CBR Event Decorators, Inc., Gregory Rankin, Robert Cochrane and John Bales v. Todd M. Gates

FOR PUBLICATION

ATTORNEYS FOR APPELLANT: ATTORNEYS FOR APPELLEE:

PETER J. RUSTHOVEN RONALD J. WAICUKAUSKI
T. JOSEPH WENDT CAROL NEMETH JOVEN
Barnes & Thornburg LLP Price Waicukauski & Riley, LLC
Indianapolis, Indiana Indianapolis, Indiana

JANA K. STRAIN
Indianapolis, Indiana
Mar 03 2014, 9:24 am

IN THE
COURT OF APPEALS OF INDIANA

CBR EVENT DECORATORS, INC., )
GREGORY RANKIN, ROBERT )
COCHRANE and JOHN BALES, )
)
Appellants-Defendants, )
)
vs. ) No. 49A02-1302-CT-159
)
TODD M. GATES, )
)
Appellee-Plaintiff. )

APPEAL FROM THE MARION SUPERIOR COURT
The Honorable Gerald S. Zore, Judge
Cause No. 49D07-0307-CT-1289

March 3, 2014

OPINION - FOR PUBLICATION

ROBB, Judge
 Case Summary and Issues

CBR Event Decorators, Inc. (“CBR”) and its individual shareholders Gregory

Rankin, Robert Cochrane, and John Bales (collectively, “Shareholders”) bring this

consolidated appeal, challenging the trial court’s award of attorney fees and order requiring

$1,000,000 from a letter of credit to be deposited with the trial court clerk. The Appellants

raise the following issues for our review: (1) whether, following a decision by this court

in a previous appeal in this case, the trial court erred by ordering that the Shareholders be

personally liable for attorney fees on a claim against CBR for wrongful stop payment of a

check; (2) whether the trial court erred by failing to hold a hearing regarding the amount

and reasonableness of attorney fees; (3) whether the attorney fee award of $290,093 was

unreasonable; and (4) whether the trial court erred by granting an ex parte order requiring

$1,000,000 from a letter of credit to be deposited with the trial court clerk. We conclude

Shareholders are not personally liable for attorney fees on the wrongful stop payment

claim.1 However, we find the ex parte order requiring deposit of $1,000,000 with the trial

court clerk was not reversible error. Therefore, we affirm in part and reverse in part.

Facts and Procedural History

This case—now nearly fourteen years in the making—stems from a contractual

dispute between Todd Gates and CBR and Shareholders. In June 2000, Shareholders

negotiated to purchase the assets of an event decorating company Gates owned.

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Because we conclude the trial court abused its discretion by awarding attorney fees against
Shareholders, the remaining issues regarding the amount of attorney fees and a hearing thereon are
effectively moot. Therefore, we address only the first and fourth issues raised by Shareholders.

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Shareholders, in preparation for the pending acquisition of assets, created CBR to act as

corporate buyer in the transaction and to continue operating as an event decorating

company after acquisition of Gates’s assets. An asset purchase agreement was signed on

behalf of CBR, and the deal was set to close on June 26, 2000. CBR deposited $100,000

in an escrow account as a down payment, and an additional $550,000 was to be paid on a

promissory note over a seven-year period.

A check for $100,000 and the signed asset purchase documents were mailed to

Gates. Gates signed the documents and returned a copy to Shareholders. The same

morning, Shareholders had a meeting with some of Gates’s employees, and after that

meeting, Shareholders believed Gates had misrepresented the value of the assets.

Eventually, payment was stopped on the $100,000 check from CBR, and CBR withdrew

the funds from the escrow account and distributed those funds to Shareholders. Attempts

between Gates and CBR to renegotiate the purchase agreement were unsuccessful. In

August 2000, Gates filed suit against CBR and Shareholders.

Gates’s amended complaint asserted claims against both CBR and Shareholders.

The amended complaint asserted three causes of action against CBR: (1) breach of the

asset purchase agreement; (2) wrongful stop payment of a check; and (3) breach of the

promissory note. The amended complaint also asserted two causes of action against

Shareholders, as individuals: (1) fraudulent conveyance and (2) wrongful withdrawal of

capital (i.e. wrongful transfer or fraudulent transfer). Finally, Gates’s amended complaint

sought to pierce the corporate veil and impose personal liability on Shareholders for any

liability found against CBR. The trial court entered judgment in favor of Gates on all

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counts and pierced the corporate veil. Only those counts pled against CBR—breach of

contract and wrongful stop payment—included a requirement for defendants to pay

attorney fees. In March 2011, the trial court approved an agreed order staying execution

of the judgment pending appeal. As inducement for this agreed order, Shareholders

provided Gates with an irrevocable letter of credit issued by PNC Bank in the amount of

$1,000,000.

Shareholders appealed the trial court’s judgment, and this court issued a published

opinion in CBR Event Decorators, Inc. v. Gates, 962 N.E.2d 1276 (Ind. Ct. App. 2012),

trans. denied (herein, “CBR I”). In that prior appeal, Shareholders raised “a single issue

on appeal: whether the trial court’s unchallenged findings of fact support the court’s

decision to pierce the corporate veil.” Id. at 1281.2 On this sole issue, CBR I held it was

error for the trial court to pierce the corporate veil and hold Shareholders personally liable

for judgments against CBR. Id. at 1284.

Immediately following the holding in CBR I, the court made these additional

statements:

We note that CBR does not appeal the judgment against it for breach of
contract. The shareholders also do not appeal the judgment against them for
fraudulent conveyance, fraudulent transfer, or wrongful stop payment. We
therefore affirm in part and reverse in part. We affirm the trial court’s
judgment against the shareholders for $100,000 for fraudulent conveyance,
fraudulent transfer, and wrongful stop payment of a check. We reverse,
however, the trial court’s judgment against the shareholders in all other
respects. Further, we remand to the trial court to determine the portion of
attorney fees the shareholders are liable for to Gates as a result of the
2
CBR did not appeal the trial court’s judgments against it for breach of contract, breach of
promissory note, and wrongful stop payment. Further, Shareholders did not appeal the trial court’s
judgment that they were personally liable for fraudulent conveyance and wrongful transfer. On appeal, the
only issue was whether Shareholders were personally liable for judgments against CBR.

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 wrongful stop payment.

Id. (citation omitted). These supplementary statements at the close of CBR I were the

source of some confusion on remand and are at the root of the present appeal.

On remand, Gates sought attorney fees from Shareholders based on his claim of

wrongful stop payment. Shareholders opposed Gates’s motion for attorney fees, arguing

the CBR I holding precluded their personal liability for the wrongful stop payment claim

and related attorney fees. Following a hearing on the issue of Shareholders’ liability, the

trial court issued an order awarding attorney fees in the amount of $290,093 and interest at

a rate of 18%. Relevantly, the trial court found:

1. The Court of Appeals [in CBR I] determined that the individual
[Shareholders] are liable to [Gates] for the $100,000.00 judgment on the
wrongful stop payment, fraudulent transfer and fraudulent conveyance
claims.

2. This Court lacks jurisdiction to rehear argument or evidence regarding
the merits of the wrongful stop payment, fraudulent transfer and
fraudulent conveyance claims and rejects [Shareholders’] request to do
so.

Appellant’s Appendix at 34. Shareholders filed a motion to reconsider on February 7,

2013, which the trial court denied.

On January 3, 2013, PNC Bank provided Gates with written notice that it would not

extend the letter of credit, which was set to expire March 17, 2013. On February 5, 2013,

Gates filed a Petition for Emergency Stay, for Deposit of Proceeds and for Hearing.

Gates’s petition requested an emergency stay of the letter of credit’s expiration and also

requested a hearing and an order requiring deposit of the $1,000,000 with the trial court

clerk. Two days later, the trial court ordered that the funds be deposited with the trial court

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clerk pursuant to the terms of the letter of credit, stating it saw “no need for a hearing.”

Appellant’s App. at 36. On February 15, 2013, Shareholders requested a stay of the

February 7 order, and that request was granted on March 1, 2013. On February 22, 2013,

Gates sent a written demand to PNC Bank for the balance of the letter of credit to be drawn

and deposited with the trial court clerk. Accordingly, those funds were deposited with the

trial court clerk. This appeal followed.

Discussion and Decision

I. Award of Attorney Fees

A. Standard of Review

Shareholders appeal the trial court’s award of attorney fees in favor of Gates. We

review an award of attorney fees for an abuse of discretion. Gerstbauer v. Styers, 898

N.E.2d 369, 378 (Ind. Ct. App. 2008). A trial court abuses its discretion when the decision

is clearly against the logic and effect of the facts and circumstances or if it misapplies the

law. Id.

B. Limited Liability and Award of Attorney Fees

Shareholders contend the trial court improperly determined they were personally

liable for attorney fees attributed to the wrongful stop payment claim following this court’s

decision in CBR I. Indiana follows the American Rule, which requires that generally “a

party must pay his own attorneys’ fees absent an agreement between the parties, a statute,

or other rule to the contrary.” R.L. Turner Corp. v. Town of Brownsburg, 963 N.E.2d 453,

458 (Ind. 2012). Relevantly, Indiana Code section 26-2-7-5 provides for attorney fees in

an action for wrongful stop payment of a check. However, the wrongful stop payment

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claim in this case was pled only against CBR, not Shareholders.

A basic precept of corporate law is limited liability. Escobedo v. BHM Health

Assocs., Inc., 818 N.E.2d 930, 932 (Ind. 2004); see also Ind. Code § 23-1-26-3. “[T]he

fundamental principle of American corporate law [is] that corporate shareholders sustain

liability for corporate acts only to the extent of their investment and are not held personally

liable for the acts attributable to the corporation.” Escobedo, 818 N.E.2d at 932 (quoting

Aronson v. Price, 644 N.E.2d 864, 867 (Ind. 1994)). Limited liability may be avoided and

individual shareholder liability may be imposed only upon a determination to pierce the

corporate veil.3 Id. at 932-33. Simply stated, Shareholders could only be liable for attorney

fees on the wrongful stop payment claim against CBR if the corporate veil was pierced.

This court clearly held in CBR I that the trial court’s decision to pierce the corporate veil

was error. Therefore, Shareholders cannot be personally liable for CBR’s wrongful stop

payment or attorney fees tied to that claim.

Gates argues the final paragraph of CBR I, quoted above, mandates the result

reached by the trial court. As Gates reads this court’s prior decision, Shareholders were

ordered to pay attorney fees on the wrongful stop payment claim. Gates does not so much

as attempt to argue that such a directive could be squared with CBR I’s actual holding.

Instead, he maintains that regardless of any allegedly incorrect outcome, the legal doctrines

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“[T]he burden is on the party seeking to pierce the corporate veil to prove that the corporate form
was so ignored, controlled or manipulated that it was merely the instrumentality of another and that the
misuse of the corporate form would constitute a fraud or promote injustice.” Aronson, 644 N.E.2d at 867.

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of res judicata4 and law of the case preclude both the trial court and this court from

addressing the issue of attorney fees. We find Gates’s contentions unavailing.

First, we disagree with the premise that CBR I definitively ordered Shareholders

personally liable for attorney fees on a judgment against CBR. The final paragraph in

CBR I noted that CBR and Shareholders did not appeal a number of judgments against

them—again, the only issue presented on appeal was whether the corporate veil was

rightfully pierced—and the court purported to affirm those non-appealed judgments.

Finally, the court “remand[ed] to the trial court to determine the portion of attorney fees

the shareholders are liable for to Gates as a result of the wrongful stop payment.” CBR I,

962 N.E.2d at 1184. As demonstrated above, because CBR I held the corporate veil should

not be pierced, the portion of attorney fees for which Shareholders are personally liable as

a result of the wrongful stop payment claim is none. In reality, CBR I never stated

Shareholders were individually liable for any amount of attorney fees, and Gates has

simply gleaned such a holding from CBR I where none actually existed.

Even if CBR I could be interpreted as Gates suggests, claim preclusion, issue

preclusion, and law of the case do not require us to find Shareholders liable for attorney

fees. Indeed, the doctrines of claim preclusion, issue preclusion, and law of the case are

4
Gates’s brief refers to “res judicata,” which is also known as claim preclusion and is distinct from
issue preclusion (also known as collateral estoppel). See Sullivan v. American Cas. Co. of Reading, Pa.,
605 N.E.2d 134, 137 (Ind. 1992); see also BLACK’S LAW DICTIONARY 1305-06 (6th ed. 1990) (comparing
res judicata and collateral estoppel). However, some Indiana cases have lumped the doctrines of claim
preclusion and issue preclusion together under the term res judicata. E.g. Wells Fargo Bank, N.A. v. PNC
Bank, N.A., 971 N.E.2d 1216, 1219 (“The doctrine of res judicata consists of two distinct components,
claim preclusion and issue preclusion.”). Because claim preclusion and issue preclusion are separate
doctrines with unique effect, we will refer to them individually in this opinion. Gates’s brief is unclear as
to whether he means claim preclusion or issue preclusion—or both—apply to this case.

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all similar in that they seek to prevent repetitious litigation and promote the finality of

judgments.5 See Becker v. State, 992 N.E.2d 697, 700 (Ind. 2013) (stating claim preclusion

and issue preclusion aim to “prevent repetitious litigation of disputes that are essentially

the same, by holding a prior final judgment binding against both the original parties and

their privies.”); Cutter v. State, 725 N.E.2d 401, 405 (Ind. 2000) (stating the purpose of

law of the case is to minimize relitigation of issues after resolution by an appellate court

and to promote finality and judicial economy). That said, each doctrine is unique and

applied under different circumstances. None of those doctrines are applicable under the

circumstances of this case.

Claim preclusion and issue preclusion are pertinent only in a subsequent action or

separate pending action, not a subsequent appeal in a single pending case. See Sullivan v.

American Cas. Co. of Reading, Pa., 605 N.E.2d 134, 137 (Ind. 1992); see also

RESTATEMENT (SECOND) OF JUDGMENTS § 17 (1982). Simply stated, the doctrines of

claim preclusion and issue preclusion have no applicability where the legal issue involves

a prior ruling in the same action. Therefore, neither claim preclusion nor issue preclusion

could prevent us from addressing issues raised in or resulting from CBR I.

On the other hand, law of the case is a doctrine used to facilitate the finality of issues

decided within the same action. Law of the case provides that an appellate court’s

determination of a legal issue is binding on the trial court and in any subsequent appeal in

the same case and on substantially the same facts. Cutter, 725 N.E.2d at 405. Essentially,

5
Unlike claim preclusion and issue preclusion, which are compulsory, law of the case doctrine is
a discretionary tool. Murphy v. Curtis, 930 N.E.2d 1228, 1234 (Ind. Ct. App. 2010), trans. denied.

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law of the case means all issues decided directly or by implication in a prior decision are

binding in all further portions of the same case. Dean V. Kruse Found., Inc. v. Gates, 973

N.E.2d 583, 590 (Ind. Ct. App. 2012), trans. denied. However, only those issues

conclusively determined are considered law of the case, and the issue decided in the prior

appeal must clearly be the only possible construction of an opinion. Id. Finally, statements

that are not necessary in the determination of the issues presented are dicta and do not

become law of the case. Id. at 590-91.

The statements in CBR I relied upon by Gates are not law of the case. First, we do

not believe Gates’s interpretation of CBR I—making Shareholders personally liable for

attorney fees on the wrongful stop payment claim—is the only possible construction of the

opinion. This is primarily because holding Shareholders personally liable for attorney fees

on the wrongful stop payment claim against CBR stands in stark contradiction to the

opinion’s actual holding which upheld the corporate veil. Moreover, the sole issue

presented in CBR I was whether the trial court erred in piercing the corporate veil. The

statements relied upon by Gates were unnecessary to the determination of that issue and

are merely dicta. Therefore, law of the case is inapplicable here.

Finally, we note that Shareholders did not seek rehearing or transfer following the

decision in CBR I. We remind Shareholders’ attorneys that where potential ambiguity

arises in an appellate opinion, a petition for rehearing via Indiana Appellate Rule 54 is the

most appropriate and efficient method of resolving any uncertainty, rather than attempting

to sort out an ambiguity with the trial court post-remand. Our ability to address the issue

presented in this case is due only to the language in CBR I and particular circumstances

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rendering law of the case doctrine inappropriate; had CBR I clearly articulated a ruling of

attorney fees in favor of Gates, Shareholders may not have enjoyed such a favorable

outcome. These matters should not be left to chance.

In sum, the only legal theory under which Shareholders could be personally liable

for attorney fees on Gates’s wrongful stop payment claim was to pierce the corporate veil,

which CBR I clearly held was improper. Neither claim preclusion, issue preclusion, nor

law of the case are applicable here, and thus, we are not obligated to uphold the award of

attorney fees against Shareholders. The trial court’s award of attorney fees was an abuse

of discretion.

II. Trial Court’s Ex Parte Order and Deposit of Funds

Finally, Shareholders argue the trial court’s order granting Gates’s request to deposit

the letter of credit funds with the trial court clerk was an improper ex parte order.

Specifically, Shareholders state that Gates did not make sufficient efforts to notify them of

the emergency request for relief and the trial court did not have discretion to order such

relief under the circumstances. In response, Gates contends the trial court’s order was not

necessary to effectuate transfer of the funds to the trial court clerk and that any alleged

error was not reversible error. We find Gates’s position persuasive.

The terms of the letter of credit provided that in the event PNC Bank gave written

notice of non-renewal, Gates

shall have the right, at any time within 60 days after you receive such written
notice, to draw down the then available balance of this letter of credit by
providing written demand therefore to us. Upon receipt of such written
demand, we will immediately pay the entirety of the unpaid balance of this
letter of credit to the clerk of the Marion County Superior Court, to be held

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 on behalf of the individual defendants, as a cash deposit in lieu of this letter
of credit . . . .

Appellant’s App. at 203. In a motion before the trial court in March 2013, Shareholders

conceded that Gates made a “legitimate demand” under the terms of the letter of credit,

referencing Gates’s written demand to PNC Bank on February 22, 2013. Appellant’s App.

at 231. Thus, the entire $1,000,000 was drawn on the letter of credit and deposited with

the trial court clerk pursuant to the terms of the letter of credit that were assented to by

Shareholders. Shareholders do not dispute that Gates had a right to demand payment of

the funds from the letter of credit to the trial court clerk, nor do Shareholders dispute that

Gates properly tendered a valid written demand.

“It is well-established that an error based on a lack of notice is subject to the

harmless error doctrine, which requires the appellant to demonstrate prejudice as a result

of the lack of notice.” Adams v. State, 967 N.E.2d 568, 572 (Ind. Ct. App. 2012), trans.

denied. The deposit of funds with the trial court clerk was done in accordance with the

terms of the letter of credit supplied by Shareholders, and the deposit occurred irrespective

of the trial court’s ex parte order. Shareholders have failed to demonstrate prejudice

resulting from the ex parte order.

Conclusion

We hold the trial court abused its discretion by holding Shareholders personally

liable for attorney fees on a wrongful stop payment claim against CBR. Further, we

conclude the doctrines of claim preclusion, issue preclusion, and law of the case do not

require the imposition of those attorney fees. Lastly, the trial court’s ex parte order

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requiring $1,000,000 from a letter of credit to be deposited with the trial court clerk was

not reversible error.

Affirmed in part and reversed in part.

NAJAM, J., and BARNES, J., concur.

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