Wells Fargo Bank v. Castalia Homes, LLC Jan N. Kelsey

Pursuant to Ind.Appellate Rule 65(D),
this Memorandum Decision shall not
FILED
be regarded as precedent or cited
before any court except for the purpose
of establishing the defense of res May 31 2012, 9:22 am
judicata, collateral estoppel, or the law
of the case.
CLERK
of the supreme court,
court of appeals and
tax court
ATTORNEY FOR APPELLANT: ATTORNEY FOR APPELLEES:
MARY A. SLADE JEFFREY J. JINKS
Plunkett Cooney, P.C. The Jinks Corporation
Indianapolis, Indiana Indianapolis, Indiana
IN THE
COURT OF APPEALS OF INDIANA
WELLS FARGO BANK, )
)
Appellant-Defendant, )
)
vs. ) No. 06A04-1112-MF-680
)
CASTALIA HOMES, LLC, )
)
Appellee-Plaintiff. )
)
JAN N. KELSEY, )
)
Appellee-Defendant. )
APPEAL FROM THE BOONE SUPERIOR COURT
The Honorable Matthew C. Kincaid, Judge
Cause No. 06D01-0909-MF-611
May 31, 2012
MEMORANDUM DECISION – NOT FOR PUBLICATION
BARNES, Judge
Case Summary
Wells Fargo Bank (“Wells Fargo”) appeals the trial court’s grant of summary
judgment in favor of Castalia Homes, LLC, (“Castalia”). We reverse and remand.
Issue
Wells Fargo raises two issues, which we consolidate and restate as whether the
trial court properly granted summary judgment in favor of Castalia on the issue of
priority.
Facts
In 2007, Jan Kelsey and Castalia entered into an agreement to build a home for the
2008 Home-a-Rama in Zionsville. Kelsey purchased a lot and financed the construction
with a loan from First Indiana Bank, N.A. First Indiana Bank later became M&I Bank
(“M&I”). On September 11, 2008, Kelsey refinanced that loan with Wells Fargo and
executed two mortgages for loans totaling $1,290,000. During this transaction, Frank
Redavide, the President of Castalia, wrote a letter to Wells Fargo stating:
As per my agreement with Jan Kelsey, I am owed
$64,395.86 from M & I Bank for which I did not get paid.
This will be my last and final draw. I am writing you this
letter to inform you that I will need to be paid off at closing
so I can pay off my subs so there will not be any liens on the
property. Thank you for your attention in this matter and
making sure everyone is taken care of before or at closing.
App. p. 206. On September 11, 2008, a check was executed from the title company, Title
Express, Inc., to Castalia in the amount of $64,395.86. The Wells Fargo mortgages were
recorded on September 26, 2008. On November 7, 2008, Castalia recorded a mechanic’s
lien claiming it was owed $335,000 for work it had performed during construction.
2
On September 2, 2009, Castalia filed a complaint against Kelsey and Wells Fargo.
In the complaint, Castalia alleged that Kelsey had breached the construction contract and
sought to foreclose on the mechanic’s lien. According to the chronological case
summary (“CCS”), on June 2, 2010, Castalia moved for default judgment, and on June 9,
2010, the trial court entered a civil judgment in the amount of $335,219. The CCS also
indicates that, on August 6, 2010, the trial court ordered the sale of the home for
$851,000 and the proceeds were to be held in escrow.
On February 15, 2011, Castalia moved for summary judgment seeking to foreclose
on the mechanic’s lien. In its motion, Castalia sought a judgment in the amount of
$498,906.30 plus attorneys fees. On June 14, 2011, Wells Fargo responded and, on
August 5, 2011, Castalia replied. On November 23, 2011, after a hearing, the trial court
concluded that Castalia was entitled to summary judgment in the amount of $498,906.30
plus costs and attorney fees.1 The trial court also concluded:
4. That [Castalia’s] mechanic’s lien interest is a first
priority lien on the Proceeds, and the same should be
foreclosed along with all other liens on and interests in the
Property; Plaintiff’s interest is superior to the interests of any
and all other creditors including Wells Fargo Bank, and is
granted without relief from valuation and appraisment laws.
5. The Proceeds shall be distributed pursuant to the Court
Order first to the Castalia Claim, then to Wells Fargo Bank
for their mortgage claims, and thereafter to Kelsey, if any.
App. pp. 12-13. Wells Fargo now appeals.
1
Kelsey does not appeal the entry of summary judgment against him on Castalia’s breach of contract
claim or the portion of the summary judgment order terminating his interest in the property. Our decision
does not affect the trial court’s summary judgment order as it relates to Kelsey.
3
Analysis
Wells Fargo argues that the trial court improperly granted Castalia’s motion for
summary judgment. “[S]ummary judgment is appropriate only where the evidence shows
there is no genuine issue of material fact and the moving party is entitled to judgment as a
matter of law.” Sheehan Const. Co. v. Continental Cas. Co., 938 N.E.2d 685, 688 (Ind.
2010) (citing Ind. Trial Rule 56(C)). All facts and reasonable inferences drawn from
those facts are construed in favor of the non-moving party, and review of a summary
judgment motion is limited to those materials designated to the trial court. Id. “Only
after the moving party satisfies its burden to show the absence of any genuine issue of
material fact and entitlement to judgment as a matter of law does the burden shift to the
non-moving party to demonstrate the existence of a genuine determinative factual issue.”
Ashby v. Bar Plan Mut. Ins. Co., 949 N.E.2d 307, 310 (Ind. 2011).
In its motion for summary judgment, Castalia asserted that its mechanic’s lien
takes priority over the Wells Fargo mortgages, which were recorded first, because the
mechanic’s lien related back to when Castalia began performing labor or furnishing
materials in February 2007. Castalia relied on Indiana Code Section 32-28-3-5(b), which
provides in part:
When the statement and notice of intention to hold a lien is
recorded, the lien is created. The recorded lien relates back to
the date the mechanic or other person began to perform the
labor or furnish the materials or machinery. Except as
provided in subsections (c) and (d), a lien created under this
chapter has priority over a lien created after it.
4
On appeal, in addition to challenging the validity of the mechanic’s lien, Wells
Fargo argues that the doctrine of equitable estoppel bars Castalia from asserting that its
mechanic’s lien has priority over Wells Fargo’s mortgages. In response, Castalia argues,
“Wells Fargo failed to properly preserve equitable estoppel by not setting it forth in a
responsive pleading, not asserting it during summary judgment proceedings, and not
litigating it by consent; therefore, Wells Fargo waived appellate review.” Appellee’s Br.
p. 13. According to Castalia, “Wells Fargo did not assert equitable estoppel at any point
during the proceedings below, nor do the words ‘equitable estoppel’ ever appear on the
record.” Id. at 10.
Contrary to Castalia’s contention, however, in its answer, Wells Fargo’s asserted
that Castalia’s claims were barred “by the doctrines of laches, waiver and/or estoppel.”
Supp. App. p. 540. In its memorandum in opposition to summary judgment, Wells Fargo
argued in part that Castalia waived its right to assert that its mechanic’s lien takes priority
over the Wells Fargo mortgages based on the doctrine of equitable estoppel. This three-
page argument referenced the elements of equitable estoppel, included citations to cases
and designated evidence, and provided an analysis of the claim. See id. at 549-52. The
term “equitable estoppel” was used at least five times in the memorandum. During the
hearing on Castalia’s motion for summary judgment, counsel for Wells Fargo discussed
the doctrine of equitable estoppel and provided an analysis of the elements based on the
facts of this case. See Tr. pp. 26-31. We simply cannot agree with Castalia that Wells
Fargo waived the issue of equitable estoppel.
5
Castalia also argues that Wells Fargo waived appellate review because it “could
have initiated its own foreclosure proceedings, filed a cross-claim in these proceedings,
moved for summary judgment, or filed a cross-motion for summary judgment.”
Appellee’s Br. p. 13. Although Wells Fargo could have done what Castalia suggests,
Castalia provides no authority requiring Wells Fargo to assert a claim in order to take the
position that its mortgages have priority over Castalia’s mechanic’s lien.2 We are not
persuaded by this argument.
In a similar vein, Castalia asserts that the cases upon which Wells Fargo relies to
establish its equitable estoppel defense are distinguishable because the banks and
creditors in those cases filed suit to assert their claims. Castalia points out that Wells
Fargo is part of the litigation only because it was named as a co-defendant and not
because it asserted claims on the property. According to Castalia, “[d]ue to the central
role asserting a claim plays in disposing of foreclosure litigation, this distinction between
Wells Fargo’s cited cases and the present cases makes them distinguishable and not on
point.” Appellee’s Br. p. 15. Castalia does not provide us with any analysis of the
specific cases cited by Wells Fargo, nor does it offer any authority for the proposition that
a party must file suit before it can assert the doctrine of equitable estoppel. To the
contrary, we have observed that “equitable estoppel is available only as a defense.”
Town of New Chicago v. City of Lake Station, 939 N.E.2d 638, 653 (Ind. Ct. App.
2
In its answer, Wells Fargo asserted as an affirmative defense that its mortgages have priority over
Castalia’s alleged lien and requested that its mortgages be declared valid first priority liens. Even if Wells
Fargo was required to assert a claim as Castalia suggests, we believe this affirmative defense could have
been treated as such. See Ind. Trial Rule 8(C) (“If the pleading mistakenly designates a defense as a
counterclaim or a counterclaim as a defense, the court shall treat the pleading as if there had been a proper
designation.”).
6
2010), trans. denied. Castalia’s attempt to distinguish the cases upon which Wells Fargo
relies is unavailing.
Castalia does not otherwise address the merits of Well Fargo’s equitable estoppel
argument. “An appellee’s failure to respond to an issue raised in an appellant’s brief is,
as to that issue, akin to failing to file a brief.” Nance v. Miami Sand & Gravel, LLC, 825
N.E.2d 826, 837 (Ind. Ct. App. 2005), trans. denied. Although this failure does not
relieve us of our obligation to correctly apply the law to the facts in the record in order to
determine whether reversal is required, the appellee remains responsible for controverting
arguments raised by the appellant. Id. For us to reverse, Wells Fargo must establish only
that the trial court committed prima facie error, which means at first sight, on first
appearance, or on the face of it. See id.
Regarding estoppel, our supreme court has explained:
Estoppel is a judicial doctrine sounding in equity. Although
variously defined, it is a concept by which one’s own acts or
conduct prevents the claiming of a right to the detriment of
another party who was entitled to and did rely on the conduct.
There are a variety of estoppel doctrines including: estoppel
by record, estoppel by deed, collateral estoppel, equitable
estoppel-also referred to as estoppel in pais, promissory
estoppel, and judicial estoppel. All, however, are based on
the same underlying principle: one who by deed or conduct
has induced another to act in a particular manner will not be
permitted to adopt an inconsistent position, attitude, or course
of conduct that causes injury to such other.
Brown v. Branch, 758 N.E.2d 48, 52 (Ind. 2001) (citations omitted). A party claiming
equitable estoppel must show its: (1) lack of knowledge and of the means of knowledge
as to the facts in question; (2) reliance upon the conduct of the party estopped; and (3)
7
action based thereon of such a character as to change its position prejudicially. Money
Store Inv. Corp. v. Summers, 849 N.E.2d 544, 547 (Ind. 2006).
In its letter to Wells Fargo, Castalia explained that it was owed $64,395.86 and
that that would be its “last and final draw.” App. p. 206. Castalia also explained that it
would need to be paid at closing “so there will not be any liens on the property.” Id. In
an affidavit signed by Kelsey at closing, Kelsey stated, “[t]here are no unpaid bills for
labor or material which have been ordered, authorized, of [sic] furnished for the real
estate, or which might operate to create a change, lien, or encumbrance against the real
estate; . . . .” App. p. 410. On appeal, Castalia does not direct us to any evidence
indicating that it did not execute the letter to Wells Fargo or showing that Wells Fargo
was aware that Castalia was owed additional money. Thus, Wells Fargo has established
that it lacked knowledge regarding any additional money owed to Castalia.
As for prejudicial reliance on Castalia’s letter, Wells Fargo asserts, it “relied on
that payoff statement by Castalia in electing to lend money to Kelsey in exchange for a
mortgage. Indeed, it was only because Castalia assured Wells Fargo that there were no
construction liens that Wells Fargo was willing to proceed.” Appellant’s Br. p. 17.
Steven Hoke, the Vice President of Loan Documentation for Wells Fargo, stated in an
affidavit that $64,395.86 of the mortgages proceeds were allocated to pay off Castalia in
reference to a debt Kelsey owed. Hoke also stated that Wells Fargo relied on Castalia’s
letter and would not have agreed to refinance Kelsey’s debt “without the allocated
proceeds to Castalia paying off the Kelsey Debt.” Id. at 101.
8
Richard Howenstine, the settlement closer with Title Express, stated that he
personally delivered the payoff check of $64,395.86 to Redavide who confirmed that the
payoff was correct. See App. p. 323. Howenstine also stated:
20. Title Express relied on the Castalia Payoff to allow the
Refinance Transaction between Kelsey and Wells Fargo to
close on September 11, 2008 with the intent for Wells Fargo
to have a first priority lien on the Real Estate with Mortgage1
and a second priority lien on the Real Estate as to Mortgage2.
*****
22. If Castalia Homes, Inc. had notified Title Express, Inc.
that the Payoff Request did not payoff all of Kelsey’s
indebtedness to Castalia Homes, LLC, Title Express would
not have proceeded with the closing of the Refinance
Transaction for the first priority and second priority
mortgages as intended by Wells Fargo and Jan Kelsey.
Id. at 323-24. This designated evidence shows that Wells Fargo relied on Castalia’s letter
and was prejudiced by such reliance.
Castalia made affirmative statements to Wells Fargo regarding the amount it
needed to be paid so there would not be any liens on the property and Wells Fargo
detrimentally relied on those assertions when it loaned $1,290,000 to Kelsey. On appeal,
Castalia offers no explanation as to why it executed a letter to Wells Fargo saying it was
owed $64,395.86, accepted a check for that amount and then, less than two months later,
filed a lien notice asserting it was owed $335,000. As such, Castalia is estopped from
asserting that its mechanic’s lien has priority over Wells Fargo’s mortgages. See e.g.,
New Chicago, 939 N.E.2d at 657 (holding that, where Lake Station had ample
opportunity (fifteen years) to notify New Chicago of a rate increase but remained silent,
9
application of estoppel against Lake Station was appropriate); Equicor Development, Inc.
v. Westfield-Washington Twp. Plan Comm’n, 758 N.E.2d 34, 40 (Ind. 2001) (“In sum,
the Plan Commission had ample opportunity to point out any deficiency in the
designation of parking, and Equicor reasonably relied on the absence of any parking issue
in processing its proposal. Under these circumstances, the Commission was estopped
from asserting this deficiency as the reason for its disapproval of Equicor’s plat.”). Thus,
the trial court’s entry of summary judgment in favor of Castalia on the issue of priority
was improper.
Having decided that the trial court improperly entered summary judgment in favor
of Castalia on the issue of priority, we must determine whether Wells Fargo is entitled to
summary judgment. Without citation to authority, Castalia asserts, “Wells Fargo also
improperly asked for summary judgment to be granted in their favor on appeal when they
did not file a motion for summary judgment or even a cross-motion for summary
judgment at trial court. Wells Fargo seems to be treating this Court like a second chance
at trial.”3 Appellee’s Br. p. 14. Contrary to Castalia’s assertion, “[w]hen any party has
moved for summary judgment, the court may grant summary judgment for any other
party upon the issues raised by the motion although no motion for summary judgment is
filed by such party.” Ind. Trial Rule 56(B).
3
Although Wells Fargo did not file a cross-motion for summary judgment, in its memorandum in
opposition of summary judgment, Wells Fargo asked the trial to court deny Castalia’s motion and to rule
in its favor on the issue of lien priority. See Supp. App. p. 542. Wells Fargo also requested that the trial
court “find that Wells Fargo’s Mortgages has [sic] priority as to the Real Estate . . . over any interest of
Castalia in the Real Estate . . . .” Id. at 563.
10
Because Castalia is estopped from asserting that its mechanic’s lien has priority
over Wells Fargo’s mortgages, Wells Fargo has established that there are no genuine
issues of material fact and that it is entitled to judgment as a matter of law on the issue of
priority. Under these circumstances, Wells Fargo is entitled to summary judgment. See
New Chicago, 939 N.E.2d at 657 (reversing the trial court’s grant of partial summary
judgment in favor of Lake Station and directing the trial court to enter summary judgment
in favor of New Chicago on its equitable estoppel defense). We reverse and remand for
the trial court to enter summary judgment in favor of Wells Fargo on the issue of priority
and direct it to enter an order that Wells Fargo’s mortgages take priority over Castalia’s
mechanic’s lien with respect to the funds currently held in escrow from the sale of the
property.4
Conclusion
Because Castalia is estopped from asserting that its mechanic’s lien takes priority
over Wells Fargo’s mortgages, Wells Fargo is entitled to summary judgment on the issue
of priority. We reverse and remand.
Reversed and remanded.
FRIEDLANDER, J., and MAY, J., concur.
4
Because of our conclusion that Castalia is estopped from asserting that its mechanic’s lien takes priority
over Wells Fargo’s mortgages, we need not address the parties’ arguments regarding the validity of the
mechanic’s lien.
11