ATTORNEYS FOR APPELLANT ATTORNEYS FOR APPELLEE
Robert J. Kopka David W. Holub
Lawrence M. Hansen David M. Hamacher
Gregory M. Bokota Hammond, Indiana
Merrillville, Indiana
IN THE
SUPREME COURT OF INDIANA
GREATER HAMMOND COMMUNITY )
SERVICES, Inc., )
)
Appellant (Defendant Below), )
)
v. ) 45S03-9904-CV-224
) in the Supreme Court
LUCILE MUTKA, )
) 45A03-9706-CV-203
Appellee (Plaintiff Below). ) in the Court of Appeals
)
LAKE COUNTY EQUAL OPPORTUNITY )
COUNCIL, NORTHERN INDIANA REGIONAL )
PLANNING COMMISSION, GLEASON B. )
KING and FREDERICK J. LEEP, )
)
Non-Appealing Parties, )
(Defendants Below),
APPEAL FROM THE LAKE SUPERIOR COURT
The Honorable Jeffery J. Dywan, Judge
Cause No. 45D01-9502-CT-203
September 21, 2000
SHEPARD, Chief Justice.
About thirty-five years ago, President Johnson’s war on poverty gave
birth to hundreds of local non-profit corporations that carry out programs
assisting the poor. Our legislature brought some of those entities within
the coverage of the Indiana Tort Claims Act. One such organization,
Greater Hammond Community Services, became a defendant in two tort suits.
In rulings issued on the same day, two panels of the Court of Appeals
reached conflicting conclusions about whether Greater Hammond is covered by
the Act. We hold it is not.
Facts and Case History
On October 19, 1994, Gleason King was driving a bus operated by his
employer Greater Hammond Community Services, Inc. (GHCS). GHCS was
affiliated with the Lake County Equal Opportunity Council (LCEOC). LCEOC
leased the bus from the Northern Indiana Regional Planning Commission
(NIRPC).
When King failed to stop for a red traffic signal, the bus collided
with another vehicle. Lucile Mutka, an 86-year-old widow, was a passenger
on the bus who sustained personal injuries and incurred significant medical
expenses.
On February 16, 1995, Mutka filed a complaint for damages against
King, GHCS, LCEOC, and NIRPC. The defendants moved for partial summary
judgment, seeking a determination that they were governmental entities and
that their aggregate liability for Mutka’s injuries could not exceed
$300,000, pursuant to the Indiana Tort Claims Act. Mutka also moved for
partial summary judgment, claiming that GHCS was not a governmental entity
entitled to the damages limitation. The trial court granted Mutka’s
motion. It eventually entered a final judgment under which GHCS conceded
liability in the amount of $700,000, subject to its ability to appeal the
trial court’s determination that GHCS was an independent, rather than
governmental, entity. The trial court dismissed the remaining defendants
with prejudice.
GHCS appealed, and the Indiana Court of Appeals upheld the trial
court’s determination that GHCS was not a governmental entity. Greater
Hammond Community Serv. v. Mutka, 699 N.E.2d 757 (Ind. Ct. App. 1998). On
the same day, another panel decided LCEOC, Inc. v. Greer, 699 N.E.2d 763
(Ind. Ct. App. 1998) (Greer), holding that GHCS was a governmental entity.
Each losing party sought transfer to this Court under Appellate Rule
11(B)(2)(c) claiming a conflict in decisions by the Court of Appeals. This
point was obviously well taken, so we transferred both cases here.
The Tort Claims Framework
The Indiana Tort Claims Act provides in relevant part, “The combined
aggregate liability of all governmental entities and of all public
employees, acting within the scope of their employment . . . does not
exceed three hundred thousand dollars ($300,000) for injury to or death of
one (1) person.” Ind. Code Ann. § 34-4-16.5-4 (West 1983).[1] Indiana
Code § 34-4-16.5-2(c)[2] defines a “governmental entity” as the state or a
political subdivision of the state.
The Indiana Tort Claims Act says that community action agencies[3]
shall be treated as political subdivisions. Ind. Code Ann. § 34-4-16.5-20
(West Supp. 1994).[4] While the status of LCEOC under the Indiana Tort
Claims Act is at issue in the companion case of Greer, the parties to this
case stipulate that LCEOC is entitled to political subdivision status under
the Indiana Tort Claims Act. (R. at 95.) The only remaining issue is,
therefore, whether GHCS is a political subdivision. See Appellant’s Pet.
for Trans. to the Supreme Court at 2. We approach such questions with the
recognition that the Indiana Tort Claims Act is in derogation of the common
law and must therefore be strictly construed against limitations on the
claimant’s right to bring suit. See, e.g., Hinshaw v. Board of Comm’rs of
Jay County, 611 N.E.2d 637, 639 (Ind. 1993); Indiana State Highway Comm’n
v. Morris, 528 N.E.2d 468, 473 (Ind. 1988).
GHCS as a Political Subdivision
Although the parties agree that GHCS is not a community action agency,
as defined by statute, GHCS claims it should still be considered a
governmental entity on a variety of grounds.
A. Uniquely Governmental Services? GHCS asserts that an entity not
listed in section 34-4-16.5-20 can nevertheless be covered by it, citing
Ayres v. Indian Heights Volunteer Fire Dep’t, 493 N.E.2d 1229 (Ind. 1986).
In that case, our Court set out a test for determining when a group may be
deemed a governmental instrumentality. Borrowing language from the U.S.
Supreme Court, we reasoned that when private groups are “endowed by the
state with powers or functions governmental in nature, they become agencies
or instrumentalities of the state and are subject to the laws and statutes
affecting governmental agencies and corporations.” Id. at 1235 (citing
Evans v. Newton, 382 U.S. 296 (1966)). We held that, because firefighting
is a “uniquely governmental” service, the volunteer fire department of
Indian Heights was “an instrumentality of local government and was
protected by the Indiana Tort Claim[s] Act.” Id. at 1237.
GHCS points to certain facts it believes qualify it for treatment as a
governmental entity under this test. We examine these under the standard
on appeal for summary judgment. The reviewing court analyzes the issues
presented at trial in the same fashion as the trial court, de novo. Carie
v. PSI Energy, Inc., 715 N.E.2d 853, 855 (Ind. 1999). A grant of summary
judgment requires that no genuine issue of material fact exist and that the
movant is entitled to judgment as a matter of law. Ind. Trial Rule 56(C).
The court must also view the pleadings and designated materials in the
light most favorable to the non-movant, in this case, GHCS.
GHCS contracted with LCEOC “to provide certain enumerated services to
the low income, elderly, and handicapped for which LCEOC receives grants
and contracts from various funding sources.” (R. at 82.) LCEOC’s
enumerated services are: employment, education, better use of income,
housing, emergency services, nutrition, food, medicine, disabilities, child
development, transportation, referral for other services, outreach, and in-
home services, such as home-delivered meals and nutrition education.
Providing these types of services to disadvantaged people is not
uniquely governmental. Hundreds of charities in our state also do this
valuable work. We cannot deem GHCS a governmental instrumentality under
the Ayres test.
B. Governmental Control? GHCS also argues that World Prods., Inc. v.
Capital Improvement Bd., 514 N.E.2d 637 (Ind. Ct. App. 1987), supports its
position that it may be deemed governmental without being specifically
classified as a particular political subdivision under the Indiana Tort
Claims Act. (Appellant’s Br. at 10, 15.)
In World Productions, the Court of Appeals was called upon to decide
whether the Capital Improvement Board was a governmental entity immune from
claims for punitive damages. The court did not focus on the governmental
character of the group’s function, but instead used a two-prong test
borrowed from the Seventh Circuit. 514 N.E.2d 634, 637 (Ind. Ct. App.
1987) (citing Brock v. Chicago Zoological Soc’y, 820 F.2d 909, 910 (7th
Cir. 1987)). Brock examined the claim of a nonprofit group that it was a
political subdivision for Occupational Safety and Health Act purposes.
Brock, 820 F.2d at 910. The Brock court largely relied on factors used in
the Secretary of Labor’s regulations concerning claims of exemption: (1)
whether the state created the entity, and (2) whether the state or the
public controls the entity. Id.
We have some doubt about the analytical framework deployed in World
Productions,[5] but we will accept it for the sake of argument and examine
GHCS’s claim on its own terms. The holding in World Productions that the
Capital Improvement Board was a governmental entity was based in large part
on the fact that the statute creating the Board requires an exceptionally
high level of governmental control.
Board members are appointed by the executive of the consolidated city
(Indianapolis) and the Board of Commissioners of the County (Marion),
IC 36-10-9-4(a)[]; a board member may be removed for cause by the
appointing authority, IC 36-10-9-4(d); real property which the Board
acquires is held in the name of the County and may not be sold without
the approval of the executive of the consolidated city (Indianapolis),
IC 36-10-9-7(b)[]; the Board’s funds must be handled and accounted for
in the same manner as other public funds, IC 36-10-9-9(b)[]; the
Board’s annual budget must be approved by the city-county legislative
body, IC 36-10-9-8[]; and the Board is subject to audit and
supervision by the State Board of Accounts, IC 36-10-9-9(f).
World Productions, 514 N.E.2d at 637.
GHCS relies on evidence showing that in furtherance of its charitable
objectives it uses the LCEOC log, publishes documents stating that it is a
division of LCEOC, receives funding through LCEOC, complies with LCEOC
procedures in providing services, maintains financial records pursuant to
LCEOC requirements, and operates pursuant to LCEOC’s directives. LCEOC
also budgets for and audits GHCS. GHCS argues that these factors are
sufficient to support a conclusion that it is an instrumentality of LCEOC,
which is itself a governmental entity covered by the Indiana Tort Claims
Act.
On the contrary, it is apparent that GHCS voluntarily submitted to
this degree of LCEOC control. Our statutes do not require this level of
management; rather the parties arranged it themselves when GHCS contracted
with LCEOC. (R. at 82-87.)[6] “An entity does not become a ‘public
agency,’ thus coming within the purview of the statutes in question, by
contractually agreeing to submit to [control by another governmental
entity]. Rather, an entity is ‘subject to’ those procedures only if
compelled to submit by statute, rule, or regulation.” Perry County Dev.
Corp. v. Kempf, 712 N.E.2d 1020, 1025 (Ind. Ct. App. 1999) (holding Perry
County Development Corporation is not a public agency for purposes of the
Public Records Act in part because it is not “subject to” audit and budget
review by the State Board of Accounts), trans. denied.
A group that is neither specifically named a political subdivision by
statute nor engaged in the provision of uniquely governmental services may
not receive the protection of the Indiana Tort Claims Act by contracting to
be managed by an established governmental entity.[7]
C. Corporate Alter Ego? GHCS claims that it “operates under and
within the structure of . . . LCEOC[] and holds itself out as a division of
LCEOC.” (Appellant’s Br. at 4-5 (citing R. at 67-80, 106-107).) This
argument is akin to the notion that there may be a “piercing of the
corporate veil” when an individual operates as the virtual alter ego of a
corporation. Here, the parties appear to disagree about whether GHCS is a
subsidiary of LCEOC. Compare Appellant’s Br. at 4-5 (citing the ways in
which LCEOC controls GHCS) with Appellee’s Br. at 15-18 (arguing the
corporations’ separateness).
The general rule of corporate law, however, is that a corporation will
not be held liable for the acts of other corporations, including its
subsidiaries. William Meade Fletcher, Fletcher Cyclopedia of the Law of
Private Corporations §§ 41.10, 43, at 568, 711 (1999). Moreover, distinct
corporations, even parent and subsidiary corporations, are presumed
separate. McQuade v. Draw Tite, Inc., 659 N.E.2d 1016, 1020 (Ind. 1995).
To overcome this presumption, a plaintiff must show that one corporation
dominated another to the extent that the subordinate was the mere
instrumentality of the dominant corporation, Fletcher, supra, § 41.10 at
568, that the dominant corporation employed the subordinate to perpetrate a
fraud, Extra Energy Coal Co. v. Diamond Energy and Resources, Inc., 467
N.E.2d 439, 441-42 (Ind. Ct. App. 1984), or that the capital placed in the
subordinate was “illusory or trifling compared to the business to be done
and the risks of loss . . . .” Fletcher, supra, § 41.33 at 650. The
claimant must also demonstrate that the defalcation of the corporations,
for example, fraud, was the proximate cause of the injury sustained. See
id. § 41.10 at 713.
For all that appears, the corporate relationship between GHCS and
LCEOC is not founded on fraud or the desire to escape liability. Rather,
the parties fashioned their relationship “to focus all available resources
toward the goal of providing the opportunity for the disadvantage[d] of all
ages to become self-sufficient, while insuring that the disadvantage[d]
have a voice in the decision making process.” (R. at 176.) Moreover, the
business relationship in no way proximately caused Mutka’s injury.
Finally, the corporate alter ego doctrine is a device by which a
plaintiff tries to show that two corporations are so closely connected that
the plaintiff should be able to sue one for the actions of the other. In
this case, the defendant argues that the corporations are alter egos whose
corporate form should be disregarded so that it can gain the protection of
the Indiana Tort Claims Act.
“The purpose of the alter ego doctrine is to avoid the inequity of one
corporation using another corporation to shield itself from liability.”
Fletcher, supra, § 41.20 at 596. Our case law takes a dim view of its use
by defendants. “While we have expressed willingness to use our equitable
power to disregard the corporate form to prevent fraud or unfairness to
third parties, we perceive little likelihood that equity will ever require
us to pierce the corporate veil to protect the same party that erected it.
It was, after all, defendant that chose to structure itself in its present
multi-corporate form.” McQuade, 659 N.E.2d at 1020 (employee may sue his
employer’s parent corporation); accord In re RCS Engineered Products Co.,
Inc., 102 F.3d 223 (6th Cir. 1996) (corporate form pierced only for benefit
of third parties).
Just as there would be no apparent basis for transferring liability
from GHCS to LCEOC, we see no basis for concluding that GHCS is LCEOC for
Tort Claims Act purposes.
Conclusion
GHCS is not a governmental entity or political subdivision named by
statute; it is not engaged in providing uniquely governmental services; it
is not a division of another governmental entity. It is therefore not a
community action agency protected by the Indiana Tort Claims Act.
GHCS conceded liability for its actions and the parties agreed upon an
amount. We remand this action to the trial court with instructions to
award the agreed final judgment to Mutka.
Dickson, Boehm, and Rucker, JJ., concur.
Sullivan, J., dissents with separate opinion.
Attorneys for Appellant Attorneys for Appellee
Robert J. Kopka David W. Holub
Lawrence M. Hansen David M. Hamacher
Gregory M. Bokota Hammond, Indiana
Merrillville, Indiana
IN THE
INDIANA SUPREME COURT
GREATER HAMMOND COMMUNITY )
SERVICES, INC., )
Appellant (Defendant Below), ) Supreme Court No.
) 45S03-9904-CV-224
v. )
) Court of Appeals No.
LUCILE MUTKA, ) 45A03-9706-CV-203
Appellee (Plaintiff Below), )
)
LAKE COUNTY EQUAL OPPORTUNITY )
COUNCIL, NORTHERN INDIANA )
REGIONAL PLANNING COMMISSION, )
GLEASON B. KING and FREDERICK J. )
LEEP, )
Non-Appealing parties )
(Defendants Below). )
)
APPEAL FROM THE LAKE SUPERIOR COURT
The Honorable Jeffery J. Dywan, Judge
Cause No. 45D01-9502-CT-203
September 21, 2000
SULLIVAN, Justice, dissenting.
I respectfully dissent for the reasons set forth in my opinion today
in LCEOC, Inc., v. Greer, ___ N.E.2d ___ (Ind. 2000).
-----------------------
[1] Currently Ind. Code Ann. § 34-13-3-4 (West Supp. 1999).
[2] Currently Ind. Code Ann. § 34-6-2-49 (West Supp. 1999).
[3] Indiana Code § 12-14-23-2 defines “community action agency.”
[4] Repealed and recodified at Ind. Code Ann. § 34-13-3-22 (West Supp.
1999).
[5] The World Productions court deemed it necessary to consider the
plaintiff’s claim against the Board as a common law claim not governed by
the Indiana Tort Claims Act. 514 N.E.2d at 636. We think it would have
been relatively easy to conclude that the Board is a political subdivision
under the Indiana Tort Claims Act and resolve the case by (1) applying the
provision of the ITCA prohibiting punitive damages against political
subdivisions, Ind. Code § 34-4-16.5-4, and (2) observing that there are no
punitive damages for most contract claims.
[6] This Agreement entered into by and between LCEOC, Inc., . . . and
GREATER HAMMOND COMMUNITY SERVICES, INC., . . . is executed pursuant
to the terms and conditions set forth herein. In consideration of
those mutual undertakings and covenants, the parties agree as follows:
. . . .
[That] [i]f [GHCS] is unable or unwilling to comply with any
provisions of this Agreement, [it] may terminate this Agreement by
providing 30 working days notice to LCEOC of such termination.
(R. at 82, 85.)
[7] GHCS also argues that the joint venture in which GHCS and LCEOC engaged
is entitled to the protection of the ITCA, citing Brunton v. Porter Mem’l
Hosp. Ambulance Serv., 647 N.E.2d 636 (Ind. Ct. App. 1994). Brunton is
distinguishable, however, because it involved two undisputed governmental
entities acting jointly: the Porter Memorial Hospital and the Porter
County Commissioners. Id. at 639.