Boulder-Maxx, LLC, Andrew T. Gutwein, and Jeffrey L. Baumgartner v. Richard Haby (mem. dec.)

MEMORANDUM DECISION
FILED
Pursuant to Ind. Appellate Rule 65(D), Jul 26 2019, 7:36 am
this Memorandum Decision shall not be
CLERK
regarded as precedent or cited before any Indiana Supreme Court
Court of Appeals
court except for the purpose of establishing and Tax Court
the defense of res judicata, collateral
estoppel, or the law of the case.
ATTORNEY FOR APPELLANTS ATTORNEY FOR APPELLEE
Joseph R. Delehanty Brian A. Karle
Gutwein Law Ball Eggleston, PC
Lafayette, Indiana Lafayette, Indiana
IN THE
COURT OF APPEALS OF INDIANA
Boulder-Maxx, LLC, Andrew T. July 26, 2019
Gutwein, and Jeffrey L. Court of Appeals Case No.
Baumgartner, 18A-PL-3061
Appellants-Plaintiffs, Appeal from the Boone Superior
Court
v. The Honorable Thomas R. Lett,
Special Judge
Richard Haby, Trial Court Cause No.
Appellee-Defendant. 06D02-1606-PL-84
Najam, Judge.
Statement of the Case
[1] Boulder-Maxx, LLC, Andrew T. Gutwein, and Jeffrey L. Baumgartner
(collectively “Boulder-Maxx”) appeal the trial court’s judgment in favor of
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Richard Haby following a bench trial on Boulder-Maxx’s complaint alleging
that Haby committed fraud and breached his fiduciary duty to Boulder-Maxx.
Boulder-Maxx presents the following issues for our review:
1. Whether the trial court erred when it found that Haby
neither committed constructive fraud nor breached his
fiduciary duty to Boulder-Maxx.
2. Whether the trial court erred when it found that Gutwein
and Baumgartner each breached his fiduciary duty to
Haby.
3. Whether the trial court abused its discretion when it
awarded attorney’s fees to Haby.
[2] We affirm in part and reverse in part.
Facts and Procedural History
[3] In October 2007, Gutwein, Baumgartner, and James Chalfant formed Boulder-
Maxx, a real estate holding company. In 2008, Chalfant “transferred a property
referred to as the ‘College Avenue Property’” to Boulder-Maxx for $120,000.
Appellants’ App. Vol. 2 at 12. Chalfant then leased that property from Boulder-
Maxx and used it for his office. In April 2011, Chalfant transferred his interest
in Boulder-Maxx to Haby, with whom Chalfant had had a “longstanding
business relationship.” Id. at 13. Chalfant continued to use the College Avenue
Property for his office.
[4] In 2012, “a dispute arose” between Chalfant and Boulder-Maxx “regarding the
College Avenue Property,” and Chalfant sued Boulder-Maxx to foreclose on a
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mechanic’s lien (“the mechanic’s lien suit”). Id. The parties ultimately settled
the matter. Under the terms of the settlement agreement, Boulder-Maxx agreed
to sell the College Avenue Property back to Chalfant for $120,000. However, at
the closing on that sale, Chalfant transferred his interest in the property to
Northern Equity and Asset Trust, LLC (“NEAT”) for $120,000. Unbeknownst
to either Gutwein or Baumgartner, Haby was the sole named member of
NEAT, a real estate holding company.
[5] In 2015, Gutwein and Baumgartner first learned that Haby was a member of
NEAT. Gutwein and Baumgartner suspected that Haby had “actively
concealed his interest in NEAT” from them and had conspired with Chalfant to
get Boulder-Maxx to sell the College Avenue Property “at a discount” for
Haby’s benefit. Appellants’ Br. at 30. Accordingly, in June 2016, Boulder-
Maxx filed a complaint against Haby seeking the dissolution of Boulder-Maxx
and alleging that Haby had committed fraud and constructive fraud and
breached his fiduciary duty to Boulder-Maxx. Haby filed an answer and
counterclaims alleging that Gutwein and Baumgartner each breached his
fiduciary duty to Haby when they misappropriated Boulder-Maxx funds and
alleging that their claims were frivolous and in bad faith.
[6] During a bench trial, Gutwein and Baumgartner each testified for Boulder-
Maxx, and Chalfant testified on Haby’s behalf. Haby did not testify. Chalfant
testified in relevant part that: Haby had “no involvement” in NEAT; Chalfant
managed NEAT “autonomously,” without any input from Haby; and Chalfant
was “the only signatory on [NEAT’s] bank accounts.” Tr. Vol. 2 at 187;
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Appellants’ App. Vol. 2 at 16. Thus, Chalfant testified that Haby neither knew
about nor benefited from the College Avenue Property transfer to NEAT.
Chalfant also testified that Baumgartner had tried to include in the mechanic’s
lien suit negotiations the sale of a property owned by Chalfant and
Baumgartner, the “Sellers Street Property,” to Boulder-Maxx at a discount in
order to personally benefit Baumgartner. Tr. Vol. 2 at 33. But that sale did not
go through. Finally, Haby presented evidence that Gutwein and Baumgartner
had misappropriated Boulder-Maxx funds for their personal use.
[7] At the conclusion of trial, the trial court entered judgment in favor of Haby on
Boulder-Maxx’s claims and on Haby’s counterclaims, and the court awarded
Haby attorney’s fees in an amount to be determined later. In particular, the
trial court found that Gutwein and Baumgartner each had breached his
fiduciary duty to Haby. In addition, the trial court ordered that Boulder-Maxx
be dissolved. Boulder-Maxx filed a motion to correct error, which the trial
court denied after a hearing. This appeal ensued.
Discussion and Decision
Standard of Review
[8] Boulder-Maxx appeals the trial court’s findings and conclusions following a
bench trial. As our Supreme Court has made clear, in such cases
[w]e may not set aside the findings or judgment unless they are
clearly erroneous. In our review, we first consider whether the
evidence supports the factual findings. Second, we consider
whether the findings support the judgment. Findings are clearly
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erroneous only when the record contains no facts to support
them either directly or by inference. A judgment is clearly
erroneous if it relies on an incorrect legal standard. We give due
regard to the trial court’s ability to assess the credibility of
witnesses. While we defer substantially to findings of fact, we do
not defer to conclusions of law. 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.
State v. Int’l Bus. Machs. Corp., 51 N.E.3d 150, 158 (Ind. 2016) (citations and
quotation marks omitted).
[9] We also note that Boulder-Maxx appeals from a negative judgment on its
claims against Haby. A party who had the burden of proof at trial appeals from
a negative judgment and will prevail only if it establishes that the judgment is
contrary to law. Helmuth v. Distance Learning Sys. Ind., Inc., 837 N.E.2d 1085,
1089 (Ind. Ct. App. 2005). A judgment is contrary to law when the evidence is
without conflict and all reasonable inferences to be drawn from the evidence
lead only to one conclusion, but the trial court reached a different conclusion.
Id.
Issue One: Claims Against Haby
[10] Boulder-Maxx first contends that the trial court’s findings of fact and
conclusions of law “are clearly erroneous” in that they “disregard, overlook, or
otherwise ignore evidence and testimony presented at trial.” Appellants’ Br. at
30. In particular, Boulder-Maxx maintains that the trial court erred when it
concluded that Haby had not committed constructive fraud or breached his
fiduciary duty. We cannot agree.
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[11] Boulder-Maxx avers that “[i]t is undisputed amongst the parties that the
members owed each other a fiduciary duty to deal fairly, honestly, and openly
amongst one another and with the company.” Appellants’ Br. at 30 (citing
Purcell v. Southern Hills Investments, LLC, 847 N.E.2d 991, 997 (Ind. Ct. App.
2006)). Boulder-Maxx asserts that
Haby’s failure to give notice to [Gutwein and Baumgartner] that
his company ultimately retained ownership of the College
Avenue Property was the breach of duty that resulted in damages
to his fellow members stemming from the discounted sale price,
where Haby stood to benefit based upon his membership interest
in NEAT. This represented the breach and eventual damages
necessary for a breach of fiduciary duty claim.
Appellants’ Br. at 31. Further, Boulder-Maxx argues that, “‘once it is
established that one with a fiduciary duty has attempted to benefit from a
questioned transaction, the law presumes fraud.’” Id. (quoting W&W Equip. Co.
v. Mink, 568 N.E.2d 564, 573 (Ind. Ct. App. 1991)). Boulder-Maxx maintains
that “[h]ere, there was, at the very least, a questionable transaction, and Haby
failed to properly meet his burden of proof that his actions, or lack thereof, were
honest and in good faith.” Appellants’ Br. at 32. In particular, Boulder-Maxx
states that “Haby presented only one witness[, Chalfant,] to establish his
defense that he had no prior knowledge of NEAT’s acquisition of the College
Avenue Property . . . and that Haby did not stand to benefit from the
transaction. . . .” Id. Boulder-Maxx contends that Haby did not sustain his
burden of proof because “Chalfant’s testimony is not credible.” Id.
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[12] Boulder-Maxx’s contentions on appeal are explicit requests that we reweigh the
evidence and assess the credibility of witnesses, which we cannot do. Whether
Haby’s sole witness, Chalfant, was credible was a determination exclusively
within the trial court’s discretion. And Chalfant’s testimony supports the trial
court’s findings, which support the trial court’s conclusions that Haby did not
commit constructive fraud or breach his fiduciary duty. We hold that the trial
court’s findings and conclusions on these issues are not contrary to law.
Issue Two: Counterclaims Against Gutwein and Baumgartner
[13] Boulder-Maxx next contends that the trial court’s findings of fact and
conclusions of law “are clearly erroneous” because they “disregard, overlook,
or otherwise ignore evidence and testimony presented at trial” relevant to
Haby’s counterclaims alleging that Gutwein and Baumgartner breached their
fiduciary duties. Appellants’ Br. at 34. First, Boulder-Maxx points out that, in
his testimony at trial, Baumgartner “disavowed” Haby’s allegations “that
Baumgartner attempted to personally benefit from the settlement of the
[mechanic’s lien suit] by including within the settlement a transfer of another
piece of real estate, the Sellers Street Property, to Boulder-Maxx.” Id. And, in
any event, Boulder-Maxx states that the sale of the Sellers Street Property to
Boulder-Maxx never occurred. A claim for breach of fiduciary duty requires a
showing of harm to the beneficiary. See Jaffri v. JPMorgan Chase Bank, N.A., 26
N.E.3d 635, 639 (Ind. Ct. App. 2015). Here, because there was no evidence of
harm to Haby as a result of the attempted sale of the Sellers Street Property to
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Boulder-Maxx, we agree with Boulder-Maxx that the trial court erroneously
concluded that Baumgartner breached his fiduciary duty on that basis.
[14] However, the trial court also concluded that Gutwein and Baumgartner
breached their fiduciary duties to Haby when they misappropriated Boulder-
Maxx funds for their own benefit. On appeal, Boulder-Maxx asserts that Haby
did not present any evidence to support his allegation that Gutwein and
Baumgartner misappropriated funds when, in March 2016, Baumgartner wrote
a check to Gutwein from Boulder-Maxx’s bank account for $7,744. Thus,
Boulder-Maxx maintains that the evidence does not support the trial court’s
conclusion that Gutwein and Baumgartner breached their fiduciary duties with
that payment.
[15] Again, Boulder-Maxx’s contentions on appeal are requests that we reweigh the
evidence and assess the credibility of witnesses, which we cannot do. The trial
court was entitled to find Gutwein’s and Baumgartner’s testimony not credible
with respect to the $7,744 check to Gutwein. Indeed, Gutwein’s and
Baumgartner’s testimony regarding this check was equivocal regarding whether
it was made for a commission for a lease agreement or for some other unknown
reason. And they each testified that Gutwein’s commission for that particular
lease would have been approximately $17,500, not $7,744.
[16] Moreover, Boulder-Maxx does not challenge the trial court’s separate finding
that “Baumgartner and Gutwein misappropriated corporate money for their
own personal gains” when Boulder-Maxx wrote Gutwein Law Firm a check for
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$2,638 in March 2016. Appellants’ App. Vol. 2 at 22. The trial court
concluded, based on those two findings, that Gutwein and Baumgartner
breached their fiduciary duties to Haby. We hold that, despite the erroneous
conclusion that Baumgartner breached his fiduciary duty when he attempted to
benefit from the sale of property in negotiating a settlement agreement with
Chalfant, the trial court’s other findings are supported by the evidence and
support the court’s conclusion that Gutwein and Baumgartner breached their
fiduciary duties. See, e.g., Fetters v. Fetters, 26 N.E.3d 1016, 1019 (Ind. Ct. App.
2015) (stating that not every finding needs to be correct, and even if one or
more findings are clearly erroneous, we may affirm the judgment if it is
supported by other findings or is otherwise supported by the record), trans.
denied.
Issue Three: Attorney’s Fees
[17] Finally, Boulder-Maxx contends that the trial court abused its discretion when
it awarded attorney’s fees to Haby based on Boulder-Maxx’s “continued
prosecution of this matter to trial . . . in bad faith[.]” Id. at 23. Indiana Code
Section 34-52-1-1(b)(3) (2019) provides that in any civil action, the court may
award attorney’s fees as part of the cost to the prevailing party, if the court finds
that either party litigated the action in bad faith. Pursuant to this statute, bad
faith is demonstrated where the “party presenting the claim is affirmatively
operating with furtive design or ill will.” Techna-Fit, Inc. v. Fluid Transfer Prods.,
Inc., 45 N.E.3d 399, 418 (Ind. Ct. App. 2015) (citation omitted). Further, “in
order to constitute bad faith under the statute, the conduct must be ‘vexatious
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and oppressive in the extreme.’” Id. (quoting Neu v. Gibson, 968 N.E.2d 262,
279 (Ind. Ct. App. 2012), trans. denied). “The reason for such a strict standard is
that the nature of an attorney[’s] fee award under the bad faith exception is
punitive [.]” Id. (quoting Neu, 968 N.E.2d at 279).
[18] An award under Indiana Code Section 34-52-1-1 is afforded a multistep review.
Id. First, we review the trial court’s findings of fact under a clearly erroneous
standard, and then we review the trial court’s legal conclusions de novo. Id.
Finally, we review the trial court’s decision to award attorney’s fees and the
amount thereof under an abuse of discretion standard. Id.
[19] Here, the trial court found and concluded in relevant part as follows:
[B]ecause [Boulder-Maxx] presented no evidence to contradict
[Haby’s] evidence that Chalfant’s assignment [of his interest in
the College Avenue Property to NEAT] was for Chalfant’s own
benefit and that he did not discuss, consult, or advise Haby
[about] the assignment or his intent to undertake the assignment,
[Boulder-Maxx’s] continued prosecution of this matter to trial
was in bad faith, and [Haby] is entitled to recover his attorney’s
fees, subject to proof following the entry of the Court’s judgment.
Appellants’ App. Vol. 2 at 23. Thus, the sole basis for the attorney’s fee award
was Boulder-Maxx’s alleged failure to present evidence to support its claims
against Haby.
[20] However, the trial court did not characterize Boulder-Maxx’s conduct as
“vexatious” or “oppressive in the extreme,” and the court did not find that
Boulder-Maxx “affirmatively operat[ed] with furtive design or ill will.” Techna-
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Fit, Inc., 45 N.E.3d at 418. Indeed, contrary to the trial court’s finding,
Boulder-Maxx did present some evidence in an attempt to contradict Chalfant’s
testimony, and its trial strategy appeared to have been to impeach Chalfant,
who provided the sole testimony in favor of Haby. The evidence does not
support a determination that Boulder-Maxx litigated this action in bad faith.
[21] Still, Haby maintains that one of the trial court’s other findings supports the
court’s conclusion that Boulder-Maxx litigated in bad faith. Haby points out
that the court found that Boulder-Maxx’s “conduct underscores that [its]
purpose of this lawsuit is a predatory attempt to obfuscate [its] own
wrongdoing.” Appellants’ App. Vol. 2 at 22. However, the trial court did not
base the attorney’s fee award on that finding. And the trial court’s reference to
Boulder-Maxx’s “conduct” in that finding was described by the trial court as
follows:
Even if [Boulder-Maxx was] misled about the identity of the
buyer of the College Avenue Property, [Boulder-Maxx’s] conduct
after filing this lawsuit in orchestrating the sale of other Boulder-Maxx,
LLC property to an anonymous buyer . . . demonstrates that the
identity of buyers of Boulder-Maxx, LLC property was not
genuinely important to [Boulder-Maxx].
Id. (emphasis added). In other words, the trial court found that Boulder-Maxx’s
conduct outside of the litigation showed bad faith. But it is well settled that, under
Indiana Code Section 34-52-1-1, “the action must be litigated in bad faith, which
means that only conduct in the course of the litigation is relevant to the
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question of attorney’s fees.” Techna-Fit, Inc., 45 N.E.3d at 418 (emphasis
original).
[22] Without evidence to support the trial court’s conclusion that Boulder-Maxx
litigated this action in bad faith, the court’s conclusion is clearly erroneous. We
hold that the trial court erred when it awarded Haby attorney’s fees, and we
reverse the attorney’s fee award.
[23] Affirmed in part and reversed in part.
Mathias, J., and Brown, J., concur.
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