Opinion
23A-PL-3037
05-28-2024
Chetan N. Bhuwania, Appellant-Defendant v. Katelyn Marie Morris, et al., Appellees-Plaintiffs
ATTORNEYS FOR APPELLANT Bradley J. Buchheit Garrett E. Lawton Indianapolis, Indiana ATTORNEY FOR APPELLEES Jeffrey O. Meunier Carmel, Indiana
Pursuant to Ind. Appellate Rule 65(D), this Memorandum Decision is not binding precedent for any court and may be cited only for persuasive value or to establish res judicata, collateral estoppel, or law of the case.
Appeal from the Hamilton Superior Court The Honorable David K. Najjar, Judge The Honorable Erin M. Weaver, Magistrate Trial Court Cause No. 29D05-2206-PL-3946
ATTORNEYS FOR APPELLANT Bradley J. Buchheit Garrett E. Lawton Indianapolis, Indiana
ATTORNEY FOR APPELLEES Jeffrey O. Meunier Carmel, Indiana
MEMORANDUM DECISION
Altice, Chief Judge.
Case Summary
[¶1] The underlying declaratory judgment action arose because the parties had differing interpretations of a Contract for Deed (the Contract). The trial court resolved the dispute in favor of Katelyn Marie Morris and Kara Alise Zollinger (Purchasers), granting partial summary judgment to them and ordering Chetan Bhuwania (Seller) to sell the property to Purchasers and cooperate in the closing process. Following the sale, the trial court held a damages hearing. Ultimately, the trial court awarded damages to neither party but ordered Seller to pay Purchasers' attorney's fees in the amount of $29,000. On appeal, Seller challenges only the award of attorney's fees.
[¶2] We reverse.
Facts &Procedural History
[¶3] Seller owned real estate in Fishers, Indiana, commonly known as 12676 Brewton Street (the Property). He and Purchasers executed the Contract on April 16, 2020, for the sale of the Property. Of note here, the Contract provided:
(Image Omitted) Appellant's Appendix at 55. This provision, which we will call the Payment Provision, became the root cause of the underlying dispute. Summarized, other relevant provisions in the Contract included that: (1) Purchasers shall take possession of the Property upon execution of the Contract; (2) time is of the essence in Purchasers' performance of every term in the Contract; (3) Purchasers shall accept the Property in as-is condition and then maintain the Property and all its improvements in as good of a condition; and (4) Seller shall pay property taxes with Purchasers reimbursing Seller upon thirty days' notice to Purchasers.
[¶4] Purchasers paid Seller $1,450 on the date of execution. Despite the immediate-possession provision in the Contract, Purchasers did not take possession of the Property until the latter part of May 2020, paying a prorated payment of $370 for that month. For the next twenty-three months, beginning on June 1, Purchasers made monthly payments of $1,275 to Seller except in August 2020, when Seller reduced that month's payment by $375 because Purchasers' use had been restricted by repair work inside the Property.
[¶5] On March 25 and April 4, 2022, Seller emailed Purchasers asking whether they were planning to renew their "lease." Exhibits at 39. Morris responded in part on April 4, "We've talked it through and would like to resign for one more year!" Id. at 38. She also notified Seller that there were "a few things around the house that need fixing or looked at" and that they had been waiting until Seller was back in town. Id. Seller responded that he was back in town and that he could meet that week to "take a look at those issues and also talk about the new lease." Id. Morris and Seller set a meeting for April 7, but it is unclear from the record whether this meeting occurred. On April 15, Seller sent Purchasers a text message asking whether they had "had the chance to discuss/decided about renewing the lease[.]" Id. at 46.
[¶6] On April 16, 2022, Seller presented Purchasers with a proposed one-year lease agreement for the Property, which was scheduled to begin on June 1, 2022. Later, on April 24, 2022, Purchasers advised Seller of their intent to purchase the Property by May 31, 2022. Purchasers attempted to make a $1,275 payment to Seller on May 1, 2022, but Seller rejected the payment.
[¶7] Meanwhile, Seller's attorney sent a letter to Purchasers, dated April 28, demanding that they vacate the Property on or before May 15, 2022. The letter explained in part:
Pursuant to [the Payment Provision] of the Contract, you were to pay the balance of the Contract on or before April 16, 2022, or the offer to purchase the Property would be rescinded. You have failed to pay the balance of the Contract by April 16, 2022, and as a result the offer to purchase has been rescinded and the Contract terminated.Id. at 9.
[¶8] On May 3, 2022, Purchasers submitted their loan application and necessary paperwork to Bailey &Wood Financial Group to obtain a loan to purchase the Property. Their application was processed on May 17, and the Property was appraised on May 27, 2022. Seller, however, refused to cooperate with the closing process, claiming through his attorney that the Contract terminated on April 16, 2022.
[¶9] On June 1, 2022, Purchasers initiated this litigation by filing a complaint for declaratory judgment, by which they sought specific performance of the Contract and damages. Seller responded with a counterclaim for declaratory judgment and for possession of the property. Seller alleged that Purchasers were required to pay the balance of the Contract on or before April 16, 2022, and that the offer to purchase was rescinded when they did not pay the balance by that date.
[¶10] The parties filed competing motions for summary judgment, and a hearing was held on February 15, 2023. Seller argued that the plain language of the Payment Provision required Purchasers to pay the balance within twenty-four months of the Contract's execution. Seller also pointed to clauses in the Contract indicating that time was of the essence, that the Contract could not be modified absent a writing signed by both parties, and that Purchasers were to take possession upon execution of the Contract.
[¶11] In response, Purchasers argued that "the problem was they didn't get possession on [April 16, 2020]." Transcript at 9. Purchasers also stated that they "exercised their right" to purchase after making their twenty-third monthly payment and before the last $1,275 payment was due. Id. at 10. Purchasers argued that they had until May 31, 2022, to close on the Property but were prevented from doing so due to Seller's lack of cooperation. Counsel for Purchasers acknowledged that "it's a tough case to consider under the circumstances" but urged the trial court to look to the Contract, specifically the Payment Provision, and "make a determination as to whether or not 24 payments of 1275 were required or 23 were." Id. at 11.
[¶12] The trial court issued its summary judgment order on February 27, 2023, granting partial summary judgment for Purchasers on their claim for specific performance. The order provided in part:
The crux of the parties' dispute is when the 24-month period began and ended under the contract. [Seller] argues that the contract's "time is of the essence" clause makes clear that the 24-month period began on April 16, 2020 when the contract was executed. [Purchasers] argue that the 24-month period began on June 1, 2020 when the first full monthly payment was made. While the Court notes there appears to be a conflict in the express terms of the contract as to whether the 24-month period began on April 16, 2020 or some other date, the Court does not find the contract to be ambiguous. The Court finds that the
express terms of the contract can only be followed once [Purchasers] had actual possession of the property and began making monthly payments as called for in the contract. [Seller] had actual possession and control of the residence until May 25, 2020. To adopt [Seller's] position would make [Purchasers'] performance of the contract impossible from the beginning and would render meaningless the ultimate option to purchase the property. Therefore, in absence of a defined start and end date within the contract, the Court finds that 24-month period began with the [Purchasers'] first monthly payment after taking possession of the residence on June 1, 2020, and that the contract remained valid in May 2022 when [Purchasers] intended to make their final interest-only payment and close on the purchase of the property. This interpretation is supported by the plain language of the contract, which states that following the date of the first monthly payment, subsequent payments were due "on the first day of each month thereafter."Appellant's Appendix at 18-19. The trial court ordered Seller to sell the Property to Purchasers and cooperate in the closing process.
[¶13] After the Property was sold to Purchasers, the trial court held a hearing in August 2023 where the parties presented evidence on their respective claims for damages. Relevant here, Seller testified that "[t]his was never supposed to be a land contract" and that Purchasers were "living as renters" during the term of the Contract and texting him "every time something broke." Transcript at 52. Seller explained, and Purchasers did not dispute, that there was an understanding between the parties that the use of land contract language in the Contract was done to allow Seller to sidestep HOA rules restricting rentals. Because the trial court ultimately enforced the Contract as a land contract, however, Seller argued that he was entitled to reimbursement for, among other things, the property taxes he had paid and the cost of repairs and maintenance, as Purchasers were responsible for these under the Contract. Seller also claimed that Purchasers had been "unjustly enriched" by living in the Property for free during the pendency of the action, while he continued to pay the mortgage until closing, and that he should be compensated for that period. Id. at 60.
[¶14] The trial court issued its order regarding damages on October 2, 2023. In addition to denying each of Seller's requests for reimbursement, the court found Purchasers' calculation of damages to be "highly speculative." Appellant's Appendix at 15. Thus, the court awarded Purchasers $0 in damages but found that they were entitled to $22,087.01 in attorney's fees. The court explained: "Had [Seller] honored the contract and [Purchasers] not had to proceed to litigation for specific performance, [Purchasers] would not have incurred attorney fees." Id.
Purchasers had asked for nearly $46,000 in damages due to the higher mortgage interest rate applicable to their loan that resulted because of the delay in closing.
[¶15] On November 22, 2023, the trial court entered an order on Seller's motion to correct error, in which Seller challenged the basis of the award of attorney's fees. The order provided:
Being duly advised, and having review [sic] its Order and Judgment on Damages, issued October 3, 2023, the Court finds that it omitted two findings:
1. At the damages hearing . . ., the Court was convinced that during the term of the contract, [Seller] treated [Purchasers] as tenants, not buyers. The Court interpreted [Seller's] attitude during the hearing as that of a landlord -a landlord with the absolute expectation that he would never have to close on the sale of the residence to [Purchasers].
2. While [Purchasers] may not have been "dragged" into litigation a la the "obdurate behavior" standard under Kikkert v. Krumm, 474 N.E.2d 503 (Ind. 1985), [they] were certainly left with no choice but to initiate litigation to be able to finalize the purchase of the home they had been making contractual payments toward for the entire term of the contract.
To the extent the Court must correct any error, it does so in finding that [Seller] acted in bad faith both in refusing to close on the purchase of the property, forcing [Purchasers] into litigation, and in insisting upon defending his bad faith vigorously by filing a counter-claim, litigating through summary judgment, and filing a request to reconsider the summary judgment order. [Seller's] actions prior to [Purchasers'] filing of their complaint were unreasonable, and [his] subsequent defense of the claim was frivolous and unreasonable. [Purchasers] therefore are entitled to recover fees under Ind. Code § 34-52-1-1(b).Id. at 153-54.
[¶16] On November 30, 2023, the trial court granted a motion filed by Purchasers to amend the judgment to include additional attorney's fees. The trial court increased the award of attorney's fees to a total of $29,000.
[¶17] Seller now appeals, challenging only the award of attorney's fees. Additional information will be provided below as needed.
Standard of Review
[¶18] A trial court's award of attorney's fees is reviewed for an abuse of discretion. River Ridge Dev. Auth. v. Outfront Media, LLC, 146 N.E.3d 906, 912 (Ind. 2020). An abuse of discretion occurs when the award "either clearly contravenes the logic and effect of the facts and circumstances or misinterprets the law." Id. In making this determination, we review any findings of fact for clear error and any legal conclusions de novo. Id.
Discussion &Decision
[¶19] Indiana follows the American Rule, which requires parties to pay their own attorney's fees absent an agreement between the parties, statutory authority, or other rule to the contrary. See Cnty. Materials Corp. v. Indiana Precast, Inc., 187 N.E.3d 253, 260 (Ind.Ct.App. 2022), trans. denied. Our Supreme Court has explained that the exceptions to the general rule that parties pay their own attorney's fees are "narrow" and "it is a hefty burden to demonstrate" that an award of attorney's fees is warranted. River Ridge Dev. Auth., 146 N.E.3d at 911.
[¶20] Here, the trial court awarded attorney's fees to Purchasers based on Ind. Code § 34-52-1-1(b), which provides:
In any civil action, the court may award attorney's fees as part of the cost to the prevailing party, if the court finds that either party:
(1) brought the action or defense on a claim or defense that is frivolous, unreasonable, or groundless;
(2) continued to litigate the action or defense after the party's claim or defense clearly became frivolous, unreasonable, or groundless; or
(3) litigated the action in bad faith.
The statute "allows an award of attorney's fees 'to the prevailing party' based on another party's actions during litigation." River Ridge Dev. Auth., 146 N.E.3d at 912 (emphasis supplied). Subsections (b)(1) and (b)(2) focus on the legal and factual basis of the claim or defense and the arguments supporting the claim or defense, while subsection (b)(3) "requires scrutiny of the motive or purpose of the non-prevailing party." Cnty. Materials Corp., 187 N.E.3d at 261.
[¶21] The trial court determined that Seller acted in bad faith by refusing to close on the purchase of the Property and thus forcing Purchasers into litigation. It added that Seller "vigorously" defended his actions by counterclaiming and litigating through summary judgment. Appellant's Appendix at 154. The trial court's order reflects a misunderstanding of bad faith under the statute.
[¶22] We have explained that to constitute bad faith under the statute, "the conduct must be vexatious and oppressive in the extreme." Ducan v. Yocum, 179 N.E.3d 988, 1004 (Ind.Ct.App. 2021) (internal quotation marks omitted). Bad faith is not merely bad judgment or negligence; "it implies the conscious doing of a wrong because of dishonest purpose or moral obliquity." K.R. Calvert Co. v. Sandys, 141 N.E.3d 811, 826 (Ind.Ct.App. 2020). The standard is strict because an award of attorney's fees under this exception is punitive. Ducan, 179 N.E.3d at 1004. Moreover, "only conduct in the course of litigation is relevant to the question of attorney's fees." Id.
[¶23] In this case, the trial court improperly relied on pre-litigation conduct when determining that Seller acted in bad faith within the context of I.C. § 34-52-1-1(b)(3). See Wymberley Sanitary Works v. Batliner, 904 N.E.2d 326, 339 (Ind.Ct.App. 2009) ("Even if we had agreed _ that Wymberley acted in bad faith in its dealings with the Landowners before the lawsuit was filed, neither caselaw nor the plain language of the statute support an award of attorney fees for actions taken outside the litigation."), trans. denied. And Seller's vigorous defense of his interpretation of the Contract did not alone constitute bad faith - more was required. See River Ridge Dev. Auth., 146 N.E.3d at 919 (observing that even where a party's presentation of a claim lacks merit, "to reach [a] bad-faith determination . . . there must be some evidence that the party affirmatively operated with 'furtive design or ill will'") (quoting Wagler v. W. Boggs Sewer Dist., Inc., 980 N.E.2d 363, 383 (Ind.Ct.App. 2012), trans. denied). There was no showing in this case that Seller's litigation conduct rose to the level of bad faith necessary to sanction an award of attorney's fees.
[¶24] In awarding attorney's fees, the trial court also concluded, without explanation, that Seller's "defense of the claim was frivolous and unreasonable." Appellant's Appendix at 154. It has long been established that claims or defenses are not frivolous or unreasonable under I.C. § 34-52-1-1(b)(1) simply because a party loses on the merits. Kahn v. Cundiff, 533 N.E.2d 164, 170 (Ind.Ct.App. 1989), aff'd, 543 N.E.2d 627 (Ind. 1989). Rather,
[a] claim is "frivolous" if it is made primarily to harass or maliciously injure another; if counsel is unable to make a good faith and rational argument on the merits of the action; or if counsel is unable to support the action by a good faith and rational argument for extension, modification, or reversal of existing law. A claim is "unreasonable" if, based upon the totality of the circumstances, including the law and facts known at the time, no reasonable attorney would consider the claim justified or worthy of litigation.Cnty. Materials Corp., 187 N.E.3d at 261.
[¶25] We review de novo a trial court's legal conclusion that a party brought an action or defense on a claim or defense that is frivolous, unreasonable, or groundless. Id. Here, the record does not support the conclusion that Seller's claims and defenses were frivolous or unreasonable.
[¶26] Seller proposed rational arguments to the trial court in support of his interpretation of the Contract, and nothing suggests that he made the arguments to harass or maliciously injure Purchasers. Indeed, the record shows that he and Purchasers had an amicable relationship for two years and simply reached an impasse at the end based on conflicting interpretations of the Contract. Counsel for Purchasers even acknowledged at the summary judgment hearing that it was "a tough case to consider under the circumstances" and that although the Contract provided for immediate possession "[t]he problem was" that Purchasers did not take actual possession of the Property until more than a month after the Contract was executed. Transcript at 11, 9. Another difficulty with interpretation was that the Payment Provision did not specifically set a start date for the interest-only payments.
[¶27] Further, at the damages hearing, Seller presented evidence indicating that the parties had an understanding that the Contract was not intended to be a land contract and that they carried on during the term of the Contract as if they were in a landlord/tenant relationship. Seller argued that because the Contract was now being enforced as a land contract, Purchasers should reimburse him for maintenance expenses, property taxes, and other items that they were responsible for under the Contract. Based on a theory of unjust enrichment, Seller also sought compensation for the period Purchasers lived in the Property during the underlying litigation. Finally, Seller successfully defended against Purchasers' claim for damages based on the higher interest rate they obtained, claimed damages that the trial court ultimately rejected as highly speculative. In sum, Seller's claims and defenses at the damages hearing were neither frivolous nor unreasonable.
[¶28] "The guardrails of zealous advocacy must leave ample room for a party to make its case." River Ridge Dev. Auth., 146 N.E.3d at 910-11. Seller did not veer outside of these wide guardrails and thus the trial court abused its discretion in awarding attorney's fees.
Given our resolution of this appeal in favor of Seller, Purchasers' request for appellate attorney's fees pursuant to Ind. Appellate Rule 66(E) is without merit and thus denied.
[¶29] Reversed.
Bradford, J. and Felix, J., concur.