Court Opinion

ID: 3003594
Source: CourtListenerOpinion
Date Created: 2015-09-24 22:29:25.593551+00
Date Added: 2024-06-11T15:03:01.737322
License: Public Domain

In the

United States Court of Appeals
                For the Seventh Circuit

No. 08-3431

IN RE:

    JAMES E. R OSE,
                                                              Debtor.

M ERCANTILE N ATIONAL B ANK OF INDIANA,
as Trustee, J.R. C ONSTRUCTION C O . and
JOSEPH R AMACCI,
                                       Plaintiffs-Appellants,
                            v.

JAMES E. R OSE,
                                             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.

    A RGUED F EBRUARY 19, 2009—D ECIDED O CTOBER 7, 2009
2                                                  No. 08-3431

  Before F LAUM and W ILLIAMS, Circuit Judges, and
K APALA , District Judge.
  W ILLIAMS, 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 com-
plaint 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 pro-
ceedings 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 bank-
ruptcy 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


  The Honorable Frederick J. Kapala of the United States
District Court for the Northern District of Illinois, sitting by
designation.
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 sup-
plemental. 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 col-
lectively 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 commit-
ments 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 fraudu-
lently 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 judg-
ment 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 judg-
ment 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 pro-
ceedings 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 bank-
ruptcy 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 “commenc-
ing” 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, Mercan-
tile never refiled the CVCA claim within the statute of
limitations.
  In order to sort out whether the CVCA claim was prop-
erly 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 equita-
ble 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 supple-
mental 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 improvi-
dently 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 ap-
pealed that decision to the Indiana Court of Appeals. The
Indiana Court of Appeals found the claim was com-
menced 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 R EVERSE the decision of the district court
and R EMAND for further proceedings consistent with
this opinion.

                           10-7-09