Title: James Rose and Robert Underwood v. Mercantile National Bank of Hammond, et al.

State: indiana

Issuer: Indiana Supreme Court

Document:

ATTORNEY FOR APPELLANTS 
ATTORNEY FOR APPELLEES 
Kathryn D. Schmidt 
Michael L. Muenich 
Merrillville, Indiana 
Highland, Indiana 
 
 
In the 
Indiana Supreme Court  
 
 
No. 56S03-0608-CV-303 
 
JAMES ROSE AND ROBERT UNDERWOOD, 
 
Appellants (Defendants below), 
 
v. 
 
MERCANTILE NATIONAL BANK OF 
HAMMOND, A CORPORATION, AS TRUSTEE 
UNDER THE PROVISIONS OF A CERTAIN TRUST 
AGREEMENT DATED THE 25TH DAY OF JUNE, 
1975, KNOWN AS TRUST NUMBER 3346; J.R. 
CONSTRUCTION CO.; AND JOSEPH RAMACCI, 
 
Appellees (Plaintiffs below). 
 
 
Appeal from the Newton Superior Court, No. 56D01-9512-CP-44 
The Honorable Daniel J. Molter, Judge 
 
 
On Petition to Transfer from the Indiana Court of Appeals, No. 56A03-0405-CV-235 
 
 
June 20, 2007 
 
Shepard, Chief Justice. 
 
Judgment creditor pursued the two shareholders of the judgment debtor through a 
proceeding supplemental contending fraudulent transfer, then amended the complaint to bring a 
new tort claim, as well.  The trial court allowed the amendment and granted summary judgment 
to the creditor, awarding attorneys’ fees and treble damages far in excess of the original 
judgment.  Proceedings supplemental are only for collecting existing judgments, not for seeking 
new ones, so we reverse the trial court’s grant of leave to amend the complaint. 
 
Facts and Procedural History 
 
 
Appellees Mercantile National Bank of Hammond, J.R. Construction Co., and Joseph 
Ramacci (collectively “Mercantile”) sued Jasper-Newton Utility Company, Inc. in 1995 based on 
an agreement to provide water and sewer services.  Jasper-Newton is a subchapter S corporation 
owned in equal shares by appellants James Rose and Robert Underwood.  Jasper-Newton 
successfully moved for a change of judge in 1996 and the court held a bench trial in May 1999.  
On November 15, 2001, the trial court entered judgment against Jasper-Newton for $159,581.  
Jasper-Newton appealed, and the Court of Appeals affirmed.  Jasper Newton Util. Co., Inc. v. 
Mercantile Nat’l Bank of Hammond, No. 56A03-0203-CV-71, slip op. (Ind. Ct. App. Feb. 12, 
2003). 
 
 
Meanwhile, in the spring of 2000, an agent for Utilities, Inc. (“Utilities”) contacted Rose 
about the possibility of acquiring Jasper-Newton.  Later that fall, Jasper-Newton and Utilities 
began negotiating a sale, and on January 12, 2001, Rose executed an agreement for the sale of 
Jasper-Newton’s assets to Utilities for $475,000.  Utilities transferred its rights and obligations 
under the agreement to Water Services Company of Indiana, Inc. (“WSCI”), a wholly owned 
subsidiary of Utilities. 
 
Jasper-Newton and WSCI closed the sale on December 18, 2001, after necessary 
approval from the Indiana Utility Regulatory Commission; Jasper-Newton, Rose, and 
Underwood indemnified WSCI for all claims asserted in Mercantile’s complaint.  Acting on 
behalf of Jasper-Newton, Rose deposited the $475,000 sale proceeds into Jasper-Newton’s bank 
account and, within three days, issued checks to Underwood and himself for $237,500. 
 
 
Mercantile moved for proceedings supplemental on March 15, 2002.  After Mercantile’s 
motion to show cause, the court found Jasper-Newton in contempt for failing to comply with the 
November 15, 2001, judgment and awarded fees and costs of $6,324.85 to Mercantile. 
 
On November 26, 2002, Mercantile filed fraudulent transfer claims against Jasper-
Newton, Utilities, WSCI, Rose, and Underwood and sought attorneys’ fees under Ind. Code § 
 
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34-52-1-1.  It asserted that cash and assets had been transferred out of Jasper-Newton to avoid 
paying the judgment.  Rose and Underwood moved for a change of judge, which the trial court 
denied.  See Ind. Trial Rule 76(B). 
 
WSCI moved for summary judgment on January 17, 2003.  Rose and Underwood filed 
their answer to Mercantile’s complaint on February 11, 2003.  Two days later, Mercantile moved 
for summary judgment, and simultaneously moved for leave to amend its complaint to add a 
third claim for treble damages and attorneys’ fees under the Crime Victims’ Compensation Act 
(“CVCA”).  Jasper-Newton, Rose, and Underwood responded to Mercantile’s summary 
judgment motion on March 28, 2003, but did not address the motion to amend the complaint. 
 
The trial court conducted a summary judgment hearing on July 8, 2003, without ruling on 
Mercantile’s motion to amend the complaint.  On July 23, 2003, Rose and Underwood tendered 
$181,300 to the clerk of court.  The following day, the trial court granted summary judgment to 
Mercantile and denied it to WSCI.1  The court calculated damages of $180,811.83, representing 
the original judgment amount plus statutory interest. 
 
 
On August 11, 2003, Rose and Underwood filed an objection to Mercantile’s motion to 
amend the complaint and requested a hearing.  Jasper-Newton, Rose, and Underwood filed their 
answer to the amended complaint on November 7, 2003, and demanded a jury trial.  On 
November 26, 2003, the court granted Mercantile’s motion to amend the complaint nunc pro 
tunc, dating the order March 28, 2003.  Mercantile moved to strike Rose and Underwood’s jury 
trial demand, but the court ordered a bench trial for the fraudulent transfer claims and tentatively 
set the CVCA claim for a later jury trial. 
 
On March 24, 2004, when the bench trial was set to take place, the court ruled that Rose 
and Underwood were not entitled to a jury and proceeded to hear evidence on Mercantile’s 
claims, including the CVCA claim.  The court entered judgment for Mercantile and awarded 
treble damages of $542,435.49 and attorneys’ fees of $162,730.  (Appellants’ App. at 34-35.) 
 
                                                 
1 Mercantile later dismissed its claims against WSCI. 
 
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Rose and Underwood challenged several of the trial court’s rulings on appeal: the denial 
of change of judge, the grant of leave to Mercantile to add the CVCA claim, the denial of a jury 
trial on the CVCA claim, the finding of a fraudulent transfer, and the award of treble damages 
and attorneys’ fees under the CVCA.  The Court of Appeals affirmed in part, reversing only the 
attorneys’ fees award, which it held to be unreasonable, and remanding for a new calculation.  
Rose v. Mercantile Nat’l Bank of Hammond, 844 N.E.2d 1035 (Ind. Ct. App. 2006), vacated.  
We granted transfer. 
 
 
Proceedings Supplemental Are for Enforcing Existing Judgments 
 
 
Given the contorted procedural history of this case and the evident confusion about the 
rules in proceedings supplemental, we find it necessary first to touch on the law in this area. 
 
A.  Proceedings Supplemental Generally.  Judgment creditors in Indiana have long relied 
on proceedings supplemental to execution to help enforce judgments.  See Charles Levin, An 
Outline of Proceedings Supplementary, 14 Ind. L.J. 353 (1938); see also Toledo, Wabash and W. 
Ry. Co. v. Howes, 68 Ind. 458 (1879).  With roots in equity, a proceeding supplemental offers 
the judgment creditor judicial resources “for discovering assets, reaching equitable and other 
interest[s] not subject to levy and sale at law and to set aside fraudulent conveyances.”  
McCarthy v. McCarthy, 156 Ind. App. 416, 420-21, 297 N.E.2d 441, 444 (1973) (citation 
omitted). 
 
 
Proceedings supplemental are generally governed by Trial Rule 69(E).  A plaintiff may 
move for a proceeding supplemental in the court where judgment has been rendered by alleging 
that the plaintiff’s judgment will not be satisfied and that the defendant or another party has 
property that ought to be applied toward the judgment.  Ind. Trial Rule 69(E).  And while Trial 
Rule 69(E) declares “[n]o further pleadings shall be required,” our caselaw teaches that “when a 
new issue arises in a proceeding supplemental, responsive pleadings are required.”  Am. 
Underwriters, Inc. v. Curtis, 427 N.E.2d 438, 443 (Ind. 1981).  Nonetheless, even when no new 
issue arises, a responsive pleading is still permitted.  Id.  The court must then allow discovery 
 
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and conduct a hearing, after which certain property shall be “applied towards the judgment.”  
Ind. Trial Rule 69(E). 
 
 
B.  Changes of Venue in Proceedings Supplemental.  In the days before the Indiana Rules 
of Trial Procedure, parties to the original suit could obtain a change of judge when a proceeding 
supplemental was filed.  See Burkett v. Holeman, 104 Ind. 6, 3 N.E. 406 (1885).  Modern 
practice has limited the availability of a change of judge to those defendants not party to the 
original action.  See Arnold v. Dirrim, 398 N.E.2d 442 (Ind. Ct. App. 1979).  Moreover, third-
party defendants must make a prompt motion upon learning of the trial date or else the right to 
change of venue will be waived.  Id. at 450.  “To hold otherwise would only encourage 
unnecessary delays occasioned by late filing of change of venue motions which have as one of 
their objects the postponement or avoidance of a trial.”  Id.
 
 
The approach demonstrated by the Court of Appeals in Arnold best merges the rationale 
for proceedings supplemental with the right to a change of venue.  Since proceedings 
supplemental are merely the continuation of an original action, the original parties have already 
been afforded the chance to move the case to another court or judge.  As the Arnold court 
apparently realized, the only parties who stand to have their rights substantially diminished are 
those defendants whose first encounter with the case occurs through proceedings supplemental.  
We thus affirm the rule that third-party defendants in proceedings supplemental may engage the 
change of venue provisions in Trial Rule 76. 
 
 
Rose and Underwood argue that they were not parties to the original action; thus, the trial 
court erred in denying their motion for change of judge.  We conclude the contrary.  Rose and 
Underwood not only knew of the original action, they acted on behalf of Jasper-Newton and 
were the only two individuals who could have so acted.  While they were not parties to the 
original action in a strict sense, this form will not prevent us from recognizing the substance.  
The prompt and equitable process contemplated in proceedings supplemental militates in favor 
of treating Rose and Underwood as, in effect, original parties through their ties to Jasper-
Newton.  The trial court properly denied their motion for change of venue from the judge. 
 
 
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C.  Jury Trial Demands in Proceedings Supplemental.  Our state’s approach to 
proceedings supplemental has likewise recognized that disputes may arise from the pleadings 
about which the right to trial by jury may attach.  McMahan v. Works, 72 Ind. 19 (1880).  
Modern practice says this right pertains to issues of fact “amenable to a trial by jury.”  
McCarthy, 156 Ind. App. at 420, 297 N.E.2d at 444.  The Court of Appeals reasoned in 
McCarthy that because proceedings supplemental derive from equity, and because Trial Rule 
69(E) consistently refers to such proceedings as “hearings,” they should usually be “conducted 
before the court.”  Id. at 419-21, 297 N.E.2d at 443-44. 
 
 
For all that appears, this approach developed over nearly 130 years seems to serve us 
well.  While juries are disfavored in proceedings supplemental for their tendency to prolong 
matters, where the pleadings form issues of fact that a jury could reasonably decide, the parties 
may demand a jury trial. 
 
 
D.  Fraudulent Transfer and Proceedings Supplemental.  Judgment creditors commonly 
invoke proceedings supplemental to bring fraudulent transfer actions, which Justice Fansler 
lucidly described: 
[Fraudulent transfer claims] have for their sole purpose the removal of obstacles 
which prevent the enforcement of the judgment by the executive officers of the 
state through the levy of execution. . . . While the action may involve a 
conveyance said to be fraudulent, the recovery is not for the wrong or tort.  It is 
not in damages. 
Beavans v. Groff, 211 Ind. 85, 90, 5 N.E.2d 514, 516-17 (1937).  If a fraudulent transfer action is 
successful, “[t]he conveyances continue valid as between the grantor and grantee, and the only 
effect of the judgment is to subject the property to execution as though it were still in the name 
of the grantor.”  Id. at 90, 5 N.E.2d at 516. 
 
 
Rose and Underwood contend that the evidence does not support the conclusion that they 
fraudulently transferred funds from Jasper-Newton’s bank account to evade the original 
judgment.  Contradicting their argument is the evidence of record demonstrating that Rose and 
Underwood eventually tendered $181,300 to Mercantile in satisfaction of the original judgment.  
This evidence aside, we agree with the Court of Appeals that the trial court did not err when it 
 
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found that Rose and Underwood fraudulently transferred Jasper-Newton’s assets, and we 
summarily affirm on this issue.  Ind. Appellate Rule 58(A). 
 
E.  New Claims and Proceedings Supplemental.  Unlike the fraudulent transfer claims, 
Mercantile’s attempt to seek new damages from Rose and Underwood by adding a Crime 
Victims’ claim does not fit the purpose for proceedings supplemental.  While the CVCA claim 
was based on the same facts as the fraudulent transfer claim, the remedy sought for the CVCA 
claim amounted to three times the original judgment amount, plus attorneys’ fees.  Allowing a 
new claim to be tacked on at this stage would be just as unfitting as opening up any other 
litigation to add new claims after judgment.  Such an approach to collections would lay the 
groundwork for perpetual motion – a far cry from the timely and efficient system of conflict 
resolution the nation’s judiciary strives to provide.  Proceedings supplemental are appropriate 
only for actions to enforce and collect existing judgments, not to establish new ones. 
 
The trial court improvidently granted Mercantile leave to amend the proceedings 
supplemental complaint to add a claim for new damages.  We think it prudent policy that any 
action to assist in collection of an original judgment, i.e. a proceeding supplemental, must be 
filed under the same cause number as the original action.  Conversely, any action that may result 
in imposition of a new judgment should be filed under a new cause number. 
 
 
Conclusion 
 
We affirm the trial court’s denial of Rose and Underwood’s motion for a change of judge.  
We summarily affirm the Court of Appeals’ rejection of their claims about the court’s grant of 
summary judgment to Mercantile on the fraudulent transfer claims.  Ind. Appellate Rule 58(A).  
The trial court’s judgment for contempt and for fraudulent transfer is affirmed. 
 
We reverse the trial court insofar as it allowed Mercantile to amend its complaint and 
seek damages under the CVCA.  Because the parties have understandably not briefed whether 
Mercantile may continue to pursue its CVCA claim through transfer to a new cause number or 
 
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some other means, we need not reach the issue of Rose and Underwood’s demand for a jury in 
the CVCA claim.  We remand for collection of any amounts remaining unpaid on the contempt 
and the fraudulent transfer, and so the trial court can consider whether Mercantile is entitled to 
attorneys’ fees under Ind. Code § 34-52-1-1 as contemplated by the orders it entered on the 
request for same made in Mercantile’s complaints. 
 
Dickson, Sullivan, Boehm, and Rucker, JJ., concur. 
 
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