Indiana Court Decisions, Nov. 22-Dec. 5

7th Circuit Court of Appeals

Nov. 22

Civil — Habeas Petition

David Mark Frentz v. Richard Brown


An Indiana man convicted of shooting and killing his roommate will not be granted habeas relief after the 7th Circuit Court of Appeals determined the man did not receive ineffective assistance of counsel just because his attorney did not pursue an insanity defense.

After David Frentz stopped drinking alcohol on the advice of his doctor, he began to complain of hallucinations. Concerned about Frentz’s mental state, his friend, Carl Brock, began calling Frentz repeatedly on Jan. 23, 2005 and reached him at 3:30 a.m. the following morning.

During the early-morning phone call, Brock heard Frentz yelling at Zackary Reynolds, his roommate. Frentz later called 911 and told police multiple people had broken into his house and were shooting off guns, injuring a friend in the chest.

However, officers found no sign of any traffic outside the home when they arrived. Instead, they found Frentz, who looked disoriented, an assault rifle and Reynold, who was dead after having been shot three times at close range.

Once he was taken into custody, Frentz gave varying accounts of the shooting to police and fellow inmates, including admitting to purchasing drugs the weekend of the shooting. He was ultimately charged with Reynolds’ murder, as well as related drug charges, and filed a notice to pursue an insanity defense.

However, Frentz’s counsel later chose to withdraw an expert witness set to testify as to Frentz’s mental state, effectively ending the insanity defense. But his counsel did present some evidence at trial to support an insanity defense, including the fact that he told Brock he had been hallucinating the night before the shooting.

The jury found Frentz guilty as charged, and the Indiana Court of Appeals affirmed. The appellate court also affirmed the denial of his petition for post-conviction relief, finding he had not received ineffective assistance of counsel.

Frentz then petitioned for habeas relief, which the U.S. District Court for the Southern District of Indiana rejected. Though Frentz raised multiple arguments in his petition, the 7th Circuit Court of Appeals chose to address only one on appeal: whether his counsel was ineffective for not pursuing an insanity defense.

The circuit court upheld the denial of Frentz’s petition in a Nov. 22 decision. Judge Sara Darrow, sitting by designation on the 7th Circuit bench from the Central District of Illinois, wrote for the appellate panel that counsel’s decision not to pursue the insanity defense was a permissible strategic decision.

Specifically, Darrow said the expert set to testify as to Frentz’s mental state could offer “no further opinion” as to whether he was suffering from hallucinations when he shot Reynolds. Further, Darrow noted Frentz changed his story several times, which indicated a cover up, not confusion.

Finally, the 7th Circuit determined Frentz was not prejudiced by his counsel’s decision not to pursue an insanity defense, considering his attorney did present evidence of his decision to quit drinking and his subsequent possible hallucinations.

“It is difficult to see how the addition of (an expert’s) … medical analysis of such symptoms would have lent more weight to counsel’s argument, or how a jury, given the added option to find Frentz not guilty by reason of insanity, would have done so on the strength of just this evidence, when, in the event, that same jury did find him guilty of a knowing or intentional killing,” Darrow wrote.

Dec. 4

Civil — Dismissal of Tenured Teacher

Joseph R. Elliott v. Board of School Trustees of Madison Consolidated Schools


The 7th Circuit Court of Appeals has struck down the retroactive application of an Indiana law that removed job security protections for tenured teachers, finding the application to teachers who were tenured before the law took effect is a substantial impairment to their constitutional contractual rights.

Indiana first passed its teacher tenure law in 1927, allowing teachers to earn tenure after working in a school corporation for five or more successive years. Indiana courts have interpreted that law to mean school districts must retain qualified tenured teachers over non-tenured teachers if layoffs are necessary.

However, after the Indiana General Assembly passed Senate Bill 1 in 2011, the state established a teacher-evaluation regime that stripped tenured teachers of their protections during layoffs. Beginning with the 2012-2013 academic year, SB 1 required schools to select which teachers to lay off based on performance rather than seniority.

Because of the law change, the Madison Consolidated School Board decided in 2012 to terminate Joseph Elliott, a 19-year veteran teacher at Dupont Elementary School, where he was tenured. Elliott’s termination came as part of the school district’s decision to lay off six teachers due to declining enrollment.

However, the board chose to retain six non-tenured teachers for positions for which Elliott was qualified. He sued the school district in January 2013, and the Indiana Southern District Court granted his motion for summary judgment, finding the layoff provisions of SB 1 violated the constitutional contract clause when applied retroactively to teachers who were tenured before the law took effect. Further, the district court determined SB 1 was a substantial impairment under the contract clause and awarded Elliott back pay and attorney fees.

The 7th Circuit Court of Appeals upheld the district court’s ruling on appeal Dec. 4, with Judge David Hamilton agreeing that retroactive application of SB 1 to teachers who were tenured before its passage impaired their contractual job security rights, as well as their tenure contracts. He pointed to precedent from cases such as Indiana ex rel. Anderson v. Brand, 303 U.S. 95, 104 (1938) and Watson v. Burnett, 23 N.E.2d 420, 423 (Ind. 1939) as support for that ruling.

Further, the job security that accompanied Elliott’s tenure was a “central term” to induce him, and other tenured teachers, to teach in Indiana, Hamilton said. That reality, coupled with the fact that the change in law brought about by SB 1 was unforeseeable to tenured teachers, makes the retroactive application of the 2011 law a substantial impairment to their constitutional contractual rights, the judge said.

Finally, Hamilton wrote applying the layoff provisions of SB 1 to teachers such as Elliott was not reasonable and necessary to serve a public purpose, considering SB 1 “does not change the state’s power to fire ineffective teachers.”

“The Contract Clause does not saddle the State forever with a teacher-tenure system that its policymakers have come to think is bad for public education,” the judge wrote. “The Constitution does not prevent the state from changing the promises it makes on a prospective basis to new teachers. … Having restricted tenure for new teachers, the State and its school districts were and are free to buy out the tenure rights of more senior ones.”

Indiana Supreme Court

Dec. 5

Criminal — Juvenile Life Without Parole Sentence

Carltez Taylor v. State of Indiana


In a 3-2 decision Dec. 5, the Indiana Supreme Court reduced a life without parole sentence for an offender convicted of murder at 17, finding LWOP sentences should be reserved for the most “heinous” juvenile offenders. The dissenting justices, however, found the nature of the crime in question warranted a life sentence.

While hanging out with friends in November 2015, 17-year-old Carltez Taylor, who had recently been released from a juvenile boot camp, loaded a magazine into a gun his friend had brought with him and stuck the gun in his waistband. Later in the evening, one of Taylor’s friends, D.G., began texting her boyfriend, J.W., which angered Taylor.

Taylor and the other teenage boys present then began discussing a plan to fight J.W. They told D.G. to convince J.W. to come over. J.W. agreed to meet D.G. on a nearby street corner, where she made him wait under the guise of waiting for her sister to arrive. But while J.W. and his nephew, T.S., were standing on the corner, Taylor emerged and opened fire with his friend’s gun, striking J.W. in the back and killing him.

Both D.G. and T.S. recognized Taylor as the shooter. After he fled the scene, the 17-year-old returned to D.G.’s house and threatened to kill her if she told anyone what she had witnessed. Taylor and the other boys then hid the gun, magazine and hoodie Taylor had been wearing, but when T.S.’s family told police that Taylor was the shooter, D.G. led detectives to the hidden evidence.

Taylor eventually turned himself in and was charged with murder, attempted murder and conspiracy to commit murder. Two days before trial, the state amended the conspiracy count to reflect that another teen had supplied the gun, and Taylor objected on timeliness grounds. The court overruled the objection, but did agree to bar a state’s witness from referring to Taylor by his nickname, “Looney the Shooter.”

However, the state and a witness did refer to Taylor by his nickname, though his counsel did not object.

A jury eventually found Taylor guilty of the murder and conspiracy charges and recommended a sentence of life without parole. The Vanderburgh Circuit Court agreed, making Taylor only the fifth juvenile in Indiana history to receive an LWOP sentence.

Taylor challenged his convictions and sentence on the basis of his age during oral arguments before the Indiana Supreme Court in June, and the divided court ultimately revised his sentence to an aggregate 80 years.

Chief Justice Loretta Rush, writing for the majority, first said that while the use of the name “Looney the Shooter” was improper, it did not amount to fundamental error considering the other “strong” evidence against Taylor. Rush further concluded the state’s charging amendment made two days before trial was formal, rather than substantive, because it did not prejudice Taylor’s substantial rights. The amendment also did not prejudice his defense that challenged the identity of the shooter, so it was not untimely, she said.

The chief justice wrote there was “ample circumstantial evidence” to imply a conspiracy to murder J.W., including Taylor’s discussions with the other teenage boys about fighting J.W., D.G.’s agreement to convince J.W. to come over and wait for her “sister,” and the teens’ efforts to hide the evidence after the shooting. The court also left Taylor’s 35-year concurrent sentence on the conspiracy charge intact.

However, the majority of justices ultimately chose to lessen Taylor’s murder sentence to 80 years, considering the immaturity that accompanied Taylor’s age and the inability he would have to improve his character if he never had the opportunity to get out of prison. Additionally, compared to the “drawn out” nature of the murder in Conley v. State, 972 N.E.2d 864, 880 (Ind. 2012) — the only juvenile LWOP case the court has upheld — J.W.’s death was “nearly instantaneous.”

“Our collective judgment is that Taylor’s character and the nature of his offense — grievous as it was — do not warrant making him Indiana’s fifth juvenile sentenced to a guaranteed death in prison,” Rush wrote.

The court’s decision was unanimous except on the central issue of whether the LWOP sentence should be upheld. Justice Geoffrey Slaughter, writing in a dissenting and concurring opinion joined by Justice Mark Massa, said Taylor’s actions reflected a disregard for human life, and his past criminal history did not support his argument for a more lenient sentence on the grounds of his character.

“…I disagree that Conley set a floor below which any juvenile whose offense is thought to be any less monstrous will obtain 7(B) relief,” Slaughter wrote. “That is the trend and, I fear, the implication of today’s decision. As the Court recognizes, the point of rule 7(B) is to ‘leaven outliers,’ to not achieve some perceived correct sentence, whatever that means.”

Indiana Court of Appeals

Nov. 27

Criminal — Carrying Handgun Without License

William Wilson v. State of Indiana


A man convicted of carrying a handgun with a license that had expired six days prior to his arrest has lost his appeal of his conviction, with the Indiana Court of Appeals ruling there was sufficient evidence to prove the license was no longer valid.

William Wilson was in possession of a handgun when he was pulled over by a police officer, whom he told he had a license for the gun. However, the license Wilson showed the officer was expired, so he was arrested, charged and convicted of Class A misdemeanor carrying a handgun without being licensed.

On appeal, Wilson argued the evidence was insufficient to support his conviction, but the Indiana Court of Appeals disagreed. Writing for the unanimous appellate panel in a three-page opinion, Judge Melissa May said Wilson had admitted to being in possession of the gun on March 18, 2016, while the license he gave the officer had expired six days priors.

“Therefore, Wilson possessed a handgun without being properly licensed,” May wrote. “Without a valid license, Wilson was in violation of the law.”

In a footnote to the Nov. 27 opinion, May also addressed Wilson’s argument that Indiana Code section 35-47-2-1 “’requires proof of a culpable mental state.’” The appellate court rejected that argument, with May writing that “Wilson’s knowledge (of) whether his license expired is not an element of the crime” of possession without a license. She specifically referenced R.T. v. State, 848 N.E.2d 326, 330-31 (Ind. Ct. App. 2006), which held that “because the crime is defined as carrying a handgun without also possessing a valid license, only presentation of a license that was valid at the time the handgun was carried would negate the crime.”

Nov. 28

Miscellaneous — Habeas Petition

Bennie Hale v. Keith Butts


An Indiana man released on parole and later arrested in Florida was not entitled to a writ of habeas corpus or credit time in Indiana because Indiana authorities never discharged his parole and “turned him over” to their Florida counterparts, the Indiana Court of Appeals ruled Nov. 28.

Bennie Hale received a 12-year sentence in 2010 for his convictions of unlawful possession of a firearm by a serious violent felon and criminal confinement. About four years later, Hale was released on parole under the condition that he would not engage in illegal conduct.

On the same day of his release, authorities from Florida picked Hale up on an outstanding Florida warrant, and he was subsequently convicted of felony grand theft in the southern state. He was released on his own recognizance in January 2015 and remained in Florida.

That same month, Indiana began submitting a series of three requests for Florida to transfer Hale back to Indiana, but each of those requests were denied. Hoosier authorities then directed Hale to return to Indiana for a meeting with parole authorities, but Florida authorities arrested him against shortly before he was scheduled to return, this time for possession of a firearm by a felon.

On the same day as his second Florida arrest, the Indiana Division of Parole Services determined Hale had violated his parole by engaging in criminal conduct in Florida. Thus, after serving time in the Florida Department of Correction, Hale returned to Indiana, admitted to violating his parole and was ordered to serve the remainder of his 2010 sentence.

Hale then filed a petition for a writ of habeas corpus with the Henry Circuit Court, where he alleged he was being illegally detained. The trial court denied that motion and granted the state’s motion for summary disposition, determining the petition was one for post-conviction relief.

Hale appealed, and the Indiana Court of Appeals initially noted that the trial court incorrectly treated the petition in question as a PCR petition when it was correctly captioned as a petition for a writ of habeas corpus. However, Hale requested the court decide the merits of the case despite that error.

Looking to the merits, Judge Mark Bailey determined the trial court did not err in denying the petition, writing the Indiana Parole Board never stated it intended to discharge Hale from his sentence, nor did it say it was “turning over” Hale to Florida authorities. Additionally, the fact that Indiana authorities requested Hale’s return from Florida is evidence he was still under his Indiana parole agreement, Bailey said.

The appellate panel further determined Hale’s parole period – originally scheduled to expire on Nov. 27, 2016 – did not ultimately expire because it was statutorily tolled by the issuance of a warrant for his arrest due to a parole violation. The court also pointed to existing caselaw to determine a defendant is not “‘entitled to credit on his Indiana sentence while he is incarcerated in another jurisdiction for a totally different offense.’”

Nov. 29

Criminal — Public Intoxication

Alan Ruiz v. State of Indiana


The Indiana Court of Appeals has affirmed a Clark County man’s conviction of public intoxication after determining there was sufficient evidence to infer the man was in imminent danger of breaching the peace.

In Alan Ruiz v. State of Indiana, 10A05-1702-CR-311, Jeffersonville Police Department officers were dispatched to the King Solomon apartments on three different instances in one day for complaints related to Alan Ruiz, a resident. The callers claimed Ruiz was intoxicated and was causing a disturbance outside of the apartments, including yelling racial slurs.

After the second dispatch, officers told Ruiz he would be incarcerated if they had to return. Officer Alyssa Wright followed through on that warning when she responded to the third complaint against Ruiz, and the state charged him with Class B misdemeanor public intoxication.

The charging information alleged Ruiz either breached or was in imminent danger of breaching the peace. Ruiz’s counsel argued Wright’s observations of him yelling at fellow residents and being aggravated with her did not rise to that level, but the trial court disagreed and found him guilty as charged.

Ruiz appealed, challenging the sufficiency of the evidence against him, but the Indiana Court of Appeals upheld his conviction on Wednesday. Judge Rudolph Pyle, writing for the unanimous appellate panel, agreed with the trial court that it was “perfectly reasonable to believe that Mr. Ruiz was an imminent danger of breaching the peace.”

“Based on the evidence presented, it was reasonable for the trial court, as factfinder, to draw an inference that Ruiz — who was undoubtedly intoxicated in a public place; had behaved in a manner that required the police to come two previous times to respond to residents’ complaints about Ruiz; was yelling at residents; was admittedly ‘furious’ and had a ‘little attitude’ with the officer; and was being uncooperative with the officer — was in imminent danger of breaching the peace or disturbing the public tranquility when Officer Wright responded for a third time to the apartments,” Pyle wrote. “Accordingly, we affirm his public intoxication conviction.”

The appellate court also noted in a footnote that there was a discrepancy between the Judgment of Conviction and Sentence — which suggests Ruiz pleaded guilty — and the transcript of the bench trial, which confirmed the court convicted him. Thus, the case was remanded to correct the written order to correctly reflect that judgment was entered pursuant to a bench trial.

Miscellaneous — Mandate Petition

Michelle Miller, Town of Sellersburg Clerk-Treasurer v. Town Board of Sellersburg, Indiana


The Sellersburg clerk-treasurer who sought a mandate requiring the town board to give her funds for a second deputy clerk has lost her appeal of the denial of her request. The Indiana Court of Appeals determined state statute gives the legislative body oversight over the number of deputy clerks.

In October 2015, the Town Board of Sellersburg unanimously approved an ordinance that funded two deputy clerks in Michelle Miller’s office as town clerk-treasurer. The board then passed a second ordinance two months later, eliminating the funding for one of those deputy clerks.

Miller responded by filing a petition for mandate, asking the Clark Circuit Court to reinstate the budget approved by the original ordinance. She then moved for summary judgment on the grounds that she was entitled to judgment as a matter of law because under I.C. 36-5-6-7, the clerk-treasurer, not Town Board, “shall appoint the number of deputies and employees needed for the effective operation of the office … .”

The town filed a cross-motion for summary judgment, arguing the statute goes on to say the clerk-treasurer’s appointments are subject to “the approval of the town legislative body.” The trial court granted summary judgment in favor of the board, prompting the instant appeal.

On appeal, Miller argued the trial court erred in its interpretation of I.C. 36-5-6-7, but the Indiana Court of Appeals disagreed. In a Nov. 29 opinion, Judge Rudolph Pyle wrote the plain language of the statute, which tracks the language addressed by the town, “clearly states that the clerk-treasurer’s appointment of deputies and employees needed for the operation of that office required the approval of the town legislative body.”

“Here, the Town Board’s unanimous approval of (the second ordinance), which eliminated funding for one of Miller’s deputy clerks, indicates that the Town Board did not approve of Miller’s appointment of two deputy clerks,” Pyle wrote in the five-page unanimous opinion. “Accordingly, the trial court did not err in granting summary judgment in favor of the Town Board.”

Nov. 30

Juvenile — Criminal Confinement

D.J. v. State of Indiana


A juvenile adjudicated as a delinquent for armed robbery will remain in the Department of Correction, though the Indiana Court of Appeals reversed his adjudications for criminal confinement in a Thursday decision.

In January 2017, D.J., along with three other juveniles, entered an apartment building and ordered four children playing in a stairwell to give them their money and cellphones. When 12-year-old R.R., one of the children, refused, one of D.J.’s cohorts held a gun to R.R. and his 12-year-old cousin’s head and chests until they complied.

When the young children reported what had happened, R.R.’s father went searching for the perpetrators and found them at a gas station. Police were then called, and after the children identified D.J., he was arrested.

The state filed a delinquency petition against D.J., alleging he committed two counts of armed robbery and two counts of criminal confinement against R.R. and his cousin, all Level 3 felonies if committed by an adult. The Marion Superior Court entered true findings against D.J. on each of the allegations and adjudicated him as a delinquent child, prompting his appeal in D.J. v. State of Indiana, 49A05-1704-JV-673.

On appeal, D.J. first argued the true findings violate double jeopardy protections in the Indiana Constitution. After dismissing the state’s argument that double jeopardy prohibitions don’t apply to juvenile proceedings, the Indiana Court of Appeals agreed the true findings against D.J. violate double jeopardy protections.

Judge Margret Robb wrote there was a reasonable possibility the trial court used identical evidentiary facts — including the facts that D.J. and his cohorts entered the apartment building and robbed two of the children at gunpoint — to convict D.J. of armed robbery and criminal confinement.

Robb went on to say the confinement was no greater than what was necessary to complete the robbery, so there was no less serious form to reduce the offenses to. Instead, she noted the juvenile court committed D.J. to the Indiana Department of Correction, which is permissible under Indiana Code section 31-37-19-9(b) when a delinquent has committed armed robbery. Thus, the appellate panel let the disposition stand and reversed D.J.’s adjudications for criminal confinement.

D.J. also raised a sufficiency of the evidence argument, which the appellate court rejected. Robb pointed specifically to evidence of D.J.’s presence during the commission of the crime, his willingness to participate and his decision to flee the scene as sufficient evidence to support his conviction.

Criminal — Probation Fees

Kristofer Polk v. State of Indiana


The Marion Superior Court must hold an indigency hearing and correct its failure to impose probation fees on a man convicted of a felony after the Indiana Court of Appeals determined Nov. 30 that state statute requires the imposition of probation fees for felony convictions.

Kristofer Polk was convicted of Level 4 felony unlawful possession of a firearm by a serious violent felon, Level 5 felony possession of cocaine and Level 6 felony resisting law enforcement. The Marion Superior Court imposed an aggregate sentence of nine years, a portion of which was suspended to probation, found Polk to be indigent and ordered the probation department to conduct a financial assessment.

Then in its written sentencing order, the trial court said it was assessing $0 in court costs against Polk, but was silent on the amount of probation fees. However, Polk’s probation order contained a “standard condition” requiring him to pay all fines, costs, fees and restitution as directed.

Probation fees were never imposed, so Polk appealed, arguing the trial court’s order for the probation department to conduct a financial assessment was an improper delegation of its authority. While the Indiana Court of Appeals agreed the trial court erred, Judge Rudolph Pyle wrote the appellate court’s logic was different than Polk’s.

Under Indiana Code section 35-38-2-1(b), the trial court “shall” impose probation fees if a person is convicted of a felony, as Polk was here. Thus, because the trial court did not follow its statutory requirement to impose probation fees on Polk, it abused its discretion, Pyle said.

The appellate court remanded Polk’s case to the trial court to impose probation fees and to hold an indigency hearing. Pyle pointed to Johnson v. State, 27 N.E.3d 793, 795 (Ind. Ct. App. 2015), which held that trial courts must hold indigency hearings for probation fees.

Johnson also held that, “(a)t the latest, an indigency hearing for probation fees should be held at the time a defendant completes his sentence,” Pyle said. Thus, the appellate court ordered the trial court on remand to hold Polk’s indigency hearing when he has completed the executed portion of his sentence. Additionally, Pyle wrote in a footnote that the indigency hearing would have to be held before the trial court could revoke probation on the basis of a failure to pay fees.

Domestic Relation — Trusts in Marital Pot

Joseph H. Harrison, Jr. v. Terry Royal Harrison


An Indiana trial court correctly determined that a woman’s interests in discretionary family trusts are too remote and speculative to be included in the marital pot as part of her dissolution proceedings, the Indiana Court of Appeals ruled Nov. 30.

During her marriage to Joseph Harrison, Terry Royal Harrison’s father established six irrevocable family trusts that made distribution discretionary at the hands of Royal Harrison and her sisters, who could approve distributions by a majority vote. Each of the sisters took a $50,000 distribution in 2013, 2014 and 2015.

In 2015, Joseph Harrison filed for divorce, then subsequently petitioned for his wife’s interests in the trusts to be counted as marital assets. Royal Harrison filed a response in which she claimed the trusts could not be considered part of the estate because they were subject to discretionary distributions, so they were “too remote” to be considered assets.

The Vanderburgh Superior Court denied the husband’s petition, agreeing with Royal Harrison that her interests were “too remote and speculative for the inclusion of any trusts as marital property… .”

Joseph Harrison then filed this interlocutory appeal, arguing the trial court abused its discretion. But the Indiana Court of Appeals disagreed, with Judge Rudolph Pyle writing that under the terms of the trust, Royal Harrison would take nothing from the trusts if she died before her parents. Thus, the trusts “are subject to a complete defeasance,” Pyle said, drawing on precedent from Loeb v. Loeb, 261 Ind. 193, 301 N.E.2d 349 (1973) and Fiste v. Fiste, 627 N.E.2d 1368, 1372 (Ind. Ct. App. 1994).

“In addition, during her lifetime, Wife will receive nothing unless a majority of the co-trustees elect to make a disbursement,” Pyle continued. “The Royal Family Trusts do not require them to do so. As in Loeb and Fiste, Wife’s interests in the Royal Family Trusts are too remote.”

In a footnote to the unanimous opinion, Pyle further rejected Harrison’s argument that his wife’s receipt of distributions in 2013, 2014 and 2015 should be included in the marital pot.

Dec. 4

Civil Plenary — Charter School Tort Claim

Flanner House of Indianapolis, Inc. v. Flanner House Elementary School, Inc., Aliza Anderson, Chi Blackburn, Lorri Bryant, Dr. Cathi Cornelius, Robert Dotson, Brooke Dunn, Frances L. Hudson, et al.


An Indiana trial court properly granted summary judgment in favor of a charter school organizer under the Indiana Tort Claims Act because an organizer and charter school jointly make up the statutory definition of a “charter school,” the Indiana Court of Appeals ruled Monday. The appellate panel also upheld the constitutionality of classifying a charter school as a “governmental entity.”

In February 2002, Flanner House Elementary School, Inc. entered into a charter school agreement to establish Flanner House Elementary School, which remained operational until its charter was revoked in September 2014. While the elementary school was operational, the corporation leased its building from Flanner House of Indianapolis, Inc., a separate nonprofit corporation.

Nearly a year after the elementary school’s charter was revoked, Flanner House of Indianapolis sued the corporation for breach of contract and the corporation and its directors, officers and other defendants for negligence and fraud, among other claims. Flanner House alleged the elementary school corporation failed to pay its monthly rent, while the corporation and its directors and officers breached their duty by failing to hold regular meetings or adequately oversee the school.

After the Marion Superior Court dismissed all of the fraud claims on Flanner House’s motion, the defendants moved for summary judgment, arguing Flanner House failed to provide them with notice under the Indiana Tort Claims Act. The trial court entered summary judgment in favor of the defendants, prompting Flanner House of Indianapolis’ instant appeal.

On appeal, Flanner House first argued the trial court erred in granting summary judgment on the issue of its compliance with the Indiana Tort Claims Act’s notice requirement. But Indiana Court of Appeals Senior Judge Ezra Friedlander, writing in a Monday opinion, said Flanner House Elementary School, Inc., as the charter school organizer, was jointly considered a “charter school” with the actual elementary school under Indiana Code section 34-6-2-49(a).

Thus, the corporation was considered a “governmental entity” that would trigger the act’s notice requirement, Friedlander said. Similarly, the notice requirement also applies to employees of governmental entities, which made summary judgment appropriate to the directors and officers, he said.

Flanner House of Indianapolis next argued that extending the notice and governmental immunity provisions of the act violated equal protection, immunity and open courts provisions in the Indiana Constitution, but the appellate panel also struck those claims down. Specifically, Friedlander said charter schools are statutorily considered public schools, so they are “reasonably classified by the legislature as governmental entities under the Act … .”

“We conclude the disparate application of the Act in this instance constitutes treatment that is reasonably related to the inherent characteristics that differentiate charter schools from private schools and other nonprofit corporations,” the senior judge wrote, addressing Flanner House’s claims under Article I, Section 23 of the Indiana Constitution.

“Similarly, the extension of the immunity provision of the Act to a charter school and its organizer … is a rational means to achieve the legitimate legislative goal of protecting the public treasury,” Friedlander continued. “Accordingly, we conclude that Indiana Code sections 34-23-3-3 and 34-6-2-49(a) reflect a proper exercise of the legislature’s authority and do not violate article I, section 12 of the Indiana Constitution.”

Indiana Tax Court

Nov. 30

Tax — Disputed Assessments

The University of Phoenix, Inc. v. Indiana Department of State Revenue


Proposed assessments against an Arizona-based university that offers online classes to Indiana students have been thrown out after the Indiana Tax Court determined the university properly followed statutory procedure by not sourcing its receipts for Indiana students to the Hoosier state.

When the University of Phoenix filed its Indiana adjusted gross income tax returns for the 2009, 2010 and 2011 tax years, it did not source any of its receipts from its online students to Indiana because it determined the majority of its activities were performed in Arizona. However, after conducting an audit, the Indiana Department of State Revenue determined the university should have sourced receipts for online students with an Indiana billing address to the state. Thus, the department issued proposed assessments for additional AGIT liabilities, interest and penalties against the school.

The department denied the university’s subsequent protest, but did abate the penalties for each of the three tax years. The school then filed its appeal, and the Indiana Tax Court ruled in favor of the school.

Writing in Nov. 30 opinion, Tax Court Judge Martha Wentworth agreed with the school’s definition of its income-producing activities, a term used in Indiana Code section 6-3-2-2(f). Those activities include the school’s eCampus platform and classroom instruction, its curriculum development and its graduation teams, which work with students individually to ensure they stay on track to graduate.

Further, under I.C. 6-3-2-2(f)(2), income-producing activities can be sourced to Indiana only if it is the location where the greater proportion of the costs of performing those activities are located. Thus, the department erred in employing a market-based, rather than cost-based, analysis to determine where to source the receipts from online Indiana students, Wentworth ruled.

Finally, Wentworth wrote that Indiana broadly defines income-producing activities as “the act or acts directly engaged in by the taxpayer for the ultimate purpose of obtaining gains or profit.” Thus, the university was not required to take a transaction-by-transaction approach when conducting its cost study to define income-producing activities.

Taking the definition in that context, the judge then agreed with the school that the greater portion of the costs of performing the income-producing activities was incurred in the school’s Arizona offices, rather than Indiana. Thus, the department’s proposed assessments for the three tax years at issue were erroneous and were vacated.•

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