7th Circuit Court of Appeals
Civil – Policy Limits/UIM Coverage
Dee Frye and Lanhui Frye v. Auto-Owners Insurance Co.
A man who was seriously injured in a vehicle crash while driving for his job won a reversal of a federal court ruling in the insurance company’s favor.
The 7th Circuit Court of Appeals reversed a district court grant of summary judgment in favor of Auto-Owners Insurance Co.
Dee Frye was compensated for injuries in the crash involving an underinsured driver from multiple sources — $100,000 from the insurance policy of the driver who claimed fault, $900,000 through a partial settlement with an Auto-Owners’ commercial auto policy, and $692,895.79 in workers’ compensation. Auto-Owners also agreed to pay $1 million from its commercial umbrella policy, minus $617,685.79 from Frye’s net workers’ comp payments.
The district court agreed with Auto-Owners’ argument that the partial settlement exhausted its obligations under the relevant policies, but 7th Circuit Judge Joel Flaum wrote for the panel that Indiana Code 27-7-5-2(d) may obligate Auto Owners to compensate Frye for his damages up to the limits of its UIM umbrella coverage, $5 million.
“Auto-Owners argues that § 27-7-5-2(d) permits insurers issuing (or renewing) commercial umbrella policies to selectively dispense with any requirements set forth in subsection (a) of that statute. In other words, not only may insurance companies abstain from providing UIM coverage in the first place, but if they do provide such coverage, they may provide it in any form they choose. In Frye’s view, subsection (d) allows insurers to omit from commercial umbrella policies any UIM coverage, but if such coverage is included, it must otherwise comply with the limit-of-liability requirements set forth in subsection (a). Frye’s reading is the more sensible one,” Flaum wrote.
The court also found Auto-Owners was not entitled to offset workers’ comp payments. “Frye argues that the set-off was contrary to both the contractual language and Indiana public policy. We do not reach the latter issue, as we agree with Frye that the set-off violated the contract’s terms,” the court held.
The matter is remanded for further proceedings.
Indiana Supreme Court
Civil Tort – Statute of Limitations
Kennedy Tank & MFG. Co., Inc. and Hemlock Semiconductor Operations LLC and Hemlock Semiconductor, LLC v. Emmert Industrial Corporation d/b/a Emmert International
The United States Congress’ purpose in passing the Interstate Commerce Commission Termination Act was not to preempt state statutes of limitations, the Indiana Supreme Court held, so an 18-month federal statute of limitations cannot bar a collections claim against an Indiana manufacturer.
When Kennedy Tank & Manufacturing Co. needed a “massive” process tower vessel transported from its headquarters in Indianapolis to Hemlock Semiconductor’s location in Clarksville, Tennessee, Kennedy contracted with Emmert Industrial Corporation to transport the vessel for $197,650 plus additional unforeseen costs.
As Emmert attempted to transport the vessel, the I-64 bridge between Indiana and Kentucky unexpectedly closed, requiring additional route surveys and permit applications in Indiana, Illinois, Missouri and Tennessee. Construction delays, road closures, permit applications, safety escorts and bureaucratic delays led to additional unforeseen costs of $691,301.03. The vessel was successfully delivered Nov. 11, 2011.
After delivery, Emmert began trying to collect the additional costs from Kennedy, and the dispute lasted through January 2013 and went to arbitration from June to August 2014. Kennedy refused to pay the additional charges in September 2014, claiming that it owed nothing because of a federal 18-month statute of limitations.
Emmert then sued alleging breach of contract or unjust enrichment, but Kennedy moved to dismiss, again relying on the 18-month federal statute of limitations. Emmert countered that the federal statute did not preempt Indiana’s 10-year limitations period and further argued that the settlement discussions equitably estopped Kennedy from asserting the federal statute.
The Marion Superior Court denied the motion to dismiss, but the Indiana Court of Appeals reversed that decision and found that Indiana’s statute was preempted. But a unanimous Indiana Supreme Court agreed with the trial court, holding the federal statute did not preempt the state statute.
Chief Justice Loretta Rush pointed out that Congress “provided no indication that it intended to impose a uniform national statute of limitations, and breach of contract collection actions are not an area of federal regulation.” Further, Rush wrote that according to the concept of conflict preemption, which applies in this case, a federal law can void a state law only when it is “physically impossible” to comply with both laws and when the state law does “major damage” to the purpose of the federal law.
The first leg of conflict preemption, physical impossibility, cannot apply to Kennedy’s case, Rush wrote, because Emmert could have filed suit within the 18-month federal limitations period, so it was not a physical impossible for the company to comply with both statutes of limitations.
Additionally, Indiana’s statute of limitations does not do “major damage” to Congress’ purpose because the Interstate Commerce Commission Termination Act shifts regulatory authority from the federal government to the states, not to assert federal authority over state-law collections.
The justices rejected Kennedy’s argument that Congress intended to create uniform national standard for interstate transportation because the language of the ICCTA does not expressly preempt state statutes of limitations.
Further, Rush, referencing the case of Fla. Lime & Avocado Growers, Inc. v. Paul, 373 U.S. 132, 133, 139 (1963), wrote that state collection actions are not likely to be candidates for federal regulation because there is no uniformity vital to national interests.
“Relevant here, Congress turned over contract collection actions to the operation of state law in the ICCTA – reflecting its ‘goal of reducing federal involvement in motor carriers’ private contracts,’” Rush wrote. “… In doing so, Congress demonstrated there is no need for exclusive federal regulation and decided to ‘tolerate whatever tension’ exists between state and federal law.’”
Indiana Court of Appeals
Juvenile – Termination of Parental Rights
In re the Termination of the Parent-Child Relationship of O.G. II (minor child) and K.T. (Mother) & O.G. (Father) v. The Indiana Department of Child Services
The Indiana Court of Appeals reversed a decision terminating a mother and father’s parental relationships with their son, writing that the Department of Child Services had exhibited an “extraordinarily troubling pattern of behavior.”
In May 2011, the Department of Child Services removed O.G. II from his parents’ home. Father O.G. admitted that both he and mother K.T. would test positive for marijuana, and K.T. admitted there was a history of domestic violence between her and O.G., so O.G. II was adjudicated a child in need of services.
DCS referred K.T. to domestic violence assessments and programs multiple times, and she completed a 26-week program. She also completed anger management classes at her own cost and saw success through home-based therapy sessions.
The boy was returned to his mother on a trial basis in August 2012 and remained in her care until May 2013. The juvenile court entered an order preventing O.G. from having contact with his child in February 2013. However, after O.G. went to K.T.’s home, kicked down her door and attacked her, the boy was removed and O.G. was arrested.
At the time of the termination hearing, K.T. was living with her mother and had a stable job, while O.G. was incarcerated through much of the CHINS case. However, he did complete anger management and parenting classes while in jail. During his incarceration, the assigned family case manager never contacted O.G., and the case manager further failed to comply with the juvenile court’s order that new service referrals be made for him.
DCS moved to terminate the parent-child relationship in May 2015, and the motion was granted in April 2016. Both parents appealed, with O.G. first arguing that his Department of Correction and Putnamville Correctional Facility records should not have been admitted as evidence because they constituted hearsay.
The Indiana Court of Appeals agreed, with Judge John Baker writing that those records did not meet the business records exception because they did not qualify under Indiana Rules of Evidence 803(6) or 902(11). Further, Baker wrote that the testimony of the guardian ad litem, who testified regarding what O.G. II had told her he wanted, was inadmissible hearsay because there is no known statute excepting GALs from the hearsay rule.
O.G. and K.T. then argued that the evidence was not sufficient to support the termination of their parent-child relationship with their son. The Court of Appeals again agreed, with Baker writing that K.T. had made progress toward her goal of breaking free from her abusive relationship by participating in services and ending her relationship with O.G.
Further, Baker wrote that K.T.’s random drug screens were not problematic and she had taken the initiative to improve her mental health and stability, including finding a place to live and maintaining a job.
Similarly, despite the family case manager’s failure to contact O.G., he completed parenting and anger management classes while in prison and was able to find a job and a place to live, Baker said.
“There is an extraordinarily troubling pattern of behavior in this case,” the judge wrote. “The FCM made little to no effort to contact Father at the initiation of the CHINS case. And then, after DCS made its own internal decision that the case plan was to reunify Child with Mother, the FCM’s minimal efforts to engage Father ceased altogether.”
Thus, the unanimous panel held that the evidence did not support the termination of the parent-child relationship and the decision was remanded for further proceedings.
Miscellaneous – Sex Offender Registry
Michael D. Cundiff v. State of Indiana
A Dearborn County man will have to keep his name on the Indiana Sex Offender Registry for the rest of his life but will not face certain residency restrictions after the Indiana Court of Appeals affirmed in part the denial of his petition for relief.
Michael Cundiff was charged with two child exploitation counts related to child pornography, one as a Class C felony and one as a Class D felony, in October 2003. He pleaded guilty to the Class C felony pursuant to a plea agreement in May 2004 and was sentenced to eight years, with six years suspended to probation.
After his petition for reclassification to a 10-year sex offender registration requirement was denied, Cundiff moved for relief from application of the Indiana Sex Offender Registration Act under a new cause. Dearborn Superior Judge Jonathan Cleary recused himself from the case due to his participation in Cundiff’s prior case as a deputy prosecutor, so Dearborn Circuit Judge James Humphrey was appointed as a special judge.
The court denied Cundiff’s motion to vacate the appointment of the special judge but granted his petition for relief. The court then granted the state’s motion to correct error and denied Cundiff’s petition in July 2015.
Cundiff appealed, arguing first that the trial court erred in following the special judge selection process as set forth in the rules of criminal procedure, rather than civil procedure. But Senior Judge Randall Shepard wrote in an opinion that Cundiff had failed to meet his burden proving that the trial court’s alleged error affected his substantial rights because he failed to allege any deprivation of a substantial right.
Shepard wrote that Dearborn County Local Rules 15-AR 8A makes the judge of the Dearborn Circuit Court eligible for appointment as a special judge in both civil and criminal actions. Thus, any alleged error was harmless.
Cundiff further argued that the trial court wrongly denied his petition for relief from the lifetime sex offender registration requirement because he “was not required to register for life until after Ind. Code 11-8--19(c) was enacted,” in 2006, so the retroactive imposition of the lifetime registration requirement violates federal and state prohibitions against ex post facto laws.
But Shepard wrote that effective Jan. 1, 2003, a defendant who was at least 18 years old when he was convicted of child exploitation of a child younger than 12 was required to register for life, so there could be no violation of ex post facto laws because Cundiff was 21 years old at the time of his conviction.
But Cundiff further argued that the sex offender residency restrictions laid out in I.C. 35-42-4-11 could not apply to him because that code only places residency restrictions on crimes committed after June 30, 2006. Because Cundiff committed his offenses in 2003, Shepard agreed that the residency restrictions could not apply to him. The case was remanded to the trial court to issue an order recognizing that the residency restrictions do not apply to Cundiff.
Criminal – Drugs/Search
Will Thomas v. State of Indiana
The Indiana Court of Appeals has overturned a man’s conviction, ruling the drugs found in his mouth should be excluded under the “fruit of the poisonous tree doctrine.”
Will Thomas appealed his conviction for dealing in a narcotic drug as a Class A felony on the grounds that police lacked the probable cause to arrest, detain, move and search him after a traffic stop in Grant County.
Thomas was the passenger in a van pulled over by local law enforcement. A search of the van by a drug-sniffing dog indicated the presence of narcotics but officers did not find any controlled substances after they conducted a pat-down search of Thomas and the driver.
The driver then consented to a strip search but Thomas declined. He was taken to the Marion Police Department and while waiting in the interview room, was observed taking something from his pocket and putting it into his mouth.
Police forced his mouth open and found a small plastic baggie with 8.5 grams of heroin.
Before the Court of Appeals, Thomas argued the heroin should not have been admitted as evidence at trial because the police did not have probable cause to detain him or take him to the police station. The officers did not find narcotics in the vehicle so the decision to arrest and transport him for a strip search was unreasonable.
However, the state countered Thomas’s Fourth Amendment rights were not violated. The dog sniff gave the police probable cause to search the vehicle as well as detain and take Thomas to the station.
Noting there is no Indiana precedent for these circumstances, the Court of Appeals relied on decisions from Ohio, Virginia and North Carolina. There the court found probable cause is particularized to the premises, vehicle or person to be searched.
Although the traffic stop and search of the vehicle were constitutional, the dog sniff did not provide any information about Thomas or the driver. The court held that the police engaged in a process of elimination by reasoning the drugs must be on either the driver or Thomas since nothing was found in the vehicle.
“Here, there was no contraband in the vehicle, and under circumstances like these the probable cause arising from a drug dog’s alert to a larger area like a car does not permit a fishing expedition into the pockets of each of the car’s occupants,” Judge L. Mark Bailey wrote.
Finding the police had no probable cause to detain Thomas, the Court of Appeals held his detention and transportation was unconstitutional. “The drugs obtained from him after he had been transported were thus ‘fruit of the poisonous tree,’ and should have been excluded from evidence at trial,” Bailey wrote.
Civil Plenary – Deprivation of Rights
Roy A. Smith v. Keith Butts, Jenny Gibson, Amber Berry, Misty Cecil, and Amie Williams
An Indiana inmate can continue his case against prison officials he said prohibited him from bringing his case before the U.S. Supreme Court after the Indiana Court of Appeals decided that summary judgment in favor of the officials was erroneous.
Roy A. Smith was imprisoned at the New Castle Correctional Facility in 2014 when he gave Keith Butts, Jenny Gibson, Amber Berry, Misty Cecil and Amie Williams, officials who worked at the correctional facility, a writ of certiorari to be mailed to the United States Supreme Court. Smith also asked the officials to mail a motion for an extension of time to file the writ, expecting that it would be mailed to the Supreme Court clerk by the Jan. 6, 2015, filing deadline.
However, on Jan. 20, 2015, the clerk sent Smith a letter indicating that his motion for enlargement of time was untimely because it was postmarked Jan. 8 and received Jan. 16. Smith received the letter on Feb. 17 and filed an informal grievance against Perry and Butts on Feb. 18, alleging that they had failed to properly handle his legal mail, thus resulting in the untimely ending of his federal case. Cecil responded and denied the informal grievance on Feb. 20, and Smith was given 10 days to respond.
Instead, on Feb. 21, Smith filed a formal grievance claiming that Perry, Butts and Cecil failed to timely send out his legal mail, but the grievance coordinator denied the formal grievance on March 9, claiming that Smith filed it more than 20 days after the incident.
Also on Feb. 21, Smith submitted a second informal grievance alleging that Butts and other unnamed DOC employees in the mail room and law library mishandled his legal mail. That grievance was also denied on Feb. 24, and Smith was given 10 days to file a formal grievance, which he did the same day. His second formal grievance was denied on the basis of a late filing and on the premise that Smith should have consulted with the law library staff to see if he could seek relief under the “mailbox rule.”
The inmate filed a suit against the prison officials on June 8, 2015, claiming he was deprived of his First and 14th Amendment rights from pursuing litigation in federal court. Both parties moved for summary judgment, which was granted to the prison officials and denied to Smith on the basis that he had not exhausted his administrative remedies, thus leading to a lack of subject matter jurisdiction.
Smith appealed, arguing that the summary judgment decisions were erroneous. The Indiana Court of Appeals partially agreed, with Senior Judge Carr Darden writing that the Henry Circuit Court had erred in determining that it lacked subject matter jurisdiction because failure to exhaust administrative remedies is a procedural error and does not give rise to a jurisdictional defect.
Further, Darden wrote that the prison officials had the burden of proving that Smith failed to exhaust his administrative remedies, a burden they did not meet because Smith demonstrated disputes of material fact as to whether he complied with the procedural rules governing the grievance process, specifically rules regarding grievance deadlines.
In a similar vein, Darden wrote that the denial of summary judgment to Smith was appropriate because of those disputes of material fact. Thus, summary judgment in favor of the officials was reversed and the case was remanded for further proceedings.
Civil Plenary – Arbitration
Stardust Ventures, LLC v. Gary Roberts and Teresa Roberts
A Kentucky-based houseboat company cannot be forced to refund a deposit to a Henry County couple after the Indiana Court of Appeals found that an existing purchase agreement was a valid and binding contract that allowed the company to request arbitration.
In November 2013, Stardust Ventures LLC, a custom houseboat builder in Monticello, Kentucky, reached an oral agreement with Gary and Teresa Roberts on the construction of a customized houseboat. The parties agreed to a price of $775,000 and a delivery of the houseboat in midsummer 2014.
Stardust provided the Robertses with a quote that called for a nonrefundable $10,000 security deposit for a build slot in its facility and payment of 20 percent of the total purchase price before Stardust would begin construction of the houseboat.
The Robertses paid $75,000 to Stardust in November 2013, less than 20 percent of the total price. Stardust, having not yet received the necessary $155,000, decided in January 2014 to contract with Sunstar Houseboats Inc. to build the hull of another houseboat it was constructing in order to create room for the Robertses’ houseboat.
Then in late January, Stardust sent an unsigned purchase agreement to the Robertses without having begun construction of their boat. The couple signed the agreement, along with Jerry Harden, Stardust president. The agreement included an arbitration clause stating that arbitration belonged solely to Stardust.
In March 2014, the Robertses asked to cancel their agreement with Stardust because construction on their houseboat had not yet begun. The couple then retained counsel to secure the return of their money from Stardust, so Harden sent a letter stating his company was “in the process of collecting the costs related to your construction. The costs of that work will be deducted prior (to) considering a refund.”
Stardust never returned any of the $75,000 and said its offer to return any portion of that cost was a mistake and was against policy because deposits were nonrefundable. The couple filed a complaint seeking recovery of the full amount they paid, alleging that Stardust never returned a signed copy of the purchase agreement, so their offer to purchase a houseboat from Stardust was validly revoked.
Stardust moved to dismiss to proceed to arbitration, but the Henry Circuit Court dismissed that motion and instead granted the Robertses’ motion for summary judgment and entered a $75,000 judgment in their favor. The couple filed a motion to correct error for prejudgment interest. Stardust filed an opposition motion, but the trial court never held a hearing or issued a ruling.
Stardust appealed the denial of its motion to dismiss and the Robertses cross-appealed, arguing that there were entitle to prejudgment interest as a matter of law.
In the opinion, the Indiana Court of Appeals first found that the purchase agreement was valid because Stardust produced a signed copy of the agreement and attached it to its motion to dismiss. Even if Stardust had not signed the agreement, Judge Margret Robb wrote that the company had drafted the agreement and outsourced with Sunstar to make room for the Roberts’ boat, both indications that it intended to abide by the terms of the agreement.
Further, Robb rejected the Robertses’ argument that Stardust had waived its right to arbitrate the dispute. First, Robb wrote, Stardust explicitly stated its decision to invoke its right to arbitration, and second, the company filed a motion to dismiss to arbitration as its first substantive pleading.
“Clearly, Stardust decided early on in litigation that it would rather have the dispute decided by arbitration and did not wait until an adverse final judgment to request arbitration,” Robb wrote.
Thus, the trial court’s grant of summary judgment in favor of the couple was reversed and the case was remanded with instructions to enter an order compelling arbitration.
Indiana Tax Court
Tax – Innkeeper’s fees
Orbitz, LLC v. Indiana Department of State Revenue
A popular travel and booking website will not have to pay the state more than $200,000 in back taxes after the Indiana Tax Court held that the website is not considered a retail merchant.
During the time between Jan. 1, 2004, and Dec. 31, 2006, an Orbitz LLC regional market manager traveled to Indiana to build relationships with Hoosier hoteliers, who subsequently executed contracts with Orbitz that allowed the travel company to provide its services for hotels in Allen, Clark, Floyd, Harrison, Jefferson, Marion, Scott and Shelby counties.
As part of those contracts, the hoteliers delegated some of their responsibilities to Orbitz, including marketing, tax collecting, payment processing, reservations and customer service functions. The hoteliers also established wholesale rates for their hotel rooms, but agreed to allow Orbitz to charge customers at higher rates when it facilitated pre-paid reservations. Orbitz, in turn, agreed to, among other things, collect sales and innkeeper’s taxes for customers based on the wholesale rate of the hotel rooms alone.
In December 2007, the Indiana Department of Revenue issued sales and innkeeper’s tax investigations reports to Orbitz, showing that the travel company owed more than $200,000 in sales tax, innkeeper’s tax and interest for the period between Jan. 1, 2004, and Dec. 31, 2006, because it should have collected taxes based on the retail rate of the rooms, not just the wholesale rate.
After the revenue department denied Orbitz’s protest filing and request for rehearing, Orbitz appealed in March 2009, and both parties moved for summary judgment in August 2013.
Indiana Tax Court Judge Martha Blood Wentworth granted Orbitz’s motion for summary judgment, writing that the travel company was not considered a “retail merchant” under Indiana tax law.
To be a retail merchant, state statute requires Orbitz to “rent” or “furnish” rooms to others for less than 30 days at a time. Although Orbitz’s agreement with the hoteliers gave the company the rights to market, sell or rent hotel rooms, Wentworth wrote that the agreement “merely provided Orbitz with the right to confirm a pre-paid reservation for a hotel room, while the hoteliers themselves … were alone able to transfer possession or control.”
The tax court judge based that opinion on the case of 2625 Building Corp. v. Deutsch, 385 N.E.2d 1189 (Ind. Ct. App. 1979), which held that a hotel’s obligation to transfer possession of its hotel rooms to customers who make pre-paid reservations with the hotel or a third party remains executory until the customer checks in or cancels.
“The facts in this case establish that the hoteliers, not Orbitz … delivered or transferred possession and control of hotel rooms to customer during the check-in process,” Wentworth wrote.
Further, she held that the fact that Orbitz is not a retail merchant relieves the travel company of liability for sales or innkeeper’s taxes “regardless of the statutory proclamation that each rental or furnishing of a hotel room is a unitary transaction.”
Tax – Untimely Objection
Lake County Trust Co., Trust No. 6, (Flowers for Heaven, Inc.) v. St. Joseph County Assessor
The Indiana Tax Court determined that a northern Indiana assessor’s office waived its objection to a late-filed certified administrative record in a tax appeal, ruling that an objection must be made before the merits of a case have been furthered.
Lake County Trust Co., Trust No. 6 (Flowers for Heaven Inc.) initiated an original tax appeal challenging a final determination of the Indiana Board of Tax Review. The board notified the trust by letter on May 6, 2016, that the certified administrative record was complete. But the trust did not file the administrative record until Sept. 13, after it filed its brief on the merits on Sept. 1 and after the assessor’s Sept. 7 motion to dismiss.
The trust failed to timely file the certified administrative record, so the assessor argued that the appeal should be dismissed. But the Tax Court determined that the assessor’s motion raising its objection was not timely.
The assessor maintained it was, citing Indiana Trial Rule 12(B), because it filed the motion within 20 days after the trust filed its brief. But the assessor’s motion was made after the trust filed its brief on the merits, and a brief is not a pleading, so Ind. Tr. Rule 12(B) does not “shelter the Assessor’s objection from waiver,” Judge Martha Wentworth wrote.
She cited the Indiana Supreme Court’s findings that an objection to an untimely filing of the record can be waived if not raised at the “appropriate time.” Although the court did not provide a bright-line rule, it did say that an objection must be made at the “earliest opportunity.”
Wentworth found this to mean that the “earliest opportunity” to object must precede the furtherance of the merits.
“Accordingly, the Court finds that an objection to the untimely filing of the certified administrative record in an appeal from a final determination of the Indiana Board must itself be filed before the merits of a case have been furthered. Here, the Assessor filed its Motion after the Trust filed its brief; at that point, however, the merits of the case had already been furthered. Consequently, the Assessor waived its objection to the Trust’s untimely filing of the certified administrative record,” Wentworth wrote.•