MEMORANDUM DECISION Pursuant to Ind. Appellate Rule 65(D), FILED this Memorandum Decision shall not be regarded as precedent or cited before any Jun 24 2019, 8:18 am
court except for the purpose of establishing CLERK Indiana Supreme Court the defense of res judicata, collateral Court of Appeals and Tax Court estoppel, or the law of the case.
ATTORNEYS FOR APPELLANT ATTORNEYS FOR APPELLEE Candace A. Bankovich Kyle C. Persinger Neal Bowling Michael T. Hotz Indianapolis, Indiana Rebecca M.S. Johnson Marion, Indiana
IN THE COURT OF APPEALS OF INDIANA
Steven L. McAtee, June 24, 2019 Appellant-Defendant, Court of Appeals Case No. 18A-PL-2526 v. Appeal from the Grant Superior Court Arletty Ivisa Huber, The Honorable Jeffrey D. Todd, Appellee-Plaintiff Judge Trial Court Cause No. 27D01-1505-PL-42
Altice, Judge.
Court of Appeals of Indiana | Memorandum Decision 18A-PL-2526 | June 24, 2019 Page 1 of 17 Case Summary
[1] Arletty Ivisa Huber and Steven L. McAtee jointly formed McAtee Excavating
Commercial and Residential Services, LLC (the Business) in 2012, with Huber
personally financing the substantial start-up costs for the Business and McAtee
providing the labor. At some point, while still a member of the Business,
McAtee established a new company, McAtee Foundation Solutions, LLC (the
New Business) for which he performed the same type of work using equipment
owned by the Business. He did not account to the Business for the proceeds he
received in compensation for his work through the New Business.
[2] In 2015, Huber filed a complaint against McAtee for breach of fiduciary duty.
She sought both damages and injunctive relief. Over the next three years,
McAtee consistently failed to comply with an agreed preliminary injunction
order and to respond to discovery requests, despite court orders to do both.
Huber filed a motion for summary judgment in 2018, along with designated
evidence and a memorandum of law. McAtee did not respond to the motion,
designate evidence, or appear at the summary judgment hearing. The trial
court granted summary judgment in favor of Huber and awarded her over
$750,000. The court also entered a preliminary injunction and scheduled a
hearing on a permanent injunction.
[3] After the entry of summary judgment, McAtee retained counsel and filed a
number of motions. Included among these was an emergency motion to
Court of Appeals of Indiana | Memorandum Decision 18A-PL-2526 | June 24, 2019 Page 2 of 17 dissolve the preliminary injunction and to dissolve the Business pursuant to Ind.
Code § 23-18-9-2, which the trial court granted. Thereafter, Huber and McAtee
each filed a motion to correct error. Following a hearing, the trial court denied
the motions to correct error.
[4] On appeal, McAtee challenges as inadmissible much of the evidence designated
by Huber in support of her summary judgment motion. He also claims that this
evidence, even if admissible, was insufficient to make a prima facie showing
that she was entitled to summary judgment.
[5] We affirm.
Facts & Procedural History
[6] The designated evidence establishes that Huber and McAtee formed the
Business by entering into an operating agreement (the Operating Agreement) on
March 10, 2012. Pursuant to the Operating Agreement, Huber owned 51% and
McAtee owned 49% of the Business. The Operating Agreement provided for
dissolution of the Business upon certain specified events, including a two-thirds
vote of the members or a judicial decree of dissolution pursuant to the Indiana
Limited Liability Company Act. There would be, according to the agreement,
no automatic dissolution upon the disassociation or withdrawal of a member.
[7] The primary purpose of the Business was to:
perform foundation, basement, and concrete work; repair cracked, bowed basement walls; foundation repairs; repair leaking basement walls and wet crawl spaces; concrete baking,
Court of Appeals of Indiana | Memorandum Decision 18A-PL-2526 | June 24, 2019 Page 3 of 17 pole barn pads, and augured holes; septic systems, sewer lines, and drain lines; driveways, parking lots, and driveway grading; and top soil, fill dirt, ponds, finish grading and seeding.
Appellant’s Appendix Vol. II at 83. Huber personally financed all costs for starting
the Business, including the down payments for several pieces of excavating
equipment. McAtee performed the labor for the Business and funds received on
invoices were deposited into the Business’s bank account at MutualBank. The
Business advertised its services, along with an address and phone number, in
the local newspaper.
[8] At some point in 2014, McAtee began performing the same type of work as the
Business, utilizing the excavating equipment of the Business and the same
address and phone number, but failed to deposit or otherwise account to the
Business for the proceeds. He created the New Business in late 2014 and
opened a bank account at MutualBank for the New Business on December 18,
2014. Beginning in January 2015, McAtee made significant deposits into this
new bank account each month. He did all of this without seeking to dissolve
the Business pursuant to the Operating Agreement.
[9] On May 19, 2015, Huber filed the instant complaint, alleging that McAtee was
directly competing against the Business in which he remained a member.
Huber sought damages and injunctive relief based on her claims of statutory
and common law breach of fiduciary duty.
[10] The parties entered into an agreed order on preliminary injunction (the Agreed
Order), which the trial court approved on October 21, 2015. The Agreed Order Court of Appeals of Indiana | Memorandum Decision 18A-PL-2526 | June 24, 2019 Page 4 of 17 provided that McAtee “shall be permitted to continue to perform excavating
work” and shall use the Business’s excavating equipment only pursuant to the
terms of the court’s order. The Agreed Order set out strict conditions for
McAtee’s continued excavating work, including:
a. McAtee shall provide to Huber by October 22, 2015, through their respective counsel, a copy of all estimates for Work that McAtee is presently performing … or for which McAtee will begin performance …, together with any future estimates for Work within 5 business days of providing such an estimate to any prospective customer;
b. McAtee shall provide to Huber within 5 business days … a copy of each and every invoice which McAtee submits to any customer … for any Work performed by McAtee;
c. McAtee shall provide to Huber … a true and accurate copy of any check, or money order, or in the event an invoice is paid in cash, a true and accurate copy of the receipt provided to the customer … for any Work performed by McAtee;
d. McAtee shall provide … names, addresses and phone numbers for each and every customer for whom McAtee shall perform Work …;
e. All net proceeds received by McAtee on after [sic] October 15, 2015 for Work performed by McAtee shall be immediately deposited in the trust account of his counsel … to be distributed 49% to McAtee and 51% to Huber until final disposition of this matter;
f. McAtee shall provide … a full and accurate accounting for all Work he is performing … or will perform … within 5 business
Court of Appeals of Indiana | Memorandum Decision 18A-PL-2526 | June 24, 2019 Page 5 of 17 days of receipt of payment by McAtee for all Work performed by McAtee.
Appellee’s Appendix Amended Vol. II at 2-4. In order to continue using the
Business’s excavating equipment, the Agreed Order required McAtee to provide
“a weekly report on the hours the Excavator, Bobcat and Tractor have been
used during the week and the number of miles that the Dump Truck has been
driven each week, which report shall include date stamped photographs of such
hours and mileage.” Id. at 4. Further, the order provided: “This Agreement
shall be in full force and effect until the Court issues its final judgment on
Huber’s Complaint, the parties notify the Court of a modification …, or the
parties notify the Court of a settlement ….” Id. at 5.
[11] McAtee ignored the Agreed Order, which resulted in Huber filing a petition for
rule to show cause in October 2016. In her petition, Huber alleged that McAtee
had not provided any estimates, invoices, or copies of payments. Further,
despite their agreement to split the net proceeds of his work during the
pendency of the proceedings, no proceeds had been distributed to Huber and
Huber believed that no deposits had been made into the trust account. Based
on financial documents obtained by Huber through a non-party request for
documents, Huber alleged that McAtee had made deposits into the New
Business’s bank account at MutualBank in the approximate amount of
$354,000 since the Agreed Order was issued.
[12] Following a hearing on Huber’s petition for rule to show cause, as well as a
motion to compel discovery, the trial court issued an order on November 30, Court of Appeals of Indiana | Memorandum Decision 18A-PL-2526 | June 24, 2019 Page 6 of 17 2016. The trial court ordered McAtee to respond to Huber’s pending written
discovery requests by December 31, 2016. The court also found McAtee in
contempt for failing to comply with the Agreed Order. As a result, the court
ordered McAtee to immediately surrender possession of the Business’s
excavating equipment to Huber. As a further sanction for his discovery
violations and failure to abide by the Agreed Order, the court ordered McAtee
to pay attorney fees in the amount of $1500 to Huber’s counsel.
[13] On January 10, 2017, Huber filed another petition for rule to show cause,
alleging that McAtee had failed to respond to discovery requests and had
provided no documentation pursuant to the Agreed Order. Following a
hearing, the trial court issued an order on March 6, 2017, ordering McAtee to
fully comply with all outstanding discovery requests by March 8, 2017 and to
comply with all provisions of the Agreed Order. The court also assessed
attorney fees against McAtee.
[14] After a number of continuances, a bench trial was scheduled to start December
5, 2017. On November 28, 2017, McAtee’s attorney filed a motion to withdraw
appearance and a motion to continue the trial date to give McAtee an
opportunity to obtain new counsel. 1 The trial court granted the motion to
1 McAtee’s counsel, Tia Brewer, had been found in possession of cocaine, marijuana, and drug paraphernalia in May 2017, which resulted in charges and an eventual guilty plea. See Matter of Brewer, 110 N.E.3d 1141 (Ind. 2018) (disciplinary action in which Brewer was suspended from the practice of law in Indiana for at least three years without automatic reinstatement). Due to these personal issues, counsel was absent from her practice for six months and, thus, unaware of the December 2017 trial date until just before she filed the motions to withdraw and to continue.
Court of Appeals of Indiana | Memorandum Decision 18A-PL-2526 | June 24, 2019 Page 7 of 17 withdraw that same day and scheduled a hearing on the motion to continue.
On December 1, 2017, the trial court continued the trial to May 9, 2018, over
Huber’s objection.
[15] On December 5, 2017, Huber sent a second request for admissions to McAtee,
to which he never responded. Upon motion by Huber and following a hearing
at which McAtee failed to appear, the trial court issued an order on March 6,
2018, finding that the second request for admissions and all of its attached
documents were deemed admitted as against McAtee. Among these
admissions was an admission that McAtee had used the Business’s excavating
equipment for the benefit of the New Business.
[16] Thereafter, on March 30, 2018, Huber filed a motion for summary judgment
and injunctive relief. She designated her own affidavit, along with numerous
other supporting documents, and provided the trial court with a detailed
memorandum of law in support of her motion. The trial court scheduled a
summary judgment hearing for May 4, 2018. McAtee did not respond to the
summary judgment motion, designate evidence, or show up at the hearing,
which was held in his absence.
[17] On May 10, 2018, the trial court issued its order granting summary judgment in
favor of Huber and awarding her over $750,000 in damages. The damage
amount was calculated by applying Huber’s 51% interest to amounts deposited
into the New Business’s bank account between December 2014 and October
2017, which totaled nearly $1.5 million. Additionally, the trial court entered a
Court of Appeals of Indiana | Memorandum Decision 18A-PL-2526 | June 24, 2019 Page 8 of 17 preliminary injunction enjoining McAtee from “continuing to perform
foundation, basement, and/or concrete work on behalf of himself or any
business.” Appellant’s Appendix Vol. II at 29-30. The court scheduled a
permanent injunction hearing for June 8, 2018, which was later continued.
[18] McAtee retained counsel after the entry of summary judgment. On June 11,
2018, he filed a motion to reconsider (improperly designated as a motion to
correct error 2), arguing that Huber failed to designate admissible evidence
sufficient to make a prima facie showing that she was entitled to summary
judgment. Thereafter, on July 3, 2018, McAtee filed an emergency motion to
dissolve the preliminary injunction and to dissolve the Business pursuant to Ind.
Code § 23-18-9-2, 3 which the trial court granted on July 20, 2018. By the same
order, the trial court vacated the permanent injunction hearing.
[19] Both parties timely filed motions to correct error, with Huber challenging the
dissolution of the Business and McAtee challenging the summary judgment
order. The trial court summarily denied both motions following a hearing on
September 19, 2018. McAtee now appeals. Additional information will be
provided below as needed.
2 “[M]otions to correct error are proper only after the entry of final judgment; any such motion filed prior to the entry of final judgment must be viewed as a motion to reconsider.” Snyder v. Snyder, 62 N.E.3d 455, 458 (Ind. Ct. App. 2016). 3 On application by a member, a court “may decree dissolution of the limited liability company whenever it is not reasonably practicable to carry on the business in conformity with the … organization or operating agreement.” Id.
Court of Appeals of Indiana | Memorandum Decision 18A-PL-2526 | June 24, 2019 Page 9 of 17 Standard of Review
[20] We review a summary judgment ruling de novo, applying the same standard as
the trial court. Hughley v. State, 15 N.E.3d 1000, 1003 (Ind. 2014). That is,
drawing all reasonable inferences in favor of the non-moving party, summary
judgment is appropriate if the designated evidence shows that there is no
genuine issue as to any material fact and that the moving party is entitled to
judgment as a matter of law. Id.; Ind. Trial Rule 56(C).
A party moving for summary judgment bears the initial burden of showing no genuine issue of material fact and the appropriateness of judgment as a matter of law. If the movant fails to make this prima facie showing, then summary judgment is precluded regardless of whether the non-movant designates facts and evidence in response to the movant’s motion.
Monroe Guar. Ins. Co. v. Magwerks Corp., 829 N.E.2d 968, 975 (Ind. 2005); see also
Knowledge A-Z, Inc. v. Sentry Ins., 857 N.E.2d 411, 419 (Ind. Ct. App. 2006),
trans. denied.
[21] In ruling on summary judgment, a court may consider only admissible evidence
designated to the court. See Hays v. Harmon, 809 N.E.2d 460, 465-66 (Ind. Ct.
App. 2004) (“Because the court may consider only admissible evidence when
ruling on a motion for summary judgment, inadmissible hearsay statements
cannot create a genuine issue of material fact.”), trans. denied. Further,
affidavits designated on summary judgment “shall be made on personal
knowledge, shall set forth such facts as would be admissible in evidence, and
shall show affirmatively that the affiant is competent to testify to the matters Court of Appeals of Indiana | Memorandum Decision 18A-PL-2526 | June 24, 2019 Page 10 of 17 stated therein.” T.R. 56(E). Although mere assertions of law or opinions will
not suffice, “[a]n affidavit need not contain an explicit recital of personal
knowledge when it can be reasonably inferred from its contents that the
material parts thereof are within the affiant’s personal knowledge.” Kader v.
State, Dep’t of Correction, 1 N.E.3d 717, 723-24 (Ind. Ct. App. 2013) (quoting
Decker v. Zengler, 883 N.E.2d 839, 844 (Ind. Ct. App. 2008), trans. denied).
Discussion & Decision
[22] On appeal, McAtee seeks to have the trial court’s summary judgment order
reversed. He contends that much of the designated evidence was inadmissible
and, thus, improperly considered by the court and that Huber failed to present a
prima facia case establishing her entitlement to summary judgment.
[23] We turn first to his evidentiary arguments. McAtee contends that Huber’s
affidavit (Exhibit A) “was replete with speculation and conclusory statements
not based upon her personal knowledge.” Appellant’s Brief at 12. Despite this
broad assertion, however, McAtee challenges only the following three
paragraphs of the affidavit:
11. McAtee eventually began performing the same type of work as the Business utilizing the Excavating Equipment and failed to deposit or otherwise account to the Business for the proceeds he received in compensation for completing said work.
****
Court of Appeals of Indiana | Memorandum Decision 18A-PL-2526 | June 24, 2019 Page 11 of 17 16. McAtee began depositing the proceeds of his work into a new account in the new LLC’s name held by MutualBank as account…. Attached is a true and accurate copy of the “New Account Information” form for this account along with the applicable Business Records Certification attached hereto and incorporated as Exhibit “J”.
17. True and accurate copies of statements of [the New Business’s] MutualBank account are attached hereto and incorporated herein, along with the applicable business records certifications, as Exhibit “K”.
Appellant’s Appendix Vol. II at 84-85.
[24] Further, McAtee challenges the admissibility of three other items of designated
evidence – an advertisement in the local newspaper for the New Business from
November 2016 (Exhibit I) and bank records from MutualBank for the New
Business (Exhibits J and K). McAtee argues that the documents contained in
these exhibits constitute hearsay and do not fall within the business records
exception to the hearsay rule, Ind. Rule of Evidence 803(6), because the
business records certification attached to each of the exhibits was deficient.
[25] On its face, the evidence designated by Huber with her motion for summary
judgment appears properly submitted and admissible. Her affidavit presents
facts generally based on personal knowledge and does not rest on mere
assertions of law or opinions. Moreover, Huber’s personal knowledge
regarding McAtee’s new business pursuits using the Business’s excavating
equipment for his own personal gain can be reasonably inferred. These
statements are also supported by other designated evidence referenced in her Court of Appeals of Indiana | Memorandum Decision 18A-PL-2526 | June 24, 2019 Page 12 of 17 affidavit and by McAtee’s own admission that he used the Business’s
excavating equipment for the New Business. Indeed, the Agreed Order entered
early in the case allowed McAtee to use this equipment and continue doing
excavating work.
[26] McAtee’s belated and rather technical attack of this evidence is not well taken.
He had every opportunity to challenge Huber’s designated evidence either by
designating his own evidence or moving to strike her evidence at or before the
summary judgment hearing. Instead, McAtee chose not to participate in the
summary judgment proceedings, which occurred just days before the scheduled
trial. He cannot now be heard to complain that this evidence was considered
by the trial court on summary judgment. See Paramo v. Edwards, 563 N.E.2d
595, 600 (Ind. 1990) (“defendants did not file any motion to strike or object to
any portions of the Cohen affidavit during the summary judgment proceedings”
and Supreme Court “declin[ed] to excuse the lack of timely objection”); see also
Doe v. Shults-Lewis Child & Family Servs., Inc., 718 N.E.2d 738, 749 (Ind. 1999)
(“An affidavit which does not satisfy the requirements of T.R. 56(E) is subject
to a motion to strike, and formal defects are waived in the absence of a motion
to strike or other objection.”) (quoting Gallatin Group v. Central Life Assurance
Co., 650 N.E.2d 70, 73 (Ind. Ct. App. 1995)); Lewis v. State, 511 N.E.2d 1054,
1057 (Ind. 1987) (evidentiary challenge raised for the first time in motion to
correct error was not timely raised at trial and, thus, allegation of error was
waived for purposes of appellate review); Matter of S.L., 599 N.E.2d 227, 229
Court of Appeals of Indiana | Memorandum Decision 18A-PL-2526 | June 24, 2019 Page 13 of 17 (Ind. Ct. App. 1992) (“A party may not raise an issue for the first time in her
motion to correct errors or on appeal.”).
[27] In the alternative, McAtee argues that even if all of the designated evidence is
admissible, it does not establish a prima facie case for Huber. He contests both
the conclusion that he breached a fiduciary duty and the amount of damages.
[28] To obtain summary judgment on her breach of fiduciary duty claim, Huber’s
designated evidence needed to show: “(1) the existence of a fiduciary
relationship; (2) a breach of that duty owed by the fiduciary to the beneficiary;
and (3) harm to the beneficiary.” Rapkin Grp., Inc. v. Cardinal Ventures, Inc., 29
N.E.3d 752, 757 (Ind. Ct. App. 2015), trans. denied.
[29] As a closely-held corporation, the members of the Business – Huber and
McAtee – had a fiduciary duty to deal fairly not only with the corporation but
with each other. See DiMaggio v. Rosario, 52 N.E.3d 896, 905 (Ind. Ct. App.
2016), trans. denied. “Shareholders in a closely-held corporation stand in a
fiduciary relationship to each other, such that they must deal fairly, honestly,
and openly with the corporation and with their fellow shareholders.” Id. at 907.
This includes “a fiduciary duty not to appropriate to his own use a business
opportunity that in equity and fairness belongs to the corporation.” Id.
[30] The designated evidence establishes that Huber and McAtee created the
Business by executing the Operating Agreement. The parties, as sole members
of the Business, started operating under this agreement in early 2012, with
Huber expending significant personal funds to start the Business and McAtee
Court of Appeals of Indiana | Memorandum Decision 18A-PL-2526 | June 24, 2019 Page 14 of 17 providing the labor. Around late 2014, McAtee began using the Business’s
excavating equipment for his own business pursuits without communicating to
Huber a desire to dissolve the Business or otherwise initiating dissolution under
the express terms of the Operating Agreement. McAtee eventually formed the
New Business, which provided the same services and used the same address
and phone number as the Business. McAtee deposited approximately $1.5
million dollars into the New Business’s bank account between December 2014
and October 2017. 4 These facts amply establish a prima facie case that McAtee
owed Huber a fiduciary duty, breached that duty, and caused her harm.
[31] On appeal, McAtee argues that his actions manifested his intention to abandon
the Business and that once Huber knew that he had abandoned the Business,
which he claims was well before the complaint was filed, he became free to
pursue his own business interests. This argument suffers from, at least, two
fatal flaws. First, the argument was not asserted below – not even untimely in
his motion to correct error. Therefore, this new issue is waived. Second, the
Operating Agreement provided for dissolution of the Business only upon
certain specified events, including a vote of the members or a judicial decree of
dissolution. There would be, according to the Operating Agreement, no
automatic dissolution upon the disassociation or withdrawal of a member.
4 Much of this time, from October 2015, the Agreed Order was in effect, which allowed McAtee to continue using the excavating equipment to perform the same work as the Business but with several caveats, including that funds were to be fully accounted for and deposited in a trust account. McAtee, however, wholly failed to comply with the Agreed Order.
Court of Appeals of Indiana | Memorandum Decision 18A-PL-2526 | June 24, 2019 Page 15 of 17 Here, McAtee did not expressly seek dissolution until he filed his emergency
motion to judicially dissolve the Business in July 2018. Therefore, he cannot be
heard to complain, belatedly, that he did not owe a fiduciary duty to Huber
after he abandoned the Business by his actions. 5
[32] Finally, McAtee challenges the amount of the damages award. He contends
that Exhibits J and K, the bank records for the New Business, were insufficient
to establish that Huber was entitled to damages in the amount of $750,220.46.
In this regard, McAtee observes that the bank records do not establish the
source of the deposits or whether the deposits were revenue or profits.
[33] Exhibit J establishes that McAtee opened a new bank account at MutualBank
for the New Business on December 18, 2014. He listed himself as the president
and Kathie L. McAtee as the vice president of the New Business. With regard
to the business entity information on the document, McAtee used the same
address as that of the Business and indicated that the filing date in Indiana for
the New Business was August 22, 2014.
[34] Exhibit K contained account statements for the New Business from December
2014 through October 2017. The statements documented total deposits for the
New Business of nearly $1.5 million dollars over this time period, of which the
5 McAtee’s reliance on DiMaggio is misplaced. In that case, Rosario and DiMaggio had an oral contract with no specific agreement regarding dissolution of their closely-held corporation. Rosario eventually sent a letter of abandonment to DiMaggio and made clear his commitment to abandoning the joint business venture. When Rosario then acted consistently with that intent, DiMaggio acquiesced and did not file suit against Rosario for more than six years. We find the facts of DiMaggio distinguishable from the case at hand.
Court of Appeals of Indiana | Memorandum Decision 18A-PL-2526 | June 24, 2019 Page 16 of 17 trial court awarded Huber 51%. The record establishes that Huber’s attempts to
obtain additional financial information, such as invoices and receipts for the
New Business, were thwarted at every turn by McAtee. He did not respond to
discovery requests and did not comply with the Agreed Order. His blatant
defiance of court orders cannot be countenanced, and his claim that Huber
failed to establish his actual profits from these deposits is disingenuous.
[35] McAtee chose not to respond to the summary judgment motion or to designate
evidence regarding damages. The trial court’s damage award was within the
scope of the evidence, and we reject McAtee’s invitation to assume that there
exists evidence regarding expenses that is nowhere found in the record.
[36] McAtee pleads in his reply brief: “McAtee simply asks for his day in court. He
seeks the chance to have this matter returned to the Trial Court so that it may
be litigated on the merits.” Appellant’s Reply Brief at 7. We observe, however,
that McAtee had ample opportunity for his day in court but rather chose to
snub the judicial process for years. He is not entitled to a second chance.
[37] Judgment affirmed.
Kirsch, J. and Vaidik, C.J., concur.
Court of Appeals of Indiana | Memorandum Decision 18A-PL-2526 | June 24, 2019 Page 17 of 17