CBR Event Decorators, Inc., Gregory Rankin, Robert Cochrane and John Bales v. Todd M. Gates

FOR PUBLICATION
ATTORNEYS FOR APPELLANT: ATTORNEYS FOR APPELLEE:
PETER J. RUSTHOVEN RONALD J. WAICUKAUSKI
T. JOSEPH WENDT CAROL NEMETH JOVEN
Barnes & Thornburg LLP Price Waicukauski & Riley, LLC
Indianapolis, Indiana Indianapolis, Indiana
JANA K. STRAIN
Indianapolis, Indiana
Mar 03 2014, 9:24 am
IN THE
COURT OF APPEALS OF INDIANA
CBR EVENT DECORATORS, INC., )
GREGORY RANKIN, ROBERT )
COCHRANE and JOHN BALES, )
)
Appellants-Defendants, )
)
vs. ) No. 49A02-1302-CT-159
)
TODD M. GATES, )
)
Appellee-Plaintiff. )
APPEAL FROM THE MARION SUPERIOR COURT
The Honorable Gerald S. Zore, Judge
Cause No. 49D07-0307-CT-1289
March 3, 2014
OPINION - FOR PUBLICATION
ROBB, Judge
Case Summary and Issues
CBR Event Decorators, Inc. (“CBR”) and its individual shareholders Gregory
Rankin, Robert Cochrane, and John Bales (collectively, “Shareholders”) bring this
consolidated appeal, challenging the trial court’s award of attorney fees and order requiring
$1,000,000 from a letter of credit to be deposited with the trial court clerk. The Appellants
raise the following issues for our review: (1) whether, following a decision by this court
in a previous appeal in this case, the trial court erred by ordering that the Shareholders be
personally liable for attorney fees on a claim against CBR for wrongful stop payment of a
check; (2) whether the trial court erred by failing to hold a hearing regarding the amount
and reasonableness of attorney fees; (3) whether the attorney fee award of $290,093 was
unreasonable; and (4) whether the trial court erred by granting an ex parte order requiring
$1,000,000 from a letter of credit to be deposited with the trial court clerk. We conclude
Shareholders are not personally liable for attorney fees on the wrongful stop payment
claim.1 However, we find the ex parte order requiring deposit of $1,000,000 with the trial
court clerk was not reversible error. Therefore, we affirm in part and reverse in part.
Facts and Procedural History
This case—now nearly fourteen years in the making—stems from a contractual
dispute between Todd Gates and CBR and Shareholders. In June 2000, Shareholders
negotiated to purchase the assets of an event decorating company Gates owned.
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Because we conclude the trial court abused its discretion by awarding attorney fees against
Shareholders, the remaining issues regarding the amount of attorney fees and a hearing thereon are
effectively moot. Therefore, we address only the first and fourth issues raised by Shareholders.
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Shareholders, in preparation for the pending acquisition of assets, created CBR to act as
corporate buyer in the transaction and to continue operating as an event decorating
company after acquisition of Gates’s assets. An asset purchase agreement was signed on
behalf of CBR, and the deal was set to close on June 26, 2000. CBR deposited $100,000
in an escrow account as a down payment, and an additional $550,000 was to be paid on a
promissory note over a seven-year period.
A check for $100,000 and the signed asset purchase documents were mailed to
Gates. Gates signed the documents and returned a copy to Shareholders. The same
morning, Shareholders had a meeting with some of Gates’s employees, and after that
meeting, Shareholders believed Gates had misrepresented the value of the assets.
Eventually, payment was stopped on the $100,000 check from CBR, and CBR withdrew
the funds from the escrow account and distributed those funds to Shareholders. Attempts
between Gates and CBR to renegotiate the purchase agreement were unsuccessful. In
August 2000, Gates filed suit against CBR and Shareholders.
Gates’s amended complaint asserted claims against both CBR and Shareholders.
The amended complaint asserted three causes of action against CBR: (1) breach of the
asset purchase agreement; (2) wrongful stop payment of a check; and (3) breach of the
promissory note. The amended complaint also asserted two causes of action against
Shareholders, as individuals: (1) fraudulent conveyance and (2) wrongful withdrawal of
capital (i.e. wrongful transfer or fraudulent transfer). Finally, Gates’s amended complaint
sought to pierce the corporate veil and impose personal liability on Shareholders for any
liability found against CBR. The trial court entered judgment in favor of Gates on all
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counts and pierced the corporate veil. Only those counts pled against CBR—breach of
contract and wrongful stop payment—included a requirement for defendants to pay
attorney fees. In March 2011, the trial court approved an agreed order staying execution
of the judgment pending appeal. As inducement for this agreed order, Shareholders
provided Gates with an irrevocable letter of credit issued by PNC Bank in the amount of
$1,000,000.
Shareholders appealed the trial court’s judgment, and this court issued a published
opinion in CBR Event Decorators, Inc. v. Gates, 962 N.E.2d 1276 (Ind. Ct. App. 2012),
trans. denied (herein, “CBR I”). In that prior appeal, Shareholders raised “a single issue
on appeal: whether the trial court’s unchallenged findings of fact support the court’s
decision to pierce the corporate veil.” Id. at 1281.2 On this sole issue, CBR I held it was
error for the trial court to pierce the corporate veil and hold Shareholders personally liable
for judgments against CBR. Id. at 1284.
Immediately following the holding in CBR I, the court made these additional
statements:
We note that CBR does not appeal the judgment against it for breach of
contract. The shareholders also do not appeal the judgment against them for
fraudulent conveyance, fraudulent transfer, or wrongful stop payment. We
therefore affirm in part and reverse in part. We affirm the trial court’s
judgment against the shareholders for $100,000 for fraudulent conveyance,
fraudulent transfer, and wrongful stop payment of a check. We reverse,
however, the trial court’s judgment against the shareholders in all other
respects. Further, we remand to the trial court to determine the portion of
attorney fees the shareholders are liable for to Gates as a result of the
2
CBR did not appeal the trial court’s judgments against it for breach of contract, breach of
promissory note, and wrongful stop payment. Further, Shareholders did not appeal the trial court’s
judgment that they were personally liable for fraudulent conveyance and wrongful transfer. On appeal, the
only issue was whether Shareholders were personally liable for judgments against CBR.
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wrongful stop payment.
Id. (citation omitted). These supplementary statements at the close of CBR I were the
source of some confusion on remand and are at the root of the present appeal.
On remand, Gates sought attorney fees from Shareholders based on his claim of
wrongful stop payment. Shareholders opposed Gates’s motion for attorney fees, arguing
the CBR I holding precluded their personal liability for the wrongful stop payment claim
and related attorney fees. Following a hearing on the issue of Shareholders’ liability, the
trial court issued an order awarding attorney fees in the amount of $290,093 and interest at
a rate of 18%. Relevantly, the trial court found:
1. The Court of Appeals [in CBR I] determined that the individual
[Shareholders] are liable to [Gates] for the $100,000.00 judgment on the
wrongful stop payment, fraudulent transfer and fraudulent conveyance
claims.
2. This Court lacks jurisdiction to rehear argument or evidence regarding
the merits of the wrongful stop payment, fraudulent transfer and
fraudulent conveyance claims and rejects [Shareholders’] request to do
so.
Appellant’s Appendix at 34. Shareholders filed a motion to reconsider on February 7,
2013, which the trial court denied.
On January 3, 2013, PNC Bank provided Gates with written notice that it would not
extend the letter of credit, which was set to expire March 17, 2013. On February 5, 2013,
Gates filed a Petition for Emergency Stay, for Deposit of Proceeds and for Hearing.
Gates’s petition requested an emergency stay of the letter of credit’s expiration and also
requested a hearing and an order requiring deposit of the $1,000,000 with the trial court
clerk. Two days later, the trial court ordered that the funds be deposited with the trial court
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clerk pursuant to the terms of the letter of credit, stating it saw “no need for a hearing.”
Appellant’s App. at 36. On February 15, 2013, Shareholders requested a stay of the
February 7 order, and that request was granted on March 1, 2013. On February 22, 2013,
Gates sent a written demand to PNC Bank for the balance of the letter of credit to be drawn
and deposited with the trial court clerk. Accordingly, those funds were deposited with the
trial court clerk. This appeal followed.
Discussion and Decision
I. Award of Attorney Fees
A. Standard of Review
Shareholders appeal the trial court’s award of attorney fees in favor of Gates. We
review an award of attorney fees for an abuse of discretion. Gerstbauer v. Styers, 898
N.E.2d 369, 378 (Ind. Ct. App. 2008). A trial court abuses its discretion when the decision
is clearly against the logic and effect of the facts and circumstances or if it misapplies the
law. Id.B. Limited Liability and Award of Attorney Fees
Shareholders contend the trial court improperly determined they were personally
liable for attorney fees attributed to the wrongful stop payment claim following this court’s
decision in CBR I. Indiana follows the American Rule, which requires that generally “a
party must pay his own attorneys’ fees absent an agreement between the parties, a statute,
or other rule to the contrary.” R.L. Turner Corp. v. Town of Brownsburg, 963 N.E.2d 453,
458 (Ind. 2012). Relevantly, Indiana Code section 26-2-7-5 provides for attorney fees in
an action for wrongful stop payment of a check. However, the wrongful stop payment
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claim in this case was pled only against CBR, not Shareholders.
A basic precept of corporate law is limited liability. Escobedo v. BHM Health
Assocs., Inc., 818 N.E.2d 930, 932 (Ind. 2004); see also Ind. Code § 23-1-26-3. “[T]he
fundamental principle of American corporate law [is] that corporate shareholders sustain
liability for corporate acts only to the extent of their investment and are not held personally
liable for the acts attributable to the corporation.” Escobedo, 818 N.E.2d at 932 (quoting
Aronson v. Price, 644 N.E.2d 864, 867 (Ind. 1994)). Limited liability may be avoided and
individual shareholder liability may be imposed only upon a determination to pierce the
corporate veil.3 Id. at 932-33. Simply stated, Shareholders could only be liable for attorney
fees on the wrongful stop payment claim against CBR if the corporate veil was pierced.
This court clearly held in CBR I that the trial court’s decision to pierce the corporate veil
was error. Therefore, Shareholders cannot be personally liable for CBR’s wrongful stop
payment or attorney fees tied to that claim.
Gates argues the final paragraph of CBR I, quoted above, mandates the result
reached by the trial court. As Gates reads this court’s prior decision, Shareholders were
ordered to pay attorney fees on the wrongful stop payment claim. Gates does not so much
as attempt to argue that such a directive could be squared with CBR I’s actual holding.
Instead, he maintains that regardless of any allegedly incorrect outcome, the legal doctrines
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“[T]he burden is on the party seeking to pierce the corporate veil to prove that the corporate form
was so ignored, controlled or manipulated that it was merely the instrumentality of another and that the
misuse of the corporate form would constitute a fraud or promote injustice.” Aronson, 644 N.E.2d at 867.
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of res judicata4 and law of the case preclude both the trial court and this court from
addressing the issue of attorney fees. We find Gates’s contentions unavailing.
First, we disagree with the premise that CBR I definitively ordered Shareholders
personally liable for attorney fees on a judgment against CBR. The final paragraph in
CBR I noted that CBR and Shareholders did not appeal a number of judgments against
them—again, the only issue presented on appeal was whether the corporate veil was
rightfully pierced—and the court purported to affirm those non-appealed judgments.
Finally, the court “remand[ed] to the trial court to determine the portion of attorney fees
the shareholders are liable for to Gates as a result of the wrongful stop payment.” CBR I,
962 N.E.2d at 1184. As demonstrated above, because CBR I held the corporate veil should
not be pierced, the portion of attorney fees for which Shareholders are personally liable as
a result of the wrongful stop payment claim is none. In reality, CBR I never stated
Shareholders were individually liable for any amount of attorney fees, and Gates has
simply gleaned such a holding from CBR I where none actually existed.
Even if CBR I could be interpreted as Gates suggests, claim preclusion, issue
preclusion, and law of the case do not require us to find Shareholders liable for attorney
fees. Indeed, the doctrines of claim preclusion, issue preclusion, and law of the case are
4
Gates’s brief refers to “res judicata,” which is also known as claim preclusion and is distinct from
issue preclusion (also known as collateral estoppel). See Sullivan v. American Cas. Co. of Reading, Pa.,
605 N.E.2d 134, 137 (Ind. 1992); see also BLACK’S LAW DICTIONARY 1305-06 (6th ed. 1990) (comparing
res judicata and collateral estoppel). However, some Indiana cases have lumped the doctrines of claim
preclusion and issue preclusion together under the term res judicata. E.g. Wells Fargo Bank, N.A. v. PNC
Bank, N.A., 971 N.E.2d 1216, 1219 (“The doctrine of res judicata consists of two distinct components,
claim preclusion and issue preclusion.”). Because claim preclusion and issue preclusion are separate
doctrines with unique effect, we will refer to them individually in this opinion. Gates’s brief is unclear as
to whether he means claim preclusion or issue preclusion—or both—apply to this case.
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all similar in that they seek to prevent repetitious litigation and promote the finality of
judgments.5 See Becker v. State, 992 N.E.2d 697, 700 (Ind. 2013) (stating claim preclusion
and issue preclusion aim to “prevent repetitious litigation of disputes that are essentially
the same, by holding a prior final judgment binding against both the original parties and
their privies.”); Cutter v. State, 725 N.E.2d 401, 405 (Ind. 2000) (stating the purpose of
law of the case is to minimize relitigation of issues after resolution by an appellate court
and to promote finality and judicial economy). That said, each doctrine is unique and
applied under different circumstances. None of those doctrines are applicable under the
circumstances of this case.
Claim preclusion and issue preclusion are pertinent only in a subsequent action or
separate pending action, not a subsequent appeal in a single pending case. See Sullivan v.
American Cas. Co. of Reading, Pa., 605 N.E.2d 134, 137 (Ind. 1992); see also
RESTATEMENT (SECOND) OF JUDGMENTS § 17 (1982). Simply stated, the doctrines of
claim preclusion and issue preclusion have no applicability where the legal issue involves
a prior ruling in the same action. Therefore, neither claim preclusion nor issue preclusion
could prevent us from addressing issues raised in or resulting from CBR I.
On the other hand, law of the case is a doctrine used to facilitate the finality of issues
decided within the same action. Law of the case provides that an appellate court’s
determination of a legal issue is binding on the trial court and in any subsequent appeal in
the same case and on substantially the same facts. Cutter, 725 N.E.2d at 405. Essentially,
5
Unlike claim preclusion and issue preclusion, which are compulsory, law of the case doctrine is
a discretionary tool. Murphy v. Curtis, 930 N.E.2d 1228, 1234 (Ind. Ct. App. 2010), trans. denied.
9
law of the case means all issues decided directly or by implication in a prior decision are
binding in all further portions of the same case. Dean V. Kruse Found., Inc. v. Gates, 973
N.E.2d 583, 590 (Ind. Ct. App. 2012), trans. denied. However, only those issues
conclusively determined are considered law of the case, and the issue decided in the prior
appeal must clearly be the only possible construction of an opinion. Id. Finally, statements
that are not necessary in the determination of the issues presented are dicta and do not
become law of the case. Id. at 590-91.
The statements in CBR I relied upon by Gates are not law of the case. First, we do
not believe Gates’s interpretation of CBR I—making Shareholders personally liable for
attorney fees on the wrongful stop payment claim—is the only possible construction of the
opinion. This is primarily because holding Shareholders personally liable for attorney fees
on the wrongful stop payment claim against CBR stands in stark contradiction to the
opinion’s actual holding which upheld the corporate veil. Moreover, the sole issue
presented in CBR I was whether the trial court erred in piercing the corporate veil. The
statements relied upon by Gates were unnecessary to the determination of that issue and
are merely dicta. Therefore, law of the case is inapplicable here.
Finally, we note that Shareholders did not seek rehearing or transfer following the
decision in CBR I. We remind Shareholders’ attorneys that where potential ambiguity
arises in an appellate opinion, a petition for rehearing via Indiana Appellate Rule 54 is the
most appropriate and efficient method of resolving any uncertainty, rather than attempting
to sort out an ambiguity with the trial court post-remand. Our ability to address the issue
presented in this case is due only to the language in CBR I and particular circumstances
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rendering law of the case doctrine inappropriate; had CBR I clearly articulated a ruling of
attorney fees in favor of Gates, Shareholders may not have enjoyed such a favorable
outcome. These matters should not be left to chance.
In sum, the only legal theory under which Shareholders could be personally liable
for attorney fees on Gates’s wrongful stop payment claim was to pierce the corporate veil,
which CBR I clearly held was improper. Neither claim preclusion, issue preclusion, nor
law of the case are applicable here, and thus, we are not obligated to uphold the award of
attorney fees against Shareholders. The trial court’s award of attorney fees was an abuse
of discretion.
II. Trial Court’s Ex Parte Order and Deposit of Funds
Finally, Shareholders argue the trial court’s order granting Gates’s request to deposit
the letter of credit funds with the trial court clerk was an improper ex parte order.
Specifically, Shareholders state that Gates did not make sufficient efforts to notify them of
the emergency request for relief and the trial court did not have discretion to order such
relief under the circumstances. In response, Gates contends the trial court’s order was not
necessary to effectuate transfer of the funds to the trial court clerk and that any alleged
error was not reversible error. We find Gates’s position persuasive.
The terms of the letter of credit provided that in the event PNC Bank gave written
notice of non-renewal, Gates
shall have the right, at any time within 60 days after you receive such written
notice, to draw down the then available balance of this letter of credit by
providing written demand therefore to us. Upon receipt of such written
demand, we will immediately pay the entirety of the unpaid balance of this
letter of credit to the clerk of the Marion County Superior Court, to be held
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on behalf of the individual defendants, as a cash deposit in lieu of this letter
of credit . . . .
Appellant’s App. at 203. In a motion before the trial court in March 2013, Shareholders
conceded that Gates made a “legitimate demand” under the terms of the letter of credit,
referencing Gates’s written demand to PNC Bank on February 22, 2013. Appellant’s App.
at 231. Thus, the entire $1,000,000 was drawn on the letter of credit and deposited with
the trial court clerk pursuant to the terms of the letter of credit that were assented to by
Shareholders. Shareholders do not dispute that Gates had a right to demand payment of
the funds from the letter of credit to the trial court clerk, nor do Shareholders dispute that
Gates properly tendered a valid written demand.
“It is well-established that an error based on a lack of notice is subject to the
harmless error doctrine, which requires the appellant to demonstrate prejudice as a result
of the lack of notice.” Adams v. State, 967 N.E.2d 568, 572 (Ind. Ct. App. 2012), trans.
denied. The deposit of funds with the trial court clerk was done in accordance with the
terms of the letter of credit supplied by Shareholders, and the deposit occurred irrespective
of the trial court’s ex parte order. Shareholders have failed to demonstrate prejudice
resulting from the ex parte order.
Conclusion
We hold the trial court abused its discretion by holding Shareholders personally
liable for attorney fees on a wrongful stop payment claim against CBR. Further, we
conclude the doctrines of claim preclusion, issue preclusion, and law of the case do not
require the imposition of those attorney fees. Lastly, the trial court’s ex parte order
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requiring $1,000,000 from a letter of credit to be deposited with the trial court clerk was
not reversible error.
Affirmed in part and reversed in part.
NAJAM, J., and BARNES, J., concur.
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