7th Circuit Court of Appeals
Criminal – Mail Fraud/Theft
United States of America v. Thomas R. Philpot
Thomas R. Philpot, the former Lake County clerk convicted of taking more than $24,000 in federal funds earmarked for child support and using that money to pay himself bonuses, will not receive a new trial, the 7th Circuit Court of Appeals held.
Philpot appealed his convictions of two counts of mail fraud and one count of theft from a federally funded program. He was elected clerk in 2004 and served until 2009. He took money from the IV-D incentive fund to pay himself bonuses in 2004, 2005, 2006 and 2009.
The judge in the case acquitted Philpot on two charges based on testimony that he did not learn he could not give himself the bonuses under Indiana statute until 2008. He was sentenced to 18 months in prison and fined $10,000. His law license is suspended.
Philpot raised numerous issues on appeal, including that pre-trial publicity required his trial to be moved to Illinois and misconduct during trial. The 7th Circuit found none of his claims had merit. The judges pointed out that the jury pool was drawn from approximately 600,000 people and most of the media coverage of his theft occurred a year before the trial began.
The judges also found that a reasonable jury could conclude Philpot knew his bonuses violated state law after consulting with an attorney about the applicable statutes. The jury could have sided with Philpot and concluded he acted in good faith when he took the bonuses in January and October 2009, but it did not, the appeals court pointed out. Instead, it found he acted knowingly and with intent to defraud when he accepted the IV-D money without approval.
The 7th Circuit also rejected his claim he should receive a lesser sentence because he returned the money before the county detected that it was missing.
Civil – False Advertising/Insurance
National Union Fire Insurance Co. of Pittsburgh, Pa. and Lexington Insurance Co. v. Mead Johnson & Co. LLC, et al.
The 7th Circuit Court of Appeals ruled a District Court judge from Evansville should not have excused two insurance companies from covering a $13.5 million award solely because the companies were notified of the award after the trial.
The 7th Circuit Court of Appeals reversed a summary judgment in favor of the insurers and remanded for further proceedings. The case originated from the U.S. District Court for the Southern District of Indiana, Evansville Division.
The 7th Circuit ruled that although Mead Johnson did not tell the insurance companies of the false advertisement lawsuit until after it lost at trial, the insurers have to show they were harmed in order to disclaim coverage.
National Union, the court held, did not explain how it could have garnered a better outcome if it has been notified earlier of the suit. The insurer would have employed the same law firm and attorneys that Mead chose.
Lexington could have presented evidence or argued that with earlier notification it could have convinced the jury to award the plaintiff, PBM Products LLC, less. However, the court noted, the insurers’ joint brief makes almost no mention of Lexington and, instead, assumes that, like National Union, it would have enlisted the same law firm and used the same litigation tactics that resulted in the $13.5 million judgment.
The 7th Circuit asserted Chief Judge Richard Young, in finding the insurance companies were harmed, was misled by two decisions from the Indiana Court of Appeals. However, the Circuit Court noted the Indiana Supreme Court has held that if the insured has inflicted no cost on the insurance company by untimely notice, then the insurance company cannot reject the claim.
“To be consistent with Indiana law, the district judge should have said that the later the notice the harder it is for the insured to rebut the presumption that the insurer was harmed by being deprived of the opportunity to control the defense,” Judge Richard Posner wrote. “It’s because that’s a rough row for the insured to hoe that a trial is necessary to determine whether the lateness of the notice in this case was indeed harmless, as it appears to have been on the present, limited record.”
Indiana Supreme Court
Civil Tort – Deceptive Advertising
Heather N. Kesling v. Hubler Nissan, Inc.
Car dealers, like many businesses, often “puff up” their advertisements to make their cars more attractive to potential buyers, and this puffery can’t be the basis of deception or fraud claims, the Indiana Supreme Court ruled. But a woman’s fraud claim against an Indianapolis car dealer will continue.
Heather Kesling sued Hubler Nissan Inc. for fraud and deception after the 1996 Mitsubishi Eclipse she purchased from the dealer that was advertised as a “Sporty Car at a Great Value Price” ended up needing significant work, rendering it undrivable. Before she bought the car, it needed jumped and idled roughly, but the salesperson told Kesling that it just needed a tune up and had been sitting for a while. She discovered the problems with the car after buying it. An expert who inspected the car two years later claimed the dealership should have discovered those problems when accepting the car as a trade in.
She sued under the Indiana Deceptive Consumer Sales Act and sought treble damages because the ad was criminal deception. The representation that the car just needed a tune up was fraudulent, she argued, because the defects should have been apparent during the trade-in inspection. A split Indiana Court of Appeals granted summary judgment for the dealer.
“Here, each part of ‘Sporty Car at a Great Value Price’ can reasonably be taken only as puffing … . ‘Sporty’ simply cannot reasonably be ascribed any significance as a representation of a car’s state of repair or drivability,” Justice Loretta Rush wrote. “Similarly, ‘Great Value Price’ cannot reasonably be understood to have any greater significance than the comparable terms ‘great price’ or ‘priced to sell.’”
“Since puffing is merely a statement of opinion … it cannot be a representation of fact—and thus, cannot be ‘deceptive’ under the DCSA,” she continued. And because “Sporty Car at a Great Value Price” expresses Hubler’s puffed opinion, rather than representing any objective fact, it cannot be a basis for a criminal deception claim.
The fraud claim, though, survives because stating a car “would just need a tune-up,” in the face of actual or constructive knowledge that the car had far more serious problems, does represent fact – and therefore may be the basis of a fraud claim when a seller gives it as a knowingly incomplete answer to a buyer’s specific question, the court held. Also, there is a genuine issue of fact as to Kesling’s reliance on the salesperson’s statements.
The lawsuit is remanded for further proceedings consistent with the opinion.
Criminal – Malicious Prosecution
Billy Julian v. Sam Hanna, et. al.
A man wrongly prosecuted, convicted and imprisoned for the arson of Frankton High School more than 10 year ago was ultimately freed, but the 7th Circuit Court of Appeals Tuesday blistered attorneys in a subsequent malicious prosecution lawsuit who successfully argued in the U.S. District Court for dismissal of the man’s federal complaint.
The panel reversed and remanded, reinstating his 42 U.S.C. § 1983 malicious prosecution suit.
In 2003, Billy Julian was convicted of arson and other crimes related to the 2001 fire at the Madison County school, and he was sentenced to 15 years in prison. During post-conviction relief, he was able to prove that a key witness who claimed he met Julian at the school before the fire actually had been on home detention and could not have been at the scene without triggering an ankle monitor, which hadn’t happened.
Julian was released in 2006, but the state sought to retry him, scheduling a retrial in 2007 while Julian was considering suing Madison County sheriff’s officer Sam Hanna and others. “The defendants threatened Julian in an effort to deter him from filing a suit for malicious prosecution,” Judge Richard Posner wrote for the panel.
The suit also names as a defendant current Frankton Police Chief David Huffman, who was a town officer at the time of Julian’s arrest. Hanna now serves as police chief in Elwood, also in Madison County.
“On the advice of lawyers whom he consulted he decided to defer filing such a suit until the judgment in his retrial ... but the trial date kept getting rescheduled. ... In July (2010) the state dismissed all the charges against Julian. He filed this suit in November 2011.”
The panel ruled that District Judge Tanya Walton Pratt of the Southern District of Indiana in Indianapolis wrongly dismissed Julian’s complaint with prejudice in a ruling that agreed with defendants who argued Julian’s suit was untimely. “But she was mistaken,” Posner wrote. “Under both state and federal law a malicious prosecution claim does not accrue until the criminal proceeding that gave rise to it ends in the claimant’s favor.”
Julian’s claim therefore was timely, the panel held in an opinion that also took to task arguments proffered by the defense. The defense argued Julian had remedies in state court for false arrest and false imprisonment, but the panel held these were inadequate remedies because the state held out the possibility of retrying him for years.
“After being released from prison in May 2006, Julian remained in limbo for more than four years. Limbo is not as bad as hell, but it’s sufficiently bad that it can’t be written off completely,” Posner wrote. “Yet that is what the defendants ask us to do: recognize no remedy for malicious prosecution by Indiana public officers, leaving the defendant remediless if he manages to avoid jail or prison for any of the time for which he’s maliciously prosecuted.”
“Defense counsel exceeded the bounds of responsible advocacy by arguing … that because the absolute immunity from suits against state officers for malicious prosecution was decreed by the Indiana legislature, it satisfies due process — ‘legislative due process’ — and therefore bars this suit,” Posner wrote. “Were that correct it would mean that the Indiana legislature, provided only that it complied with its procedures governing legislative enactment, could with impunity strip residents of Indiana of all their federal and state constitutional rights.
“In holding that Indiana’s failure to provide an adequate remedy for malicious prosecution by public officers opens the door to federal malicious prosecution suits against such officers, we don’t mean to belittle the state’s interest in limiting officers’ liability,” the panel held, noting several states have enacted caps in such cases.
“A qualified immunity would not protect the deliberately wrongful (indeed outrageous) conduct alleged in Julian’s complaint.”
Indiana Tax Court
Tax – Trade Secrets
Orbitz, LLC v. Indiana Department of State Revenue
The Indiana Tax Court granted online travel company Orbitz LLC’s request to place certain documents under seal – including contracts the company has with three Indiana hotels. Judge Martha Wentworth determined that the contracts are trade secrets, so they are not subject to public disclosure.
Orbitz challenged the results of an audit the Department of State Revenue completed in 2007. The revenue department determined Orbitz was deficient in remitting Indiana’s gross retail (sales) and county innkeeper taxes on bookings that occurred between Jan. 1, 2004, and Dec. 31, 2006, through its website.
Orbitz protested the proposed assessments issued by the department and initiated this tax appeal in 2009. In August 2013, the company sought to prohibit public access to copies of contracts with the hotels. The contracts specifically detail what Orbitz has negotiated with the hotels regarding room rates.
Wentworth determined the contracts have the four characteristics of trade secrets: they are information; that derive independent economic value; that are not generally known, or readily ascertainable by proper means by others who can obtain economic value from its disclosure or use; and that are the subject of efforts, reasonable under the circumstances, to maintain their secrecy.
“Competition is the bedrock of our country’s economic system,” she wrote. “The protection afforded to trade secrets under Access to Public Records Act and Administrative Rule 9 helps to foster a healthy, competitive marketplace.”
Indiana Court of Appeals
Criminal – Child Molesting/Evidence
Timothy L. Hyser v. State of Indiana
Finding the testimony and evidence a man accused of child molesting wished to present at trial – but was denied by the trial court – was critical to his defense, the Indiana Court of Appeals reversed his two molestation convictions.
Timothy Hyser was accused of molesting his young neighbor J.M. The accusation came to light in December 2011 when police investigated a report of abuse against J.M. by his mother’s boyfriend, Mark Marner.
Hyser contended that the trial court prevented him from presenting testimony and evidence critical to his defense, namely, certain testimony he wished to elicit from Deborah Collins, Melvin Key, and Detective Charles Osterday, and the evidence that Marner was a registered sex offender. Collins and Key both testified that they had observed Marner strike J.M. in 2011. Hyser wanted the evidence Marner was a registered sex offender entered to show Marner knew how the system worked and that J.M. could be taken away from him if a new charge was filed against him.
Hyser’s defense was predicated on the theory that Marner had influenced J.M. to falsely accuse him of child molesting in retaliation for Hyser taking action reporting Marner to the authorities for physically abusing J.M. Hyser argued the testimony he wanted to elicit was not inadmissible hearsay, as the trial court had ruled.
“The testimony and evidence Hyser wished to elicit and present was exculpatory, unique, and critical to his defense. The trial court did not permit Hyser to present his defense that the allegations and testimony against him were untrue and fabricated in retaliation or response to the fact that he had made a report to DCS that he believed Marner was physically abusive toward J.M.,” Judge Elaine Brown wrote. “Hyser had the right, as a fundamental element of due process of law, to present his own witnesses to establish a defense and to present his version of the facts.”
Brown noted in reversing the molestation convictions that the state is not barred from retrying Hyser.
Civil Plenary – Breach of Contract/Mechanic’s Lien
North American Roofing Services, Inc. v. Menard, Inc.
The Indiana Court of Appeals ordered summary judgment entered in favor of a roofing services company on claims of breach of contract against Menard Inc., finding Menard was unable to establish a dispute of material fact as to its right to withhold payment.
Menard hired North American Roofing Services Inc. in 2007 to build a roof on its new store in Princeton. After heavy rains, the partially constructed building collapsed and fell on two workers, injuring them and resulting in lawsuits. The contract between NARSI and Menard contained an indemnity clause. Article 9, Section E outlined under what circumstances Menard may decline to pay NARSI for its work.
NARSI completed the roofing job, and the store opened for business. Menard refused to pay NARSI, claiming that NARSI was contractually obligated to indemnify it against liabilities resulting from the roof collapse. NARSI filed a mechanic’s lien against the store and later filed suit to foreclose upon the lien. NARSI amended its complaint to add a claim of breach of contract.
Menard and NARSI entered into settlement agreements with the injured workers. NARSI’s case remained active, to which Menard raised affirmative defenses based on the contract’s indemnification clause and Section E. It claimed those allowed it to withhold NARSI’s payment.
The trial court denied NARSI’s motion for partial summary judgment on the breach of contract claim and held that the claim to foreclose upon the mechanic’s lien must fail. Judgment was entered in favor of Menard.
The COA found Menard failed to set forth any facts that establish a genuine dispute as to whether Menard is excused from paying NARSI under the contract due to the indemnification clause.
“Giving Section E’s unambiguous language a plain and ordinary reading, it does not justify withholding payment from NARSI once third party claims have been resolved, absent the application of some other contractual provision such as the indemnification clause. We have already determined that Menard has failed to establish a dispute of material fact as to whether the indemnification clause applies,” Senior Judge John Sharpnack wrote.
“In order to defeat NARSI’s motion for partial summary judgment, Menard was obligated to rebut NARSI’s prima facie case for breach of contract by establishing a dispute of material fact as to its right to withhold payment. We have determined that Menard did not establish such a dispute.”
The case was ordered to move forward to resolve NARSI’s claim to foreclose upon the mechanic’s lien.
Civil Plenary – Rehearing/Family Business
Timothy S. Enders and Enders & Longway Builders, Inc., v. Debra Sue Enders as Personal Representative of the Estate of Randall Enders
A dispute between two brothers over corporate shares left from the dissolution of the family business got a rehearing by the Indiana Court of Appeals, but no reversal.
In July 2013, Timothy Enders had appealed the trial court’s granting of the petition by his recently deceased brother, Randall Enders, to dissolve Enders & Longway Builders Inc., the business the brothers had inherited from their father.
At that time, the Court of Appeals concluded the buy-sell agreement that limited the transfer of corporate shares had been terminated when the corporation was dissolved one day before Randall’s death.
Timothy petitioned for a rehearing on the grounds that the Court of Appeals had ruled the shares were not jointly owned with rights of survivorship at the time Randall died.
However, at the rehearing, the COA stated it had not made any determinations about the shares certificates.
The Court of Appeals asserted it only ruled that the trial court properly dissolved the corporation. Therefore, the issue of the shares certificates is something to be resolved by the trial court during the closing of corporate affairs and distribution of corporate assets.
Writing for the court, Judge Michael Barnes stated, the COA stands by its previous opinion.
Civil Plenary – Contract/Subrogation Agreement/Cleanup Costs
Allen County Public Library v. Shambaugh & Son, L.P., Hamilton Hunter Builders, Inc., W.A. Sheets & Sons, Inc., and MSKTD & Associates, Inc.
A diesel fuel leak in the basement of the main library branch in Fort Wayne spread to neighboring property, leading to more than $490,000 in cleanup bills. The Court of Appeals ruled the library may pursue recovery against contractors it argues are responsible for the leak.
The appeals panel reversed a trial court grant of summary judgment in favor of defendants and remanded for proceedings.
Judge Michael Barnes wrote for a unanimous panel that subrogation provisions in an American Institute of Architects’ construction project contract used in a 2004 library renovation project did not clear defendants from liability in this case, citing Midwestern Indemnity Company v. Systems Builders, Inc., 801 N.E.2d 661 (Ind. Ct. App. 2004), trans. denied.
“We held that the waiver of subrogation provision of the AIA standard contract — section 11.3.7, as here — applied even though construction had already been completed, and also that the waiver applied to negligence claims against the subcontractor,” Barnes wrote for the panel that also included Judges Terry Crone and Rudy R. Pyle III.
“Consistent with our holding in Midwestern, we conclude that the Library is not precluded by Section 11.3.7 of the standard AIA contract from seeking recovery for pollution cleanup costs for property contaminated by the Defendants’ allegedly faulty construction that is outside the scope of ‘the Work’ for which the Defendants were contracted to perform,” Barnes wrote. “Namely, the Defendants may be required to reimburse the Library for cleanup costs of the land outside of the library building itself. We reverse the grant of summary judgment to the Defendants and remand for further proceedings consistent with this opinion.”
Criminal – Battery/Resisting Law Enforcement/Mental Health
Phillip Griffin v. State of Indiana
In a resisting arrest and battery case that drew opinions from each of the sitting judges on the Indiana Court of Appeals panel, Judge Paul Mathias addressed the issue of whether the defendant suffered from a mental illness. He urged law enforcement to consider mental health intervention to treat troubled – but innocuous – conduct instead of relying on criminal law.
Phillip Griffin appealed his convictions of Class A misdemeanors resisting law enforcement and battery upon a law enforcement officer that stemmed from his fleeing from Lawrence police officer Matthew Miller. Miller stopped his patrol car after passing Griffin and believing he may be mentally unstable. Griffin shouted at the officer, threw “shadow punches” at the officer and then ran. Miller pursued and used his Taser; Griffin hit Miller as the officer attempted to handcuff him.
Senior Judge Randall T. Shepard wrote for the majority, which reversed the resisting conviction, but upheld the battery conviction. Shepard and Judge Paul Mathias departed from Cole v. State, 878 N.E.2d 882, 884 (Ind. Ct. App. 2007), and its line of cases, in which the appeals court held that the resisting statute does not require that the order to stop be lawful. The majority focused on the state’s lack of evidence demonstrating grounds for detention.
“In the present case, the State explicitly argues that it need not establish any facts giving rise to probable cause or articulable suspicion that would have warranted detaining Griffin in order to sustain the conviction. Griffin appeared to Miller to be unstable, and he threw ‘shadow punches’ from a considerable distance before running away, but none of Griffin’s actions suggested any criminal offense,” Shepard wrote.
The majority declined to reweigh the evidence regarding the battery conviction and upheld it. Shepard and Mathias also reversed the order that Griffin perform community service in lieu of paying court costs and remanded to address the question of payment.
Judge L. Mark Bailey dissented from his colleagues regarding the reversal of the resisting law enforcement conviction. He cited Cole in support of his argument, writing he would follow the settled law as discussed in that case.
Mathias devoted his opinion to addressing concerns with Miller’s conduct in the case, especially since he suspected Griffin may suffer from a mental illness at the time in question. There are many people who appeared “troubled” but not to such an extent that requires an officer to intervene because he or she seems to be dangerous or disabled, he pointed out.
“Finally, it is important to remember that Officer Miller did what he was trained to do in the situation. What I hope and mean to suggest is that law enforcement officials throughout Indiana can best reaffirm their commitment to serve all of Indiana’s citizens by remembering the criteria for mental health intervention as an initial alternative to treating troubling and troubled, but otherwise innocuous, conduct as a possible crime,” Mathias wrote.
Domestic Relation – Dissolution of Marriage/Guardianship
In Re the Marriage of Leora McGee v. Robert McGee
Indiana law does not allow guardians the ability to petition for the dissolution of marriage on their ward’s behalf, the Indiana Court of Appeals held for the second time in nearly four months. The appeals court reversed the grant of a divorce filed by an incapacitated man’s daughters, who are his co-guardians.
Leora McGee appealed the Lake Superior Court’s grant of the petition filed by Robert McGee’s children Sharon Hilton and Judith Kalajian on his behalf. While Leora McGee was in the hospital, the daughters moved their father to a nursing home out of state and filed the dissolution petition. The McGees had been married for nearly three years. Leora McGee objected to the filing, testifying they had a good marriage.
Citing State ex rel. Quear v. Madison Circuit Court, 229 Ind. 503, 99 N.E.2d 254, 256 (1951) and the July decision in Marriage of Tillman v. Tillman, 87A05-1212-DR-619, the Court of Appeals again pointed out that neither the current Indiana law governing dissolution of marriage nor those governing the guardianship of incapacitated persons provides a means for a guardian to file a petition for dissolution of marriage on behalf of his or her ward.
“In a world full of subsequent marriages and available pre-nuptial agreements, we will not read into a statute such a sweeping and potentially overreaching authority, authority that is not the clearly expressed intent of the General Assembly,” Judge Paul Mathias wrote.
Criminal – Rehearing/Evidence
Jason Lee Sowers v. State of Indiana
Two Indiana Court of Appeals judges granted a man’s petition for rehearing and held that the evidence is sufficient for the state to retry him on criminal recklessness and resisting law enforcement charges.
Judges Elaine Brown and Cale Bradford granted Jason Lee Sower’s petition for rehearing, in which he argued the COA did not address his claim of insufficient evidence of sanity in its original decision. Earlier this year, the court reversed his Class D felony criminal reckless and resisting law enforcement convictions and remanded for proceedings.
Brown and Bradford adopted Bradford’s analysis on the evidence issue from his dissent in the original decision, which stated it was for the jury to weigh the evidence. The jury rejected his insanity defense on the charges that were ultimately reversed while finding him not responsible by reason of insanity of a charge of battery by means of a deadly weapon.
The two remanded for further proceedings. Judge Patricia Riley voted to deny rehearing.
Domestic Relation – Child Support Modification
Carrie A. Krampen v. James J. Krampen
Sidestepping a question of first impression in a child support case, the Indiana Court of Appeals reversed the modification of child support due to insufficient evidence. The father in this case believed his ex-wife was using child support money to fund her veterinary practice.
James Krampen sought to modify his $3,000 per week child support payment for his four children, alleging Carrie Krampen used child support funds to establish and subsidized her veterinarian clinic. He sought an accounting under I.C. 31-16-9-6 and establishment of a constructive trust. In his deposition, James Krampen said his children were properly housed, clothed and fed by his wife and he didn’t believe she overspent in those areas.
His attorney submitted Carrie Krampen’s 2011 income tax return that showed an adjusted gross income of negative $72,148 and checks from her bank account that purport to show his child support paid for the business. The trial court ruled in favor of the father, reduced his child support payments and ordered Carrie Krampen to provide an accounting of future child support expenditures.
The COA cited Kovenock v. Mallus, 660 N.E.2d 638, 640 (Ind. Ct. App. 1996) in reversing the accounting order, in which the court held that party must be able to show evidence of impropriety that negatively impacts the child’s basic needs. The trial court should not have relied on Carrie Krampen’s tax filing, and she introduced bank statements showing large deposits into her account in addition to the money received from her ex-husband. The trial court erred in finding she misappropriated funds.
The judges also disagreed with James Krampen’s claim that opening the veterinarian practice and using child support funds to do so constitutes a substantial and continuing change warranting a reduction in support he pays.
“ … the question of whether misuse of funds by the custodial parent creates a substantial and continuing change is an issue of first impression not addressed by our court. Yet, we need not address it,” Judge Rudolph Pyle III wrote. “Having just found that there was insufficient evidence to support a finding that child support had been misappropriated, the trial court’s modification of child support on that basis was also inappropriate.”
The trial court must enter a new support order consistent with this opinion. Judge James Kirsch dissented without opinion.
Criminal – County Forensic Diversion Program
Jason E. Morales v. State of Indiana
The Indiana Court of Appeals clarified for a defendant its previous conclusion that he never applied for acceptance into a county post-conviction forensic diversion program and affirmed that his petition for judicial review was not proper.
Jason Morales appealed in May the denial of his motion for judicial review of the admissions criteria for the Vanderburgh County Post-Conviction Forensic Diversion Program. The Court of Appeals held there was no final administrative decision for the court to review.
Morales argued on rehearing that he did apply to the program through filing a motion in the trial court for placement in the program.
“Although Morales petitioned the trial court to be placed into the Program and the probation department investigated whether he satisfied its criteria, this action is not the same as Morales applying directly to the Program. Indeed, the Program did not deny Morales’s admission,” Judge John Baker wrote. “Rather, the Program informed the probation department that Morales did not satisfy the criteria for acceptance.
“To Morales, the result is the same, but before a court can review a final administrative action, there must be an agency action for the court to review. Here, the agency administering the Program did not act, but merely informed the probation department that based on the information that it had been provided, Morales did not satisfy the necessary criteria for acceptance into the Program.”
Judge Melissa May would have denied the petition for rehearing.•