Court Opinion

ID: 2993944
Source: CourtListenerOpinion
Date Created: 2015-09-24 15:05:39.08419+00
Date Added: 2024-06-11T15:02:19.513811
License: Public Domain

Sep 24 2015, 9:00 am

      ATTORNEY FOR APPELLANT                                     ATTORNEY FOR APPELLEE
      Michael L. Schultz                                         Howard Howe
      Parr Richey Obremskey                                      Indianapolis, Indiana
      Indianapolis, Indiana

                                                  IN THE
          COURT OF APPEALS OF INDIANA

      Douglas L. Krasnoff,                                       September 24, 2015
      Appellant,                                                 Court of Appeals Case No.
                                                                 49A04-1501-CC-3
              v.                                                 Appeal from the Marion Superior
                                                                 Court
      The Education Resources                                    The Honorable John F. Hanley,
      Institute,                                                 Judge
      Appellee                                                   Trial Court Cause No.
                                                                 49D11-0408-CC-1450

      Bailey, Judge.

                                           Case Summary
[1]   The Education Resources Institute (“TERI”) filed suit against Douglas L.

      Krasnoff (“Krasnoff”), alleging that Krasnoff had defaulted on a promissory

      note to pay a student loan from 1994 (“the Note”). During the pendency of the

      Court of Appeals of Indiana | Opinion 49A04-1501-CC-3 | September 24, 2015               Page 1 of 11
      litigation, TERI and Krasnoff entered into an agreement (“the Agreement”) for

      repayment of the debt.

[2]   At bench trials, TERI pursued two theories against Krasnoff: failure to pay the

      underlying debt, and failure to comply with the Agreement. The first trial

      resulted in judgment for Krasnoff; in an unpublished memorandum decision,

      this Court reversed the judgment and remanded for a new trial. TERI v.

      Krasnoff, No. 49A02-1007-CC-899, slip op. at 1-2 (Ind. Ct. App. Aug. 15, 2011)

      [hereinafter TERI I], trans. denied. At the second bench trial, judgment was

      entered for TERI and against Krasnoff. Krasnoff now appeals.

[3]   We affirm.

                                                      Issue
[4]   Krasnoff presents two issues for our review, which we consolidate and restate

      as a single issue: whether, after filing for bankruptcy and conveying the Note to

      a successor entity, TERI was a proper plaintiff under Indiana’s standing

      doctrine and true party in interest rules.

                             Facts and Procedural History
[5]   As we did in the prior appeal, we again note that we lack TERI’s complaint.

      See TERI I, slip op. at 1. We remind the parties that the allegations in the

      complaint are frequently “necessary for the Court to decide the issues

      presented,” Ind. Appellate Rule 50(A)(1), and that noncompliance with our

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      Appellate Rules can result in waiver of an appeal. Erwin v. Roe, 928 N.E.2d

      609, 613 n.2 (Ind. Ct. App. 2010). We find the omission of the complaint

      particularly distressing because this is the second appeal from a second entry of

      judgment in this case.

[6]   On May 10, 1994, Krasnoff signed a promissory note for a private student loan

      from Society National Bank. The total principal value of the loan was $10,500.

      Ex. 1. At some point, the promissory note was transferred to TERI.

      Subsequent to that:

              On August 6, 2004, TERI filed a complaint in the Marion
              Superior Court for collection of a debt allegedly owed by
              Krasnoff. On July 13, 2009, the parties, through counsel,
              allegedly executed an agreement regarding payment of the debt
              in lieu of entry of judgment.

              On January 11, 2010, a bench trial was scheduled in the matter
              for June 29, 2010. At the trial, TERI submitted as its sole
              evidence an affidavit of its counsel, Howard Howe (“Howe”),
              averring that Krasnoff’s outstanding debt to TERI, inclusive of
              principal and interest, amounted to $11,623.73, and that Howe’s
              own fees in the matter greatly exceeded $1,500. In support of
              Howe’s affidavit was a copy of an executed “Agreement of the
              Parties,” which bore the signature of Krasnoff's attorney and was
              purportedly a settlement agreement between TERI and Krasnoff
              which TERI claimed evidenced the debt and the settlement
              agreement.

              Krasnoff objected to the introduction of the affidavit and the
              settlement agreement, arguing that these were inadmissible as
              hearsay, testimony by counsel, and an attempt to introduce
              evidence of settlement negotiations as evidence of liability. The

      Court of Appeals of Indiana | Opinion 49A04-1501-CC-3 | September 24, 2015   Page 3 of 11
              trial court sustained Krasnoff’s objection, observing that “Well it
              occurs to me Mr. Howe; you’re trying to take the short cut route
              to your destination. If you had a representative of Plaintiff
              present who could testify that would certainly simplify matters.”
              (Tr. 12.) TERI rested its case without introducing any additional
              evidence, and Krasnoff moved for involuntary dismissal of
              TERI’s action under Trial Rule 41(B). The trial court took
              Krasnoff’s motion under advisement and adjourned.

              On June 30, 2010, the trial court granted Krasnoff’s motion for
              involuntary dismissal. On July 20, 2010, the trial court entered
              judgment for Krasnoff.

      TERI I, slip op. at 1-2.

[7]   On appeal, we reversed the trial court’s judgment, concluding that the

      Agreement was a verbal act, and thus was neither hearsay under Evidence Rule

      801 nor a statement made during compromise negotiations otherwise barred

      from admission under Evidence Rule 408. Id., Slip Op. at 3-4. We expressly

      noted that the Agreement was not necessarily evidence of Krasnoff’s liability on

      the original note, but that it was an agreement under which Krasnoff conceded

      his obligation to make payments to TERI. Id. We reversed and remanded the

      matter to the trial court at that time.

[8]   In 2010, during the pendency of the litigation, TERI entered into bankruptcy in

      the U.S. Bankruptcy Court for the District of Massachusetts. Ex. 9. On March

      9, 2012—after this Court’s decision in TERI I—TERI executed an allonge of

      endorsement and agreement of assignment (“the Assignment”), which

      transferred the Note to a successor entity, TERI Plan Trust, LLC (“the Trust”).

      Court of Appeals of Indiana | Opinion 49A04-1501-CC-3 | September 24, 2015   Page 4 of 11
[9]    A new trial was conducted on July 22, 2014. At the trial, TERI produced as a

       witness Jennifer Traveis (“Traveis”), an employee of Boston Portfolio Advisors,

       which managed collection of debts for the Trust. Traveis testified as to the

       status of Krasnoff’s payments on the Note, the total principal and interest

       amounts outstanding on the Note, the total costs of litigation to enforce the

       Note, and the chain of transfer of the Note to the Trust. Krasnoff objected to

       substantial portions of Traveis’s testimony, as well as to the admission of the

       Agreement and the Assignment. The trial court admitted the Agreement and

       the Assignment into evidence, and admitted into evidence substantial portions

       of Traveis’s testimony. Krasnoff’s argument at trial was not that he did not owe

       amounts on the Note; rather, Krasnoff argued that after the transfer of the Note

       to the Trust, TERI was no longer a party entitled to enforce the Note, and thus

       lacked standing and was not a proper party to the litigation.

[10]   On October 20, 2014, the trial court issued findings and conclusions. The trial

       court rejected Krasnoff’s argument. The court instead found that TERI was

       entitled to enforce the Note and was entitled to enforce the Agreement, under

       either of which Krasnoff was liable. Accordingly, the trial court entered

       judgment against Krasnoff and found that he owed a total of $13,952.66:

       principal totaling $10,588.73, accrued interest of $1,379.06, and court costs

       totaling $1,984.86. App’x at 13-14.

[11]   On November 17, 2014, Krasnoff filed a motion to correct error. The trial court

       denied Krasnoff’s motion.

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[12]   This appeal followed.

                                  Discussion and Decision
                                          Standard of Review
[13]   Krasnoff appeals the trial court’s denial of his motion to correct error. We

       review a trial court’s ruling on a motion to correct error for an abuse of

       discretion, which occurs when the ruling is contrary to the logic and effect of

       the facts and circumstances before the court, or when the court errs on a matter

       of law. City of Indianapolis v. Hicks, 932 N.E.2d 227, 230 (Ind. Ct. App. 2010),

       trans. denied.

[14]   Krasnoff’s motion to correct error challenged the trial court’s findings of fact,

       conclusions thereon, and judgment. Krasnoff filed a written motion requesting

       special findings pursuant to Trial Rule 52. Our standard of review in such cases

       is well settled.

               Special findings are those that contain all facts necessary for
               recovery by a party in whose favor conclusions of law are found.
               The findings are adequate if they support a valid legal basis for
               the trial court’s decision. The purpose of special findings of fact
               is to provide a reviewing court with the theory on which the
               judge decided the case, so they should contain a statement of the
               ultimate facts from which the trial court determined the legal
               rights of the parties. On appeal, we construe the findings
               together liberally in support of the judgment. But in our review
               of whether findings support the judgment, we may not add
               anything to the findings of fact by way of presumption, inference,
               or intendment.

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       Indiana High Sch. Athletic Ass’n, Inc. v. Schafer, 913 N.E.2d 789, 794 (Ind. Ct.

       App. 2009) (citations omitted).

[15]   Krasnoff presents arguments related to TERI’s standing to pursue its claims,

       drawing our attention specifically to questions concerning the interpretation of

       the Agreement, the Note, and the Assignment, as well as Indiana’s Uniform

       Commercial Code and our trial rules. These present legal issues concerning the

       construction of contractual and statutory provisions, which we review de novo.

       Ballard v. Lewis, 8 N.E.3d 190, 193 (Ind. 2014).

                                                    Analysis
[16]   Krasnoff argues that as a result of the Assignment, TERI was no longer entitled

       to enforce the Note under the Indiana U.C.C. Krasnoff contends that TERI

       assigned its rights under both the Note and the Agreement to the Trust; as a

       result, TERI was not a real party in interest in the case, and could not pursue its

       suit against Krasnoff. Krasnoff also contends that TERI lacked standing to

       pursue its claim against him.

[17]   Standing and the real party in interest rule are separate concepts. Hammes v.

       Brumley, 659 N.E.2d 1021, 1029 (Ind. 1995). “Standing refers to the question of

       whether a party has an actual demonstrable injury for purposes of a lawsuit.”

       Id. “A real party in interest, on the other hand, is the person who is the true

       owner of the right sought to be enforced.” Id. at 1030. The real party in interest

       “is entitled to the fruits of the action.” Id.

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[18]   A party with standing and a real party in interest are not necessarily one and the

       same. Thus, in Hammes, the Indiana Supreme Court observed that in the wake

       of a Chapter 7 bankruptcy, “the bankrupt parties were not real parties in

       interest; the trustees of their respective bankruptcy estates were.” Id.

       Nevertheless, the bankrupt parties “did have standing to sue” because “[t]hey

       were parties that had a demonstrable injury allegedly caused by the parties they

       were suing and sustained a ‘direct injury as a result of the conduct at issue’—the

       threshold requirement to show standing.” Id.

[19]   Here, there is ample evidence that TERI had standing to pursue its claim.

       When TERI filed suit, it was the holder of the Note, the payment requirements

       of which TERI alleged Krasnoff had breached. TERI remained holder of the

       note until execution of the Assignment in 2012, incurring upon itself the cost of

       litigation beginning in 2004, and including a bench trial in 2010 and a

       subsequent appeal in 2011. TERI cannot, then, be said to lack standing as a

       party to the litigation.

[20]   We turn, then, to the question of whether TERI qualified as a real party in

       interest. Our trial rules require that “[e]very action shall be prosecuted in the

       name of the real party in interest.” Ind. Trial Rule 17(a). However:

               No action shall be dismissed on the ground that it is not
               prosecuted in the name of the real party in interest until a
               reasonable time after objection has been allowed for the real
               party in interest to ratify the action, or to be joined or substituted
               in the action. Such ratification, joinder, or substitution shall have

       Court of Appeals of Indiana | Opinion 49A04-1501-CC-3 | September 24, 2015   Page 8 of 11
               the same effect as if the action had been commenced initially in
               the name of the real party in interest.

       Id. There is no specific procedure set forth in our trial rules for when and how a

       challenge under Rule 17(a) may be brought, nor for when and how such a

       challenge may be addressed, and this parallels the federal rule. See 6A Charles

       Alan Wright & Arthur R. Miller, Federal Practice and Procedure § 1554 (3d ed.

       2015) (discussing Fed. R. Civ. P. 17).

[21]   Arguing that TERI is not a real party in interest, Krasnoff observes that the

       Note was transferred from TERI to the Trust as a result of the Assignment, and

       draws our attention to the “person entitled to enforce” provision of the Indiana

       U.C.C., which states:

               “Person entitled to enforce” an instrument means:

               (1)      the holder of the instrument;

               (2)    a nonholder in possession of the instrument who has the
               rights of a holder; or

               (3)    a person not in possession of the instrument who is
               entitled to enforce the instrument under I.C. 26-1-3.1-309 or I.C.
               26-1-3.1-418(d).

               A person may be a person entitled to enforce the instrument even
               though the person is not the owner of the instrument or is in
               wrongful possession of the instrument.

       I.C. § 26-1-3.1-301.

       Court of Appeals of Indiana | Opinion 49A04-1501-CC-3 | September 24, 2015   Page 9 of 11
[22]   TERI transferred its rights under the Note, as well as possession of the Note

       itself, to the Trust; thus, TERI was not a person entitled to enforce under

       Subsections 26-1-3.1-301(1) and (2). Nor was TERI entitled to enforce the Note

       under Subsection 26-1-3.1-301(3). Section 26-1-3.1-309 applies to those parties

       entitled to enforce an instrument but who lost possession of the instrument

       outside of “a transfer … or lawful seizure,” I.C. § 26-1-3.1-309(a)(2); because of

       the Assignment, this provision did not apply to render TERI a person entitled

       to enforce the Note. Nor did Subsection 26-1-3.1-418(d) work to make TERI a

       person entitled to enforce the Note; that subsection applies in situations

       involving payment or acceptance of an instrument by mistake, or when

       acceptance of an instrument has been revoked. Krasnoff is correct, then, that

       TERI was not a person entitled to enforce the Note as contemplated by the

       U.C.C.

[23]   But that does not end the inquiry under Trial Rule 17(a), which provides that a

       party that is not a real party in interest may nevertheless pursue a claim where

       the real party in interest ratifies, joins, or is substituted into the action. It is with

       respect to Rule 17(a) that Krasnoff’s argument fails.

[24]   At trial, Krasnoff argued that TERI lacked standing and was not a true party in

       interest. TERI produced testimony from Jennifer Traveis, through whose

       testimony information and exhibits came into evidence concerning Krasnoff’s

       non-payment on the Note. Traveis’s testimony included her statements that she

       was an employee of Boston Portfolio Advisors, which had been retained by the

       Trust to manage the collection of promissory notes transferred to the Trust in

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       the wake of TERI’s bankruptcy. Traveis produced the Note and the

       Assignment. Traveis also testified as to the extent of the work of TERI’s

       counsel in the case and the fees associated with the prior appeal. Put another

       way: Traveis, serving as a representative of the Trust, testified on TERI’s behalf

       to establish 1) Krasnoff’s liability under the Note and the Agreement, and 2) the

       Trust’s ratification of TERI as the named plaintiff in the action under Rule

       17(a).

[25]   In light of the Trust’s ratification of TERI’s status as the named plaintiff, and in

       the absence of any argument by Krasnoff challenging the trial court’s

       conclusion as to the question of his breach of either the Note or the Agreement,

       we find no error and accordingly affirm the trial court.

[26]   Affirmed.

       Baker, J., and Mathias, J., concur.

       Court of Appeals of Indiana | Opinion 49A04-1501-CC-3 | September 24, 2015   Page 11 of 11