Thomas Bunger as Personal Representative of the Estate of Kenneth K. Kinney, and Cheryl Underwood v. Sheree Demming

Jul 22 2015, 10:19 am
ATTORNEYS FOR APPELLANTS ATTORNEYS FOR APPELLEE
Attorneys for Cheryl Underwood E. Paige Freitag
Arend J. Abel Jones, McGlasson & Freitag, P.C.
Michael W. McBride Bloomington, Indiana
Cohen & Malad, LLP
Indianapolis, Indiana Thomas E. Densford
Bauer & Densford
Attorney for Thomas Bunger as Personal Bloomington, Indiana
Representative of the Estate of Kenneth
K. Kinney
Scott D. Pankow
Indianapolis, Indiana
IN THE
COURT OF APPEALS OF INDIANA
Thomas Bunger as Personal July 22, 2015
Representative of the Estate of Court of Appeals Case No.
Kenneth K. Kinney, and 53A01-1409-PL-395
Appeal from the Monroe County
Cheryl Underwood, Circuit Court; the Honorable Erik
Appellants-Defendants, Allen, Special Judge;
53C06-0704-PL-873
v. 53C01-0704-PL-873
Sheree Demming,
Appellee-Plaintiff.
May, Judge.
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[1] Cheryl Underwood, a real estate broker, and the estate of her business partner
Kenneth Kinney appeal a judgment for Sheree Demming. We affirm in part,
reverse in part, and remand.
Facts and Procedural History
[2] We summarized the facts 1 of this case in Demming v. Underwood, where we
reversed summary judgment for Underwood and Kinney and remanded for
further proceedings:
[3] Demming is a real estate investor in the business of acquiring
properties in the Bloomington, Indiana area for remodeling,
renovation, leasing, and sale. Demming, who has never held a
realtor’s license, engaged Underwood’s professional services as a
realtor to buy and sell properties on multiple occasions between July
2002 and April 2007. During this time, Demming routinely discussed
her real estate investment strategy with Underwood, including her
plans to acquire multiple properties within a “target zone” near the
Indiana University campus.
[4] In 2002, Demming became particularly interested in purchasing two
properties located within her target zone at 424 and 426 East Sixth
Street (“the Properties”). The Properties were owned by Marion and
Frances Morris (“the Morrises”), who lived out of state. Realtor Julie
Costley (“Costley”) managed the Properties, which were not listed for
sale. After discussing Demming’s interest in acquiring the Properties,
Demming and Underwood agreed that the best strategy would be for
Underwood to approach Costley with an offer on behalf of Demming,
1
As that was an appeal from a summary judgment, we presented the facts as those “most favorable to the
non-moving party,” which was Demming. Demming v. Underwood, 943 N.E.2d 878, 882 (Ind. Ct. App.
2011). As Demming later prevailed at trial, our standard of review again calls for a statement of facts in
Demming’s favor. See, e.g., Jay Myoung Yoon v. Sunsook Yoon, 711 N.E.2d 1265, 1268 (Ind. 1999) (when trial
court’s order includes findings of fact and conclusions of law pursuant to Trial Rule 52, we do not reweigh
the evidence; rather we consider the evidence most favorable to the judgment with all reasonable inferences
drawn in favor of the judgment).
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because as a realtor, Costley would be obligated to relay an offer
presented by another realtor to the Morrises.
[5] Underwood first presented an offer to Costley on Demming’s behalf in
the fall of 2002. After the offer was declined, Demming and
Underwood “strategized” together on how Demming could acquire
the Properties, and Underwood offered to contact Costley every few
months to inquire about the Properties’ availability. Over the next few
years, up until early 2007, Underwood contacted Costley on
Demming’s behalf regarding the Properties “every four of [sic] five
months.” Additionally, in May, August, and October 2006,
Underwood contacted Costley to inquire into the availability of the
Properties after Demming specifically instructed her to do so. While
Underwood was not compensated for these services, “it was discussed
and understood that . . . Underwood would be paid a real estate
commission, at closing, in the customary amount of seven percent
(7%) of the sales price.” However, unbeknownst to Demming,
Underwood became interested in purchasing the Properties for herself
after she acquired a neighboring property in May 2006.
[6] In February 2007, Demming again instructed Underwood to call
Costley and inquire into the availability of the Properties for purchase.
Underwood responded, “Sheree, she’s just not going to sell.”
Demming nevertheless insisted that Underwood contact Costley, and
said that if Underwood refused, she would contact Costley herself.
Underwood then agreed to call Costley, and when she did so, she
asked Costley to contact Mrs. Morris, whose husband had recently
passed away, to find out if she would be interested in selling. Costley
responded that she would contact Mrs. Morris, but she expressed
doubt as to whether Mrs. Morris would be willing to sell. The next
day, Underwood told Demming that the Properties were not for sale.
Demming instructed Underwood to “stay on it” because she believed
that Mrs. Morris would be willing to sell in the near future.
[7] A few days later, Costley contacted Mrs. Morris, who instructed her to
request that anyone interested in purchasing the Properties tender a
written offer. When Costley informed Underwood that Mrs. Morris
was willing to entertain an offer, Underwood did not relay this
information to Demming. Instead, on March 9, 2007, Underwood
and Kinney, acting as partners, tendered their own written offer to
purchase the Properties. A counteroffer was tendered and accepted,
pursuant to which Underwood and Kinney agreed to purchase the
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Properties for $650,000. Underwood and Kinney closed on the
transaction on March 30, 2007.
On April 14, 2007, Demming contacted Underwood after noticing one
of Underwood’s “For Rent” signs in front of the Properties.
Underwood and Demming met the next day, and Underwood informed
Demming that she and Kinney had purchased the Properties.
On April 19, 2007, Demming filed suit against Underwood asserting
claims for breach of fiduciary duty and constructive fraud. Demming
also requested the imposition of a constructive trust compelling
Underwood and Kinney to convey title of the Properties to her.
943 N.E.2d 878, 882-83 (Ind. Ct. App. 2011) (citations omitted), reh’g denied,
trans. denied.
[8] The trial court in Demming granted summary judgment for Underwood and
Kinney on all claims. It determined, among other things, that there was no
agency relationship between Demming and Underwood as a matter of law.
Demming appealed, and we reversed on various grounds, including that there
were genuine issues of material fact as to whether there was an agency
relationship. Id. at 888.
[9] On remand a trial was conducted and judgment was entered for Demming.
The trial court imposed a constructive trust in Demming’s favor on the property
based on the “existence and breach of an agency relationship between
[Demming] and [Underwood], Underwood’s breach of common law, statutory
and fiduciary duties that Underwood owed to Demming and Underwood’s
fraudulent and deceptive conduct as well as the vicarious partnership liability
imposed upon [Kinney].” (Appendix of Appellant Cheryl Underwood
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(hereinafter “Underwood App.”) at 42). It awarded Demming damages,
prejudgment interest, and attorney fees.
Discussion and Decision
[10] After the trial on remand, the trial court entered findings of fact and conclusions
thereon. When a trial court does so pursuant to Indiana Trial Rule 52, we
apply the following two-tier standard of review: whether the evidence supports
the findings of fact, and whether the findings support the conclusions. Crider v.
Crider, 15 N.E.3d 1042, 1052 (Ind. Ct. App. 2014), trans. denied. We will set
aside findings of fact only if they are clearly erroneous, which occurs if the
record contains no facts to support a finding either directly or by inference. Id.We defer to the trial court’s ability to assess the credibility of witnesses and will
not reweigh the evidence, and we must consider only the evidence most
favorable to the judgment along with all reasonable inferences drawn in favor of
the judgment. Id. It is not enough that the evidence might support some other
conclusion; it must positively require the conclusion contended for by appellant
before there is a basis for reversal. Id. A judgment also is clearly erroneous if it
relies on an incorrect legal standard, and we do not defer to a trial court’s legal
conclusions. Id.Common-Law Agency Relationship
[11] The trial court’s determination that Underwood and Demming had an agency
relationship is not clearly erroneous. An agency relationship is one that results
from a “manifestation of consent by one person to another that the other shall
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act on his behalf and subject to his control, and consent by the other so to act.”
Turner v. Bd. of Aviation Comm’rs, 743 N.E.2d 1153, 1163 (Ind. Ct. App. 2001)
(quoting Dep’t of Treasury v. Ice Serv. Inc., 220 Ind. 64, 67–68, 41 N.E.2d 201, 203
(1942)), trans. denied. It arises from the consent of the parties in the form of a
contractual agreement, but it is not necessary that the contract or the authority
of the agent to act be in writing. Id. It is necessary that the agent be subject to
the control of the principal with respect to the details of the work. Id.[12] To establish an agency relationship, three elements must be shown: (1)
manifestation of consent by the principal, (2) acceptance of authority by the
agent, and (3) control exerted by the principal over the agent. 2 Demming, 943
N.E.2d at 883. These elements may be proven by circumstantial evidence. Id.
Whether an agency relationship exists is generally a question of fact. Id.
[13] In Demming, we determined the evidence that Underwood made multiple
inquiries into the availability of the Properties on Demming’s behalf over a
period of more than four years supported an inference that Underwood agreed
2
Underwood does not address the elements of an agency relationship we articulated in Demming. Instead,
relying on decisions addressing real estate broker employment contracts, she argues she was not Demming’s
agent because “there was no consideration and no meeting of the minds on the essential terms of the
agreement.” (Br. of Appellant Cheryl Underwood (hereinafter “Underwood Br.”) at 15.) We decline
Underwood’s invitation to engraft onto the elements of an agency relationship as articulated in Demming the
additional contract elements of consideration and meeting of the minds. See Restatement (Third) Of Agency §
1.01 (2006) (“the consensual aspect of agency does not mean that an enforceable contract underlies or
accompanies each relation of agency”).
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to act as her agent and created a genuine issue of material fact precluding
summary judgment:
After first becoming interested in purchasing the Properties in 2002,
Demming asked Underwood to approach Costley with an offer to
purchase, and Underwood complied. After that offer was rejected,
Demming and Underwood devised a plan for Demming to acquire the
Properties. In accordance with this plan, Underwood approached
Costley every few months to inquire into the Properties’ availability for
purchase. In May, August, and October 2006, and again in February
2007, Underwood contacted Costley to inquire into the availability of
the Properties after Demming specifically instructed her to do so. This
evidence, when taken together, supports an inference that Underwood
agreed to act as Demming’s agent for the purpose of acquiring the
Properties.
Id. at 884.
[14] We also determined there was an issue of fact as to whether Demming exerted
sufficient control over Underwood. Id. at 885. To satisfy the control element,
“[i]t is necessary that the agent be subject to the control of the principal with
respect to the details of the work.” Id. (quoting Turner, 743 N.E.2d at 1163).
However, the principal need not exercise complete control over every aspect of
the agent’s activities within the scope of the agency. Id.[15] We noted Demming instructed Underwood to make contact with Costley and
Underwood complied:
Moreover, Demming did more than just dictate the desired result of
the agency, i.e. Demming’s purchase of the Properties. She also
dictated the strategy by which Underwood was to accomplish this
result, namely, by continually contacting Costley, who would in turn
contact the owners.
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[16] While it is true that Demming did not give Underwood the authority
to negotiate the purchase of the Properties without further
consultation, this fact does not establish a lack of control on
Demming’s part. Indeed, when this evidence is properly construed in
favor of Demming in accordance with our standard of review, it gives
rise to the inverse inference that Demming had the right to exercise
extensive control over the details of Underwood’s performance,
including when and how to make an offer to purchase. We therefore
conclude that the designated evidentiary materials create a genuine
issue of material fact regarding whether Demming exercised sufficient
control over Underwood’s activities to support the existence of an
agency relationship.
Id. at 884-85.
[17] On remand, the evidence before the trial court permitted its determination
Underwood was Demming’s agent. Since 2002, Demming had, on several
occasions, engaged Underwood’s services as a real estate broker. Because of
that prior relationship, Demming testified “it was logical for me to then reach
out to her and say, hey, I’d like to talk with you about these properties on Sixth
Street that I’d like to purchase.” (Tr. at 80.) Demming explained in her
testimony why she believed the only way to have her offer presented to the
owners of the properties “was by having a realtor represent me and present an
offer . . . [a]nd that’s what I respectfully did.” (Id. at 78-79.) Underwood
suggested to Demming that Underwood should contact Costley, who managed
the Properties for the owner, “every four or five months on [Demming’s] behalf
from Two Thousand Two on.” (Id. at 121.) Deming testified Underwood “sat
in my living room with me and strategized about the best way I could get those
properties.” (Id.) Underwood would have been paid a commission had
Demming acquired the properties. Demming presented sufficient evidence to
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permit the trial court’s determination Demming manifested her consent to the
agency relationship, Underwood accepted the authority, and Demming exerted
control over Underwood as her agent.
Statutory Agency Relationship
[18] An agency relationship between Demming and Underwood was not precluded
by an Indiana Code provision addressing whether a real estate licensee has an
agency relationship with an individual:
A licensee has an agency relationship with, and is representing, the
individual with whom the licensee is working unless:
(1) there is a written agreement to the contrary; or
(2) the licensee is merely assisting the individual as a customer without
compensation.
Ind. Code § 25-34.1-10-9.5(a). The trial court determined the services
Underwood provided “exceed the casual services which may be provided by a
real estate broker to merely assist an individual as a customer without
compensation.” (Underwood App. at 38.)
[19] We analyzed this “nearly opaque” statute in Demming, 943 N.E.2d at 888-90.
There, the trial court concluded as a matter of law that no statutory agency
relationship was formed between Demming and Underwood. On appeal, we
determined there was an issue of fact as to that question:
[20] The interpretation of a statute is a pure question of law and is reviewed
under a de novo standard. Herron v. State, 729 N.E.2d 1008, 1010 (Ind.
Ct. App. 2000), trans. denied. In statutory construction, our primary
goal is to ascertain and give effect to the intent of the legislature. Gray
v. D & G, Inc., 938 N.E.2d 256, 259 (Ind. Ct. App. 2010). The
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language of the statute itself is the best evidence of legislative intent,
and we must give all words their plain and ordinary meaning unless
otherwise indicated by statute. Id.[21] Moreover, statutes in derogation of common law will be strictly
construed, particularly when the statute affects a common-law right or
duty. Bartrom v. Adjustment Bureau, Inc., 618 N.E.2d 1, 10 (Ind.1993).
We presume that when the legislature enacts a statute, it is aware of
the common law and does not intend to make any change in it beyond
what it declares either in express terms or by unmistakable implication.
Id. Thus, in cases of doubt, we will construe a statute as not changing
the common law. Id.[22] Turning to the task before us, we first note that the pertinent Indiana
Code chapter is entitled Real Estate Agency Relationships (“the
Agency Chapter”). Ind. Code ch. 25-34.1-10. Section 9.5(a) of the
Agency Chapter provides that a real estate licensee has an agency
relationship with the individual with whom the licensee is working,
unless: “(1) there is a written agreement to the contrary; or (2) the
licensee is merely assisting the individual as a customer without
compensation.” Neither party contends that Demming and
Underwood had entered into any sort of written agreement. Thus, in
order to determine that Underwood was not Demming’s agent, we
must conclude that Underwood was assisting Demming as a customer
without compensation.
[23] The definition of “customer” within the Agency Chapter provides us
with little guidance. “Customer” is defined in the negative, as “a
person who is provided services in the ordinary course of business by a
licensee but who is not a client.” Ind. Code § 25-34.1-10-6 (2010).
Thus, to classify Demming as a customer, we must exclude her as
Underwood’s client. A “client” is defined as “a person who has
entered into an agency relationship with a licensee.” Ind. Code § 25-
34.1-10-5 (2010).
[24] These definitions highlight the perplexities inherent in the Agency
Chapter. Section 25-34.1-10-9.5(a)(2) provides that a real estate
licensee has an agency relationship with and is representing the person
with whom the licensee is working unless the licensee is assisting that
person as a customer without compensation. But a customer is
someone who is not a client, and client is defined as someone who has
entered into an agency relationship with a licensee. Thus, under
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section 25-34.1-10-9.5(a)(2), a person with whom a licensee is working
is a client unless he or she is not a client and is not paying for the
licensee’s services.
[25] Adding another layer of difficulty is Indiana Code section 25-34.1-10-
0.5 (2010), which separately defines “agency relationship” as “a
relationship in which a licensee represents a client in a real estate
transaction.” “Real estate transaction” is defined as “the sale or lease
of any legal or equitable interest in real estate.” Ind. Code § 25-34.1-
10-8 (2010).
[26] In concluding that Demming was merely a customer, the trial court
rested on the statutory definition of real estate transaction set forth in
section 25-34.1-10-8. Specifically, the trial court found that “a ‘cold
call’ to inquire whether certain real estate, not otherwise on the
market, could be purchased is not ‘the sale or lease any legal or
equitable interest in real estate’; therefore, there was no ‘real estate
transaction.’” Appellant’s App. p. 15. Likewise, the Defendants argue
that Demming could not be Underwood’s client because the Properties
were not for sale when Underwood contacted Costley and, in their
view, this precludes a conclusion that Underwood was representing
Demming in a real estate transaction. Demming, however, argues that
this conclusion constitutes an unduly restrictive interpretation of the
statutory definitions of real estate transaction and agency relationship.
We agree.
[27] In order to dispose of the issues before us on review of a granted
motion for summary judgment, we need not fully explore the interplay
between the presumption in favor of the existence of an agency
relationship set forth in section 25-34.1-10-9.5 and the definition of
agency relationship set forth in section 25-34.1-10-0.5, along with its
requirement that the purported agent be representing the client in a
real estate transaction. It is enough for us to note that the statutory
definition of real estate transaction contains no requirement that the
real estate at issue be listed for sale, and it is not our prerogative to
engraft such a requirement into the statute. Thus, the fact that the
Properties were not listed for sale at the time Underwood contacted
Costley does not necessarily preclude a conclusion that Underwood
was Demming’s agent under the Agency Chapter.
[28] Furthermore, we disagree with the trial court’s characterization of
Demming and Underwood’s relationship as one in which Underwood
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merely made “a ‘cold call’” to determine whether the Properties were
available. Our evidence most favorable to Demming as the non-
movant establishes that the two strategized together and formulated a
plan for Demming to acquire the Properties. Pursuant to this plan,
Underwood made multiple contacts with Costley to determine
whether the Properties were available over a period of more than four
years, all in furtherance of Demming’s stated desire to purchase the
Properties.
[29] This evidence easily supports an inference that Underwood was
actively representing Demming in the pursuit of a real estate
transaction that had not yet come to fruition. We conclude that this
showing is sufficient to establish a genuine issue of material fact as to
whether Underwood was representing Demming in a real estate
transaction for the purposes of sections 25-34.1-10-0.5 and -8. To hold
that no real estate transaction occurs and that, consequently, no
agency relationship is established until a sale or lease of real estate is
actually consummated would be to completely sever the statutory real
estate agency relationship from its common law roots, a step we will
not take in the absence of a clear contrary pronouncement from the
legislature.
[30] The Defendants also make much of the fact that Underwood received
no compensation from Demming for her repeated contacts with
Costley. According to the Defendants, no agency can be formed under
the Agency Chapter where a licensee merely performs gratuitous
services. However, the plain language of the statute does not support
this assertion. Although section 25-34.1-10-9.5(a)(2) provides that a
real estate licensee has an agency relationship with the person with
whom the licensee is working unless the licensee is assisting that
person as a customer without compensation, there is no requirement
that an individual compensate a licensee for his or her services in order
to qualify as a client. See I.C. § 25-34.1-10-5. And in any event,
review of the facts most favorable to Demming as the non-movant
establishes that Underwood was to be paid in the customary manner
for realtors; that is, she would receive a commission of seven percent
of the purchase price at closing. Thus, Underwood’s own action in
purchasing the Properties for herself prevented her from being
compensated. For all of these reasons, we conclude that the trial court
erred when it concluded as a matter of law that no statutory agency
relationship existed between Demming and Underwood.
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Demming, 943 N.E.2d at 890 (footnote omitted).
[31] We cannot find erroneous the trial court’s determination Underwood provided
services beyond merely “assisting [Demming] as a customer without
compensation.” As explained above, Demming engaged Underwood to help
her pursue the purchase of the Properties because she believed she needed a real
estate broker to present an offer the sellers would consider. Underwood made a
number of inquiries on Demming’s behalf over a period of several years. There
was evidence Demming would have paid Underwood a standard commission
had Underwood negotiated a purchase for Demming. Ind. Code § 25-34.1-10-
9.5(a) does not preclude the trial court’s determination Underwood was
Demming’s agent.
Broker’s Duty
[32] Ind. Code § 25-34.1-10-11 provides:
A licensee representing a buyer or tenant may: (1) show properties in
which the buyer or tenant is interested to other prospective buyers or
tenants and may show competing buyers or tenants the same property
or assist other buyers or tenants in purchasing or leasing a particular
property without breaching any duty or obligation to the buyer or
tenant.
[33] Underwood argues the term “other prospective buyers” is general enough to
include herself as the licensee, so she could buy the properties without
breaching any duty to Demming. Underwood relies on Turner v. Kent, 15
N.E.3d 67, 71 (Ind. Ct. App. 2014) (in construing statutes, “[w]ords are to be
given their plain, ordinary, and usual meaning,” and “[i]t is just as important to
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recognize what the statute does not say as it is to recognize what it does say”),
trans. denied.
[34] We rejected Underwood’s argument in Demming. There, as here, Underwood
argued that because the plain meaning of the statute does not prohibit the
practice, it must necessarily permit it. We “strongly disagree[d].” 943 N.E.2d
at 891.
[35] Under our common law of agency, it is axiomatic that an agent has a
duty to act solely for the principal’s benefit and may not place herself
in a position where her own interests are potentially antagonistic to
those of the principal. In enacting section 25-34.1-10-11(e), the
legislature made no clear declaration or unmistakable implication that
it intended to abandon this fundamental principle and allow real estate
licensees representing buyers to purchase properties “out from under”
their clients. Rather, the statute takes the smaller step of allowing real
estate licensees to represent multiple buyers who are interested in the
same parcel. And there is a good reason for this distinction; a licensee
representing multiple buyers presumably has no personal stake in
which buyer ultimately purchases the parcel, and therefore has no
incentive to treat any of them unfairly. But if the licensee herself
wishes to purchase the parcel, this desire introduces an element of
competition between the licensee and client, and such a conflict of
interest may lead to abuses by the licensee. We therefore conclude
that Indiana Code section 25-34.1-10-11(e) does not allow a licensee
representing a buyer to purchase properties during the course of the
agency with respect to which he or she has acted as the buyer’s agent
and in which the client has expressed interest.
Id. at 891-92 (citations omitted). We decline to revisit our Demming analysis.
Calculation of Damages
[36] Underwood argues the trial court erred in its calculation of damages because it
included “partnership draws” as revenue and excluded “reasonable expenses”
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in the form of Underwood’s legal fees. (Underwood Br. at 22.) Generally, the
computation of damages is a matter within the sound discretion of the trial
court. Marathon Oil Co. v. Collins, 744 N.E.2d 474, 481 (Ind. Ct. App. 2001). A
damage award will not be reversed upon appeal unless it is based on insufficient
evidence or is contrary to law. Id. In determining whether the award is within
the scope of the evidence, we may not reweigh the evidence or judge the
credibility of witnesses. Id.[37] Evidence of profits is not “open to the objection of uncertainty where there is
testimony which, while not sufficient to put the amount beyond doubt, is
sufficient to enable the [factfinder] to make a fair and reasonable finding with
respect thereto.” Lees Inns of Am., Inc. v. William R. Lee Irrevocable Trust, 924
N.E.2d 143, 160 (Ind. Ct. App. 2010) (quoting Jerry Alderman Ford Sales, Inc. v.
Bailey, 154 Ind. App. 632, 652, 291 N.E.2d 92, 106 (1972), clarified on other
grounds on reh’g), trans. denied. Doubts and uncertainties as to the proof of the
exact measure of damages must be resolved against the defendant because
justice and public policy require that the wrongdoer bear the risk of uncertainty
that his own wrong has created. Id. The rationale for leniency in proving
damages where a breach of duty has occurred is that the breaching party must
be required to bear all the consequences of his conduct. Id.[38] We cannot find an abuse of discretion. We note Underwood offers no legal
authority in support of her argument other than citation to two decisions for the
premise “net profits are defined as revenue less expenses.” (Underwood Br. at
23) (citing Indiana & Michigan Elec. Co. v. Terre Haute Indus., Inc., 507 N.E.2d 588Court of Appeals of Indiana | Opinion 53A01-1409-PL-395 | July 22, 2015 Page 15 of 26
(Ind. Ct. App. 1987) reh’g denied, trans. denied, and Arthur Jordan Co. v. Caylor, 36
Ind. App. 640, 76 N.E. 419 (1905)). But that standard does not control in the
case before us, where damages were awarded not for breach of contract, but for
Underwood’s breach of fiduciary obligations. In the latter situation, “when the
basis of liability is a failure to conform to a fiduciary duty, the measure of
damages is the entire loss sustained.” W & W Equip. Co. v. Mink, 568 N.E.2d
564, 576 (Ind. Ct. App. 1991) reh’g denied, trans. denied. When a fiduciary
misappropriates property, the victim is entitled to the property and “all the
fruits of such property.” Winstandley v. Second Nat. Bank of Louisville, Ky., 13
Ind. App. 544, 41 N.E. 956, 957 (1895).
[39] While the trial court might have mischaracterized the basis for its calculation of
damages as “net profits,” (Underwood App. at 52), we cannot find the trial
court erred to the extent it determined the “partnership draws” should be
included as the “fruits” of the property Underwood and Kinney
misappropriated. “Partnership draw is nothing more than a form of
compensation whereby partners, pursuant to an agreement, take money from a
partnership drawing account on a periodic basis as salary or as a share of profits
from the enterprise.” Gerst v. Gerst, 135 Misc. 2d 112, 113, 514 N.Y.S.2d 587,
587 (Sup. Ct. 1987). 3
3
Underwood asserts partnership draws have “no relationship to the income or expenses of a partnership.
They can reflect returns of capital, the proceeds of refinancings, or repayment of loans the partners have
made to a partnership. Nor are they any reliable evidence of what [Demming] supposedly lost by not owning
the properties from 2007-2012.” (Underwood Br. at 23.) Underwood offers no citation to the record or to
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Attorney’s Fees
[40] The trial court determined Demming was entitled to attorney fees because of
“fraudulent and deceptive conduct by Underwood and Kinney and a breach of
fiduciary duties, in the context of a constructive trust.” (Underwood App. at
56.) Kinney and Underwood argue that was error because the parties had no
agreement regarding attorney fees and no statute provides for such an award in
a situation like this.
[41] We review a decision to grant attorney fees for an abuse of discretion. R.L.
Turner Corp. v. Town of Brownsburg, 963 N.E.2d 453, 457 (Ind. 2012). Indiana
generally adheres to the American rule that a party must pay his own attorney
fees absent an agreement between the parties, a statute, or other rule to the
contrary. Id. at 458. “The right to recover attorneys’ fees from one’s opponent
does not exist in the absence of a statute or some agreement, though a court of
equity may, under some circumstances, allow attorneys’ fees to be paid out of a
fund brought under its control.” State Bd. of Tax Comm’rs v. Town of St. John, 751
N.E.2d 657, 659 (Ind. 2001) (quoting Gavin v. Miller, 222 Ind. 459, 465, 54
N.E.2d 277, 280 (1944)). Equity permits an award of attorney fees under the
legal authority to support her assertion the partnership draws in the case before us were unrelated to the
income from the Properties or should otherwise be excluded as the fruits of the misappropriation of the
Properties. We therefore decline to reverse on that ground. See Indiana Appellate Rule 46(A)(8) (“The
argument must contain the contentions of the appellant on the issues presented supported by cogent
reasoning. Each contention must be supported by citations to the authorities, statutes, and the Appendix or
parts of the Record on Appeal relied on.”). A party waives an issue where the party does not develop a
cogent argument or provide adequate citation to authority and portions of the record. Smith v. State, 822
N.E.2d 193, 202-03 (Ind. Ct. App. 2005), trans. denied.
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circumstances before us, and we cannot say the award was an abuse of
discretion.
[42] In In re Bender, 844 N.E.2d 170, 185 (Ind. Ct. App. 2006), trans. denied, we
affirmed an award of attorney fees where a personal representative breached his
fiduciary duty to an estate and the court had imposed a constructive trust to
recover property the personal representative had improperly transferred from
the estate. There, the probate court imposed a constructive trust to pull back
into the estate property that had been improperly transferred from the estate.
[43] We noted a constructive trust is an equitable remedy:
To fully compensate [the beneficiary] for the loss caused by [the
personal representative’s] breach of fiduciary duty in administering the
Estate, equity demands that [the personal representative] should pay
for the attorney fees incurred to prevent [the personal representative]
from acting outside his fiduciary powers. Otherwise, the only
deterrent to [the personal representative] acting outside the bounds of
his powers is the chance that any improper transfer, and the profits
derived therefrom, will be placed in a constructive trust. The probate
court did not err in citing to the Trust Code 4 to support an award of
attorney fees. A personal representative, like a trustee, is a fiduciary
who acts on behalf of the beneficiary. It was proper for the probate
court to conclude that attorney fees available for a fiduciary’s
4
We upheld the award of attorney fees in Bender even though there was nothing in the probate code that
authorized the recovery of attorney fees in a case such as that one. But the trial court there noted “[w]hen a
trustee commits a breach of trust, the trustee is liable to the beneficiary for reasonable attorney fees incurred
by the beneficiary in bringing an action on the breach.” 844 N.E.2d at 184 (citing Ind. Code § 30-4-3-11(b)).
We went on to say that section of the trust code “applies to the fiduciary obligations of a personal
representative to an estate, its creditors, and beneficiaries.” Id. at 185 (citing Fall v. Miller, 462 N.E.2d 1059,
1062 (Ind. Ct. App. 1984)). As the trial court imposed a constructive trust as part of Demming’s remedy,
Underwood and Kinney were trustees too.
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wrongdoing in a trust are equally available for a fiduciary’s
wrongdoing in an estate, and that these fees should be paid by the
fiduciary personally. The trial court did not err in granting attorney
fees to be paid by [the personal representative] to [the beneficiary].
Id. (footnote added).
[44] Similarly, the trial court in the case before us imposed a constructive trust as a
remedy for the breach of Underwood’s and Kinney’s fiduciary duties. An
agency relationship is confidential and fiduciary, and the agent is obliged to
exercise the utmost good faith. Bopp v. Brames, 713 N.E.2d 866, 871 (Ind. Ct.
App. 1999), trans. denied. Unless otherwise agreed, an agent owes a duty to his
principal to act solely for the principal’s benefit. Id. We decline to find an
abuse of discretion in the award of attorney fees to Demming.
Prejudgment Interest
[45] The trial court awarded Demming prejudgment interest of $10,503.26.
Underwood argues that was error because Demming did not make a qualified
settlement offer. For the prejudgment interest statute to apply, a plaintiff must
make a written offer of settlement to a party against whom the claim is filed
within one year of filing the claim in court. Ind. Code § 34-51-4-6; Wisner v.
Laney, 984 N.E.2d 1201, 1209 (Ind. 2012).
[46] Underwood asserts there was no such offer. Demming concedes prejudgment
interest was not warranted, and asks us to “reduce the total judgment to
$144,357.38, which equals the damages awarded less the prejudgment interest
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portion.” (Appellee’s Br. at 32 n.2.) We accordingly remand so the trial court
may recalculate the damages to exclude prejudgment interest.
Kinney’s Notice of a Claim for Money Damages
[47] After we remanded for trial, Kinney moved for judgment on the pleadings on
the ground he did not have adequate notice there was a claim against him for
money damages. 5 The denial of his motion was not error.
[48] The bench trial in this litigation was bifurcated. After the liability phase was
completed, Kinney filed a “Motion for Judgment on the Pleadings as to any
purported claim for money damages,” (Appendix of Appellant Thomas Bunger
as Personal Representative of the estate of Kenneth K. Kinney (hereinafter
“Kinney App.”) at 44), on the first day of the damages phase. 6 He alleged in his
motion that Demming’s only demand for relief against Kinney was an order
transferring his interest in the Properties to Demming, and Demming sought
money damages only from Underwood.
5
Kinney died after the trial court entered its judgment and his estate was substituted as a party in this appeal.
6
Demming filed her complaint on April 19, 2007. It appears Kinney filed his motion for judgment on the
pleadings over six years later, on June 21, 2013, but the copy Kinney provided in his appendix does not have
a file stamp. (Kinney App. at 44.)
Ordinarily, a motion for judgment on the pleadings should be made “promptly after the close of the
pleadings” or the court may refuse to hear the motion on the ground that its consideration will delay or
interfere with the commencement of the trial. Cain v. Bd. of Comm’rs of Cass Cnty., 491 N.E.2d 544, 546 (Ind.
Ct. App. 1986). The determination whether the motion amounts to a delay of trial is within the discretion of
the trial judge. Id. But if it seems clear the motion may effectively dispose of the case, the court should
permit it regardless of any possible delay its consideration may cause. Id.Court of Appeals of Indiana | Opinion 53A01-1409-PL-395 | July 22, 2015 Page 20 of 26
[49] Ind. Trial Rule 8 defines the general rules of pleading. It states that “a pleading
must contain . . . a short and plain statement of the claim showing that the
pleader is entitled to relief, and . . . a demand for relief to which the pleader
deems entitled. Relief in the alternative or of several different types may be
demanded.” T.R. 8(A). A plaintiff is not rigidly limited to argue only the
theory of recovery she sets out in her complaint. See, e.g., Buell v. Budget Rent-A-
Car of Ind., Inc., 151 Ind. App. 21, 24, 277 N.E.2d 798, 800 (1972) (rejecting
argument a judgment did not conform to the pleadings because the complaint
was solely for declaratory relief but the judgment entered was a money
judgment).
[50] Notice pleading merely requires pleading the operative facts in order to place
the defendant on notice as to the evidence to be presented at trial. Noblesville
Redevelopment Comm’n v. Noblesville Assocs. Ltd. P’ship, 674 N.E.2d 558, 563 (Ind.
1996). Therefore, whether a complaint sufficiently pleads a certain claim turns
on whether the opposing party has been sufficiently notified concerning the
claim so as to be able to prepare to meet it. Id. at 563-64. A complaint’s
allegations are sufficient if they put a reasonable person on notice as to why the
plaintiff sues. Id. at 564. For the defendant to make efficient and educated
legal decisions regarding its case, the complaint must put the defendant on
notice concerning why it is potentially liable and what it stands to lose. Id.
[51] Kinney had such notice, even though in her original complaint dated April 19,
2007, Demming stated she “prays for judgment against Underwood for
damages [and] for an order compelling Underwood and Kinney to convey the
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Real Estate to Demming.” (Kinney App. at 31.) In November 2011, Kinney,
Underwood, and Demming stipulated the proceedings would be bifurcated into
a liability trial and a damages trial. Kinney did not assert at that time that the
damages trial would be limited to Underwood only or that any judgment
against him would be in rem only. In May 2012, over a year before Kinney’s
motion for judgment on the pleadings, the trial court issued its judgment on
liability, where it determined Kinney was vicariously liable for Underwood’s
fraudulent acts. It ordered there would be additional proceedings to “determine
an appropriate measure of damages to be awarded in favor of [Demming] and
against the defendants, Cheryl Underwood and Kenneth Kinney.” (Underwood App.
at 42) (emphasis added).
[52] In June 2012, Kinney sought discovery from Demming and in her response to
Kinney’s interrogatories Demming said her claim for damages included “net
profits retained by the Defendants during the time they owned and managed
[the Properties].” (Appellee’s App. at 28.) Demming said in her response she
expected to call Kinney as a witness at the damages trial. Demming submitted
documents in response to Kinney’s request for “[t]rue, complete, and authentic
copies of any and all documents in support of Your request for damages,” 7 (Id. at
33) (emphasis added), and for “[a]ny and all exhibits to be used at any future
damages trial in this cause.” (Id. at 34.) Kinney had adequate notice Demming
7
That language is from Demming’s response to Kinney’s request. Each party submitted an Appendix, but
none appears to include Kinney’s request for production of documents.
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was claiming damages from him and he had an opportunity to prepare a
defense to such claim.
Kinney’s Vicarious Liability
[53] The trial court determined Kinney was vicariously liable for Underwood’s
actions. The doctrine of vicarious liability as it applies to general partnerships is
an effect of the rule that each partner is the agent of the others. Demming, 943
N.E.2d at 895. Under the doctrine, a partnership is liable for the actions of any
one of its members in conducting the partnership business. Id; and see Ind.
Code § 23-4-1-13 (partnership is liable for wrongful acts or omissions of any
partner acting in the ordinary course of the business of the partnership or with
the authority of his copartners); Ind. Code § 23-4-1-15 (partners are jointly and
severally liable for everything chargeable to the partnership under Indiana Code
section 23-4-1-13).
[54] A partnership is an association of two or more persons to carry on as co-owners
of a business for profit. Life v. F.C. Tucker Co., 948 N.E.2d 346, 351 (Ind. Ct.
App. 2011). A “person” may be an individual, partnership, limited liability
company, corporation, or other association. Id. at 351-52. The two
requirements of a partnership are: (1) a voluntary contract of association for the
purpose of sharing profits and losses which may arise from the use of capital,
labor, or skill in a common enterprise; and (2) an intention on the part of the
parties to form a partnership. Id. at 352.
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[55] Kinney argues he should not be vicariously liable for Underwood’s acts because
they had not yet become partners in a business to own and lease the Sixth Street
properties. We rejected that argument in Demming:
[T]he Defendants argue that although Kinney and Underwood are
now partners in a business to own and lease the Properties, Kinney is
not vicariously liable for Underwood’s alleged breach of fiduciary duty
and constructive fraud because the partnership had not yet been
formed at the time that Underwood first made an offer to purchase the
Properties. However, Underwood testified in her deposition that the
partnership existed at the time she tendered the first offer to purchase
on March 9, 2007.
*****
The Defendants’ argument that the partnership had not yet been
formed when Underwood first made an offer to purchase the
Properties is simply an invitation for this court to consider the
evidence and inferences least favorable to Demming, which we will
not do.
943 N.E.2d at 895-96.
[56] In the case before us, there was evidence to support the trial court’s
determination Kinney and Underwood were partners when the Properties were
purchased and Kinney was therefore vicariously liable for Underwood’s
actions. Underwood and Kinney had owned and managed rental properties
together before they bought the Sixth Street properties. On March 9, 2007,
Underwood told Kinney she was going to buy the Properties and “she needed a
partner and wondered if I was interested.” (Appellee’s App. at 40.) That same
day, Kinney went to a bank and completed a personal financial statement to
determine “whether we could raise the funds or what, what we could do.” (Id.
at 44.)
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[57] The existence of a partnership is generally a question of fact. Curves for Women
Angola v. Flying Cat, LLC, 983 N.E.2d 629, 632 (Ind. Ct. App. 2013). Because
the present action was tried before the judge without a jury, the trial court was
the finder of fact. We will disturb the findings of fact only when they are clearly
erroneous – that is, if the record reveals no facts or inferences on which the trial
court could have based its findings. Id. Underwood and Kinney had been
partners in real estate purchases in the past. Underwood told Kinney she
needed a partner to purchase the Properties and she asked if Kinney was
interested. Kinney took steps that day to obtain financing. When Demming
learned Underwood had bought the Properties, she asked Underwood “who did
you take on as a partner,” (Tr. at 126), and Underwood said “I chose [Kinney]
and, and I knew [Kinney] had money, so I knew that that was probably well
funded.” (Id. at 127.) That evidence permitted the trial court to infer Kinney
was Underwood’s partner when she purchased the Properties. We cannot find
clear error.
Conclusion
[58] The trial court’s determinations Underwood was Demming’s agent, that
Kinney and Underwood were partners in the purchase of the Properties, and
Underwood breached her duty to Demming were not clearly erroneous. The
trial court did not abuse its discretion in calculating damages, awarding
attorney fees, or denying Kinney’s motion for judgment on the pleadings.
However, it should not have awarded prejudgment interest. We accordingly
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affirm in part, reverse in part, and remand for recalculation of the damage
award to reflect the removal of prejudgment interest.
[59] Affirmed in part, reversed in part, and remanded.
Robb, J., and Mathias, J., concur.
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