William Adams and Patricia Adams v. Chase Home Finance, LLC ( 2012 )

Pursuant to Ind. Appellate Rule 65(D), this
FILED
Memorandum Decision shall not be
regarded as precedent or cited before any
court except for the purpose of establishing
the defense of res judicata, collateral Sep 11 2012, 9:18 am
estoppel, or the law of the case.
CLERK
of the supreme court,
court of appeals and
tax court
ATTORNEYS FOR APPELLANTS: ATTORNEYS FOR APPELLEE:
PETER CAMPBELL KING THEODORE J. NOWACKI
Cline, King & King, P.C. BRIAN S. JONES
Columbus, Indiana Bose McKinney & Evans LLP
Indianapolis, Indiana
J. THOMAS HURLEY
Muncie, Indiana
IN THE
COURT OF APPEALS OF INDIANA
WILLIAM ADAMS and PATRICIA ADAMS, )
)
Appellants-Defendants/Counterplaintiffs, )
)
vs. ) No. 18A02-1202-MF-96
)
CHASE HOME FINANCE, LLC, )
)
Appellee-Plaintiff/Counterdefendant. )
APPEAL FROM THE DELAWARE CIRCUIT COURT
The Honorable John M. Feick, Judge
Cause No. 18C04-1009-MF-101
September 11, 2012
MEMORANDUM DECISION - NOT FOR PUBLICATION
CRONE, Judge
Case Summary
William Adams and Patricia Adams (“the Adamses”) appeal the trial court’s entry of
summary judgment in favor of Chase Home Finance, LLC (“Chase”).1 Chase filed a
complaint to foreclose on a mortgage and promissory note secured by certain real property
located in Delaware County against Danny Slusher, the mortgagor and promisor. Chase also
named the Adamses, among others, as defendants due to the possibility that the Adamses
would claim an interest in the mortgaged property. The Adamses responded with affirmative
defenses and a counterclaim against Chase alleging that Chase breached the standard of care
for a reasonable and responsible mortgage lender when issuing a mortgage to Slusher.
Specifically, the Adamses claimed that Slusher was not the true owner of the property, and
therefore Chase negligently issued the mortgage. Chase moved for summary judgment as to
the Adamses’ counterclaim arguing that, as a matter of law, it cannot be liable to a third
party, such as the Adamses, for negligent lending. Following a hearing, the trial court
entered summary judgment in favor of Chase on the Adamses’ counterclaim. Concluding
that no genuine issue of material fact remains regarding the Adamses’ counterclaim, and that
judgment as a matter of law is appropriate, we affirm summary judgment in favor of Chase.
Facts and Procedural History
The following is a recitation of both material and nonmaterial facts for purposes of
background and context. On August 30, 2001, the Hamilton Superior Court entered
1
JPMorgan Chase Bank, N.A., is successor by merger to Chase Home Finance, LLC.
2
judgment in favor of the Adamses and against William E. Smith, Joanne Smith, Danny J.
Smith, Steve Smith, Westbrook Management Group, Inc., and United Group (collectively
“the Smiths”) for three counts of corrupt business influence and one count each of fraud,
deception, theft, common law fraud, constructive fraud, and breach of contract for a total of
$9,635,967.04 in damages. Appellants’ App. at 307-10. Since obtaining judgment, the
Adamses have attempted to collect from the Smiths by instituting two proceedings
supplemental in Hamilton County to enforce their judgment. 2
In January 2004, Slusher and an individual named Ronald Gross purchased real
property located at 8989 North Shaffer Road in Muncie (“the Property”) for a purchase price
of $855,000.3 The Property was conveyed to Slusher and Gross by CitiMortgage, Inc.,
pursuant to a corporate warranty deed. To finance the transaction, Slusher and Gross
obtained a mortgage from HLB Mortgage in the amount of $798, 500.4 Because Slusher and
Gross were not in Indiana at the time of the closing, William Smith and Jeffrey Smith
executed the closing documents on their behalf through powers of attorney. Then, in April
2005, Slusher and Gross refinanced the existing loan and obtained a $1.5 million mortgage
on the Property from Custom Mortgage Solutions. Slusher and Gross signed the closing
2
Judgment creditors in Indiana have long relied on proceedings supplemental to execution to help
enforce judgments. Rose v. Mercantile Nat’l Bank of Hammond, 868 N.E.2d 772, 775 (Ind. 2007).
3
Chase provides this purchase amount in its appellee’s brief and directs us to an exhibit in the record
for support. Appellee’s Br. at 2. The exhibit, however, does not contain this number, and we are unaware
what evidence Chase is relying upon for this figure. Nevertheless, we provide the unverified amount as part of
the nonmaterial factual background.
4
Again, this amount is not supported by the cited exhibit and cannot be verified. Indeed, the cited
exhibit indicates that the initial mortgage indebtedness was, in fact, $200,000. Appellants’ App. at 136.
3
documents themselves. The day of closing, Custom Mortgage Solutions assigned the
mortgage loan to Chase.
On May 10, 2006, Slusher refinanced the $1.5 million loan at a lower interest rate.
Again, William Smith signed the mortgage documents on Slusher’s behalf pursuant to a
power of attorney. Two days later, Gross transferred his interest in the property to Slusher by
a gift deed. That transfer was signed for Gross by William Smith, under a power of attorney.
Thereafter, on January 8, 2007, Gross transferred his interest in the property to Slusher by
means of a quitclaim deed, which was recorded on January 11, 2007.
In August 2009, the Adamses filed a fraud complaint against the Smiths and Slusher
in the Delaware Circuit Court, under cause number 18C04-0908-MI-51 (“Cause 51”),
alleging that the Smiths owned the Property and that Slusher was just a “straw man” trying to
hide the true ownership of the Property from the valid collection efforts of the Adamses as
judgment creditors of the Smiths. Id. at 304. That cause is still pending.5
At all relevant times, the Smiths have lived on the Property rent free. Although
Slusher does not live on the Property, he made the required mortgage payments over the
years. The last payment received by Chase was for the payment due January 1, 2010.
5
The Delaware Circuit Court dismissed the Adamses’ fraud complaint on collateral estoppel grounds
in January of 2010. On appeal, this Court reversed the dismissal and remanded for further proceedings in an
unpublished memorandum decision in Adams v. Smith, No. 18A04-1002-MI-65 (Ind. Ct. App. Aug. 24, 2010).
4
On September 14, 2010, Chase filed a complaint on note and to foreclose mortgage on
real estate in the Delaware Circuit Court.6 In addition to Slusher, Chase joined several
defendants, including the Adamses, due to the interest “which they may claim in the
mortgaged property.” Id. at 17. The Adamses answered the complaint with affirmative
defenses and a counterclaim. Specifically, the Adamses’ affirmative defenses and
counterclaim against Chase alleged that the Smiths were the true owners of the Property and
therefore Chase breached the standard of care for a reasonable and responsible mortgage
lender when it issued a mortgage on the Property to Slusher.
Chase filed a motion for summary judgment and designation of evidence in support
arguing that summary judgment was appropriate as to the Adamses’ affirmative defenses and
counterclaim for negligence against Chase. The Adamses responded with their own
designation of evidence in opposition to summary judgment. A hearing was held on January
5, 2012. Thereafter, on January 12, 2012, the trial court granted summary judgment in favor
of Chase on the Adamses’ counterclaim. In addition, finding no just reason for delay, the
court entered a final appealable judgment. This appeal ensued.
Discussion and Decision
Our standard of review for a trial court’s order granting a motion for summary
judgment is well settled. We apply the same standard as the trial court and determine
whether there is a genuine issue of material fact and whether the moving party is entitled to
6
Although the cases involve different parties and different attorneys, upon the Adamses' motion, the
Delaware Circuit Court consolidated the instant case and Cause 51 for the purpose of discovery only.
Appellant’s App. at 5, 271.
5
judgment as a matter of law. Monroe Guar. Ins. Co. v. Magwerks Corp., 829 N.E.2d 968,
973 (Ind. 2005); Ind. Trial Rule 56(C). “An appellate court reviewing a trial court summary
judgment ruling likewise construes all facts and reasonable inferences in favor of the non-
moving party and determines whether the moving party has shown from the designated
evidentiary matter that there is no genuine issue as to any material fact and that it is entitled
to judgment as a matter of law.” Dugan v. Mittal Steel USA Inc., 929 N.E.2d 184, 186 (Ind.
2010). A factual issue is material for purposes of Trial Rule 56(C) if it bears on the ultimate
resolution of a relevant issue. Bushong v. Williamson, 790 N.E.2d 467, 474 (Ind. 2003).
Thus, despite conflicting facts and inferences on some elements of a claim, summary
judgment may be proper where there is no dispute or conflict regarding a fact that is
dispositive of the claim. Id. Factual disputes that are irrelevant or unnecessary will not be
considered. Jarvis Drilling, Inc. v. Midwest Oil Producing Co., 626 N.E.2d 821, 825 (Ind.
Ct. App. 1993), trans. denied (1994).
A trial court’s order on summary judgment is cloaked with a presumption of validity;
the party appealing from the grant of summary judgment must bear the burden of persuading
this Court that the decision was erroneous. Breining v. Harkness, 872 N.E.2d 155, 158 (Ind.
Ct. App. 2007), trans. denied (2008). “We may affirm the grant of summary judgment upon
any basis argued by the parties and supported by the record.” Id.In the instant case, Chase moved for summary judgment regarding the Adamses’
counterclaim against Chase for negligence. We begin by noting that the Adamses are neither
parties to the mortgage in question nor are they judgment creditors of Slusher, the mortgagor
6
and record title holder to the Property. Instead, the Adamses are third-party judgment
creditors of the Smiths, individuals who lived on the Property but did not legally own or have
title to the Property. In their counterclaim, the Adamses claimed that Chase “unreasonably”
granted a mortgage to Slusher by failing to reasonably conduct “due diligence in the
mortgage process involving this transaction” and “to grant a mortgage to the true owner in
fact of the real estate.” Appellants’ App. at 54-55. They claimed that Chase “breached the
standard of care for a reasonable and responsible mortgage lender when issuing a mortgage”
to Slusher, thereby proximately causing damage to the Adamses by “impairing the ability” of
the Adamses to lawfully execute and collect on their judgment against the Smiths. Id.In its motion for summary judgment, Chase argued that Indiana does not recognize a
cause of action for “negligent lending,” and therefore Chase is entitled to judgment as a
matter of law on the Adamses’ counterclaim. Id. at 107. Accordingly, the narrow question
before the trial court, and now this Court, is whether the Adamses can challenge the validity
of Chase’s mortgage with Slusher through a claim of negligence. To recover on a theory of
negligence, a plaintiff must establish three elements: (1) a duty on the part of the defendant
to conform his conduct to a standard of care arising from his relationship with the plaintiff,
(2) a failure of the defendant to conform his conduct to the requisite standard of care required
by the relationship, and (3) an injury to the plaintiff proximately caused by the breach. Webb
v. Jarvis, 575 N.E.2d 992, 995 (Ind. 1991).
Summary judgment is particularly appropriate when the court determines that no duty
exists because, absent a duty, there can be no breach and, therefore, no negligence. Reed v.
7
Beachy Constr. Corp., 781 N.E.2d 1145, 1148 (Ind. Ct. App. 2002), trans. denied (2003).
The Adamses have asserted no facts to support a finding of a duty in negligence arising from
any relationship between themselves and Chase.7 As stated, the Adamses are strangers to the
mortgage. Indeed, the Adamses concede that Indiana has never recognized a claim which
would allow a borrower, much less a third-party stranger to a mortgage, to assert a claim of
negligence against a mortgage lender for negligent lending.
Nevertheless, the Adamses ask that we construe their counterclaim under Indiana Trial
Rule 8(F), “so … as to do substantial justice, lead to disposition on the merits, and avoid
litigation of procedural points.” Accordingly, on appeal, the Adamses attempt to
recharacterize their counterclaim as a claim of fraud or an action to set aside a fraudulent
conveyance as opposed to a claim of negligence. However, this attempt to wholly
recharacterize their claim on appeal is spurious at best. Upon our review of the counterclaim
itself, as well as the transcript of the summary judgment hearing, there is no question that the
Adamses' claim against Chase sounded in negligence and negligence alone. Their counsel
conceded as much during the summary judgment hearing. See Tr. at 13, 18 (“[Cause 51] is
all about fraud. Not the case here.”) We will not entertain the Adamses’ novel equitable
claim on appeal to “set aside a fraudulent conveyance.” Appellants’ Reply Br. at 12. This
was not a theory presented to the trial court. When challenging an adverse grant of summary
7
The Adamses suggest that we recognize a very broad duty for Chase by arguing that “the law should
as a matter of public policy protect judgment creditors from bank foreclosure actions involving outright fraud
clams and title manipulation….” Appellants’ App. at 289. However, as noted earlier, the Adamses are not
judgment creditors of Slusher, the mortgagor. We are not persuaded that the Adamses are in the class of
persons to whom such broad protection, if it did exist, would extend.
8
judgment, a party cannot rely upon a theory that was not properly before the trial court. Otto
v. Park Garden Assoc., 612 N.E.2d.135, 139 (Ind. Ct. App. 1993), trans. denied. As stated,
the Adamses’ claim against Chase sounded in negligence. The trial court properly concluded
that the Adamses’ negligence claim against Chase fails as a matter of law.
The Adamses maintain that a material question of fact remains as to whether the
Smiths had any ownership interest in the Property. However, this assertion is essentially
nonresponsive to the current summary judgment proceeding regarding their counterclaim for
negligence. It bears repeating, however, that the Adamses are third-party strangers to the
mortgage and are now attempting to assert a right to the property that, if the right did exist,
would belong to the Smiths. As noted by Chase, the Adamses were joined as defendants in
this foreclosure “out of an abundance of caution” in the event that they would claim an
interest in the Property. Appellants’ App. at 114. The Adamses’ standing at that point can be
described as follows:
[a] proceeding to foreclose a mortgage is essentially a proceeding in rem; and,
in actions of this character, which seek to establish a right or interest in the
thing which is the subject-matter of the litigation, all who are made parties
defendant thereto, and challenged by the plaintiff therein to assert their rights,
are bound to assert every then existing fact which would defeat the plaintiff’s
action, and are forever concluded by a finding and judgment in favor of the
plaintiff as to all such facts, and this has been the law in this state, since the
case of Fischli v. Fischli, 1 Blackf. 360, 12 Am. Dec. 251.
Centex Home Equity Corp. v. Robinson, 776 N.E.2d 935, 946-47 (Ind. Ct. App. 2002)
(quoting Pilliod v. Angola Ry. & Power Co., 46 Ind. App. 719, 91 N.E. 829, 832 (1910)),
trans. denied. Once joined as defendants to the foreclosure, the Adamses were challenged to
9
assert their rights to the Property. Instead, the Adamses responded with a negligence claim
against Chase, which we have determined fails as a matter of law.
By continually citing the convoluted procedural history and nonmaterial facts of this
case and Cause 51, the Adamses attempt to create an issue of fact where none exists. We
acknowledge the Adamses’ frustration as judgment creditors of the Smiths. Nevertheless,
that does not change their standing, or lack thereof, in the current mortgage foreclosure
action. They are merely third-party judgment creditors of individuals who are neither the
mortgagors nor the owners of record and who have not claimed any interest in the mortgaged
property. The Adamses have not met their burden to persuade this Court that the trial court’s
entry of summary judgment on their counterclaim for negligence was erroneous.8 Therefore,
we affirm the judgment of the trial court.
Affirmed.
RILEY, J., and BAILEY, J., concur.
8
We note that, in the still pending fraud case against Slusher and the Smiths, Cause 51, the trial court
granted the Adamses a “writ of attachment” on the Property which was recorded lis pendens on January 31,
2011. “The purpose of lis pendens or notice of lis pendens is to give effective notice to third persons of
pendency of litigation affecting property…” UFG, LLC v. Sw. Corp., 784 N.E.2d 536, 545 (Ind. Ct. App.
2003) (citations omitted), trans. denied. However, the notice of lis pendens was filed five months after Chase
filed its complaint to foreclose and nearly five years after Chase and Slusher executed the mortgage upon
which the foreclosure is based.
10