Indiana Court Decisions – April 22-May 5, 2021

7th Circuit Court of Appeals

April 22

Civil Tort — Contract Repudiation/Damages

Rexing Quality Eggs v. Rembrandt Enterprises, Inc. v. Joseph L. Rexing, et al.

20-1726, -1727

Despite a buyer’s ruffled feathers, the 7th Circuit Court of Appeals has upheld judgment for an egg supplier in a contractual dispute. Further, the appellate panel remanded for the calculation of interest and fees resulting from the cracked relationship.

The 7th Circuit ruled for egg supplier Rembrandt Enterprises Inc. in a 43-page opinion handed down in Rexing Quality Eggs v. Rembrandt Enterprises, Inc. v. Joseph L. Rexing, et al., 20-1726, -1727.

Rembrandt in 2016 entered into an agreement with Rexing Quality Eggs providing that Rexing would purchase 12 loads of eggs weekly. Rembrandt would source its eggs from farms in Tipton, Missouri, though the agreement noted “Rembrandt has the right to source certain loads from other locations” during a designated “ramp-up” period ending Feb. 12, 2017. The agreement also provided that it would be governed by Iowa law.

Almost immediately, Rexing was dissatisfied with the quality of eggs it was purchasing. Then in January 2017, a sickness began to sweep through the chickens in Tipton, so between April and June, Rembrandt supplied eggs from outside of Tipton with more frequency.

Meanwhile, Rexing had hatched a plan to resell eggs to Hickman’s Family Farm, which would sell the eggs to a retailer. However, the parties never signed an agreement, and Hickman’s ultimately stopped purchasing from Rexing. Rexing told Rembrandt it would need to cancel orders, but Rembrandt insisted Rexing had to accept full loads unless the supplier could find another buyer.

Even so, Rexing began refusing loads. Rembrandt sent a letter requesting assurances that Rexing would accept egg loads, but Rexing replied by claiming the eggs it had received had violated warranties. Rexing also claimed its refusal to accept more loads was excused under a force majeure clause.

Rembrandt was able to sell all but 65 loads of eggs, and those 65 loads were invoiced to Rexing under the terms of the agreement. Rexing, however, refused to pay.

Instead, Rexing filed a state-court action, later removed to federal court, seeking declaratory judgment that it was excused from purchasing Rembrandt’s eggs under the force majeure clause, and that its refusal was justified because Rembrandt had violated express warranties. Rembrandt filed a counterclaim for breach of contract and requested damages, attorney fees and interest.

The Indiana Southern District Court granted summary judgment to Rembrandt with respect to liability but denied it as to the amount of damages. At trial on damages, the jury returned a verdict for Rembrandt in the amount of $1,268,481 in resale damages and $193,752 in market damages.

After the verdict, Rexing did not make a motion for judgment as a matter of law and did not seek a new trial. For its part, Rembrandt sought $420,798.39 in prejudgment interest, pointing to a provision of the agreement charging 1% interest per month for past-due payments.

However, the district court determined that provision violated Iowa’s usury law and did not fall under Iowa’s Business Credit Exception covering “[a] person borrowing money or obtaining credit for business or agricultural purposes.” Ultimately, the court entered judgment for Rembrandt in the amount of $1,522,302.61.

Rexing appealed the judgment in favor of Rembrandt while Rembrandt cross-appealed and challenged the denial of its request for attorney fees and interest. The 7th Circuit panel affirmed as to Rexing’s appeal but reversed in Rembrandt’s favor on its cross-appeal.

“The district court properly concluded that the resale remedy under Iowa’s version of the Uniform Commercial Code … was the appropriate mechanism for calculating Rembrandt’s damages,” Judge Kenneth Ripple wrote. “Moreover, Rexing waived its arguments challenging the jury’s damage award by not presenting them to the district court in a postverdict motion.

However, “Rembrandt is correct that the parties’ agreement fell within the ‘Business Credit Exception’ to Iowa’s usury statute … . We therefore reverse the district court’s denial of Rembrandt’s request for interest and fees, and we remand for further proceedings on these matters,” Ripple wrote.

“At bottom, Rexing is attempting to create an exception to the UCC’s resale remedy that is not tethered to the statutory language, the official comments, or the case law,” the 7th Circuit panel held. “Contrary to Rexing’s assertions, the resale remedy is available for contracts involving future sales of fungible products, and the seller may recover its damages as long as ‘every aspect of the sale including the method, manner, time, place and terms [is] commercially reasonable.’ Iowa Code § 554.2706(2).

“The question whether Rembrandt acted in a commercially reasonable manner following Rexing’s repudiation was submitted to the jury. The jury found in favor of Rembrandt, and Rexing has not challenged the jury’s finding on appeal.”

As for Rembrandt’s cross-appeal, the 7th Circuit found the interest provision of the agreement equated to an extension of credit because Rembrandt was forbearing payment in full in exchange for the payment of interest. Thus, the provision fell within the usury exception for “borrowing money or obtaining credit for business or agricultural purposes,” the panel ruled, citing State ex rel. Turner v. Younker Bros. Inc., 210 N.W.2d 550, 555 (Iowa 1973).

“Because Paragraph E meets the requirements of the Business Credit Exception, we therefore reverse the district court’s judgment denying Rembrandt contractual interest on the verdict,” Ripple concluded. “The district court’s determination that the Purchase Agreement was usurious also formed the basis for its denial of attorneys’ fees and costs. We therefore remand the case to the district court for both the calculation of contractual interest and further consideration of Rembrandt’s motion for attorneys’ fees.”

The opinion marked the second time the 7th Circuit has ruled for Rembrandt. In March 2020, the appellate court ruled for the supplier on Rexing’s claims in a second action for unreturned material and other losses.

Indiana Supreme Court

April 22

Civil Collection — Judgment Reversal/De Facto Merger Exception

New Nello Operating Co., LLC v. CompressAir

20S-CC-578

The Indiana Supreme Court struck down lower court rulings in favor of an unpaid contractor that performed work for a South Bend business, finding that because the business’s assets are now owned by a bank rather than the prior company, the new bank-owned business is not liable for the bill.

The ruling involves CompressAir’s $44,689.66 judgment for unpaid piping work on the facilities of Nello Operating Co., which makes utility and cellphone towers. Founded in 2002, the company ran into money trouble in 2016 and defaulted on a loan from Fifth Third Bank.

Four of Nello’s senior officers who held at least 95% shares of the company had signed personal guarantees on the loan. With liquidation looming, the bank agreed to acquire the company’s assets in a strict-foreclosure agreement for $3.7 million and form New Nello Operating.

Afterward, those senior officers continued working for the company, whose operations carried on much as they had. “New Nello continued operating from Old Nello’s former location without publicly announcing either the transition or the transfer of assets from Old Nello. New Nello retained about ninety percent of Old Nello’s employees, including senior management,” Justice Geoffrey Slaughter wrote. “… As part of the transition, the New Nello entities agreed not to enforce the personal guarantees against Old Nello’s four senior officers, all of whom agreed to remain in their positions at New Nello Operating.”

These facts had led the St. Joseph Circuit Court to rule for CompressAir, a decision affirmed by the Court of Appeals. The COA observed, “even though there was no continuity of ownership in the present case, there was continuity of management, as the entire management team from Old Nello continues in the same roles in New Nello.”

The Supreme Court chucked those holdings in New Nello Operating Co., LLC v. CompressAir, 20S-CC-578, finding the lack of common ownership between Old and New Nello dispositive.

“In a typical asset purchase, the buyer acquires the seller’s assets but not its liabilities. The general rule is not absolute, however, and this case turns on two exceptions. The first exception arises when the acquisition of assets amounts to a de facto merger; the second, when the buyer is a mere continuation of the seller. If either exception applies, the buyer is on the hook for all the seller’s liabilities,” Slaughter wrote.

“… (W)e hold that continuity of ownership is necessary for the de-facto-merger and mere-continuation exceptions to apply. Because there was no continuity of ownership between Old Nello and New Nello, we reverse the trial court’s entry of judgment for CompressAir and remand with instructions to enter judgment for New Nello,” the unanimous court held.

“If Fifth Third had foreclosed on Old Nello’s assets, CompressAir would have received nothing as an unsecured creditor,” Slaughter wrote. “CompressAir is no worse off with New Nello initiating the foreclosure instead of Fifth Third. It would seemingly subvert the rationale underlying the de-facto-merger exception to treat such foreclosures differently or to penalize New Nello for keeping the company afloat and its employees paid by deploying the assets for their most economically productive use. Because CompressAir cannot show continuity of ownership between Old Nello and New Nello, the de-facto-merger exception does not apply.”

__________

April 23

Criminal — Drugs/Suppression after Home-Detention Search

State of Indiana v. Jarrell Luke Ellis

21S-CR-159

A defendant sentenced to home detention waived his rights protecting him against searches and seizures even without reasonable suspicion, the Indiana Supreme Court ruled, overturning the suppression of evidence found during a home-detention search.

The case of State of Indiana v. Jarrel Luke Ellis, 21S-CR-159, dates back to 2019, when Jarrel Ellis was on home detention with Marion County Community Corrections. His community corrections placement required him to sign a contract providing, in part, that he waived his right against search and seizure and would “permit MCCC staff … to search your person, residence, motor vehicle, or any location where your personal property may be found, to ensure compliance with the requirements of community corrections.”

Pursuant to that contract, Ellis’ residence was searched based on his case manager’s suspicions. The search revealed marijuana and a fake book containing hidden bundles of cash. Officers then applied for a search warrant and found weapons, cocaine, cash and drug paraphernalia.

Ellis was thus charged with multiple felony and misdemeanor counts, but he moved to suppress the evidence seized during the search of his home. He alleged the search violated his rights under the U.S. and Indiana constitutions because his community corrections contract did not unambiguously provide that he was waiving his rights against a suspicionless search, and because law enforcement did not have reasonable suspicion.

The Marion Superior Court granted the motion, but the Indiana Court of Appeals later reversed. The Indiana Supreme Court then granted transfer and reversed the trial court.

The COA’s August opinion looked to Hodges v. State, 54 N.E.3d 1055 (Ind. Ct. App. 2016), and Jarman v. State, 114 N.E.3d 911 (Ind. Ct. App. 2018), trans. denied. Jarman held that an agreement allowing searches “without a warrant and without probable cause” did not unambiguously also allow a search without reasonable suspicion.

“Ellis contends that, because the Contract is less descriptive than the contract in Jarman, the Contract couldn’t have unambiguously waived his right against searches without reasonable suspicion,” Justice Christopher Goff wrote for a unanimous court. “This argument falls flat, however, because it was the detailed language in the Jarman contract … that precluded an unambiguous waiver of Jarman’s right against a warrantless and suspicionless search.

“In Ellis’s Contract, by contrast, no similar language limits the waiver to probable cause,” Goff continued. “To the extent that Jarman suggests language should be used in community-corrections contracts to clarify that the defendant is consenting to such searches, we find that language unnecessary.”

Here, the broad language in Ellis’ contract “clearly informs defendants that they are waiving all of their rights against search and seizures, which includes the right against search and seizure absent reasonable suspicion,” the court held, finding more specific language unnecessary.

“A community-corrections-home-detention contract that states that the defendant ‘waives all rights against search and seizure’ unambiguously informs the defendant that he is waiving the right against searches absent reasonable suspicion,” the justices ruled.

The court also rejected Ellis’ argument that there is no right against searches and seizures generally, but only against unreasonable searches and seizures specifically. The absence of the word “unreasonable” does not make the contract ambiguous, Goff wrote.

The case was remanded for proceedings.

__________

May 4

Life Without Parole — Murder/Denial of Request to Self-Represent

Zachariah Brian Wright v. State of Indiana

20S-LW-260

A murder defendant convicted and sentenced to life without parole failed to convince a majority of the Indiana Supreme Court that the trial court improperly denied his request to proceed pro se. The majority provided an analysis for considering pro se requests in capital and LWOP sentences, but minority justices raised concerns about the majority “till(ing) new constitutional soil.”

Justice Christopher Goff wrote for the court in Zachariah Brian Wright v. State of Indiana, 20S-LW-260. Chief Justice Loretta Rush and Justice Steven David fully concurred, while Justice Mark Massa concurred in result. Justice Geoffrey Slaughter dissented.

The case began in June 2017, when Zachariah Wright embarked on a “crime spree,” stealing a bike from a Boone County home before breaking into another home and stealing another bike and other items. Later, Sonja Foster woke to find Wright standing in her bedroom doorway.

Wright entered the room quickly and began stabbing Foster’s husband, Max, while she struck Wright with a baseball bat. Wright slashed Sonja across the face and she fled, but Wright later caught her and attempted to set her clothes on fire.

Wright eventually fled and disposed of his boots in a pond. Sonja called for help, but her husband died after being stabbed more than 30 times.

Wright was caught and charged with murder, Level 3 felony criminal confinement, Level 6 felony theft, Level 5 felony burglary and Level 2 felony attempted burglary. The state sought the death penalty, and Wright was appointed counsel.

When the Boone Superior Court denied Wright’s requests for new counsel, he asked to represent himself, claiming his lawyers were refusing to request a speedy trial. The court warned Wright of the risks of proceeding pro se and Wright said he understood. But the trial court denied his petition, finding that although Wright knowingly requested to proceed pro se, his request was “based upon a misapprehended understanding of the law, not an intelligent one.”

The state later withdrew its death penalty request in favor of life without parole. Wright waived his right to a jury, and the trial court found him guilty as charged and sentenced him to life plus 18 years.

Wright then sought direct appeal to the Supreme Court, arguing that the trial court erred by denying his request to proceed pro se, and that his sentence was inappropriate. But the majority justices affirmed in full.

“In short, without meaningful adversarial testing by professionally trained counsel, there are few, if any, safeguards to protect the state’s heightened-reliability interest when a pro se defendant proves unwilling or unable to present the necessary mitigating evidence at trial,” Goff wrote for the majority. “And for this reason, a trial court exercising jurisdiction over LWOP and death-penalty cases must tailor its self-representation inquiry to reflect ‘the state’s interest in preserving the orderly processes of criminal justice.’”

The scope of that inquiry will be case-specific, the majority held, but in a death penalty or LWOP case should include:

• “whether and to what extent the defendant has prior experience with the legal system;

• the scope of the defendant’s knowledge of criminal law, legal procedures, rules of evidence, and sentencing; and

• whether and to what extent the defendant can articulate and present any possible defenses, including lesser-included offenses and mitigating evidence.”

“In considering these factors, a court should ‘indulge in every reasonable presumption against waiver’ of the right to counsel,” Goff wrote, citing Brewer v. Williams, 430 U.S. 387, 404 (1977). “If, however, after carefully assessing the factors outlined above, a court permits a pro se defense, we strongly urge that court to appoint stand-by counsel to assist the defendant in reaching his ‘clearly indicated goals.’ … And when a pro se defendant fails to present mitigating evidence, a trial court may appoint amicus counsel to compile and argue that evidence.”

That process does not conflict with Faretta v. California, 422 U.S. 806 (1975), the seminal case on the right to self-representation, as long as stand-by counsel doesn’t interfere with a defendant’s personal defense, Goff wrote.

Applying that analysis to Wright’s case, the majority found Wright’s request to proceed pro se was knowing and voluntary but not unequivocal or intelligent.

“His shift in preference for counsel between his initial hearing and the appointment of capital-qualified attorneys five months later reveals his early wavering on the issue,” Goff wrote, noting Wright initially asked for new counsel before asking to represent himself. “… This clear request for representation directly conflicts with any autonomy interest Wright may have held before trial.”

Further, while he had prior experience with the legal system and had undertaken independent legal studies while incarcerated, “the scope of Wright’s knowledge of the criminal law, legal procedures, rules of evidence, and sentencing appears limited at best.

“While insisting that his ‘attorneys ha[d]n’t even challenged the death penalty,’ he conceded, when prompted by the trial court, that it was ‘premature’ to conclude ‘whether the death penalty could be challenged or not in this case.’ … What’s more, at the conclusion of the colloquy, Wright informed the court of ‘five motions’ he wanted to file, and then proceeded to ask the court how to go about filing them, demonstrating a lack of knowledge on the most basic procedural rules,” Goff wrote.

“… And while these factors may not have led us to the same conclusion in a case with less at stake, the state has a much stronger interest in ensuring a fair trial in this capital-turned-LWOP case,” the majority concluded.

In also affirming Wright’s LWOP sentence, the majority noted Wright committed multiple crimes against multiple victims and could have walked away from the Fosters’ home rather than entering the bedroom and killing Max. His character also did not warrant sentence revision, the justices held.

In a footnote, the court remanded the case for a minor correction to the sentencing order.

But in an 11-page dissent, Slaughter wrote that he would have ordered a new trial for Wright.

Specifically, Slaughter wrote, “the trial court’s lengthy colloquy detailing the risks of proceeding pro se ‘opened’ Wright’s eyes and made his waiver intelligent.” What’s more, he said, Wright’s “repeated requests” to proceed pro se made his request unequivocal.

Also, the dissent continued, the majority “adds the need to ‘tailor’ an application of Faretta’s factors based on the State’s interest in ensuring a fair and reliable criminal process in a capital case. … But Supreme Court precedent does not support such ‘tailoring’ of competing interests when the defendant timely asserts the right to proceed pro se.

“… To be sure, a defendant’s waiver may be ill-advised. But, as the Supreme Court observes, ‘[p]ersonal liberties are not rooted in the law of averages’, but in the law’s ‘respect for the individual’. Faretta, 422 U.S. at 834 (cleaned up),” Slaughter concluded. “A right premised on respect for individual freedom must include the freedom to make mistakes — even those with dire consequences. It is when the stakes for the criminal defendant are most grave that the law’s ‘respect for the individual’ should be at its highest.”

In a concurrence with the majority, Justice Massa said it was “hard to quarrel” with much of Slaughter’s dissent, as the majority “tills new constitutional soil in suggesting the standard for waiving the right to counsel varies depending on the seriousness of the case. … I thus cannot join much of the Court’s opinion for reasons sufficiently explained by the dissent.

“However,” Massa continued, “I am convinced that the trial court sifted through all of Wright’s various assertions — both written and oral — on more than one occasion, and concluded that what he ultimately wanted was to hire his own private counsel, or at least have his old counsel back. His waiver, therefore, was not unequivocal, and the trial court should be affirmed.”

The majority addressed one portion of the dissent in a footnote: Slaughter’s holding that “whether a waiver of counsel is ‘intelligent’’’ turns simply on the question of “whether ‘the defendant knows what he is doing and his choice is made with eyes open.’”

“We acknowledge that the U.S. Supreme Court has been less than clear in distinguishing ‘intelligent’ from ‘knowing,’” Goff wrote. “… But even if those two terms — intelligent and knowing — go hand in hand, it’s clear to us that the courts have required something more than just asking whether a defendant ‘knew the dangers and disadvantages’ of self-representation.”

Indiana Court of Appeals

April 29

CHINS — Reversal/‘Exaggerated’ Evidence

In the Matter of J.N. (Minor Child), Child in Need of Services, and J.N. (Father) v. Indiana Department of Child Services

20A-JC-2116

A CHINS finding in a case involving a Hendricks County girl was reversed after the Indiana Court of Appeals determined the underlying evidence had been “exaggerated.”

In March 2019, the Indiana Department of Child Services received the first reports that father J.N. had molested his daughter, who was born in 2016. Those allegations were deemed unsubstantiated, as was a second report of molestation made in February 2020.

Meanwhile, mother A.A. was hospitalized for a psychotic episode, so J.N. sought custody of the child. The Hendricks Superior Court, in an underlying paternity action, allowed A.A. to continue caring for the child, but J.N. was authorized to take over her care if A.A. were hospitalized again. That same month, a third report of molesting was made, and this time the report was substantiated.

Thus, DCS in June 2020 filed a petition alleging the child was a child in need of services. The CHINS case proceeded in the same court as the paternity action, though the CHINS proceeding was assigned to a senior judge while the paternity action was assigned to a magistrate.

Senior Judge Mary G. Willis determined there was insufficient evidence to prove J.N. had molested his daughter but also concluded her mental condition was seriously endangered by the “contentious” litigation between the parents in the paternity action. Thus, the CHINS court ordered that the child remain in A.A.’s care while J.N.’s access would remain “restricted” until additional services could be provided.

J.N. appealed, and the Indiana Court of Appeals reversed in his favor in In the Matter of J.N. (Minor Child), Child in Need of Services and J.N. (Father) v. Indiana Department of Child Services, 20A-JC-2116.

“Father contends the CHINS court exaggerated the conflict between the parents and erroneously determined, without supporting evidence, that the child’s mental health is seriously endangered,” Judge Leanna Weissmann wrote. “… We agree with Father that the evidence does not support the CHINS court’s judgment.”

While there were legal disagreements between the parents, they weren’t “the intense, never-ceasing, ever-escalating battle the CHINS court describes,” Weissmann wrote. A total of 11 motions were filed in the paternity actions over four years, several of which were routine, she said.

Further, the appellate panel rejected the finding that J.N. and A.A. were trying to “weaponize” the court by filing repeated reports to DCS. Although the molestation allegations against J.N. were “extremely troubling,” the panel held, “(w)ithout evidence of the source of those reports, however, the CHINS court could not reasonably find Parents made or caused the reports.”

What’s more, Weissmann wrote, the record was “silent” as to the impact of the litigation on the child. She noted DCS had never referred the child to therapy while a psychologist determined she was a “happy and social little girl.”

“We also acknowledge that parental conflict may be damaging to children,” Weissmann wrote for the panel. “However, DCS offered no evidence suggesting J.N.’s mental or physical health was endangered.”

Finally, the COA determined DCS failed to show the child needed care, treatment or rehabilitation that could not be provided without court intervention.

The court pointed to the “failings” attributed to the parents — specifically, A.A.’s mental illness and failure to protect the child from alleged molestation, as well as allegations that J.N. had molested the child, made threatening comments and was violent toward A.A. Those failings, the court held, were either unproven or didn’t justify state intervention.

“As to Father, not only did DCS fail to prove the molestation allegations, but it also did not prove that Father could not properly care for the child. Although Father had been convicted of domestic battery toward Mother for an incident four years earlier, the record contains no other incidents of violence between Mother and Father. … The record contains no evidence that Father ever had been violent toward J.N.,” Weissmann wrote.

“… In short, the record shows no need for further State intervention,” the panel concluded.

“Even if such intervention were needed due to parental conflict, the paternity court was well able to ensure the child was protected.”

The case was remanded to the CHINS court to enter judgment in favor of the parents.•