7th Circuit Court of Appeals
Criminal — Indianapolis Land Bank Fraud
United States of America v. David Johnson and Reginald T. Walton
15-3830 and 16-1471
Two men convicted in an elaborate fraud scheme involving the Indianapolis Land Bank have lost their federal appeal, with the 7th Circuit Court of Appeals ruling Nov. 3 there was sufficient evidence to support their multiple fraud convictions.
As manager of the city-run Indianapolis Land Bank, Reginald Walton was charged with overseeing the process of acquiring troubled properties and selling them for a productive use. But in May 2011, Walton began working with Aaron Reed, founder of Naptown Housing Group, in a scheme to make money off the properties in the Land Bank.
As part of the scheme, Walton would work with specific nonprofit organizations that he knew would transfer the properties back to Reed, Naptown or a private buyer and turn over profits from the sales. Once a property was sold to a nonprofit, Naptown would either sell the property to a private buyer, renovate it for sale or prepare it as a rental. Reed shared half of his profits with Walton in cash as a kickback for Walton pushing the property through his department, the Department of Metropolitan Development.
When some of the nonprofits Walton and Reed used for their earlier transaction became unavailable, David Johnson, who ran the nonprofit Indianapolis Minority Aids Coalition, began using IMAC to acquire Land Bank properties to sell for profit for the scheme participants. Johnson received money in exchange for assisting Walton and Reed.
Meanwhile, in August 2012, the Marion County Prosecutor’s Office charged Sheila Amos with selling properties she did not own to poor Hispanic families. Some of the properties were in the Land Bank, so Walton agreed to help the victims and told them they could purchase their homes through a nonprofit for either $1,000 or $2,500.
However, after pushing the sale of the properties through IMAC, Walton told the victims they had to pay $4,000 cash to benefit IMAC. Johnson kept the extra cash and paid a portion out to Walton.
In May 2013, the government indicted Walton, Johnson, Reed and other participants in their scheme alleging they committed honest services wire fraud. Additional charges of wire fraud and conspiracy to commit money laundering were alleged against Walton and Johnson, and a charge of receiving a bribe was alleged against Walton.
Reed and the other participants pleaded guilty and testified against Walton and Johnson, who were both found guilty as charged. Walton received an enhanced nine-year sentence, while Johnson received an enhanced 5½ year sentence.
Both men appealed, challenging the sufficiency of the evidence against them and the district court’s jury instructions. But the 7th Circuit Court of Appeals upheld both their convictions and sentences.
Judge Ann Claire Williams wrote the government offered “extensive evidence” to prove Walton intended to commit fraud and “deprive the City of his honest services by accepting bribes and kickbacks”. Similarly, evidence of Johnson’s participation in the scheme, including the fact that he wrote false entries on the memo line of kickback checks, proved his intent to commit fraud, Williams said.
Further, Williams said there was no question Walton intended to benefit from raising the prices on the Amos victims, so the evidence proves that he was guilty of wire fraud. The men also asked the court to vacate their money laundering convictions if their fraud convictions were overturned, but because the 7th Circuit affirmed those convictions, it also declined to vacate the money laundering convictions.
The 7th Circuit also found no plain error in the district court’s instructions to the jury, specifically rejecting Walton’s argument the jury was permitted to convict him of accepting a “gratuity,” rather than a bribe. The men were also not entitled to a good faith instruction because they were convicted of crimes that required the jury to find bad faith, the judge said.
Finally, the court upheld Walton and Johnson’s enhanced sentences because the district court correctly found Walton to be a high-ranking public official and the Amos victims to be “vulnerable victims.”
Indiana Supreme Court
Civil Tort — Employee negligence
Dale Sedam, Kim Sedam, and Bryan Norris, as co-personal representatives of the Estate of David C. Hamblin, Deceased v. 2JR Pizza Enterprises, LLC doing business as Pizza Hut #013413, et al.
Indiana precedent does not allow both a respondeat superior and negligent hiring claim against an employer to proceed if the employer has admitted their employee was acting within the course and scope of their employment when the negligence occurred, the Indiana Supreme Court ruled in an opinion that upheld partial summary judgment for Pizza Hut.
While making deliveries for Pizza Hut in August 2012, Amanda Parker collided with the back of David Hamblin’s scooter, knocking him into the street and putting him in the path of Ralph Bliton. Hamblin died from his injuries, and his estate brought a wrongful death suit against Parker, Bliton and Pizza Hut, alleging his death was caused by Pizza Hut’s negligent hiring, training and supervision of Parker. The suit also alleged Parker was negligent and that Pizza Hut was liable for that negligence under the doctrine of respondeat superior.
Pizza Hut moved for partial summary judgment in the Jefferson Circuit Court, arguing that because it admitted Parker was acting within the course and scope of her employment, it could only be held liable under the doctrine of respondeat superior. The trial court agreed and granted the motion for partial summary judgment.
However, the Indiana Court of Appeals reversed that decision last year, finding that Broadstreet v. Hall, 168 Ind. 192, 80 N.E. 145 (1907), controlled, so the estate could pursue both theories of recovery. The panel also found that outcome was more consistent with Indiana’s Comparative Fault Act.
The Indiana Supreme Court, excluding Justice Christopher Goff, heard oral arguments in the estate’s appeal in May, then upheld the grant of partial summary judgment to Pizza Hut in an Oct. 31 opinion.
Justice Mark Massa, who wrote for the unanimous court, first noted that the justices found the case of Tindall v. Enderle, 162 Ind. App. 524, 320 N.E. 2d 764 (1974), not Broadstreet, controlling. The Tindall decision began a line of precedent that holds that an employer’s admission that their employee was acting within the course and scope of his employment precludes negligent hiring claims, Massa wrote.
That question did not ever come before the Broadstreet court, he said.
“Under each claim, the plaintiff seeks the same result — employer liability — and recovery is based on the same negligent act — the employee’s,” Massa wrote. “To allow both claims would serve only to prejudice the employer, confuse the jury, and waste judicial resources when ultimately the result — that the employer is liable — is the same and the employer has stipulated as much.”
Further, the high court found the rule in Tindall to be consistent with Indiana’s Comparative Fault Act and the Restatement (Second) of Torts section 317. Thus, the partial grant of summary judgment to Pizza Hut was affirmed.
Civil Plenary — Whistleblower Act
Suzanne E. Esserman v. Indiana Department of Environmental Management
A divided Indiana Supreme Court has found that the state is immune from a non-tort claim made by a former state employee under the Indiana False Claims and Whistleblower Protection Act.
Suzanne Esserman, a former employee of the Indiana Department of Environmental Management, said she was fired in retaliation for calling attention to questionable payments from the excess-liability trust fund. She claimed the disbursements were made without proper documentation and many applicants received payments to which they were not entitled.
A split Supreme Court affirmed the Marion Superior Court’s dismissal of her lawsuit. The majority of justices found Indiana has not waived sovereign immunity because the Legislature did not “clearly evince” in the whistleblower statute that the state could be subjected to lawsuits for violations of the act. Esserman argued that under the whistleblower provision, Indiana Code section 5-11-5.5-8, the state is not immune. The language of Section 8 does not expressly prohibit a lawsuit against the state.
The Indiana Court of Appeals agreed and reversed the trial court’s ruling. The unanimous panel rejected the state’s argument that common law sovereign immunity applies, noting that in Section 8, the word “employer” is not defined and, therefore, does include the state.
However, the Supreme Court took a thorough review of the doctrine of sovereign immunity and concluded Indiana does retain common law sovereign immunity for non-tort claims. To waive immunity, the statute must be unequivocal and Section 8 fails in that regard.
“The statute, while clearly stating that an employee may sue her employer, does not name the State (or one of its agencies or officials) as a permissible whistleblower defendant,” Justice Geoffrey Slaughter wrote for the majority. “Had the legislature intended to subject the State to whistleblower liability, it could have expressed that intention any number of ways.”
Justice Steven David dissented, arguing the plain meaning of the term “employer” in the statute includes the state. He contended Esserman could bring a claim under against IDEM under the Whistleblower statute.
“While I agree with the majority that the legislature could have defined employer in this section to include the State, I do not believe that not including such a definition serves to exclude the State looking at the plain language here,” David wrote. “There is no limiting language indicating any exceptions or carve outs for the State or any other entity that has employees.”
Slaughter did point out state employees can find remedy under the State Personnel Act, I.C. 4-15-10-1, -4. Although the employee could receive 30 days back pay and reinstatement, the justice conceded the remedy is not as generous as that provided by the whistleblower act.
Miscellaneous — Civil Forfeiture
State of Indiana v. Tyson Timbs
The state of Indiana can move forward with its plan to seize a Land Rover worth more than $40,000 from a convicted heroin dealer after the Indiana Supreme Court ruled the Eighth Amendment does not bar the state from making such a forfeiture.
The justices handed down that decision Nov. 2 in State of Indiana v. Tyson Timbs, 27S04-1702-MI-70. That case began in January 2013, when Tyson Timbs used his father’s life insurance proceeds to purchase a Land Rover for roughly $42,000.
Timbs then used the Land Rover to buy and transport heroin throughout Marion until he was arrested as part of a series of controlled buys. The Land Rover had 1,237 miles on its odometer when Timbs purchased it, but by the time police seized it in May 2013, it had more than 17,000 miles.
In 2015, Timbs pleaded guilty to Class B felony dealing and Class D felony conspiracy to commit theft in exchange for the state dismissing a third charge against him. The Grant Superior Court sentenced Timbs to six years, with one year executed, while he agreed to pay $1,203 in fees and costs.
The state also moved to seize the Land Rover through civil forfeiture, but the trial court denied that action, finding the forfeiture would be an excessive fine under the Eighth Amendment. The court noted that the maximum fine for Timbs’ Class B felony was $10,000, but the vehicle was worth roughly four times that amount.
A divided panel of the Indiana Court of Appeals upheld that decision in October 2016, with Judge Michael Barnes dissenting. But after hearing oral arguments in March, the Supreme Court upheld the state’s forfeiture action.
Justice Geoffrey Slaughter, who wrote for the unanimous panel of justices, first wrote in his Thursday opinion that the Eighth Amendment’s Excessive Fines Clause has not been applied to the states through the Fourteenth Amendment. The U.S. Supreme Court noted in McDonald v. City of Chicago, 561 U.S. 742, 761-63 (2010) that the excessive fines clause has not been incorporated to the states, and Slaughter wrote the Indiana high court declined to “subject Indiana to a federal test that may operate to impede development of our own excessive-fines jurisprudence under the Indiana Constitution.”
“To be clear, our decision on incorporation should not be read to prejudge the merits of pending or prospective forfeiture challenges based on other provisions of state or federal law,” Slaughter continued. “Our narrow holding here is confined to the Court of Appeals’ reliance on a provision of the United States Constitution — the Excessive Fines Clause — that the Supreme Court has never enforced against the States.”
Slaughter then wrote the state proved it was entitled to forfeit the Land Rover under the statutory provisions in Indiana Code Section 34-24-1-1 (Supp. 2012) by proving that Timbs used the vehicle to transport and possess heroin to engage in illegal trafficking. Thus, the trial court’s decision was reversed, and the case was remanded to enter judgment for the state on its forfeiture complaint.
Indiana Court of Appeals
Civil Tort — Failure to Prosecute
Tony Petrovski v. Robert Neiswinger
Despite an almost two-year span with no action on a car-crash complaint, the Indiana Court of Appeals has ruled the plaintiff may move forward with the suit because the unique facts of the case do not warrant dismissal for failure to prosecute.
After Tony Petrovski and Robert Neiswinger were involved in a car collision in April 2013, Petrovski hired northern Indiana attorney Samuel Vazanellis to represent him in a complaint against Neiswinger. Two years later, just two days before the statute of limitations expired, Vazanellis filed a complaint against Neiswinger on Petrovski’s behalf and attempted to serve Neiswinger via certified mail. However, the service was returned as unsuccessful, and Vazanellis did not make a second attempt to serve Neiswinger.
Petrovski then entered a period of being unable to reach Vazanellis, who refused to return his calls throughout most of 2016. The Indiana Supreme Court suspended Vazanellis for noncooperation with an investigation against him in August 2016, then converted that suspension into an indefinite suspension in February.
When Petrovski learned of his counsel’s suspension in December 2016, he retained new counsel, who served Neiswinger with Petrovski’s complaint against him. Neiswinger moved to dismiss the complaint pursuant to Indiana Trial Rule 41(E) for failure to prosecute, and the Lake Circuit Court agreed to do so without prejudice.
On appeal, Petrovski argued the trial court abused its discretion in granting Neiswinger’s motion to dismiss. The Indiana Court of Appeals agreed, with Chief Judge Nancy Vaidik writing Oct. 27 that there are nine factors a court must balance when determining whether to dismiss a case for failure to prosecute, and the weight of each of those factors depends upon the facts of the case.
Here, Vaidik wrote five of the factors weigh in favor of allowing Petrovski to prosecute his complaint after a nearly two-year delay, as Neiswinger cites no evidence that he was prejudiced by the delay. Further, Petrovski acted to retain new counsel and move the case forward before Neiswinger moved to dismiss, Vaidik wrote, and “there is a clear preference for deciding cases on the merits.”
Thus, when considering Vazanellis’ “complete abdication of his duties,” the appellate court found dismissal of Petrovski’s complaint was an abuse of discretion.
A similar case involving Vazanellis is before the Indiana Supreme Court. In Elizabeth Roumbos v. Samuel G. Vazanellis, et al., 45S03-1710-CT-00635, Elizabeth Roumbos sued Vazanellis and the Thiros & Stracci law firm for malpractice after Vazanellis failed to file a negligence complaint on Roumbos’ behalf within the applicable statute of limitations. The Lake Superior Court found in favor of the firm, but the Court of Appeals reversed in February.
Criminal — Broadcast of Court Audio
WPTA-TV v. State of Indiana And John C. Mathew
The Indiana Court of Appeals has upheld a trial court ruling that prohibited a Fort Wayne TV station from broadcasting audio from a sentencing hearing it obtained through a public records request, finding the trial court’s ruling complied with both local rules and the First Amendment.
During the sentencing hearing for John C. Mathew, a prominent physician who pleaded guilty to two counts of felony sexual battery, the Huntington Circuit Court imposed a two-year sentence on each count, with both sentences to run consecutively and the entire sentence suspended to probation. Mathew was also required to register as a sex offender.
That sentence generated heavy community interest and sparked protests from some residents who were concerned with Mathew’s lack of jail time, Jonathan Shelley, news director for WPTA-TV in Fort Wayne told the Indiana Lawyer in an earlier interview. Thus, as part of its reporting on Mathew’s conviction, WPTA-TV submitted an access to public records request to receive the audio from the hearing, documents submitted as evidence, and private letters submitted on behalf of Mathew and his victims.
In response to that request, Huntington Circuit Judge Thomas Hakes issued an order stating that the court was required to provide the requested records, but that the TV station could not broadcast any portion of the record, subject to contempt of court. Hakes then denied a subsequent motion to reconsider, finding that Administrative Rule 9(D) required him to provide a copy of the record, but that Judicial Conduct Rule 2.17 required him to prohibit broadcasting. Rule 2.17 prohibits broadcasting, televising, recording or photographing court proceedings without prior approval or in an excepted situation.
WPTA then took its case to the Indiana Court of Appeals, arguing that Rule 2.17 applies to cameras actually used in the courtroom, but the station was seeking to broadcast an audio recording that was both made and provided by the court. Several media organizations, including the Society of Professional Journalists and the Indiana Broadcasters Association, supported WPTA’s appeal, though the Hoosier State Press Association declined to join the TV station’s case as an amicus.
However, the Indiana Court of Appeals upheld Hakes’ decision in an Oct. 31 opinion. Judge Patricia Riley, writing for the panel, said the trial court complied with both Administrative Rule 9(D) and Judicial Conduct Rule 2.17 when it provided the requested audio recording while “manag(ing) the access to its audio recording.”
“Permitting the audio of a proceeding to be broadcast to the public in general by way of any type of media, would have an intimidating impact, not only on the behavior of the witnesses and other actors — causing possible fear and reluctance to testify — but also on the openness and candidness of any trial testimony,” Riley wrote. “We perceive no difference between the effect of broadcasting a hearing ex post facto versus the contemporaneous dissemination of the proceeding.”
WPTA also raised a First Amendment “gag order” challenge against the trial court, but the appellate panel rejected that argument, as well. The broadcasting prohibition does not prevent the station from reporting on Mathew’s sentencing, Riley wrote, but rather only prohibits the dissemination of the audio.
The appellate court further determined Rule 2.17 is content-neutral as it applies to all audio recordings of hearings and proceedings. Additionally, because the state narrowly tailored the rule “to advance its legitimate interest without overly burdening free expression…,” it passes the intermediate scrutiny test, Riley said.
Civil Tort — Waiver of Subrogation
Performance Services, Inc., an Indiana Corporation and Huntingburg Machine Works, Inc., an Indiana Corporation v. Hanover Insurance Company, as Subrogee of the Southwest Dubois County Schools
An insurance company cannot seek reimbursement from two contractors on a claim it paid on behalf of its insured because the insured’s contract with the contractors contained a subrogation waiver that bars the insurer’s negligence claim, the Indiana Court of Appeals ruled Oct. 31.
In April 2009, Southwest Dubois County Schools executed a contract with The Skillman Corporation to serve as the construction manager for a renovation project at Southridge High School. Under the contract, the school district and construction manager waived all subrogation against each other and all contractors for any damage that occurred during the project that was covered by property insurance.
The school district then contracted with Performance Services, Inc. to install an HVAC replacement system, and PSI, in turn, subcontracted with Huntingburg Machine Works, Inc. to complete work on the HVAC installation. The contract with PSI did not include a subrogation waiver, but the subcontract with Huntingburg did contain a clause that waived subrogation against PSI or the district.
At one point during the construction project, water escaped from an uncapped pipe and caused damage to the high school’s computer, phone and intercom processing equipment. The school district reported the damage to its insurer, Hanover Insurance Company, who settled the insurance claim for the full amount of $696,661.71.
Then, two years later, Hanover, as the district’s subrogee, filed suit against PSI and Huntingburg for negligence and sought to be reimbursed for the insurance claim. The contractor and subcontractor moved for summary judgment, arguing Hanover’s claims were barred by the waiver subrogation in the construction manager contract. Hanover filed a cross-motion for summary judgment, but the Dubois Circuit Court denied both motions.
PSI and Huntingburg then filed an interlocutory appeal arguing the trial court erred in denying their joint motion for summary judgment, and the Indiana Court of Appeals agreed. Specifically, Judge Elaine Brown wrote that PSI and Huntingburg are considered “contractors” under the subrogation waiver in the construction manager contract. Thus, “(t)he language of the Construction Manager Contract supports the conclusion that the intent of the parties was to waive all subrogation claims against contractors and subcontractors,” Brown wrote.
“The absence of waiver-of-subrogation language and the inclusion of an integration clause in the PSI Contract do not convince us otherwise,” the judge wrote. “The waiver-of-subrogation clause in the Construction Manager Contract waived any rights of Hanover to seek compensation from PSI and Huntingburg.”
The appellate panel reversed the denial of summary judgment to PSI and Huntingburg and remanded the case for summary judgment to be entered in their favor.•