Court Opinion

ID: 4420558
Source: CourtListenerOpinion
Date Created: 2019-07-26 15:05:45.861129+00
Date Added: 2024-06-11T14:53:00.169982
License: Public Domain

MEMORANDUM DECISION
                                                                                      FILED
      Pursuant to Ind. Appellate Rule 65(D),                                    Jul 26 2019, 7:36 am
      this Memorandum Decision shall not be
                                                                                      CLERK
      regarded as precedent or cited before any                                 Indiana Supreme Court
                                                                                   Court of Appeals
      court except for the purpose of establishing                                   and Tax Court

      the defense of res judicata, collateral
      estoppel, or the law of the case.

      ATTORNEY FOR APPELLANTS                                   ATTORNEY FOR APPELLEE
      Joseph R. Delehanty                                       Brian A. Karle
      Gutwein Law                                               Ball Eggleston, PC
      Lafayette, Indiana                                        Lafayette, Indiana

                                                 IN THE
          COURT OF APPEALS OF INDIANA

      Boulder-Maxx, LLC, Andrew T.                              July 26, 2019
      Gutwein, and Jeffrey L.                                   Court of Appeals Case No.
      Baumgartner,                                              18A-PL-3061
      Appellants-Plaintiffs,                                    Appeal from the Boone Superior
                                                                Court
              v.                                                The Honorable Thomas R. Lett,
                                                                Special Judge
      Richard Haby,                                             Trial Court Cause No.
      Appellee-Defendant.                                       06D02-1606-PL-84

      Najam, Judge.

                                        Statement of the Case
[1]   Boulder-Maxx, LLC, Andrew T. Gutwein, and Jeffrey L. Baumgartner

      (collectively “Boulder-Maxx”) appeal the trial court’s judgment in favor of

      Court of Appeals of Indiana | Memorandum Decision 18A-PL-3061 | July 26, 2019                     Page 1 of 12
      Richard Haby following a bench trial on Boulder-Maxx’s complaint alleging

      that Haby committed fraud and breached his fiduciary duty to Boulder-Maxx.

      Boulder-Maxx presents the following issues for our review:

              1.       Whether the trial court erred when it found that Haby
                       neither committed constructive fraud nor breached his
                       fiduciary duty to Boulder-Maxx.

              2.       Whether the trial court erred when it found that Gutwein
                       and Baumgartner each breached his fiduciary duty to
                       Haby.

              3.       Whether the trial court abused its discretion when it
                       awarded attorney’s fees to Haby.

[2]   We affirm in part and reverse in part.

                                  Facts and Procedural History
[3]   In October 2007, Gutwein, Baumgartner, and James Chalfant formed Boulder-

      Maxx, a real estate holding company. In 2008, Chalfant “transferred a property

      referred to as the ‘College Avenue Property’” to Boulder-Maxx for $120,000.

      Appellants’ App. Vol. 2 at 12. Chalfant then leased that property from Boulder-

      Maxx and used it for his office. In April 2011, Chalfant transferred his interest

      in Boulder-Maxx to Haby, with whom Chalfant had had a “longstanding

      business relationship.” Id. at 13. Chalfant continued to use the College Avenue

      Property for his office.

[4]   In 2012, “a dispute arose” between Chalfant and Boulder-Maxx “regarding the

      College Avenue Property,” and Chalfant sued Boulder-Maxx to foreclose on a

      Court of Appeals of Indiana | Memorandum Decision 18A-PL-3061 | July 26, 2019   Page 2 of 12
      mechanic’s lien (“the mechanic’s lien suit”). Id. The parties ultimately settled

      the matter. Under the terms of the settlement agreement, Boulder-Maxx agreed

      to sell the College Avenue Property back to Chalfant for $120,000. However, at

      the closing on that sale, Chalfant transferred his interest in the property to

      Northern Equity and Asset Trust, LLC (“NEAT”) for $120,000. Unbeknownst

      to either Gutwein or Baumgartner, Haby was the sole named member of

      NEAT, a real estate holding company.

[5]   In 2015, Gutwein and Baumgartner first learned that Haby was a member of

      NEAT. Gutwein and Baumgartner suspected that Haby had “actively

      concealed his interest in NEAT” from them and had conspired with Chalfant to

      get Boulder-Maxx to sell the College Avenue Property “at a discount” for

      Haby’s benefit. Appellants’ Br. at 30. Accordingly, in June 2016, Boulder-

      Maxx filed a complaint against Haby seeking the dissolution of Boulder-Maxx

      and alleging that Haby had committed fraud and constructive fraud and

      breached his fiduciary duty to Boulder-Maxx. Haby filed an answer and

      counterclaims alleging that Gutwein and Baumgartner each breached his

      fiduciary duty to Haby when they misappropriated Boulder-Maxx funds and

      alleging that their claims were frivolous and in bad faith.

[6]   During a bench trial, Gutwein and Baumgartner each testified for Boulder-

      Maxx, and Chalfant testified on Haby’s behalf. Haby did not testify. Chalfant

      testified in relevant part that: Haby had “no involvement” in NEAT; Chalfant

      managed NEAT “autonomously,” without any input from Haby; and Chalfant

      was “the only signatory on [NEAT’s] bank accounts.” Tr. Vol. 2 at 187;

      Court of Appeals of Indiana | Memorandum Decision 18A-PL-3061 | July 26, 2019   Page 3 of 12
      Appellants’ App. Vol. 2 at 16. Thus, Chalfant testified that Haby neither knew

      about nor benefited from the College Avenue Property transfer to NEAT.

      Chalfant also testified that Baumgartner had tried to include in the mechanic’s

      lien suit negotiations the sale of a property owned by Chalfant and

      Baumgartner, the “Sellers Street Property,” to Boulder-Maxx at a discount in

      order to personally benefit Baumgartner. Tr. Vol. 2 at 33. But that sale did not

      go through. Finally, Haby presented evidence that Gutwein and Baumgartner

      had misappropriated Boulder-Maxx funds for their personal use.

[7]   At the conclusion of trial, the trial court entered judgment in favor of Haby on

      Boulder-Maxx’s claims and on Haby’s counterclaims, and the court awarded

      Haby attorney’s fees in an amount to be determined later. In particular, the

      trial court found that Gutwein and Baumgartner each had breached his

      fiduciary duty to Haby. In addition, the trial court ordered that Boulder-Maxx

      be dissolved. Boulder-Maxx filed a motion to correct error, which the trial

      court denied after a hearing. This appeal ensued.

                                     Discussion and Decision
                                             Standard of Review

[8]   Boulder-Maxx appeals the trial court’s findings and conclusions following a

      bench trial. As our Supreme Court has made clear, in such cases

              [w]e may not set aside the findings or judgment unless they are
              clearly erroneous. In our review, we first consider whether the
              evidence supports the factual findings. Second, we consider
              whether the findings support the judgment. Findings are clearly

      Court of Appeals of Indiana | Memorandum Decision 18A-PL-3061 | July 26, 2019   Page 4 of 12
               erroneous only when the record contains no facts to support
               them either directly or by inference. A judgment is clearly
               erroneous if it relies on an incorrect legal standard. We give due
               regard to the trial court’s ability to assess the credibility of
               witnesses. While we defer substantially to findings of fact, we do
               not defer to conclusions of law. We do not reweigh the evidence;
               rather we consider the evidence most favorable to the judgment
               with all reasonable inferences drawn in favor of the judgment.

       State v. Int’l Bus. Machs. Corp., 51 N.E.3d 150, 158 (Ind. 2016) (citations and

       quotation marks omitted).

[9]    We also note that Boulder-Maxx appeals from a negative judgment on its

       claims against Haby. A party who had the burden of proof at trial appeals from

       a negative judgment and will prevail only if it establishes that the judgment is

       contrary to law. Helmuth v. Distance Learning Sys. Ind., Inc., 837 N.E.2d 1085,

       1089 (Ind. Ct. App. 2005). A judgment is contrary to law when the evidence is

       without conflict and all reasonable inferences to be drawn from the evidence

       lead only to one conclusion, but the trial court reached a different conclusion.

       Id.

                                     Issue One: Claims Against Haby

[10]   Boulder-Maxx first contends that the trial court’s findings of fact and

       conclusions of law “are clearly erroneous” in that they “disregard, overlook, or

       otherwise ignore evidence and testimony presented at trial.” Appellants’ Br. at

       30. In particular, Boulder-Maxx maintains that the trial court erred when it

       concluded that Haby had not committed constructive fraud or breached his

       fiduciary duty. We cannot agree.
       Court of Appeals of Indiana | Memorandum Decision 18A-PL-3061 | July 26, 2019   Page 5 of 12
[11]   Boulder-Maxx avers that “[i]t is undisputed amongst the parties that the

       members owed each other a fiduciary duty to deal fairly, honestly, and openly

       amongst one another and with the company.” Appellants’ Br. at 30 (citing

       Purcell v. Southern Hills Investments, LLC, 847 N.E.2d 991, 997 (Ind. Ct. App.

       2006)). Boulder-Maxx asserts that

               Haby’s failure to give notice to [Gutwein and Baumgartner] that
               his company ultimately retained ownership of the College
               Avenue Property was the breach of duty that resulted in damages
               to his fellow members stemming from the discounted sale price,
               where Haby stood to benefit based upon his membership interest
               in NEAT. This represented the breach and eventual damages
               necessary for a breach of fiduciary duty claim.

       Appellants’ Br. at 31. Further, Boulder-Maxx argues that, “‘once it is

       established that one with a fiduciary duty has attempted to benefit from a

       questioned transaction, the law presumes fraud.’” Id. (quoting W&W Equip. Co.

       v. Mink, 568 N.E.2d 564, 573 (Ind. Ct. App. 1991)). Boulder-Maxx maintains

       that “[h]ere, there was, at the very least, a questionable transaction, and Haby

       failed to properly meet his burden of proof that his actions, or lack thereof, were

       honest and in good faith.” Appellants’ Br. at 32. In particular, Boulder-Maxx

       states that “Haby presented only one witness[, Chalfant,] to establish his

       defense that he had no prior knowledge of NEAT’s acquisition of the College

       Avenue Property . . . and that Haby did not stand to benefit from the

       transaction. . . .” Id. Boulder-Maxx contends that Haby did not sustain his

       burden of proof because “Chalfant’s testimony is not credible.” Id.

       Court of Appeals of Indiana | Memorandum Decision 18A-PL-3061 | July 26, 2019   Page 6 of 12
[12]   Boulder-Maxx’s contentions on appeal are explicit requests that we reweigh the

       evidence and assess the credibility of witnesses, which we cannot do. Whether

       Haby’s sole witness, Chalfant, was credible was a determination exclusively

       within the trial court’s discretion. And Chalfant’s testimony supports the trial

       court’s findings, which support the trial court’s conclusions that Haby did not

       commit constructive fraud or breach his fiduciary duty. We hold that the trial

       court’s findings and conclusions on these issues are not contrary to law.

                 Issue Two: Counterclaims Against Gutwein and Baumgartner

[13]   Boulder-Maxx next contends that the trial court’s findings of fact and

       conclusions of law “are clearly erroneous” because they “disregard, overlook,

       or otherwise ignore evidence and testimony presented at trial” relevant to

       Haby’s counterclaims alleging that Gutwein and Baumgartner breached their

       fiduciary duties. Appellants’ Br. at 34. First, Boulder-Maxx points out that, in

       his testimony at trial, Baumgartner “disavowed” Haby’s allegations “that

       Baumgartner attempted to personally benefit from the settlement of the

       [mechanic’s lien suit] by including within the settlement a transfer of another

       piece of real estate, the Sellers Street Property, to Boulder-Maxx.” Id. And, in

       any event, Boulder-Maxx states that the sale of the Sellers Street Property to

       Boulder-Maxx never occurred. A claim for breach of fiduciary duty requires a

       showing of harm to the beneficiary. See Jaffri v. JPMorgan Chase Bank, N.A., 26
N.E.3d 635, 639 (Ind. Ct. App. 2015). Here, because there was no evidence of

       harm to Haby as a result of the attempted sale of the Sellers Street Property to

       Court of Appeals of Indiana | Memorandum Decision 18A-PL-3061 | July 26, 2019   Page 7 of 12
       Boulder-Maxx, we agree with Boulder-Maxx that the trial court erroneously

       concluded that Baumgartner breached his fiduciary duty on that basis.

[14]   However, the trial court also concluded that Gutwein and Baumgartner

       breached their fiduciary duties to Haby when they misappropriated Boulder-

       Maxx funds for their own benefit. On appeal, Boulder-Maxx asserts that Haby

       did not present any evidence to support his allegation that Gutwein and

       Baumgartner misappropriated funds when, in March 2016, Baumgartner wrote

       a check to Gutwein from Boulder-Maxx’s bank account for $7,744. Thus,

       Boulder-Maxx maintains that the evidence does not support the trial court’s

       conclusion that Gutwein and Baumgartner breached their fiduciary duties with

       that payment.

[15]   Again, Boulder-Maxx’s contentions on appeal are requests that we reweigh the

       evidence and assess the credibility of witnesses, which we cannot do. The trial

       court was entitled to find Gutwein’s and Baumgartner’s testimony not credible

       with respect to the $7,744 check to Gutwein. Indeed, Gutwein’s and

       Baumgartner’s testimony regarding this check was equivocal regarding whether

       it was made for a commission for a lease agreement or for some other unknown

       reason. And they each testified that Gutwein’s commission for that particular

       lease would have been approximately $17,500, not $7,744.

[16]   Moreover, Boulder-Maxx does not challenge the trial court’s separate finding

       that “Baumgartner and Gutwein misappropriated corporate money for their

       own personal gains” when Boulder-Maxx wrote Gutwein Law Firm a check for

       Court of Appeals of Indiana | Memorandum Decision 18A-PL-3061 | July 26, 2019   Page 8 of 12
       $2,638 in March 2016. Appellants’ App. Vol. 2 at 22. The trial court

       concluded, based on those two findings, that Gutwein and Baumgartner

       breached their fiduciary duties to Haby. We hold that, despite the erroneous

       conclusion that Baumgartner breached his fiduciary duty when he attempted to

       benefit from the sale of property in negotiating a settlement agreement with

       Chalfant, the trial court’s other findings are supported by the evidence and

       support the court’s conclusion that Gutwein and Baumgartner breached their

       fiduciary duties. See, e.g., Fetters v. Fetters, 26 N.E.3d 1016, 1019 (Ind. Ct. App.

       2015) (stating that not every finding needs to be correct, and even if one or

       more findings are clearly erroneous, we may affirm the judgment if it is

       supported by other findings or is otherwise supported by the record), trans.

       denied.

                                        Issue Three: Attorney’s Fees

[17]   Finally, Boulder-Maxx contends that the trial court abused its discretion when

       it awarded attorney’s fees to Haby based on Boulder-Maxx’s “continued

       prosecution of this matter to trial . . . in bad faith[.]” Id. at 23. Indiana Code

       Section 34-52-1-1(b)(3) (2019) provides that in any civil action, the court may

       award attorney’s fees as part of the cost to the prevailing party, if the court finds

       that either party litigated the action in bad faith. Pursuant to this statute, bad

       faith is demonstrated where the “party presenting the claim is affirmatively

       operating with furtive design or ill will.” Techna-Fit, Inc. v. Fluid Transfer Prods.,

       Inc., 45 N.E.3d 399, 418 (Ind. Ct. App. 2015) (citation omitted). Further, “in

       order to constitute bad faith under the statute, the conduct must be ‘vexatious

       Court of Appeals of Indiana | Memorandum Decision 18A-PL-3061 | July 26, 2019   Page 9 of 12
       and oppressive in the extreme.’” Id. (quoting Neu v. Gibson, 968 N.E.2d 262,

       279 (Ind. Ct. App. 2012), trans. denied). “The reason for such a strict standard is

       that the nature of an attorney[’s] fee award under the bad faith exception is

       punitive [.]” Id. (quoting Neu, 968 N.E.2d at 279).

[18]   An award under Indiana Code Section 34-52-1-1 is afforded a multistep review.

       Id. First, we review the trial court’s findings of fact under a clearly erroneous

       standard, and then we review the trial court’s legal conclusions de novo. Id.

       Finally, we review the trial court’s decision to award attorney’s fees and the

       amount thereof under an abuse of discretion standard. Id.

[19]   Here, the trial court found and concluded in relevant part as follows:

               [B]ecause [Boulder-Maxx] presented no evidence to contradict
               [Haby’s] evidence that Chalfant’s assignment [of his interest in
               the College Avenue Property to NEAT] was for Chalfant’s own
               benefit and that he did not discuss, consult, or advise Haby
               [about] the assignment or his intent to undertake the assignment,
               [Boulder-Maxx’s] continued prosecution of this matter to trial
               was in bad faith, and [Haby] is entitled to recover his attorney’s
               fees, subject to proof following the entry of the Court’s judgment.

       Appellants’ App. Vol. 2 at 23. Thus, the sole basis for the attorney’s fee award

       was Boulder-Maxx’s alleged failure to present evidence to support its claims

       against Haby.

[20]   However, the trial court did not characterize Boulder-Maxx’s conduct as

       “vexatious” or “oppressive in the extreme,” and the court did not find that

       Boulder-Maxx “affirmatively operat[ed] with furtive design or ill will.” Techna-

       Court of Appeals of Indiana | Memorandum Decision 18A-PL-3061 | July 26, 2019   Page 10 of 12
       Fit, Inc., 45 N.E.3d at 418. Indeed, contrary to the trial court’s finding,

       Boulder-Maxx did present some evidence in an attempt to contradict Chalfant’s

       testimony, and its trial strategy appeared to have been to impeach Chalfant,

       who provided the sole testimony in favor of Haby. The evidence does not

       support a determination that Boulder-Maxx litigated this action in bad faith.

[21]   Still, Haby maintains that one of the trial court’s other findings supports the

       court’s conclusion that Boulder-Maxx litigated in bad faith. Haby points out

       that the court found that Boulder-Maxx’s “conduct underscores that [its]

       purpose of this lawsuit is a predatory attempt to obfuscate [its] own

       wrongdoing.” Appellants’ App. Vol. 2 at 22. However, the trial court did not

       base the attorney’s fee award on that finding. And the trial court’s reference to

       Boulder-Maxx’s “conduct” in that finding was described by the trial court as

       follows:

               Even if [Boulder-Maxx was] misled about the identity of the
               buyer of the College Avenue Property, [Boulder-Maxx’s] conduct
               after filing this lawsuit in orchestrating the sale of other Boulder-Maxx,
               LLC property to an anonymous buyer . . . demonstrates that the
               identity of buyers of Boulder-Maxx, LLC property was not
               genuinely important to [Boulder-Maxx].

       Id. (emphasis added). In other words, the trial court found that Boulder-Maxx’s

       conduct outside of the litigation showed bad faith. But it is well settled that, under

       Indiana Code Section 34-52-1-1, “the action must be litigated in bad faith, which

       means that only conduct in the course of the litigation is relevant to the

       Court of Appeals of Indiana | Memorandum Decision 18A-PL-3061 | July 26, 2019   Page 11 of 12
       question of attorney’s fees.” Techna-Fit, Inc., 45 N.E.3d at 418 (emphasis

       original).

[22]   Without evidence to support the trial court’s conclusion that Boulder-Maxx

       litigated this action in bad faith, the court’s conclusion is clearly erroneous. We

       hold that the trial court erred when it awarded Haby attorney’s fees, and we

       reverse the attorney’s fee award.

[23]   Affirmed in part and reversed in part.

       Mathias, J., and Brown, J., concur.

       Court of Appeals of Indiana | Memorandum Decision 18A-PL-3061 | July 26, 2019   Page 12 of 12