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WILLIAM J. BRANT, JR.,
Appellant-Judgment Debtor; BRANT CONSTRUCTION MANAGEMENT, INC., ACCURATE
INVESTMENTS, LLC, et al., Appellants-Petitioners, vs. ROBERT R. KRILICH,
Appellee-Judgment Creditor, MERCANTILE NATIONAL BANK OF INDIANA,
Appellee-Garnishee-Defendant. Consolidated No. 45A03-0411-CV-514 COURT OF APPEALS OF INDIANA, THIRD
DISTRICT 835 N.E.2d 582; 2005 Ind. App. LEXIS 1935 October 14, 2005, Decided PRIOR HISTORY: [*1] APPEAL
FROM THE LAKE SUPERIOR COURT. The Honorable Robert A. Pete, Judge. Cause Nos.
45D10-0405-CC-71 and 45D05-0001-MI-0011. Krilich v. Soltesz/Brant
Dev. Co., 771 N.E.2d 1169, 2002 Ind. App. LEXIS 1099 (Ind. Ct. App., 2002). [**583] COUNSEL: FOR
APPELLANTS: PATRICK B. McEUEN, Millbranth & Bush, Valparaiso, Indiana. AMICUS CURIAE ATTORNEYS: TERRILL D. ALBRIGHT, BRIAN S.
FENNERTY, JEROME P. McCLUSKEY, Baker & Daniels, Indianapolis, IN. FOR APPELLEES: RENEE J. MORTIMER, SCOTT B. COCKRUM, ROBERT
KINSELLA, Hinshaw & Culbertson LLP, Schererville, Indiana. JUDGES: SULLIVAN, Judge. BAILEY, J., and MATHIAS, J.,
concur. OPINION BY:
SULLIVAN OPINION: OPINION - FOR PUBLICATION SULLIVAN, Judge Appellant William J. Brant, Jr. appeals from the trial court’s
decision that Appellee Robert Krilich is entitled to a pro rata portion of
certain bank accounts with which Brant is affiliated and to Brant’s
ownership interest in several limited liability companies (“LLCs”).
n1 He presents numerous issues for our review, which we restate as two
dispositive issues: (1) whether the various Garnishee Businesses n2 should have
received notice of the garnishment proceeding involving the checking accounts
in their respective names, and (2) whether the [*2] Business Entities n3 should have
received notice of Krilich’s intent to seek Brant’s ownership
interests [**584] in them. We reverse and remand for further proceedings not
inconsistent with this decision. Because of the confusion which has existed
throughout the original prosecution of this action, we also offer some
direction and guidance to the trial court in resolving other issues which will
necessarily arise upon remand. - - - - - - - - - - - - - - Footnotes - - - - - - - - - - - - - - - n1 This appeal was originally filed as two separate appeals. The first
addressed the propriety of garnishment of the bank accounts and the second
addressed the transfer of the ownership interests of limited liability
companies. We sua sponte consolidated the appeals, and upon the request of
Krilich for the second filed appeal, ordered oral argument upon the
consolidated appeal. n2 These various businesses and trusts include Brant Construction
Management, Inc.; Accurate Investments, LLC; Brant Trust; Brant Construction,
LLC; Cambridge Commons Joint Venture; Cambridge Commons Owners Association,
Inc.; Cline Commons, LLC; K&B Management, LLC; Plum Creek Village
Associates; VA Venture Baton Rouge, LLC; William J. Brant, Jr. Trust 1720; Broadfield
Park; and Oak Crest, Inc. Although these businesses were not named as formal
garnishee defendants, for purpose of this issue, we will refer to these
business entities collectively as “the Garnishee Businesses.”
Of this group, the trial court found that Brant did not possess a share of the
accounts of Broadfield Park and Oak Crest, Inc. Therefore, the trial court did
not order the garnishment of the funds from the accounts of those two entities.
However, because their status could change in a future garnishment proceeding,
they are included in the list of Garnishee Businesses. We also note that the
trial court ordered garnishment from an account with the name of William J.
Brant, Jr. and Edna F. Brant. Brant does not contest the ability of Krilich to
garnish the proceeds in that account apparently because it is the personal
account for him and his wife. Our decision in no way addresses Krilich’s
right to the funds in that account or any claim that Edna F. Brant may assert. [*3] n3 The Business Entities include the businesses in which Brant has
some ownership interest which Krilich has attempted to garnish or attach in
proceedings supplemental. Specifically it includes Accurate Investments, LLC;
Brant Trust; Plum Creek Village Associates; William J. Brant, Jr. Trust Number
1720; Edwill, LLC; William J. Brant, Jr. Associates; Brant Rental; Brant
Construction, LLC; Briar Crossing, LLC; Cambridge Commons Joint Venture; Cline
Commons, LLC; K&B Management, LLC; Brant Construction Management, Inc.; VA
Venture Baton Rouge, LLC; VA Venture Grand Rapids, LLC; VA Venture Pueblo, LLC;
Cambridge Commons Owners Association, Inc.; Tech Business Center Property
Owners Association, LLC; VA Venture Evansville, LLC; VA Venture San Jose, LLC;
Autumn Creek, LLC; Lake Hills Development, LLC; Williams Pond, LLC; and Hunter’s
Run Homeowners Association at St. John, Inc. - - - - - - - - - - - - End Footnotes- - - - - - - - - - - - - - The underlying facts which led to Krilich’s action to seek
garnishment of funds from the Garnishee Businesses’ checking accounts
and the acquisition of Brant’s ownership interests were explained by
this court in Krilich v. Soltesz/Brant Development Co., 771 N.E.2d 1169,
1170-71 (Ind. Ct. App. 2002), [*4]
trans. denied, as follows: “On December 31, 1986, Krilich
and Brant, who was a partner of the Soltesz/Brant Development Company, entered
into a Tenancy in Common Agreement with respect to a shopping center in Tampa,
Florida. In part, the agreement provided that Krilich agreed to purchase an 80%
interest in the shopping center in return for a guarantee from Brant that the
shopping center would ‘produce a cash flow to Krilich equal to 9-1/2%
of the amount invested by Krilich.’ Appellant’s App. p. 66.
When the shopping center failed, Krilich filed a complaint against Brant in
Hillsborough Circuit Court in Florida. On November 1, 1989, the Florida court
entered a final judgment in favor of Krilich in the amount of $ 2,310,367.51
plus interest. A certified copy of the judgment was recorded in Hillsborough
County on June 22, 1990 and it bore the name and address of Brant’s
attorney. n4 The judgment was re-recorded in 1996 with the Hillsborough Circuit
Court Clerk with an affidavit from Krilich[’]s attorney, which
contained Brant’s last known address. On June 17, 1996, Krilich filed a
complaint on foreign judgment in Lake Circuit Court to domesticate the Florida
judgment. [*5] Brant filed an answer to the complaint, but the parties
later stipulated to dismissal of the complaint, without prejudice. On December
16, 1996, Krilich filed a motion for reinstatement following voluntary
dismissal. The case was reinstated, by agreement, on March 26, 1997. Brant then
filed an answer and motion for change of judge. Therefore, on May 19, 1998,
Lake Superior Court Judge James Richards assumed jurisdiction. On July 6, 1999, Krilich filed a
motion for summary judgment. Brant filed a response and cross-motion for
summary judgment arguing that the Florida court did not have jurisdiction over
him, or in the alternative, that Krilich failed to properly record a lien on
his Florida judgment, and therefore, no judgment lien should be recognized in
Indiana. Appellant’s App. pp. 45, 50. On June 4, 2001, the trial court
granted Krilich’s motion for summary judgment, in part, and granted
Brant’s motion in part, issuing the following order: The Court, being duly advised, now
finds as follows and enters these conclusions of law. 1. Krilich is the owner of a valid
Florida judgment entered on November 1, 1989, following appropriate service of
process upon Brant in accordance with
[*6] both Florida and Indiana long-arm statutes, and Brant’s
challenges to the jurisdiction of the Florida [**585] Court over his person should be
denied. 2. The Court, finds Brant’s
Cross-Motion for Summary Judgment and argument for denial of the attachment of
Plaintiff’s lien upon Brant’s real estate in Indiana to be
compelling and that there shall not be a lien on any real property owned by
Brant in Indiana. The Court therefore orders as
follows: 1. Krilich’s Motion for
Summary Judgment [is] GRANTED to domesticate his judgment against Brant,
individually, to the extent of Brant’s personalty subject to attachment
and garnishment to satisfy the judgment. 2. Brant’s Cross-Motion
for Summary Judgment is GRANTED to deny Plaintiff a lien against Defendant’s
real estate in Indiana to satisfy Plaintiff’s judgment.” This court determined that the judgment was properly domesticated and
that the trial court erred in concluding that Krilich could not maintain a lien
against Brant’s real property in Indiana. Id. at 1173. - - - - - - - - - - - - - - Footnotes - - - - - - - - - - - - - - - n4 The language “and it bore the name and address of Brant’s
attorney” was subsequently stricken from the opinion upon rehearing at
775 N.E.2d 1235, 1236 (Ind. Ct. App. 2002) because the record was unclear as to
whose attorney’s name was on the certified judgment. - - - - - - - - - - - - End Footnotes- - - - - - - - - - - - - - [*7] Krilich subsequently sought garnishment of bank accounts which were
“to the credit, either individually or jointly, of … William
J. Brant, Jr.” Plaintiff’s Exhibit 2. In so doing, on April
30, 2004, he served interrogatories upon Mercantile National Bank of Indiana (“Mercantile”)
seeking information on Brant’s aforementioned accounts. On May 3,
2004, Mercantile placed a hold upon all funds in fifteen accounts with which
Brant was affiliated and noted that those accounts were all “Business
Checking” and the address listed for each was the same. Plaintiff’s
Ex. 2. Relying upon this information, Krilich argued to the trial court at a
hearing held on May 20, 2004 that Mercantile’s answer to the interrogatories
was evidence that the “accounts [were] under the name of William
Brant, Jr.” Transcript at 4. Brant’s counsel argued that the
accounts were not Brant’s accounts but belonged to the Garnishee
Businesses. However, he also agreed that if the court determined that Brant did
have ownership of the accounts, he would demonstrate that certain amounts were
exempt from garnishment. The trial court then ruled that Krilich had proved
that the accounts belonged to Brant. As a consequence, [*8] Ronald Schutz, the Treasurer for Brant
Construction Management, Inc., who also is indirectly involved in the financial
affairs of the remaining Garnishee Businesses, testified with regard to the
activities and funding of the businesses. Following his testimony, the trial
court ordered that a pro rata portion, based upon Brant’s percentage
ownership in the Garnishee Businesses, be garnished from the respective
accounts. Brant appealed the garnishment order to this court, and the trial
court continued to determine the remaining issues. n5 In the later proceedings
in the trial court, Krilich argued that he was entitled to Brant’s
ownership interests in all of the companies with which Brant had affiliation—those
businesses previously designated as the “Business Entities” in
footnote 3, supra. Brant challenged this claim to his ownership interests by
arguing that a charging order was the sole method by which Krilich could
acquire any of Brant’s interests in the LLCs. n6 The trial court
concluded the [**586] matter in Krilich’s favor and ordered the transfer of
Brant’s ownership interests in the Business Entities to Krilich. - - - - - - - - - - - - - - Footnotes - - - - - - - - - - - - - - - n5 The appeal of the garnishment order was brought as an interlocutory
appeal of right according to Indiana Appellate Rule 14(A). [*9] n6 Brant himself did not challenge Krilich’s ability to
acquire Brant’s interest in any Business Entities other than those
organized as LLCs. - - - - - - - - - - - - End Footnotes- - - - - - - - - - - - - - We begin by noting that the extremely complex nature of this appeal is
due to the simple fact that certain assumptions were made about the Garnishee
Businesses and the Business Entities by Krilich and the trial court without any
proof as to their validity. The most important assumption was that the
Garnishee Businesses and the Business Entities were the alter ego of Brant.
However, no actual evidence was ever introduced with regard to this
proposition. Rather, Krilich attempted to rely upon an opinion by Mercantile n7
that the accounts were Brant’s accounts and Brant’s
admissions with respect to his ownership interests in the various businesses.
Thus, our review of the proceedings below and our resolution of this case
focuses upon the evidence actually introduced, or the lack thereof on
important, dispositive issues, and will hopefully provide guidance to the trial
court for the proper resolution of this case upon remand. - - - - - - - - - - - - - - Footnotes - - - - - - - - - - - - - - - n7 In arguing his position to the trial court, Krilich asserted that
he had met his burden of proof that Brant owned the accounts by offering
Mercantile’s answer to the interrogatories as evidence. It is true
that the answer to the interrogatories may be relied upon as evidence. See Mann
v. Russell’s Trailer Repair, Inc., 787 N.E.2d 922, 929 (Ind. Ct.
App. 2003), trans. denied. However, just because Krilich offered and the trial
court accepted as evidence the answer to the interrogatories in which
Mercantile implied that Brant owned the accounts does not mean that Krilich
necessarily met his burden of proof. The question whether Brant owned the
accounts is one of interpretation of the law, and Mercantile was in no position
to make such determinations. Rather, the trial court was obligated to consider
all evidence admitted to determine whether the accounts belonged to Brant or
the Garnishee Businesses. - - - - - - - - - - - - End Footnotes- - - - - - - - - - - - - - [*10] Following the domestication of the judgment and Brant’s
failure to satisfy it, Krilich initiated proceedings supplemental to execution.
Proceedings supplemental concepts originate in equity. Stuard v. Jackson
& Wickliff Auctioneers, Inc., 670 N.E.2d 953, 955 (Ind. Ct. App. 1996). These
proceedings allow the creditor to discover assets, reach equitable and other
interests not otherwise subject to levy and sale at law, and to set aside
fraudulent conveyances. Id. The procedures set forth in Trial Rule 69 and in statutes
are direct descendents of these equitable remedies. Id. Equity may be invoked
to prevent one party from injuring another through fraud and deceit by
declaring that as done which in good conscience ought to be done. Id. Proceedings supplemental to execution are structured by Indiana Trial
Rule 69. It states: “(E) Proceedings
supplemental to execution. Notwithstanding any other statute to the contrary,
proceedings supplemental to execution may be enforced by verified motion or
with affidavits in the court where the judgment is rendered alleging generally: (1) that the plaintiff
owns the described judgment against the defendant; [*11] (2) that the plaintiff
has no cause to believe that levy of execution against the defendant will
satisfy the judgment; (3) that the defendant
be ordered to appear before the court to answer as to his non-exempt property
subject to execution or proceedings supplemental to execution or to apply any
such specified or unspecified property towards satisfaction of the judgment;
and, (4) if any person is
named as garnishee, that garnishee has or will have [**587] specified or unspecified
nonexempt property of, or an obligation owing to the judgment debtor subject to
execution or proceedings supplemental to execution, and that the garnishee be
ordered to appear and answer concerning the same or answer interrogatories submitted
with the motion. If the court determines
that the motion meets the foregoing requirements it shall, ex parte and without
notice, order the judgment debtor, other named parties defendant and the
garnishee to appear for a hearing thereon or to answer the interrogatories
attached to the motion, or both. The motion, along with the court’s order stating the time for
the appearance and hearing or the time for the answer to interrogatories
submitted with the motion, shall [*12] be
served upon the judgment debtor as provided in Rule 5, and other parties and
the garnishee shall be entitled to service of process as provided in Rule 4.
The date fixed for appearance and hearing or answer to interrogatories shall be
not less than twenty [20] days after service. No further pleadings shall be
required, and the case shall be heard and determined and property ordered
applied towards the judgment in accordance with statutes allowing proceedings
supplementary to execution. In aid of the judgment or execution, the judgment
creditor or his successor in interest of record and the judgment debtor may
utilize the discovery provisions of these rules in the manner provided in these
rules for discovery or as provided under the laws allowing proceedings
supplemental.” (emphasis supplied). Trial Rule 69 clearly provides that more parties than just the
judgment debtor and the garnishee defendant may be involved in proceedings
supplemental. Here however, the assumption was that the Garnishee Businesses
were the alter egos of Brant. Because of the assumption that the Garnishee
Businesses were the alter egos of Brant, the Garnishee Businesses were not
named as defendants [*13]
and served with process. Be that as it may, the Garnishee Businesses did file a replevin action
after they learned that their checking accounts had been frozen by Mercantile
as a result of the garnishment proceedings. The replevin action was
consolidated with the proceedings supplemental filed by Krilich and then
dismissed. Following dismissal of the replevin claim, the Garnishee Businesses
remained parties to the action but were neither notified nor involved in any
further proceedings. At oral argument, Krilich asserted that the Garnishee
Businesses had knowledge of the hearing held upon the question of whether the
bank accounts may be garnished. n8 However, it is also undisputed that they
were never provided notice of the garnishment proceeding, named as parties, or
provided the opportunity to take part in that hearing. The fact that they had
been joined to the action for a different purpose did not provide them with the
opportunity to protect their own interests. n9 - - - - - - - - - - - - - - Footnotes - - - - - - - - - - - - - - - n8 At the beginning of the hearing before the trial court, Patrick
McEuen, the attorney for Brant, discussed the admission of certain letters into
evidence. In so doing, he mentioned that he was the attorney who filed the
replevin action. Thus, it is clear that Mr. McEuen was representing, in
addition to Brant, the Garnishee Businesses, at least for a short period of
time. However, it is equally clear and undisputed that the garnishment
proceeding and the notice which were provided were directed solely at Brant
personally. [*14] n9 We render no opinion as to whether the Garnishee Businesses are
legitimate businesses or are the true owners of the checking accounts. - - - - - - - - - - - - End Footnotes- - - - - - - - - - - - - - [**588] According to Trial Rule 69(E)(4), the garnishee and other parties
should be provided notice in accordance with Trial Rule 4. There is no dispute
that the Garnishee Businesses were not provided any notice even though the
potential existed that the accounts did not belong to Brant. Consequently, the
failure to provide the Garnishee Businesses notice and join them as parties to
the garnishment proceeding so that they could defend their interests in the
accounts renders the garnishment proceeding invalid as to the Garnishee
Businesses’ checking accounts. On remand, this error may be cured by
notice to the Garnishee Businesses under Trial Rule 69 of any future
proceedings supplemental. When we turn to the second question of notice, namely whether the
Business Entities should have received notice of the proceeding supplemental in
which Krilich sought to receive Brant’s ownership interests in the
Business Entities, the reasoning and answer are the same. A hearing [*15]
was set for September 1, 2004 upon the matter of whether Brant should
transfer his ownership interests in the Business Entities to Krilich. On August
27, 2004, Brant filed a motion to continue the hearing noting that the Business
Entities were seeking separate counsel and contemplating a motion to intervene
in the proceeding. From the record, it does not appear that the motion was
ruled upon, or if it was, it was denied. In any event, the hearing was held as
scheduled. n10 On September 23, approximately three weeks after the hearing was
held, Brant filed a motion to add indispensable parties pursuant to Trial Rule
19. Brant asserts that the motion was denied. There does not appear to be such
a ruling, but by implication it was denied on September 27, 2004 when the trial
court ruled upon the motion for turnover and ordered that Brant’s
interests in several business entities be transferred to Krilich. n11 - - - - - - - - - - - - - - Footnotes - - - - - - - - - - - - - - - n10 The trial court denied a motion made by Brant at the hearing in
which he requested a continuance and explained that the Business Entities had
counsel and wanted to take part in the proceedings. [*16] n11 Since the initiation of this appeal, Krilich himself has filed a
motion to join the Business Entities as parties before the trial court. His
grounds for joining them are that they are indispensable parties under Indiana
Trial Rule 19. However, he asserts that they are indispensable only because he
is now asking that the business entities be dissolved and that the owners
receive their fair proportion of the assets after all creditors are paid. At
oral argument, he opined that this is necessary only because the Business
Entities have refused to recognize the court’s order that Brant’s
interests in the Business Entities be transferred to Krilich. He has not
changed his position that the Business Entities had no reason to take part in
any prior proceeding upon the ground that the Business Entities were not
affected by the transfer of Brant’s interests. - - - - - - - - - - - - End Footnotes- - - - - - - - - - - - - - We disagree with Krilich’s argument that the Business
Entities are not affected by the transfer of Brant’s interests to
Krilich. Pending appeal, Krilich himself has sought to add them as indispensable
parties. The Business Entities have been indispensable [*17] parties all along; indeed, this is what
the notice provisions of Trial Rule 69 contemplate. It is disingenuous to
suggest that they are not affected by the transfer of the interests in them to
Krilich. In addition to the lack of notice to the Business Entities, their
organizational structure as LLCs provides them protection from pure proceedings
supplemental remedies. Through our research, it has become apparent that the
issues before us [**589] are relatively novel in this State. n12 Nonetheless, we are
not without some guidance as a few cases have dealt with issues similar to
those present here. Of those cases, the most influential have dealt with
corporations. - - - - - - - - - - - - - - Footnotes - - - - - - - - - - - - - - - n12 At both the trial and upon appeal. Brant has failed to assert any
argument with respect to any businesses organized as corporations, limited
partnerships, and trusts. His reason for this failure is unclear. Nonetheless,
his failures in this regard cannot be deemed to be binding upon the part of the
various corporations, limited partnerships, or trusts. - - - - - - - - - - - - End Footnotes- - - - - - - - - - - - - - [*18] In Lambert v. State, 519 N.E.2d 745 (Ind. Ct. App. 1988), this court
was called upon to determine whether a trial court’s conclusion that a
corporation was the alter ego of a judgment debtor was correct so that the
corporation’s assets were subject to execution in satisfaction of
personal debts. In 1983, Lambert, individually and as personal representative
of Agricultural Aerial Applicators, Inc., entered into an agreement to borrow
money from Farmers Bank of Frankfort, Indiana. As security for the loan,
Lambert listed collateral securing other loans and his deposit accounts. After
Lambert defaulted on the loan, the bank filed a complaint seeking the amount
loaned as well as interest and attorney fees. An agreed judgment was entered
and proceedings supplemental were conducted. After a writ of execution was
entered, it was returned unsatisfied because Lambert’s vehicles and
other property were not titled in his own name. The bank then requested that
the trial court determine ownership of assets and alleged that Lambert used
several corporate entities to defraud creditors. The trial court concluded that
Lambert exercised extensive control over the corporation entitled [*19] Lambert Enterprises, Inc., conducted
corporate affairs without regard to corporate form, failed to distinguish
between personal and corporate assets, and attempted to place his assets beyond
reach of creditors by titling assets in the corporate name. Furthermore, the
trial court found that the bank had relied upon Lambert’s
representations that he owned and controlled Lambert Enterprises, Inc. in
extending credit to him. Thus, the trial court ruled that Lambert Enterprises,
Inc. was the alter ego of Lambert and that the corporate assets were in fact
personal assets which could be used to satisfy personal debts. In reaching the decision upon appeal, this court noted the general
principle that Indiana courts are reluctant to disregard corporate identity and
do so only to protect third parties from fraud or injustice when transacting
business with a corporate entity. Id. at 747. Furthermore, the
separate existence of a corporation may be disregarded to prevent injustice
when a third party transacts business with an individual who fraudulently uses
a corporation as a shield from liability. Id. The third party must show both
ownership and control of the corporation
[*20] by the shareholder in order to disregard the corporation’s
separate existence under the alter ego theory. Id. Under the evidence, this court agreed that Lambert Enterprises, Inc.
was the alter ego of William Lambert. Id. Lambert had been a customer of the
bank for several years, and six years prior to seeking the loan, he had
submitted an individual financial statement wherein he included both personal
and corporate assets and stated that he owned all the stock of Lambert
Enterprises, Inc. Additionally, Lambert’s list of assets included a
helicopter, mobile home, trailer, Cessna aircraft, two automobiles, and
miscellaneous office equipment and tools. Lambert did testify that ninety
percent of the stock had been owned by his children for the past fifteen [**590] years
and that he had transferred the remaining ten percent in the year prior to
seeking the loan. Nonetheless, the documents pertaining to the shareholders’
meetings led to the conclusion that Lambert was the sole shareholder. Id. at 748. Moreover, an
insurance policy in Lambert’s name covered property which Lambert
claimed was owned by the corporation. A real estate appraisal done in 1979
listed Lambert as [*21]
the owner of property even though Lambert later claimed to own no
property and merely used the property which was in his possession. This
included living in a mobile home owned by the corporation and living on the
second floor of one of the corporation’s buildings. Finally, questions
existed with regard to whether Lambert had received compensation from the
corporation. In affirming the conclusion that Lambert Enterprises, Inc. was the
alter ego of Lambert, this court determined that the evidence tended to show
that Lambert owned all the corporate stock, treated corporate assets as his
own, used the corporation to procure goods and services for himself, and
generally governed all the corporate affairs. Id. Essentially, the factual
analysis was analogous to that used to pierce the corporate veil. A corporation is a legal entity separate and distinct from its
shareholders and officers. Winkler v. G. Reed & Sons, Inc., 638 N.E.2d 1228,
1231-32 (Ind. 1994). A court engages in a highly fact-sensitive inquiry when it
exercises its equitable powers to pierce a corporate veil. Id. at 1232. In deciding
whether a plaintiff has met the burden to pierce the [*22] corporate veil, the court considers
whether the plaintiff has presented evidence showing: (1) undercapitalization;
(2) absence of corporate records; (3) fraudulent representation by corporate
shareholders or directors; (4) use of the corporation to promote fraud,
injustice, or illegal activities; (5) payment by the corporation of individual
obligations; (6) commingling of assets and affairs; (7) failure to observe
required corporate formalities; or (8) other shareholder acts or conduct
ignoring, controlling, or manipulating the corporate form. n13 Aronson v.
Price,
644 N.E.2d 864, 867 (Ind. 1994). - - - - - - - - - - - - - - Footnotes - - - - - - - - - - - - - - - n13 At the hearing before the trial court, Brant’s counsel
stated that the business checking accounts should be exempt from garnishment
with the possible exception of the account for Brant Construction Management,
Inc. This possible concession was made upon the fact that Brant is the sole
shareholder and essentially was an acknowledgement that the trial court should
have applied a piercing-the-corporate-veil analysis. Upon appeal, Krilich
argues that the trial court could have found that the Business Entities were
the alter egos of Brant, but does not focus upon this argument. Rather, Krilich
maintains that the court need not have made the determination that the Business
Entities were alter egos of Brant because the accounts were actually owned by
Brant. The evidence does not support such a conclusion. Furthermore, we do not
see how such a determination could be made without some analysis similar to
piercing the corporate veil. - - - - - - - - - - - - End Footnotes- - - - - - - - - - - - - - [*23] The statutes creating LLCs and Limited Liability Partnerships n14 (“LLPs”)
both provide protections similar to those for corporations. See Ind. Code
23-4-1 (Burns Code Ed. Repl. 1999) (codification of Uniform Partnership Act)
and Ind. Code 23-18 (Burns Code Ed. Repl. 1999) (codification of Indiana
Business Flexibility Act-Limited Liability Companies). In Jackson v. Russell, 533 N.E.2d 153 (Ind.
Ct. App. 1989), cert. denied 494 U.S. 1004, 108 L. Ed. 2d 474, 110 S. Ct. 1297
(1990), this court reviewed a trial court’s order that the partnership [**591]
interest n15 of C.W. Jackson in Jackson Plastics was a separate and distinct
individual interest and subject to execution by Russell. n16 In that case,
Jackson had a two million dollar judgment against him. Approximately two months
after the judgment was entered, Jackson and his wife began transferring
property and stock of various partnerships and corporations that they wholly
owned among their various business interests. All of the transfers were done
with little or no exchange of funds. - - - - - - - - - - - - - - Footnotes - - - - - - - - - - - - - - - n14 It is unclear how the partnerships in this case are organized or
whether they are all organized under Indiana law. [*24] n15 From the discussion in the case, we presume that the partnership
was organized as a general partnership. n16 The trial court also found that Russell did not have a lien on the
shares of stock of Como Plastics, Inc., Lincoln Meadows Corp., or Excelarium
Products Corp., all owned by Jackson and his wife, and those shares were not
subject to execution. - - - - - - - - - - - - End Footnotes- - - - - - - - - - - - - - The trial court determined that a portion of the transfers were
fraudulent. This court reviewed the determination and discussed the “badges
of fraud” test which is used to identify occurrences indicative of a
fraudulent intent on the part of those making the transfers. Id. at 155. This court
determined that all of the post-judgment transfers were fraudulent. Id. The court then turned
to the question of whether the interests in the business entities could be used
to satisfy the judgment against Jackson. n17 Citing the Indiana Uniform
Partnership Act, the court noted that a court may charge the interest of a
debtor partner with payment of the unsatisfied amount of debt and may appoint a
receiver of the partner’s share of [*25] the profits. Id. The court also noted
that the partner’s interest is personal property. Id. at 156. The court
then concluded that Indiana law makes a partnership interest subject to
execution in satisfying judgments. n18 Id. The court then concluded that
the shares of stock of Como Plastics, Inc., which was organized in Indiana,
were also subject to execution by a judgment creditor. n19 Id. at 157. - - - - - - - - - - - - - - Footnotes - - - - - - - - - - - - - - - n17 It would appear that the finding of fraudulent activity was a
prerequisite to determining whether the business interests could be used to
satisfy the judgment debt. Id. n18 It is not clear as to the result of the conclusion that the shares
were subject to execution, i.e. whether the interests were sold off, Russell
received profits, or Russell was able to liquidate assets. n19 Indiana Code § 34-55-3-5 (Burns Code Ed. Repl. 1998)
specifically authorizes the levy upon and sale of shares of stock in a
corporation or company. However, the question does exist with regard to whether
the shares of stock of a corporation may be subject to execution if the
shareholders have agreed to limit transferability of the shares, such as may be
done with a closely held corporation. Cf. J. WILLIAM CALLISON & MAUREEN A.
SULLIVAN, LIMITED LIABILITY COMPANIES A STATE-BY-STATE GUIDE TO LAW AND
PRACTICE § 2:6 at 20 (2005) (noting that corporate stock is freely
transferable unless reasonable restrictions agreed to by the shareholders).
However, that issue was not before the trial court in the proceeding below and
no argument was made with respect to it upon appeal so we only acknowledge its
existence for future consideration. - - - - - - - - - - - - End Footnotes- - - - - - - - - - - - - - [*26] Some law also exists with respect to acquiring assets from a trust
during proceedings supplemental. In Hinds v. McNair, 235 Ind. 34, 129
N.E.2d 553 (1955), our Supreme Court, in reviewing matters related to a
proceeding supplemental, held that a party seeking to obtain stock from a trust
which had been created by a judgment debtor had the burden of proving that the
stock was owned by the judgment debtor individually and not held by him as
trustee, agent, or in some other capacity. 235 Ind. at 46, 129 N.E.2d at 561.
Furthermore, because the judgment creditor had alleged that the trust was being
used as a screen for actual ownership of the stock, the judgment creditor [**592] had
the burden of proving that fact and that the trust was wrongfully manipulated
for the purpose of concealing assets owned by McNair, the judgment debtor. Id. Those issues related to corporations, partnerships, and trusts aside,
the biggest point of contention among the parties throughout this proceeding is
whether Krilich may be awarded Brant’s interests in the LLCs. The
simple answer is “Yes.” Nonetheless, that interest is much
more limited than that sought by Krilich. Indeed, that [*27] interest is limited to economic
interests and nothing more. Article 18 of Title 23 of the Indiana Code (Burns Code Ed. Repl.
1999), known as the Indiana Business Flexibility Act, controls the creation and
operation of LLCs in Indiana. Indiana Code § 23-18-6-2 states that the
“interest of a member in a limited liability company is personal
property.” Krilich argues that because the interest in an LLC is personal
property, it is subject to execution and a charging order is not the sole
remedy for a judgment creditor, as argued by Brant, in seeking to satisfy a
judgment against an owner of an LLC. Once again, we have little argument with
Krilich’s position although the execution against the interest in an
LLC would be indistinguishable from a charging order against an LLC because of
the limitation of the term “interest” by the General
Assembly. Indiana Code § 23-18-1-10 defines “interest”
as a “member’s economic rights in the limited liability
company, including the member’s share of the profits and losses of the
limited liability company and the right to receive distributions from the
limited liability company.” Thus, while [*28] personal property is subject to
execution according to Indiana Code § 34-55-8-2 (Burns Code Ed. Repl.
1998), the interest here is limited by I.C. § 23-18-1-10 to the
economic rights and nothing more. n20 Through execution Krilich may not receive
any of Brant’s rights to participate in management, nor may Krilich
inspect the books or records of the LLCs. See CALLISON, § 4:5 at 59
(stating that judgment creditors obtain no right to participate in management,
inspect the books or records, or to force a sale of the membership interest). - - - - - - - - - - - - - - Footnotes - - - - - - - - - - - - - - - n20 Indiana Code 23-18-6-3 through 6 §§ discuss the
limitations on the assignability of interests in an LLC and the right to withdraw
from an LLC. Indiana Code 23-18-6-3 to 4§§ explicitly state
that unless the operating agreement provides otherwise, an assignee only
becomes a member of an LLC if the other members unanimously consent. There is
no reason why our courts should disregard the intent of the General Assembly to
protect the close-knit structure of a LLC and violate the other members’
interests and rights by declaring that they must accept a judgment creditor of
a member into full membership with all the rights appurtenant thereto when the
judgment debtor could not transfer those rights himself. - - - - - - - - - - - - End Footnotes- - - - - - - - - - - - - - [*29] The effect of this is essentially that a charging order is the only
remedy for a judgment creditor against a member’s interest in an LLC.
Indiana Code § 23-18-6-7 states that a judgment creditor may seek a
charging order upon application to the court. To the extent a charging order is
granted, the judgment creditor has only the rights of an assignee of the member’s
interest in the LLC. Consequently, in any future proceeding, Krilich is not
entitled to Brant’s membership in any LLC but may be able to receive a
charging order against Brant’s interest. n21 - - - - - - - - - - - - - - Footnotes - - - - - - - - - - - - - - - n21 This conclusion applies solely to LLCs organized under the laws of
the State of Indiana. - - - - - - - - - - - - End Footnotes- - - - - - - - - - - - - - Because the Garnishee Businesses and the Business Entities were not
named as [**563] parties to the proceedings supplemental and were not provided notice
of the proceedings or allowed to participate in them, the garnishment of their
bank accounts or the transfer of the interests in them, respectively, is
invalid. If further proceedings are conducted, [*30] they should proceed in a manner not
inconsistent with this decision. The orders arising from the proceedings supplemental are reversed.
Also, we order Krilich to keep the funds at issue in a separate interest
bearing account until the final disposition of the garnishment matter. BAILEY, J., and MATHIAS, J., concur. |