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McElwee v. Fish

Court of Appeals of Indiana

October 31, 2019

Christopher J. McElwee and Monday McElwee Albright f/k/a Monday Jones Albright, Attorneys at Law, Appellants-Defendants,
v.
Michael Fish, Appellee-Plaintiff.

          Appeal from the Marion Superior Court The Honorable Gary L. Miller, Judge Trial Court Cause No. 49D03-1803-CT-8543

          ATTORNEYS FOR APPELLANTS Alice M. Morical Michael A. Dorelli Patrick A. Ziepolt Hoover Hull Turner LLP Indianapolis, Indiana.

          ATTORNEYS FOR APPELLEE R. Brock Jordan Christopher M. Trapp Katz Korin Cunningham PC Indianapolis, Indiana.

          Sharpnack, Senior Judge.

         Statement of the Case

         [¶1] Christopher J. McElwee and Monday McElwee Albright (formerly known as Monday Jones Albright), Attorneys at Law (collectively "McElwee"), appeal the denial of their motion to dismiss a complaint filed by Michael Fish ("Fish"), that challenged the distribution of surplus tax funds to which Fish believes he is entitled. We reverse and remand with instructions.

         Issue

         [¶2] McElwee presents two issues, which we consolidate and restate as the following question: Did Fish's complaint assert any claims that were not barred by the applicable statute of limitations?

         Facts and Procedural History

         [¶3] Fish obtained a mortgage on properties owned by 2444 Acquisitions, LLC ("Acquisitions"). In early March 2011, Fish filed a mortgage foreclosure action against Acquisitions and others in Marion Superior Court under cause number 49D07-1103-MF-10806. McElwee represented Acquisitions in the foreclosure action and in further related proceedings. In July 2011, a default judgment of foreclosure and agreed entry was entered against Acquisitions and in favor of Fish in the principal amount of $263, 308.73 plus interest, and foreclosed Fish's mortgages on various parcels of real estate owned by Acquisitions.

         [¶4] On January 24, 2012, Fish filed a praecipe for sheriff's sale. He filed his motion for proceedings supplemental on February 23, 2012. On March 5, 2012, Acquisitions filed a Chapter 11 petition for bankruptcy.

         [¶5] Fish moved to dismiss the bankruptcy petition in April 2012. As grounds for the motion, Fish cited 11 U.S.C. § 1112 (2010), arguing that there was gross mismanagement of the estate[1] and a lack of good faith in the filing of the petition. The bankruptcy court held an evidentiary hearing in June 2012, during which Acquisitions conceded that James Chalfant, the initial managing member of Acquisitions, lacked the requisite corporate authority to sign the bankruptcy petition on behalf of Acquisitions. Based on that concession, the bankruptcy court granted the motion to dismiss the petition pursuant to 11 U.S.C. §1112(b) on July 31, 2012.

         [¶6] The litigation then returned to the foreclosure court. Fish again filed a praecipe for sheriff's sale on March 5, 2014. The next day, Acquisitions filed a new, second, Chapter 11 bankruptcy petition under cause number 14-01578-RLM-11 in the United States Bankruptcy Court, Southern District of Indiana, Indianapolis Division. Meanwhile, prior to the filing of the second bankruptcy petition two of the parcels of real estate had been sold at a tax sale. Acquisitions failed to redeem those parcels, and they were lost to a third party. The tax sale, however, produced surplus funds, which were placed into the statutory tax sale surplus fund.[2]

         [¶7] During the pendency of the second bankruptcy petition, Acquisitions sought relief from the judgment in the foreclosure action pursuant to Indiana Trial Rule 60(B). Acquisitions argued that the judgment was void due to a failure to name a necessary party. The foreclosure court granted Acquisitions' request in February 2015. Fish appealed, a panel of this Court reversed the foreclosure court's decision, and our Supreme Court denied transfer of the case on March 21, 2016. Fish v. 2444 Acquisitions, LLC, 46 N.E.3d 1261 (Ind.Ct.App. 2015), trans. denied.

         [¶8] On June 25, 2014, the United States Trustee filed a motion to convert the bankruptcy from a Chapter 11 bankruptcy proceeding to a Chapter 7 bankruptcy proceeding or dismiss the petition. Appellee's App. Vol. 2, pp. 139-141.[3]

         [¶9] On September 19, 2014, Fish filed an adversarial complaint for the turnover of property in the second bankruptcy proceeding under cause number 14-50173, seeking to recover the tax sale surplus funds. Fish also named the Marion County Treasurer and the Marion County Auditor as parties to the adversarial complaint.

         [¶10] On January 20, 2015, the United States Bankruptcy Court, Southern District of Indiana, Indianapolis Division, issued an order as follows:

the Marion County Auditor is ordered to turn over the tax sale proceeds to Christopher J. McElwee, counsel for Debtor. The funds shall be made payable to '2444 Acquisitions, LLC' c/o Christopher J. McElwee, 1915 Broad Ripple Ave., Indianapolis, IN 46220. The funds shall be deposited into Debtor's counsel's trust account and held until further order of the Court. Upon issuance of payment, counsel for the Marion County Auditor shall file a 'Notice of Released Funds', after which the Marion County Auditor and Treasurer shall be dismissed from the case.

         Appellants' Br. p. 10. On January 29, 2015, the Marion County Auditor transferred the funds to McElwee, who then deposited the funds in the firm's trust account.

         [¶11] On July 15, 2015, the United States Trustee filed an emergency motion to convert or dismiss the case. Appellee's App. Vol. 2, pp. 142-144.

         [¶12] Referring to both the cause number in the second bankruptcy and the cause number for the adversarial proceeding in the caption, Fish moved to dismiss the bankruptcy proceeding on February 3, 2016. The bankruptcy proceeding was dismissed on February 26, 2016, on Fish's and the Trustee's motions.

         [¶13] At the February 26, 2016 hearing, the bankruptcy court stated as follows:

Well, let me tell you where we sit today 23 months after filing. It was projected to, when the case was filed, that we have, we were supposed to have profit at this point of $58, 928. . .In fact our cash profit to date is negative $1, 628. Our actual average monthly profit over the life of this has been 70, losing $70 a month. It's over almost two years. Our average is that we lose $70 a month. This is not reorganizing a business. This isn't even resuscitating a business. This is just really a slow death here and that's not fair to any of the creditors.

Appellants' App. Vol. 3, pp. 56-57.

         [¶14] In explanation of the court's order issued after the hearing, the following exchange occurred at the February 26, 2016 hearing between the bankruptcy court, McElwee, and Fish's counsel:

THE COURT: It's not even the long run to the advantage of the debtor, I wouldn't think. You [sic] got to get out of here and cut your losses at this point, would be my advice. So I'm going to grant the motion to dismiss, both of them and we'll dismiss the case.
[MCELWEE]: A question, Your Honor?
THE COURT: Yes?
[MCELWEE]: What's, what is the, just procedurally, the Court issued an order today regarding the adversary and Mr. Pazmino[4] - -
THE COURT: It goes away.
[MCELWEE]: Okay.
THE COURT: Am I correct? Do you have a need for an opinion? Okay.
[FISH]: Your honor, I'd just like to address the Court. In light of Your Honor's ruling, we have a situation where Your Honor put Mr. McElwee under a court order with respect to keeping over $100, 000 in his trust account. In light of the circumstances, we'd like an order for that money to be immediately- -
THE COURT: Case is dismissed. I don't have jurisdiction.
[FISH]: Okay. All right.

Id. at 57-58.

         [¶15] Next, on March 1, 2016, the bankruptcy court issued an order stating: "With no [C]hapter 11 pending, the Court finds that this adversary proceeding should likewise be dismissed." Id. at 85-86. No order was ever issued by the bankruptcy court deciding the ownership or directing the distribution of the surplus tax sale funds held in McElwee's trust account.

         [¶16] However, on February 26, 2016, McElwee used a portion of the surplus tax funds held in the trust account to satisfy outstanding legal fees owed to McElwee by Acquisitions. The remaining funds were then distributed by McElwee to Acquisitions.

         [¶17] On February 29, 2016, McElwee sent an email to Fish's appellate counsel advising that the funds had been distributed to Acquisitions the prior Friday, February 26, 2016, after Fish and the Trustee had succeeded in having the bankruptcy case dismissed.

         [¶18] On March 24, 2016, the foreclosure court's chronological case summary ("CCS") noted the decision of this Court and that the Indiana Supreme Court had denied transfer in the case. Appellee's App. Vol. 2, p. 10. The effect of those decisions was the reinstatement of Fish's judgment against Acquisitions and the same was noted in the CCS. Id.

         [¶19] On March 29, 2016, Fish filed a combined motion for the turnover of the funds from the tax surplus sale and for an order preserving the status quo. On May 9, 2016, the foreclosure court entered an order stating in pertinent part as follows:

5. As a matter of Indiana law, [Fish] has a substantial interest in said aforementioned properties; [Acquisitions] has no entitlement to those funds; and equity requires disbursement of the tax surplus finds[sic] to the Plaintiff.

Id. at 39.

         [¶20] Acquisitions appealed the foreclosure court's order. A panel of this Court affirmed the trial court's decision ultimately concluding that "[a]s Fish has a more substantial interest in the tax sale surplus funds than 2444 Acquisitions, we find that equity requires the disbursement of the funds to Fish." 2444 Acquisitions, LLC v. Fish, 84 N.E.3d 1211, 1216 (Ind.Ct.App. 2017). This Court further held that Fish's claim in the foreclosure court was not collaterally estopped as there had been no final adjudication as to the ownership of the tax sale surplus funds in the bankruptcy court. Id. at 1216-17.

         [¶21] On March 1, 2018, after the other actions and appeals had been finally adjudicated, Fish filed the complaint in this case against McElwee asserting claims for breach of fiduciary duties and a tort claim for negligence. Those claims alleged as follows:

         18. The deposit of the tax sale surplus funds into McElwee's trust account triggered McElwee's duty to act as a depositary, depositary in escrow, and/or escrow agent. These duties include:

a. McElw1ee's duty to safekeep the tax sale surplus funds;
b. McElwee's duty to act with due care regarding the tax sale surplus funds; and
c. McElwee's duty to exercise ordinary skill and diligence regarding the tax sale surplus funds.

         19. Additionally, McElwee's status as a depositary of the tax sale surplus funds created a fiduciary relationship between McElwee and both Fish and 2444, as parties with an interest in the tax sale surplus funds.

         20. Further, McElwee held the tax sale surplus funds in connection with his status as an attorney and legal representative for 2444. Therefore, the deposit of the tax sale surplus funds into McElwee's trust account triggered the additional following duties:

a. McElwee's duty to safeguard the property of clients or third persons;
b. McElwee's duty to hold property of others with the care required of a professional fiduciary;
c. McElwee's duty to refuse to surrender property to his client until clams relating to the tax sale surplus funds are resolved; and
d. McElwee's duty to file an action to resolve any disputes regarding the tax ...

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