Court Opinion

ID: 4166539
Source: CourtListenerOpinion
Date Created: 2017-05-05 15:11:39.11365+00
Date Added: 2024-06-11T14:37:57.345126
License: Public Domain

MEMORANDUM DECISION
      Pursuant to Ind. Appellate Rule 65(D), this
                                                                           FILED
      Memorandum Decision shall not be regarded as                    May 05 2017, 5:38 am
      precedent or cited before any court except for the
                                                                           CLERK
      purpose of establishing the defense of res judicata,             Indiana Supreme Court
                                                                          Court of Appeals
      collateral estoppel, or the law of the case.                          and Tax Court

      ATTORNEYS FOR APPELLANT                                  ATTORNEYS FOR APPELLEE
      James R. Fisher                                          Daniel G. McNamara
      Debra H. Miller                                          David E. Bailey
      Indianapolis, Indiana                                    Fort Wayne, Indiana

                                                   IN THE
          COURT OF APPEALS OF INDIANA

      American Heritage Banco, Inc.,                           May 5, 2017

      Appellant-Plaintiff,                                     Court of Appeals Case No.
                                                               17A05-1606-PL-1306
              v.                                               Appeal from the Dekalb Superior
                                                               Court.
                                                               The Honorable Monte L. Brown,
      John Pichon, Jr.,                                        Judge.
      Appellee-Defendant.                                      Cause No. 17D02-1412-PL-76

      Sharpnack, Senior Judge

                                       Statement of the Case
[1]   American Heritage Banco (“AHB”), as successor to the First National Bank of

      Fremont (“FNBF”), appeals from a negative judgment after the trial court

      concluded that AHB was not entitled to a judgment against John Pichon, Jr. for

      Court of Appeals of Indiana | Memorandum Decision 17A05-1606-PL-1306| May 5, 2017        Page 1 of 16
                                                                                                              1
      an alleged amount due on a $650,000 promissory note (the “$650K note”).

      We affirm.

                                                         Issue
[2]   Although AHB advances several issues on appeal, the dispositive issue is: were

      the trial court’s findings that AHB failed to meet its burden to prove that any

      balance was due from Pichon on the $650K note and judgment for Pichon on

      AHB’s claim against him on the note was contrary to law.

                                 Facts and Procedural History
[3]   To put the issues of this appeal in context, we summarize the pertinent history

      of this case, drawing from this Court’s earlier opinion in Pichon v. American

      Heritage Banco, Inc., et al., 983 N.E.2d 589 (Ind. Ct. App. 2013), reh’g denied,
                       2
      trans. denied.

[4]   On December 28, 2000, Pichon executed a promissory note, borrowing

      $737,000 (the “$737K note”) from FNBF for the purchase of Growth Parkway

      Property (“GPP”) from MacNeachdainn Corporation. MacNeachdainn

      Corporation was owned and controlled by George McNaughton (“George”).

      George’s brother, Earl McNaughton (“Earl”), was the president, chairman of

      1
        Although referred to as the $650K note, it is undisputed that the principal amount of the loan as reflected on
      the note was $650,025.00.
      2
        We have addressed issues related to additional parties to this ongoing dispute in American Heritage Banco,
      Inc., et al. v. McNaughton, 970 N.E.2d 1110 (Ind. Ct. App. 2008). Although Pichon was named in that appeal,
      the issues decided did not pertain to him, and are not pertinent to disposition of this appeal.

      Court of Appeals of Indiana | Memorandum Decision 17A05-1606-PL-1306| May 5, 2017                  Page 2 of 16
      the board of directors, and chief executive officer of FNBF. FNBF was a

      wholly owned subsidiary of AHB from 1995 to 2005. Earl is the majority

      shareholder in AHB, a closely held corporation. The $737K note was secured

      by a mortgage on GPP and was for a term of one year.

[5]   Thomas Christlieb (“Christlieb”) was Pichon’s loan officer at FNBF. In

      November 2002, Earl directed Christlieb to ask Pichon to borrow $650,000

      from FNBF and to allow the proceeds to be disbursed to Earl. Pichon agreed,

      and on November 15, 2002, Pichon executed the promissory note for $650,025.

      Plaintiff’s Ex. 34; Plaintiff’s Ex. 5; Defendant’s Ex. C1; Exhibit Vol. pp. 75-78.

      This loan was unsecured and was for a term of ninety days with a final payoff

      amount of $660,994.17 due on February 13, 2003. Three original notes were

      executed with respect to the same loan. Pichon was aware that the money was

      to be disbursed to Earl.

[6]   Ted Walter, a former employee of FNBF and AHB, was the designated Indiana

      Trial Rule 30(B)(6) representative of AHB in this litigation. Walter agreed to

      testify for AHB in this action and litigation against others in consideration of

      AHB’s decision to no longer pursue litigation against him.

[7]   During his deposition, he identified Exhibit E, which was a check for $650,000

      issued to Pichon on November 15, 2002, with a memo notation that it was for

      “loan proceeds.” Ex. Vol. p. 80. The exhibit also contains a cashier’s check

      from FNBF made payable to FNBF on November 15, 2002 in the amount of

      $150,000. Id. In addition, Walter identified Exhibit F, which showed three

      Court of Appeals of Indiana | Memorandum Decision 17A05-1606-PL-1306| May 5, 2017   Page 3 of 16
      checks issued by FNBF and made payable to FNBF. Id. at 81. The checks are
                                                                                                             3
      sequentially numbered and, in the aggregate, reflect a payment of $500,000.

      Therefore, the total amount paid to FNBF as reflected by Exhibits E and F is

      $650,000.

[8]   Exhibit W contained selected deposition testimony of Ted Walter referred to

      during trial on remand. In that testimony, Walter stated that the proceeds of

      the $650K loan were not distributed to Pichon. Id. at 106-107. He also testified

      that the disbursement checks were payable to FNBF. Id. at 107. When

      testifying about the installment payment ticket for the $650K note, Walter

      agreed that the document appeared to show that the $650K loan had been paid

      in full with interest in the amount of $653,437.63. Walter was asked to

      examine Exhibit 15, which was the $650K loan document. He confirmed that

      it was marked paid as of December 23, 2002, the same date the installment

      payment ticket showed a payment of $653,437.63.

[9]   Walter also was questioned about Exhibit 16, which was the loan history for the

      $650K loan. He agreed that the handwriting on the document showed a “P

      (slash) O.” Id. at 110. He testified that the notation could mean that the loan

      was paid off. The exhibit reflected that the next day, a change was made to the

      loan history to indicate a payment of $592,000 with a code reflecting a

      3
       Two of the three checks are dated November 15, 2002. The last check is dated October 15, 2002, which can
      be interpreted to be a scrivener’s error or the intentional backdating of the check. Either way, the date was
      manually entered on each of the checks.

      Court of Appeals of Indiana | Memorandum Decision 17A05-1606-PL-1306| May 5, 2017               Page 4 of 16
       reduction in the balance or, in other words, a loan payment. The loan history

       showed that the remainder of the balance, or $58,000, was paid on May 20,

       2003. In other words, the loan had been reinstated with a balance due, which

       was paid in full later.

[10]   Walter testified that the bank employee who processed the installment payment

       ticket had to write down the specific loan number and look up that note’s

       history to determine the amount required to pay off the $650K note. Another

       bank employee stamped the note as paid. Yet another bank employee manually

       logged the payment on the electronic record at the bank.

[11]   In December 2002, Pichon sold GPP for $729,000 and FNBF, not Pichon,

       received the proceeds. Christlieb executed a mortgage release indicating that

       the $737K note had been satisfied. FNBF’s computer records, on the other

       hand, continued to show an unpaid balance due on that note. On the same day

       in December 2002, when FNBF received the proceeds from the sale of GPP,

       FNBF’s computer showed that the $650K note was fully paid, as indicated

       above.

[12]   In 2003, Earl paid funds to FNBF which were credited toward the alleged

       balance due on the $737K note, reducing the purportedly unpaid balance to

       $575,000 (“$575K balance”). No further principal payments were made on that

       note, and, as of January 6, 2004, the loan record reflected a zero balance. In

       2005, however, FNBF’s computer records were adjusted to show a remaining,

       Court of Appeals of Indiana | Memorandum Decision 17A05-1606-PL-1306| May 5, 2017   Page 5 of 16
       unpaid $575K balance on that note. In December 2004, Pichon signed an

       auditor’s letter acknowledging the $575K balance on the $737K note.

[13]   AHB filed a complaint against Pichon. The complaint, after amendments,

       alleged in relevant part that Pichon had not paid off either the $737K note or

       the $650K note. Pichon filed a counterclaim alleging fraud and conversion.

[14]   The trial court’s pre-trial order set forth the numerous issues to be decided on

       AHB’s claims against Pichon, which are pertinent to this appeal only as

       follows: whether there was an unpaid balance on the $650K note and, if so, how much.

       Pichon, 983 N.E.2d at 592 (emphasis added). The pre-trial order stated Pichon’s

       issues presented for trial were his answers, affirmative defenses, and

       counterclaims. Id. at 593.

[15]   After a trial on these claims, the court issued findings of fact and conclusions

       thereon. The trial court’s findings can be summarized in pertinent part as

       follows: (1) after GPP was sold for $729K, no part of the sale proceeds was

       applied toward the $737K note nor were the proceeds distributed to Pichon; (2)

       instead, the proceeds were used to pay down the $650K note, with the

       remainder being paid to George; (3) Earl requested that Christlieb ask Pichon to

       execute the note for $650K, with the proceeds being diverted to Earl; (4) Pichon

       executed the note at Christlieb’s request and received no consideration for

       doing so; (5) Pichon was unaware that the proceeds from the sale of GPP were

       being used to pay down the $650K note instead of the $737K note; and, (6) as

       Court of Appeals of Indiana | Memorandum Decision 17A05-1606-PL-1306| May 5, 2017   Page 6 of 16
       of the end of 2002, the $737K note had an unpaid balance of $575K. Id. at 594-

       96.

[16]   After considering requests for interest, fees, and damages, and after considering

       cross-motions to correct error, the trial court concluded that AHB was entitled

       to a judgment against Pichon in the amount of $1,189,105.13, plus costs and

       interest. Id. at 596-97. This amount represented Pichon’s liability on the $650K

       note, plus $389,105.13 in pre-judgment interest, and $150,000 in attorney fees.

       Id. at 597 n.3. Pichon prevailed on the issue of his liability on the $737K note, a

       decision from which AHB did not appeal.

[17]   Pichon, however, appealed the trial court’s judgment, contending that the trial

       court abused its discretion by excluding from evidence his exhibit, which

       contained the same evidence included in AHB’s exhibit book, submitted prior

       to trial. Pichon’s exhibit showed one of the three original $650K notes he

       executed, which was stamped paid. AHB argued that it was inadmissible

       because Pichon had not asserted the affirmative defense of payment under

       Indiana Trial Rule 8(C), and that he had not asserted that defense in his

       statement of issues for the pre-trial order.

[18]   A panel of this Court concluded that exclusion of the exhibit from evidence was

       reversible error. Id. at 588-89. We held that the issue whether there was an

       unpaid balance on the $650K note was listed in the pre-trial order, AHB had the

       burden of proof on the issue, and exclusion of the exhibit denied Pichon the

       opportunity to present the best evidence to rebut AHB’s evidence. Id. We

       Court of Appeals of Indiana | Memorandum Decision 17A05-1606-PL-1306| May 5, 2017   Page 7 of 16
       expressly limited the issue on remand and retrial to Pichon’s indebtedness, if

       any, on the $650K note.

[19]   At the trial on remand, Carol Newbauer, who had worked at FNBF for thirty-

       eight years before retiring, testified on behalf of AHB, confirming Walter’s
                                         4
       deposition testimony. She identified Plaintiff’s Exhibit 3 as a loan history

       payoff record for the $650K loan to Pichon. While explaining the various codes

       that were displayed on Exhibit 3, she stated that as of December 23, 2002, the

       loan record showed that there was a payment of principal and interest on that

       loan in the amount of $653,437.63. She testified that after that payment, the

       loan amount was taken to zero, and the exhibit was documentation of a paid

       note.

[20]   On December 24, 2002, however, the report reflected a status change, using a

       three-digit code, indicating that the loan was active again, with a principal

       advance of $650,000. That same day, a two-digit code was used to reflect a
                                     5
       principal reduction. After that payment, the balance on the $650K note was

       $58,000. There was another status change made showing that the remainder of

       the balance, or $58,000, was paid on May 20, 2003.

       4
           Walter also testified at the trial on remand.
       5
        The three-digit codes were automatically entered by the Jack Henry system used by the bank. Tr. p. 26.
       Two-digit codes were manually entered. Id.

       Court of Appeals of Indiana | Memorandum Decision 17A05-1606-PL-1306| May 5, 2017              Page 8 of 16
[21]   At the conclusion of the bench trial on remand, the trial court found that the

       evidence “unequivocally established that at all times relevant to the date said

       $650K note was executed and for a number of months following said date,

       officers of FNBF manipulated and falsified records to conceal its own wrong

       and/or fraudulent activities.” Appellant’s App. Vol. II, p. 16.

[22]   The court additionally found that after July 2005, when AHB, FNBF, and

       Farmers State Bank (“FSB”) entered into a purchase and assumption

       agreement, all notes with balances were transferred to FSB. Evidence presented

       at trial on remand showed that the $650K note was not transferred to FSB. Per

       the agreement, the only notes to remain with FNBF were those expressly

       excluded or notes fully paid. The $650K note was not listed as an excluded
                6
       loan. The trial court found that the failure to deliver the $650K note to FSB

       constituted a representation that the note did not have an unpaid balance.

[23]   The evidence on remand further showed that on February 13, 2003, the $650K

       note came due. The trial court found that at no time after that date did anyone

       at AHB: (1) send any communication indicating that Pichon had failed to

       make a payment on the note or that it was delinquent; (2) submit any bank

       statements or other monthly statements about the note; or, (3) submit evidence

       that the loan was ever listed as being delinquent or in default. The trial court

       also found there was no evidence that Pichon executed an extension of the

       6
           Pichon’s $737K note was listed as an excluded loan, however.

       Court of Appeals of Indiana | Memorandum Decision 17A05-1606-PL-1306| May 5, 2017   Page 9 of 16
       $650K note. Additionally, there was no evidence that AHB demanded

       payment from Pichon on the $650K note prior to the date AHB filed its third

       amended complaint against him.

[24]   For much of the time during which this litigation was pending, FNBF had

       written records of all deposits and checks pertaining to the $650K note. After

       the purchase and assumption agreement was executed, around July 2005, AHB

       maintained no electronic records associated with the $650K note. Around July

       2013, after this Court’s decision remanding the matter regarding the $650K note

       and rehearing was denied, AHB destroyed most of the FNBF records not

       delivered to FSB, which would have included, if any existed, records regarding

       the $650K note. Pichon was not notified of AHB’s intent to destroy bank

       records.

[25]   The trial court found, however, that no evidence had been introduced to

       affirmatively establish that AHB had destroyed records pertinent to payment of

       the $650K note. Nonetheless, the trial court concluded that any uncertainty

       about the destroyed records with respect to the $650K note should be resolved

       against AHB given the evidence of intentional falsification of records to conceal

       the fraudulent or wrongful activities of FNBF’s officers and directors.

[26]   In reaching its decision, the trial court’s order, issued on May 9, 2016, contains

       just over seventy findings of fact and conclusions thereon. With respect to the

       order, on appeal, AHB challenges paragraphs thirty through thirty-four.

       Appellant’s App. Vol. II, pp. 19-20. Those paragraphs read as follows:

       Court of Appeals of Indiana | Memorandum Decision 17A05-1606-PL-1306| May 5, 2017   Page 10 of 16
       30.     That as the Court of Appeals stated in its Opinion of January
               15, 2013, it is undisputed that the loan proceeds from said 650K
               Note were paid directly to FNBF, and not Pichon, and that FNBF
               had no expectation that Pichon would make payments on said Note.

       31.     That simultaneous with the 650K Note executed by Pichon,
               Pichon purchased and delivered four checks to FNBF totaling 650K.

       32.     That the evidence unequivocally established that the foregoing
               referenced cashier’s checks totaling 650K were generated from the
               650K Note.

       33.     That while it is not the only conclusion that could be reached, a
               delivery of the four checks to FNBF totaling 650K is consistent with
               a loan in that amount from Pichon to FNBF especially given that
               manipulation and falsification of bank records by FNBF officers and
               directors.

       34.     That the Court concludes that the four cashier’s checks totaling 650K
               delivered from Pichon to FNBF constituted either a repayment in full
               of the 650K Note from FNBF to Pichon or in the alternative, a loan from
               Pichon to FNBF in that amount.

       Id.
                                    Discussion and Decision
[27]   AHB bore the burden of proving that Pichon owed any amount due on the

       $650K loan. The trial court concluded that AHB had not met that burden.

       When a judgment is entered against a party bearing the burden of proof, the

       party appeals from a negative judgment. Burnell v. State, 56 N.E.3d 1146, 1149-

       50 (Ind. 2016). On appeal from a negative judgment, this Court will reverse the

       trial court only if the judgment is contrary to law. Id. at 1150. If the evidence

       leads to but one conclusion and the trial court reached an opposite conclusion,

       a judgment is contrary to law. Id. In determining whether the trial court’s

       judgment is contrary to law, we will consider the evidence in the light most

       Court of Appeals of Indiana | Memorandum Decision 17A05-1606-PL-1306| May 5, 2017   Page 11 of 16
       favorable to the prevailing party, together with all reasonable inferences

       therefrom. Id. We neither reweigh the evidence nor judge the credibility of

       witnesses. Id. Further, when a party appeals from a negative judgment, that

       party has a heavy burden to establish to the reviewing court that there was no

       basis in fact for the judgment rendered. Id.

[28]   Here, FNBF’s records and the testimony of Walter and Newbauer, witnesses

       for AHB, show that Pichon executed the $650K note at Christlieb’s request.

       On the same date as the $650K note was executed, four cashier’s checks

       totaling $650,000 were made payable to and received by FNBF. Walter

       testified that the proceeds of the $650K loan were not distributed to Pichon. He

       also testified that the disbursement checks were payable to FNBF. When

       testifying about the installment payment ticket for the $650K note, Walter

       agreed that the document appeared to show that the $650K loan had been paid

       in full with interest in the amount of $653,437.63 as of December 23, 2002, the

       same date the installment payment ticket showed a payment of $653,437.63.

[29]   Walter agreed that the handwriting on the loan history document showed a “P

       (slash) O” that could mean that the loan was paid off. The exhibit reflected that

       the next day, a change was made to the loan history to indicate a payment of

       $592,000 with a code reflecting a reduction in the balance or, in other words, a

       loan payment. The loan history showed that the remainder of the balance, or

       $58,000, was paid on May 20, 2003. In other words, the loan had been

       reinstated with a balance due, which was paid in full later. This evidence leads

       to the conclusion that FNBF’s own records reflected that the $650K note had

       Court of Appeals of Indiana | Memorandum Decision 17A05-1606-PL-1306| May 5, 2017   Page 12 of 16
       been paid in full twice. Newbauer’s testimony supported and was consistent

       with Walter’s testimony.

[30]   Although AHB continues to advance its argument that the $650K note was

       unpaid, it has not established that the trial court’s conclusion, after hearing all

       of the evidence, was contrary to law.

[31]   AHB also contends that the trial court’s admission of Exhibits E and F runs

       afoul of the doctrine of the law of the case. More specifically, AHB contends

       that the trial court’s decision on remand runs contrary to this Court’s prior

       decision affirming the trial court’s conclusion that the evidence showed the

       $650K note was executed by Pichon for Earl’s benefit, not that of AHB.

[32]   The doctrine of the law of the case is a discretionary tool by which appellate

       courts decline to revisit legal issues already determined on appeal in the same

       case and on substantially the same facts. Cutter v. State, 725 N.E.2d 401, 405

       (Ind. 2000) (citing Christianson v. Colt Indus. Operating Corp., 486 U.S. 800, 817-

       18, 108 S. Ct. 2166, 100 L. Ed. 2d 811 (1988); State v. Lewis, 543 N.E.2d 1116,

       1118 (Ind. 1989)). The doctrine’s purpose is to promote finality and judicial

       economy. Id. The doctrine of the law of the case is applied only “to those

       issues actually considered and decided on appeal.” 4A Kenneth M. Stroud,

       Indiana Practice § 12.10 (2d ed. 1990) (emphasis omitted); accord Riggs v.

       Burell, 619 N.E.2d 562, 564 (Ind. 1993) (“Questions not conclusively decided in

       a prior appeal do not become the law of the case.”); Egbert v. Egbert, 235 Ind.

       405, 415, 132 N.E.2d 910, 916 (1956) (“[T]he parties have the right to introduce

       Court of Appeals of Indiana | Memorandum Decision 17A05-1606-PL-1306| May 5, 2017   Page 13 of 16
       new evidence and establish a new state of facts; and when this is done, the

       decision of the [court] ceases to be the law of the case . . . .”) (quoting Alerding v.

       Allison, 170 Ind. 252, 258-59, 83 N.E. 1006, 1009-10 (1908)).

[33]   During the original trial on the $650K note, the trial court made findings with

       respect to the purpose and recipient of the proceeds in deciding Pichon’s

       counterclaim of fraud against AHB. On appeal, we affirmed the trial court’s

       conclusion that Pichon had not established the counterclaim. Pichon, 983

       N.E.2d at 594, 600. Pichon was aware that the funds were to be diverted to

       Earl, who happened to be the president, chairman of the board of directors, and

       chief executive officer of FNBF, a wholly owned subsidiary of AHB from 1995

       to 2005, and the majority shareholder in AHB, a closely held corporation.

[34]   The issue at trial on remand, was whether there was an amount due on the

       $650K note, and, if so, how much. Any decision about to whom the proceeds

       of the note were diverted, was irrelevant to the issue of whether the note had

       been fully paid. FNBF’s records and the testimony of AHB’s witnesses

       established that the note had been fully satisfied, possibly two or three times.

       The conclusion that the funds were to be diverted to Earl after the execution of

       the note by Pichon, does not impact the trial court’s decision on remand.

[35]   Next, we turn to AHB’s arguments about the trial court’s findings and

       conclusions supporting its judgment.

[36]   In reviewing findings of fact and conclusions of law, an appellate court applies

       “a two-tiered standard of review by first determining whether the evidence

       Court of Appeals of Indiana | Memorandum Decision 17A05-1606-PL-1306| May 5, 2017   Page 14 of 16
       supports the findings and then whether the findings support the judgment.”

       Masters v. Masters, 43 N.E.3d 570, 575 (Ind. 2015), (quoting Weigel v. Weigel, 24

       N.E.3d 1007, 1010 (Ind. Ct .App. 2015), trans. not sought). In evaluating

       whether the findings support the judgment (or award), we will reverse “only

       upon a showing of ‘clear error’—that which leaves us with a definite and firm

       conviction that a mistake has been made.” Id. (quoting Egly v. Blackford Cnty.

       Dep’t of Pub. Welfare, 592 N.E.2d 1232, 1235 (Ind.1992)). “[T]he reviewing

       court may affirm the judgment on any legal theory supported by the findings.”

       Id. (quoting Mitchell v. Mitchell, 695 N.E.2d 920, 923 (Ind. 1998)).

[37]   The evidence shows that Christlieb asked Pichon to execute the $650K note for

       the benefit of Earl. Pichon did so on November 15, 2002. On that same date,

       four cashier’s checks were issued by FNBF and were made payable to FNBF.

       The loan history for the $650K note showed that as of December 23, 2002, the

       balance of the note was zero. An installment payment ticket, specifically

       referring to the account number for the $650K note, showed payment of the

       balance due on December 23, 2002. After AHB, FNBF, and FSB entered into a

       purchase and assumption agreement, all notes with balances were transferred to

       FSB. The $650K note was not transferred, leading to the reasonable inference

       that there was no balance due on the note. No statements, delinquency notices,

       or demands were made of Pichon by FNBF or AHB.

[38]   Whether the payments received are characterized as a loan or payment in full of

       the $650K note, the findings support the trial court’s conclusion that AHB did

       not meet its burden of establishing any balance due on the $650K note.

       Court of Appeals of Indiana | Memorandum Decision 17A05-1606-PL-1306| May 5, 2017   Page 15 of 16
                                                Conclusion
[39]   In light of the foregoing, the trial court’s decision is affirmed.

[40]   Affirmed.

[41]   Vaidik, C.J., and Barnes, J., concur.

       Court of Appeals of Indiana | Memorandum Decision 17A05-1606-PL-1306| May 5, 2017   Page 16 of 16