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Kellam Excavating, Inc. v. Community State Bank

Court of Appeals of Indiana

September 25, 2017

Kellam Excavating, Inc., Appellant-Intervening Defendant,
v.
Community State Bank, Appellee-Intervening Plaintiff

         Appeal from the Cass Circuit Court, The Honorable Leo T. Burns, Judge, Trial Court Cause No. 09C01-1504-PL-24

          ATTORNEYS FOR APPELLANT Mark S. Fryman, Jr. Scott L. Starr Starr Austen & Miller, LLP Logansport, Indiana.

          ATTORNEYS FOR APPELLEE Mark R. Wenzel Debra A. Mastrian Martha R. Lehman SmithAmundsen LLC Indianapolis, Indiana.

          BAKER, JUDGE.

         [¶1] Community State Bank (the Bank) provided financing to Sagamore Warehouse, LLC (Sagamore), for the construction of a fertilizer plant by Kellam Excavating, Inc. (Kellam), on property Sagamore leased from Winamac Southern Railway Company (Winamac). Kellam did not receive full payment for its work and filed a mechanic's lien. After Sagamore and Kellam filed complaints against each other, the Bank intervened and filed a third-party complaint to foreclose on its leasehold mortgage on Sagamore's property. The Bank also filed a motion for summary judgment, arguing that its interest in the property should receive priority. The trial court entered summary judgment for the Bank, finding that its mortgage takes priority over Kellam's mechanic's lien. Kellam now appeals, arguing that the trial court erred in prioritizing the Bank's interest. Finding no error, we affirm.

         Facts

         [¶2] Sagamore operated a fertilizer wholesaler business that sold fertilizer to farmers in the Midwest. It required a fertilizer storage, processing, and handling facility (the Facility Improvements). On July 25, 2013, Sagamore and Winamac entered into a land lease, pursuant to which Winamac leased Sagamore real property (the Real Estate) located in Logansport. Sagamore's right, title, and interest in and to the Real Estate under the land lease is, collectively, the "Leasehold Estate."

         [¶3] On July 30, 2013, Sagamore and Kellam entered into a construction contract under which Kellam would build the Facility Improvements on the Real Estate. Kellam began construction on the Facility Improvements on October 25, 2013. Meanwhile, Sagamore needed additional capital and sought financing for construction of the Facility Improvements from the Bank.

         [¶4] The Bank and Sagamore executed four instruments for its financing deal. On December 31, 2013, the Bank and Sagamore entered into Master Lease 2013-25, and on May 16, 2014, the Bank and Sagamore entered into Master Lease 2014-02, Master Lease 2014-03, and Master Lease 2014-04 (collectively, the Master Leases). Under the Master Leases, the Bank financed the provision of certain equipment to Sagamore, Sagamore agreed to make quarterly payments to the Bank, and Sagamore acknowledged the Bank's interest in the leased equipment. The Bank filed financing statements for its interests described in each Master Lease. After the May 2014 closing, the Bank paid Kellam $1, 620, 156 for costs related to the construction of the Facility Improvements. Kellam subsequently refunded $1, 620, 156 to Sagamore for funds Sagamore had previously paid Kellam before the Bank financed the project. On June 23, 2015, each of the Master Leases was modified under a Master Lease Modification Agreement. The Master Leases, the modifications, and the financing statements are, collectively, the "Equipment Leases."

         [¶5] On May 16, 2014, Sagamore granted the Bank a Leasehold Mortgage, Security Agreement, Assignment of Leases, and Rents and Fixture Filing (collectively, the Leasehold Mortgage) to serve as collateral. The Bank perfected its lien on June 24, 2014, by recording the Leasehold Mortgage with the Cass County Recorder. Pursuant to the Leasehold Mortgage, Sagamore mortgaged to the Bank all of Sagamore's right, title, and interest in the Leasehold Estate; in all fixtures, appliances, and articles of personal property connected with the operation of the Real Estate; and in all buildings, structures, and improvements connected with the Real Estate.

         [¶6] On March 6, 2015, Kellam recorded a mechanic's lien for work performed on the Facility Improvements. On April 27, 2015, Sagamore filed a complaint against Kellam alleging breach of contract, among other claims. On August 6, 2015, Kellam filed a counterclaim against Sagamore, alleging that it had not been paid for work completed and seeking foreclosure on its mechanic's lien. On April 18, 2016, the Bank intervened to file a third-party complaint alleging that Sagamore was in default under the Equipment Leases and the Leasehold Mortgage and seeking foreclosure on its Leasehold Mortgage.

         [¶7] On May 31, 2016, the Bank filed a motion for summary judgment, arguing that the trial court should enter judgment in favor of the Bank with regard to the Equipment Leases and the Leasehold Mortgage, and enter an order finding that the lien created by the Leasehold Mortgage is superior to any other interest and foreclosing on it in favor of the Bank. On September 6, 2016, Kellam filed a response in opposition to the Bank's motion for summary judgment and a motion for partial summary judgment, arguing that because the Bank is an owner and not a lender, Kellam's mechanic's lien is superior to the Bank's interest.

         [¶8] A hearing took place on December 16, 2016, regarding the parties' motions. On March 14, 2017, the trial court granted the Bank's motion for summary judgment and denied Kellam's motion for partial summary judgment, finding that the Bank's Master Leases constitute financing ...


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