Russell F. Dumka v. Lori Erickson and Edward Jones

FILED
Jan 31 2017, 9:20 am
CLERK
Indiana Supreme Court
Court of Appeals
and Tax Court
ATTORNEY FOR APPELLANT
John William Davis, Jr.
Davis & Roose
Goshen, Indiana
IN THE
COURT OF APPEALS OF INDIANA
Russell F. Dumka, January 31, 2017
Appellant-Plaintiff, Court of Appeals Case No.
20A03-1605-PL-1178
v. Appeal from the Elkhart Circuit
Court
Lori Erickson and Edward The Honorable Terry C.
Jones, Shewmaker, Judge
Appellees-Defendants Trial Court Cause No.
20C01-1405-PL-000127
Crone, Judge.
Case Summary
[1] Russell F. Dumka appeals from the trial court’s order denying garnishment of
an individual retirement account inherited by Lori Erickson from her husband.
Although he concedes that the asset is exempt from garnishment, he argues that
the trial court erred by applying the statutory exemption because it was Lori’s
Court of Appeals of Indiana | Opinion 20A03-1605-PL-1178 | January 31, 2017 Page 1 of 9
burden to assert the exemption and she failed to do so. Concluding that the
order complies with the evidence and the law, we affirm.
Facts and Procedural History
[2] In May 2014, Dumka and Craig Erickson (now deceased) each owned fifty
percent of MIKO-Home Machine Co., Inc. Craig served as president, and
Dumka served as vice-president. Craig’s wife, Lori, served as secretary and
treasurer. Craig, Lori, and Dumka constituted the board of directors. Dumka
filed a stockholder’s derivative action on behalf of MIKO against Craig and
Lori, alleging that they had stolen property from MIKO and requesting that a
receiver be appointed for MIKO. In July 2014, the trial court entered a default
judgment (“the MIKO Judgment”) in favor of MIKO and against the Ericksons
jointly and severally for $2,124,132.24 plus attorney fees and court costs. In
January 2015, the trial court issued an order approving the receiver’s final
accounting, conveying MIKO’s tangible assets to Dumka, and assigning part of
the MIKO Judgment to Dumka.
[3] In December 2015, Dumka filed a motion for proceedings supplemental against
Lori and naming Edward Jones as garnishee-defendant, seeking to recover the
unpaid balance of $984,129.48 remaining under the MIKO Judgment. In
January 2016, a hearing was held. Dumka appeared in person and by counsel,
and Lori appeared pro se. Dumka submitted Edward Jones’s answer to
interrogatories, in which it indicated that it held in Lori Erickson’s name an
“Inherited Traditional Individual Retirement Account (IRA) … held for the
benefit of Craig D. Erickson, C/O Lori L. Erickson,” with an estimated value
Court of Appeals of Indiana | Opinion 20A03-1605-PL-1178 | January 31, 2017 Page 2 of 9
of $51,115.02. Appellant’s App. at 190. The answer to interrogatories also
stated, “Please note this account was formerly a traditional IRA held for the
benefit of Craig D. Erickson.” Id. Dumka also submitted Lori’s affidavit, in
which she attested that she had the Edward Jones IRA. Id. at 194. Both
documents were admitted into evidence without objection. Dumka asked the
trial court to enter a final order of garnishment directing Edward Jones to
liquidate the IRA. The trial court asked Lori whether she had any problems
with the submission by Dumka’s attorney of a final garnishment order against
Edward Jones, and she said, “No.” Tr. at 3. At no time did Lori assert that the
IRA was exempt from garnishment. The trial court then directed Dumka’s
attorney to submit a proposed garnishment order and stated that it would
approve the order. Id. The entry in the chronological case summary states,
“[W]ithout objection, Final Order in Garnishment will issue upon receipt of
same.” Appellant’s App. at 13.
[4] In February 2016, the trial court issued an order denying Dumka’s request for
garnishment (“the Order”). The trial court found that pursuant to Indiana
Code Section 34-55-10-2(c)(6), “non-spousal inherited IRAs are not exempt
from garnishment,” but “IRAs inherited by surviving spouses are exempt,” and
because the Edward Jones IRA was inherited by a surviving spouse, it is
exempt from garnishment. Id. at 21. Dumka filed a motion to correct error,
arguing that the trial court erred by asserting exemptions on Lori’s behalf and
acting as her advocate. Following a hearing, the trial court denied the motion,
Court of Appeals of Indiana | Opinion 20A03-1605-PL-1178 | January 31, 2017 Page 3 of 9
finding that it did not err by taking judicial notice of Section 34-55-10-2(c)(6).
This appeal ensued.
Discussion and Decision
[5] Initially, we note that Lori did not file a brief.
When an appellee fails to submit a brief, we do not undertake the
burden of developing appellee’s arguments, and we apply a less
stringent standard of review. We may reverse if the appellant
establishes prima facie error, which is error at first sight, on first
appearance, or on the face of it. The prima facie error rule
relieves this Court of the burden of controverting arguments
advanced in favor of reversal where that burden properly rests
with the appellee.
Jenkins v. Jenkins, 17 N.E.3d 350, 351-52 (Ind. Ct. App. 2014) (citations
omitted).
[6] Dumka argues that the trial court erred by denying his request for garnishment
based on an exemption that Lori failed to assert. We observe that
[p]roceedings supplemental are designed as a remedy where a
party fails to pay a money judgment. The proceedings are merely
a continuation of the underlying claim, initiated under the same
cause number for the sole purpose of enforcing a judgment.
These proceedings serve the limited purpose of determining
whether an asset is in the judgment debtor’s possession or subject
to the judgment debtor’s control and can be attached to satisfy
the judgment.
Our system vests trial courts with broad discretion in conducting
proceedings supplemental. [I]n proceedings supplemental, we are
Court of Appeals of Indiana | Opinion 20A03-1605-PL-1178 | January 31, 2017 Page 4 of 9
constrained to treat a trial court’s judgment as being general only.
We will not disturb a trial court’s judgment regarding a
proceedings supplemental unless the record does not provide
sufficient support for any theory on which the judgment may be
sustained. We will affirm the trial court’s judgment on any legal
theory supported by the evidence most favorable to the judgment,
together with all reasonable inferences to be drawn therefrom.
Prime Mortg. USA, Inc. v. Nichols, 885 N.E.2d 628, 668-69 (Ind. Ct. App. 2008)
(citations and quotation marks omitted). Here, the trial court took judicial
notice of Indiana Code Section 34-55-10-2(c)(6). We review a trial court’s
decision to take judicial notice of a matter for abuse of discretion. Horton v.
State, 51 N.E.3d 1154, 1157 (Ind. 2016) (citing Storey v. Leonas, 904 N.E.2d 229,
236 (Ind. Ct. App. 2009)).
Dumka concedes that the IRA is exempt from garnishment pursuant to Indiana
Code Section 34-55-10-2(c)(6) and that Lori would have been entitled to it if she
had timely asserted the exemption. Indiana Code Section 34-55-10-2(c)(6)
provides that “an interest, whether vested or not, that a debtor has in a
retirement plan or fund to the extent of contributions, or portions of
contributions, that were made to the retirement plan or fund by or on behalf of
the debtor or the debtor’s spouse,” is exempt from execution of judgment. See
also In re Klipsch, 435 B.R. 586, (2010) (concluding that IRA inherited from
father by son was not exempt but explaining that IRA held by surviving spouses
are exempt). The evidence clearly establishes that the IRA is a retirement plan
held for the benefit of Craig and that it was inherited by Lori, his surviving
spouse. Therefore, the IRA is exempt from garnishment. Nevertheless, Dumka
Court of Appeals of Indiana | Opinion 20A03-1605-PL-1178 | January 31, 2017 Page 5 of 9
asserts that Lori is not entitled to the exemption because she failed to timely
assert it.
[7] Although the general rule is that exemptions to attachment must be asserted by
the debtor, our supreme court has recognized exceptions. Branham v. Varble,
952 N.E.2d 744, 746 (Ind. 2011); Mims v. Commercial Credit Corp., 261 Ind. 591,
596, 307 N.E.2d 867, 870 (1974). In Branham, our supreme court explained the
justification for exemptions:
The principle that debtors should have a certain amount of
property or income exempted from collection finds its origin in
our constitution, which says:
The privilege of the debtor to enjoy the necessary comforts
of life, shall be recognized by wholesome laws, exempting
a reasonable amount of property from seizure or sale, for
the payment of any debt or liability hereafter contracted:
and there shall be no imprisonment for debt, except in case
of fraud.
Ind. Const. Art. 1, § 22.
To enforce Article 1, Section 22, our General Assembly has
enacted multiple exemption statutes sheltering certain property
and income from attachment. The general rule of civil litigation is
that these exemptions must be asserted by the debtor. [Mims, 261 Ind.
591, 307 N.E.2d 867]. Because the statutory exemptions exist to
give life to a constitutional right, we have held that there should be
exceptions and modifications to this general rule “consistent with fairness
and practical realities.” Id. at 595, 307 N.E.2d at 869.
952 N.E.2d at 746-47 (emphases added).
Court of Appeals of Indiana | Opinion 20A03-1605-PL-1178 | January 31, 2017 Page 6 of 9
[8] The Branham court concluded that the circumstances of that case justified an
exception to the general rule that exemptions from attachment must be asserted
by the debtor. There, the judgment debtors were unrepresented and failed to
assert two exemptions–the general wage exemption and the Social Security
Income exemption–during proceedings supplemental brought in small claims
court. The Branham court observed that small claims trials are purposefully
informal and that “[p]eople often appear in small claims court without
attorneys and may not have any knowledge of exemptions or any realistic way
to determine which exemptions might apply.” Id. at 747. The court also noted
that the specific facts of the case illustrated why “holding unrepresented
litigants to account on appeal for affirmatively pleading exemptions may often
prove too harsh.” Id. The court found that there was “no evidence that the
Branhams [had] any property or income that [was] not covered by an
exemption.” Id. at 748. Accordingly, the court reversed the order requiring the
Branhams to make payments.
[9] Mims involved two exemptions: the Uniform Consumer Credit Code
(“UCCC”) garnishment exemption and the resident-householder exemption.
The debtor, who had defaulted on a retail installment sales contract, was
unrepresented and did not assert the resident-householder exemption, and the
trial court applied the UCCC exemption. The Mims court held that a “debtor-
defendant, who satisfies the resident-householder requirement and whose
indebtedness flows from a contractual breach, should have the protection of
whichever garnishment exemption results in the least amount of garnished
Court of Appeals of Indiana | Opinion 20A03-1605-PL-1178 | January 31, 2017 Page 7 of 9
income.” 261 Ind. 591, 594, 307 N.E.2d 867, 868. To “preserve the integrity of
the garnishment exemptions and insure full enjoyment of a constitutional
right,” the court explained that if a debtor “is represented by counsel during
proceedings supplemental, the burden is upon the debtor to affirmatively
interpose the resident-householder claim.” Id. at 595-96, 307 N.E.2d at 869.
However, if a debtor is not represented by counsel, then the trial court must
determine whether the debtor is a resident-householder, and if so, whether the
resident-householder exemption or the UCCC exemption would place the lesser
burden on the debtor. Id. at 596, 307 N.E.2d at 869.
[10] Dumka argues that an exception is not warranted here because Branham and
Mims are distinguishable. He asserts that those cases involved garnishment of
current and future income, whereas this case involves accumulated savings and
earnings thereon; this case is not a small claims case; and the judgment against
Lori is based on her embezzlement of corporate assets.1 Dumka also argues
that by asserting the exemption on Lori’s behalf, the trial court became an
advocate for her rather than remaining impartial as required by Canon 2 of the
Indiana Code of Judicial Conduct, which provides, “A judge shall uphold and
apply the law, and shall perform all duties of judicial office fairly and
impartially.” We are unpersuaded.
1
Unless and until the legislature creates an exception to the exemption for claims based upon embezzlement,
we will not create one by judicial fiat.
Court of Appeals of Indiana | Opinion 20A03-1605-PL-1178 | January 31, 2017 Page 8 of 9
[11] Like the debtors in Branham and Mims, Lori was unrepresented. Based on the
undisputed facts, the IRA is lawfully exempt from attachment. Her failure and
the trial court’s failure to initially recognize that the IRA was lawfully exempt is
of no consequence. The trial court may take judicial notice of public statutory
law, and it may take judicial notice on its own at any stage of the proceeding.
Ind. Evid. Rule 201(b), -(c), -(d).2 The trial court did not abuse its discretion in
taking judicial notice of Section 34-55-10-2(c)(6). See Horton, 51 N.E.3d at
1157; see also Holtzleiter v. Holtzleiter, 944 N.E.2d 502, 506 (Ind. Ct. App. 2011)
(“[T]he trial court is presumed to know the law, and apply it correctly.”)
Dumka has failed to establish prima facie error. We conclude that the Order
complies with the evidence and the law, and therefore we affirm.
[12] Affirmed.
Kirsch, J., and May, J., concur.
2
Dumka asserts that judicial notice may take the place of proof, but an exemption to garnishment is an
affirmative defense that must be pleaded as well as proved. See Ind. Trial Rule 8(C) (requiring affirmative
defenses to be set forth in a responsive pleading). However, this claim is merely a restatement of the general
rule that the debtor must assert an exemption, and we have already discussed that there are exceptions to the
general rule.
Court of Appeals of Indiana | Opinion 20A03-1605-PL-1178 | January 31, 2017 Page 9 of 9