Opinion
23A-CT-2239
07-29-2024
Kapitus Servicing, Inc., Appellant-Plaintiff v. First Financial Bank, N.A., et al., Appellees-Defendants
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 Appellate Rule 65(D), this Memorandum Decision is not binding precedent for any court and may be cited only for persuasive value or to establish res judicata, collateral estoppel, or law of the case.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 Vigo Superior Court The Honorable Lakshmi Reddy, Judge Trial Court Cause No. 84D02-2109-CT-5492
MEMORANDUM DECISION
WEISSMANN, JUDGE.
[¶1] Kapitus Servicing lent AAA Electric $260,000. AAA defaulted on this loan and entered bankruptcy. Hoping to recover its losses, Kapitus brought several claims against First Financial Bank-AAA's primary and largest lender-on the overarching theory that First Financial exerted such overwhelming control over AAA that it was liable for AAA's default. First Financial moved for summary judgment on Kapitus's complaint, which the trial court granted.
[¶2] On appeal, Kapitus raises two issues for our review. Kapitus argues that (1) First Financial acted as AAA's principal, thus rendering it liable for AAA's default, and (2) First Financial tortiously interfered in Kapitus's contracts with AAA. We affirm summary judgment on both counts.
Facts
[¶3] In 2018, AAA, an electrical services company, was working on two main projects. When the projects were delayed, AAA suffered financial setbacks that caused it to default on $1.6 million in loans from First Financial.
[¶4] Trying to stay in business, AAA and its owner, George Petit, in his personal capacity, entered into a Forbearance Agreement with First Financial in January 2019. Among other things, the Forbearance Agreement required AAA to create and maintain a disbursement account with First Financial into which all funds related to the projects would go. The funds in the disbursement account could be used only to make loan payments to First Financial and for expenses related to the projects. In exchange, First Financial agreed to forgo collection of the loans until September 30, 2019, by which date AAA was scheduled to have completed the two projects.
[¶5] But the projects were delayed again, and it became apparent that they would not be completed by September. At this time, First Financial downgraded its loans with AAA from "rehabilitation" to "exit." This change reflected First Financial's intent "to get out of the situation." App. Vol. II, p. 21. Petit believed AAA would have to shut down within a month without a new loan.
Kapitus's Loan
[¶6] AAA hired consultants to try to save its business. One of the recommendations from the consultants was for AAA to seek a $250,000 loan. The loan was to be used to pay the consultants $140,000, with the remainder going to AAA as working capital.
[¶7] Kapitus quickly emerged as a potential lender. During the underwriting process, Kapitus worked with AAA and the consultants. AAA conducted pre-loan telephone interviews with Kapitus and submitted various documentation. Although AAA did not specifically disclose the Forbearance Agreement with First Financial to Kapitus, Petit signed a "Permission to Release Information" form that authorized Kapitus to obtain information from AAA's banks and creditors. App. Vol. III, p. 133. On August 6, 2019, Kapitus ultimately funded a $260,000 loan to AAA, personally guaranteed by Petit.
Bankruptcy
[¶8] On August 23, 2019, with no improvement in AAA's fortunes, First Financial and AAA met and discussed two options. Under the first option, AAA would complete its projects, which would require an additional $335,000 loan from First Financial. The second option called for AAA to shut down immediately. First Financial did not immediately rule out a new loan and requested additional financial documentation from AAA to help make its decision.
[¶9] First Financial received the requested documents three days later. During its review, an employee flagged several payments going to Kapitus and wrote to AAA, "[A]s I reviewed your spreadsheet over the weekend I saw payments going to Kapitus . . . when I asked about this debt it was my understanding that they would write it off . . . not receive payments???" App. Vol. II, p. 26. Shortly after, First Financial advised AAA that it would not make the additional loan.
[¶10] In early September, First Financial began working to recover its outstanding debt from AAA. First Financial deposited into a trust account AAA's receivables and proceeds from the sale of AAA's non-essential assets. Later in September, First Financial placed a hold on AAA's operating account and then required that all trust account funds be transferred to the operating account. First Financial also oversaw the liquidation of AAA's assets. First Financial ultimately recovered about $1 million from AAA.
Kapitus's Lawsuits
[¶11] On September 23, 2019, Kapitus sued AAA and Petit in Virginia state court based on AAA's failure to make payments under the Loan Agreement and Petit's failure to satisfy the personal guarantee. First Financial suggested to Petit that a personal bankruptcy might be in his best interests. So, First Financial's attorney introduced Petit to a bankruptcy attorney. Ultimately, Petit filed for Chapter 7 bankruptcy before a default hearing in Kapitus's Virginia lawsuit.
[¶12] With Kapitus unable to recover against AAA and Petit in Virginia, it filed this case in Indiana. Kapitus alleged five claims: (1) breach of contract; (2) civil conspiracy to commit fraud; (3) tortious interference with the Kapitus Loan Agreement; (4) tortious interference with Petit's Personal Guaranty; and (5) unjust enrichment. First Financial moved for summary judgment on all counts, which the trial court granted. Kapitus appeals only the entry of summary judgment on the breach of contract and tortious interference counts.
Discussion and Decision
[¶13] We review a motion for summary judgment just the same as the trial court. Reed v. Reid, 980 N.E.2d 277, 285 (Ind. 2012). The moving party "bears the initial burden of making a prima facie showing that there are no genuine issues of material fact and that it is entitled to judgment as a matter of law." Gill v. Evansville Sheet Metal Works, Inc., 970 N.E.2d 633, 637 (Ind. 2012). Summary judgment is improper if the movant fails to carry its burden, but if it succeeds, "then the nonmoving party must come forward with evidence establishing the existence of a genuine issue of material fact." Id. The reviewing court considers only the evidence the parties have specifically designated to the trial court. Ind. Trial R. 56(C). All factual inferences are made in the nonmoving party's favor, and all doubts over the existence of a material issue will be resolved against the moving party. Reed, 980 N.E.2d at 285.
I. Breach of Contract
[¶14] Kapitus contends that First Financial is liable for AAA's breach of the Loan Agreement because, put simply, First Financial exerted such control over AAA's actions that it effectively became AAA's principal. We disagree. "Whether an agency relationship exists is generally a question of fact, but if the evidence is undisputed, summary judgment may be appropriate." Demming v. Underwood, 943 N.E.2d 878, 884 (Ind.Ct.App. 2011).
Kapitus point out that the trial court, in performing its agency analysis, reversed which party was alleged to be the "principal" and which party the "agent." See App. Vol. II, pp. 25-38. Kapitus grasps onto this mistake as an additional basis for reversal. We decline to do so for two reasons. First, we do not find the trial court's thoughtful and careful analysis on this issue critically undermined by this slip-up. Second, our de novo standard of review insulates this error from effecting the result here. See Poiry v. City of New Haven, 113 N.E.3d 1236, 1239 (Ind.Ct.App. 2018) (describing appellate review of a summary judgment motion as "stand[ing] in the shoes of the trial court" and applying a de novo standard of review).
[¶15] "Agency is a relationship resulting from the manifestation of consent by one party to another that the latter will act as an agent for the former." Id. (quoting Meridian Sec. Ins. Co. v. Hoffman Adjustment Co., 933 N.E.2d 7, 12 (Ind.Ct.App.2010). "There are three requirements for an agency relationship to exist: (1) a manifestation of the principal's consent; (2) the agent's acceptance of authority; and (3) control exerted by the principal over the agent." Doe v. Carmel Operator, LLC, 160 N.E.3d 518, 522 (Ind. 2021). "These elements may be proven by circumstantial evidence, and there is no requirement that the agent's authority to act be in writing." Demming, 943 N.E.2d at 884.
[¶16] In this case, Kapitus has failed to present sufficient evidence to create a genuine issue of material fact as to First Financial's control over AAA. The evidence shows that First Financial took actions only to protect its interests as a creditor, like freezing AAA's bank accounts, overseeing liquidation of assets, and influencing AAA's financial decisions to maximize its own recovery. But these actions do not demonstrate the level of control necessary to establish an agency relationship under Indiana law. To satisfy the control element, "[i]t is necessary that the agent be subject to the control of the principal with respect to the details of the work." Demming, 943 N.E.2d at 885 (quoting Turner v. Bd. of Aviation Comm'rs, 743 N.E.2d 1153, 1163 (Ind.Ct.App. 2001)). Complete control over every aspect of the agent's activities, within the scope of the agency, is not required. Id.
[¶17] Here, there is no evidence that First Financial directed AAA's day-to-day operations or made decisions about AAA's core business activities. Indeed, First Financial's business-banking-has nothing to do with AAA's business- electrical services. Cf. A. Gay Jenson Farms Co. v. Cargill, Inc., 309 N.W.2d 285 (Minn. 1981) (finding an agency relationship where the creditor's business (purchasing grain) was closely connected to the debtor's business (selling grain) and the creditor exploited this "unique relationship" for its own gain). Instead, First Financial's actions were focused on securing repayment of its loans, which aligns with the role of a secured creditor rather than a principal in an agency relationship.
[¶18] Further, the evidence does not support a finding that AAA manifested consent to act as First Financial's agent, much less that First Financial accepted such an arrangement. The fact that AAA complied with First Financial's requests regarding financial matters does not, in and of itself, create an agency relationship. See Pepkowski v. Life of Ind. Ins. Co., 535 N.E.2d 1164, 1167 (Ind. 1989) ("Statements of manifestations made by the agent are not sufficient to create an apparent agency relationship."). Rather, it reflects the reality of a debtor responding to the demands of a secured creditor.
[¶19] Thus, we find no error in the trial court's conclusion that First Financial is not liable for AAA's breach of contract with Kapitus.
II. Tortious Interference
[¶20] Next, Kapitus asserts that First Financial tortiously interfered in its loan agreement with AAA and Petit's personal guaranty. The trial court entered summary judgment in First Financial's favor as to both. Because we find the same facts relevant to both claims, we address them together.
[¶21] "Indiana has long recognized that intentional interference with a contract is an actionable tort, and includes any intentional, unjustified interference by third parties ...." Winkler v. V.G. Reed &Sons, Inc., 638 N.E.2d 1228, 1234 (Ind.1994). In essence, the tort "reflects the public policy that contract rights are property, and under proper circumstances, are entitled to enforcement and protection from those who tortiously interfere with those rights." Id.
[¶22] To recover for tortious interference with a contractual relationship, a plaintiff must demonstrate "(1) existence of a valid and enforceable contract; (2) defendant's knowledge of the existence of the contract; (3) defendant's intentional inducement of breach of the contract; (4) the absence of justification; and (5) damages resulting from defendant's wrongful inducement of the breach." Am. Consulting, Inc. v. Hannum Wagle &Cline Eng'g, Inc., 136 N.E.3d 208, 214 (Ind. 2019).
Absence of Justification
[¶23] The trial court found First Financial's actions justified because they "appear to have been for the legitimate business purpose of maximizing the repayment of AAA Electric's substantial debt to [First Financial] ...." App. Vol. II, p. 42. Thus, it found that "Kapitus cannot prove [First Financial] lacked justification in its actions." Id. We agree.
[¶24] At present, the absence of justification element in a tortious interference claim can be proven in two ways. The first is by proving that the conduct at issue is "fair and reasonable" based on consideration of various factors from the Second Restatement of Torts. Am. Consulting, Inc., 136 N.E.3d at 215. To determine "whether a defendant's conduct in intentionally interfering with a contract is justified or not," the Restatement supplies the following factors:
(a) the nature of the defendant's conduct;
(b) the defendant's motive;
(c) the interests of the plaintiff with which the defendant's conduct interferes;
(d) the interests sought to be advanced by the defendant;
(e) the social interests in protecting the freedom of action of the defendant and the contractual interests of the plaintiff;
(f) the proximity or remoteness of the defendant's conduct to the interference; and
(g) the relations between the parties.Winkler, 638 N.E.2d at 1235 (quoting Restatement (Second) of Torts § 767 (1977)). "Although the weight to be given each consideration may differ from case to case, the central question to be answered is whether the defendant's conduct has been fair and reasonable under the circumstances." Haegert v. McMullan, 953 N.E.2d 1223, 1234 (Ind.Ct.App. 2011). Alternatively, the plaintiff can show that the defendant acted intentionally, and without a legitimate business purpose, such that "the breach is malicious and exclusively directed to the injury and damage of another." Am. Consulting, 136 N.E.3d at 215 (quoting Morgan Asset Holding Corp. v. CoBank, ACB, 736 N.E.2d 1268, 1272 (Ind.Ct.App. 2000)). The answer here is the same under either approach.
[¶25] The undisputed evidence shows that First Financial's actions were taken in pursuit of a legitimate business purpose: collecting on its debt owed by AAA. Indiana courts have long recognized that the pursuit of legitimate business interests can be a factor in justifying actions that might otherwise be considered tortious interference. See Winkler, 638 N.E.2d at 1235-36 (affirming summary judgment on tortious interference claim where "no reasonable argument" existed "that, given the legitimate business intent" of defendants "any tort was committed"). First Financial, as a secured creditor, had a valid economic interest in protecting its position and recovering its debt. Of course, the existence of a legitimate business purpose alone does not automatically provide justification to avoid liability.
[¶26] Kapitus points out that some of First Financial's actions exceeded the scope of its authority under the forbearance agreement and Indiana law. See generally Ind. Code § 26-1-9.1-611 (outlining the notice requirements owed before a secured party may dispose of collateral). First Financial responds that "while certain . . . actions may not have been proper, they were all done with the same goal in mind: collecting as much of its $1.6 million debt from AAA" as it could. Appellee's Br., pp. 30-31. We agree with First Financial that isolated improprieties alone do not negate the underlying justification for its conduct. First Financial's overarching purpose-recovering its debt-was a legitimate business purpose as related to Kapitus's tortious interference claim.
[¶27] Further, there is no evidence that First Financial's actions were malicious or exclusively directed at injuring Kapitus. To be sure, Kapitus alleges that it was negatively impacted by First Financial's debt collection efforts. Yet nothing in the designated materials suggests that this was anything more than an incidental consequence of First Financial protecting its own interests. In short, there is simply no evidence that First Financial's conduct was "malicious and exclusively directed to the injury and damage of" Kapitus. Bilimoria Computer Sys. LLC v. Am. Online, Inc., 829 N.E.2d 150, 156-57 (Ind.Ct.App. 2005).
[¶28] Because First Financial successfully negated the absence of justification element of Kapitus's tortious interference claim, we affirm the trial court's grant of summary judgment on this issue.
Conclusion
[¶29] Finding no genuine issues of material fact on either of Kapitus's claims for breach of contract or tortious interference, we affirm.
[¶30] Affirmed.
Mathias, J., and Tavitas, J., concur.