In the

United States Court of Appeals

For the Seventh Circuit

No. 08-3431

IN RE:

JAMES E. ROSE, 

Debtor.

MERCANTILE NATIONAL BANK OF INDIANA,

as Trustee, J.R. CONSTRUCTION CO. and

JOSEPH RAMACCI,

Plaintiffs-Appellants,

v.

JAMES E. ROSE,

Defendant-Appellee.

 

Appeal from the United States District Court 

for the Central District of Illinois.

No. 2:08 CV 2116—Michael P. McCuskey, Chief Judge.

 

ARGUED FEBRUARY 19, 2009—DECIDED OCTOBER 7, 2009

 
2 No. 08-3431

The Honorable Frederick J. Kapala of the United States 

District Court for the Northern District of Illinois, sitting by

designation.

Before FLAUM and WILLIAMS, Circuit Judges, and

KAPALA, District Judge.



WILLIAMS, Circuit Judge. In 2005, James E. Rose filed

for bankruptcy in the United States Bankruptcy Court

for the Central District of Illinois. Mercantile National

Bank of Indiana (“Mercantile”) filed an adversary complaint challenging the dischargeability of a debt that

Rose owed to it arising from a previous judgment entered

in an Indiana superior court. The judgment was based,

in part, on a claim Mercantile had made under

Indiana’s Crime Victims’ Compensation Act (“CVCA”),

Ind. Code § 34-24-3-1. In June 2007, the Indiana Supreme

Court ruled that Mercantile had not properly brought

the new CVCA claim because it was filed during a proceedings supplemental to collect on an already existing

judgment, rather than as a separate claim under a new

cause number. Rose v. Mercantile Nat’l Bank of Hammond,

868 N.E.2d 772, 777 (Ind. 2007). As a result, the bankruptcy court agreed, ruling that the applicable two-year

statute of limitations barred Mercantile’s complaint.

The bankruptcy court granted Rose’s motion to dismiss

Mercantile’s adversary complaint, and the district court

affirmed. In re Rose, No. 08-CV-2116, 2008 WL 4055783,

at *6 (C.D. Ill. Aug. 26, 2008).

After oral argument in this case, the Indiana Court of

Appeals determined that the CVCA claim against Rose’s
No. 08-3431 3

joint shareholder, Robert Underwood, was properly

commenced within the statute of limitations despite

being improvidently filed as part of a proceedings supplemental. Mercantile Nat’l Bank of Hammond v. Underwood,

906 N.E.2d 881 (Ind. Ct. App. 2009). Because Mercantile

properly commenced its CVCA claim within the statute

of limitations, we reverse the ruling of the district court.

I. BACKGROUND

In 1995, Mercantile National Bank of Indiana, J.R.

Construction Co. and Joseph Ramacci (whom we collectively call “Mercantile”) sued Jasper-Newton

Utility (“J-N”), an Indiana sub-S corporation operating

as a public utility company, in an Indiana superior court

for contract damages and specific performance. The

suit alleged that J-N failed to live up to its commitments under a water and sewer services agreement. At

that time, James E. Rose was a 50% shareholder in J-N.

Following a bench trial, the court entered judgment

against J-N for $159,581.

On December 18, 2001, five weeks after the judgment, J-N

was sold to Water Services Company of Indiana, Inc.

(“WSCI”) for $475,000. Under the terms of the sale, Rose

and Robert Underwood, the other 50% J-N shareholder,

agreed to indemnify WSCI for any and all liabilities

arising out of Mercantile’s suit against J-N. J-N then

transferred $237,500 each to Rose and Underwood.

In March 2002, Mercantile moved for proceedings

supplemental to collect on the judgment. On November 16,
4 No. 08-3431

2002, Mercantile filed two claims under the Indiana

Fraudulent Transfer Act, Ind. Code § 32-18-2-17, alleging

that Rose, Underwood, J-N and WSCI had acted fraudulently by transferring Rose’s and Underwood’s shares in

J-N to WSCI in order to avoid paying the judgment. In

February 2003, Mercantile moved for leave to amend its

complaint to add a claim under Indiana’s CVCA. No fee

was paid to the Clerk of the Court and no summons

were ever issued to Rose or Underwood in connection

with Mercantile’s CVCA claim. On July 23, 2003, Rose

and Underwood tendered $181,300 (the original judgment amount plus statutory interest) to the court. Even

though Rose and Underwood paid the judgment, the

trial court granted Mercantile’s motion to amend the

complaint nunc pro tunc on November 26, 2003 and

made the order retroactive to March 28, 2003.

After a bench trial during which it considered both

the Fraudulent Transfer Act and CVCA claims, the

Newton Superior Court entered judgment in favor of

Mercantile, awarding $542,435.49 in treble damages and

$162,730 in attorneys’ fees. The Indiana Court of Appeals

affirmed the treble damages ruling but remanded for

recalculation of the attorneys’ fees. In the meantime, on

October 14, 2005, Rose filed for Chapter 11 relief in the

United States Bankruptcy Court for the Central District of

Illinois. On March 7, 2006, Mercantile filed an adversary

complaint to challenge the dischargeability of the judgment on its CVCA claim.

In June 2007, the Indiana Supreme Court reversed the

appellate court’s ruling on the CVCA claim and held
No. 08-3431 5

that Mercantile’s attempt to seek new damages from

Rose and Underwood did not fit the purpose of a proceedings supplemental. Rose, 868 N.E.2d at 777. The

Indiana Supreme Court stated that such proceedings

are appropriate only for actions to enforce and collect

existing judgments, not to establish new ones, and that

if Mercantile wished to pursue the CVCA claim it

would have to do so under a new cause of action or

through some other means.

On November 12, 2007, following the Indiana Supreme

Court ruling, Mercantile filed an Amended Complaint to

Determine Dischargeability in the bankruptcy case. Rose

filed a motion to dismiss that complaint, which the bankruptcy court granted on March 6, 2008. In granting the

motion, the court reasoned that the CVCA claim had

never been properly commenced within the applicable

two-year statute of limitations and was therefore barred

by the statute’s expiration. The bankruptcy court rejected

Mercantile’s argument that Indiana’s Journey’s Account

Statute applied. That statute allows an extension of the

statute of limitations for actions commenced by a

plaintiff which fail because the judgment is arrested or

reversed on appeal. Ind. Code § 34-11-8-1. Echoing the

Indiana Supreme Court, the court reasoned that

Mercantile had not met the requirements for “commencing” an action by filing the CVCA claim in a proceedings

supplemental, and, therefore, the Journey’s Account

Statute did not revive Mercantile’s adversary complaint.

On appeal, the district court affirmed the bankruptcy

court’s ruling that dismissed the adversary complaint.
6 No. 08-3431

Following oral argument in this case, on May 18, 2009,

the Indiana Court of Appeals issued a decision involving

the CVCA claim that was filed before Rose filed his

bankruptcy petition. The appellate court concluded that

Mercantile’s CVCA claim was commenced within the

statute of limitations when it was initially improvidently

filed as part of the proceedings supplemental. Mercantile,

906 N.E.2d at 886. On June 16, 2009, Underwood filed

a petition to transfer jurisdiction, seeking to appeal the

Indiana Court of Appeal’s decision to the Indiana

Supreme Court. On August 19, 2009, the Indiana Supreme

Court unanimously denied Underwood’s petition to

transfer jurisdiction.

Mercantile appeals the bankruptcy court’s dismissal of

its adversary complaint. In addition, it asks this court to

certify the following question to the Indiana Supreme

Court: “Whether the Indiana statute of limitations runs

and expires while a case is on appeal in Indiana courts

and is subsequently reversed on procedural grounds for

improper joinder of claims?”

II. ANALYSIS

A. Mercantile Commenced Its CVCA Claim Within

the Statute of Limitations

We review a Rule 12(b)(6) dismissal of an adversary

complaint in bankruptcy de novo. In re Consol. Indus., 360

F.3d 712, 716 (7th Cir. 2004). Mercantile’s complaint was

dismissed because the bankruptcy court held that the

statute of limitations barred his claim. In relevant part,

Indiana’s CVCA states:
No. 08-3431 7

Sec. 1. 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.

(3) A reasonable attorney’s fee.

Ind. Code § 34-24-3-1. Essentially, the CVCA allows a

person who suffers pecuniary loss as a result of certain

property crimes to seek treble damages and attorneys’

fees. Because a claim under the CVCA is primarily penal

in nature, a two-year statute of limitations applies. Clark

v. Univ. of Evansville, 784 N.E.2d 942, 945 (Ind. Ct. App.

2003). Here, the earliest date at which the statute of

limitations could have began running on Mercantile’s

claim was December 2001, at the time of the fraudulent

transfer to WSCI. The latest date at which the

statute of limitations could have began running was

November 2002, when Mercantile learned of the transfer

of assets and filed its Complaint for Relief in Aid of

Execution on Judgment to void the transfer under the

Fraudulent Transfer Act. Mercantile argues that it

initiated the CVCA claim when it moved for leave to

amend the complaint to add the CVCA claim on

February 14, 2003, well within the statute of limitations.

Rose contends that Mercantile never properly filed the

CVCA claim because it attempted to do so during a
8 No. 08-3431

proceedings supplemental. So, according to Rose, Mercantile never refiled the CVCA claim within the statute of

limitations.

In order to sort out whether the CVCA claim was properly commenced within the statute of limitations, we

must examine several opinions of the Indiana courts. In

Rose, the Indiana Supreme Court reversed the trial

court’s grant to Mercantile of leave to amend the

complaint to add the CVCA claim. Rose, 868 N.E.2d at 777.

As the Indiana Supreme Court explained in its opinion,

proceedings supplemental offer 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.” Id. at 775

(quoting McCarthy v. McCarthy, 297 N.E.2d 441, 444 (Ind.

Ct. App. 1973)). Fraudulent Transfer Act claims seek

enforcement of the judgment, which brings these

claims within the scope of proceedings supplemental. See

In re Import & Mini Car Parts, Ltd., 200 B.R. 857, 859 n.1

(Bankr. N.D. Ind. 1996) (“In Indiana, the owner of an

unpaid judgment may, through proceedings supplemental and garnishment, seek to set aside and recover

allegedly fraudulent transfers of the judgment debtor’s

property.”); see also Rose, 868 N.E.2d at 776.

The CVCA claim, on the other hand, was not filed to

enforce the previous judgment but rather to seek damages

based on a new cause of action. Although the Indiana

Supreme Court determined that the trial court improvidently granted Mercantile leave to amend its complaint

to add the CVCA claim, it also stated that Mercantile
No. 08-3431 9

“may continue to pursue its CVCA claim through transfer

to a new cause number or some other means.” Rose,

868 N.E.2d at 777.

After the Indiana Supreme Court issued its decision, the

Newton Superior Court denied Mercantile’s motion

seeking misjoinder of the CVCA claim. Mercantile appealed that decision to the Indiana Court of Appeals. The

Indiana Court of Appeals found the claim was commenced in a timely fashion and that Mercantile was

entitled to misjoinder. Mercantile, 906 N.E.2d at 883. The

court concluded that Mercantile’s CVCA claim

was commenced within the statute of limitations when

Mercantile filed its motion to amend the complaint. Id.

at 886. The court went on to explain that the Indiana

Supreme Court’s ruling, that bringing the CVCA claim

during a proceeding supplement was improper, did “not

rewrite history and erase the time of commencement of

the action,” id. at 886-87, and, as a result, Mercantile was

entitled to misjoinder of the CVCA claim. Id. at 888.

As the question involves the underlying state claim

for damages, this court applies state law. Kutsugeras v.

AVCO Corp., 973 F.2d 1341, 1346 (7th Cir. 1992). We

concur with the reasoning of the Indiana Court of

Appeals that the CVCA claim was properly commenced

within the statute of limitations when Mercantile

amended its complaint. This most recent Indiana Court of

Appeals decision, which the Indiana Supreme Court

declined to reconsider, is the final word that Mercantile’s

CVCA claim did not “evaporate into the ether” when the

Indiana Supreme Court ruled later that it was improvi-
10 No. 08-3431

dently filed during a proceeding supplemental. Mercantile,

906 N.E.2d at 887. Therefore, Mercantile’s complaint

should not have been dismissed on statute of limitations

grounds.

B. Mercantile’s Motion for Certification is Denied

In light of our decision in Mercantile’s favor, we decline

its request to certify a question to the Indiana Supreme

Court.

III. CONCLUSION

Therefore, we REVERSE the decision of the district court

and REMAND for further proceedings consistent with

this opinion.

10-7-09