Carriage Courts Homeowners Association, Inc. v. Rocklane Company, LLC (mem. dec.)

MEMORANDUM DECISION
Pursuant to Ind. Appellate Rule 65(D),
this Memorandum Decision shall not be FILED
regarded as precedent or cited before any Dec 04 2017, 6:13 am
court except for the purpose of establishing
CLERK
the defense of res judicata, collateral Indiana Supreme Court
Court of Appeals
estoppel, or the law of the case. and Tax Court
ATTORNEY FOR APPELLANT ATTORNEYS FOR APPELLEE
Jeffrey J. Jinks Donald D. Levenhagen
Carmel, Indiana Indianapolis, Indiana
IN THE
COURT OF APPEALS OF INDIANA
Carriage Courts Homeowners December 4, 2017
Association, Inc., Court of Appeals Case No.
Appellant-Defendant, 49A04-1705-PL-968
Appeal from the Marion Superior
v. Court
The Honorable David J. Dreyer,
Rocklane Company, LLC, Judge
Appellee-Plaintiff Trial Court Cause No.
49D10-1508-PL-26526
Altice, Judge.
Case Summary
[1] Carriage Courts Homeowners Association, Inc. (the HOA) appeals from the
entry of summary judgment in favor of Rocklane Company, LLC (Rocklane)
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on Rocklane’s complaint for breach of contract. On appeal, the HOA raises the
following arguments:
1. Did the trial court err in rejecting the HOA’s argument that a
mutual mistake of fact prevented the formation of a contract?
2. Did the trial court err in concluding that the liquidated
damages clause was enforceable?
Rocklane cross-appeals and raises the following issue:
3. Did the trial court abuse its discretion in awarding Rocklane
only a portion of its requested attorney fees?
[2] We affirm in part, reverse in part, and remand with instructions.
Facts & Procedural History
[3] The HOA is the governing body for Carriage Courts, a thirty-six-building
condominium complex in Indianapolis. Rocklane is a contractor focusing on
commercial and residential roofing projects, and a large part of its business
involves working with insurance adjusters to settle customers’ insurance claims.
[4] In the summer of 2014, after a hail storm caused damage to some of the roofs in
the Carriage Courts community, the HOA contacted Rocklane and prepared to
file a claim with its insurer. On August 12, 2014, Rocklane representatives
Randal Adkins and Jay Burkert attended an HOA board meeting to discuss the
potential hail damage and the assistance Rocklane could provide. Also in
attendance were the HOA board members and a representative of Kirkpatrick
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Management Company, which provides professional property management
services for the HOA. During the meeting, the HOA signed a written
agreement (the Agreement) pursuant to which Rocklane was authorized to
perform inspections with the HOA’s insurer and to complete all storm damage
repairs authorized in the final insurance settlement. The Agreement provided
further that failure to complete the contract would result in a twenty percent
cancellation fee and failure to provide payment as specified would result in
additional collection and attorney fees. When HOA president Sara Hanson
asked Adkins how many roofs he thought would be covered, Adkins said he
hoped at least five. Hanson responded that she would be happy if Rocklane
could get two roofs replaced.
[5] Rocklane performed the inspections with the HOA’s insurer as agreed, and the
insurer ultimately agreed to replace the roofs on twenty buildings in the
Carriage Courts community. This resulted in an insurance settlement in the
amount of $628,393.78. Despite the Agreement with Rocklane, the HOA took
bids from other contractors and ultimately hired another company to do the
repairs.
[6] On August 7, 2015, Rocklane filed a complaint for breach of contract seeking
damages in the amount of $125,678.75, or twenty percent of the total insurance
settlement. The parties filed cross-motions for summary judgment and, after a
hearing, the trial court granted Rocklane’s motion and entered judgment
against the HOA in the full amount requested. The trial court subsequently
conducted a hearing to determine attorney fees and prejudgment interest.
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Rocklane’s counsel submitted an affidavit attesting to fees in the amount of
$14,880.50. The HOA did not submit opposing evidence or dispute the
reasonableness of the fees. On April 17, 2017, the trial court entered an order
awarding Rocklane prejudgment interest in the amount of $23,166.21 and
attorney fees in the amount of $2500, as well as court costs. This appeal
ensued.
Discussion & Decision
[7] We review summary judgment de novo and apply the same standard as the trial
court. Hughley v. State, 15 N.E.3d 1000, 1003 (Ind. 2014). The moving party
must show that there are no genuine issues of material fact and that it is entitled
to judgment as a matter of law; if the movant carries this burden, then the
nonmoving party must present evidence establishing the existence of a genuine
issue of material fact. Asklar v. Gilb, 9 N.E.3d 165, 167 (Ind. 2014). “We
construe all factual inferences in the non-moving party’s favor and resolve all
doubts as to the existence of a material issue against the moving party.” Sargent
v. State, 27 N.E.3d 729, 732 (Ind. 2015). That the parties have filed cross-
motions for summary judgment does not alter our standard of review; we
consider each motion separately to determine whether the moving party is
entitled to judgment as a matter of law. Id. We will affirm summary judgment
on any basis supported by the record. Pfenning v. Lineman, 947 N.E.2d 392,
408-09 (Ind. 2011).
1. Mutual Mistake of Fact
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[8] We first address the HOA’s argument that a mutual mistake of fact prevented
the formation of a contract.
The doctrine of mutual mistake provides that “[w]here both
parties share a common assumption about a vital fact upon
which they based their bargain, and that assumption is false, the
transaction may be avoided if because of the mistake a quite
different exchange of values occurs from the exchange of values
contemplated by the parties.” Bowling [v. Poole, 756 N.E.2d 983,
988-989 (Ind. Ct. App. 2001)] (quoting Wilkin v. 1st Source Bank,
548 N.E.2d 170, 172 (Ind. Ct. App. 1990)). “It is not enough
that both parties are mistaken about any fact; rather, the
mistaken fact complained of must be one that is ‘of the essence of
the agreement, the sine qua non, or, as is sometimes said, the
efficient cause of the agreement, and must be such that it
animates and controls the conduct of the parties.’” Bowling, 756
N.E.2d at 989 (quoting Jackson v. Blanchard, 601 N.E.2d 411, 416
(Ind. Ct. App. 1992)).
Perfect v. McAndrew, 798 N.E.2d 470, 478 (Ind. Ct. App. 2003). Parol evidence
may be considered in determining whether the parties entered into a contract
based on a mutual mistake of fact. Kramer v. Focus Realty Group, LLC, 51
N.E.3d 1240, 1243 (Ind. Ct. App. 2016).
[9] The HOA asserts that at the time the parties entered into the Agreement, they
both believed that the damage settlement with the HOA’s insurer would
encompass only two or three roofs in the Carriage Courts community, not the
twenty roofs ultimately found to be in need of replacement. But the designated
evidence relied upon by the HOA in support of this argument establishes that at
the time the Agreement was executed, Rocklane and the HOA were uncertain
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of the extent of the storm damage, but hoped the insurer would cover at least
two to five roofs—the implication being that a larger settlement amount was
hoped for by both parties. In other words, the number of roof replacements
ultimately covered by the HOA’s insurer was not the essence of the agreement.
Regardless of the amount the HOA’s insurer ultimately paid, the HOA’s
obligation remained the same; that is, it would be liable for only its deductible
and any upgrades it sought. This is not a situation in which “one party
experienced an unexpected, unbargained-for gain while the other party
experienced an unexpected, unbargained-for loss.” Wilkins, 548 N.E.2d at 172.
Rather, the bigger-than-expected settlement was a mutually beneficial
resolution of uncertainties contemplated at the time the parties entered into the
Agreement. Accordingly, the HOA cannot avoid its obligations under the
Agreement based on the doctrine of mutual mistake. 1
2. Liquidated Damages
[10] The HOA does not dispute that, if a contract was formed, its refusal to allow
Rocklane to complete the work amounted to a material breach. Instead, the
HOA argues that the twenty percent cancellation fee set forth in the Agreement
is an unenforceable penalty rather than a valid liquidated damages clause.
Liquidated damages clauses provide for the forfeiture of a stated sum of money
1
The HOA also makes a brief argument that Adkins’s statement that he hoped the insurer would cover at
least five roofs amounted to a misrepresentation of material fact sufficient to support a claim of constructive
fraud. The statement at issue is clearly not a representation of fact, material or otherwise. Rather, Adkins
simply expressed his hope that at least five roofs would be covered.
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upon breach without proof of damages. Corvee, Inc. v. French, 943 N.E.2d 844,
846 (Ind. Ct. App. 2011). We are tolerant of liquidated damages provisions,
and they are generally enforceable where the nature of the agreement is such
that the damages resulting from a breach would be uncertain and difficult to
ascertain. Gershin v. Demming, 685 N.E.2d 1125, 1127 (Ind. Ct. App. 1997).
Where the stipulated sum is not greatly disproportionate to the loss likely to
occur, the provision will be accepted and enforced as a liquidated damages
clause. Id. at 1128. On the other hand, “where the sum sought to be fixed as
liquidated damages is grossly disproportionate to the loss which may result
from the breach, the courts will treat the sum as a penalty rather than as
liquidated damages.” Id. In determining whether a stipulated sum constitutes
liquidated damages or a penalty, we consider the facts, the intentions of the
parties, and the reasonableness of the stipulation under the circumstances. Id.
“The distinction between a penalty provision and one for liquidated damages is
that a penalty is imposed to secure performance of the contract and liquidated
damages are to be paid in lieu of performance.” Id. The use of specific words
such as “penalty,” “forfeiture,” or “liquidated damages” is not controlling, but
should be considered in connection with the rest of the contract to determine
the nature of the provision. Weinreb v. Fannie Mae, 993 N.E.2d 223, 233 (Ind.
Ct. App. 2013), trans. denied. Whether a liquidated damages clause is valid or
constitutes an unenforceable penalty is a pure question of law. Gershin, 685
N.E.2d at 1128.
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[11] The HOA first argues that the cancellation fee provision should not be enforced
because Rocklane’s actual damages were reasonably ascertainable. Indeed, the
HOA argues that, as a general matter, “damages for construction and repair
contracts are not of the speculative nature that makes liquidated damages
appropriate[.]” Appellant’s Brief at 10-11. None of the cases the HOA cites on
appeal provide support for this broad assertion. To support an award of
liquidated damages, it is not necessary to prove that actual damages are
impossible to calculate or even “speculative.” Rather, liquidated damages
awards are appropriate when actual damages are “uncertain and difficult to
ascertain.” Gershin, 685 N.E.2d at 1127. This is a significantly lower hurdle
than the one the HOA seeks to erect.
[12] We have little difficulty accepting Rocklane’s argument that its actual damages
resulting from the HOA’s breach are uncertain and difficult to ascertain. The
net profits realized from construction projects, particularly large projects like the
one at issue here, are variable and may be affected by numerous factors,
including fluctuating material costs and availability, labor stoppages, accidents,
weather, and other delays. Because Rocklane’s actual damages are not readily
ascertainable, an award of liquidated damages is not inappropriate.
[13] The HOA next argues that Rocklane’s designated evidence was insufficient to
establish that the twenty percent cancellation fee was not grossly
disproportionate to Rocklane’s actual damages. Specifically, the HOA notes
that the only evidence concerning the proportionality of the fee was Burkert’s
affidavit, in which he averred that Rocklane’s lost profits are not amenable to a
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precise calculation where, as here, the company has been prevented from
performing the work, but that the twenty percent cancellation fee “is a
reasonable estimate of Rocklane’s lost profits.” Appellant’s Appendix Vol. 2 at 52.
On appeal, the HOA complains that this evidence is not “independent” and
argues that it is insufficient to show that the liquidated damages are “even
remotely approximate” to Rocklane’s lost profits. Appellant’s Brief at 12. Thus,
according to the HOA, the designated evidence was insufficient to establish that
the cancellation fee was not an unenforceable penalty.
[14] As this court has explained, there is “some contradiction” in the rules relating
to distinguishing liquidated damages and penalties. Harbours Condominium
Ass’n v. Hudson, 852 N.E.2d 985, 993 (Ind. Ct. App. 2006).
Specifically, in order to show that the sum stipulated in an
agreement as liquidated damages is not “grossly
disproportionate” to the loss, the party seeking to enforce the
liquidated damages provision must demonstrate some
proportionality between the loss and the sum established as
liquidated damages. [Gershin, 685 N.E.2d at 1128.] Yet a
“typical liquidated damages provision provides for the forfeiture
of a stated sum of money without proof of damages.” Gaddis v.
Stardust Hills Owners Ass'n, Inc., 804 N.E.2d 231, 236 (Ind. Ct.
App. 2004). We resolve this apparent conundrum by looking to
the purpose of liquidated damages, which . . . is to compensate
for damages that would be uncertain and difficult to ascertain.
See Gershin, 685 N.E.2d at 1127; Harris v. Primus, 450 N.E.2d 80,
84 (Ind. Ct. App. 1983). Thus, a party who seeks to enforce a
liquidated damages clause need not prove actual damages but
may be required to show a correlation between the liquidated
damages and actual damages in order to assure that a sum
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charged may fairly be attributed to the breach. See Gershin, 685
N.E.2d at 1127.
Id.
[15] Although a plaintiff seeking to enforce a liquidated damages clause need not
prove actual damages, case law discussing the sufficiency of the evidence to
support an award of actual damages in the form of lost profits is nevertheless
instructive here. This court has often explained that lost profits need not be
proven with mathematical certainty, and such damages “are not uncertain
where there is testimony that, while not sufficient to put the amount beyond
doubt, is sufficient to enable the factfinder to make a fair and reasonable finding
as to the proper damages.” Berkel & Co. Contractors, Inc. v. Palm & Assocs, Inc.,
814 N.E.2d 649, 659 (Ind. Ct. App. 2004). Further, this court has found the
testimony of the injured party to be sufficient proof of lost profits. See Eden
United, Inc. v. Short, 573 N.E.2d 920, 928 (Ind. Ct. App. 1991) (“The plaintiff’s
own reasonable testimony concerning lost profit will suffice.”), trans. denied.
[16] If a plaintiff’s testimony concerning his or her lost profits is sufficient standing
alone to support an award of actual damages, such testimony is surely also
sufficient to establish a mere correlation between the liquidated and actual
damages. The affidavit of Burkert, one of Rocklane’s owners, is sufficient to
satisfy Rocklane’s initial burden of proving that the liquidated damages were
not grossly disproportionate to its actual damages. Because the HOA did not
come forward with any contrary evidence to establish a genuine issue of
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material fact as to the proportionality of the liquidated damages amount,
summary judgment was appropriate.
[17] Citing a handful of this court’s older cases, the HOA also argues that the
cancellation fee is a penalty because under the terms of the Agreement, the
HOA would be liable for the whole amount even in the event of a partial or
inconsequential breach. See Mandle v. Owens, 330 N.E.2d 362, 365 (Ind. Ct.
App. 1975) (explaining that “where there are covenants of varied kinds and
importance, and the sum named is payable for the breach of any, even the least,
it is a penalty”), trans. denied; Beiser v. Kerr, 20 N.E.2d 666, 669 (Ind. Ct. App.
1939) (explaining that “if the stipulation to pay a certain sum of money upon a
default . . . renders the defaulting party liable in the same amount at all events,
both when his failure to perform is complete, and when it is only partial, the
sum must be regarded as a penalty”); Tudor v. Beath, 131 N.E. 848, 851 (Ind. Ct.
App. 1921) (concluding that a stipulated sum was an unenforceable penalty
because it would be forfeited regardless of the seriousness of the breach and the
amount of actual damages resulting therefrom, and reasoning that “being a
penalty as to one of the stipulations, it must be held to be a penalty as to all”).
But see Restatement (Second) of Contracts § 356 cmt. b (1981) (“The amount
fixed is reasonable to the extent that it approximates the actual loss that has
resulted from the particular breach, even though it may not approximate the
loss that might have been anticipated under other possible breaches.”).
[18] This is not, however, a situation in which the contract provides for the payment
of a stipulated sum in event of any breach, regardless of its materiality. Rather,
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the Agreement provides for a twenty percent “cancellation fee” for “[f]ailure to
complete this contract . . . except for occurrences beyond [the HOA’s] control.”
Appellant’s Appendix Vol. 2 at 14. Contrary to the HOA’s assertion on appeal,
immaterial breaches, such as the HOA’s failure to include Rocklane’s name and
tax identification number on any bank drafts as set forth in the Agreement,
would not constitute failure to complete the contract so as to trigger the
application of the cancellation fee.
[19] There is no question that the HOA breached the Agreement and, for the
reasons set forth above, we conclude that the cancellation fee set forth in the
Agreement is a valid and enforceable liquidated damages clause.
Consequently, summary judgment was properly entered in Rocklane’s favor.
3. Cross Appeal: Attorney Fees
[20] On cross-appeal, Rocklane argues that the trial court abused its discretion in
awarding only a portion of its requested attorney fees. Indiana follows the
American Rule, which requires each party to pay his or her own attorney fees.
Rogers Group, Inc. v. Diamond Builders, LLC, 816 N.E.2d 415, 420 (Ind. Ct. App.
2004), trans. denied. The parties may, however, shift the obligation to pay
attorney fees through contract or agreement, and such agreements will be
enforced as long as they are not contrary to law or public policy. Id.
Nevertheless, even where attorney fees are awarded pursuant to a contract, such
fees must be reasonable. Corvee, 943 N.E.2d at 847. Trial courts are afforded
discretion in determining reasonable attorney fees, and we will reverse such an
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award only if it is clearly against the logic and effect of the facts and
circumstances presented. Walton v. Claybridge Homeowners Ass’n, Inc., 825
N.E.2d 818, 826 (Ind. Ct. App. 2005).
[21] The parties do not dispute that, having prevailed on the merits, Rocklane is
entitled to attorney fees under the Agreement. Only the amount of the award is
at issue here. “We review the amount a trial court awards for attorney fees for
an abuse of discretion.” Cavallo v. Allied Physicians of Michiana, LLC, 42 N.E.3d
995, 1009 (Ind. Ct. App. 2015). The trial court may consider a number of
factors in determining the reasonableness of a fee, but the hours worked and the
rate charged are a common starting point. Id. The court may also consider the
responsibility of the parties in incurring the attorney fees, and the trial judge
may use his or her personal expertise in determining reasonable attorney fees.
Id. Indiana Professional Conduct Rule 1.5(a) also sets forth a helpful, non-
exhaustive list of factors for a trial court to consider in evaluating the
reasonableness of attorney fees. Id. at 1009-10.
[22] At the hearing on attorney fees, Rocklane’s counsel submitted a detailed
attorney fee affidavit indicating that he had worked a total of fifty-eight hours
on the case, resulting in fees totaling $14,880.50.2 The HOA presented no
evidence and made no argument that the attorney fees requested were
unreasonable. Nevertheless, the trial court awarded only $2500 in attorney
2
This total included counsel’s work in responding to a premature appeal filed by the HOA, which this court
dismissed without prejudice.
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fees—less than seventeen percent of the amount set forth in the affidavit—and
entered no findings supporting its determination that $2500 would reasonably
compensate Rocklane for its attorney fees. Because the trial court did not enter
findings and we are unable to discern a basis for its judgment, we find the
award to be an abuse of discretion and remand with instructions to determine
reasonable attorney fees. See Boonville Convalescent Ctr., Inc. v. Cloverleaf
Healthcare Servs., Inc., 834 N.E.2d 1116, 1128 (Ind. Ct. App. 2005) (remanding
for calculation of reasonable attorney fees where trial court, without making
findings to support its decision, awarded attorney fees far below the amount
requested and supported by the prevailing party’s evidence), trans. denied. We
express no opinion on what amount might constitute reasonable attorney fees
in this case.
[23] Judgment affirmed in part, reversed in part, and remanded with instructions.
[24] Baker, J. and Bailey, J., concur.
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