TacCo Falcon Point, Inc. v. Atl. Ltd. P'ship XII

937 N.E.2d 1212

TACCO FALCON POINT, INC., Successor in Interest by Assignment to Inland Mortgage Company, Appellant-Plaintiff,

v.ATLANTIC LIMITED PARTNERSHIP XII, Atlantic XIII, LLC, David M. Clapper, Art Country Squire, LLC, and American Realty Trust, Inc.,¹ Appellees-Defendants.

No. 49A04-1003-CP-202.

Court of Appeals of Indiana.

Nov. 22, 2010.

Dawn R. Rosemond, Lisa D. Updike, Barnes & Thornburg, Fort Wayne, IN, Attorneys for Appellant.

David J. Cutshaw, Kelley J. Johnson, Cohen & Malad, LLP, Indianapolis, IN, Andrew W. Mychalowych, Meghan W. Cassidy, Siciliano Mychalowych Van Dusen and Feul, PLC, Farmington Hills, MI, Attorneys for Appellees.

OPINION

KIRSCH, Judge.

TacCo Falcon Point, Inc. ("TacCo"), as Successor in Interest by Assignment to Inland Mortgage Company ("Inland"), appeals the trial court's "Order Granting the Motion to Deem Judgment Satisfied" filed by Atlantic Limited Partnership XII, Atlantic XIII, LLC, and David M. Clapper (collectively, "the Clapper Parties"). TacCo raises the following restated issues:

I. Whether the trial court erred when it granted the Clapper Parties' motion because the issues involved had previously been decided by other courts and were therefore barred by the doctrine of res judicata; and

II. Whether the trial court abused its discretion when it found that the judgment at issue had been satisfied because, when TacCo purchased the judgment, it was acting as a strawman for American Realty Trust, Inc. ("ART").

We affirm.

FACTS AND PROCEDURAL HISTORY

This case arises out of a mortgage foreclosure action initiated in 1999 in Indiana by Inland against the Clapper Parties, ART Country Squire, LLC ("Country Squire"), and ART. Atlantic Limited Partnership XII, Atlantic XIII, and Country Squire were all obligors on the note secured by the mortgage. David M. Clapper and ART guaranteed the note. On February 19, 2002, instead of proceeding with the foreclosure litigation, the parties entered into the Consent Judgment. The Consent Judgment granted Inland a judgment against the Clapper Parties, Country Squire, and ART, jointly and severally, in the amount of $3.2 million. According to the terms of the Consent Judgment, the real property, which was located in Indianapolis, Indiana, was to be sold at a sheriff's sale.

Prior to the entry of the Consent Judgment, Inland sent a letter to ART's attorney, Robert Arnett ("Arnett"), responding to an offer by ART "to purchase [Inland's] loan documents." Appellant's App. at 307. Inland proposed a counter-offer, and on January 29, 2002, Arnett made a counter-offer on behalf of ART and set out terms for which ART would settle with Inland. This counter-offer provided that a new company, to be designated by ART, would purchase the Consent Judgment and that ART would unconditionally guaranty payment of the note. Id. at 322-24. On February 19, 2002, Inland entered into a Settlement Agreement ("the Agreement") with Country Squire, ART, and American Realty Investors, Inc. ("ARI"), who was ART's parent company (collectively, "the ART Parties"). The terms of the Agreement stated that, within two weeks, the ART Parties were to locate a prospective purchaser of the Consent Judgment and that, in exchange for: (1) cash in the amount of $1.5 million; (2) the purchaser's executed promissory note in the amount of $ 1.5 million; (3) a guarantee of the note by ARI; and (4) a letter of credit in favor of Inland in the amount of $250,000, Inland would assign its interests in the Consent Judgment to the purchaser. The Agreement also specified that ART was to receive credit against the amount owed under the Consent Judgment because if Inland were ever to seek enforcement ofthe judgment against ART, Inland would be limited to the amount owed under the note. Id. at 94. On March 1, 2002, Arnett requested that the two-week deadline in the Settlement Agreement be extended, and Inland notified Arnett that, if ART wired $100,000 to Inland that day, the deadline would be extended and ART would be credited this amount against the judgment. On the same date, ART wired $100,000 to Inland, and the deadline was extended for two weeks. Also, on the same date, TacCo was created.

On March 8, 2002, Arnett notified Inland's counsel that a "new entity has been formed to function as the purchaser/borrower/mortgagor" and identified TacCo as this entity. Id. at 330. On March 13, 2002, ART wired $1.4 million to Inland; it also wired $250,000 from its account. On the same date, TacCo opened a Certificate of Deposit with Southwest Bank for $250,000. TacCo also entered into a loan agreement with Southwest Bank for $250,000, and the stated purpose of the loan was stated as "Letter of Credit ... for the Benefit of Inland Mortgage Company." Appellees' App. at 246. The loan was secured by the Certificate of Deposit opened on the same date, and the charge for the letter of credit was $5,000. Also, on March 13, 2002, ART wired $5,000 to TacCo Financial Inc., which was TacCo's parent company. On the same date, TacCo and Inland entered into an agreement, which referenced the Agreement with ART, but did not reference the specific terms of price.

On March 18, 2002, Inland gave notice to the Clapper Parties and the other judgment debtors that an "Assignment of Judgment" had been executed in favor of TacCo. Appellant's App. at 146-48. The Clapper Parties filed a "Motion for Entry of Satisfaction of Judgment," which sought a determination that the Consent Judgment had been satisfied because ART, a co-judgment debtor, used TacCo to purchase the judgment. Id. at 155-60. This motion was set for hearing, but before the hearing occurred, TacCo filed for Chapter 11 bankruptcy in a Texas court. Thereafter, a sheriff's sale on the real property involved in the Consent Judgment was conducted, and TacCo submitted a credit bid of $1 million.

While TacCo's bankruptcy case was still pending in Texas, TacCo filed an action in Michigan Circuit Court to domesticate and enforce the Indiana judgment. In response, the Clapper Parties filed affirmative defenses, including that the judgment was satisfied based upon the fact that ART had used TacCo as its strawman in the purchase of the judgment. Clapper also filed a third-party complaint against the ART Parties seeking contribution on the judgment. TacCo argued that it was not ART's strawman and that it had purchased the judgment from Inland using its own funds. TacCo never took any action to enforce the judgment against ART.

During the same period of time, TacCo and ART sought to have the federal bankruptcy court in Texas decide whether the judgment had been satisfied. At a hearing on the Clapper Parties' request for a preliminary injunction allowing them to conduct further discovery, TacCo's president, Wayne Starr, testified that TacCo obtained the money to purchase the Consent Judgment from its parent company, TacCo Financial, through a line of credit from a company called One Realco. Id. at 182-83. Eric Redwine, TacCo's corporate representative and its Texas attorney, testified that TacCo borrowed the money for the purchase of the judgment from TacCo Financial, which borrowed the money from One Realco. Id. at 192. No accounting records documenting these transactions were produced to the court.

Arnett testified as ART's corporate representative and argued that it was the intent of ART and Inland that governed. He stated that the court should look to Inland's intent and whether Inland intended that the payment would extinguish the judgment as to ART. Id. at 196. When these statements were made, the Clapper Parties had not yet received a copy of the Agreement or the financial records from ART and its bank. At the conclusion of the hearing, the bankruptcy court denied the Clapper Parties' motion for preliminary injunction. TacCo attempted to enforce the Consent Judgment against the Clapper Parties through the bankruptcy proceedings. The bankruptcy court ruled that it was not the proper forum to enforce the judgment and dismissed TacCo's adversary proceedings against the Clapper Parties. In its opinion dismissing the proceedings, the bankruptcy court stated, "the ultimate resolution of the underlying dispute regarding the propriety of the foreclosure and allegations of a strawman transaction requires the application of Indiana law, an expertise for which the Indiana courts are peculiarly suited." Id. at 273-74.

In the Michigan Circuit Court, David M. Clapper posted a cash bond of $2.5 million to stay the execution of TacCo's collection action. As part of the Michigan proceedings, the Clapper Parties sought discovery from TacCo, ART, and Inland and its attorneys. Through this discovery request, the Clapper Parties received documents and financial records, which showed that it was ART that initiated the negotiation with Inland to purchase the loan documents, that ART was responsible for negotiating the entire deal with Inland, and that the transaction between TacCo and Inland was intended to extinguish the judgment as to ART. The Clapper Parties also obtained financial records from Wachovia Bank, which was formerly Southwest Bank, that showed Inland was paid directly from ART.² On May 8, 2006, TacCo filed a "Motion for Summary Disposition" with the Michigan court and argued that the defenses raised by the Clapper Parties, while available in Indiana, where the judgment originated, were not available in Michigan. Id. at 785-88. The Michigan Circuit Court granted TacCo's motion and found that, while the strawman defense could be raised in Indiana, the Full Faith and Credit Act did not require Michigan to recognize the Indiana defenses in a domestication and enforcement proceeding where the strawman defense was not available in Michigan. Id. at 883-84. The Clapper Parties appealed, and the Michigan Court of Appeals ruled that Clapper was not permitted to raise the strawman defense in an enforcement proceeding in Michigan. TacCo Falcon Point, Inc. v. Clapper, Nos. 271525, 271552, ...