Lake County Trust Co., as Trustee for Lake County Trust 5434, James L. Gagan and Eugene H. Deutsch v. United Consumers Club, Inc. (mem. dec.)

MEMORANDUM DECISION
May 26 2015, 10:19 am
Pursuant to Ind. Appellate Rule 65(D), this
Memorandum Decision shall not be regarded as
precedent or cited before any court except for the
purpose of establishing the defense of res judicata,
collateral estoppel, or the law of the case.

ATTORNEYS FOR APPELLANTS ATTORNEYS FOR APPELLEE
Peter J. Rusthoven F. Joseph Jaskowiak
Barnes & Thornburg LLP Lauren K. Kroeger
Indianapolis, Indiana Hoeppner, Wagner & Evans LLP
Merrillville, Indiana
Brian Custy
Merrillville, Indiana Karl L. Mulvaney
Nana Quay-Smith
Bingham Greenebaum Doll LLP
Indianapolis, Indiana

IN THE
COURT OF APPEALS OF INDIANA
Lake County Trust Co., as Trustee May 26, 2015
for Lake County Trust 5434, James Court of Appeals Case No.
L. Gagan and Eugene H. Deutsch, 45A03-1407-PL-226
Appellants, Appeal from the Lake Superior
v. Court

The Honorable John M. Sedia,
United Consumers Club, INC., Judge
Appellee
Cause No. 45D01-1401-PL-11

Friedlander, Judge.

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[1] This is the second iteration of a legal dispute involving property owned by Lake

County Trust 5434 (the Trust) and leased by United Consumers Club (United),

with the primary difference between this one and the first lawsuit being the

addition of James L. Gagan and Eugene H. Deutsch (the Beneficiaries), who

are beneficiaries of the Trust, as parties to the lawsuit. In both actions, the

plaintiff(s) sued United for recovery of unpaid rent. In the first action, an

interlocutory appeal that we shall designate as United I, the action was brought

by Lake County Trust Co. (the Trustee) on behalf of the Trust. On grounds

that will be explained below, this court determined that the Trust did not have

standing to sue United and reversed the trial court’s order denying United’s

motion to dismiss for lack of standing. See Lake Cnty. Trust Co. v. United

Consumers Club, Inc., 45A03-1111-PL-527 (Ind. Ct. App. Sept. 11, 2012). The

case was dismissed after remand on March 13, 2013 pursuant to the Trust’s

motion to dismiss.

[2] The present lawsuit was filed in January 2014, and is essentially the same as the

first, with the exception that the Beneficiaries were added as plaintiffs. United

filed a Trial Rule 12(B)(6) to dismiss the January 2014 action on grounds of res

judicata. The Beneficiaries appeal the grant of that motion, presenting a single

issue for review: did the trial court err in holding that the ruling in United I

constituted a dismissal on the merits against the Beneficiaries, thus barring on

res judicata grounds the present case?

[3] We reverse.

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[4] The underlying facts were set out in United I, as follows:

Lake County Trust 5434 (“the Trust”) sued United Consumers
Club (“United”) for recovery of unpaid rent. The lawsuit was
brought by the Trustee only; the trust beneficiaries were not
named as plaintiffs even though the trust document explicitly
provided the Trust could not collect or receive the rents from the
trust property. …
The document creating the Trust provides in part:
It is further expressly understood and agreed that [the
Trust] has no right or power whatsoever to manage,
control or operate said real estate in any way or to any
extent and is not entitled at any time to collect or receive
for any purpose, directly or indirectly, the rents, issues,
profits or proceeds of said real estate or any mortgage or
any disposition thereof.
In May of 2009, the Trust, in the name of the Trustee only and
not the beneficiaries, sued United for recovery of unpaid rent. In
August 2009 the Trust amended its complaint to allege United
had not paid base rent, taxes, and operating expenses as required
under the lease agreement. United moved to dismiss, and its
motion was denied. In December 2009, United filed its amended
answer and counterclaim in which it alleged, among other things,
that the Trust was not the real party in interest or was otherwise
“not qualified to bring these claims per the terms of the lease,”
and “lacks standing to sue for the relief sought in the amended
complaint.”
The parties then filed cross-motions for summary judgment, and
in September of 2011 the trial court granted summary judgment
for the Trust on certain issues and for United on one issue. In its
summary judgment order, it concluded the Trust had standing to
bring the lawsuit. The trial court certified its order for
interlocutory appeal, and we accepted jurisdiction.
[5] Id., slip op. at 1 (internal citations and footnote omitted).

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[6] On appeal, this court noted that an allegation of lack of standing is treated as a

motion to dismiss under T.R. 12(B)(6). The main purpose of standing is to

insure that the party before the court has a substantive right to enforce the claim

that is being made in the litigation. See Lunsford v. Deutsche Bank Trust Co.

Americas as Tr., 996 N.E.2d 815 (Ind. Ct. App. 2013). We further noted that “a

court has no jurisdiction over a particular case unless a party with standing is

participating in the case.” Lake Cnty. Trust Co. v. United Consumers Club, Inc.,

45A03-1111-PL-527, slip op. at 1. Based upon the following rationale, we

concluded that the Trust did not have standing to sue United for unpaid rent

and therefore that its lawsuit should have been dismissed:

The trust document is explicit that the Trust “is not entitled at
any time to collect or receive for any purpose, directly or
indirectly, the rents, issues, profits or proceeds of said real
estate,” … and we agree with United that “[u]sing the words that
the Trust had ‘no power to collect rents,’ also left the Trustee
with no power to bring a lawsuit to collect rent.”
[7] Id. (internal footnote and citations omitted).

[8] This brings us to the present case. As indicated above, this lawsuit is essentially

the same as the first, with the exception of the addition of the Beneficiaries as

plaintiffs. United contends that the dismissal of United I constituted a decision

on the merits against the Beneficiaries of the dispute over nonpayment of rent

and therefore is res judicata with respect to the present case. The trial court

agreed, citing Indiana Trial Rule 41(B), “which provides that any dismissal

other than a dismissal for lack of jurisdiction, operates as an adjudication on the

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 merits [.]” Appellant’s Appendix at 6. The Beneficiaries challenge that

determination.

[9] We begin by briefly addressing the trial court’s citation to T.R. 41(B) in support

of its ruling. The relevant portion of that provision states, “Unless the court in

its order for dismissal otherwise specifies, a dismissal under this subdivision or

subdivision (E) of this rule and any dismissal not provided for in this rule, other

than a dismissal for lack of jurisdiction, operates as an adjudication upon the

merits.” T.R. 41(B). Clearly, the premise of the trial court’s ruling is that the

dismissal of the case in United I was something “other than a dismissal for lack

of jurisdiction.” Although the dismissal was based technically upon T.R.

12(B)(6), the specific reasoning for dismissal was that the Trust lacked standing

to sue United for unpaid rent. As this court stated in United I, “a court has no

jurisdiction over a particular case unless a party with standing is participating in

the case.” Lake Cnty. Trust Co. v. United Consumers Club, Inc., 45A03-1111-PL-

527, slip op. at 1 (citing In re Custody of G.J., 796 N.E.2d 756 (Ind. Ct. App.

2003), trans. denied). In short, the lawsuit in United I was dismissed for lack of

standing, which had jurisdictional implications. For this reason, on the facts of

this case, the exception in the quoted portion of T.R. 41(B) applies and thus, as

to all parties except the Trust, it did not constitute an adjudication on the merits

within the meaning of T.R. 41(B).

[10] A T.R. 12(B)(6) motion to dismiss for failure to state a claim upon which relief

can be granted tests the legal sufficiency of a claim, not the facts supporting it.

Godby v. Whitehead, 837 N.E.2d 146 (Ind. Ct. App. 2005), trans. denied.

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 Accordingly, we view the complaint in the light most favorable to the non-

moving party and draw every reasonable inference in that party’s favor. Id. We

will affirm a grant of such a motion to dismiss if it is apparent that the facts

alleged in the complaint are incapable of supporting relief under any set of

circumstances. Id. “In determining whether any facts will support the claim,

we look only to the complaint and may not resort to any other evidence in the

record.” Id. at 149. Finally, we apply a de novo standard of review in appeals

from the grant of a motion to dismiss under T.R. 12(B)(6). Godby v. Whitehead,

837 N.E.2d 146.

[11] Both parties agree that this case turns on the question of whether res judicata

properly applies. More specifically, the issue is whether, with respect to the

Beneficiaries, the former judgment satisfies the element of res judicata that it

was “rendered on the merits.”1 The parties’ competing positions on that

question are as follows: quoting Schultz v. State, 731 N.E.2d 1041, 1043 (Ind. Ct.

1
Res judicata is appropriate only where the following four elements are present:
1. the former judgment must have been rendered by a court of
competent jurisdiction;
2. the former judgment must have been rendered on the merits;
3. the matter now in issue was or might have been determined in the
former suit; and
4. the controversy adjudicated in the former suit must have been
between the parties to the present action or their privies.
Indiana State Ethics Comm’n v. Sanchez, 18 N.E.3d 988, 993 (Ind. 2014) (quoting Chemco
Transp., Inc. v. Conn., 527 N.E.2d 179, 181 (Ind. 1988)).

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 App. 2000), trans. denied, United argues “[a] decision that a party lacks standing

pursuant to Trial Rule 12(B)(6) operates as an adjudication on the merits.”

This quote from Schultz cites Lake Cnty. Council v. State Bd. of Tax Comm’rs, 706

N.E.2d 270, 280 (Ind. T.C. 1999) adhered to on reconsideration sub nom.

Montgomery v. State Bd. of Tax Comm’rs, 708 N.E.2d 936 (Ind. T.C. 1999), rev’d,

730 N.E.2d 680 (Ind. 2000), as its source authority. Lake County Council,

however, adds an important qualifier that the panel in Schultz chose not to

include, i.e., “[a] decision that a party lacks standing pursuant to Trial Rule

12(B)(6) operates as an adjudication on the merits … as to the party seeking to

invoke the court’s jurisdiction.” Lake Cnty. Council v. State Bd. of Tax Comm’rs, 706

N.E.2d at 280 (emphasis supplied). In light of the full quote from Lake Cnty.

Council v. State Bd. of Tax Comm’rs, the granting of United’s motion in the

present case clearly acted as an adjudication on the merits against the Trust.

The question is, was this ruling also binding upon the Beneficiaries?

[12] “Not all judgments of dismissal on the grounds stated in Ind. Rules of

Procedure, Trial Rule 12(B) constitute an adjudication on the merits so as to bar

presentation of the same issues in a subsequent action.” Ragnar Benson, Inc. v.

Wm. P. Jungclaus Co., 352 N.E.2d 817, 820 (Ind. Ct. App. 1976). In this case,

United I was dismissed upon the determination that the Trust lacked standing to

bring the lawsuit. The Beneficiaries contend this was tantamount to a dismissal

on grounds that the Trust was not the real party in interest. This, in turn,

would justify application of the rule that “dismissal for want of a real party in

interest is not on the merits and would not bar any action which the real party

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 in interest might decide to bring at a later time.” State v. Rankin, 260 Ind. 228,

233, 294 N.E.2d 604, 607 (1973).

[13] The concepts of standing and real party in interest often are understandably

considered one and the same. Hammes v. Brumley, 659 N.E.2d 1021 (Ind. 1995).

Our Supreme Court has indicated, however, that they are not. “Although they

are quite similar, they are indeed different concepts.” Id. at 1029. Standing

refers to the question of whether a party has an actual demonstrable injury for

purposes of a lawsuit. Barnette v. U.S. Architects, LLP, 15 N.E.3d 1 (Ind. Ct.

App. 2014). “To establish standing, the plaintiff must ‘demonstrate a personal

stake in the outcome of the lawsuit and must show that he or she has sustained

or was in immediate danger of sustaining, some direct injury as a result of the

conduct at issue.’” Vectren Energy Mktg. & Serv., Inc. v. Exec. Risk Specialty Ins.

Co., 875 N.E.2d 774, 777 (Ind. Ct. App. 2007) (quoting Shourek v. Stirling, 621

N.E.2d 1107, 1109 (Ind. 1993)). On the other hand, our Supreme Court has

explained that a real party in interest “is the person who is the true owner of the

right sought to be enforced.” Hammes v. Brumley, 659 N.E.2d at 1030. Put

another way, the real party in interest is the one who is “entitled to the fruits of

the action.” Id.

[14] In the present case, the Trust manages the property for the benefit of the

Beneficiaries, and normally would therefore be authorized to file a lawsuit for

recovery of unpaid rent pertaining to the trust property. Thus, the Trust would

usually have standing to file this lawsuit. See Ind. Code Ann. § 30-4-3-3(a)(11)

(West, Westlaw current with legislation of the 2015 First Regular Session of the

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 119th General Assembly effective through April 23, 2015) (“a trustee has the

power to … prosecute or defend actions, claims, or proceedings for the

protection of … trust property”). We determined in United I, however, that

because of a provision in the lease governing this particular property, the Trust

lacks standing. Whether the Trust did or did not have standing, the

Beneficiaries were the real party in interest, as they were entitled to the fruits of

the action, viz., the unpaid rent.2 See Hammes v. Brumley, 659 N.E.2d 1021.

[15] Both sides of this dispute seem to acknowledge that the Beneficiaries could have

been substituted for the Trust as the real parties in interest in the lawsuit that

was ultimately dismissed pursuant to our holding in United I. United contends

that the failure to do that was a strategic decision on the part of the Trust and

the Beneficiaries that was calculated “to avoid United’s counterclaims against

the beneficiaries individually.” Appellee’s Brief at 23. United further contends

the Beneficiaries “participated in the prior litigation”, Appellee’s Brief at 17, and

actively resisted joining in that lawsuit. Indeed, this court indicated in United I

that there was “strenuous[]” resistance to the joinder of the Beneficiaries in that

lawsuit. Lake Cnty. Trust Co. v. United Consumers Club, Inc., 45A03-1111-PL-527,

slip op. at 2. United claims that in choosing not to substitute the Beneficiaries

as the real party in interest in the first lawsuit, the Trust and the Beneficiaries

2
Indeed, were it not for the lease provision divesting the Trust of standing, the “real party in interest”
requirement would not represent an impediment to the Trust prosecuting this action. See Trial Rule 17 (A)(1)
(addressing the real party in interest) (“(the) trustee of an express trust … may sue in his own name without
joining with him the party for whose benefit the action is brought, but stating his relationship and the
capacity in which he sues”).

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 were manipulating the process, and further that the present lawsuit represents a

subversion of the Trial Rules, and specifically a “circumvention” of the

Appellants’ failure to comply with T.R. 17.

[16] United’s T.R. 17 argument presumes that T.R. 17 required the Appellants to

substitute the Beneficiaries for the Trust in United I after the Trust was

determined to lack standing. We can find no authority for this proposition.

T.R. 17(A) does provide that a real party in interest has “a reasonable time”

after an objection has been lodged against the original party to ratify the action

or be joined or substituted in the action. The rule further provides that when

such does occur, the ratification, joinder, or substitution “shall have the same

effect as if the action had been commenced initially in the name of the real

party in interest.” T.R. 17(A). We can find no language, however, that may be

interpreted as mandating that ratification, substitution, or joinder of the real

party in interest must occur after a court has determined that the party bringing

the action lacks standing or is determined not to be the real party in interest.

[17] Still, we do not necessarily disagree with United’s contention that “a real party

in interest which manipulates the named plaintiff for strategic reasons does so at

its own peril.” Appellee’s Brief at 22 (citing Metal Forming Techs., Inc v. Marsh &

McLennan Co., 224 F.R.D. 431 (S.D. Ind. 2004)). The question is whether that

situation is present in this case. In addition to Metal Forming Techs., United cites

Posley v. Clarian Health, 2012 WL 3886328 (S.D. Ind. Sept. 6, 2012) in support

of its contention that T.R. 17 should be construed so as to require joinder,

ratification, or substitution of the real party in interest in the original action

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 where the original plaintiff has been determined not to be the real party in

interest. In those two cases, the question was whether the case should be

dismissed on the defendant’s motion.

[18] In Posley, an individual filed a lawsuit against a health-care entity. Subsequent

to that, the individual filed for Chapter 7 bankruptcy protection. The health-

care provider filed a motion to dismiss the complaint on grounds that the

bankruptcy trustee, not the individual, was the real party in interest. The

individual argued that ratification was the proper course of action. The court

ultimately agreed that ratification was appropriate after applying the “honest

mistake test” to determine whether the real party in interest had engaged in a

“sleight of hand” by filing the complaint in the name of a different party. Posley

v. Clarian Health, 21012 WL 3886328, slip op. at 3. The “honest mistake test”

requires a party wishing to substitute another party to establish that “when he

brought this action in his own name, he did so as the result of an honest and

understandable mistake.” Id. at 2 (citing Feist v. Consol. Freightways Corp., 100 F.

Supp.2d 273, 276 (E.D. Pa. 1999), aff’d, 216 F.3d 1075 (3d Cir. 2000), cert.

denied, 532 U.S. 920 (2001)). The Posley court determined that the original

named plaintiff, at the time she filed the lawsuit in her own name, exercised her

only legal choice at the time, and therefore permitted ratification.

[19] In Metal Forming Techs., Inc. v. Marsh & McLennan Co., the plaintiffs leased a

premises that was subsequently damaged by a fire. The landlord’s primary

insurer paid property damages to the landlord pursuant to an insurance policy.

The primary insurer brought a subrogation action against the plaintiffs to

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 recover expenses it paid to the landlord as a result of the fire. Prior to the fire,

the plaintiffs had purchased two separate liability insurance policies from two

separate companies. One of those insurers denied coverage after the fire, and

the other, Travelers Insurance, informed the plaintiffs that their coverage was

limited to $100,000, one-tenth of what the plaintiffs believed they had

purchased, and significantly less than the primary insurer’s subrogation claim.

The plaintiffs and the primary insurer reached a settlement agreement

concerning the primary insurer’s subrogation claims. In that agreement, the

plaintiffs agreed to have judgment for $1,500,000 entered against them in favor

of the primary insurer. The primary insurer would receive the $100,000

proceeds from the Travelers policy, and the primary insurer further agreed that

it would not take any steps or pursue any action to collect or execute that

judgment against the plaintiffs. The plaintiffs agreed to assign to the primary

insurer all of its claims against Marsh & McLennan Company, through which

the plaintiffs had purchased their two insurance policies. Finally, as part of the

agreement, the plaintiffs agreed to permit the primary insurer to sue Marsh in

the plaintiffs’ names and to assist in the prosecution of the assigned claims

against Marsh.

[20] The plaintiffs then sued Marsh alleging that Marsh had failed to procure

adequate insurance coverage for them. Marsh filed a motion for summary

judgment contending that the plaintiffs were not the real parties in interest

because they had assigned their claims to the primary insurer. The court

concluded that the plaintiffs were not the real parties in interest and that the

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 primary insurer filed this action “in disguise, using Plaintiffs’ names while

knowing that Plaintiffs no longer owned the claims that were brought.” Metal

Forming Techs., Inc. v. Marsh & McLennan Co., 224 F.R.D. at 432. Moreover, the

court concluded that the primary insurer’s decision to sue in the plaintiffs’

names “was a strategic and tactical decision in contravention of Rule 17(a).”3

Id. at 437. Ultimately, the court denied a motion to substitute under Rule 17(a)

because the plaintiffs and the primary insurer had failed to demonstrate that

there was “an honest or understandable mistake or difficulty in naming the

proper party.” Id.

[21] The outcomes in Posley and Metal Forming Techs., Inc. both turned at least in part

on the issue of whether the failure to identify the real party in interest in the

complaint was motivated by tactical considerations, or instead was a product of

honest mistake or difficulty in naming the proper party. Assuming for the sake

of argument that those holdings apply in the present case, United has not

presented a compelling argument that the action in United I was prosecuted in

the name of the Trustee on behalf of the Trust rather than the Beneficiaries as a

strategic or tactical matter, or was anything other than an honest or

understandable mistake. Having said that, we note United’s claim that the first

lawsuit was brought in the name of the Trust in order to “avoid United’s

3
The court opined that the primary insurers’ “decision to sue in Plaintiff’s names was made “to make the
Plaintiffs more sympathetic to a jury,” and to “make this suit about a company ravaged by fire and not about
an insurance company that paid for the fire’s damage.” Metal Forming Techs., Inc v. Marsh & McLennan Co.,
224 F.R.D. at 437.

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 counterclaims against the beneficiaries individually.” Appellee’s Brief at 23.

United does not further illuminate the nature of these counterclaims or the

manner in which they could have been avoided by substituting the Trust for the

Beneficiaries as named plaintiff. We simply are not convinced that the Trust or

the Beneficiaries would fail the “honest mistake test” discussed in Posley and

Metal Forming Techs., Inc.

[22] In any event, neither Posley nor Metal Forming Techs., Inc. suggests that where a

court has determined that the plaintiff was not a real party in interest, the real

party in interest must be substituted in that action or suffer an adverse decision

on the merits. Neither can we find any language in T.R. 17 that mandates such

a result. Simply put, T.R. 17 indicates that substitution, ratification, or joinder

are permissible, but gives no indication that they are mandatory steps that must

be taken in the event it is determined that the party originally filing the action is

not the real party in interest. We are reluctant to engraft such a requirement,

especially in light of our Supreme Court’s statement in Lake Cnty. Council v. State

Bd. of Tax Comm’rs, 706 N.E.2d at 280 that a “decision that a party lacks

standing pursuant to Trial Rule 12(B)(6) operates as an adjudication on the

merits … as to the party seeking to invoke the court’s jurisdiction.” Dicta or

not, it bespeaks the Supreme Court’s view that dismissal of a plaintiff’s action

on grounds of lack of standing operates only against that party, and does not

implicate the interests of an unnamed real party in interest, especially where the

failure to name the real party in interest in the complaint was not motivated by

procedural or tactical skullduggery.

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[23] In summary, the dismissal of United I on grounds that the Trust was not the real

party in interest because of a provision in the lease governing United’s tenancy

constituted a judgment on the merits only against the Trust. It did not operate

as a judgment on the merits against the real parties in interest, i.e., the

Beneficiaries. Moreover, although T.R. 17 authorized substitution of the

Beneficiaries when it was determined that they, not the Trust, were the real

parties in interest, it did not mandate that action. Neither the authority nor the

equitable arguments presented by United convince us otherwise. Because the

Beneficiaries are real parties in interest in the dispute with United involving

alleged unpaid rent, and because that dispute has not yet been resolved against

them on the merits, the trial court erred in dismissing on res judicata grounds

the Beneficiaries’ action for recovery of unpaid rent.

[24] Judgment reversed.

Kirsch, J., and Crone, J., concur.

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