John Pichon, Jr. v. American Heritage Banco, Inc.

FILED
FOR PUBLICATION Jan 15 2013, 9:50 am
CLERK
of the supreme court,
court of appeals and
tax court
ATTORNEYS FOR APPELLANT: ATTORNEYS FOR APPELLEES:
DEBRA H. MILLER MARTIN T. FLETCHER
JAMES R. FISHER DANIEL G. MCNAMARA
Miller & Fisher, LLC DAVID E. BAILEY
Indianapolis, Indiana Eilbacher Fletcher, LLP
Fort Wayne, Indiana
IN THE
COURT OF APPEALS OF INDIANA
JOHN PICHON, JR., )
)
Appellant-Defendant, )
)
vs. ) No. 76A03-1201-PL-4
)
AMERICAN HERITAGE BANCO, INC., et al., )
)
Appellees-Plaintiffs. )
APPEAL FROM THE STEUBEN CIRCUIT COURT
The Honorable Allen N. Wheat, Judge
Cause No. 76C01-0603-PL-156
January 15, 2013
OPINION - FOR PUBLICATION
NAJAM, Judge
STATEMENT OF THE CASE
John Pichon, Jr. appeals the trial court’s judgment in favor of American Heritage
Banco, Inc. (“AHB”)1 in the amount of $1,189,105.13 plus interest. AHB had filed a
complaint alleging that Pichon and others had conspired with the officers of First
National Bank of Fremont (“FNBF”) to commit criminal acts and seeking payment on
two promissory notes executed by Pichon. Pichon filed a counterclaim against AHB, the
successor to FNBF, alleging fraud and conversion. Following a bench trial, the trial court
entered judgment in favor of Pichon on his counterclaim for conversion and on AHB’s
claim regarding the $737,000 promissory note (“the $737K note”). And the trial court
entered judgment in favor of AHB on the $650,000 promissory note (“the $650K note”).
After initially calculating a set-off in favor of Pichon, the trial court granted AHB’s
motion to correct error and ordered that Pichon owes AHB $1,189,105.13 plus interest.
Pichon appeals and raises the following restated issues for our review:
1. Whether the trial court abused its discretion when it excluded from
evidence an exhibit purporting to show that the $650K note had been
paid.
2. Whether AHB had standing to enforce the $650K note.
3. Whether the promissory notes are unenforceable because they are
illegal.
4. Whether the promissory notes were discharged under accord and
satisfaction.
5. Whether the trial court erred when it found that Pichon had waived
the issue of lack of consideration for the $650K note.
1
Since AHB filed its complaint in this matter, it has changed its name. We use its original name
in this opinion for ease of discussion.
2
6. Whether the trial court erred when it found for AHB on Pichon’s
counterclaims of fraud and conversion.
7. Whether the trial court erred when it ordered Pichon to pay
prejudgment interest on the award.
8. Whether the trial court abused its discretion when it ordered Pichon
to pay $150,000 in attorney’s fees to AHB.
9. Whether Pichon is entitled to a set-off.
We affirm in part, reverse in part, and remand for a new trial.
FACTS AND PROCEDURAL HISTORY
On December 28, 2000, Pichon executed a promissory note to borrow $737,000
from FNBF in order to buy Growth Parkway Property (“GPP”) from MacNeachdainn
Corporation, which was owned and controlled by George McNaughton (“George”).
George’s brother Earl McNaughton (“Earl”) was the president, chairman of the board of
directors, and chief executive officer of FNBF. FNBF was a wholly owned subsidiary of
AHB from 1995 to 2005. Earl is the majority shareholder in AHB, a closely held
corporation. The $737K note had a term of one year and was secured by a mortgage on
the GPP.
In November 2002, Earl asked Thomas Christlieb, Pichon’s loan officer at FNBF,
to ask Pichon to borrow $650,000 from FNBF and to allow the proceeds to be disbursed
to Earl. Pichon agreed and, on November 15, 2002, Pichon executed a promissory note
to borrow $650,000 from FNBF. That loan was unsecured, and the money was disbursed
to Earl with Pichon’s knowledge.
In December 2002, Pichon sold GPP for $729,000, and FNBF received the
proceeds from that sale. Christlieb then executed a mortgage release indicating that the
3
$737K note had been satisfied. However, FNBF’s computer records continued to show
an unpaid balance on the $737K note. In 2003, Earl paid funds to FNBF which were
credited towards the alleged balance of the $737K note, reducing that balance to
$575,000. And in December 2004, Pichon signed an auditor’s letter acknowledging that
the unpaid balance of the $737K note was $575,000. Thereafter, no further principal
payments were made on the $737K note, and on January 6, 2004, the loan record showed
a zero balance. However, in 2005, FNBF’s computer records were adjusted to show an
unpaid balance of $575,000. On the same date in December 2002 that FNBF received
the proceeds for the sale of GPP, credit was given on FNBF’s computer record showing
that the $650K note was fully paid.
On March 27, 2006, AHB filed a complaint against Pichon and several other
defendants,2 and on October 16, 2006, AHB filed its second amended complaint alleging
in relevant part that Pichon had conspired with officers of FNBF to commit criminal acts.
And on June 1, 2010, AHB filed a third amended complaint adding in relevant part
allegations of non-payment by Pichon on the $737K note and the $650K note. AHB had
acquired FNBF following a merger. The two notes were payable to FNBF and its
successors and assigns. Pichon filed a counterclaim alleging fraud and conversion. In
particular, Pichon alleged that AHB was not the real party in interest; that Pichon’s
signature on the $650K note was a forgery; and that the $737K note had been satisfied
following the sale of the GPP.
2
Pichon was the only defendant remaining in the case at the time of trial.
4
The trial court entered a final pretrial order (“PTO”) on February 1, 2011. A
section of the PTO entitled “Issues for Trial: On Claims of AH[B] against Pichon” stated
as follows:
1. Whether Pichon signed the Promissory Note of November 2002 (the
“650K Note”).
2. Whether AH[B] has “standing” to enforce the 650K note against
Pichon.
3. Whether there is an unpaid balance owing to AH[B] on the 650K
Note and, if so, the amount thereof.
4. Whether AH[B] is entitled to recovery of reasonable attorney fees on
the 650K Note and, if so, the amount thereof.
5. Whether there is an unpaid balance owed by Pichon on the
December 2000 Promissory Note (the “737K Note”).
6. Whether the proceeds arising from Pichon’s sale of the [GPP] should
have been applied to pay the balance owing on the 737K Note at the
time of such sale.
7. Whether the proceeds arising from Pichon’s sale of the [GPP] were
wrongly or incorrectly credited as paying or paying down the 650K
Note.
8. Whether Pichon made any payment on the 650K Note except for
funds arising from his sale of the [GPP].
9. Whether AH[B] is entitled to reasonable attorney fees if it recovers
[on] its claim based on the 737K Note and, if so, the amount of such
fees.
10. Whether, by entering into the 650K Note, Pichon was a knowing
participant in a scheme through which funds were obtained from
[FNBF] by or in violation of I.C. 35-43.
11. Whether [FNBF] suffered pecuniary loss for purposes of I.C. [§] 34-
23-3-1 as a result of a violation of I.C. 35-43.
12. Whether AH[B] is entitled to an award of treble damages and
attorney’s fees against Pichon under I.C. [§] 34-24-3-1 and, if so, the
amounts thereof.
Appellant’s App. at 44-45. With respect to contentions to be asserted at trial by Pichon,
the PTO stated that Pichon incorporated his “Answers, Affirmative Defenses and
Counterclaims as his contentions.” Id. at 49.
5
During the two-day bench trial, Pichon sought to introduce into evidence an
original of the $650K note stamped “paid” which had been included as Plaintiff’s Exhibit
33 in AHB’s exhibit book prior to trial. Transcript at 121. AHB objected on the grounds
that Pichon had not asserted the affirmative defense of payment under Trial Rule 8(C).
Pichon argued that the exhibit was admissible because it was included in AHB’s own
exhibit book and, more importantly, because it was relevant to AHB’s own stated issue in
the PTO of “[w]hether there is an unpaid balance owing to AH[B] on the 650K Note and,
if so, the amount thereof.” Appellant’s App. at 44. AHB maintained that it was too late
for Pichon to amend his contentions as listed in the PTO, and the trial court agreed. The
trial court ruled that it would allow the evidence, but it reserved the issue of the exhibit’s
admissibility for a later determination. After trial, the trial court ruled that the proffered
exhibit, now labeled Defendant’s Exhibit A, was excluded from the evidence because
Pichon had not asserted the affirmative defense of payment in his answer and had not
asserted the issue in the PTO.
Following the conclusion of the trial, the trial court entered findings and
conclusions as follows:
A. Findings of Fact –
1. On December 28, 2000, Pichon borrowed $737,000.00 from the First
National Bank of Fremont (“FNBF”), to purchase a parcel of
commercial real estate (“Growth Parkway Property”) located in
Steuben County, Indiana.
2. Pichon executed a Promissory Note for $737,000.00 (“737K Note”)
and Mortgage to serve as collateral for the loan.
3. Pichon, thereafter, entered into a Lease/Purchase Agreement with
Vernous Conduit Corporation.
4. The Growth Parkway Property was leased to the Vernous Conduit
Corporation for $18,425.00 per quarter.
6
5. The lease payments were to be applied by FNBF to pay down the
737K Note.
6. Thereafter, the Growth Parkway Property was sold. Closing
occurred on December 23, 2002.
7. The sale price for the Growth Parkway Property was $729,000.00.
8. No part of the sale proceeds were applied to the 737K Note, or
distributed to Pichon.
9. Rather, the $729,000.00 sale proceeds were utilized in part to pay
down an unrelated Note that Pichon had with FNBF, with the
remainder being paid to George T. McNaughton.
10. At some point prior to November 22, 2002, Earl F. McNaughton
(“McNaughton”) approached Tom Christlieb (“Christlieb”) about a
problem he was having. The problem revolved around
McNaughton’s need for $650,000.00. McNaughton was aware of
Christlieb’s longstanding relationship as a bank customer with
Pichon. McNaughton requested that Christlieb communicate with
Pichon and see if he would be willing to borrow from FNBF the sum
of $650,000.00 which would in some manner then be diverted from
FNBF to McNaughton.
11. Christlieb did so, and Pichon executed an unsecured Promissory
Note in the sum of $650,000.00.
12. Pichon received no consideration from his executing the
$650,000.00 Promissory Note (“650K Note”) at the request of
Christlieb.
13. The 650K Note is the Promissory Note the Court made reference to
above at Finding of Fact #9 that was credited by FNBF with being
fully paid upon the Growth Parkway Property being sold.
14. Pichon was unaware this was occurring.
15. On December 23, 2002, the 737K Note had an unpaid balance in the
amount of $575,000.00.
16. On August 25, 2011, this Court entered its ruling on a reserved
evidentiary issue. The Court determined that Pichon would not be
permitted to show that any part of the 650K Note had been paid
owing to the fact that the affirmative defense of payment had not
been put forth by Pichon in the Pre-Trial Order as a contested issue.
17. Additional facts will be set forth hereinafter as deemed necessary by
the Court.
B. Affirmative Defenses –
18. Pichon contends that his signature on the 650K Note was a forgery.
Pichon did not testify at trial.
19. The Court concludes that the overwhelming weight of the evidence
shows that Pichon’s signature on the 650K Note was genuine.
7
20. Pichon contends that FNBF committed actual or constructive fraud
when he was induced to sign the 650K Note. The Court concludes
that FNBF did not commit actual fraud because Pichon was well
aware of the fact that these monies were in some manner going to be
used personally by McNaughton, and he would be receiving no
consideration for his executing the 650K Note. The Court concludes
that FNBF did not commit constructive fraud. No fiduciary or other
special relationship existed between FNBF and Pichon. Their
relationship consisted solely of lender and borrower.
21. Pichon contends that AH[B] lacks standing to enforce his obligation
under the 650K Note. The Court concludes that AH[B] occupies the
status as “holder” of the 650K Note, therefore, AH[B] has standing
to enforce the Note according to its terms subject to any affirmative
defenses successfully put forth by Pichon.
C. Counterclaims—
22. Pichon contends that FNBF breached a fiduciary duty it owed to him
by virtue of FNBF serving as his closing agent upon the sale of the
Growth Parkway Property which he did not personally attend.
FNBF was Pichon’s banking institution, not his closing agent.
23. Pichon contends that FNBF committed the criminal act of
conversion in the manner with which it diverted monies following
closing on the Growth Parkway Property causing him to suffer a
pecuniary loss and, therefore, he should be entitled to treble damages
pursuant to the Crime Victim’s Compensation Act found at Ind.
Code [Section] 34-24-3-1.
24. Pichon argues that on December 23, 2002, he owed FNBF the sum
of $1,225,000.00 ($575,000.00 + $650,000.00 = $1,225,000.00).
FNBF received $729,000.00 upon Pichon’s sale of the Growth
Parkway Property leaving a balance owed by Pichon to FNBF on the
$737K Note and 650K Note of $496,000.00
($1,225,000.00-$729,000.00 = $496,000.00).
25. Pichon argues that the sum of $154,000.00 ($650,000 - $496,000 =
$154,000.00) should serve as a set off against the amount the Court
finds owing to AH[B] on the 650K Note.
26. Ind. Code 34-24-3-1 provides, in relevant part, as follows:
“If a person suffers a pecuniary loss as a result of a violation of IC
35-43, IC [§] 35-42-3-3, IC [§] 35-42-3-4, or IC [§] 35-45-9, the
person may bring a civil action against the person who caused the
loss for the following:
(1) An amount not to exceed three (3) times the actual damages of
the person suffering the loss.
(2) The costs of the action.
8
(3) A reasonable attorney’s fee. . . .”
27. Ind. Code [§] 35-43-4-3 provides, in relevant part, as follows:
“(a) A person who knowingly or intentionally exerts unauthorized
control over property of another person commits criminal
conversion, a Class A misdemeanor. . .”
28. Criminal conversion is a compensable offense for which treble
damages may be awarded under Ind. Code [§] 34-24-3-1.
29. The evidence before the Court reveals that upon closing the sale of
the Growth Parkway Property the proceeds were not simply credited
by FNBF to pay off the $575,000.00 unpaid balance owed it on the
737K Note, with the $154,000.00 excess being remitted to Pichon.
This was not done by FNBF acting through McNaughton and other
inside agents of FNBF. Rather, the $154,000.00 was knowingly
used by FNBF, through its agents, in a manner not authorized by
Pichon, but, in a manner designed to personally benefit
McNaughton.
30. The Court concludes that FNBF did engage in an act of criminal
conversion. Pichon, therefore, is entitled to damages pursuant to
Ind. Code [§] 34-24-3-1 by way of set off against his debt owing to
AH[B] on the $650K Note.
D. Damages—
31. The 650K Note provides for a reasonable attorney fee upon default.
Counsel for AH[B] requests an award of attorney fees/costs in the
amount of $150,000.00. This amount was substantiated by
testimony and time statements. This case was highly complex and
required years to sort out.
32. The Court concludes that $150,000.00 is a fair and reasonable fee.
33. There is no evidence before the Court regarding Pichon’s attorney
fee obligation.
34. Pichon owes AH[B] $650,000.00; pre-judgment interest in the
amount of $389,105.13; and, a reasonable attorney fee in the amount
of $150,000.00.
35. Pichon owes AH[B] the total sum of $1,189,105.13.
36. By way of set off against the $1,189,105.13 that Pichon owes
AH[B], Pichon is entitled to set off the sum of $154,000.00 x 3 or
$462,000.00. Further, Pichon is entitled to set off pre-judgment
interest from December 28, 2002[,] through October 1, 2011[,]
calculated at the rate of eight percent (8%) per annum, or the amount
of $323,729.02.
9
37. The Court concludes that the total amount Pichon is entitled to set
off against the $1,189,105.13 amount owed to AH[B] is
$785,729.02.
IT IS THEREFORE, ORDERED, ADJUDGED AND DECREED as
follows:
1. American Heritage Banco, Inc. n/k/a American Heritage Collector,
Inc. shall have judgment against defendant John N. Pichon in the
amount of $403,376.11.
Appellant’s App. at 25-31.
Thereafter, AHB and Pichon filed cross-motions to correct error. The trial court
denied Pichon’s motion, but granted AHB’s motion as follows:
1. In its Judgment entered on October 14, 2011, the Court concluded,
among other things, that:
(a) AHB was entitled to a judgment against Pichon in the amount of
$1,189,105.13.
(b) That the Judgment awarded to AHB had to be reduced by
$462,000.00 ($154,000.00 x 3 = $462,000.00) owing to what the
Court concluded were acts of conversion committed by AHB.
(c) Pichon was entitled to recover legal interest on his monies which
the Court determined to have been converted by AHB in the amount
of $323,729.02.
(d) That after these deductions were properly taken into account,
AHB was entitled to a net judgment against Pichon in the amount of
$403,376.11 ($1,189.105.13 - $785,729.02 = $403,376.11).
2. AHB argues that the Court committed error when it concluded that
on December 23, 2002, the 737K Note had an unpaid balance of
$575,000.00 (Finding 15) and, therefore, committed error in its
damages calculation.
3. AHB is correct. The Court, in reflecting upon the evidence,
incorrectly determined that the balance payable on the 737K Note
effective December 23, 2002 was in the amount of $575,000.00 and,
further, incorrectly determined that Pichon was responsible for the
reduction in the balance which remained payable to AHB on the
737K Note.
4. Effective December 23, 2002, Pichon had made no payments toward
principal reduction on the 737K Note. The evidence clearly reflects
that the entirety of the 737K Note was payable to AHB on December
23, 2002.
10
5. AHB further contends that the Court committed error in finding that
Pichon received no consideration from his executing the 650K Note.
Although not error, the Court agrees that Finding 12 is superfluous
the Court having previously determined by Order entered on
February 9, 2011, that the issue of “failure of consideration”
regarding Pichon’s execution of the 650K Note had been waived
because not specifically pleaded as an affirmative defense pursuant
to Ind. Trial Rule 8(c).
6. The Court has carefully considered each and every alleged error set
forth in Pichon’s Motion to Correct Error[] and at this time finds
said Motion should be denied.
IT IS THEREFORE, ORDERED, ADJUDGED AND DECREED as
follows:
1. American Heritage Banco, Inc. n/k/a American Heritage Collector,
Inc. shall have judgment against defendant John N. Pichon, Jr. in the
amount of $1,189,105.13, plus costs and legal interest accruing in
accordance with law.
2. The Motion to Correct Error[] filed by defendant John N. Pichon, Jr.,
is denied.
Id. at 22-24. This appeal ensued.3
DISCUSSION AND DECISION
Issue One: Exclusion of Evidence
Pichon first contends that the trial court abused its discretion when it excluded
from evidence Defendant’s Exhibit A, which was included in AHB’s exhibit book as
Exhibit 33 prior to trial. Exhibit A is one of three original $650K notes4 that Pichon
3
To the extent Pichon claims that the trial court entered judgment in favor of AHB on the issue
of the $737K note, Pichon is mistaken. The trial court’s judgment against Pichon includes only:
$650,000 (for the $650K note); prejudgment interest of $389,105.13 on the $650,000 debt; and attorney’s
fees of $150,000. Accordingly, we do not address Pichon’s argument on appeal regarding whether the
trial court erred when it entered judgment on the $737K note.
4
As this case makes clear, the practice of executing more than one original note is fraught with
risk.
11
executed,5 and it is stamped “paid.” AHB did not seek to introduce that exhibit at trial.
Instead, AHB introduced into evidence Plaintiff’s Exhibit 34, which was an original of
the $650K note not stamped “paid.”
We review a trial court’s decision to admit or exclude evidence for an abuse of
discretion. Franciose v. Jones, 907 N.E.2d 139, 144 (Ind. Ct. App. 2009), trans. denied.
We will reverse a trial court’s decision to admit or exclude evidence only if that decision
is clearly against the logic and effect of the facts and circumstances before the court or
the reasonable, probable, and actual deductions to be drawn therefrom. Id. A trial
court’s decision to admit or exclude evidence will not be reversed unless prejudicial error
is clearly shown. Id.Here, at trial, when Pichon sought to introduce into evidence an original of the
$650K note stamped “paid,” AHB objected on the ground that Pichon had not asserted
the affirmative defense of payment under Trial Rule 8(C). Trial Rule 8(C) provides in
relevant part that a responsive pleading shall set forth affirmatively and carry the burden
of proving payment. AHB also objected on the ground that Pichon had not asserted the
issue of payment in its statement of issues in the PTO. AHB contended that it was too
late to amend the PTO. Pichon then made two arguments in an attempt to get Exhibit A
admitted at trial. First, Pichon argued that it was admissible because it had been included
on the parties’ exhibit lists. Second, Pichon argued that he should be permitted to amend
the PTO to reflect the issue of payment. In its order on reserved issues following trial,
5
Pichon does not appeal the trial court’s conclusion that his signature was not forged on the
$650K note.
12
the trial court denied Pichon’s verbal motion to amend the PTO and excluded Exhibit A
from evidence.
We conclude, however, that no amendment of the PTO was necessary because
AHB’s statement of the issues for trial did not merely allege that Pichon was liable on the
unpaid note in the amount of $650,000, in which case payment would be an affirmative
defense. Instead, AHB framed the issue in the PTO as follows: “[w]hether there is an
unpaid balance owing to AH[B] on the 650K Note and, if so, the amount thereof.”
Appellant’s App. at 44 (emphasis added). Thus, Exhibit A, a signed original of the 650K
note marked “paid,” squarely addresses whether an unpaid balance is owed on the note.
AHB opened the door, and a typical Trial Rule 8(C) affirmative defense of payment was
not required as a condition precedent to the admission of this evidence.
Moreover, and significantly, AHB included the note marked “paid” in its exhibit
book prior to trial.6 The bank’s own records showed that the note was paid, which was
evidence relevant to the issue, framed by AHB, as to whether there was an unpaid
balance owed on the note. Indeed, AHB could not object or claim prejudice from the
admission of an exhibit showing that the note had been paid when the exhibit came from
AHB’s own exhibit book prepared for trial and was inconsistent with the unmarked note
that AHB had introduced as Exhibit 34 at trial. Accordingly, we hold that the trial court
abused its discretion when it excluded Exhibit A from evidence.
We further hold that the exclusion of Exhibit A from evidence is reversible error.
The undisputed evidence shows that the $650K note was stamped “paid” on December
6
During Pichon’s cross-examination of Christlieb, Christlieb acknowledged that Exhibit A was
included in AHB’s exhibit book as Exhibit 33.
13
23, 2002. In addition, Christlieb, a bank officer, testified that the $650K note had a
maturity date of February 13, 2003, and that the note had not been listed in FNBF’s files
as delinquent. Finally, in 2005, when Pichon’s daughter, Emily, sought to transfer all of
Pichon’s accounts from FNBF to a new bank, Emily obtained a printout from FNBF
which showed that the $650K note had a zero balance. It was AHB’s burden to prove by
a preponderance of the evidence that all or any part of the $650K note remained unpaid.
Thus, Exhibit A was relevant, material, and probative on that issue.
While AHB is correct that Pichon did not present any evidence that he made
payments towards the $650K note, it is undisputed that the loan proceeds were paid
directly to FNBF, not Pichon, and FNBF had no expectation that Pichon would make
payments on the $650K note. Pichon and FNBF conspired to execute this so-called
“nominee” loan pursuant to Earl’s request to Pichon through Christlieb. See Appellant’s
App. at 157.
Where evidence is erroneously excluded, reversal is justified only if the error
relates to a material matter or is of such character as to substantially affect the rights of
the parties. Manns v. State Dep’t of Highways, 541 N.E.2d 929, 936 (Ind. 1989)
superseded by statute on other grounds. Here, whether a balance on the $650K note
existed was one of the primary allegations AHB made against Pichon. Again, one of
AHB’s “Issues for Trial” in the PTO was “[w]hether there is an unpaid balance owing to
AH[B] on the 650K Note and, if so, the amount thereof.” Appellant’s App. at 44. Thus,
AHB had the burden of proof on that issue. But because the trial court excluded Exhibit
14
A, Pichon was denied the opportunity to present the best evidence to rebut AHB’s
evidence that there was a balance was owing on the $650K note.
We hold that the exclusion of Exhibit A substantially affected Pichon’s rights to
dispute AHB’s allegation that he owed anything on the $650K note. We reverse the trial
court’s judgment on the issue of the $650K note and remand for a new trial on that
claim.7 The trial court shall admit Exhibit A into evidence during the new trial. Because
the other issues Pichon raises on appeal are likely to recur on remand, we address them in
turn.
Issue Two: Standing
Pichon contends that AHB lacks standing to enforce the $650K note. The trial
court concluded in relevant part that AHB had standing to enforce the note because AHB
“occupies the status as ‘holder’ of the 650K Note[.]” Appellant’s App. at 28. We must
agree with the trial court.
Indiana Code Section 26-1-3.1-301 provides that a “person entitled to enforce
instrument” means in relevant part the “holder” of the instrument. And Indiana Code
Section 26-1-1-201(20) defines “holder” in relevant part as the person in possession of a
negotiable instrument if the instrument is payable to an identified person if the identified
person is in possession. Here, the $650K note expressly states that the note is payable to
the FNBF or “its successors and assigns.” Plaintiff’s Exhibit 34. And in the PTO,
Pichon and AHB stipulated that FNBF was merged into AHB on November 1, 2005.
7
We affirm the trial court’s judgment in favor of Pichon with respect to the $737K note, and that
issue will not be retried on remand.
15
Pursuant to that merger, AHB is the successor to FNBF. The trial court did not err when
it concluded that AHB has standing to enforce the $650K note.
Issue Three: Illegality
Pichon contends that the trial court erred when it entered judgment in favor of
AHB on the $650K note because the note was illegal. AHB maintains that Pichon has
waived this issue for failure to assert it as an affirmative defense under Trial Rule 8(C).
See Willis v. Westerfield, 839 N.E.2d 1179, 1185 (Ind. 2006).8 Indeed, Pichon does not
direct us to any part of the record indicating that he asserted the issue of illegality as an
affirmative defense. Instead, Pichon insists that the issue need not be asserted as an
affirmative defense. But in support of that contention, Pichon cites to a case that pre-
dates the trial rules. Thus, the issue is waived. Regardless, Pichon’s argument in support
of this issue focuses on his counterclaims against AHB for fraud and conversion, which
we address below. Pichon has not demonstrated that the $650K note is unenforceable
under the doctrine of illegality.
Issue Four: Accord and Satisfaction
Pichon next contends that he is entitled to judgment on both promissory notes
under the doctrine of accord and satisfaction. First, because Pichon prevailed on the
$737K note, we do not address this issue with respect to that note. Second, AHB
maintains that Pichon has waived the issue for failure to assert it as an affirmative
8
In Smithson v. Howard Regional Health System, 933 N.E.2d 1, 2 n.2 (Ind. Ct. App. 2010), this
court observed that “a plaintiff must affirmatively show prejudice to his case before [a belatedly raised
affirmative defense] can be rejected.” (Quoting City of S. Bend v. Dollahan, 918 N.E.2d 343, 349-50
(Ind. Ct. App. 2009), trans. denied). Here, Pichon makes no contention that AHB failed to show
prejudice as a result of his failure to assert the affirmative defense of illegality. Hence, we need not
address this issue.
16
defense in his answer. See Trial Rule 8(C); see also Willis, 839 N.E.2d at 1185.9 Pichon
asserts that he did raise the affirmative defense of accord and satisfaction in his answer.
Our review of the record shows that Pichon only raised that affirmative defense with
respect to the $737K note. Hence, we hold that Pichon has waived the issue of accord
and satisfaction for our review.
Issue Five: Consideration
Pichon next contends that the trial court erred when it concluded that he had
waived the issue of consideration with respect to the $650K note. But, again, Pichon did
not assert consideration as an affirmative defense in his answer, and the issue is waived.
See Trial Rule 8(C).
Issue Six: Counterclaims
Pichon asserted two counterclaims against AHB, namely, fraud and conversion.
But the only counterclaim relevant to the $650K note alleged fraud for forging Pichon’s
name on the $650K note. The trial court found, and Pichon does not dispute on appeal,
that the $650K note was not forged. Accordingly, there is no counterclaim to address on
appeal regarding the $650K note.10
Pichon also contends that AHB misappropriated the funds from the sale of GPP
and that he suffered harm as a result of that alleged conversion. The trial court found that
9
Again, Pichon makes no contention that AHB failed to show prejudice as a result of his failure
to assert the affirmative defense of accord and satisfaction. Hence, we need not address this issue.
10
To the extent Pichon contends that AHB committed fraud and/or conversion when it did not
give him $650,000 when he executed the $650K note, the trial court found that Pichon was aware that
those funds were meant to go to Earl at the note’s inception. Pichon now claims that that finding was not
supported by the evidence, but we disagree. Pichon’s claim on this issue amounts to a request that we
reweigh the evidence, which we will not do.
17
AHB committed criminal conversion when it misappropriated $154,000 following the
sale of GPP. And the trial court initially awarded Pichon treble damages for that
conversion. But in granting AHB’s motion to correct error, the trial court concluded that
AHB had not converted any of Pichon’s money, that Pichon had not suffered any
pecuniary loss, and that Pichon was not, therefore, entitled to treble damages under
Indiana Code Section 34-24-3-1.11 On appeal, Pichon does not direct us to any part of the
record showing that he suffered a pecuniary loss as a result of AHB’s conduct. The trial
court did not err when it granted AHB’s motion to correct error on these issues.
Issue Seven: Prejudgment Interest
Pichon next contends that the trial court erred when it ordered him to pay
$389,105.13 in prejudgment interest on the $650K note. In support of that contention,
Pichon maintains that he had “tendered to FNBF full payment of all outstanding loans” in
2005. Brief of Appellant at 37. And he claims that AHB is not entitled to prejudgment
interest because the “calculation of prejudgment interest [in this case] is not a simple
mathematical computation[.]” Id. at 36. We address each contention in turn.
First, again, because we reverse the trial court’s judgment regarding the $650K
note, whether Pichon owes anything on that note, including prejudgment interest, will be
determined on remand. Second, Pichon is correct that “the crucial factor in determining
whether damages in the form of prejudgment interest are allowable is whether the
damages were ascertainable in accordance with fixed rules of evidence and accepted
standards of valuation.” See Bopp v. Brames, 713 N.E.2d 866, 872 (Ind. Ct. App. 1999),
11
Indiana Code Section 34-24-3-1 provides in relevant part that if a person suffers a pecuniary
loss as a result of property offenses, such as conversion, he may bring a civil action for treble damages.
18
trans. denied. An award of prejudgment interest is proper only where a simple
mathematical computation is required. Id. Damages that are the subject of a good faith
dispute cannot allow for an award of prejudgment interest. Id. Here, we reject Pichon’s
contention that more than a simple mathematical computation is required to determine the
amount of prejudgment interest owing on the $650K note, should Pichon be found liable
for all or some of the balance owed on the note. Accordingly, the trial court may
properly award prejudgment interest on remand, if appropriate.
Issue Eight: Attorney’s Fees
Pichon contends that the trial court abused its discretion when it awarded
attorney’s fees to AHB in the amount of $150,000. In particular, Pichon maintains that
the award is unreasonable because AHB only prevailed on its claim regarding the $650K
note but claimed attorney’s fees that predated that claim. Because we reverse the
judgment in favor of AHB on the $650K note, we also reverse the award of attorney’s
fees for AHB, which derive from the terms of that note.
Issue Nine: Set-off
Finally, Pichon contends that he is entitled to a set-off against the award to AHB
in the amount of $162,000. In particular, Pichon states that “in addition to paying off the
737K Note in its entirety from the proceeds of the sale of GPP, Earl made 2 other
payments against the Pichon loans in 2003, totaling $162,000.” Brief of Appellant at 38-
39. Pichon maintains that his liability on the $650K note should be reduced by that
amount to avoid a windfall to AHB. The evidence appears to be undisputed that Earl
made those payments totaling $162,000.
19
AHB contends, however, that Pichon has waived the issue of a set-off for failure
to assert it as a counterclaim or include it in the PTO. However, in its argument on
appeal in support of the attorney’s fee award, AHB avers that “[t]o prevail on its claim
under the 650K Note, AH[B] had to address the counterclaims filed by Pichon through
which he sought ‘set offs’ which would reduce any recovery by AH[B] on the 650K
Note.” Brief of Appellee at 34. AHB cannot have it both ways. We hold that if Pichon
is found liable on the $650K note on remand, he is entitled to a set-off in the amount of
$162,000.12 See Crider & Crider, Inc. v. Downen, 873 N.E.2d 1115, 1119 (Ind. Ct. App.
2007) (observing that the law disfavors a windfall or a double recovery).
Conclusion
While Pichon failed to raise the affirmative defense of payment in his answer,
AHB included in its statement of issues for trial in the PTO the issue of “[w]hether there
is an unpaid balance owing to AH[B] on the 650K Note and, if so, the amount thereof.”
Appellant’s App. at 44. Accordingly, Exhibit A, which is an original of the $650K note
stamped “paid,” is relevant to the issue of whether there is an unpaid balance on that note,
and the trial court should have admitted it into evidence. The trial court’s exclusion of
Exhibit A prejudiced Pichon to such an extent that we hold it was reversible error. We
reverse the trial court’s judgment with respect to the $650K note, only, and remand for a
new trial on that issue. To the extent that the remaining issues will recur on remand, we
hold that: AHB has standing to sue Pichon on the $650K note; Pichon has waived the
12
To the extent AHB contends that Pichon is not entitled to a set off because the payments were
made on the loans by Earl, we direct AHB to Indiana Code Section 26-1-3.1-602, which provides in
relevant part that “an instrument is paid to the extent payment is made . . . by or on behalf of a party
obliged top ay the instrument[.]” To be clear, however, because Pichon has not shown that he suffered a
pecuniary loss, Pichon is not entitled to treble damages under Indiana Code Section 34-24-3-1.
20
issues of illegality, accord and satisfaction, and consideration; the trial court did not err
when it denied Pichon an award on his counterclaims for failure to show pecuniary loss;
prejudgment interest is appropriate in this case should AHB prevail on retrial; and Pichon
is entitled to a set-off in the amount of $162,000 if he is found to be liable on the $650K
note on retrial. Finally, we reverse the trial court’s attorney’s fee award.
Affirmed in part, reversed in part, and remanded for further proceedings consistent
with this opinion.
KIRSCH, J., and MAY, J., concur.
21