East Point Business Park, LLC, Fieldview Properties, LLC, and Karen Rusin v. Private Real Estate Holdings, LLC

ATTORNEY FOR APPELLANT ATTORNEYS FOR APPELLEE
FIELDVIEW PROPERTIES, LLC Megan L. Craig
AND KAREN RUSIN John R. Craig
David J. Tipton Craig, Craig & Maroc, LLC
Densborn Blachly, LLP Crown Point, Indiana
Indianapolis, Indiana
ATTORNEY FOR APPELLANT EAST
POINT BUSINESS PARK, LLC
Dec 31 2015, 9:28 am
Geoffrey G. Giorgi
Giorgi & Bebekoski, LLC
Merillville, Indiana
IN THE
COURT OF APPEALS OF INDIANA
East Point Business Park, LLC, December 31, 2015
Fieldview Properties, LLC, and Court of Appeals Case No.
Karen Rusin, 45A05-1412-MF-584
Appellants-Defendants, Appeal from the Lake Superior
Court
v. The Honorable John M. Sedia,
Judge
Private Real Estate Holdings, Trial Court Cause No.
LLC, 45D01-1102-MF-40
Appellee-Plaintiff.
Mathias, Judge.
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[1] Appellants-Defendants East Point Business Park, LLC (“East Point”),
Fieldview Properties, LLC, (“Fieldview”) and Karen Rusin (“Rusin”)
(collectively “the Defendants”) challenge the Lake Superior Court’s grant of
summary judgment in favor of Appellee-Plaintiff Private Real Estate Holdings,
LLC (“PREH”), in PREH’s foreclosure action against the Defendants.
[2] We affirm.
Facts and Procedural History
[3] East Point is a limited liability company formed for the purpose of acquiring a
124-acre parcel of real estate (“the Property”) in Crown Point, Indiana, and
developing a business park for lease and eventual sale. The members of East
Point are Fieldview and another group called Investors of East Point, LLC
(“IEP”). IEP owns a 70% interest in East Point and Fieldview a 30% interest.
While Rusin is the sole owner of Fieldview, IEP is owned by: Michael Barrett
(“Barrett), who owns a 50% interest; Sheridan Investors, LLC (“Sheridan”),
which owns a 25% interest; and Lake Charles Investors, LLC (“Lake Charles”),
which owns the remaining 25% interest. Sheridan is itself owned by Don and
Pat Manhard, and Lake Charles by Pete and Lynn Manhard. Accordingly,
Barrett owns a 35% interest in East Point, and Sheridan and Lake Charles each
own a 17.5% interest.
[4] On May 1, 2006, East Point purchased the Property from Fieldview for a
purchase price of $4.9 million. The purchase was financed by loans from
Private-Bank (“the Bank”), an Illinois bank based in Chicago. East Point
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borrowed $2.2 million, and Fieldview borrowed $2.7 million. The loans were
secured by promissory notes and mortgages on the Property. East Point’s
mortgage was listed as a primary mortgage, and Fieldview’s mortgage was
listed as a secondary mortgage. In addition, Rusin, Barrett, and the Manhards
all personally guaranteed the loan to East Point.
[5] During the development of the Property, East Point received three loan
renewals from the Bank, each extending the maturity date of the East Point
loan. The first renewal extended the maturity date to March 15, 2009; the
second renewal extended the maturity date to March 15, 2010; and the third
renewal extended the maturity date to September 15, 2010.1 This renewal
process also involved two other loans involving the Manhards, and the Bank
desired to keep the Manhards as clients.
[6] East Point’s loan had an “interest reserve” feature that allowed East Point to
borrow from the loan commitment to pay the interest due on the loan, thereby
increasing the balance of the loan.2 East Point did this to fund development
1
The last of these renewals occurred after the second-extended maturity date of March 15, 2010, but the
Bank nevertheless considered the loan as not being in default.
2
The applicable provision of the loan agreement provides:
2.3 Use of Loan Proceeds. Borrower represents and warrants to Bank that Borrower shall
use the proceeds of the Loan made pursuant to this Agreement and the Loan Documents
solely as follows:
(a) To acquire the Property and pay real estate taxes and insurance premiums with respect
thereto;
(b) To provide general and administrative costs of the Project and for obtaining this Loan,
which such Loan costs shall include, without limitation, bank fees, origination fees, title
fees and attorneys’ fees; and
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costs and to pay Fieldview’s two yearly loan payments of $32,500. Although
the East Point loan was not formally tied to other loans via cross-
collateralization, the Bank viewed the East Point loan together with the loans to
Barrett and the Manhards for purposes of determining the Bank’s aggregate
credit exposure.
[7] The Bank funded East Point’s first draw request in 2009, and East Point used
the money from this draw to make three $32,500 payments on the Fieldview
loans. The Bank also funded two other draw requests, the last being a $33,000
draw to pay the March 2010 Fieldview mortgage payment, which was funded
on March 15, 2010, the maturity date of the East Point loan, which was later
extended to September 15, 2010, as noted above.
[8] In July 2010, the Bank and East Point discussed the loan. East Point wanted the
Bank to extend the maturity date once again. The Bank proposed that $500,000
of debt from one of the other Manhard loans be transferred to the East Point
loan, the reason being that the loan-to-value ratio of one of the Manhard loans
was too high, whereas the loan-to-value ratio of the East Point loan was within
the Bank’s underwriting criteria. One of East Point’s agents, Tom Sherman
(c) To provide a source of payment of interest on the Loan. In this regard, Borrower shall
establish an “interest reserve” in the amount of Two Hundred Thousand and no/100
Dollars ($200,000.00) by reserving and segregating $200,000 of the Non- Revolving
Facility for the sole purpose of the payment of interest, which interest reserve may be
utilized, and drawn on, by Borrower to pay monthly interest due from Borrower to Bank
pursuant to the Note.
Appellants’ App. p. 336.
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(“Sherman”), told the Bank that shifting this debt was a problem because the
East Point loan involved Barrett and Rusin in addition to the Manhards. The
Bank responded that it had issues with a long-term loan renewal on the East
Point loan because Barrett had an unrelated loan on property with an
outstanding tax payment.
[9] On September 8, 2010, East Point submitted another draw request to the Bank
for $32,500 to pay the Fieldview loan payment. Although the loan had not yet
matured, and funds were available in the loan commitment, the Bank did not
fund the draw request, nor did the Bank respond to the request or provide East
Point with an explanation of the failure to fund the requested draw.
[10] On September 10, 2010, five days before the maturity date of the East Point
loan, Sherman and Tom Manhard met with the Bank’s loan officers. The East
Point offer was modified to include payment of Barrett’s outstanding property
taxes. East Point’s proposal also included transferring $300,000 of debt to East
Point with an eighteen-month extension of the maturity date with an option for
an additional eighteen-month extension. It also proposed eliminating the
interest reserve and draw feature, thereby requiring East Point to make its
payments from funds other than the loan itself.
[11] East Point contends that the Bank agreed to this renewal, as evidenced by the
Bank’s asset report, which states: “Pape and Ahern [the Bank’s agents] met
with [the] Manhards on 09/10/10 and they have agreed to [the] plan above and
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bank needs to formalize the proposal above.” Appellants’ App. p. 1350.
However, the alleged renewal agreement was never reduced to writing.
[12] On November 29, 2010, the Bank made an internal report indicating that it was
“scrapping” the proposed East Point loan renewal. On December 10, 2010, the
Bank sent a demand letter to East Point and its guarantors, declaring that the
loan was in default due to the maturation date having passed, and demanded
payment of the balance of the loan within ten days. The Bank subsequently
presented a pre-negotiation agreement to East Point and its guarantors, which
contained a provision stating, “Borrower acknowledges and agrees that Lender
is not in default under any of Lender’s obligations contained in the Loan
Documents,” and “Borrower acknowledges and agrees that Lender has . . .
performed all of Lender’s obligations and agreements . . . that all actions taken
to date by Lender . . . have been reasonable . . . in good faith, and within
lender’s rights under the loan documents and applicable law.” Appellants’ App.
pp. 1216, 1218. East Point and its guarantors refused to sign this agreement and
sent a revised version of the agreement to the Bank. The Bank never signed the
revised agreement and filed suit against East Point and its guarantors on
February 15, 2011.
[13] After filing suit, the Bank made a joint forbearance proposal to East Point and
two of the other Manhard loans. The Bank’s proposal called for cross-defaults
among the three loans and their guarantors, and called for Fieldview to assign
its mortgage to the Bank as security for Rusin’s guarantee of the East Point
loan. The borrowers rejected the Bank’s proposals.
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[14] The Bank subsequently settled with the Manhards and Barrett under
agreements that provided that the Manhards and Barrett would pay $350,000 to
settle their liability with the Bank as guarantors of the East Point loan. One
provision of the settlement agreements provided that the Manhards and Barrett,
or any entity they controlled:
Shall not, directly or indirectly, provide any loans, capital
contributions or financial assistance to East Point, Fieldview or
IEP; contest, delay, hinder, interfere with or otherwise affect the
prosecution of the Foreclosure Action; provide any assistance to
East Point in contesting, delaying or hindering the Foreclosure
Action; consent to, approve or acquiesce in any amendment to
the Operating Agreement of East Point or IEP which is in any
manner adverse to the Bank; and sell, assign, transfer, encumber
or consent to any transfer of any interest in East Point or IEP.
Appellants’ App. pp. 1223, 1362, 1371. After signing the settlement agreements,
Barrett and the Manhards notified Rusin that they were resigning their
management roles at East Point. On September 26, 2011, the Bank dismissed
Barrett and the Manhards from the suit. The remaining defendants were East
Point, Fieldview, and Rusin. Since Rusin was the sole owner of Fieldview, and
Fieldview the only non-settling owner of East Point, the remaining defendant is
effectively Rusin. Fieldview filed a counterclaim on May 18, 2011, alleging
tortious interference with the contract and inducement of breach of contract,
breach of contract, and abuse of process. Fieldview also sought to foreclose on
its secondary mortgage on the Property.
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[15] On September 27, 2012, the Bank sold the East Point loan to PREH, who was
substituted as the plaintiff. On July 20, 2013, PREH filed a motion for summary
judgment. The trial court granted the Defendants several extensions of time to
file a reply to PREH’s motion for summary judgment. The last of the trial
court’s orders on the subject provided that “Defendants’ Response to the
Motion for Summary Judgment shall be due three (3) days after the conclusion
of the deposition of Private Bank and Trust, Co., unless otherwise agreed by the
Parties or Ordered by the Court.” Appellants’ App. pp. 636-37. The
Defendants’ counsel then filed a Notice to the Court of Agreed Briefing
Schedule on Motion for Summary Judgment. Id. at 641. In this notice, the
Defendants stated that the parties had agreed that the Defendants’ answer brief
to the motion for summary judgment would be due on August 22, 2014, and
that PREH’s reply would be due on August 29, 2014.
[16] On August 22, 2014, the Defendants filed a joint brief responding to PREH’s
motion for summary judgment. However, the brief was not accompanied by
any affidavits or other designated evidence. Instead, the Defendants did not file
their designated evidence until December 24, 2014. The Defendants also filed a
motion to strike the affidavit of PREH’s principal Arshad Malik (“Malik”) as
being contrary to his subsequent deposition testimony. PREH filed a reply brief
on August 29, 2014, in accordance to the timeline set forth in the agreed
briefing schedule. Accompanying PREH’s reply was a motion to strike the
Defendants’ exhibits.
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[17] The trial court held a summary judgment hearing on September 3, 2014. At the
conclusion of the hearing, the trial court took the matter under advisement and
requested that the parties submit proposed findings and conclusions, which the
parties subsequently did. On October 24, 2014, counsel for Fieldview and Rusin
filed a Declaration of Technical Difficulty and Delay in filing Summary
Judgment Motion Evidence. On November 20, 2014, the trial court granted
PREH’s motion for summary judgment and entered a decree of foreclosure.
The Defendants now appeal.
Summary Judgment Standard of Review
[18] Our standard for reviewing a trial court’s order granting a motion for summary
judgment is well settled:
A trial court should grant a motion for summary judgment only
when the evidence shows that there is no genuine issue as to any
material fact and that the moving party is entitled to a judgment
as a matter of law. The trial court’s grant of a motion for
summary judgment comes to us cloaked with a presumption of
validity.
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.
But a de novo standard of review applies where the dispute is one
of law rather than fact. We examine only those materials
designated to the trial court on the motion for summary
judgment. Our standard of review is not altered by the fact that
the parties filed cross motions for summary judgment. Here, the
trial court made findings of fact and conclusions of law in
support of its entry of summary judgment. Although we are not
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bound by the trial court’s findings and conclusions, they aid our
review by providing reasons for the trial court’s decision. We
must affirm the trial court’s entry of summary judgment if it can
be sustained on any theory or basis in the record.
Altevogt v. Brand, 963 N.E.2d 1146, 1150 (Ind. Ct. App. 2012) (citations and
internal quotations omitted).
I. Did the Defendants Timely File Designated Evidence?
[19] Before addressing the merits of the Defendants’ arguments, we turn first to
PREH’s claim that the trial court should not have considered any of the
Defendants’ designated evidence because the evidence was not timely filed.
PREH claims that the Defendants’ response to its motion for summary
judgment was due no later than May 30, 2014, which was the date listed in the
trial court’s order entered on April 25, 2014, in which the court accepted the
parties’ agreed motion to alter the due date of the Defendants’ response to
summary judgment. PREH argues that this was the last extension of time
requested by the Defendants.
[20] Our review of the record, however, reveals that the trial court entered several
subsequent orders extending the date on which the Defendants’ response to
PREH’s motion for summary judgment was due. Specifically, after PREH
moved to continue the summary judgment hearing, on May 21, 2014, the
Defendants filed an agreed motion requesting that the Defendants’ summary
judgment response(s) be due no later than June 30, 2014. The trial court granted
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this motion two days later, giving the Defendants until June 30, 2014, to file
their materials in response to PREH’s summary judgment motion.
[21] Then again, on June 26, 2014, the Defendants filed another agreed motion,
with the consent of opposing counsel, requesting that the trial court “alter the
summary judgment motion response date to July 17, 2014[.]” Appellants’ App.
p. 627. The trial court granted this motion the following day, ordering that:
“The time for Defendants' response to the summary judgment motion filed by
Private Real Estate Holdings LLC (“PREH’) is changed to July 17,2014[.]” Id.
at 629-30.
[22] Then, on July 16, 2014, the Defendants filed yet another agreed motion seeking
to extend the deadline for filing their response to PREH’s motion for summary
judgment, this time to July 23, 2014. The trial court granted this motion to
following day, ordering: “the time for Defendants’ response to the summary
judgment motion filed by [PREH] is changed to July 23, 2014[.]” Id. at 634.
[23] That same day, July 17, 2014, however, the trial court issued an Agreed Order
on Emergency Motion for Trial Rule 26(C)(2) Protective Order, which
provided in relevant part:
IT IS ORDERED THAT the 30(b)(6) deposition of Third Party
Defendant, PrivateBank and Trust Co. shall not last longer than
seven (7) hours on any one day. Should the Defendant,
Fieldview Properties, LLC and Karen Rusin need additional time
to take the deposition of PrivateBank and Trust Co., then the
parties will agree to continue the deposition at the next earliest
date available to all parties. Furthermore, the parties agree that
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should the deposition of PrivateBank and Trust Co., need to
proceed onto a second day, then Defendants Response to the
Motion for Summary Judgment shall be due three (3) days after
the conclusion of the deposition of PrivateBank and Trust Co.,
unless otherwise agreed by the Parties or Ordered by the Court.
Id. at 636-37 (emphasis added).
[24] On August 18, 2014, the Defendants filed a Notice to the Court of Agreed
Briefing Schedule on Motion for Summary Judgment, which stated:
The parties, by and through the undersigned, David J. Tipton,
counsel for Defendants Fieldview Properties, LLC and Karen
Rusin, hereby notify the Court that counsel for all parties have
agreed on a briefing schedule concerning the pending summary
judgment motion filed by the substitute plaintiff [PREH] now
scheduled for hearing on September 3, 2014 at 1:00 p.m., as
follows:
-Defendants’ answer brief due date: Friday, August 22, 2014;
-[PREH] reply brief due date: Friday, August 29, 2014.
The parties have engaged in at least seven (7) different days of
depositions over the last two (2) months in connection with the
summary judgment motion and this case. Unless the Court
disagrees and orders a different briefing schedule, the parties
respectfully request that the Court accept this agreed briefing
schedule as if ordered by the Court.
Appellants’ App. pp. 641-42. Based upon our review of the record, however, it
appears that the trial court never entered an order formally accepting this
briefing schedule. Still, the trial court’s previous order of July 17 allowed the
parties to alter the deadline by agreement of the parties or as ordered by the
court.
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[25] Accordingly, the Defendants filed their brief in response to PREH’s motion for
summary judgment on August 22, 2014, as set forth in the agreed motion. As
noted above, however, they did not file their designated evidence until August
24, 2014, two days past the deadline. Thus, even granting the Defendants the
grace of an extended August 22 deadline, they did not file their designated
evidence in time.
[26] At the September 3, 2014, summary judgment hearing, counsel for the
Defendants explained the delay by claiming that he had experienced technical
difficulties with the Lake County e-filing system that prevented him from filing
the designated materials with the court on August 22. PREH responded by
informing the court that, if the Defendants’ counsel did have technical difficulty
with the e-filing system, then he was required to have filed a notice of manual
filing or declaration pursuant to local court rules. The rule at issue provides in
relevant part:
E. Conventional Filing of Documents. A conventionally filed
document is one presented to the clerk or to a party in paper or
other non-electronic, tangible format. Unless specifically
authorized by the court, only the following documents may be
filed conventionally and not electronically:
(1) Exhibits and Other Documents That Cannot Be Converted to a
Legible Electronic Form, Such as Videotapes, X-Rays, and
Similar Materials. Whenever possible, the filer is
responsible for converting filings to an electronic form. If
electronic filing is not possible, the filer shall
electronically file a Notice of Manual Filing as a
notation to be placed on the CCS that filings are being
held in the clerk’s office in paper. The filer shall serve
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the Notice of Manual Filing and the documents in
accordance with the Indiana Rules of Civil Procedure
and applicable Local Rule(s); and shall file a certificate
of service. A Notice of Manual Filing form is appended
hereto as Form 2; a Certificate of Service form is appended
hereto as Form 3.
***
J. Technical Failures. If a registered user is unable to file a
document in a timely manner due to technical difficulties in
the LCOD [Lake County Online Docket], the registered user
must file a document with the court as soon as possible
notifying the court of the inability to file the document. A
sample document titled Declaration that Party was Unable to
File in a Timely Manner Due to Technical Difficulties is
attached hereto as Form 4. Delayed filings shall be rejected
unless accompanied by the declaration attesting to the
filer's failed attempts to file electronically at least two
times, separated by at least one hour, after noon on each
day of delay due to such technical failure.
Lake County Rule of Civil Procedure 17(E)(1), (J) (bold emphasis added).
[27] Still, it was not until October 24, 2014, over two months after the belated e-
filing, that counsel for Fieldview and Rusin filed a Declaration of Technical
Difficulty and Delay in filing Summary Judgment Motion Evidence. In this
motion, counsel asserted:
On the due date for the opposing papers to the summary
judgment motion filed by PRE[H], August 22, 2014, in the
evening, I filed the joint brief of Defendants opposing the
summary judgment motion, Defendants’ designation of Evidence
and the Affidavit of Karen Rusin. At approximately 10:00 p.m.
Eastern Time, I began attempting to upload the Designated
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Evidence consisting of deposition transcripts and exhibits. The
format was pdf, but it was in a bundled format (as received from
the court reporter). After numerous tries to upload these pdf
documents, ending at approximately 11:00 p.m. Eastern Time, it
was apparent to me that uploading the Designated Evidence in
their current format was not working and would not work. I
came back over the weekend and unbundled the transcripts and
exhibits and was successful in uploading all of the Designated
Evidence. All of these events occurred outside of regular business
hours and it was not possible to substitute the filing manually or
ask for help from the clerk’s office.
I informed the Court and opposing counsel of these events in
open Court at the September 3, 2014 hearing on the summary
judgment motion. I do not believe that any party was prejudiced
because the attorney for PRE[H] was already in receipt of the
Designated Evidence (they had copies of all deposition
transcripts and exhibits before August 22, 2014), and all citations
to the Designated Evidence in the brief was accessible from those
materials by the attorneys for PRE[H] in preparation of their
reply brief. The occasioned delay was a portion of the weekend
only.
Appellants’ App. p. 1492.
[28] We have no reason to doubt that the Defendants’ counsel experienced technical
difficulty with the e-filing system, and we sympathize with counsel in such a
situation. Indeed, as e-filing is implemented throughout Indiana, we expect that
in some rare instances, technical issues might prevent or delay an electronic
filing. Indeed, Trial Rule 86 contemplates and provides for such occurrences,
with the expectation that an appropriate and timely record will be made of the
difficulties encountered, so that courts can consider and rule on the effect of
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such difficulties. In similar fashion, we now look to the clear language of the
Local Rule 16, which clearly anticipates such situations and sets forth the steps
to follow in the case of such technical difficulties.
[29] Pursuant to the applicable rule, counsel was required to file with the trial court
as soon as possible a document notifying the court of his inability to electronically
file the document. Here, counsel simply informed the trial court of the
difficulties at the summary judgment hearing and did not file any such
notification with the court until sixty-one days after the date the designated
materials were due. We cannot say this constitutes “as soon as possible,” nor
did counsel’s notification to the court indicate that he unsuccessfully attempted
to file electronically at least two times, separated by at least one hour, after
noon on each day of the delay, as required by the rule. In absence of
compliance with the provisions of this rule, the trial court was required to reject
the delayed filings. See Lake County Rule of Civil Proc. 16(J).
[30] Because the Defendants’ designated materials were untimely filed, the trial
court could not consider them. Indiana Trial Rule 56(C) provides that a party
opposing a summary judgment motion has thirty days after service of the
motion to serve a response and any opposing affidavits. “For cause found,” a
trial court is authorized to “alter any time limit set forth in this rule upon
motion made within the applicable time limit.” Ind. Trial Rule 56(1). Our
supreme court has described this as a “bright line rule” and explained:
[W]here a nonmoving party fails to respond within thirty days by
either (1) filing affidavits showing issues of material fact, (2) filing
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his own affidavit under Rule 56(F) indicating why the facts
necessary to justify his opposition are unavailable, or (3)
requesting an extension of time in which to file his response
under 56(1), the trial court lacks discretion to permit the party to
thereafter file a response. In other words, a trial court may exercise
discretion and alter time limits under 56(1) only if the nonmoving party
has responded or sought an extension of time within thirty days from the
date the moving party filed for summary judgment.
HomEq Servicing Corp. v. Baker, 883 N.E.2d 95, 98 (Ind. 2008) (emphasis added);
accord Handy v. P.C. Bldg. Materials, Inc., 22 N.E.3d 603, 606-07 (Ind. Ct. App.
2014), trans. denied.
[31] This rule applies to materials filed belatedly after an extension of time has
already been granted by the trial court. That is, “not only must a nonmovant
file a response or request for a continuance during the initial thirty-day period,
but the nonmovant ‘must also file a response, file an affidavit pursuant to T.R.
56(F), or show cause for alteration of time pursuant to T.R. 56(I) during any
additional period granted by the trial court.’” Miller v. Yedlowski, 916 N.E.2d
246, 251 (Ind. Ct. App. 2009) (citing Thayer v. Gohil, 740 N.E.2d 1266, 1269
(Ind. Ct. App. 2001)). The reason for this rule was explained in Miller:
The rationale behind the rule requiring a nonmoving party to
respond to a motion for summary judgment—by either filing a
response, requesting a continuance under Trial Rule 56(I), or
filing an affidavit under Trial Rule 56(F)—within thirty days does
not vanish because the trial court has happened to grant one
extension of time. That is, the nonmoving party should not be
rewarded and relieved from the restriction of responding within the time
limit set by the court because he or she has had the good fortune of one
enlargement of time. Therefore, any response, including a
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subsequent motion for enlargement of time, must be made within
the additional period granted by the trial court. The rationale of
HomEq and the cases leading up to it are not restricted to the
initial thirty-day period following the filing of a motion for
summary judgment.
Miller, 916 N.E.2d at 251-52 (emphasis added).
[32] Accordingly, once the already-extended deadline had passed, the trial court had
no discretion to further extend it, and the designated materials submitted by the
Defendants should not have been considered. Likewise, we will not consider
these belatedly filed materials on appeal.
II. Should the Trial Court Have Stricken Certain Affidavits?
[33] The Defendants first argue that the trial court should have stricken the affidavit
of PREH’s principal Malik. They claim that the affidavit conflicts with Malik’s
subsequent deposition testimony. To be sure, Indiana courts have long held that
a party who has been examined at length during a deposition cannot create a
genuine issue of material fact simply by submitting an affidavit contradicting his
own prior testimony. Brown v. Buchmeier, 994 N.E.2d 291, 296 (Ind. Ct. App.
2013) (citing Gaboury v. Ireland Rd. Grace Brethren, Inc., 446 N.E.2d 1310, 1314
(Ind. 1983)). Otherwise, the utility of summary judgment would be greatly
diminished as a procedure for screening out sham issues of fact. Id.
[34] Here, Malik submitted an affidavit in which he averred that he kept the books
and records of PREH and that these books and records were kept in the
ordinary course of PREH’s business. Appellants’ App. p. 505. In his subsequent
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deposition testimony, however, Malik testified that he had never actually seen
the documents related to PREH and East Point, that he did not look at the
documents before signing his affidavit, and that his attorney actually kept the
loan records. Id. at 651-54. Accordingly, Malik did not submit an affidavit
contrary to his prior deposition testimony. Instead, his subsequent deposition
testimony was inconsistent with his earlier affidavit. This does not suggest that
Malik was attempting to manufacture a sham issue of fact. Instead, it appears
that the Defendants’ counsel was simply able to effectively examine Malik at
the deposition and impeach his affidavit. Under these circumstances, the trial
court did not abuse its discretion by denying the motion to strike Malik’s
affidavit.
[35] The Defendants also complain that the affidavit submitted by Bank manager
Christopher Leff (“Leff”) contained improper conclusory statements that should
have been disregarded. Specifically, they refer to Paragraph 16 of Leff’s
affidavit, in which he avers that “[The Bank] (as predecessor in interest) has
performed all conditions precedent to Plaintiff’s rights to enforce the
agreements with East Point under the Loan Documents.” Appellants’ App. p.
501.
[36] As explained in Gast v. Hall:
Indiana Trial Rule 56(E) provides, in pertinent part: “Supporting
and opposing affidavits shall be made on personal knowledge,
shall set forth such facts as would be admissible in evidence, and
shall show affirmatively that the affiant is competent to testify to
the matters stated therein.” Discussing that rule, our Supreme
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Court has stated, “Conclusory statements not admissible at trial
should be disregarded when determining whether to grant or
deny a summary judgment motion.”
858 N.E.2d 154, 162 (Ind. Ct. App. 2006) (quoting Paramo v. Edwards, 563
N.E.2d 595, 600 (Ind. 1990)).
[37] The statement in Leff’s affidavit that the Bank had performed all conditions
precedent to enforce the note and mortgage was, by itself, conclusory.
However, other evidence designated by PREH, including the loan
documentation itself, established that the Bank met the conditions for it to
enforce the note and mortgage: an event of default occurred when the loan was
not renewed, a demand letter was sent, ten days transpired, and the loan was
not repaid. The Defendants refer us to nothing else that would be required for
the Bank or PREH, as the Bank’s successor in interest, to enforce the note and
mortgage.3 Thus, even without the conclusory language of the second Malik
affidavit, there was sufficient designated evidence to establish that the Bank and
PREH had met the conditions precedent to enforcing the note and mortgage.
[38] In short, we find nothing improper in the trial court’s failure to strike Malik’s
affidavit or in its consideration of the evidence designated by PREH.
3
The Defendants also briefly claim, in a two-sentence argument, that the second affidavit from Malik, in
which he averred that PREH had incurred $125,000 in attorney fees, is insufficient to support an award of
attorney fees, citing U. S. Aircraft Fin., Inc. v. Jankovich, 407 N.E.2d 287, 295 (Ind. Ct. App. 1980). However,
this argument is not further developed, and we therefore consider it waived. See Ind. Appellate Rule
48(a)(8)(A); Loomis v. Ameritech Corp., 764 N.E.2d 658, 668 (Ind. Ct. App. 2002).
Court of Appeals of Indiana | Opinion 45A05-1412-MF-584 | December 31, 2015 Page 20 of 33
III. Did the Parties Agree to a Fourth Loan Renewal?
[39] The core of the Defendants’ argument is that evidence indicated the Defendants
and the Bank came to an oral agreement to renew the loan for a fourth time but
that the Bank subsequently reneged on its agreement. Thus, the Defendants
argue, the Bank is a breaching party who may not now seek to enforce the loan
agreements.
[40] The Defendants contend that on September 10, 2015—five days before the loan
matured—East Point and the Bank agreed to a three-year renewal and were
simply waiting for the Bank to prepare the renewal documentation. The
Defendants admit that, at first blush, this argument appears to be doomed by
operation of the statute of frauds found in the Indiana Lender Liability Act
(“ILLA”). See Ind. Code § 26-2-9-4. The Defendants claim, however, that their
counterclaim does not fall within the purview of this section. Specifically, the
Defendants argue that, pursuant to the version of the ILLA statute of frauds in
effect at the time the loan agreement was executed did not apply to
counterclaims by debtors. See Sees v. Bank One, Ind., N.A., 839 N.E.2d 154, 159
(Ind. 2005).
[41] PREH argues that the Defendants’ counterclaim is governed instead by Illinois
law. PREH notes that loan agreement contained a choice-of-law provision
providing:
This Agreement and the Loan Documents shall be governed and
controlled by the laws of the State of Illinois as to interpretation,
enforcement, validity, construction, effect, choice of law and in
all other respects, including, but not limited to, the legality of the
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interest rate and other charges, but excluding priority and
perfection of any liens granted to Bank on the Property, and the
foreclosure thereof, all of which shall be governed and controlled
by the laws of the relevant jurisdiction.
Appellants’ App. p. 355.
[42] The Defendants admit that, under Illinois law, their allegation of an oral
agreement to extend the loan maturity date would fail, as Illinois courts have
long interpreted the applicable Illinois statute of frauds to bar defenses as well
as counterclaims. See Whirlpool Fin. Corp. v. Sevaux, 96 F.3d 216, 225 (7th Cir.
1996) (noting that Illinois courts have interpreted the statute of frauds contained
in the Illinois Credit Agreement Act to proscribe all actions which depend for
their existence upon an oral credit agreement) (citing Klem v. First Nat’l Bank of
Chicago, 655 N.E.2d 1211, 1213 (Ill. App. Ct. 1995)).
[43] The Defendants argue, however, that Illinois law should not apply, insisting
that the statute of frauds is merely procedural in nature. The Defendants note:
A contract provision that an agreement is to be governed by the
law of another state operates only as to the substantive law of
that state, and the procedural law of the forum state applies to
procedural issues. Laws that merely prescribe the manner in
which individual rights and responsibilities may be exercised and
enforced in a court are procedural.
Simon Prop. Grp., L.P. v. Acton Enterprises, Inc., 827 N.E.2d 1235, 1237 (Ind. Ct.
App. 2005) (citing Ind. CPA Society v. GoMembers, Inc., 777 N.E.2d 747, 749-50
(Ind. Ct. App. 2002)).
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[44] The question, therefore, becomes whether the statute of frauds is a substantive
or procedural law. If it is procedural, then Indiana law applies, and their claim
of an oral loan renewal might survive. If it is substantive, then Illinois law
applies, and their claim of an oral renewal is barred.
[45] Jurisdictions appear to be split on this issue. See Comment note—Statute of
Frauds and Conflict of Laws, 47 A.L.R. 3d 137 §2[a]. However, Indiana courts
have long held that a statute of frauds is a substantive law. See id. at 5[b] (citing
Henning v. Hill, 80 Ind. App. 363, 141 N.E. 66 (1923); Cochran v. Ward, 5 Ind.
App. 89, 29 N.E. 795 (1892)). Indeed, in Cochran, the court held that the Illinois
statute of frauds “became part of the agreement in suit, and the provision [in the
statute of frauds] that no action should be maintained for damages for the
breach of the agreement became as much a part of its character and substance
as if specifically incorporated therein.” Cochran, 29 N.E. at 797.
[46] We agree with the court in Cochran and hold that the Illinois statute of frauds is
substantive and not merely procedural. Because it is substantive, the Illinois
statute controls.4 Under Illinois law, the Defendants’ defense of an oral
4
Even if Indiana law applied, it is not clear that the Defendants’ claim of an oral agreement would be viable.
As amended effective July 1, 2006, the ILLA statue of frauds bars claims based on verbal agreements
regardless of whether they are brought by a creditor or a debtor. Thus, the current ILLA statute of frauds
would bar the Defendants’ claim that the Bank made an oral agreement in September 2015 to further extend
the loan maturity date.
Still, the Defendants contend that, because the original promissory note was executed on May 1, 2006, we
should apply the then-existing version of the ILLA statute of frauds, which was held not to apply to a debtor’s
assertion of an affirmative defense based on an alleged oral representation by the creditor. See Sees, 839
N.E.2d at 159. The only authority cited by the Defendants in support of their position is Paulson v. Centier
Bank, 704 N.E.2d 482 (Ind. Ct. App. 1998). However, in that case, the court held that a creditor’s
counterclaim based on an alleged oral agreement was not barred by the ILLA statute of frauds because the
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agreement to renew the loan is barred. Accordingly, the Defendants’ claim that
the loan maturity date was extended by an oral agreement fails.5
IV. Did the Bank Breach the Contract?
[47] The Defendants also claim that it was the Bank who breached the loan
agreement first by failing to honor the verbal loan renewal agreement. Because
the Defendants’ claim of a verbal renewal of the loan agreement is barred by the
applicable statute of frauds, their claim that the Bank was the initially breaching
party for failing to honor the terms of the alleged renewal necessarily fails.
[48] Still, the Defendants argue that the Bank breached the terms of the loan
agreement when it failed to fund a draw requested by East Point. Specifically,
the Defendants claim that, two days before the stated maturity date, the Bank
failed to honor East Point’s fourth draw request in the amount of $32,500,
which was required to make a mortgage payment to Fieldview. Section 2.3(a)
of the loan agreement provides that East Point was allowed to use loan
proceeds to “acquire the Property.” Appellants’ App. p. 336; see also note 2,
note was dated prior to the effective date of the ILLA. See id. at 491; see also Ind. Code § 26-2-9-0.2 (providing
that the ILLA “does not apply to credit agreements entered into before July 1, 1989.”).
In contrast, here, the promissory note was executed on May 1, 2006, well after the effective date of the ILLA.
Also, the alleged oral agreement was entered into well after the effective date of the current version of the
ILLA statute of frauds barring a defense based on an alleged oral agreement.
5
The Defendants also briefly claim, without citation to authority, that their claim of a verbal extension of
the maturity date, as a defense to the foreclosure action, should be governed by Indiana law because the
foreclosure is governed by Indiana law. This claim, however, is not fully developed, and we therefore will
not consider it on appeal. See Ind. Appellate Rule 48(a)(8)(A); Loomis v. Ameritech Corp., 764 N.E.2d 658, 668
(Ind. Ct. App. 2002).
Court of Appeals of Indiana | Opinion 45A05-1412-MF-584 | December 31, 2015 Page 24 of 33
supra. The Bank honored previous draw requests, and acknowledged that the
draws were not improper. Thus, the Defendants claim, the Bank breached the
loan agreement by failing to honor and fund the fourth draw request. We
disagree.
[49] Section 2.3(a) of the loan agreement permitted East Point to “acquire” the
Property with the loan proceeds. Id. However, by the time of the fourth draw
request, East Point had already acquired the Property. Although the other draw
requests were used to pay the mortgage payments on the second mortgage held
by Fieldview, the Defendants refer us to nothing in the loan agreement that
would require the Bank to fund the draw requests so that East Point could make
a payment on the Fieldview mortgage. Instead, the plain language of the loan
agreement seems to contemplate the interest reserve to be used only to pay the
interest on the loan. Id.
[50] We therefore cannot say that the Defendants have demonstrated the existence
of a genuine issue of material fact with regard to whether the Bank breached the
loan agreement.6
6
To the extent that the Defendants claim that the Bank’s prior approval of the draw requests established a
course of dealings that was violated when the Bank refused to fund the fourth draw request, such claim is
waived for failure to make fully-developed, cogent argument. See App. Rule 48(a)(8)(A); Loomis, 764 N.E.2d
at 668. Furthermore, we agree with PREH that this argument would contravene the Subordination
Agreement signed by the parties. Paragraph 18 of the Subordination Agreement provides that “no course of
dealings between the parties, no usage of trade and no parole [sic] or extrinsic evidence of any nature shall be
used to supplement or modify any of the terms of provisions of this Agreement.” Appellants’ App. p. 518.
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V. Is the Foreclosure Action Barred by the Bank’s Unclean Hands?
[51] Lastly, the Defendants claim that PREH, as the successor in interest to the
Bank, should not be able to foreclose on the mortgage because of the Bank’s
allegedly unclean hands. Foreclosure actions are equitable in nature, and trial
courts have full discretion to fashion equitable remedies that are complete and
fair to all parties involved. City Sav. Bank v. Eby Const., LLC, 954 N.E.2d 459,
464 (Ind. Ct. App. 2011). The equitable doctrine of “unclean hands” provides
that the party who seeks equitable relief must be free of wrongdoing in the
matter before the court. Id. at 465.
[52] The Defendants argue that the Bank was not free of wrongdoing in its dealings
with East Point. The Defendants point to the Bank’s behavior when negotiating
with East Point to renew the loan, specifically: the Bank’s desire to group the
East Point loan with the other Manhard loans; the Bank’s proposal to transfer
$500,000 of the debt from one of the Manhard loans to the East Point loan; and
the Bank’s request that Barrett, one of the guarantors of the East Point loan, pay
delinquent real estate taxes on another parcel he owned.
[53] We fail to see how any of these actions constitute unclean hands. East Point
was attempting to negotiate a long-term loan renewal with the Bank. In
exchange, the Bank was attempting to obtain certain concessions from East
Point and its guarantors. We do not view this as evidence of unclean hands; it
was simply part of the negotiation process in the renewal of a multi-million-
dollar loan among sophisticated parties.
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[54] The same is true of the Bank’s decision to “scrap” the loan renewal process and
seek its legal remedies under the loan agreement. The Defendants refer us to
nothing that would suggest that the Bank was obligated to renew the loan. To
the extent that the Defendants claim that the Bank came to a verbal agreement
to renew the loan only to later renege on the agreement, we have rejected this
argument above. We will not say that the Bank acted improperly by not
renewing a loan it was under no obligation to renew.
[55] We also cannot agree with the Defendants that the Bank’s settlement with the
Manhards and Barrett constitutes abuse of process. An action for abuse of
process requires a finding of misuse or misapplication of process for an end
other than that which it was designed to accomplish. Watson v. Auto Advisors,
Inc., 822 N.E.2d 1017, 1029 (Ind. Ct. App. 2005) (citing Nat’l City Bank, Ind. v.
Shortridge, 689 N.E.2d 1248, 1252 (Ind. 1997)). An action for abuse of process
has two elements: (1) ulterior purpose or motives, and (2) a willful act in the use
of process not proper in the regular conduct of the proceeding. Id. (citing Town
of Orland v. Nat’l Fire & Cas. Co., 726 N.E.2d 364, 371 (Ind. Ct. App. 2000)).
However, if a party’s acts are procedurally and substantively proper under the
circumstances, then that party’s intent is irrelevant. Id. (citing Reichhart v. City of
New Haven, 674 N.E.2d 27, 31 (Ind. Ct. App. 1996)). A party may not be held
liable for abuse of process if the legal process has been used to accomplish an
outcome which the process was designed to accomplish. Id.; see also Cent. Nat'l
Bank of Greencastle v. Shoup, 501 N.E.2d 1090, 1095 (Ind. Ct. App. 1986) (“[a]
regular and legitimate use of process, though with an ulterior motive or bad
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intention is not a malicious abuse of process”) (quoting Brown v. Robertson, 120
Ind. App. 434, 92 N.E.2d 856, 858 (Ind. Ct. App. 1950)).
[56] Here, the Bank filed suit to collect on a loan that had matured and on which
East Point had defaulted. The Defendants make no argument that East Point
does not owe the money it borrowed. The Bank simply sought to foreclose on
the mortgage to secure repayment of the loan balance. This was a legitimate use
of process. Accordingly, any ulterior motive is irrelevant. See id. (citing
Reichhart, 674 N.E.2d at 31).7
[57] We similarly reject the Defendants’ claims that the Bank intentionally induced
the Manhards and Barrett to withhold documents and information from the
Defendants through coercion. First, the only act referenced is the Bank’s take-it-
or-leave-it settlement offer, which we consider as an end to negotiations, rather
than “coercion.” Moreover, the Defendants do not precisely explain which
documents and information the Bank induced the Manhards and Barrett to
withhold, but this appears to be a reference to the portion of the settlement
agreement between the Bank and the Manhards and Barrett that contained the
following provision:
7
Thus, the Defendants’ citation to Nat'l City Bank, Ind. v. Shortridge, 689 N.E.2d 1248, 1253 (Ind. 1997),
supplemented 691 N.E.2d 1210 (Ind. 1998), is unavailing. In Shortridge, the court held that a genuine issue of
material fact existed with regard to whether the defendant’s attorney abused process by filing two improper lis
pendens notices against property to secure an interest in a pending personal injury lawsuit, despite the law
being clear that lis pendens is not the proper avenue to secure an interest in a pending personal injury lawsuit.
Id. at 1253. In contrast, here, the Bank’s filing of the foreclosure action was the appropriate action to recover
the funds owed when the loan was in default.
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Guarantor [i.e., the Manhards and Barrett] shall not, directly or
indirectly, take any action or cause or permit Lake Charles, or
any other entity in which Guarantor, directly or indirectly has a
controlling ownership interest, to contest, delay, hinder, interfere
with or otherwise affect the prosecution of the Foreclosure
Action by the Lender or provide any assistance to the Borrower,
directly or indirectly, in contesting, defending, delaying or
otherwise hindering the prosecution of the Foreclosure Action by
the Lender. Guarantors testifying in court or in depositions or
providing documents or responses to interrogatories or requests for
information filed under or permitted under court rules or pursuant to a
subpoena or acts required by order of court in connection with the
foreclosure action or other litigation which may be filed by Fieldview or
its Members, or Karen Rusin, or Borrower, or another third party shall
not be considered a breach of the foregoing provisions.
Appellants’ App. p. 1363 (emphasis added). The Defendants’ argument that
this provision prohibited the Manhards and Barrett from providing documents
during the lawsuit appears to be in direct conflict with the above-emphasized
portion of the settlement agreements that clearly states participating in the
discovery process and obeying court orders is not prohibited.8
[58] We also cannot agree with the Defendants that the Bank tortiously interfered
with East Point’s corporate governance by settling with the Manhards and
Barrett. The Defendants note that the settlement agreements prevented the
Manhards and Barrett from hindering, delaying, or affecting the foreclosure
8
The Defendants note that the trial court sanctioned the Bank for delays in discovery that resulted in delays
in the Defendants’ summary judgment response. However, in its order, the trial court noted that although
“East Point did much more than should have been necessary to obtain the documents it requested,” the trial
court “d[id] not find that Private Bank has deliberately engaged in obstruction[.]” Appellants’ App. p. 592.
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action. The Defendants argue that this prevented East Point from seeking other
means of paying off the loan, such as selling the undeveloped portions of the
Property, seeking financial assistance from the Manhards and Barrett, or
seeking other partners to help develop the Property. However, the Defendants
fail to explain exactly how this amounts to tortious interference with the
corporate governance agreements of East Point. Indeed, the Defendants do not
even set forth the elements of tortious interference in their brief. Instead, the
Bank simply settled with some of the East Point guarantors but not the others.
Although this has obviously placed Fieldview and Rusin in a difficult position,
it is a common strategy in pending litigation, and we cannot say that it amounts
to tortious interference.
[59] The Defendants also argue at some length that the Bank, and PREH as its
successor in interest, has as its goal not the repayment of the loan but
possession of the Property so that it may sell it at a premium after the work
done by East Point. The Defendants note that the Bank’s own estimates put the
value of the Property at $7.45 million, whereas the loan balance was only $2.96
million. They also claim that the Bank expected a recovery of $6.85 million
through the mortgage foreclosure. This argument, however, seems to
misunderstand the nature of a foreclosure proceeding.
[60] By proceeding with foreclosure, the Bank may have the right to sell the
Property at a foreclosure sale to satisfy the balance of the loan, but this does not
automatically give it the right to possess the Property, nor is any surplus kept as
a windfall by the mortgagee bank. As we have explained before:
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Indiana is unequivocally committed to the lien theory [of
mortgage] and the mortgagee has no title to the land mortgaged.
The right to possession, use and enjoyment of the mortgaged
property, as well as title, remains in the mortgagor, unless
otherwise specifically provided, and the mortgage is a mere
security for the debt.
Merrillville 2548, Inc. v. BMO Harris Bank N.A., No. 45A03-1409-MF-345, 2015
WL 3603850, at *11 (Ind. Ct. App. June 9, 2015), reh’g denied, trans. pending
(quoting Oldham v. Noble, 117 Ind. App. 68, 75-76, 66 N.E.2d 614, 617 (1946)).
The proceeds of a mortgage sale are distributed as provided by the relevant
statute:
The proceeds of a sale described in IC 32-29-7 or section 8 or
12(b) of this chapter must be applied in the following order:
(1) Expenses of the offer and sale, including expenses incurred
under IC 32-29-7-4 or section 9 of this chapter (or IC 34-1-53-
6.5 or IC 32-15-6-6.5 before their repeal).
(2) The payment of the principal due, interest, and costs not
described in subdivision (1).
(3) The residue secured by the mortgage and not due.
(4) If the residue referred to in subdivision (3) does not bear
interest, a deduction must be made by discounting the legal
interest.
In all cases in which the proceeds of sale exceed the amounts
described in subdivisions (1) through (4), the surplus must be paid to
the clerk of the court to be transferred, as the court directs, to the mortgage
debtor, mortgage debtor's heirs, or other persons assigned by the mortgage
debtor.
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Ind. Code § 32-30-10-14 (emphasis added). Subsequent liens on the property
sold share in the proceeds of the sale only after the mortgage and other prior
liens adjudged have been satisfied. See 20 Ind. Law Encyc. Mortgages § 175
(2015).9
[61] We also reject the Defendants’ claims that the Bank “highjacked” East Point’s
right to alienate the Property by settling with the Manhards and Barrett. The
Bank simply settled with some, but not all, of the guarantors. We fail to see
how this can be considered inequitable or tortious conduct.
Conclusion
[62] In conclusion, we hold that the Defendants filed their designated evidence in an
untimely fashion and that such evidence should therefore not be considered.
We also hold that the trial court did not err in denying the Defendants’ motion
to strike the affidavit of Arshad Malik, which was submitted by PREH in
support of its motion for summary judgment. The Defendants’ argument that
the Bank made an oral agreement to a fourth loan renewal is barred by the
relevant Illinois statute of frauds, which, as a substantive law, is applicable to
the interpretation of the loan agreements. We also conclude that the Bank did
not breach the loan agreements by reneging on the alleged oral agreement or by
failing to fund the last draw request by the Defendants. Lastly, the foreclosure
action is not prevented by the Bank or PREH’s allegedly unclean hands.
9
As the issue is not before us, we express no opinion with regard to the rights to the surplus, if any, that
results from the mortgage foreclosure sale of the Property.
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Accordingly, we affirm the order of the trial court granting summary judgment
in favor of PREH.
[63] Affirmed.
Baker, J., and Bailey, J., concur.
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