Court Opinion

ID: 2729820
Source: CourtListenerOpinion
Date Created: 2014-09-08 21:48:49.727231+00
Date Added: 2024-06-11T12:56:42.803652
License: Public Domain

FOR PUBLICATION                                              FILED
                                                          Aug 06 2012, 8:58 am

                                                                 CLERK
                                                               of the supreme court,
                                                               court of appeals and
                                                                      tax court

ATTORNEYS FOR APPELLANT:                        ATTORNEYS FOR APPELLEES:

KARL L. MULVANEY                                DANIEL J. PAUL
THOMAS C. SCHERER                               STEPHEN K. WATSON
WHITNEY L. MOSBY                                Williams Barrett & Wilkowski LLP
Bingham Greenebaum Doll LLP                     Greenwood, Indiana
Indianapolis, Indiana

                             IN THE
                   COURT OF APPEALS OF INDIANA

PNC BANK, NATIONAL ASSOCIATION,                 )
Successor to NATIONAL CITY BANK,                )
Successor by merger with NATIONAL CITY          )
BANK OF INDIANA,                                )
                                                )
      Appellant,                                )
                                                )
             vs.                                )     No. 41A01-1107-MF-314
                                                )
LA DEVELOPMENT, INC., ANDREW L.                 )
ARBUCKLE, ROBERT J. LANE, and INTA,             )
LLC,                                            )
                                                )
      Appellees,                                )
                                                )
             and                                )
                                                )
INTA, LLC,                                      )
                                                )
      Cross-Claim and Counterclaim Appellant,   )
                                                )
             vs.                                )
                                                )
PNC BANK, NATIONAL ASSOCIATION,                 )
Successor to NATIONAL CITY BANK,                )
    Successor by merger with NATIONAL                      )
    CITY BANK OF INDIANA,                                  )
                                                           )
          Counterclaim Appellee,                           )
                                                           )
                  and                                      )
                                                           )
    LA DEVELOPMENT, INC.,                                  )
                                                           )
          Cross-Claim Appellee.                            )

                        APPEAL FROM THE JOHNSON SUPERIOR COURT
                             The Honorable Lance D. Hamner, Judge
                                Cause No. 41D03-1104-MF-272

                                              August 6, 2012

                                   OPINION – FOR PUBLICATION

DARDEN, Senior Judge

                                     STATEMENT OF THE CASE

          PNC, National Association, successor to National City Bank, and successor by

merger with National City Bank of Indiana (collectively, “the Bank”) appeals the trial

court’s decision in favor of Cross/Counter Claimant INTA, LLC (“INTA”) in an action

filed by the Bank against LA Development, Inc. (“LA Development”), Andrew L.

Arbuckle (“Arbuckle”), Robert J. Lane (“Lane”), and INTA.1

          We reverse and remand.

1
    This is an interlocutory appeal of right. See Indiana Rule of Appellate Procedure 14A(6).

                                                      2
                                         ISSUE

      Whether the trial court abused its discretion in denying PNC’s motion for
      the mandatory appointment of a receiver in a mortgage foreclosure action.

                                        FACTS

      On June 18, 2004, the Bank and LA Development entered into a loan agreement

whereby the Bank extended credit to LA Development under three notes.                The

obligations due to the Bank were secured by (1) a mortgage executed by LA

Development against real property known as “Harrison Crossings” and located in

Johnson County, Indiana; and (2) a mortgage executed by LA Development against

certain real property commonly known as “Kingston Village” and located in Johnson

County, Indiana. LA Development contractually agreed to the appointment of a receiver

by its execution of the mortgages. As guarantors, Arbuckle and Lane guaranteed all of

LA Development’s obligations to the Bank.

      In the fall of 2008, the notes had been fully advanced and had matured by their

express terms.   LA Development was in need of additional funds to complete the

development of about eighteen acres of partially completed lots in Harrison Crossing.

INTA, an Indiana Limited Liability Company, agreed to advance $705,000 to LA

Development to pay for infrastructure, to satisfy certain lien claimants, and to complete

the development in exchange for the conveyance of twelve lots of its choosing to be

platted in Harrison Crossing.

                                            3
      On September 15, 2008, a three-party closing occurred involving LA

Development, the Bank, and INTA. The following documents, among others, were

executed: (1) a forbearance agreement between LA Development and the Bank; (2) a

loan agreement between INTA and LA Development; (3) a mortgage note signed by LA

Development in favor of INTA as evidence of the INTA loan; (4) a mortgage signed by

LA Development mortgaging and conveying certain parts of Harrison Crossing to INTA;

and (5) a subordination agreement between INTA and the Bank.

      As to INTA and LA Development, Section 2.4 of the Subordination Agreement

provided that when the lots in Harrison Crossing Phase III were platted and ready for

sale, INTA would obtain payment by selecting twelve of the approximate thirty-nine lots

“located in Harrison Crossings Phase III and as described in the Site Plan attached to the

Forbearance Agreement.” (App. 119). As to INTA and the Bank, Section 2.2 of the

Subordination Agreement provided:

      The foregoing priorities and subordination between the parties shall exist
      and continue to exist notwithstanding the date, manner, or order of
      attachment or recording, or the lack thereof of any mortgage granted by
      [LA Development] to INTA on Harrison Crossing Phase III and the Bank
      hereby COVENANTS, STIPULATES, and AGREES that all liens,
      mortgages, encumbrances, security interests, and assignments of every kind
      and character created under, renewed and extended under or existing by
      virtue of any mortgage granted to the Bank in or to Harrison Crossing
      Phase III or any part thereof, are hereby SUBORDINATED AND MADE
      SECONDARY AND INFERIOR, to the liens, mortgages, encumbrances,
      security interests, and assignments created under, renewed and extended
      under or existing by virtue of the INTA Mortgage and related documents
      securing payment of the INTA Obligations described in Paragraph 2.3.

                                            4
(App. 119).

        From September 15, 2008, through May 20, 2010, twelve advances of the INTA

loan were requested and disbursed. As of October of 2010, the project inspector reported

that almost all of the work for Harrison Crossing was complete—including roads, curbs,

sewer, lights and signage—except for platting and recording the plat. Indeed, the lots

were never platted.

        On April 20, 2011, the Bank filed its “Complaint For Damages, To Foreclose

Mortgages, Enforce Guaranties And For Immediate Appointment of a Receiver,” against

LA Development, Arbuckle, Lane, and INTA. The complaint included four counts:

Count I: Action for Damages; Count II: Foreclosure of Mortgages; Count III: Action on

the Guaranties; and Count IV: Request for Appointment of a Receiver. In the complaint,

the Bank alleged, among other things, that LA Development defaulted on its obligations

“by failing to pay off the Notes upon maturity” and by defaulting under the forbearance

agreement. (App. 16-17). The Bank claimed that the “the indebtedness under the Notes

is immediately due and owing by [LA Development] to the Bank.” (App. 17).

        On the same date, the Bank filed a separate motion for immediate appointment of

a receiver, alleging that LA Development had agreed in the loan documents to the

appointment of a receiver2 and that the appointment was mandatory under Indiana Code

2
  A receiver is a “disinterested person appointed by a court . . . for the protection or collection of property
that is the subject of diverse claims (for example, because it belongs to a bankrupt or is otherwise being
litigated).” BLACK’S LAW DICTIONARY 1296 (8th ed. 2004).

                                                      5
section 32-30-5-1(4).3 In its motion, the Bank alleged that the appointment of a receiver

was necessary to take all actions necessary to manage and control the partially completed

residential development and to prepare the development for sale including, but not

limited to, platting the lots and recording a final plat. In addition, the Bank requested the

appointment of a receiver over LA Development under the discretionary provisions of

Indiana Code sections 32-30-5-1(5) and (7) because LA Development is insolvent and

justice required the appointment of a receiver under the facts and circumstances of the

case.

3
    Indiana Code section 32-30-5-1 provides in relevant part:

          A receiver may be appointed by the court in the following cases:

          (4) In actions in which a mortgagee seeks to foreclose a mortgage. However, upon motion by the
          mortgagee, the court shall appoint a receiver if, at the time the motion is filed, the property is not
          occupied by the owner as the owner’s principal residence and:

                  (A) it appears that the property is in danger of being lost, removed, or materially injured;

                  (B) it appears that the property may not be sufficient to discharge the mortgaged debt;

                  (C) either the mortgagor or the owner of the property has agreed in the mortgage or in
                  some other writing to the appointment of a receiver;

                  (D) a person not personally liable for the debt secured by the mortgage has, or is entitled
                  to, possession of all or a portion of the property;

                  (E) the owner of the property is not personally liable for the debt secured by the
                  mortgage; or

                  (F) all or any portion of the property is being, or is intended to be, leased for any
                  purpose.

                                                        6
       On May 10, 2011, INTA filed its answer, cross-claim against LA Development,

and counter-claim against the Bank for foreclosure of the mortgage on a portion of the

residential development.       In its cross/counter claim, INTA alleged that the Bank

relinquished its right to the appointment of a receiver in the Subordination Agreement.

       On May 27, 2011, INTA also filed an objection to the Bank’s motion to appoint a

receiver.   Among other things, INTA alleged that the “Subordination Agreement

subordinated, in their entirety, [the Bank’s] mortgages to INTA’s mortgages.” (App.

282). Therefore, “any request for a receiver based upon [the Bank’s] mortgages under the

mandatory provisions of the Receivership Statute, were subordinated to INTA” and

INTA’s rights “are superior to any request [the Bank] might make under and pursuant to

its mortgages as a result of the terms of the Subordination Agreement.” (App. 282-83).

       After a hearing on the Bank’s motion to appoint a receiver and INTA’s response

thereto, the trial court denied the Bank’s request for appointment of a receiver. This

interlocutory appeal ensued.

                                        DECISION

       The Bank alleges that the trial court erred in not concluding that appointment of a

receiver is mandatory under the law and the facts of this case. The Bank notes that the

statutory framework governing the mandatory appointment of receivers is Indiana Code

section 32-30-5-1.   Pursuant to subsection 4 of Indiana Code section 32-30-5-1, a

mortgagee’s right to appointment of a receiver in a foreclosure action is mandatory once

                                            7
the general provisions of subsection (4) and any of the further provisions of subsections

(A) through (F) are satisfied. See Citizen’s Fin. Servs. V. Innsbrook Country Club, Inc.,

833 N.E.2d 1045, 1054 (Ind. Ct. App. 2005).

      The Bank states that it has satisfied the general provisions of subsection (4) and at

least two conditions in subsections (A)-(F). Specifically, it asserts that it has met the

requirement of Indiana Code section 32-30-5-1(4)(B), which states that a receiver shall

be appointed when “it appears that the property may not be sufficient to discharge the

mortgaged debt” and Indiana Code section 32-30-5-1(4)(C), which states that a receiver

shall be appointed when “either the mortgagor or the owner of the property has agreed in

the mortgage or in some other writing to the appointment of a receiver.”

      INTA does not dispute that the Bank satisfied all of the general provisions of

Indiana Code section 32-30-5-1(4) and the conditions set forth in subsections (B) and (C)

of the statute. However, it argues that the Bank relinquished its right to the mandatory

appointment of a receiver in the Subordination Agreement.

      The primary rule of contract construction is to ascertain and give effect to the

parties’ mutual intent. Perfect v. McAndrew, 798 N.E.2d 470, 479 (Ind. Ct. App. 2003).

The parties’ intent must be derived from their written expressions within the four corners

of the contract. Id. Unambiguous contracts must be specifically enforced as written

without any additions or deletions by the court. Id. However, when the language of a

contract is ambiguous or uncertain, its meaning is to be determined by the consideration

                                            8
of extrinsic evidence. Id. A contract is ambiguous if reasonably intelligent people could

find its provisions susceptible to more than one interpretation. Id.

       The Bank agrees that the Subordination Agreement unambiguously contemplates

the subordination of “liens” and “priorities”; however, it does not agree that the

agreement subordinates all of its rights or remedies. The Bank points to the wording of

the key provisions of the Subordination Agreement in support of its argument.            In

Paragraph 2.1, the agreement states that the bank mortgages “are and shall be subject to,

subordinate and junior, as a second priority mortgage to the first priority lien of the INTA

Mortgage . . . .” (App. 119). In Paragraph 2.2, the agreement states that the Bank agrees

that “all liens, mortgages, encumbrances, security interests, and assignments . . . are

hereby expressly SUBORDINATED AND MADE SECONDARY AND INFERIOR . . .

.” Id. In paragraph 2.3, the agreement states that the “mortgage liens granted to the Bank

are and shall be subordinate . . . .” Id.

        INTA, on the other hand, argues that the Subordination Agreement

unambiguously deprives the Bank of all of its rights and remedies derived from the

mortgages and other loan documents.         INTA emphasizes that Paragraph 2.2 of the

Subordination Agreement lists “liens” and “mortgages” separately and that a reasonable

reading of the paragraph leads to the conclusion that “mortgages” represents something

more than “liens.”

                                             9
      The interpretations by both parties are reasonable. While Paragraph 2.2 can be

read to indicate that the “mortgages” subordinated are something other than liens

(possibly including the rights and remedies that are consonant with mortgages),

Paragraph 2.3 specifically refers to “mortgage liens” (plausibly indicating that the

mortgage liens, and not the rights and remedies thereunder, are subordinated). In short,

the Subordination Agreement is ambiguous.

      In construing the Subordination Agreement, we may turn to the writings executed

at the same time and relating to the same transaction to ascertain the parties’ intent.

Geico Ins. Co. v. Rowell, 705 N.E.2d 476, 482 (Ind. Ct. App. 1999). Absent contractual

language indicating that the documents are unrelated, the instruments are construed

together. Id. At 482.

      Here, the intent of the parties is demonstrated when the Subordination Agreement

is construed together with the other September 15, 2008 closing documents.            The

Forbearance Agreement specifically provides that the Bank “is entitled to take any and all

action and exercise all rights and remedies granted to it under the Loan Documents by

applicable law.” (App. 180). The Forbearance agreement also provides that “the Bank

expressly reserves and shall retain all rights, claims, remedies, actions, and causes of

action in connection with (A) the Obligations or the Loan Documents; and (B) any

actions or failure by [LA Development] either before or after the execution of this

Agreement.” (App. 183). A reading that the Bank subordinated all of its default rights

                                           10
and remedies in the mortgages by executing the Subordination Agreement—as argued by

INTA—cannot be reconciled with the language in the Forbearance Agreement signed on

the same date and at the same closing as the Subordination Agreement.

       Furthermore, the Bank’s default rights and remedies are not solely located in the

mortgages. The Bank’s loan agreement, for example, authorizes the Bank to foreclose its

Harrison Crossing mortgage and to “take over and complete construction of [Harrison

Crossing] upon an event of default.” (App. 45). The Subordination Agreement expressly

references the Bank’s loan agreement and loan documents; however, it subordinates only

“the Bank’s Mortgages.” (App. 117-19). If the parties had intended to subordinate all of

the Bank’s default rights and remedies to INTA, then the Subordination Agreement

would have included specific language listing all of the rights and remedies of the Bank

in each of its loan documents, including the mortgages. The express limitation to “the

Bank’s Mortgages” supports the conclusion that the subordination contemplated by the

parties was simply a lien subordination and not a subordination of all rights and remedies.

       In addition, the parties’ intention not to subordinate all rights and remedies is

demonstrated by the extrinsic evidence. The Bank has elected to foreclose on Harrison

Crossing, an action that INTA concedes is authorized. If the Bank waived all of its

enforcement rights and remedies under the mortgages by executing the Subordination

Agreement, then the right to foreclose on Harrison Crossing would be included. Either

the Bank subordinated all of its enforcement rights and remedies in the mortgages or it

                                            11
did not. INTA cannot pick and choose which rights and remedies the Bank subordinated

to support its argument.

       Our construction of the Subordination Agreement emphasizes the necessity of

using specific language to limit rights and remedies of the junior creditor. As one

commentator has stated:

       A lien subordination agreement should prohibit the junior creditor from
       enforcing its subordinated rights in the collateral or in any other way
       interfering with the senior creditor’s liens in the collateral until the senior
       debt is paid in full. This prohibition will permit the senior creditor to
       control any liquidation of the collateral and also the timing of that
       liquidation. Despite being subordinated to senior liens, a junior creditor has
       rights that may be burdensome to the senior creditor. For example, a junior
       creditor could commence mortgage foreclosure of the common collateral on
       the debtor’s default. Despite the senior creditor’s higher priority, the
       timing of the foreclosure may not be in the senior creditor’s best interests.
       Consequently, the senior creditor should require that the junior creditor
       waive its rights to marshal assets and agree to postpone any enforcement
       rights that it may have against the collateral.

Mears, Patrick E., “Who’s On First? Negotiating Debt and Lien Subordination

Agreements in Real Estate Transactions,” 13 Prob. & Prop. 18, 22-23 (1999).

       Based upon our construction of the loan documents and our interpretation of the

extrinsic evidence, we must conclude that the Bank did not relinquish all of its rights and

remedies in the Subordination Agreement. Because the Bank has shown that the requisite

provisions of Indiana Code section 32-30-5-1 have been satisfied, and the Bank did not

                                             12
relinquish its mandatory right to the appointment of a receiver, we conclude that the trial

court’s order is erroneous.4

                                        CONCLUSION

       We reverse and remand with instructions that the trial court vacate its order and

grant the Bank’s request for the appointment of a receiver.

       Reversed and remanded.

MAY, J., and CRONE, J., concur.

4
  Because we conclude that the Bank was entitled to the mandatory appointment of a receiver under
Indiana Code section 32-30-5-1(4), we do not address the issue of whether an appointment was proper
under the discretionary appointment provisions of Indiana Code 32-30-5-1(5) and (7).

                                                13