONNIE D. JOHNSON SHAWN P. RYAN
BELINDA R. JOHNSON-HURTADO South Bend, Indiana
Clendening Johnson & Bohrer, P.C.
Bloomington, Indiana
IN THE
COURT OF APPEALS OF INDIANA
THOMAS H. KRAMER, Member and Manager of )
Domus Property Investments, LLC, )
)
Appellant-Plaintiff/Counterdefendant, )
)
vs. ) No. 71A04-1305-PL-261
)
MARK KRAMER, )
)
Appellee-Defendant/Counterclaimant/ )
Third Party Plaintiff, )
)
and )
)
DOMUS PROPERTY INVESTMENTS, LLC, )
)
Appellee-Third Party Defendant. )
APPEAL FROM THE ST. JOSEPH CIRCUIT COURT
The Honorable Michael G. Gotsch, Judge
The Honorable Larry L. Ambler, Magistrate
Cause No. 71C01-0510-PL-292
May 30, 2014
MEMORANDUM DECISION - NOT FOR PUBLICATION
CRONE, Judge
Case Summary
In 1996, brothers Thomas H. Kramer (“Tom”) and Mark Kramer (“Mark”) formed
Domus Property Investments, LLC (“Domus”), for the purpose of purchasing and renting
housing in South Bend. The Domus operating agreement (“the Operating Agreement” or
“the Agreement”) contained a noncompetition clause that prohibited Tom and Mark from
engaging in similar activities during their involvement with Domus and for one year
thereafter. The Agreement also authorized injunctive relief “together with attorney fees” for
violation of the noncompetition clause. Appellant’s App. at 274. Domus’s assets were sold
in July 2005. Later that year, Tom filed a complaint against Mark alleging, among other
things, that Mark breached the Agreement’s noncompetition clause by purchasing and renting
three properties (“The Properties”). Tom also requested attorney fees and prejudgment
interest. Mark filed counterclaims against Tom and also filed a third-party complaint against
Domus requesting the appointment of a receiver. After a bench trial, the trial court issued an
order in which it found that Mark had breached the Agreement’s noncompetition clause with
respect to one of The Properties and awarded Tom damages for lost rents. The court denied
Tom’s request for attorney fees, declined to award prejudgment interest on the damages for
lost rents, and found against Mark on his counterclaims.
On appeal, Tom contends that the trial court erred in not finding that Mark breached
the Agreement’s noncompetition clause with respect to all three of The Properties. Tom also
contends that he is entitled to damages for lost profits and rents, as well as attorney fees and
prejudgment interest. We agree with Tom that Mark breached the Agreement’s
2
noncompetition clause with respect to all three of The Properties and therefore Tom is
entitled to damages for lost profits and rents in the amount of $333,156. Consequently, we
reverse and remand as to these issues. Because Tom did not seek injunctive relief under the
Agreement, he is not entitled to attorney fees. And because the determination of Tom’s
damages for lost profits and rents involved more than a simple calculation, he is not entitled
to prejudgment interest. Therefore, we affirm the trial court as to these issues.
Facts and Procedural History
After a three-day bench trial in October 2012, the trial court issued an order that
contains the following relevant findings of fact:1
1. On October 3, 2005, Plaintiff Thomas Kramer (“Tom”) filed his
complaint against Defendant Mark Kramer (“Mark”) for [(i)] breach of
operating agreement and usurpation of corporate opportunities for purchasing
and managing properties outside of Domus Property Investments, LLC
(“Domus”), (ii) breach of operating agreement and fiduciary duties with
excessive provision of pest control services; (iii) breach of operating
agreement by distribution of unauthorized management fees; (iv) breach of
operating agreement for excessive repair costs; (v) breach of fiduciary duties
for failing to properly document loans from Domus to related entities; (vi)
breach of operating agreement by equalizing capital accounts; (vii) unjust
enrichment; (viii) theft and conversion; and (ix) request for attorney fees.
2. On or around January 18, 2006, Mark filed his Answer with
affirmative defenses and a counterclaim for breach of fiduciary duty, unjust
enrichment, tortious interference with business and contractual relations,
defamation, constructive trust/accounting, and conversion.
….
1
The court reporter compiled a separate transcript volume for each day of the trial. The volumes are
separately paginated in violation of Indiana Appellate Rule 28(A)(2), which states, “The pages of the
Transcript shall be numbered consecutively regardless of the number of volumes the Transcript requires.” We
refer to each transcript by date, e.g., Tr. 10/15/12.
3
4. Mark also filed a Third Party Complaint against Domus
requesting the appointment of a receiver.
….
7. Tom and Mark organized and opened Domus in June 1996.
8. Mark and Tom were 50/50 members of Domus.
9. Domus was a company whose business plan partly consisted of
the purchase and rental of housing to university students in the South Bend,
Indiana, area.
10. In the course of purchasing and renting the properties, Domus
would also prepare and renovate the properties, when necessary, to rent to
students.
11. Tom and Mark entered into an Operating Agreement on June 12,
1996 which governed the management and operations of Domus.
12. Portions of the Operating Agreement, relative [sic] to this matter
are:
a. Purpose. The purpose of the company is Purchase, Sale
and Rental of Real Estate and to pursue other business and
investment opportunities as the Managers shall determine
may be beneficial for the Company.
b. Other Activities – Non Competition. The Managers, an
affiliate of any of the Managers and any Member operating
under this Operating Agreement, shall not be permitted to
engage in similar or like business ventures in another
company which is directly in competition with the work
performed by [Domus]. The non-competition activities shall
include, but not by way of limitation, other business ventures
or investments of any kind, independently or with others,
ventures engaged in owning, operating or managing
businesses or properties similar to those businesses or
properties owned or operated by the Company. Further
agreed by and between the parties, that any Manager or
Member shall be prohibited from engaging in a similar or
like activity conducted by [Domus] within a range of One
4
Hundred (100) miles for a period of one (1) year after the
termination of any Manager’s or Member’s interest in
[Domus]. Further agreed, that [Domus] shall be entitled to
file for injunction [sic] relief, together with attorney fees, for
violation of this non-competition agreement.
….
No Waiver. Failure or delay of any party in exercising any right or remedy
under this Agreement, or any other agreement between the parties, or
otherwise, will not operate as a waiver thereof. The express waiver by any
party of a breach of any provisions of this Agreement by any other party shall
not operate or be construed as a waiver of any subsequent breach by said party.
No waiver will be effective unless and until it is in written form and signed by
the waiving party.
13. Domus was in operation for eleven (11) years from June 1996
through July 27, 2005, when the remaining assets of Domus were sold to North
Hill Street. At that point Domus already ceased its day to day business
activities.
14. Upon sale, the proceeds were split equally between Tom and
Mark, with each brother receiving in excess of $1,750,000.00. The initial
capital investment of each brother was approximately $100,000.00.
15. From June 1996 until July 2005, Mark lived in South Bend while
Tom lived in Columbus, Indiana.
16. Domus offices were located [in South Bend].
17. Tom was minimally involved with managerial functions.
18. Mark, because he lived in South Bend where the properties were
located, took over the day-to-day functions and operations of Domus and was
responsible for the accounting records and engaging services on Domus’
behalf.
….
21. Mark was an owner and operator of Termiguard Pest Protection
(“Termiguard”) from 1984 through 2004. In 1996 Mark became the sole
owner of Termiguard.
5
22. Prior to the formation of Domus, Mark formed Kramer
Properties, LLC (“Kramer Properties”). Kramer Properties was in the student
housing business in South Bend. The total Kramer Properties rental units was
thirteen (13).
23. For each property owned by Mark or Kramer Properties, Mark
tracked expenses, rental income and vacancy rate on a specific ledger for that
property.
24. Mark purchased 226 St. Peter Street in South Bend in 1989 and
before the formation of Domus, with the intent to tear down the building and
use it for parking for his adjacent building … where he operated Termiguard.
25. At the time of purchase, the 226 St. Peter Street building had six
St. Mary’s College student tenants and Mark honored the then-existing lease.
Mark decided against tearing down the 226 St. Peter Street building because of
the cash flow it generated.
26. Mark owned 226 St. Peter Street until February 2, 1996, when
his divorce was finalized and his ex-wife received the property.
27. Because of the demand from student tenants for rental units,
Mark recognized a market opportunity. Once he was divorced in 1996, he
decided to pursue the opportunity.
28. Mark took the idea of purchasing and rehabbing student property
rentals to Tom, who was intrigued by it. They discussed the potential
profitability and other aspects of the business. The brothers had a good
relationship at the time.
….
30. Mark’s business plan for Domus in 1996 was to acquire ten
percent of the off-campus Notre Dame student housing market.
31. He planned to buy homes, rehabilitate them, and bring them to a
higher level than what other landlords were offering in the market.
32. Domus achieved that goal in the South Bend market. Tom also
had input for the plan.
….
6
56. Termiguard provided pest control related services for Domus.
Termiguard billed Domus monthly for services it provided, but Domus, due to
its periodic cash flow difficulties, paid only when it had sufficient funds to do
so.
….
63. During its active operation, Domus acquired thirty-six buildings
plus six condominiums, all in the South Bend area.
64. Domus spent twenty-five to forty thousand dollars per
acquisition on average for renovations, with some homes’ renovations
exceeding sixty thousand dollars to achieve suitable rehabilitation.
….
75. The purchase and management of three (3) separate panels [sic]
of real estate are at the center of controversy and shall hereafter referred [sic]
to as “The Properties”; 226 St. Peter Street, 1017 East Washington Street, 919
East Washington Street, all in South Bend, Indiana.
76. Again Domus’ operating agreement was effective June 12, 1996
and its assets were sold on July 27, 2005.
77. Mark and his current spouse, Kerri, took title to 226 St. Peter
Street on September 8, 2000. The property was previously owned by Mark
and his then spouse, Judith and Judith took title to the property through
dissolution of marriage proceedings on February 2, 1996, prior to the
formation of Domus. Mark re-purchased and Kerri purchased 226 St. Peter
Street from Judith while the Domus operating agreement was in full force and
effect.
78. Mark testified that Tom gave Mark his oral consent prior to the
repurchase closing. Tom alleges he gave no such consent. However, Tom was
aware of such re-purchase and sought no injunctive relief per the Domus
operating agreement.
79. Mark testified that notice of Tom’s “non-consent” to the
repurchase of 226 St. Peter Street came in the form of the initial complaint
filed herein on October 5, 2005, more than five (5) years after the date of
repurchase.
7
80. Mark advised Tom that he was concerned that his Termiguard
offices … would be “landlocked” and the purchase of 226 St. Peter Street
would alleviate his concerns.
81. On May 1, 2002 sole ownership of 226 St. Peter Street was
transferred to Kerri.
82. While the Domus operating agreement was in full force and
effect Mark and Kerri purchased 1017 East Washington Street by deed on
December 15, 2003 and on the same date the property was deeded to Kerri’s
name alone.
83. Kramer Properties entered into a lease agreement on May 11,
2005 to rent 1017 East Washington Street from August 1, 2005 to May 2006
and therefore within one (1) year after Domus sold its assets. For such period
Kramer Properties was to receive $2,100.00 in monthly rent or a total of
$21,000.00.
84. While the Domus operating agreement was in full force and
effect, Mark and Kerri purchased 919 East Washington Street on July 2, 2004.
85. Kramer Properties also entered into a lease agreement in May
2005 to rent 919 East Jefferson [sic] Street from June 2005 to May 2006 at a
monthly rental rate of $1,050.00. A second lease went into effect in June,
2006 at $2,646.00 per month and was in full force and effect at the one (1)
year anniversary of the sale of Domus’s assets. Kramer Properties therefore
received total rent of $17,898.00 on 919 East Washington Street while the
Domus operating agreement was in full force and effect and the one (1) year
anniversary of Domus’s sale of its assets.
86. The Domus Operating Agreement “Purpose” section does not
limit rentals to students alone and therefore Mark’s contention that for a lease
to “non-student” [sic] at 919 East Washington Street from June, 2005 to May
2006 is irrelevant.
87. Mark failed to produce any documentation evidencing the
alleged purchase prices, rehabilitation and maintenance expenses for 919 and
1017 East Washington Street and the Court cannot speculate as any [sic] such
amounts.
8
88. Mark therefore should be liable to Tom in the sum of fifty
percent (50%) of the rental receipts of $17,898.00, to-wit; $8,949.00 without
prejudgment interest.
….
90. Mark, without the approval of Tom, drew a total of $60,227.40
as “management fees” while Tom, presumedly [sic] without the approval of
Mark, withdrew $36,132.50 in “management fees”. Neither action was taken
with the intent of stealing by either party.
91. Mark should therefore be liable to Tom in the sum of
$24,094.49. Said amount was ascertainable and the amount rested upon mere
computation and [is] therefore subject to an award of prejudgment interest.
….
96. Parties should be responsible for the payment of their respective
attorney fees without contribution by the opposing party.
Id. at 10-22.
The order also contains the following conclusions:
1. Tom and Mark owed each other fiduciary obligations arising out
of their relationships as 50/50 owners of Domus.
2. Mark acted in the overall best interest of his brother and Domus.
3. Pursuant to the terms of the Operating Agreement, Tom and
Mark were prohibited from engaging in similar or like business in direct
competition with Domus and said prohibition continued for a period of one (1)
year after the termination of either or both of Tom’s and Mark’s interest in
Domus.
4. Such interest for both parties terminated upon the sale of Domus
on July 27, 2005 and the non-competition prohibition continued until July 26,
2006 although there was nothing to compete with after July 27, 2005.
….
9
9. An award of attorney fees is not appropriate herein.
10. Other than the above, Tom has failed to prove by a
preponderance of the evidence that Mark is liable to Tom. Mark has failed to
prove by a preponderance of evidence that Tom is liable to Mark.
11. JUDGMENT is entered in favor of Plaintiff, Thomas Kramer and
against Defendant, Mark Kramer in the sum of $17,898.00 without
prejudgment interest thereon.
12. Further JUDGMENT is entered in favor of Plaintiff, Thomas
Kramer and against Defendant, Mark Kramer in the sum of $24,094.49
together with prejudgment interest to be computed as heretofore set forth ….
13. Finally, JUDGMENT is entered in favor of Plaintiff and against
Defendant on Defendant’s claims.
Id. at 22-24. Pursuant to a motion to correct clerical error, the trial court amended the sum in
paragraph 11 to read $8,949.00.
Tom now appeals. Additional facts will be provided as necessary.
Discussion and Decision
Tom argues that the trial court should have concluded that Mark breached the
Operating Agreement as to all three of The Properties and awarded him proper damages for
each breach. Tom also argues that he is entitled to attorney fees and prejudgment interest.
The record indicates that the parties filed a joint motion for findings of fact and conclusions
thereon pursuant to Indiana Trial Rule 52 and submitted proposed findings and conclusions
to the trial court. Our standard of review is two-tiered:
we determine whether the evidence supports the trial court’s findings, and we
determine whether the findings support the judgment. We will not disturb the
trial court’s findings or judgment unless they are clearly erroneous. Findings
of fact are clearly erroneous when the record lacks any reasonable inference
from the evidence to support them, and the trial court’s judgment is clearly
10
erroneous if it is unsupported by the findings and the conclusions which rely
upon those findings.
Bussing v. Ind. Dep’t of Transp., 779 N.E.2d 98, 102 (Ind. Ct. App. 2002) (citations omitted),
trans. denied (2003). A judgment is also “clearly erroneous if it applies the wrong legal
standard to properly found facts. In order to determine that a finding or conclusion is clearly
erroneous, our review of the evidence must leave us with the firm conviction that a mistake
has been made.” In re Paternity of B.B., 1 N.E.3d 151, 160 (Ind. Ct. App. 2013) (citation
omitted).
“[W]e consider only the evidence favorable to the judgment and all reasonable
inferences to be drawn therefrom. We will neither reweigh evidence nor judge the credibility
of witnesses.” Bussing, 779 N.E.2d at 103 (citation omitted). Tom is appealing from a
negative judgment, “and therefore we will reverse the trial court only if the evidence is
without conflict and all reasonable inferences to be drawn from the evidence lead to a
conclusion other than that reached by the trial court.” Id. To the extent that we are required
to construe the Operating Agreement, we note that “[c]onstruction of the terms of a written
contract is a pure question of law for the court, reviewed de novo.” Puryear v. Progressive
N. Ins. Co., 790 N.E.2d 138, 139 (Ind. Ct. App. 2003), trans. denied. If a contract is clear
and unambiguous, the language must be given its plain meaning. Id.
Section 1 – Breach of Operating Agreement
Tom contends that the “undisputed facts in the record[] show that Mark’s purchase
and management of The Properties was a breach of the Operating Agreement” and that
“[w]hile the trial court issued findings of fact to support all elements required for a breach of
11
the non-compete, it erred in not entering conclusions that the Operating Agreement was
breached as to each of The Properties.” Appellant’s Br. at 13. We agree. The Operating
Agreement prohibited any member of Domus from “owning, operating or managing
businesses or properties similar to those businesses or properties owned or operated by”
Domus while a member of Domus and for a period of one year after the termination of any
member’s interest in Domus. Appellant’s App. at 274. It is undisputed that Mark purchased,
rented, and managed all three of The Properties and thus operated a business similar to
Domus’s either while he was a member of Domus or within one year after the sale of its
assets. By doing so, Mark breached the Operating Agreement with respect to all three of The
Properties.2
The trial court found, and Mark emphasizes on appeal, that Tom sought no injunctive
relief pursuant to the Operating Agreement, but the Agreement does not limit Tom to that
remedy. Moreover, the Agreement specifically provides that no waiver of any right or
remedy thereunder would “be effective unless and until it is in written form and signed by the
waiving party.” Id. at 12. There is no evidence that Tom signed any written waiver.3 In sum,
2
Mark argues that Tom “provided no evidence that Domus was financially able to exploit the
opportunity to purchase 226 St. Peter Street.” Appellee’s Br. at 7. This argument might be relevant as to
damages, but not as to whether Mark breached the Operating Agreement.
3
We note that the trial court did not specifically find that Tom consented to Mark’s repurchase of 226
North St. Peter Street.
12
the trial court clearly erred in not concluding that Mark breached the Operating Agreement
with respect to all three of The Properties, and therefore we reverse on this issue.4
Section 2 – Damages
We now address Tom’s arguments regarding damages for Mark’s breaches of the
Operating Agreement. “[T]he measure of damages in a contract action is limited to those
actually suffered as a result of the breach which are reasonably assumed to have been within
the contemplation of the parties at the time the contract was formed.” Erie Ins. Co. v.
Hickman, 622 N.E.2d 515, 519 (Ind. 1993). “That said, the nonbreaching party is not entitled
to be placed in a better position than he would have been if the contract had not been
broken.” Sisters of St. Francis Health Servs., Inc. v. EON Props., LLC, 968 N.E.2d 305, 313
(Ind. Ct. App. 2012). “The computation of damages is a matter within the discretion of the
trial court, and mathematical certainty is not required. However, the amount awarded must
be supported by evidence in the record, and may not be based on mere conjecture,
speculation, or guesswork.” Ponziano Constr. Servs., Inc. v. Quadri Enters., LLC, 980
N.E.2d 867, 873 (Ind. Ct. App. 2012) (citation omitted). “[L]ess certainty is required to
prove amount of loss than is required to prove the fact that profits were in truth lost.” Jerry
Alderman Ford Sales, Inc. v. Bailey, 154 Ind. App. 632, 652, 291 N.E.2d 92, 106 (1972),
clarified on other grounds on reh’g, 154 Ind. 632, 294 N.E.2d 617, trans. denied.
4
In a footnote in his appellate brief, Tom notes that he “also brought a breach of fiduciary duty claim
against Mark for his purchase of The Properties as ‘[u]surping a corporate opportunity is a breach of fiduciary
duty’” and states that “[a]rguments as to the trial court’s findings in these regard [sic] are parallel to the breach
of non-compete arguments.” Appellant’s Br. at 1 (citation omitted). Because we rule in favor of Tom on his
contract claim, and because Tom does not contend that he is entitled to additional damages for his fiduciary
duty claim, we do not address it.
13
Tom asserts, and Mark does not dispute, that lost profits are properly recoverable for a
breach of a noncompetition clause. See, e.g., Turbines, Inc. v. Thompson, 684 N.E.2d 254,
257 (Ind. Ct. App. 1997) (“Absent an enforceable liquidated damages clause, lost profits are
a proper measure of damages in actions involving covenants not to compete.”). Tom further
asserts,
Although the trial court awarded [him] some rental damages as to 919 East
Washington Street, a proper award of damages should have included: (i) lost
profits for each of The Properties, (ii) lost rents for each of The Properties
pursuant to the leases Mark produced, and (iii) lost rents without produced
leases from an adverse inference due to Mark’s conduct during discovery for
each of The Properties.
Appellant’s Br. at 18.
Tom’s argument assumes that, but for Mark’s breach of the Agreement, Domus would
have and could have purchased and rented The Properties. Mark does not dispute Tom’s
assertion that Domus “was ready, willing, [and] eager … to purchase The Properties.” Id. at
20. But Mark does challenge Tom’s assertion that Domus was “able” to do so, claiming that
Domus had “poor cash flow.” Appellee’s Br. at 9. The record reflects that Domus had cash
flow problems early on, but Mark himself admitted that Domus was “fully rented up” and
“had good cash flow” by 2000. Tr. 10/17/12 at 73.5 And all of The Properties were acquired
in or after September of that year. Appellant’s App. at 288, 301, 322. As such, we agree
5
Mark argues that “because Domus always had 100% occupancy[,] no potential renters were ever
diverted from Domus.” Appellee’s Br. at 4. We agree with Tom that this argument misses the point, in that
“[i]t is precisely because Domus always had 100% occupancy that it was in a position, at the time Mark
purchased and rented The Properties, to expand and purchase more rental properties to earn more rental
income.” Appellant’s Reply Br. at 9.
14
with Tom that he is entitled to lost profits and rents from all three of The Properties. The
question then becomes, how much?
Section 2.1 – Lost Profits
As far as lost profits are concerned, Tom contends, and Mark does not dispute, that
Mark purchased The Properties for a total of $260,000 and sold them in April 2008 for
$741,000, resulting in a gross profit of $481,000. The trial court found that Mark failed to
submit any documentation about the rehabilitation and maintenance costs for The Properties.
Appellant’s App. at 21 (finding 87).6 Mark also failed to submit any documentation
regarding taxes and insurance costs. Tom asserts that, therefore, “net profits can be found
only by subtracting the purchase price [from] the sales price.” Appellant’s Br. at 21.
We agree. In a breach of contract action, “[a]ny doubts and uncertainties as to proof
of the exact measure of damages must be resolved against the defendant.” L.H. Controls,
Inc. v. Custom Conveyor, Inc., 974 N.E.2d 1031, 1043 (Ind. Ct. App. 2012). Mark testified
that Domus, “on average, … spent anywhere from twenty-five to $40,00.00 on
rehabilitations[,]” with a few homes costing more than $50,000 to $60,000. Tr. 10/17/12 at
38. But Mark offered no testimony, let alone documentation, regarding the rehabilitation
costs for The Properties. It would be pure speculation to conclude that Domus’s
rehabilitation costs for its properties were similar to Mark’s rehabilitation costs for The
Properties, and therefore this uncertainty must be resolved against Mark as the breaching
6
Tom points out that Mark did submit documentation regarding the purchase prices of The Properties,
contrary to finding 87. See Appellant’s App. at 288, 301, 322.
15
party. Consequently, we agree with Tom that, as a one-half owner of Domus, he is entitled to
one-half of the $481,000 profit that Mark realized from the sale of The Properties, or
$240,500.7
Section 2.2 – Lost Rents
As for lost rents, we agree with Tom that the trial court should have awarded him “lost
rents based on the leases [that] Mark actually produced[.]” Appellant’s Br. at 22. To
reiterate, the Operating Agreement prohibited Domus members from “engaging in a similar
or like activity conducted by [Domus] … for a period of one (1) year after the termination of
any Manager’s or Member’s interest in [Domus].” Appellant’s App. at 274. Domus’s assets
were sold on July 27, 2005, and thus the noncompetition clause was effective until July 27,
2006. Tom notes that Mark produced leases establishing that 226 North St. Peter Street was
rented from June 10, 2004, through May 25, 2005, at $1980 per month and from June 10,
2005, through May 25, 2006, at $2100 a month, for a total of $48,960. Mark also produced
leases establishing that 919 East Washington Street was rented from June 10, 2005, through
May 25, 2006, at $1050 per month and from June 10, 2006, through May 25, 2007, at $2626
a month, for a total of $44,112. And Mark produced leases establishing that 1017 East
Washington Street was rented from August 1, 2005, through May 25, 2006, and from June
10, 2006, through May 25, 2007, at $2100 per month, for a total of $46,200.
7
Mark sold The Properties almost three years after Domus sold its assets. Mark does not argue that a
different value or valuation date should be used to determine Tom’s damages for lost profits.
16
Tom argues that “all rents and profits would have belonged to Domus, not just those
that accrued prior to the expiration of the non-compete” on July 27, 2006. Appellant’s Br. at
23 n.15. Tom cites no authority for this proposition. Renting The Properties after the
noncompetition clause expired did not violate the clause, and thus Tom is not entitled to
damages for rents that accrued after the clause expired. Tom is, however, entitled to one-half
of the foregoing rents that accrued before the clause expired, which total $92,012 ($48,960
from 266 North St. Peter Street8 + $17,852 from 919 East Washington Street9 + $25,200 from
1017 East Washington Street10). Tom is thus entitled to $46,006 in lost rents based on the
leases that Mark produced.
Also, Tom accuses Mark of failing to preserve and/or intentionally destroying other
leases for The Properties and argues that “adverse inferences should be drawn against him.
These inferences should include: that (i) The Properties were rented from the time of
purchase to the time of sale, and (ii) the rental amounts were always consistent with the few
rental contracts that were provided.” Id. at 23. Tom catalogs Mark’s repeated evasiveness in
responding to discovery requests regarding The Properties, which resulted in several orders
to compel, a contempt order, and several attorney fee awards. Mark ultimately produced the
purchase and sale records as well as two leases for each of The Properties. But at trial, he
testified that other documents, including records of various expenses related to rehabbing and
8
($1980/month × 12 months = $23,760) + ($2100/month × 12 months = $25,200) = $48,960
9
($1050/month × 12 months = $12,600) + ($2626/month × 2 months = $5252) = $17,852
10
($2100/month × 10 months = $21,000) + ($2100/month × 2 months = $4200) = $25,200
17
renting The Properties, had been damaged in a sewer backup and thus were “not available.”
Tr. 10/17/12 at 139.
Tom asserts, “Although an adverse evidentiary inference is an extraordinary remedy,
courts have universally held it particularly appropriate in cases where the conduct and
circumstances occasioned like those [sic] by Mark in this case.” Appellant’s Br. at 26. Tom
cites Porter v. Irvin’s Interstate Brick & Block Co., 691 N.E.2d 1363 (Ind. Ct. App. 1998), in
which we stated,
In Indiana, the exclusive possession of facts or evidence by a party,
coupled with the suppression of the facts or evidence by that party, may result
in an inference that the production of the evidence would be against the
interest of the party which suppresses it. Westervelt v. National Manufacturing
Co., 33 Ind. App. 18, 69 N.E. 169, 172 (1903). “While this rule will not be
carried to the extent of relieving a party of the burden of proving his case, it
may be considered as a circumstance in drawing reasonable inferences from
the facts established.” Great American Tea Co. v. Van Buren, 218 Ind. 462, 33
N.E.2d 580, 581 (Ind.1941). The rule not only applies when a party actively
endeavors to prevent disclosure of facts, but also when the party “merely fails
to produce available evidence.” Morris v. Buchanan, 220 Ind. 510, 44 N.E.2d
166, 169 (1942). These cases are directed to a party which has suppressed
evidence believed to be in its control at the time of the law suit; however, we
see no reason why they should not be applied where the party spoliates
evidence prior to the commencement of a law suit that the party knew or
should have known was imminent.
Id. at 1364-65.
Tom argues,
The documentary evidence shows [that] Mark had an ownership and/or
a direct financial interest in each of The Properties since before 2005, well
before Tom filed his Complaint. Tom has been irreparably damaged by the
destroyed evidence in that he cannot reasonably determine, without relying on
Mark’s own testimony, when The Properties were rented, for how long they
were rented, or for how much they were rented.… Tom, due to Mark’s
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spoliation of the requested evidence, has been put in a position where he
cannot determine the amount of his claim for breach of contract.
Therefore, adverse inferences should be made by establishing as fact the
rental income The Properties generated from the time they were purchased
until the time they were sold. Tom is entitled to a further inference that rental
amounts were always consistent with the few rental contracts Mark did
provide. Therefore, one-half (1/2) of these lost rents, calculated based on the
leases which were produced and imputed from the month of purchase to date
of sale, should be awarded ….
Appellant’s Br. at 27-28.
Regarding 226 North St. Peter Street, which Mark purchased from his ex-wife Judith
in September 2000, Mark’s own evidence established that the property was rented beyond the
terms of the two leases that he produced. Mark’s current wife Kerri testified that Mark “had
rented it all along,” Tr. 10/16/12 at 166, and Mark did not testify otherwise. As such, we
conclude that Tom is entitled to one-half of the lost rents from September 2000 through May
2004 at $1980 per month and from June 2006 through July 2006 (when the noncompetition
clause expired) at $2100 per month, for a total of $46,650.11 As stated above, Tom is not
entitled to rents that accrued after the noncompetition clause expired.
As for 919 East Washington Street, which was purchased in July 2004, Mark testified
that it was not fully rehabbed until January 2005 and sat vacant until June 2005 because it
had been marketed for sale. Tr. 10/17/12 at 57. Tom argues that “Mark’s actions have made
it so that there is no proof, other than his own testimony, on this issue. Given Mark’s
conduct, as described [above], an adverse inference is warranted and lost rents as to this
11
($1980/month × 45 months = $89,100) + ($2100/month × 2 months = $4200) = $93,300 ÷ 2 =
$46,650
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property should be inferred for the periods for which no leases were produced.” Appellant’s
Br. at 29. And as for 1017 East Washington Street, which was purchased in December 2003,
Mark testified that it was not rented until August 2005. Tr. 10/17/12 at 54. Tom argues that
“an adverse inference is necessary” in this instance because “Mark’s repeated failure to
honestly respond to discovery throughout the course of this litigation, coupled with his
spoliation of evidence, severely belies his credibility on this issue.” Appellant’s Br. at 28-29.
Although Mark may have been evasive in responding to Tom’s discovery requests,
there is no indication that he intentionally damaged or destroyed any evidence. The trial
court made no finding of spoliation and clearly found Mark’s testimony regarding the
Washington Street properties to be credible, and it was in an infinitely better position to
judge Mark’s credibility than we are on appeal. Therefore, we must decline Tom’s invitation
to draw adverse inferences regarding the Washington Street properties and conclude that he
is not entitled to lost rents for allegedly unproduced leases for those properties. In sum, Tom
is entitled to $92,656 in lost rents12 and $240,500 in lost profits, for a total of $333,156.
Section 3 – Attorney Fees
Next, Tom argues that “Domus’ Operating Agreement provides for the recovery of
attorney’s fees relating to a breach of the non-competition provision” and that the trial court
erred in not awarding him any. Appellant’s Br. at 30. We disagree. The Agreement states
that “[Domus] shall be entitled to file for injunction [sic] relief, together with attorney fees,
for violation of this non-competition agreement.” Appellant’s App. at 274. The use of the
12
$46,006 + $46,650 = $92,656
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phrase “together with” demonstrates the parties’ intent that the recovery of attorney fees be a
package deal with injunctive relief, which Tom did not seek. Therefore, we affirm the trial
court on this issue.
Section 4 – Prejudgment Interest
Finally, Tom contends that the trial court erred in not awarding him prejudgment
interest. “An award of pre-judgment interest in a breach of contract action is warranted if the
amount of the claim rests upon a simple calculation and the terms of the contract make such a
claim ascertainable,” and such an award “is generally not considered a matter of discretion.”
Olcott Int’l & Co. v. Micro Data Base Systs., Inc., 793 N.E.2d 1063, 1078 (Ind. Ct. App.
2003), trans. denied. As indicated above, the determination of Tom’s damages from lost
profits and rents involved more than a simple calculation, and therefore we affirm the trial
court.
Conclusion
We reverse and remand to the trial court with instructions to find Mark in breach of
the Operating Agreement’s noncompetition clause as to all three of The Properties and to
award Tom $333,156 in damages therefor. We affirm the trial court in all other respects.
Affirmed in part, reversed in part, and remanded.
BAKER, J., and NAJAM, J., concur.
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