Boulder-Maxx, LLC, Andrew T. Gutwein, and Jeffrey L. Baumgartner v. Richard Haby (mem. dec.)

• Court: Indiana Court of Appeals
• Decided: July 26, 2019
• Docket: 18A-PL-3061
• Status: Published

Opinion

MEMORANDUM DECISION FILED Pursuant to Ind. Appellate Rule 65(D), Jul 26 2019, 7:36 am this Memorandum Decision shall not be CLERK regarded as precedent or cited before any Indiana Supreme Court Court of Appeals court except for the purpose of establishing and Tax Court

the defense of res judicata, collateral estoppel, or the law of the case.

ATTORNEY FOR APPELLANTS ATTORNEY FOR APPELLEE Joseph R. Delehanty Brian A. Karle Gutwein Law Ball Eggleston, PC Lafayette, Indiana Lafayette, Indiana

IN THE COURT OF APPEALS OF INDIANA

Boulder-Maxx, LLC, Andrew T. July 26, 2019 Gutwein, and Jeffrey L. Court of Appeals Case No. Baumgartner, 18A-PL-3061 Appellants-Plaintiffs, Appeal from the Boone Superior Court v. The Honorable Thomas R. Lett, Special Judge Richard Haby, Trial Court Cause No. Appellee-Defendant. 06D02-1606-PL-84

Najam, Judge.

Statement of the Case [1] Boulder-Maxx, LLC, Andrew T. Gutwein, and Jeffrey L. Baumgartner

(collectively “Boulder-Maxx”) appeal the trial court’s judgment in favor of

Court of Appeals of Indiana | Memorandum Decision 18A-PL-3061 | July 26, 2019 Page 1 of 12 Richard Haby following a bench trial on Boulder-Maxx’s complaint alleging

that Haby committed fraud and breached his fiduciary duty to Boulder-Maxx.

Boulder-Maxx presents the following issues for our review:

1. Whether the trial court erred when it found that Haby neither committed constructive fraud nor breached his fiduciary duty to Boulder-Maxx.

2. Whether the trial court erred when it found that Gutwein and Baumgartner each breached his fiduciary duty to Haby.

3. Whether the trial court abused its discretion when it awarded attorney’s fees to Haby.

[2] We affirm in part and reverse in part.

Facts and Procedural History [3] In October 2007, Gutwein, Baumgartner, and James Chalfant formed Boulder-

Maxx, a real estate holding company. In 2008, Chalfant “transferred a property

referred to as the ‘College Avenue Property’” to Boulder-Maxx for $120,000.

Appellants’ App. Vol. 2 at 12. Chalfant then leased that property from Boulder-

Maxx and used it for his office. In April 2011, Chalfant transferred his interest

in Boulder-Maxx to Haby, with whom Chalfant had had a “longstanding

business relationship.” Id. at 13. Chalfant continued to use the College Avenue

Property for his office.

[4] In 2012, “a dispute arose” between Chalfant and Boulder-Maxx “regarding the

College Avenue Property,” and Chalfant sued Boulder-Maxx to foreclose on a

Court of Appeals of Indiana | Memorandum Decision 18A-PL-3061 | July 26, 2019 Page 2 of 12 mechanic’s lien (“the mechanic’s lien suit”). Id. The parties ultimately settled

the matter. Under the terms of the settlement agreement, Boulder-Maxx agreed

to sell the College Avenue Property back to Chalfant for $120,000. However, at

the closing on that sale, Chalfant transferred his interest in the property to

Northern Equity and Asset Trust, LLC (“NEAT”) for $120,000. Unbeknownst

to either Gutwein or Baumgartner, Haby was the sole named member of

NEAT, a real estate holding company.

[5] In 2015, Gutwein and Baumgartner first learned that Haby was a member of

NEAT. Gutwein and Baumgartner suspected that Haby had “actively

concealed his interest in NEAT” from them and had conspired with Chalfant to

get Boulder-Maxx to sell the College Avenue Property “at a discount” for

Haby’s benefit. Appellants’ Br. at 30. Accordingly, in June 2016, Boulder-

Maxx filed a complaint against Haby seeking the dissolution of Boulder-Maxx

and alleging that Haby had committed fraud and constructive fraud and

breached his fiduciary duty to Boulder-Maxx. Haby filed an answer and

counterclaims alleging that Gutwein and Baumgartner each breached his

fiduciary duty to Haby when they misappropriated Boulder-Maxx funds and

alleging that their claims were frivolous and in bad faith.

[6] During a bench trial, Gutwein and Baumgartner each testified for Boulder-

Maxx, and Chalfant testified on Haby’s behalf. Haby did not testify. Chalfant

testified in relevant part that: Haby had “no involvement” in NEAT; Chalfant

managed NEAT “autonomously,” without any input from Haby; and Chalfant

was “the only signatory on [NEAT’s] bank accounts.” Tr. Vol. 2 at 187;

Court of Appeals of Indiana | Memorandum Decision 18A-PL-3061 | July 26, 2019 Page 3 of 12 Appellants’ App. Vol. 2 at 16. Thus, Chalfant testified that Haby neither knew

about nor benefited from the College Avenue Property transfer to NEAT.

Chalfant also testified that Baumgartner had tried to include in the mechanic’s

lien suit negotiations the sale of a property owned by Chalfant and

Baumgartner, the “Sellers Street Property,” to Boulder-Maxx at a discount in

order to personally benefit Baumgartner. Tr. Vol. 2 at 33. But that sale did not

go through. Finally, Haby presented evidence that Gutwein and Baumgartner

had misappropriated Boulder-Maxx funds for their personal use.

[7] At the conclusion of trial, the trial court entered judgment in favor of Haby on

Boulder-Maxx’s claims and on Haby’s counterclaims, and the court awarded

Haby attorney’s fees in an amount to be determined later. In particular, the

trial court found that Gutwein and Baumgartner each had breached his

fiduciary duty to Haby. In addition, the trial court ordered that Boulder-Maxx

be dissolved. Boulder-Maxx filed a motion to correct error, which the trial

court denied after a hearing. This appeal ensued.

Discussion and Decision Standard of Review

[8] Boulder-Maxx appeals the trial court’s findings and conclusions following a

bench trial. As our Supreme Court has made clear, in such cases

[w]e may not set aside the findings or judgment unless they are clearly erroneous. In our review, we first consider whether the evidence supports the factual findings. Second, we consider whether the findings support the judgment. Findings are clearly

Court of Appeals of Indiana | Memorandum Decision 18A-PL-3061 | July 26, 2019 Page 4 of 12 erroneous only when the record contains no facts to support them either directly or by inference. A judgment is clearly erroneous if it relies on an incorrect legal standard. We give due regard to the trial court’s ability to assess the credibility of witnesses. While we defer substantially to findings of fact, we do not defer to conclusions of law. We do not reweigh the evidence; rather we consider the evidence most favorable to the judgment with all reasonable inferences drawn in favor of the judgment.

State v. Int’l Bus. Machs. Corp., 51 N.E.3d 150, 158 (Ind. 2016) (citations and

quotation marks omitted).

[9] We also note that Boulder-Maxx appeals from a negative judgment on its

claims against Haby. A party who had the burden of proof at trial appeals from

a negative judgment and will prevail only if it establishes that the judgment is

contrary to law. Helmuth v. Distance Learning Sys. Ind., Inc., 837 N.E.2d 1085,

1089 (Ind. Ct. App. 2005). A judgment is contrary to law when the evidence is

without conflict and all reasonable inferences to be drawn from the evidence

lead only to one conclusion, but the trial court reached a different conclusion.

Id.

Issue One: Claims Against Haby

[10] Boulder-Maxx first contends that the trial court’s findings of fact and

conclusions of law “are clearly erroneous” in that they “disregard, overlook, or

otherwise ignore evidence and testimony presented at trial.” Appellants’ Br. at

30. In particular, Boulder-Maxx maintains that the trial court erred when it

concluded that Haby had not committed constructive fraud or breached his

fiduciary duty. We cannot agree. Court of Appeals of Indiana | Memorandum Decision 18A-PL-3061 | July 26, 2019 Page 5 of 12 [11] Boulder-Maxx avers that “[i]t is undisputed amongst the parties that the

members owed each other a fiduciary duty to deal fairly, honestly, and openly

amongst one another and with the company.” Appellants’ Br. at 30 (citing

Purcell v. Southern Hills Investments, LLC, 847 N.E.2d 991, 997 (Ind. Ct. App.

2006)). Boulder-Maxx asserts that

Haby’s failure to give notice to [Gutwein and Baumgartner] that his company ultimately retained ownership of the College Avenue Property was the breach of duty that resulted in damages to his fellow members stemming from the discounted sale price, where Haby stood to benefit based upon his membership interest in NEAT. This represented the breach and eventual damages necessary for a breach of fiduciary duty claim.

Appellants’ Br. at 31. Further, Boulder-Maxx argues that, “‘once it is

established that one with a fiduciary duty has attempted to benefit from a

questioned transaction, the law presumes fraud.’” Id. (quoting W&W Equip. Co.

v. Mink, 568 N.E.2d 564, 573 (Ind. Ct. App. 1991)). Boulder-Maxx maintains

that “[h]ere, there was, at the very least, a questionable transaction, and Haby

failed to properly meet his burden of proof that his actions, or lack thereof, were

honest and in good faith.” Appellants’ Br. at 32. In particular, Boulder-Maxx

states that “Haby presented only one witness[, Chalfant,] to establish his

defense that he had no prior knowledge of NEAT’s acquisition of the College

Avenue Property . . . and that Haby did not stand to benefit from the

transaction. . . .” Id. Boulder-Maxx contends that Haby did not sustain his

burden of proof because “Chalfant’s testimony is not credible.” Id.

Court of Appeals of Indiana | Memorandum Decision 18A-PL-3061 | July 26, 2019 Page 6 of 12 [12] Boulder-Maxx’s contentions on appeal are explicit requests that we reweigh the

evidence and assess the credibility of witnesses, which we cannot do. Whether

Haby’s sole witness, Chalfant, was credible was a determination exclusively

within the trial court’s discretion. And Chalfant’s testimony supports the trial

court’s findings, which support the trial court’s conclusions that Haby did not

commit constructive fraud or breach his fiduciary duty. We hold that the trial

court’s findings and conclusions on these issues are not contrary to law.

Issue Two: Counterclaims Against Gutwein and Baumgartner

[13] Boulder-Maxx next contends that the trial court’s findings of fact and

conclusions of law “are clearly erroneous” because they “disregard, overlook,

or otherwise ignore evidence and testimony presented at trial” relevant to

Haby’s counterclaims alleging that Gutwein and Baumgartner breached their

fiduciary duties. Appellants’ Br. at 34. First, Boulder-Maxx points out that, in

his testimony at trial, Baumgartner “disavowed” Haby’s allegations “that

Baumgartner attempted to personally benefit from the settlement of the

[mechanic’s lien suit] by including within the settlement a transfer of another

piece of real estate, the Sellers Street Property, to Boulder-Maxx.” Id. And, in

any event, Boulder-Maxx states that the sale of the Sellers Street Property to

Boulder-Maxx never occurred. A claim for breach of fiduciary duty requires a

showing of harm to the beneficiary. See Jaffri v. JPMorgan Chase Bank, N.A., 26

N.E.3d 635, 639 (Ind. Ct. App. 2015). Here, because there was no evidence of

harm to Haby as a result of the attempted sale of the Sellers Street Property to

Court of Appeals of Indiana | Memorandum Decision 18A-PL-3061 | July 26, 2019 Page 7 of 12 Boulder-Maxx, we agree with Boulder-Maxx that the trial court erroneously

concluded that Baumgartner breached his fiduciary duty on that basis.

[14] However, the trial court also concluded that Gutwein and Baumgartner

breached their fiduciary duties to Haby when they misappropriated Boulder-

Maxx funds for their own benefit. On appeal, Boulder-Maxx asserts that Haby

did not present any evidence to support his allegation that Gutwein and

Baumgartner misappropriated funds when, in March 2016, Baumgartner wrote

a check to Gutwein from Boulder-Maxx’s bank account for $7,744. Thus,

Boulder-Maxx maintains that the evidence does not support the trial court’s

conclusion that Gutwein and Baumgartner breached their fiduciary duties with

that payment.

[15] Again, Boulder-Maxx’s contentions on appeal are requests that we reweigh the

evidence and assess the credibility of witnesses, which we cannot do. The trial

court was entitled to find Gutwein’s and Baumgartner’s testimony not credible

with respect to the $7,744 check to Gutwein. Indeed, Gutwein’s and

Baumgartner’s testimony regarding this check was equivocal regarding whether

it was made for a commission for a lease agreement or for some other unknown

reason. And they each testified that Gutwein’s commission for that particular

lease would have been approximately $17,500, not $7,744.

[16] Moreover, Boulder-Maxx does not challenge the trial court’s separate finding

that “Baumgartner and Gutwein misappropriated corporate money for their

own personal gains” when Boulder-Maxx wrote Gutwein Law Firm a check for

Court of Appeals of Indiana | Memorandum Decision 18A-PL-3061 | July 26, 2019 Page 8 of 12 $2,638 in March 2016. Appellants’ App. Vol. 2 at 22. The trial court

concluded, based on those two findings, that Gutwein and Baumgartner

breached their fiduciary duties to Haby. We hold that, despite the erroneous

conclusion that Baumgartner breached his fiduciary duty when he attempted to

benefit from the sale of property in negotiating a settlement agreement with

Chalfant, the trial court’s other findings are supported by the evidence and

support the court’s conclusion that Gutwein and Baumgartner breached their

fiduciary duties. See, e.g., Fetters v. Fetters, 26 N.E.3d 1016, 1019 (Ind. Ct. App.

2015) (stating that not every finding needs to be correct, and even if one or

more findings are clearly erroneous, we may affirm the judgment if it is

supported by other findings or is otherwise supported by the record), trans.

denied.

Issue Three: Attorney’s Fees

[17] Finally, Boulder-Maxx contends that the trial court abused its discretion when

it awarded attorney’s fees to Haby based on Boulder-Maxx’s “continued

prosecution of this matter to trial . . . in bad faith[.]” Id. at 23. Indiana Code

Section 34-52-1-1(b)(3) (2019) provides that in any civil action, the court may

award attorney’s fees as part of the cost to the prevailing party, if the court finds

that either party litigated the action in bad faith. Pursuant to this statute, bad

faith is demonstrated where the “party presenting the claim is affirmatively

operating with furtive design or ill will.” Techna-Fit, Inc. v. Fluid Transfer Prods.,

Inc., 45 N.E.3d 399, 418 (Ind. Ct. App. 2015) (citation omitted). Further, “in

order to constitute bad faith under the statute, the conduct must be ‘vexatious

Court of Appeals of Indiana | Memorandum Decision 18A-PL-3061 | July 26, 2019 Page 9 of 12 and oppressive in the extreme.’” Id. (quoting Neu v. Gibson, 968 N.E.2d 262,

279 (Ind. Ct. App. 2012), trans. denied). “The reason for such a strict standard is

that the nature of an attorney[’s] fee award under the bad faith exception is

punitive [.]” Id. (quoting Neu, 968 N.E.2d at 279).

[18] An award under Indiana Code Section 34-52-1-1 is afforded a multistep review.

Id. First, we review the trial court’s findings of fact under a clearly erroneous

standard, and then we review the trial court’s legal conclusions de novo. Id.

Finally, we review the trial court’s decision to award attorney’s fees and the

amount thereof under an abuse of discretion standard. Id.

[19] Here, the trial court found and concluded in relevant part as follows:

[B]ecause [Boulder-Maxx] presented no evidence to contradict [Haby’s] evidence that Chalfant’s assignment [of his interest in the College Avenue Property to NEAT] was for Chalfant’s own benefit and that he did not discuss, consult, or advise Haby [about] the assignment or his intent to undertake the assignment, [Boulder-Maxx’s] continued prosecution of this matter to trial was in bad faith, and [Haby] is entitled to recover his attorney’s fees, subject to proof following the entry of the Court’s judgment.

Appellants’ App. Vol. 2 at 23. Thus, the sole basis for the attorney’s fee award

was Boulder-Maxx’s alleged failure to present evidence to support its claims

against Haby.

[20] However, the trial court did not characterize Boulder-Maxx’s conduct as

“vexatious” or “oppressive in the extreme,” and the court did not find that

Boulder-Maxx “affirmatively operat[ed] with furtive design or ill will.” Techna-

Court of Appeals of Indiana | Memorandum Decision 18A-PL-3061 | July 26, 2019 Page 10 of 12 Fit, Inc., 45 N.E.3d at 418. Indeed, contrary to the trial court’s finding,

Boulder-Maxx did present some evidence in an attempt to contradict Chalfant’s

testimony, and its trial strategy appeared to have been to impeach Chalfant,

who provided the sole testimony in favor of Haby. The evidence does not

support a determination that Boulder-Maxx litigated this action in bad faith.

[21] Still, Haby maintains that one of the trial court’s other findings supports the

court’s conclusion that Boulder-Maxx litigated in bad faith. Haby points out

that the court found that Boulder-Maxx’s “conduct underscores that [its]

purpose of this lawsuit is a predatory attempt to obfuscate [its] own

wrongdoing.” Appellants’ App. Vol. 2 at 22. However, the trial court did not

base the attorney’s fee award on that finding. And the trial court’s reference to

Boulder-Maxx’s “conduct” in that finding was described by the trial court as

follows:

Even if [Boulder-Maxx was] misled about the identity of the buyer of the College Avenue Property, [Boulder-Maxx’s] conduct after filing this lawsuit in orchestrating the sale of other Boulder-Maxx, LLC property to an anonymous buyer . . . demonstrates that the identity of buyers of Boulder-Maxx, LLC property was not genuinely important to [Boulder-Maxx].

Id. (emphasis added). In other words, the trial court found that Boulder-Maxx’s

conduct outside of the litigation showed bad faith. But it is well settled that, under

Indiana Code Section 34-52-1-1, “the action must be litigated in bad faith, which

means that only conduct in the course of the litigation is relevant to the

Court of Appeals of Indiana | Memorandum Decision 18A-PL-3061 | July 26, 2019 Page 11 of 12 question of attorney’s fees.” Techna-Fit, Inc., 45 N.E.3d at 418 (emphasis

original).

[22] Without evidence to support the trial court’s conclusion that Boulder-Maxx

litigated this action in bad faith, the court’s conclusion is clearly erroneous. We

hold that the trial court erred when it awarded Haby attorney’s fees, and we

reverse the attorney’s fee award.

[23] Affirmed in part and reversed in part.

Mathias, J., and Brown, J., concur.

Court of Appeals of Indiana | Memorandum Decision 18A-PL-3061 | July 26, 2019 Page 12 of 12