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Kentucky ruling prevents Indiana court from addressing claim

May 22, 2014

Because the principles of full faith and credit required a Clark Circuit court to consider the judgments of a Kentucky court involving the default of promissory notes on property in Kentucky and Indiana, there was no error by the Indiana court in granting a bank the right to foreclose.

Robert and Beverly Setree obtained three promissory notes from River City Bank, which were secured by mortgages on real estate they owned in Jeffersonville, Ind., and Louisville, Ky. The Setrees failed to pay Indiana real estate taxes on a property, bringing them in default of the terms of a 2007 note. By not paying the taxes on the property, it triggered River City’s right to accelerate all debts due and owed under the other notes and foreclose on all the mortgages it held on the Setrees’ various properties.

Two actions were started in Clark Circuit Court and two in Jefferson Circuit Court in Kentucky. The Kentucky court entered a final judgment and ordered the sale of two Kentucky properties.

At issue in this case is the Clark Circuit Court grant of River City’s motion for summary judgment to foreclose on an Indiana property entered after the Kentucky court ruled. The Indiana court ruled that res judicata prevented the relitigation of the Setrees’ default on the 2007 note and mortgage.

The Court of Appeals agreed that the Kentucky judgments had acquired subject matter jurisdiction and personal jurisdiction over the parties before it, so it must afford full faith and credit to those opinions.

In the instant case, res judicata is more properly defined as issue preclusion, Judge Patricia Riley wrote in Robert R. Setree, II, and Beverly L. Setree v. River City Bank, 10A01-1311-MF-485.  

“The same issues—the Setrees’ failure to pay Indiana property tax pursuant to their 2007 Note and their right to cure—between the same parties—the Setrees and River City—governed the Kentucky cases and this appeal. River City’s right to foreclose on all three notes was triggered as a result of the Setrees’ failure to pay their Indiana taxes on the Cardinal Lane Property,” she wrote.

“Because of cross-default provisions in the three notes executed between the Setrees and River City, the Setrees’ default under the 2007 Note constituted a default under the previously executed two notes as well. Therefore, the Kentucky courts’ decisions to grant River City the right to foreclose on the Setrees’ Kentucky properties necessarily included a determination of default under the 2007 Note—the issue before the trial court,” she continued.

“Although the Kentucky cases concerned different mortgages and different property than the instant cause, they litigated the same issues between the same parties: the Setrees’ failure to pay the Indiana taxes on the Cardinal Lane Property and the Setrees’ right to cure its failure under the 2007 Note. Therefore, granting the Kentucky judgments full faith and credit, we are precluded from addressing the Setrees’ claim.”

 

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