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Indiana Law Review

Volume 35

2001-2002

Editor-in-Chief

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Indiana University School of Law — Indianapolis
2001-2002 ADMINISTRATIVE OFFICERS AND FACULTY

Administrative Officers

Myles Brand, President of the University. Ph.D. in Philosophy, University of Rochester (New

Yoric).
Gerald L. BEPKO, Vice-President for Long-Range Planning, Indiana University; Chancellor,

Indiana University-Purdue University at Indianapolis and Professor of Law. B.S.,

Northern Illinois University; J.D., ITT/Chicago-Kent College of Law; LL.M., Yale

University.
Norman Lefstein, Dean and Professor of Law. LL.B., University of Illinois; LL.M.,

Georgetown University.
Thomas B. Allington, Associate Dean and Professor of Law. B.S., J.D., University of

Nebraska; LL.M., New York University.
JEFFREY W .Grove, Associate Dean, Professor of Law, and Director, China Summer Program.

A.B., Juniata College; J.D., George Washington University.
SUSANAH M. Mead, Associate Dean for Academic Affairs and Professor of Law. B.A., Smith

College; J.D., Indiana University — Indianapolis.
Cynthia Baker, Director, Program on Law and State Government. B.A., J.D., Valparaiso

University.
Elizabeth L. DeCoux, Assistant Dean for Student Affairs. J.D., Mississippi College School

of Law.
Angela M. Es?kT>k, Assistant Dean for Admissions. J.D., Indiana University — Bloomington.
JONNA M. Ka\^, Assistant Dean for External Affairs. J.D., Indiana University — Indianapolis.
Shannon L. Williams, Director of Career Services. B.S., Indiana University — Indianapolis.

Faculty

Cynthia M. Adams, Lecturer in Law. B.A., Kentucky Wesleyan College; J.D., Indiana

University — Indianapolis.
Thomas B. Allington, Associate Dean and Professor of Law. B.S., J.D., University of

Nebraska; LL.M., New York University.
James F. Bailey, III, Professor of Law and Director of Law Library. A.B., J.D., M.A.L.S.,

University of Michigan.
Gerald L. Bepko, Vice President for Long-Range Planning. Chancellor and Professor of Law.

B.S., Northern Illinois University; J.D., ITT/Chicago-Kent College of Law; LL.M.,

Yale University.
Frank Bowman, Associate Professor of Law. B.A., Colorado College; J.D., Harvard Law

School.
Robert Brookins, Professor of Law. B.S., University of South Florida; J.D., Ph.D., Cornell

University.
Daniel H. Cole, M. Dale Palmer Professor of Law. A.B., Occidental College; A.M.,

University of Chicago; J.D., Lewis and Clark College; J.S.M,, J.S.D., Stanford Law

School.
Jeffrey O. Cooper, ^^^w^wf Professor of Law. A.B., Harvard University; J.D., University of

Pennsylvania.
Paul N. Cox, Centennial Professor of Law. B.S., Utah State University; J.D., University of

Utah; LL.M., University of Virginia.
KennethD. Crews,/! ^50c/a/e Dean of the Faculties for Copyright Management and Professor

of Law and Library and Information Science. B. A., Northwestern University; J.D.,

Washington University; M.L.S., University of California, Los Angeles; Ph.D.,

University of California, Los Angeles.
James D. Dimitri, Lecturer in Law. B.S., Indiana University; J.D., Valparaiso University

School of Law.
Jennifer Ann Drobac, Associate Professor of Law. B.A., M.A., Stanford University; J.D.,

J.S.D., Stanford Law School.
George E. Edwards, Associate Professor of Law and Director, Program in International

Human Rights Law. B.A., North Carolina State University; J.D., Harvard Law

School.
Paul J. Galanti, Professor of Law. A.B., Bowdoin College; J.D., University of Chicago.
Harold Greenberg, Professor of Law. A.B., Temple University; J.D., University of

Pennsylvania.

Jeffrey V^ .Grove, Associate Dean, Professor of Law, and Director, China Summer Program.

A.B., Juniata College; J.D., George Washington University.
Frances Watson Hardy, Clinical Associate Professor of Law. B.S., Ball State University;

J.D., Indiana University — Indianapolis.
Lawrence A. Jegen, III, Thomas F. Sheehan Professor of Tax Law and Policy. A.B., Beloit

College; J.D., M.B.A., The University of Michigan; LL.M., New York University.
Henry C. Karlson, Professor of Law. A.B., J.D., LL.M., University of Illinois.
Robert A. Katz, Associate Professor of Law. A.B., Harvard College; J.D., University of

Chicago Law School.
Eleanor D. Kinney, Samuel R. Rosen Professor of Law and Co-Director of the Center for

Law and Health. B.A., Duke University; M.A., University of Chicago; J.D., Duke

University; M.P.H., University of North Carolina.
Andrew R. Klein, Professor of Law. B.A., University of Wisconsin; J.D., Emory University

School of Law.
Robert E. Lancaster, Clinical Associate Professor of Law. B.A., Millsaps College; J.D.,

Tulane Law School.
Norman Lefstein, Dean and Professor of Law. LL.B., University of Illinois; LL.M.,

Georgetown University.
Gerard'N.Magliocca, Assistant Professor of Law. B.A., Stanford University; J.D., Yale Law

School.
Lynn A. McDowell, Clinical Associate Professor of Law. B.S., Indiana University; J.D.,

Indiana University — Indianapolis,
Deborah McGregor, Lecturer in Law and Assistant Director of Legal Analysis, Research and

Communication. B.A., University of Evansville; J.D., Georgetown University.
SusanahM. Mead, Associate Dean and Professor of Law. B.A., Smith College; J.D., Indiana

University — Indianapolis.
Mary H. Mitchell, Professor of Law. A.B., Butler University; J.D., Cornell Law School.
James P. Nehf, Cleon H. Foust Fellow, Professor of Law, and Director, European Law

Program. B.A., Knox College; J.D., University of North Carolina.
David Orentlicher, Samuel R. Rosen Professor of Law and Co-Director of the Center for

Law and Health. A.B., Brandeis University; J.D., M.D., Harvard College.
Joanne Orr, Clinical Associate Professor of Law. B.S., Indiana State University; J.D.,

California Western.
H. Kathleen Patchel, Associate Professor of Law. A.B., Huntington College; J.D.,

University of North Carolina; LL.M., Yale University.
Florence Wagman Roisman, Paul Beam Fellow and Professor of Law. B.A., University of

Connecticut; LL.B., Harvard Law School.
Joan M. RuhtENBERG, Clinical Professor of Law and Director of Legal Analysis, Research

and Communication. B.A., Mississippi University for Women; J.D., Indiana

University — ^Indianapolis.
Joel M. Schumm, Lecturer in Law. B.A., Ohio Wesleyan University; M.A., University of

Cincinnati; J.D., Indiana University School of Law — Indianapolis.
E. Gary S?ITK.0, Associate Professor of Law. A.B., Cornell University; J.D., Duke University

Law School.
James W. Torke, Carl M. Gray Professor of Law. B.S., J.D., University of Wisconsin.
James Patrick White, Professor of Law. A.B., University of Iowa; J.D., LL.M., George

Washington University.
Lawrence P. Wilkins, Professor of Law. B.A., The Ohio State University; J.D., Capital

University Law School; LL.M., University of Texas.
Lloyd T. Wilson, Jr., Lecturer in Law. B.A., Wabash College; M.A., Duke University; J.D.,

Indiana University — Bloomington.
Mary T. Wolf, Clinical Professor of Law and Director of Clinical Programs. B.A., Saint

Xavier College; J.D., University of Iowa.
R. George Wright, Professor of Law. A.B., University of Virginia; Ph.D., Indiana University;

J.D., Indiana University School of Law — Indianapolis.

Emeriti

Edward P. Archer, Professor of Law Emeritus. B.M.E., Renesselaer Polytechnic Institute;

J.D., LL.M., Georgetown University.
Agnes P. Barrett, Associate Professor of Law Emerita. B.S., J.D., Indiana University.

Clyde Harrison Crockett, Professor of Law Emeritus. A.B., J.D., University of Texas;

LL.M., University of London (The London School of Economics and Political

Science).
Debra a. Falender, Professor of Law Emerita. A.B., Mount Holyoke College; J.D., Indiana

University — Indianapolis.
Cleon H. Foust, Professor of Law Emeritus. A.B., Wabash College; J.D., University of

Arizona.
David A. Funk, Professor of Law Emeritus. A.B., College of Wooster; J.D., Case Western

Reserve University; M.A., The Ohio State University; LL.M., Case Western Reserve

University; LL.M., Columbia University.
Helen P. Garfield, Professor of Law Emerita. B.S.J. , Northwestern University; J.D.,

University of Colorado.
William F. Harvey, Carl M. Gray Professor of Law & Advocacy Emeritus. A.B., University

of Missouri; J.D., LL.M., Georgetown University.
W. '^ILUMAHodes, Professor of Law Emeritus, A.B., Harvard College; J.D., Rutgers, Newark.
William Andrew Kerr, Professor of Law Emeritus. A.B., West University; J.D., LL.M.,

Harvard University; B.S., Duke University.
William E. Marsh, Professor of Law Emeritus. B.S., J.D., University of Nebraska.
Melvin C. Poland, Cleon H. Foust Professor of Law Emeritus. B.S., Kansas State University;

LL.B., Washburn University; LL.M., University of Michigan.
Ronald W. POLSTON, Professor of Law Emeritus. B.S., Eastern Illinois University; LL.B.,

University of Illinois.
Kenneth M. Strolid, Professor of Law Emeritus. A.B., J.D., Indiana University —

Bloomington.

Law Library Faculty

James F. Bailey, III, Professor and Director of Law Library. A.B., J.D., M.A.L.S., University

of Michigan.
Richard Humphrey, Reference Librarian. A. A., Brewton-Parker Junior College; B.A.,

Georgia Southwestern College; M.L.S., University of Kentucky.
Wendell E. JOHNTING, Assistant Director for Technical Services. A.B., Taylor University;

M.L.S., Indiana University.
Bruce Kleinschmidt, Reference Librarian. B.A., Furman University; J.D., University of

Louisville; M.L.S., University of North Texas.
Chris E.Long, Catalog Librarian. B.A., Indiana University; M.A., Indiana University; M.L.S.,

Indiana University.
MahnazK. MoSH^EGH.Acquisition/Serials Librarian. B.A., National University of Iran; M.S.,

Tehran University; M.A., Ball State University; M.L.S., Ph.D., Indiana University.
Miriam A. Mv^HY, Associate Director of Law Library. B.A., Purdue University; J.D., M.L.S.,

Indiana University — Bloomington.
KlYOSHI Otsu, Computer System Specialist. A.A., Parkland College; A.B., M.S., C.A.S.,

University of Illinois.

Indiana Law Review

Volume 35 2002 Number 4

TABLE OF CONTENTS

SURVEY

I. Introduction

Making Good Law Requires More Lawyers

Randall T. Shepard 1111

11. Supreme Court Review

An Examination of the Indiana Supreme Court Docket,
Dispositions, and Voting in 2001

Kevin W.Betz 1117
P. Jason Stephenson

III. Appellate Practice

A Year of Transition in Appellate Practice

Douglas E. Cressler 1133

IV. Civil Procedure

Recent Developments in Civil Procedure

JoEllen Lind 1157

V. Commercial and Consumer Law

Indiana's Revised Article 9 and Other Developments
in Commercial and Consumer Law

Matthew T. Albaugh 1239

VI. Constitutional Law

State and Federal Constitutional Law Developments

Rosalie Berger Levinson 1263

VII. Contracts and Sales of Goods

Recent Developments in the Indiana Law of Contracts
and Sales of Goods

Harold Greenberg 1297

VIII. Corporate Law

Corporate Law: A Year in the Life of Indiana Corporate Law

Leah M. Chan 1321

IX. Criminal Law and Procedure

Recent Developments in Indiana Criminal Law and
Procedure

Joel M. Schumm 1347

X. Employment Law

Survey of Employment Law Developments for Indiana
Practitioners

Susan W. Kline 1369
Ellen E. Boshkoff

XL Evidence

The Continuing Complexity of Indiana Rule
of Evidence 404(b)

Jeffrey O. Cooper 1415

XIL Product Liability

Survey of Recent Developments in Indiana
Product Liability Law

Joseph R. Alberts 1427

XIIL Professional Responsibility

Survey of the Law of Professional Responsibility

Charles M. Kidd 1417

XIV. Property Law

Fulfilling the Deterrent and Restitutionary Goals of
the Security Deposits Statute and Other Developments
in Indiana Property Law

Lloyd T. Wilson, Jr. 1501

XV. Taxation

Developments in Indiana Taxation

Lawrence A. Jegen, III 1541
Peter A. Siddiqui

XVL Tort Law

Recent Developments in Indiana Tort Law

Timothy C. Caress 1583
Katherine Amy Lemon

Volume 35 Number 4

Making Good Law Requires More Lawyers

Randall T. Shepard*

Introduction

While we lawyers largely think of ourselves as people who "practice" law,
the fact is that we "make" law regularly during the course of our work. Lawyers
and judges do this by interpreting statutes, resolving litigation, and forging
common law as a matter of course.

Lawyers also make law in a rather different setting. Legislative bodies at all
levels of government have long been places where the voters sent lawyers to
represent them in much greater proportion than the number of lawyers in the
population. The contribution of lav^ers to legislative deliberations has been a
good and important one for the whole of society. We are in danger of losing it.

L Oh, Really?

Surely this cannot be so, says the reader, even the lawyer-reader. The
legislature is full of lawyers. It used to be so. In fact, at the very first session of
the General Assembly, a quarter of the forty members were lawyers.' Further,
a random review of 1 94 1 legislators who served between 1816 and 1 899 showed
that 536 were lawyers. By the 1 980-8 1 session of the Indiana General Assembly,
the numbers were still substantial. There were twenty-nine lawyers in a total
membership of 150 legislators, for a percentage of just under twenty percent.
Likewise, the 1 990-91 session of the legislature had twenty-three lawyers. While
there were still twenty-three lawyers in the General Assembly of 2001-02, we
have just experienced a sweeping loss: six of the thirteen lawyers in the House
have left or announced they will not seek re-election.

This dramatic drop in the number of lawyers has been masked by the
participation of lawyers in very prominent roles. We have now had three lav^ers
in a row serve as speaker of the House of Representatives, for example.^ And the
minority leader of the House has recently tended to be a lawyer. These
legislators put a lawyer's face before the public and the profession as
representing the legislative body, and we tend to lose track of the declining trend.

Indiana is not unique in experiencing an exodus of lawyer- legislators. For
example, the percentage of lawyers in the Maryland legislature has dropped from
thirty-eight percent in 1966 to just eleven percent today .^ The same is true in

* Chief Justice of Indiana. A.B., 1969, Princeton University; J.D., 1972, Yale Law
School; LL.M., 1995, University of Virginia School of Law.

1 . A Biographical Directory of the Indiana General Assembly 1816-1 899, at 437
(Rebecca A. Shepherd et a! . eds., 1980) (compiled from biographical sketches ofthe legislators who
were listed as members ofthe first General Assembly).

2. In reverse order, these were Rep. John R. Gregg (D-Sandbom), Rep. Paul S. Mannweiler
(R-Indianapolis), and Rep. Michael Phillips (D-Boonville).

3 . See Janet Stidman Eveleth, Where Have All the Lawyer Legislators Gone?, Mary. B. J.,
Nov.-Dec. 2001,at50.

1112 INDIANA LAW REVIEW [Vol. 35:1111

Wisconsin, where lawyers are only eleven percent of the current Wisconsin
legislature/ Similar phenomena exist in a number of other states: Arkansas'
legislature is comprised of only fourteen percent lawyers;^ Idaho lawyers
represent only seven percent of the legislature;^ and Kansas has experienced a
decline of more than fifty percent in lawyer-legislators over the past forty years7
It appears that this development has not affected the U.S. Congress,^

II. Why Is This Occurring? Time and Money

All professions represented in the legislature face the challenge of serving
the public and meeting their private obligations to family and vocation.
However, there are a unique number of causes for the reduction in the number of
lawyers serving. I offer here four that fit my observations of the trend.

A. Hardly Part-Time

First, while Indiana continues to hold to the notion that it has a "part-time
citizen legislature," the fact is that the time demands on persons serving as
legislators are hardly part-time and they grow more consuming by the year.
During the legislature as it existed in the 1 960s, for example, an elected legislator
could expect to spend two months in Indianapolis during a representative's
twenty-four month term of office. Since 1971, the General Assembly has met
every year, and the sessions run until March 15 in even-numbered years and until
April 15 in odd-numbered years. Thus the number of months during a term that
a representative should expect to spend largely in Indianapolis has roughly
tripled as a result of the decision to hold annual sessions. Moreover, the number
of special sessions has grown. A listing of the years in which special sessions
have called legislators away from their homes since I960 tells this story well
enough: 1963, 1967, 1977, 1981, 1983, 1987, 1989, 1991, 1993, 1997, and
perhaps 2002.

Beyond the commitment of time to session days, members of the General
Assembly confront a growing need to go to the capitol for inter-session business.
For example, the "2001 Roster of Interim Study Committees and Statutory
Commissions and Committees," lists ninety-eight groups examining issues

4. See George C. Brown, Lawyers as Legislators: With Fewer Lawyer-Legislators Making
Wisconsin Laws, Attorneys Involvement in the Legislative Process Is a Must, Wis. LAW., Sept.
2001, at 3.

5. See Don HoUingsworth, The Decline of the Lawyer Legislator, ARK. Law., Spring 200 1 ,
at 5.

6. Tom Moss, Being a Lawyer Legislator, ADVOCATE, Dec. 2000, at 1 8.

7. Paul T. Davis, The Kansas Legislature Needs You!, J. KAN. B. ASS'N, May 2000, at 5.
The Kansas Bar Association has taken a proactive stance against the dramatic decline in lawyer
legislators and actively sought out lawyers to run for office. See id.

8. Based upon my research, fifty-two members of the current U.S. Senate have law degrees.
See The United States Senate, Senators of 1 07th Congress, available at http://www.senate.gov/ (last
visited May 13,2002).

2002] MAKING GOOD LAW 1113

ranging from education to rail corridor safety. By contrast, there were just sixty-
five such committees at work in 1985. While the number of such committee
assignments is sometimes criticized in the press, what topics should the General
Assembly choose not to examine in the relatively more orderly and intense way
that study committees have provided. The death penalty? Medicaid? Economic
development?

The days consumed by such activities are but one way to assess the overall
weight of the task of serving in the General Assembly. Measuring growth in the
number and relative complexity of issues on the legislature's agenda by the
volume of legislation ultimately passed is another way, though not a particularly
sophisticated one. In 1941, the legislature passed enough pages of laws to fill one
volume. In 1971, it passed enough law to fill two volumes. By 2001, four
volumes were required to capture the work product of the General Assembly.^
While we often are blithe to say that the republic would be better off if fewer
laws were adopted, the fact is that these measures are most often the product of
some level of public demand.

B. Lawyer Hours Not Billed

And, of course, as Abraham Lincoln said, "A lawyer's time and advice are
his stock in trade."^° Time the lawyer spends in Indianapolis hearing citizen
testimony or laboring over bills during session is time the lawyer cannot spend
billing hours at the law office. This problem is plain enough to see. What is not
so plain, as a lawyer in the House recently explained to me, is that clients
perceive the lawyer is gone even more often than the lawyer actually is gone.
Because something about the legislature is so often in the news even when the
body is not in session, citizens figure their lawyer is out of town and, at least, at
the margin, call soiriebody they figure is home to handle their problems.

This aspect of the decline is virtually a reverse of the impulse which once
worked to lead some to seek public office. Throughout much of the history of
the legal profession, lawyers did not advertise their services, either because the
club frowned on the practice or because bar rules or state laws prohibited doing
so. Thus, a good way to raise a lawyer's visibility in the community was to run
for office. If you won, great. If you did not win but acquitted yourself
honorably, then at least your name was on the public's mind the next time a
potential client ran down through the Yellow Pages. Of course, the U.S.
Supreme Court decided that lawyer advertising would "offer great benefits" to
the public, including a potential for "dramatically lower" costs for legal services

9. The pages of adopted laws were 973 for 1 94 1 , 2275 for 1 97 1 but probably because of a
change in typestyle or format, the 2001 number would only be 2801.

1 0. Sterling v. Philadelphia, 1 06 A.2d 793, 795 n.2 ( 1 954). The dissent in this case spins an
interesting yarn on the authenticity of this quote, claiming its origin is actually from the Allen Smith
Company, an Indianapolis plaque manufacturer. Sterling, 106 A.2d at 804 (Musmanno, J.,
dissenting).

1114 INDIANA LAW REVIEW [Vol. 35:1111

and should thus be declared a First Amendment right." Thus, lawyers now do
all sorts of advertising, and there is hardly a need to run for office in order to
place your name on billboards.

Law firm economics also make a difference in whether lawyers can run for
office.'^ The level of overhead, a common topic of lament for firms large and
small, means that firms can hardly afford learning periods for young associates,
let alone carrying one of the partners for the time necessary to campaign and
serve in the office.'^

C Professional Support

Finally, lawyer- legislators tell me that they receive very little support of any
sort from their fellow lawyers. "They call me when they have a client who needs
help on legislation," one legislator told me, "but 1 really cannot count on any
substantial support from local lawyers when it comes to election time.""'*

III. Why DOES IT Matter?

Many among our fellow citizens, if they knew, would doubtless say that this
diminution of lawyers in the legislature is not anything worth worrying about.
Some might indeed celebrate the trend.

I argue that this trend is bad for two reasons.

First, it is plainly bad for our profession. More than any other segment of
society, we lawyers rely on the product of legislative deliberations in the work
we do solving people's problems. Laws carefully crafted with the active
participation of the legal mind and experience will doubtless be easier for all of
us to work with during our daily travails. This joining of authorship and daily
use is helpful to all for the same reason that Shirley Shideler once told me that
Barnes & Thornburg's trust and estates lawyers believed that the same lawyers
who write the instruments should be responsible for their implementation:
"We'll always be better writers if we know we will have to live with the
documents we prepare."

The dramatic decline in lawyer- legislators means that even in those
committees of the legislature in which the lawyer interest is most intense, most

U . See Bates v. State Bar of Arizona, 433 U.S. 350, 377 (1977).

12. One out-going member of the Indiana legislature is a partner in the prestigious Chicago
law firm of Mayer, Brown, Rowe & Maw. According to the most recent numbers, the average
profits per partner at Mayer Brown is $725,000. See Four Firms Make Their Debut: The List of
the 100 Alphabetically, AM. Law., July, 2001, available at http://www.law.com/special/
professionals/amlaw/amlawlOO/julyOl/AtoZ.html (last visited May 13, 2002).

13. See Kyle O'Dowd, Inflation Blues: The Need for a CJA Rate Hike, 25 CHAMPION 60
(2001 ). Citing a 2000 survey, the author states that non-reimbursable average overhead costs are
$65 per hour, or extrapolated over 2000 billable hours, $130,000. See id.

14. Fortunately, there is one form of institutional support — the Indiana State Bar
Association's BARPAC, which pays special attention to supporting lawyers who become
candidates.

2002] MAKING GOOD LAW 1115

of the policy-makers are not a part of the legal profession. In the 1 12th General
Assembly, for example, the House of Representatives Committee on Courts and
Criminal Code has six lawyers and nine non-lawyers. The Judiciary Committee
has seven lawyers and six non-lawyers; three of the lawyers are not returning to
the General Assembly next year.

Second, the public at large is not well served by this paucity of legal voice.
The special contributions of the legal mind to the deliberations of multi-member
bodies, our special talent for problem-solving, and our general attitude of
commitment to the common good seem to me good arguments for why the end
product in public policy, not just in craftsmanship, is better when a good number
of our profession are engaged.

IV. What TO Do?

I write here to lift up this development for consideration by our profession.
I have only just begun to think about possible solutions.

The variety of causes outlined above do suggest some of the ways by which
the profession might make it easier for its members to participate in the public
decisions about the future of our state. These ideas flow along lines of economic
incentives, time relief, support by fellow lawyers, and public recognition. Before
any such ideas can be spelled out in greater detail, we must widen the circle of
those interested in working on this problem.

An Examination of the
Indiana Supreme Court Docket,
Dispositions, and Voting in 2001*

Kevin W. Betz**
P. Jason Stephenson**'

Even though mandatory criminal appeals still overwhelmingly dominated the
Indiana Supreme Court' s docket in 200 1 , 4he constitutional change that occurred
in 2001 in the court's mandatory criminal appeals began to show its effects with
far less consensus and unanimity in the court's opinions.^ It was expected that

* The Tables presented in this Article are patterned after the annual statistics of the U.S.
Supreme Court published in the Harvard Law Review. An explanation of the origin of these Tables
can be found at Louis Henkin, The Supreme Court, 1967 Term, 82 Harv. L. Rev. 63, 301 (1968).
The Harvard Law Review granted permission for the use of these Tables by the Indiana Law
Review this year; however, permission for any further reproduction of these Tables must be
obtained from the Harvard Law Review.

We thank Barnes & Thomburg for its gracious willingness to devote the time, energy, and
resources of its law firm to allow a project such as this to be accomplished. As is appropriate,
credit for the idea for this project goes to Chief Justice Shepard; but, of course, any errors or
omissions belong to his former law clerk. We also thank WESTLAW* for its kind willingness to
allow us free access to its computer resources and assistance in preparing these Tables.

** Sutherlin & Betz, representing employees and professionals and practicing in the
appellate area, 1 997-present. Former Chief Counsel and Deputy Commissioner, Indiana
Department of Environmental Management, 1995-97. Associate, Krieg DeVault Alexander &
Capehart, Indianapolis, 1990-95. Judicial Clerk for Chief Justice Randall T. Shepard, Indiana
Supreme Court, 1988-90. B.A., 1982, Indiana University; M.S., 1984, Northwestern University;
J.D., 1988, Indiana University School of Law— Bloomington.

*♦* Associate, Barnes & Thornburg, 1 999-present; B.A., 1996, Taylor University; J.D.,
1999, Indiana University School of Law— Indianapolis.
1.

DISCRETIONARY TOTAL

98(47%) 207

93(59%) 157

77(56%) 137

73(55%) 133

76(62%) 122

48(41%) 116

71 (42%) 171

50(37%) 134

69(41%) 170

60(31%) 192

59(38%) 156

2. Previously, article VII, section 4 of the Indiana Constitution provided that, in criminal
cases, all appeals from judgments imposing a sentence of death, life imprisonment or imprisonment
for a term greater than fifty years was to be taken directly to the supreme court. Because the Indiana
General Assembly has increased the term of imprisonment for many crimes, the court's docket was
filling with criminal appeals falling within the scope of article VII ,section 4, notwithstanding that

MANDATORY

1991

109(53%)

1992

64(41%)

1993

60 (44%)

1994

60(45%)

1995

46 (38%)

1996

68 (59%)

1997

100(58%)

1998

84 (63%)

1999

101 (59%)

2000

132(69%)

2001

97 (62%)

1118 INDIANA LAW REVIEW [Vol. 35:1117

this change would open the court to "people with ordinary family and business
legal problems" and open the court to take a more significant role in providing
law-giving criminal opinions.^

Apparently, the change in the court's jurisdiction also has had another,
unintended consequence — the consensus among the justices has decreased
sharply. The number of split decisions by the court nearly doubled this year.
The court issued only nine split decisions in 1999, 15 split decisions in 2000 but
28 split decisions in 2001. Among the split decisions were two plurality
decisions, both involving civil issues."* Two other split appeals garnered
majorities only because one or more justices voted to concur in the result only.^
Overall, the justices were also less aligned on both civil and criminal appeals as
compared to the 2000, 1999 or 1998 terms. This jurisdictional change to the
court's docket occurred in June 2001 . The 2002 docket will have a full year of
its new jurisdiction and will test whether the decreased unanimity is a result of
the issues presented to the court.

The cause for the lack of consensus is not immediately clear. Some had
hoped that the change in the court's jurisdiction would bring more civil cases to
its docket. If this had occurred, the logical result would have been less
agreement because historically the justices have disagreed on civil cases more
than on criminal cases. However, the court did not decide more civil cases in
2001 — ^the court issued the same number of civil opinions in 2001 as it did in
2000 (excluding per curium opinions) and actually issued more civil opinions in
1999. The more likely cause is the court's ability to accept more criminal
appeals with the potential for significant legal precedent, rather than the
compulsory criminal appeals with little or no precedential value. Presumably, the
more significant legal precedent brings less willingness to compromise by the
justices because of the long-term impacts of the decision. The number of
dissents in criminal opinions also increased dramatically in 2001 to 30. In 1999
and 2000, the court had only 17 dissents in criminal cases.

The following is a description of the highlights from each table:

Table A. In 2001 , the supreme court issued 21 1 opinions that were authored by
an individual justice. This is a negligible increase from last year's 192 opinions
authored by an individual justice. Of the 21 1 issued in 2001, only 49 were civil

many of these cases did not involve significant legal questions as evidenced by the high percentage
of direct appeal judgments affirmed. In June 2001 , the court's mandatory jurisdiction over criminal
appeals changed because of an amendment to Indiana's Constitution. Article 7, section 4 now
provides a right of direct appeal to the court only for judgements imposing a penalty of death.

3. Randall T. Shepard, Why Changing the Supreme Court's Mandatory Jurisdiction Is
Critical to Lawyers and Clients, 33 IND. L. Rev. 1 1 0 1 , 1 1 04 (200 1 ).

4. See City Chapel Evangelical Free, Inc. v. City of South Bend, 744 N.E.2d 443 (Ind.
2001); Degussa Corp. v. Mullens, 744 N.E.2d 407 (Ind. 2001).

5. Osborne v. State, 754N.E.2d 916 (Ind. 200 1 ) (Shepard, C.J., Boehm, J., Dickson, J., all
concurring in result); Sears Roebuck and Co. v. Manuilov, 742 N.E.2d 453 (Ind. 2001) (Sullivan,
J., concurring in result; Shepard, C.J. & Boehm, J., dissenting).

2002] INDIANA SUPREME COURT 1119

opinions — ^the same number of civil opinions issued in 2000. Justice Boehm
authored the most opinions at 48. Those who hoped the change in the court's
mandatory jurisdiction over criminal appeals would allow more civil cases to be
heard by the court were disappointed in 2001 , but it is still too early in the court's
new docket. A sudden increase in civil appeals granted transfer was not expected
since the court still must clear its docket of the mandatory criminal appeals that
came before it prior to June 2001. Next year should be a watershed year in
determining the real impact of the docket change in the court's mandatory
jurisdiction.

The court as a whole issued 24 per curiam opinions — 23 civil and 1 criminal.
Almost all 23 civil opinions were attorney discipline matters. In 2000, this
article reported that the court had issued 71 per curiam opinions. That number
has declined this year because the court is issuing more attorney discipline
decisions as orders rather than per curiam opinions. When considering both per
curiam decisions and orders involving the discipline of attorneys, the court's
number of cases in this area has remained about the same.

Continuing the trend of increases in dissents identified in last year's article,
the court again increased its dissents to 56. For comparison purposes, the court
issued 42 dissents in 2000 and 38 dissents in 1999. In an about face from
previous years. Justice Sullivan had the least total dissents with 6. In the
previous four years. Justice Sullivan led the court with the number of dissents.
This year. Justice Dickson drafted the most dissents with a total of 22. Last year.
Justice Sullivan had the most dissents with 13.

Table B-1. For civil cases, Chief Justice Shepard and Justice Sullivan were the
two justices most aligned at 85.4%. Chief Justice Shepard and Justice Boehm
were next at 82.5%. Justices Dickson and Boehm were the least aligned at
67.5%.

Chief Justice Shepard was the most aligned with other justices, and Justice
Dickson was the least aligned.

Table B-2. For criminal cases. Chief Justice Shepard and Justice Sullivan are
the most aligned pair of justices — in agreement 92.1% of the time. Justices
Sullivan and Dickson were the least aligned at 78.4%o. As for criminal cases.
Justice Shepard was the most aligned with his fellow justices.

Table B-3. For all cases. Chief Justice Shepard and Justice Sullivan were the
two justices most aligned at 90.5%. The two least aligned justices, the same as
last year, were Justices Sullivan and Dickson at 76.1%.

Overall, Chief Justice Shepard was the most aligned with his fellow justices,
and Justice Dickson was the least aligned.

Table C. Echoing the trend toward a lack of consensus among the court's
justices, unanimity declined in 2001 . The court was unanimous in 69.1% of its
decisions in 2001, as compared to 81.3% in 2000 and 72.8% in 1999. The
number of dissents increased in 2001 to 18.5% from 12.4%) in 2000 and 1999.

1120 INDIANA LAW REVIEW [Vol. 35:1 1 17

Table D. Table D, more than any other table, demonstrates the increased
divisions among the justices. The number of 3-2 split decisions doubled in 2001
from 2000. Last year, the court issued 1 5 split decisions and it issued only nine
the year before. This year, however, the court issued 27 split decisions. The
authors have counted two plurality decisions as split decisions.^ Neither of these
cases, strictly speaking, are 3-2 decisions, but they certainly fall into the spirit of
3-2 decisions in demonstrating issues on which the court is deeply divided. The
opinion in City Chapel, for example, spawned three separate dissenting opinions.
Chief Justice Shepard was by far in the majority in the most number of split
opinions. He was in the majority in 21 of the 27 split opinions. The next closest
justice was in the majority in 14 such opinions.

Table E-1. The court affirmed over 77% of the mandatory criminal appeals,
which were also still the majority of its docket. Overall, the court affirmed cases
55.8% of the time. This high percentage was driven by the large percentage of
mandatory criminal appeals affirmed. In contrast, civil appeals were affirmed
only 14.7% of the time and nonmandatory criminal appeals were affirmed only
28% of the time. The large percentage of cases affirmed by the court is likely to
decline because of the change in the court's jurisdiction over mandatory criminal
appeals, effective in June 2001 , which will bring more discretionary criminal and
civil issues on which the court has, historically, lacked consensus.

Table E-2. Expectations were high that the change in the court's mandatory
jurisdiction would lead to an increase in the number of civil petitions granted
transfer. The court's jurisdiction changed in June 2001. Nonetheless, the
number of civil petitions granted transfer by the court declined from 61 in 2000
to only 34 in 2001. This change may also reflect the decline in petitions to
transfer filed in 2001 . During 2000, 825 petitions to transfer were filed but this
year only 740 were filed. A civil petition to transfer stood about a 12.4% chance
of being granted, and a criminal petition stood about a 6.6% chance of being
granted. No juvenile petitions were granted transfer in 2001 .

Table F. The court continues its vigorous interest in the Indiana Constitution
with 26 opinions involving such issues. A review of these cases demonstrates
that the court is especially interested in the double jeopardy provision of the
Indiana Constitution. The number of attorney discipline cases listed in this table
(23) appears to have drastically declined from the number of such cases last year
(60). This decline is misleading. The court has begun to decide more attorney
discipline cases in orders rather than per curiam opinions. The authors have
determined that only per curiam opinions will be reflected in Table F. When
accounting for the number of attorney discipline cases decided by order (53), the
number of attorney discipline cases remains about the same as last year. The
court also decided 1 0 death penalty cases, affirming eight and reversing two such
cases.

6. See City Chapel Evangelical Free, Inc. , 744 N.E.2d at 443; Degussa Corp., 744 N.E.2d
at 407.

2002]

INDIANA SUPREME COURT

1121

TABLE A

Opinions*

OPINIONS OF COURT''

CONCURRENCES^

DISSENTS'*

Criminal

Civil

Total

Criminal

Civil

Total

Criminal

Civil

Total

Shepard, C.J.

Dickson, J.*"

Sullivan, J."

Boehm, J.*^

Rucker, J.*-'

Per Curiam

Total

139

211

" These are opinions and votes on opinions by each justice and in per curiam in the 2001 term. The
Indiana Supreme Court is unique because it is the only supreme court to assign each case to a justice by a
consensus method. Cases are distributed by a "consensus of the justices in the majority" on each case either
by volunteering or nominating writers. The chief justice does not have any power to control the assignments
other than as a member of the majority. See Melinda Gann Hall, Opinion Assignment Procedures and
Conference Practices in State Supreme Courts, 73 JUDICATURE 209 (1990). The order of discussion and
voting is started by the most junior member of the court and follows reverse seniority. See id. at 210.

^ This is only a counting of fiiU opinions written by each justice. Plurality opinions that announce
the judgment of the court are counted as opinions of the court. It includes opinions on civil, criminal, and
original actions. Also, the following three miscellaneous cases are not included in the table: Stanrail Corp. v.
Unemployment Ins. Rev. Bd., 749 N.E.2d 483 (Ind. 2001) (dissent from denial of transfer); In re Becker, 743
N.E.2d 1115 (Ind. 2001) (dissent from order approving statement of circumstances and conditional agreement
for discipline); In re Shorter-Pifer, 743 N.E.2d 115 (Ind. 2001) (dissent from order finding misconduct and
imposing discipline).

" This category includes both written concurrences, joining in written concurrence and votes to
concur in result only.

•^ This category includes both written dissents and votes to dissent without opinion. Opinions
concurring in part and dissenting in part or opinions concurring in part only and differing on another issue are
counted as dissents.

' Justices declined to participate in the following non-disciplinary cases: Justice Boehm (State Bd.
of Tax Comm'rs v. Town of St. John, 751 N.E.2d 657 (Ind. 2001)); Justice Rucker (Rheem Mfg. Co. v. Phelps
Heating & Air Conditioning, Inc., 746N.E.2d941 (Ind. 2001); DegussaCorp. v. Mullens, 744N.E.2d407 (Ind.
2001)); Justice Sullivan (Forney v. State, 742 N.E.2d 934 (Ind. 2001); State Employees Appeal Comm'n v.
Bishop, 741 N.E.2d 1229 (Ind. 2001); Rogers v. R.J. Reynolds Tobacco Co., 745 N.E.2d 793 (Ind. 2001)).

1122 INDIANA LAW REVIEW [Vol. 35:1117

TABLE B-1
Voting Alignments for Civil Cases*^
Not Including Judicial or Attorney Discipline Cases

Shepard

Dickson

Sullivan

Boehm

Rucker

Shepard,
C.J.

...

3
30

2
33

1
29

1\A%

85.4%

82.5%

72.5%

Dickson,
J.

3
30

0
28

3
27

4
32

71.4%

68.3%

67 5%

80.0%

Sullivan,
J.

2
35

0
28

1
30

1
28

85.4%

68.3%

76.9%

71.8%

Boehm,

2
33

3
27

1
30

3
29

. 38

82.5%

67.5%

76.9%

76.3%

Rucker,

...

n.m

80,0%

71,8%

7().3%

^ This Table records the number of times that one justice voted with another in ftill-opinion
decisions, including per curiam, for only civil cases. For example, in the top set of numbers for Chief Justice
Shepard, 27 is the number of times Chief Justice Shepard and Justice Dickson agreed in a full majority opinion
in a civil case. Two justices are considered to have agreed whenever they joined the same opinion, as indicated
by either the reporter or the explicit statement of a justice in the body of his or her own opinion. The Table does
not treat two justices as having agreed if they did not join the same opinion, even if they agreed only in the
result of the case or wrote separate opinions revealing little philosophical disagreement.

"O" represents the number of decisions in which the two justices agreed in opinions of the court

or opinions announcing the judgment of the court.
"S" represents the number of decisions in which the two justices agreed in separate opinions, '

including agreements in both concurrences and dissents. |

"D" represents the number of decisions in which the two justices agreed in either a majority, ^

dissenting, or concurring opinion.
"N" represents the number of decisions in which both justices participated and thus the number

of opportunities for agreement.
"P" represents the percentage of decisions in which one justice agreed with another justice,
calculated by dividing "D" by "N."

2002] INDIANA SUPREME COURT 1 1 23

TABLE B-2

Voting Alignments FOR Criminal Cases
Not Including Judicial or Attorney Discipline Cases*

Shepard

Dickson

Sullivan

Boehm

Rucker

116

125

119

124

Shepard,
C.J.

S
D

1
117

3
128

120

0
124

140

139

140

83.6%

92.1%

85.7%

88.6%

116

109

113

Dickson,
J.

1
117

_-_

0
109

5
118

112

140

139

140

83.6%

78.4%

84.3%

80.0%

125

109

112

119

Sullivan,
J.

S
D

3
128

0
109

2
114

2
121

139

92.1%

78.4%

82.0%

87.1%

119

113

112

114

Boehm,
J.

S
D

1
120

5
118

2
114

2
116

140

8-5 7%

84 3%

8ft 0%

82.9%

124

111

119

114

Rucker,

124

112

121

116

—

140

139

140

88.6%

80.0%

87.1%

82.9%

^ This Table records the number of times that one justice voted with another in full-opinion
decisions, including per curiam, for only criminal cases. For example, in the top set of numbers for Chief
Justice Shepard, 1 16 is the number of times Chief Justice Shepard and Justice Dickson agreed in a full majority
opinion in a criminal case. Two justices are considered to have agreed whenever they joined the same opinion,
as indicated by either the reporter or the explicit statement of a justice in the body of his or her own opinion.
The Table does not treat two justices as having agreed if they did not join the same opinion, even if they agreed
only in the result of the case or wrote separate opinions revealing little philosophical disagreement.
"O" represents the number of decisions in which the two justices agreed in opinions of the court

or opinions announcing the judgment of the court.
"S" represents the number of decisions in which the two justices agreed in separate opinions,

including agreements in both concurrences and dissents.
"D" represents the number of decisions in which the two justices agreed in either a majority,

dissenting, or concurring opinion.
"N" represents the number of decisions in which both justices participated and thus the number

of opportunities for agreement.
"P" represents the percentage of decisions in which one justice agreed with another justice,
calculated by dividing "D" by "N."

1124 INDIANA LAW REVIEW [Vol. 35:1117

TABLE B-3

Voting Alignments for All Cases
Not Including Judicial or Attorney Discipline Cases'"

Shepard

Dickson

Sullivan

Boehm

Rucker

143

158

150

152

Shepard,

S
D

4
147

5
163

3
153

1
153

C.J.

182

180

80.7%

90.5%

85.0 %

143

137

139

Dickson,

S
D

4
147

0
137

8
145

5
144

182

180

80 7%

76 1%

80 5 %

80 0 %

158

137

141

146

Sullivan,
J.

5
163

137

3
144

3
149

179

180

178

90 5%

76 1 %

80 9 %

83 7%

150

137

141

140

Boehm,

153

145

144

—

145

180

178

85 0%

80 5%

80 9%

81 5%

152

139

146

140

Rucker,

153

144

148

145

. —

180

178

85.0%

80.0%

83.7 %

81.5%

^ This Table records the number of times that one justice voted with another in full-opinion
decisions, including per curiam, for all cases. For example, in the top set of numbers for Chief Justice Shepard,
143 is the total number of times Chief Justice Shepard and Justice Dickson agreed in all full majority opinions
written by the court in 2001. Two justices are considered to have agreed whenever they joined the same
opinion, as indicated by either the reporter or the explicit statement of a justice in the body of his or her own
opinion. The Table does not treat two justices as having agreed if they did not join the same opinion, even if
they agreed only in the result of the case or wrote separate opinions revealing little philosophical disagreement.
"O" represents the number of decisions in which the two justices agreed in opinions of the court

or opinions announcing the judgment of the court.
"S" represents the number of decisions in which the two justices agreed in separate opinions,

including agreements in both concurrences and dissents.
"D" represents the number of decisions in which the two justices agreed in either a majority,

dissenting, or concurring opinion.
"N" represents the number of decisions in which both justices participated and thus the number

of opportunities for agreement.
"P" represents the percentage of decisions in which one justice agreed with another justice,
calculated by dividing "D" by "N."

2002] INDIANA SUPREME COURT 11 25

TABLE C

Unanimity
Not Including Judicial or Attorney Discipline Cases'

Unanimous Opinions

Unanimous^ with Concurrence'' with Dissent Total

Criminal Civil Total Criminal Civil Total Criminal Civil Total

100 23 123(69.1%) 17 5 22(12.4%) 18 15 33(18.5%) 178

' This Table tracks the number and percent of unanimous opinions among all opinions written. If,
for example, only four justices participate and all concur, it is still considered unanimous. It also tracks the
percent of overall opinions with concurrence and overall opinions with dissent.

' A decision is considered unanimous only when all justices participating in the case voted to concur
in the court's opinion as well as its judgment. When one or more justices concurred in the result but not in the
opinion, the case is not considered unanimous.

^ A decision is listed in this column if one or more justices concurred in the result but not in the
opinion of the court or wrote a concurrence, and there were no dissents.

1126 INDIANA LAW REVIEW [Vol. 35:1 117

TABLE D

3-2 Decisions'

Justices Constituting the Majority Number of Opinions"

1 . Shepard, C.J., Dickson, J., Boehm, J. 3

2. Shepard, C.J. . Dickson, J, Sullivan, J. 4

3. Shepard, C.J., Sullivan, J., Boehm, J. 5

4. Shepard, C.J, Sullivan, J, Rucker, J. 8

5. Dickson, J, Boehm, J, Rucker, J. 2

6. Boehm, J., Sullivan, J., Rucker, J. 2

7. Sullivan, J, Rucker, J. 1

8. Dickson, J., Rucker, J. 2

9. Shepard, C.J., Sullivan, J. 1

Total" 28

' This Table concerns only decisions rendered by full opinion. An opinion is counted as a 3-2
decision if two justices voted to decide the case in a manner different from that of the majority of the court.
*" This column lists the number of times each three-justice group constituted the majority in a 3-2
decision.

" The 2001 term's 3-2 decisions were:

1 . Shepard, C. J., Dickson, J., Boehm, J.: Sanchez v. State, 749 N.E.2d 509 (Ind. 2001) (Boehm, J.);
Query v. State, 745 N.E.2d 769 (Ind. 2001) (Boehm, J); Hughes v. City of Gary, 741 N.E.2d 1 168 (Ind. 2001)
(Shepard, C.J).

2. Shepard, C.J., Dickson, J., Sullivan, J.: /n re Capper, 757 N.E.2d 138 (Ind. 2001) (per curium);
Vitek V. State, 750 N.E.2d 346 (Ind. 2001) (Sullivan, J.); Zimmerman v. State, 750 N.E.2d 337 (Ind. 2001)
(Dickson, J.); Daniels v. State, 741 N.E.2d 1 177 (Ind. 2001) (Shepard, C.J.).

3. Shepard, C.J., Sullivan, J., Boehm, J.: Mangold ex rel. Mangold v. Dep't of Natural Res., 756
N.E.2d 970 (Ind. 2001) (Rucker, J); Hollowell v. State, 753 N.E.2d 612 (Ind. 2001) (Sullivan, J); Fleetwood
Enters., Inc. v. Progressive N. Ins. Co., 749 N.E.2d 492 (Ind. 2001) (Boehm, J); Progressive Ins. Co. v, Gen.
Motors Corp., 749 N.E.2d 484 (Ind. 2001) (Boehm, J); Durham ex rel. Estate of Wade v. U-Haul Int'l, 745
N.E.2d 755 (Ind. 2001) (Boehm, J).

4. Shepard, C.J., Sullivan, J., Rucker, J.: Francis v. State, 758 N.E.2d 528 (Ind. 2001) (Rucker, J);
Randolph v. State, 755 N.E.2d 572 (Ind. 2001) (Rucker, J); Miller v. State, 753 N.E.2d 1284 (Ind. 2001)
(Sullivan, J.); Wallace v. State, 753 N.E.2d 568 (Ind. 200 1 ) (Rucker, J); Wadsworth v. State, 750 N.E.2d 774
(Ind. 2001) (Shepard, C.J); Holsinger v. State, 750 N.E.2d 354 (Ind. 2001) (Sullivan, J); Pennycuff v. State,
745 N.E.2d 804 (Ind. 2001) (Shepard, C J); Noble County v. Rogers, 745 N.E.2d 194 (Ind. 2001) (Sullivan,
J.).

5. Dickson, J., Boehm, J., Rucker, J.: Jiosa v. State, 755 N.E.2d 605 (Ind. 2001) (Boehm, J.); Segura
v. State, 749 N.E.2d 496 (Ind. 2001) (Boehm, J.).

6. Boehm, J., Sullivan, J., Rucker, J.: Ashabraner v. Bowers, 753 N.E.2d 662 (Ind. 2001) (Sullivan,
J.); In re Harshey, 740 N.E.2d 851 (Ind. 2001) (per curiam).

7. Sullivan, J., Rucker, J.: Osborne v. State, 754 N.E.2d 916 (Ind. 2001) (Rucker, J.) (Shepard, C.J.,
Boehm, J., Dickson, J., concurring in result).

8. Dickson, J., Rucker, J.; City Chapel Evangelical Free Inc. v. City of South Bend, 744 N.E.2d 443
(Ind. 2001 ) (Dickson, J.) (Shepard, C.J., Sullivan, J., and Boehm, J., all dissenting with separate opinion); Sears
Roebuck & Co. v. Manuilov, 742 N.E.2d 453 (Ind. 2001) (Dickson, J.) (Sullivan, J. concurring in result;
Shepard, C.J. and Boehm, J., dissenting).

9. Shepard, C.J., Sullivan, J.: Degussa Corp. v. Mullens, 744 N.E.2d 407 (Ind. 2001) (Sullivan, J.)
(plurality decision: Boehm, J., Dickson, J., dissenting).

2002]

INDIANA SUPREME COURT

1127

TABLE E-1

Disposition of Cases Reviewed by Transfer
AND Direct Appeals"

Reversed or Vacated '' Affirmed

Total

Civil Appeals Accepted for Transfer
Direct Civil Appeals
Criminal Appeals Accepted for Transfer
Direct Criminal Appeals

29 (85.3%)

5 (14.7%)

18(72%)

7 (28%)

22 (22.7%)

75 (77.3%)

Total

69 (44.2%)

87 (55.8%)

156"

Direct criminal appeals are cases in which the trial court imposed a death sentence. See IND.
Const, art. VII, § 4. Thus, direct criminal appeals are those directly from the trial court. A civil appeal may
also be direct from the trial court. See Ind. Appellate Rule 56 and also pursuant to Rules of Procedure for
Original Actions. All other Indiana Supreme Court opinions are accepted for transfer from the Indiana Court
of Appeals. See Ind. Appellate Rule 57.

^ Generally, the term "vacate" is used by the Indiana Supreme Court when it is reviewing a court of
appeals opinion, and the term "reverse" is used when the court overrules a trial court decision. A point to
consider in reviewing this Table is that the court technically "vacates" every court of appeals opinion that is
accepted for transfer, but may only disagree with a small portion of the reasoning and still agree with the result.
See Ind. Appellate Rule 58(A). As a practical matter, "reverse" or "vacate" simply represents any action by
the court that does not affirm the trial court or court of appeals opinion.

"^ This does not include 23 attorney and judicial discipline opinions or one opinion related to certified
questions. These opinions did not reverse, vacate, or affirm any other court's decision. This also does not
include 10 opinions which considered petitions for post conviction relief

1128 INDIANA LAW REVIEW [Vol. 35:1 117

TABLE £-2

Disposition of Petitions to Transfer
TO Supreme Court in 200r

Denied or Dismissed Granted Total

Petitions to Transfer

Civir

Criminal'

Juvenile

Total 677(91.5%) 63 (8.5%) 740

240 (87.6%)

34(12.4%)

274

410(93.4%)

29 (6.6%)

439

27(100%)

0 (0%)

' This Table analyzes the disposition of petitions to transfer by the court. See IND. Appellate RUle
58(A).

' This also includes petitions to transfer in tax cases and worker's compensation cases.

' This also includes petitions to transfer in post-conviction relief cases.

2002] INDIANA SUPREME COURT 1129

TABLE F

Subject Areas of Selected Dispositions
WITH Full Opinions"

Original Actions Number

• Certified Questions T

• Writs of Mandamus or Prohibition 0

• Attorney Discipline 23'*'

• Judicial Discipline T

Criminal

• Death Penalty IC

• Fourth Amendment or Search and Seizure 9^
■ Writ of Habeas Corpus 0

Emergency Appeals to the Supreme Court 0

Trusts, Estates, or Probate 0

Real Estate or Real Property 4""

Personal Property 0

Landlord-Tenant 0

Divorce or Child Support

obb

Children in Need of Services (CHINS)

Paternity

Product Liability or Strict Liability 1"

Negligence or Personal Injury 6''''

Invasion of Privacy 1"*

Medical Malpractice 0

Indiana Tort Claims Act 2"^

Statute of Limitations or Statute of Repose 1^

Tax, Department of State Revenue, or State Board of Tax Commissioners 3"'

Contracts 2"

Corporate Law or the Indiana Business Corporation Law 2^

Uniform Commercial Code 2^

Banking Law 1"

Employment Law J*™"

Insurance Law

^nn

Environmental Law

■noo

Consumer Law

Worker's Compensation

2PP

Arbitration

Administrative Law

3qq

First Amendment, Open Door Law, or Public Records Law

Full Faith and Credit

Eleventh Amendment

Civil Rights

Indiana Constitution

" This Table is designed to provide a general idea of the specific subject areas upon which the court
ruled or discussed, and how many times it did so in 200 1 . It is also a quick-reference guide to court rulings for
practitioners in specific areas of the law. The numbers corresponding to the areas of law reflect the number of

1130 INDIANA LAW REVIEW [Vol. 35:1117

cases in which the court substantively discussed legal issues about these subject areas. Also, the following 53
miscellaneous attorney discipline cases are not in the table: In re Relphorde, 760 N.E.2d 172 (Ind. 2001) (order
approving statement of circumstances and conditional agreement); In re Smith, 760 N.E.2d 171 (Ind. 2001)
(order accepting resignation); In re Lowry, 760 N.E.2d 170 (Ind. 2001) (order suspending respondent); In re
Hoogland, 760 N.E.2d 169 (Ind. 2001) (order approving statement of circumstances and conditional
agreement); In re Herthel, 760 N.E.2d 1 55 (Ind. 2001) (order fmding misconduct and imposing discipline); In
re Tudor, 760 N.E.2d 154 (Ind. 2001) (order fmding misconduct and imposing discipline); In re Blackham,
760 N.E.2d 153 (Ind. 2001) (order finding misconduct and imposing discipline); In re Griffiths, 760 N.E.2d
1 53 (Ind. 200 1 ) (order finding misconduct and imposing discipline); In re Evans, 759 N.E.2d 1 064 (Ind. 200 1 )
(order approving statement of circumstances and conditional agreement); In re Butler, 759 N.E.2d 215 (Ind.
2001) (order to show cause); In re Hardy, 759 N.E.2d 214 (Ind. 2001) (order to show cause); In re Graybill,
759 N.E.2d 213 (Ind. 2001) (order to show cause); In re Forgey, 759 N.E.2d 212 (Ind. 2001) (order to show
cause); In re Caravelli, 758 N.E.2d 930 (Ind. 2001) (order approving agreed resolution of objections to
automatic reinstatement); In re Sheldon, 758 N.E.2d 929 (Ind. 2001) (order approving statement of
circumstances and conditional agreement for discipline); In re John, 758 N.E.2d 929 (Ind. 2001 ) (order finding
misconduct and imposing discipline); In re Layson, 758 N.E.2d 515 (Ind. 2001) (order suspending the
respondent from the practice of law); In re Watson, 757 N.E.2d 1002 (Ind. 2001) (order finding misconduct
and imposing discipline); In re Headlee, 756 N.E.2d 969 (Ind. 2001) (order finding misconduct and imposing
sanction); In re Benjamin, 756 N.E.2d 967 (Ind. 2001) (order accepting resignation and concluding
proceeding); In re Starkes, 756 N.E.2d 964 (Ind. 2001) (order approving statement of circumstances and
conditional agreement for discipline); In re Bean, 756 N.E.2d 964 (Ind. 2001) (order approving statement of
circumstances and conditional agreement for discipline); In re Layson, 755 N.E.2d 162 (Ind. 2001) (order to
show cause); In re Alvarez, 755 N.E.2d 162 (Ind. 2001) (order approving statement of circumstances and
conditional agreement for discipline); In re Meek, 755 N.E.2d 161 (Ind. 2001) (order approving statement of
circumstances and conditional agreement for discipline); In re Johnson, 755 N.E.2d 160 (Ind. 2001) (order to
show cause); In re Caravelli, 755 N.E.2d 160 (Ind. 2001) (order staying automatic reinstatement pending
resolution of commission objections); In re Atanga, 754 N.E.2d 498 (Ind. 2001 ) (order revoking respondent's
probation and imposing suspension); In re Singleton, 754 N.E.2d 498 (Ind. 2001) (order approving statement
of circumstances and conditional agreement for discipline); In re Holajter, 754 N.E.2d 497 (Ind. 2001) (order
approving consent to discipline and imposing suspension and order clarifying final order); In re Harlowe, 753
N.E.2d 1284 (Ind 2001) (order suspending respondent due to disability); /« re Transki, 753 N.E.2d 1283 (Ind.
2001) (order to show cause); In re Coons, 751 N.E.2d 678 (Ind. 2001) (order approving statement of
circumstances and conditional agreement for discipline); In re Silverman, 750 N.E.2d 376 (Ind. 2001) (order
approving statement of circumstances and conditional agreement for discipline); In re Caravelli, 750 N.E.2d
376 (Ind. 2001 ) (order finding misconduct and imposing discipline); In re Wells, 750 N.E.2d 369 (Ind. 2001)
(order finding misconduct and imposing discipline); In re Jones, 750 N.E.2d 368 (Ind. 2001) (order accepting
resignation and concluding proceeding); In re Carl, 748 N.E.2d 856 (Ind. 2001) (order to show cause); In re
Bowman, 748 N.E.2d 364 (Ind, 2001) (order approving statement of circumstances and conditional agreement
for discipline); In re McQuillin, 747 N.E.2d 563 (Ind. 2001) (order accepting resignation and concluding
proceeding); In re Johnson, 747 N.E.2d 563 (Ind. 2001) (order accepting resignation and concluding
proceeding); In re Jones, 747 N.E.2d 562 (Ind. 2001) (order of suspension upon notice of guilty finding); In
re Mysliwiec, 747 N.E.2d 561 (Ind. 2001) (order approving statement of circumstances and conditional
agreement for discipline); In re Evans, 747 N.E.2d 561 (Ind. 2001) (order of suspension upon notice of guilty
finding); In re Petrovic, 747 N.E.2d 560 (Ind. 2001) (order accepting resignation and concluding proceeding);
In re Poole, 747 N.E.2d 56 (Ind. 2001) (order accepting resignation and concluding proceeding); In re Taylor,
744 N.E.2d 43 1 (Ind. 2001 ) (order postponing effective date of suspension); In re Haynes, 744 N.E.2d 430 (Ind.
200 1 ) (order approving statement of circumstances and conditional agreement for discipline); In re Peters, 742
N.E.2d 503 (Ind. 2001) (order approving statement of circumstances and conditibnal agreement for discipline);
In re Collins, 741 N.E.2d 1246 (Ind. 2001) (order approving statement of circumstances and conditional

2002] INDIANA SUPREME COURT 1131

agreement for discipline); In re Light, 741 N.E.2d 1245 (Ind. 2001) (order finding misconduct and imposing
discipline); In re Cheslek, 741 N.E.2d 1244 (Ind. 2001) (order approving statement of circumstances and
conditional agreement for discipline); In re Chovanec, 741 N.E.2d 1244 (Ind. 2001) (order of reinstatement).
Livingston v. Fast Cash USA, Inc., 753 N.E.2d 572 (Ind. 2001).

"' /«re Miller, 759N.E.2d209(Ind.2001);/«re Baker, 758N.E.2d56(Ind. 2001); //ireCapper, 757
N.E.2d 138 (Ind. 2001); /n re Moore, 756 N.E.2d 506 (Ind. 2001); /« re Richards, 755N.E.2d 601 (Ind. 2001);
In re Hear, 755 N.E.2d 579 (Ind. 2001); In re McClellin, 754 N.E.2d 500 (Ind. 2001); In re Rodriguez, 753
N.E.2d 1289 (Ind. 2001); In re Caravelli, 750 N.E.2d 376 (Ind. 2001); In re Tsoutsouris, 748 N.E.2d 856 (Ind.
200 1 ); In re Radford, 746 N.E.2d 977 (Ind. 200 1 ); In re Thayer, 745 N.E.2d 207 (Ind. 200 1 ); In re Galanis 744
N.E.2d 423 (Ind. 2001);/n re Wagner, 744 N.E.2d418(Ind. 2001); //I re Spraker,744N.E.2d4I5 (Ind 2001);
In re Haith, 742 N.E.2d 940 (Ind. 2001); In re Paras, 742 N.E.2d 924 (Ind. 2001); In re Luddington, 742
N.E.2d 503 (Ind. 2001); In re Taylor, 741 N.E.2d 1293 (Ind. 2001); In re Shull, 741 N.E.2d 723 (Ind. 2001);
In re Murgatroyd. 741 N.E.2d 719 (Ind. 2001); In re Davis, 740 N.E.2d 855 (Ind. 2001); In re Harshey, 740
N.E.2d 851 (Ind. 2001).

In re Spencer, 759 N.E.2d 1064 (Ind. 2001); In re Funkc, 757 N.E.2d 1013 (Ind. 2001).
Castor V. State, 754 N.E.2d 506 (Ind. 2001 ) (affirming); Bcn-Yisrayl v. State, 753 N.E.2d 649 (Ind.
2001 ) (aflTirming); Timberlake v. State, 753 N.E.2d 591 (Ind. 2001) (affirming); Wrinkles v. State, 749 N.E 2d
1 179 (Ind. 2001) (affirming); Allen v. State, 749 N.E.2d 1 158 (Ind. 2001) (affirming); Ingle v. State, 746
N.E.2d 927 (Ind. 2001) (reversing); Lambert v. State, 743 N.E.2d 719 (Ind. 2001) (affirming ); Stephenson
V. State, 742 N.E.2d 463 (Ind. 2001) (affirming); Daniels v. State, 741 N.E.2d 1 177 (Ind. 2001) (affirming);
Prowell V. State, 74 1 N.E.2d 704 (Ind. 200 1 ) (reversing).

Edwards v. State, 759 N.E.2d 626 (Ind. 2001); Gray v. State, 758 N.E.2d 519 (Ind. 2001); West v.
State, 758 N.E.2d 54 (Ind. 2001); Crawford v. State, 755 N.E.2d 565 (Ind. 2001); Woodford v. State, 752
N.E.2d 1278 (Ind. 2001); Vitek v. State, 750 N.E.2d 346 (Ind. 2001); Lockett v. State, 747 N.E.2d 539 (Ind.
2001); Mitchell v. State, 745 N.E.2d 775 (Ind. 2001); Smith v. State, 744 N.E.2d 437 (Ind. 2001).

Equicor Dev., Inc. v. Westfield- Washington Township Plan Comm'n, 758 N.E.2d 34 (Ind. 2001);
City of New Haven v. Reichhart, 748 N.E.2d 374 (Ind. 2001); Noble County v. Rogers, 745 N.E.2d 194 (Ind.
200 1 ); City Chapel Evangelical Free, Inc. v. City of South Bend, ex rel. Dep't of Redev., 744 N.E.2d 443 (Ind.
2001).

»* Sholes V. Sholes, 760 N.E.2d 156 (Ind. 2001); Cannon v. Cannon, 758 N.E.2d 524 (Ind. 2001);
Buckalew v. Buckalew, 754 N.E.2d 896 (Ind. 2001).

''^ Degussa Corp. v. Mullens, 744 N.E.2d 407 (Ind. 2001 ).

'•'• Moberly v. Day. 757 N.E.2d 1007 (Ind. 2001); Mangold ex rel. Mangold v. Ind. Dep't of Natural
Res., 756 N.E.2d 970 (Ind. 2001 ); Owens Coming Fiberglass Corp. v. Cobb, 754 N.E.2d 905 (Ind. 200 1 ); Forte
V. Connerwood Healthcare, Inc., 745 N.E.2d 796 (Ind. 2001); Elmer Buchta Trucking, Inc. v. Stanley, 744
N.E.2d 939 (Ind. 2001); Sears Roebuck & Co. v. Manuilov, 742 N.E.2d 453 (Ind. 2001).

« Felsher v. Univ. of Evansville, 755 N.E.2d 589 (Ind. 2001).

^ Mangold exrel Mangold v. Ind. Dep*t of Natural Res., 756 N.E.2d 970 (Ind. 2001); Noble County
v. Rogers, 745 N.E.2d 194 (Ind. 2001).

«» Degussa Corp. v. Mullens, 744 N.E.2d 407 (Ind. 2001).

•* State ex rel. Ind. Dep't of Revenue v. Deaton, 755 N.E.2d 568 (Ind. 2001); State Bd. of Tax
Comm'rs v. Town of St. John, 751 N.E.2d 657 (Ind. 2001); State Bd. Of Tax Comm'rs v. Indianapolis Racquet
Club, Inc., 743 N.E.2d 247 (Ind. 2001).

Allstate Ins. Co. v. Dana Corp., 759N.E.2d 1049 (Ind. 2001); Brown v. Branch, 758 N.E 2d 48 (Ind.
2001).

'' Ind. Dep't of Envtl. Mgmt. v. RLG, Inc., 755 N.E.2d 556 (Ind. 2001 ); G&N Aircraft, Inc. v. Boehm,
743 N.E.2d 227 (Ind. 2001).

•* Livingston v. Fast Cash USA, Inc., 753 N.E.2d 572 (Ind. 2001); Rheem Mfr. Co. v. Phelps Heating
& Air Conditioning, Inc., 746 N.E.2d 941 (Ind. 2001).

1132 INDIANA LAW REVIEW [Vol. 35:1 117

" Livingston v. Fast Cash USA, Inc., 753 N.E.2d 572 (Ind. 2001).

"^ Fratus v. Marion Cmty. Sch. Brd. of Trs., 749 N.E.2d 40 (Ind. 2001).

"" Allstate Ins. Co. V. Dana Corp., 759 N.E.2d 1049 (Ind. 2001); Gallant Ins. Co. v. Isaac, 751 N.E.2d
672 (Ind. 2001).

Allstate Ins. Co. v. Dana Corp., 759 N.E.2d 1049 (Ind. 2001); Ind. Dep't of Envtl. Mgmt. v. RLG,
Inc., 755 N.E.2d 556 (Ind. 2001).

^ DegussaCorp. v. Mullens, 744 N.E.2d407 (Ind. 2001); GKN Co. v. Magness, 744 N.E.2d 397 (Ind.
2001).

•« Equicor Dev., Inc. v. Westfield- Washington Township Plan Comm'n, 758 N E.2d 34 (Ind. 2001);
Fratus v. Marion Cmty. Sch. Brd. of Trs., 749N.E.2d 40 (Ind. 2001); Turner v. City of Evansville, 740 N.E.2d
860 (Ind. 2001).

Forrest v. State, 757 N.E.2d 1003 (Ind. 2001); LeShore v. State, 755 N.E.2d 164 (Ind. 2001)
Ashabraner v. Bowers, 753 N.E.2d 662 (Ind. 2001).

«• Sholes V. Sholes, 760 N.E.2d 156 (Ind. 2001); Boatright v. State, 759 N.E.2d 1038 (Ind. 2001)
Hopkins v. State, 759 N.E.2d 633 (Ind. 2001); Gates v. State, 759 N.E.2d 631 (Ind. 2001); Edwards v. State
759 N.E.2d 626 (Ind. 2001); Gray v. State, 758 N.E.2d 519 (Ind. 2001); West v. State, 758 N.E.2d 54 (Ind
2001); Crawford v. State, 755 N.E.2d 565 (Ind. 2001); Hubbell v. State, 754 N.E.2d 884 (Ind. 2001); Johnson
V. State, 749 N.E.2d 1 103 (Ind. 2001); Sanchez v. State, 749 N.E.2d 509 (Ind. 2001); Marley v. State, 747
N.E.2d 1 123 (Ind. 2001); Fosha v. State, 747 N.E.2d 549 (Ind. 2001); Lockett v. State, 747 N.E.2d 539 (Ind.
2001); Kilpatrick v. State, 746 N.E.2d 52 (Ind. 2001); Mitchell v. State, 745 N.E.2d 775 (Ind. 2001); Noble
County V. Rogers, 745 N.E.2d 194 (Ind. 2001); City Chapel Evangelical Free, Inc. v. City of South Bend ex
rel. Dep't of Dev., 744 N.E.2d 443 (Ind. 2001); Smith v. State, 744 N.E.2d 437 (Ind. 2001 ); Games v. State,
743 N.E.2d 1 132 (Ind. 2001); Russell v. State, 743 N.E.2d 269 (Ind. 2001); Redman v. State, 743 N.E.2d 263
(Ind. 2001); Long v. State, 743 N.E.2d 253 (Ind. 2001); Roby v. State, 742 N.E.2d 505 (Ind. 2001); Ledo v.
State, 741 N.E.2d 1235 (Ind. 2001); Sivels v. State, 741 N.E.2d 1 197 (Ind. 2001).

A Year Of Transition in Appellate Practice

Douglas E. Cressler*

Introduction

The year 2001 was a time of transition for the appellate lawyer in Indiana.
An entirely new set of Rules of Appellate Procedure went into effect, governing
all appeals initiated on or after January 1 , 2001 . Most of the published opinions
during the reporting period, having already been initiated under the former rules,
were governed by those now-superseded rules. However, by the end of 2001,
many of the pending appeals had been initiated under the newer rules, and some
interpretative case law was being published.

By the end of 2001, the Indiana Supreme Court began to experience the
benefits of a change in the rules governing its jurisdiction. For the first time in
its history, the court had almost complete discretionary control over its appellate
docket. The court also adopted several noteworthy amendments to the new
appellate rules. Finally, the year ended with the implementation of two
innovative Internet applications of particular interest and benefit to the appellate
practitioner.

This Article examines recent developments in the area of state appellate
procedure during this important transitional year.'

I. A Few Words About the Not-So-New Rules

The Rules of Appellate Procedure that went into effect at the start of the year
2001 have been written about elsewhere, and there is no need to reexamine their
genesis or significance in detail.^ However, at least a rudimentary overview of
how and why the new rules came into being is warranted.

The rules of procedure governing the appellate process in this state were
rewritten and replaced after a significant effort by committees made up of
members of the Indiana State Bar Association's Appellate Practice Section, by
the Indiana Supreme Court Rules Committee, and by the Indiana Supreme Court
itself.^ The new rules became effective for all appeals initiated on or after

* Administrator, Indiana Supreme Court; Adjunct Professor, Indiana University School
of Law— Indianapolis. B.S., with highest distinction, 1984, Purdue University— Indianapolis; J.D.,
magna cum laude, 1989, Indiana University School of Law— Indianapolis.

1 . This Article includes discussions of significant opinions handed down by the Indiana
Court of Appeals before October 1, 2001, or by the Indiana Supreme Court before November 1,
2001, plus information concerning other important developments that occurred in 2001 .

2. See, e.g., Douglas E. Cressler & Paula F. Cardoza, A New Era Dawns in Appellate
Procedure, 34 IND. L. REV. 741, 744-747 (2001); George T. Patton, Jr., Recent Developments in
Indiana Appellate Procedure: New Appellate Rules, a Constitutional Amendment, and a Proposal,
33IND.L.REV. 1275(2000).

3. See generally George T. Patton, Jr., Appellate Rules Proposal Before Rules Committee,
Res Gestae, Apr. 1999, at 10, 10-11.

1134 INDIANA LAW REVIEW [Vol. 35:1 133

January 1, 2001.^ The goals of the complete revision included making the
appellate process easier to understand, more streamlined, and more uniform in
practice.^ Although there was considerable carryover of language and general
operation, there were many substantive changes. The rules governing appellate
procedure were reorganized and renumbered. Changes were made to the
nomenclature of appeals work, in the timing for many aspects of taking an
appeal, in motions practice, and in the procedures for seeking transfer to the
Indiana Supreme Court. The greatest changes brought about by the new rules,
however, were in how the record on appeal is prepared and presented to the
appellate court.

II. Rule AMENDMENTS

As expected, the Indiana Supreme Court determined that a number of minor
amendments to the newly-promulgated Rules of Appellate Procedure were
warranted after their first year in operation. The court's order, issued December
21, 2001, included changes to forty-seven different sections of the appellate
rules.^ Although many of the changes were cosmetic, a few of the amendments
provided important clarification and improvement to the operation of the
appellate rules. The rule amendments were made effective April 1, 2002.^

A. The New "Addendum to Brief

One amendment of particular interest to appellate practitioners was the
addition of new Appellate Rule 46(H). That new provision states:

H. Addendum to Brief. Any party or any entity granted amicus curiae
status may elect to file a separately-bound Addendum to Brief. An
Addendum to Brief is not required and is not recommended in most
cases. An Addendum to Brief is a highly selective compilation of
materials filed with a party's brief at the option of the submitting party.
Note that only one copy of the Appendix is filed (see Rule 23(C)(5)),
but an original and eight copies of any Addendum to Brief must be filed,
in accordance with Rule 23(C)(3). If an Addendum to Brief is
submitted, it must be filed and served at the time of the filing and service
of the brief it accompanies. An Addendum to Brief may include, for
example, copies of key documents from the Clerk's Record or Appendix
(such as contracts), or exhibits (such as photographs or maps), or copies
of critically important pages of testimony from the Transcript, or full text
copies of statutes, rules, regulations, etc. that would be helpful to the

4. See Order Amending Indiana Rules of Appellate Procedure (Ind. Feb. 4, 2000) (No.
94S00-0002-MS-77), available a/ http://www.in.gOv/judiciary/opinions/archive/l 1090001 .ad.html.

5. See Patton, supra note 2, at 1 275-76.

6. See Order Amending Indiana Rules of Appellate Procedure WL IN ORDER 01 -24 (Dec.
21, 2001) (No. 94S00-0101-MS-67) [hereinafter Order].

7. Id.

2002] APPELLATE PRACTICE 1135

Court on Appeal but which, for whatever reason, cannot be conveniently
or fully reproduced in the body of the brief. An Addendum to Brief may
not exceed fifty (50) pages in length and should ordinarily be much
shorter in length. The first document in the Addendum to Brief shall be
a table of contents, and documents contained in the Addendum to Brief
should be indexed or numbered in some manner that facilitates fmding
the documents referred to therein, preferably with indexed tabs. The
Addendum to Brief shall be bound in book form along the left margin,
preferably in a manner that permits the volume to lie flat when opened.
The Addendum to Brief shall have a cover that is the same color and
similarly styled as the brief it accompanies (see Form App. 43-1 ), except
that it shall be clearly identified as an Addendum to Brief. An
Addendum to Brief may not contain argument.*

The "addendum to brief is an appropriate new name for an old idea. The
superseded rules permitted parties to accompany their briefs with a separately
bound "appendix."^ The appendix could contain "significant parts of the record
or other material deemed useful.'"^ Because a party would file an original and
eight copies of the appendix along with the party's briefs," the old rule provided
a useful vehicle for making certain that each judge or justice reviewing the
appeal had ready access to key documents from the record. In a contract dispute,
for example, the filing of an appendix containing a complete copy of the contract
at issue would ensure that all the members of the reviewing court could examine
the whole contract without having to look for it elsewhere in the single set of
bound volumes of the record of proceedings.

When the new rules went into effect, however, the term "appendix" was
appropriated to designate something that is now more properly thought of as
being part of the appellate record than as a supplement to a brief. '^ The appendix
is generally a bound compilation of the documents filed in the trial court. '^ Only
one copy of an appendix is filed,''* thus minimizing its value as an instrument for
conveniently placing key documents in front of each reviewing judge or justice.
Moreover, the appendix as currently defined generally would be too large and
inclusive to serve the narrow, specific purpose of the old appendix rule. For
example, in a criminal appeal, the appellant's appendix consists, inter alia, of all
the documents that had been filed with the clerk of the trial court. '^ Even in civil
appeals, the appendix contains any "pleadings and other documents" filed in the

8. Id. (amending IND. Appellate Rule, 46 effective Apr. 1, 2002).

9. App.R. 8.2(A)(4) (repealed Jan. 1,2001).

10. Id

11. See APP.R. 9(B)( 1 ) (repealed Jan. 1 , 200 1 ).

12. 5eg App.R. 2(C).

13. See id.

14. APP.R. 23(C).

15. 5eg APP.R. 50(B)(1).

1136 INDIANA LAW REVIEW [Vol. 35:1 133

trial court that are "necessary for resolution of the issues raised on appeal.*"^

It was clear, therefore, that the old appendix was something very different
from the new appendix, and that there was nothing in the new rules to take its
place. The occasionally useful function previously performed by the old
appendix was lost in the new rules, as initially adopted. The adoption of new
Appellate Rule 46(H) corrects that omission by creating an "addendum to brief."
The new rule also gives greater definition to the function than was ever provided
in the past.

As was the practice under the old rule,'^ parties file an original and eight
copies of each addendum to brief at the time of the filing of the brief itself.'* The
rule expressly states that an addendum should be a "highly selective compilation"
of not more than fifty pages and "ordinarily . . . much shorter in length."'^ The
rule expressly states that an addendum "is not required and is not recommended
in most cases."^^ In other words, addenda should be very thin in physical
dimension, and only filed in appeals where the reviewing court would be aided
by having multiple copies of key documents available. The rule articulates
examples of the types of documents that may be included with an addendum and
also details the required format.^' If record materials are included in an
addendum, then citations to those materials in an appellate brief must include
citation to both the record and the addendum. ^^ This amendment heralds the
return, with a new name, of a useful tool of appellate advocacy.

B, Appendices

The Indiana Supreme Court also adopted some important changes affecting
the form and filing of appendices. As noted above, the appendix serves the
function of providing the appellate court with a record of the filings made in the
trial court.^^ A seemingly minor, but potentially significant, clarifying
amendment was made to the rule governing the contents of the appellant's
appendix. In both civil and criminal appeals, the applicable rule had required
that the appendix include "any record material relied on in the brief "^"^ Because
parties also rely on portions of the transcript in their briefs, the rule as initially
adopted could have been read to require that copies of any portion of the
transcript relied on in a brief be included in the appendix.

Those same rules, as amended, now state that the appendix must include "any
record material relied on in the brief unless the material is already included in

16. App.R. 50(A)(2)(f).

17. 5ee APP.R. 9(B)(1) (repealed Jan. 1,2001).

1 8. Order, supra note 6 (amending App.R. 23(C)(3)).

19. Id. (amending App.R. 46).

20. Id.

2 1 . See id.

22. Id. (amending App.R. 22(C)).

23. See supra note 1 2 and accompanying text.

24. App.R. 50(A)(2)(h), (B)(1)(e) (amended Apr. I, 2002).

2002] APPELLATE PRACTICE 1137

the Transcript. ^'^^ In other words, there is no need to include those sections of
the transcript referenced in the brief in the appendix. So long as any record
material relied on in the brief can be found in either the appendix or the
transcript, then the rules have been satisfied.

Another amendment affecting appendices was specifically directed to
appellants in criminal cases. The rule governing required service of documents,
as now amended, provides that appendices filed in criminal appeals need not be
copied and served on the Attorney General.^^ This amendment helps reduce
unnecessary copying. The Attorney General has ready access to the filed
appendices through the appellate court clerk's office. If there was any doubt
about that availability, the rules as amended now expressly state that parties may
have access to transcripts and appendices during the period that they are working
on their briefs, subject to internal rules the appellate court clerk might use to
ensure accountability and fairness.^^

C Transcripts, Exhibits, and the Duties of the Court Reporter

The amended appellate rules clarify that preparation of the separately-bound
volumes of exhibits from trial are part of the transcript preparation process and,
thus, the responsibility of the court reporter.^' Also, the court reporter is required
to prepare an index of exhibits, to "be placed at the front of the first volume of
exhibits."^^ In addition, the rules require the court reporter to serve the parties
with copies of any motions requesting additional time to file the transcript.^^

One of the appellate rules requires the court reporter to annotate each page
of a transcript with information "where a witness's direct, cross, or redirect
examination begins."^' Previously, those annotations had to be placed as headers
at the top of the page, but the amendment now alternatively allows the
annotations to be placed as footers at the bottom of the page.^^ The requirement
that the court reporter format the transcript to an electronic disk has been
changed to requiring "an electronically formatted medium (such as disk, CD-
ROM, or zip drive).""

D. Duties of the Trial Court Clerk

A criminal appellant will typically have appointed local counsel who will
need access to the transcript while working on the appellant's brief.
Accordingly, the rules state that the transcript in criminal appeals is generally not

25. Order, supra note 6 (amending App.R. 50(A)(2)(h), (BXlKe)).

26. Id. (amending App.R. 24(A)).

27. /flf. (amending App.R. 12(C)).

28. M(amendingAPP.R.2(K), 11(A)).

29. Id. (amending App.R. 29(A)).

30. Id (amending APP.R. 1 1(C)).

31. App.R. 28(A)(4).

32. Order, supra note 6 (amending APP.R. 28(A)(4)),

33. Id (amending App.R. 30(AK2)).

1138 INDIANA LAW REVIEW [Vol. 35:1133

transmitted by the trial court clerk to the appellate court clerk (in Indianapolis)
until after the appellant's brief has been filed.^*

A new amendment changes this rule in situations where the appellant is
represented by the State Public Defender, rather than local counsel. Under the
rule as amended, when a criminal appellant is represented by the State Public
Defender, the transmission of the transcript by the trial court clerk to the
appellate court clerk is to occur immediately on completion and certification of
the transcript.^^ This amendment is one of administrative convenience because
the offices of both the State Public Defender and the Attorney General are in
Indianapolis. Thus, the transcript is sent immediately to the location where the
interested attorneys are located.

Moreover, an addition to the rules makes clear that any party may file a
motion with the appellate court seeking an order directing "the trial court clerk
to transmit the [t]ranscript at a different time than provided for in the rules."^^

The amendments also state that the copies of the chronological case summary
accompanying the notice of completion of clerk's record "served on the parties
need not be individually certified."^^ Further, only one original notice of
completion of clerk's record and one original notice of completion of transcript
need be filed with the appellate court clerk.^*

In addition, the trial court clerk is now required to serve the parties with any
motions seeking an extension of time to assemble the record.^'

E. Rehearing Practice

The new amendments corrected an apparently unintentional change in
rehearing practice associated with the rewriting of the rules. The superseded
rules permitted a party an automatic extension of time within which to respond
to a brief or other document served via mail or carrier by a party. ^^ However, the
automatic extension did not apply to petitions that were responsive to filings
made by the appellate court itself.'*' For example, a party filing a petition for
rehearing or transfer following the issuance of an opinion by the court of appeals
had to file the petition within the thirty days allotted by rule, without the benefit
of the automatic extension rule."*^ However, the party responding to the petition
was allowed the benefit of the automatic extension if service was by mail or
courier.'*^

34. See APP.R. 12(B) (amended Apr. 1, 2002).

35. Order, supra note 6 (amending APP.R. 1 2(B)).

36. Id.

37. Id. (amending APP.R, 10(C)).

38. Id (amending APP.R. 23(C)(6)).

39. M (amending APP.R. 10(E)).

40. APP.R. 12(D) (repealed Jan. 1, 2001).

41. See APP.R. 1 1 (repealed Jan. 1 , 200 1 ).

42. See id.

43. See APP.R. 12(D) (repealed Jan. I, 2001).

2002] APPELLATE PRACTICE 1139

When the new rules went into effect January 1 , 200 1 , they operated in much
the same way, with one exception. The new rules contained a provision stating
that the automatic extension rule did not apply to the filing of a brief in response
to a petition for rehearing/"* The new rules created an apparently unintended
variance from traditional practice and a discrepancy between rehearing and
transfer practice/^ The court amended the rule to comport with traditional
practice and to make the transfer and rehearing rules uniform. The appellate rule
governing the filing of a response to a petition for rehearing, as amended, now
states in relevant part, "Rule 25(C), which provides a three-day extension for
service by mail or third-party carrier, may extend the due date; however, no other
extension of time shall be granted.'"*^

The amendments also clarify the form and content requirements for the
petition for rehearing. Specifically, as amended, the rule expressly states that not
all the content requirements of Appellate Rule 46(A) must be met, only some of
them.^^

F. Petitions Seeking Review of a Decision of the Indiana Tax Court

The appellate rules, as adopted effective January 1, 2001, contained no
provision expressly stating the content requirements for a petition seeking review
of a decision of the Indiana Tax Court. As amended, the rules now include a
content requirement, modeled along the lines of a petition to transfer."** The
amended rule also makes clear that a petition for review is available when the tax
court is sitting as an appellate court, reviewing a decision of a trial court with
probate jurisdiction."*^

G. Other Miscellaneous Changes of Note

The rules now expressly codify what had been an unwritten rule since 1997,
when the court first adopted word limit restrictions on brief size, as opposed to
page restrictions.^^ Under the amended rules, a motion seeking leave to file an
oversize brief or petition must express the total number oi words desired for the
oversize brief, not the number of pages.^'

The rules now clarify the standard practice on the timing for filing a request
for oral argument. The motion is due within seven days after any reply brief

44. See APP.R. 54(C) (amended Apr. 1, 2002).

45. See APP.R. 57(D) (permitting an automatic extension of time to file a response to a
petition to transfer served by mail or carrier).

46. Order, supra note 6 (amending APP.R. 54(C)).

47. See id. (amending App.R. 54(F)).

48. See id. (amending App.R. 63(A)); see also APP.R. 57(G) (stating the form and content
requirements for a petition to transfer).

49. Id. (amending App.R. 63(A)).

50. Compare App.R. 8.2(A)(4) (repealed Jan. I, 1997) (imposing page restrictions on brief
length), w/Y/i App.R. 8.2(A)(4) (repealed Jan. 1, 1998) (word restrictions on brief length).

5 1 . Order, supra note 6 (amending App.R. 44(B)).

1.140 INDIANA LAW REVIEW [Vol. 35:1133

would be due before the court in which the motion is to be filed."

In addition to being served on ail parties, the notice of appeal must now be
filed with the clerk of the appellate court.^^

III. Developments IN THE Caselaw

The courts issued a few cases of general significance during the reported
period, regardless of which set of rules under which parties are operating. One
of the few opinions to develop new law from the new rules, Johnson v. State,^^
is the first decision discussed below.

A. Failure to Provide an Appendix Not Automatic Grounds for Dismissal

When an appeal is taken in a criminal proceeding under the new rules,
documents that were filed with the trial court are to be assembled by the
appellant into an "appendix" that is to be filed with the appellant's brief.^^ A
criminal defendant, acting pro se, attempted to appeal a trial court order. He
failed to submit an appendix with his brief, as required by the appellate rules. On
motion from the State, the Indiana Court of Appeals dismissed the appeal for
failing to comply with required appendix rule.^^

The Indiana Supreme Court granted transfer to clarify "a specific point of
appellate procedure."^^ The court noted the compulsory nature of the appendix
filing requirement, but stated that ordering compliance with the rule, rather than
dismissing the appeal, is the "better practice for an appellate court to follow."^*

The court found support for this view in the new rules, specifically Appellate
Rule 49(B), which expressly states that "[a]ny party's failure to include any item
in an Appendix shall not waive any issue or argument."^^ The court also noted
that the rules permit the appellee to file its own appendix, "containing materials
not found in the appellant's appendix," and permit either party to file a
supplemental appendix.^^

Significantly, the court noted that Appellate Rule 49(B) represents a
departure from prior case law under the old rules, wherein the appellate courts
decided that issues were waived due to appellant's failure to provide an adequate

52. ^ee/cf. (amending App.R. 52(B)).

53. M (amending App.R. 9(A)(1)).

54. 756 N.E.2d 965 (Ind. 2001 ) [hereinafter Johnson II].

55. ^-ee App.R. 49(A), 50(B).

56. Johnson v. State, 756 N.E.2d 508 (Ind. Ct. App.), vacated by 756 N.E.2d 965 (Ind.
2001).

57. yo/zAwo« //, 756 N.E.2d at 966-67.

58. Jd. The court did state, however, that if an appellant is given an opportunity to cure a
problem with the appendix and inexcusably fails to do so, ''dismissal of the appeal . . . would be
available as the needs of Justice might dictate." Id. at 967.

59. Jd. (quoting APP.R. 49(B)).

60. Jd (citing APP.R. 50(A), 50(B)(2), 50(D)).

2002] APPELLATE PRACTICE 1141

record for appellate review.^' The new rules "signal[] a preference for an
ameliorative approach toward failures by the parties to provide a complete
record."^^ The appeal was reinstated and remanded to the court of appeals for
further proceedings consistent with the court's opinion.^^
I It is important to note that if the appellant's appendix fails in a significant

manner to include parts of the record necessary for appellate review, thereby
requiring the appellee to submit his own appendix, there is recent authority for
the proposition that the appellant might be compelled to pay the cost of preparing
the filing.^

B. Two Out-of'the-Ordinary Applications of the **Law of the Case " Doctrine

Two cases decided during the reporting period are noteworthy for their new
interpretations of the law of the case doctrine. In one decision, the court of
appeals found an unusual exception to the doctrine;^^ in the other, the court found
the doctrine inapplicable.^ "The doctrine of the law of the case is a discretionary
tool by which appellate courts decline to revisit legal issues already determined
on appeal in the same case and on substantially the same facts."^^ The U.S.
Supreme Court has held that there are exceptions to the rule, but they are lim ited
to "extraordinary circumstances such as where the initial decision was 'clearly
erroneous and would work a manifest injustice.'"^'

In Turner v. State,^^ the Indiana Court of Appeals recognized one of those
extraordinary circumstances in which the law of the case doctrine would not bar
relitigation of an issue previously decided by another panel of the court. Forrest
Turner and co-defendant David McCarthy were tried together and both were
convicted of murder and attempted murder.^° They separately appealed, and both
claimed error in the failure of the trial court to give jury instructions on lesser-
included offenses.^'

In Turner's original appeal,^^ the court of appeals affirmed, finding "no

61 . Id (citing Lee v. State, 694 N.E.2d 7 19, 721 n.6 (Ind. 1998)).

62. Id

63. Id

64. See, e.g., Scott v. Crussen, 741 N.E.2d 743, 745 n.l (Ind. Ct. App.), trans, denied, 761
N.E.2d4!3 (Ind. 2001).

65. See Turner v. State, 75 1 N.E.2d 726 (Ind. Ct. App. 2001 ).

66. See Humphreys v. Day, 735 N.E.2d 837, 841 (Ind. Ct. App. 2000), trans, denied, 753
N.E.2d 16 (Ind. 2001).

67. Cutter v. State, 725 N.E.2d 401, 405 (Ind. 2000) (citing Christiansen v. Colt Indus.
Operating Corp., 486 U.S. 800,817-18(1998); State v. Lewis, 543 N.E.2d 1 1 16, 1 1 18(Ind. 1989)).

68. See Christianson, 486 U.S. at 8 1 7 (quoting Arizona v. California, 460 U.S. 605, 61 8 n.8
(1983)).

69. 751 N.E.2d 726 (Ind. Ct. App. 2001).

70. Seeid2Xl2%'19.

71. Id

72. Tumerv. State, 691 N.E.2d 516 (Ind. Ct. App. 1998) (unpublished table decision), poj/

1142 INDIANA LAW REVIEW [Vol. 35:1133

serious evidentiary dispute concerning the element of intent" and thus no error
in refusing to give the lesser-included offense instructions on reckless homicide
and criminal recklessness.^^ McCarthy, on the other hand, successfully obtained
relief raising the same issues. In his direct appeaf^a different panel of the court
of appeals concluded that the trial court should have given a reckless homicide
instruction as a lesser-included offense of murder and a criminal recklessness
instruction as a lesser-included offense to attempted murder.^^ McCarthy was
ultimately retried with the new instructions, and the second jury convicted him
of reckless homicide and criminal recklessness rather than murder and attempted
murder.^^

Turner, having been denied relief on appeal, also filed a petition for post-
conviction relief, but his request for relief was denied.^^ On appeal of that denial,
the court of appeals determined that the failure to give the instruction on the
lesser-included offenses was error, and that the contrary decision of the original
panel of that court was "clearly erroneous and would work manifest injustice."^*
The denial of post-conviction relief was reversed, and the cause was presumably
remanded for a new trial. The disparity of the outcomes between McCarthy and
Turner was a factor considered by the court of appeals in determining that an
inequity justifying extraordinary relief existed. ^^

In Humphreys v. Day^^ the court of appeals did not find an exception to the
law of the doctrine. Instead, the court found the doctrine legally inapplicable
under the circumstances presented.*' Although the appeal involved a somewhat
complex interpretation of Medicaid regulations, the teachings of the case
regarding the law of the case doctrine are straightforward. In an earlier appeal
involving the same parties, the court of appeals had decided two questions of
law.*^ One of the parties petitioned for transfer to the supreme court, and the
petition was granted.*^ In its opinion, the supreme court adopted the holding of

conviction relief granted^ 751 N.E.2d at 728-29.

73. Turner, 75 1 N.E.2d at 728-29.

74. McCarthy v. State, 703 N.E.2d 199 (Ind. Ct. App. 1998) (unpublished table decision).

75. Turner, 75 1 N.E.2d at 729. The court of appeals also held that the error in refusing the
criminal recklessness instruction had been waved because McCarthy's counsel had not Joined in
the request for such an instruction during trial. However, McCarthy successfully obtained relief
in a post-conviction proceeding, successfully asserting that his trial counsel had been
constitutionally ineffective for failing to join in the request. Id. at 729 n.l.

76. Mat 729.

77. Id

78. /(i. at 734.

79. ^ee /t/. at 729, 734.

80. 735 N.E.2d 837 (Ind. Ct. App. 2000), trans, denied, 753 N.E.2d 16 (Ind. 2001).

81. Mat 841.

82. See Sullivan v. Day, 661 N.E.2d 848 (Ind. Ct. App. 1996), vacated inpart by6S\ N.E.2d
713 (Ind. 1997).

83. 5ee//wmp;ire;/5, 735N.E.2dat840.

2002] APPELLATE PRACTICE 1143

the court of appeals on one issue (Issue X).** As to the second issue (Issue Y),
which the court of appeals had addressed sua sponte, the high court determined
the parties should have been given the opportunity to develop a record and obtain
a ruling from the trial court.*^ The court therefore vacated that part of the
opinion addressing Issue Y and remanded the case to the trial court for further
proceedings.*^

On remand, the trial court entered a judgment on Issue Y, and the Humpheys
V. Day appeal on that issue ensued.*^ One of the parties argued that the question
had already been decided by the court of appeals in its earlier opinion and had
therefore become the law of the case.** The court of appeals rejected this
contention. The court noted in particular the application of an appellate rule
providing generally that when the supreme court grants transfer, the opinion of
the court of appeals is vacated except for those portions "expressly adopted" or
"summarily affirmed."*^ The earlier holding of the court of appeals on Issue Y
had been neither adopted nor summarily affirmed by the supreme court. Thus,
the court of appeals concluded that on this issue, "the previous opinion is not the
law of the case because it is a nullity."^

C. Revisiting Motions Already Addressed in the Same Appeal

The parties to an appeal will occasionally file substantive motions before an
appeal has been fully briefed.^' Such motions are ruled on by a rotating panel of
court of appeals' judges referred to as the "motions panel." The motions panel
will almost certainly be composed of a different set of judges from those
assigned to vote on and author the final opinion.

No rule prevents the party whose pre-briefing motion is denied from raising
the issue again in that party's brief on appeal. However, the question arises
whether the authoring panel is bound by the earlier decision of the motions panel.
This issue might be thought of as a cousin to the law of the case doctrine.^^ Four
opinions issued during the reporting period addressed this question.

84. Sullivan v. Day, 681 N.E.2d 713, 716 (Ind. 1997).

85. /^. at 716-17.

86. Id.dXlM.

87. 735 N.E.2d at 840-41.

88. Mat 841.

89. Id. The opinion references former App.R. 1 1(B)(3). That older rule was repealed on
January 1, 2001 and was replaced by App.R. 58(A), which contains essentially the same language.

90. Id.

91. The most common example would probably be a motion to dismiss involuntarily an
appeal due to alleged procedural or jurisdictional defects, filed pursuant to APP.R. 36(B).

92. The law of the case doctrine is generally thought of as applying to issues arising in
subsequent appeals as opposed to issues arising twice within the same appeal. See supra note 67
and accompanying text; see also CNA Ins. Cos. v. Vellucci, 596 N.E.2d 926, 927 (Ind. Ct. App.
1992).

1144 INDIANA LAW REVIEW [Vol. 35:1 133

In Walker v. McTague,^^ the court refused to address an issue that had been
raised earlier by motion, stating, "The Motions Panel issued an order allowing
the case to proceed on its merits .... Therefore, we need not reconsider the
procedural issue here . . . ."'* The appellate courts took similar stances in
Mahone v. State^^ Snider v. State,^ and In re Estate of Mow ?^

These opinions imply that the court of appeals either will not reconsider
matters earlier decided by that court by order'* or that it should only do so "in the
case of extraordinary circumstances."'^ However, there is ample precedent for
courts overruling prior orders issued in the appeal.'^ As the court of appeals has
previously stated, "[B]ecause we could change our decision pursuant to a petition
for rehearing, it would make no sense to refuse to do so at an earlier stage before
we have expended further resources.'"^*

In short, recent opinions have demonstrated an appropriate reluctance on the
part of the court of appeals to overrule orders already decided by its rotating
motions panels. Nevertheless, these decisions do not hold that the authoring
court is absolutely precluded from reconsidering issues previously decided on a
motion. Indeed, such a holding would be contrary to the court's traditional
practice. If a party fails to obtain requested relief from a pre-briefmg motion to
dismiss (assuming the motion has colorable merit), the best practice is to raise
that issue again in that party's brief on the merits. Similarly, the issue should be
available for a petition to transfer. Professionally responsible advocacy would
dictate that the prior unsuccessful motion also be brought to the appellate court's
attention.

Z). Lost Appeal of a Deemed Denied Motion to Correct Error
Not Salvageable Through Alleged Cross-Error

A motion to correct error is deemed denied if not ruled on within certain time
limits. '^^ Thus, the clock for initiating an appeal begins to run once the motion
to correct error is deemed denied. Any subsequent ruling on the motion after it
has been denied by operation of rule is not necessarily void, but is considered

93. 737 N.E.2d 404 (Ind. Ct. App. 2000), trans, denied, 753 N.E.2d 8 (Ind. 2001).

94. /^. at406n.l.

95. See 742 N.E.2d 982, 985 n.3 (Ind. Ct. App.), trans, denied, 753 N.E.2d 1 1 (Ind. 2001).

96. See 753 N.E.2d 721, 724 n.2 (Ind. Ct. App.), trans, denied, 761 N.E.2d 421 (Ind. 2001).

97. 735 N.E.2d 240, 243 n.2 (Ind. Ct. App. 2000).

98. See supra notes 95-97 and accompanying text.

99. /</. (citing /« re Train Collision at Gary, Ind., 654 N.E.2d 1137, 1140n.l (Ind. Ct. App.
1995)).

1 00. See, e.g., St. Amand-Zion v. Review Bd. of Ind. Dep't of Employment & Training Servs.,
635 N.E.2d 184, 185 n.2 (Ind. Ct. App. 1994); Phipps v. First United Sav. Bank, 601 N.E.2d 13,
15n.l (Ind. Ct. App. 1992).

101. CNA Ins. Cos. v. Vellucci, 596 N.E.2d 926, 927 (Ind. Ct. App. 1992).

102. 5ee Ind. Trial Rule 53.3.

2002] APPELLATE PRACTICE 1 1 45

voidable. •''

In Carter v. Jones, ^^ the plaintiff filed a mandatory motion to correct error,
seeking addittur to the damage award. '^^ By operation of Trial Rule 53.3(A), the
motion was deemed denied thirty days after the final hearing held on the motion.
About three weeks after the motion to correct error was deemed denied, the trial
court entered an order purporting to grant the motion and ordering an eleven-fold
increase in the jury's verdict on damages.'^ The plaintiff took no action to
initiate an appeal of the deemed denial that had already occurred.

The defendant, however, did initiate a timely appeal of the order granting the
motion to correct error. The defendant argued on appeal that the motion to
correct error had already been deemed denied and that the subsequent order
granting relief should not be given effect. '^^ The plaintiff then attempted to
appeal the deemed denial of her motion to correct error by raising the issue as
cross-error in her brief of the appellee. The plaintiff relied procedurally on the
language of Trial Rule 59(G). '^* Specifically, that rule says that "if a notice of
appeal rather than a motion to correct error is filed by a party in the trial court,
the opposing party may raise any grounds as cross-errors . . . ."'°^

The court of appeals rejected this method of attempting to revive an
otherwise lost right to an appeal."*^ The court held that the plaintiff forfeited her
ability to take an appeal when she failed to take the proper steps to initiate an
appeal within thirty days of the date the motion to correct error was deemed
denied."' Concluding it lacked jurisdiction to review the merits of the deemed
denial of the motion to correct error, the court dismissed the appeal, noting the
trial court's obligation simply to enter judgment on the jury's original verdict.''^

If the result in Carter seems somewhat at odds with the language of Trial
Rule 59(G), it is nevertheless completely consistent with a 1996 supreme court
opinion. In Cavinder Elevators, Inc. v. Hall,^^^ the high court specifically
cautioned that when a motion to correct error is deemed denied, the moving party
must take the steps necessary to perfect an appeal from the deemed denial or be

103. Cavinder Elevators, Inc. v. Hall, 726 N.E.2d 285, 288 (Ind. 2000).

1 04. 75 1 N.E.2d 344 (Ind. Ct. App.), clarified on reh 'g, 757 N.E.2d 224 (Ind. Ct. App. 2001 ).

1 05. Id. at 345. A motion to correct error is a prerequisite to an appeal on a claim that the jury
verdict is inadequate or excessive. Ind. Trial Rule 59(A)(2).

106. Cor/er, 751 N.E.2d at 345.

107. Id dA 346.

108. Mat 346-47.

109. Ind. Trial Rule 59(G).

110. Car/er, 751 N.E.2d at 346-47.

111. Id. Because the events relating to this appeal took place in the year 2000, the plaintiff
would have initiated an appeal by filing a praecipe within thirty days. See Ind. Appellate Rule.
2(A) (repealed Jan. 1, 2001). Under the current rules, an appeal is initiated with the filing of a
notice of appeal. See App.R. 9(A).

112. Career, 751 N.E.2d at 347 &n.3.

113. 726 N.E.2d 285 (Ind. 2000).

1 146 INDIANA LAW REVIEW [Vol. 35:1 133

precluded from raising the issue as cross-error.

114

E. Appealing Summary Disposition in Favor of a Codefendant

One of the key issues in U-Haul International, Inc. v. Nulls Machine &
Manufacturing Shop^^^ was whether a defendant in a civil action has standing to
appeal the dismissal of a codefendant from the action.

Before the Comparative Fault Act"^ was enacted in 1983, this question was
generally answered in the negative."^ In order to have standing to litigate in
Indiana, a party generally must show a "demonstrable injury."''* Under pre-
comparative fault law, there was "no right to contribution among joint
tortfeasors."''^ Therefore, a defendant would generally not be able to show any
prejudice or injury resulting from the dismissal of a codefendant from the case.

In 1996, the court of appeals recognized that the adoption of comparative
fault altered the analysis for determining the standing of a codefendant to take an
appeal. '^° In the recent U-Haul International case, the court of appeals more
thoroughly analyzed this question and its holdings are worth noting to the
appellate practitioner.

Various U-Haul corporations, referred to collectively as U-Haul, were a few
of the forty-five defendants named in a wrongful death action.'^' Another group
of defendants, referred to collectively as the Valve defendants, were granted
summary judgment by the trial court. '^^ U-Haul appealed the entry of summary
judgment in favor of the Valve defendants. The plaintiff estate did not
participate in the appeal.

The Valve defendants argued that U-Haul lacked standing to take an appeal,
asserting that U-Haul could show no demonstrable injury from their dismissal
from the suit. The court of appeals stated that it could find "no Indiana case that
is directly on point,"'^^ but ultimately disagreed with the defendants, finding that
U-Haul did indeed have standing to appeal.'^'*

114. 7^/. at 289.

115. 736 N.E.2d 271 (Ind. Ct. App. 2000), trans, denied, 753 N.E.2d 8 (Ind. 2001).

116. Pub. L. No. 317-1983 (codified as amended at iND. Code §§ 34-6-2-45, -88, 34-51-2-1
to -19 (1998)).

117. See, e.g., Ind. State Highway Comm'n v. Clark, 371 N.E.2d 1323, 1325-26 (Ind. App.
1978) (holding that Defendant State of Indiana had no standing on appeal to challenge judgment
on the evidence entered in favor of co-defendants).

118. Hammes V. Brumley, 659N.E.2d 1021, 1029-30(Ind. 1995).

119. C/ar^, 371 N.E.2d at 1326.

120. See Shand Mining, Inc. v. Clay County Bd. of Comm'rs, 671 N.E.2d 477, 479-80 (Ind.
CtApp. 1996).

121. U-Haul Int'l, Inc. v. Nulls Mach. & Mfg. Shop, 756 N.E.2d 271, 273 (Ind. Ct. App.
2000), trans, denied, 753 N.E.2d 8 (Ind. 2001).

122. /^. at 274.

123. Id ai 275.

124. Mat 280.

2002] APPELLATE PRACTICE 1147

The court recognized that under the comparative fault principles governing
current negligence law, fault (and the accompanying liability for damages) is
allocated among those who may be culpable to the plaintiff" Therefore, under
comparative fault, the removal of a party against whom fault could be allocated
creates the potential for prejudice to a codefendant by increasing that
codefendant's potential share of fault and liability.'^^

The court of appeals further noted that preservation of error is a part of the
applicable analysis. '^^ According to the Bloemker and Rausch opinions, the
failure to object to a codefendant's dismissal from a suit generally will waive the
right to later name that former codefendant as a non-party. '^^ The court of
appeals found cases like Bloemker and Rausch instructive in that they
''established the principle that a defendant may not sit idly as its interests are
subjected to possible prejudice when other co-defendants seek dismissal from the
case, and then, at a later stage in the proceedings, seek to protect that interest
after dismissal has occurred."'^^

The court of appeals ultimately held that in cases involving application of the
Comparative Fault Act, the dismissal of a defendant from a case subjects
remaining codefendants to greater potential liability, thus creating "sufficient
prejudice to confer standing upon a codefendant" who wants to appeal the
dismissal. '^^ However, the codefendant "must do something at the trial court
level to preserve" the right to a later challenge to the dismissal through the appeal
process.'^' Having preserved the claim of error by objecting to the summary
judgment motion, and because the case was governed by comparative fault
principles, the court concluded that U-Haul could take the appeal. '^^

U-Haul makes an important procedural point: a defendant must properly
object to any motion that would eliminate a codefendant from the pool of
potentially liable parties, not only to preserve any available non-party defense,
but also to preserve the right to appeal an adverse decision.

F. Procedural Guidance on Certified Questions from Federal Courts

Appellate Rule 64 sets out the procedures a federal court should follow in
certifying a question of state law to the Indiana Supreme Court. In terms of party
procedure, however, the rule states simply that if the question is accepted, "the
Supreme Court may establish by order a briefmg schedule on the certified

125. See id. at 275.

126. /flr.at280.

127. See id. at 278-80 (citing Bloemker v. Detroit Diesel Corp. 687 N.E.2d 358 (Ind. 1997);
Rausch V. Reinhold, 716 N.E.2d 993 (Ind. Ct. App. 1999)).

128. See id.

129. Mat 279.

130. /f/. at 280.

131. Id.

132. Id. However, the court of appeals ultimately affirmed the entry of summary judgment in
favor of the Valve defendants. Id. at 285.

1148 INDIANA LAW REVIEW [Vol. 35:1133

question."'"

An example of a typical order establishing a briefing schedule was published
by the supreme court during the reporting period. '^^ In addition to establishing
a briefing schedule, the order identified the certified question, consolidated the
briefing to avoid duplicative arguments, set up procedures for placing key
documents from the federal court record before the court, and established length
restrictions on the briefing. '^^

This published order should be reviewed by any attorney involved in a
certified question from a federal court. Of particular note is the simultaneous
briefing approach used by the court. The two consolidated sides were given
approximately six weeks from the date of the order, within which both sides were
to file principal briefs not to exceed 8400 words. '^^ Both sides were then given
approximately four more weeks within which they could file a brief in response
to their opponent's principal brief. '^^ The court's order stated that extensions of
time would be granted only under extraordinary circumstances.'^*

G. Motion for Judgment on the Evidence Held Not a Prerequisite to Appeal
on Sufficiency of the Evidence in a Civil Case

The first four subparts of Trial Rule 50(A) identify junctures during a trial
when a motion for judgment on the evidence may be made.'^^ "The purpose of
[a Trial Rule 50] motion for judgment on the evidence is to test the [legal]
sufficiency of the evidence" presented by a party with the burden of proof on a
particular claim. ''^^ The fifth subpart of Trial Rule 50(A), however, is not written
in parallel with the first four. In an apparent reference to when parties may raise
the sufficiency issue, the fifth subpart states that a party "may raise the issue
upon appeal for the first time in criminal appeals but not in civil cases."'"^'

In Walkerv. Pilliony^^ Walker appealedaciviljudgment entered againsthim,
asserting that it was contrary to the evidence. However, he had not moved for
judgment on the evidence pursuant to Trial Rule 50(A). ''^^ The appellees, the
Pillions, asserted on appeal that any claim of error had been waived by the failure
of Walker to raise the issue in the trial court. The Pillions relied on the express
language of Trial Rule 50(AX5), arguing that the sufficiency of the evidence can

133. IND. Appellate Rule 64(B).

134. Livingston v. Fast Cash USA, Inc., 737 N.E.2d 1155 (Ind. 2000), certified question
answered by 753 N.E.2d 572 (Ind. 2001).

135. SeeiddX\\55-5b.

136. See id.

137. See id

138. /f/. at 1156.

1 39. See iND. Trial Rule 50 (A)( 1 )-(4).

140. First Bank of Whiting v. Schuyler, 692 N.E.2d 1370, 1372 (Ind. Ct. App. 1998).

141. iNfD. Trial Rule 50(A)(5).

142. 748N.E.2d422(lnd. CLApp. 2001).

143. IddXMA.

2002] APPELLATE PRACTICE 1149

be raised for the first time on appeal in criminal cases but not in civil. '"^^

The court of appeals acknowledged that "[a] reading of subsection (5) in
isolation suggests that the Pillions are correct."''*^ The court nevertheless went
on to hold that the appellant was not required to move for judgment on the
evidence in the civil trial before raising the sufficiency issue on appeal."*^ The
court of appeals found that requiring a motion for judgment on the evidence
would be inconsistent with Trial Rule 59(A), which states that a post-trial motion
to correct error is only mandatory when a party seeks to address newly
discovered evidence or claims of inadequacy or excessiveness of the verdict.*'*^
Apart from being counterintuitive to the express language of Trial Rule
50(A), the holding of Walker runs somewhat contrary to the general principle that
issues not raised in the trial court are not preserved for appellate review J"**
Although Walker holds that no motion for judgment on the evidence is required
to preserve the sufficiency of the evidence issue in a civil trial, the best practice
does not change. Trial Rule 50(A) sets out specific junctures in a jury trial when
motions for judgment on the evidence may be made. If the sufficiency of the
evidence is legitimately in dispute, counsel should consider making Trial Rule
50(A) motions at all the appropriate times allowed by the rule.'*^ In addition to
assuring that no claim of waiver can be made on appeal, making the motions
creates the possibility of being the appellee, rather than the appellant, in any
ensuing appeal.

H. Effect of Bankruptcy Stay Issued During Pendency of Appeal

When an entity files a bankruptcy petition, the federal court will issue an
order staying all state court proceedings involving the debtor. '^° In two opinions
issued during the reporting period, the supreme court determined that such stays
would generally not prevent it from handing down an opinion involving a
bankrupt entity. In Forte v. Connorwood Healthcare, Inc.,^^^ one of the
defendant-appellees declared bankruptcy while the appeal was pending and a stay
of all state court proceedings was issued.'" The supreme court nevertheless
handed down its opinion in the appeal, stating that the opinion was rendered
"with respect to the non-bankrupt parties only ."'^^ In Owens Corning Fiberglass

144. Id. 2X424-25.

145. Id. at 425.

146. Id. at 426.

147. /^. at 425-26.

148. See Clarkson v. Dep't of Ins., 425 N.E.2d 203, 206 (Ind. Ct. App. 1981).

1 49. See, e.g., 3 William F. Harvey, Indiana Practice § 50. 1 , at 463 (3d 2002) (referring
to the filing of a Trial Rule 50(A) motion at the conclusion of one party's submission of evidence
and again at the conclusion of the submission of all the evidence as a "sound practice").

150. See 1 1 U.S.C. § 362(a)(1) (2000).

151. 745 N.E.2d 796 (Ind. 2001).

152. /J. at798n.l.

153. Id. (citing Seiko Epson Corp. v. Nu-Kote Int'l, Inc., 190 F.3d 1360, 1364-65 (Fed. Cir.

1150 INDIANA LAW REVIEW [Vol. 35:1133

Corp. V. Cobb,^^^ a federal stay was issued during the pendency of the appeal as
a result of the bankruptcy filing of the sole defendant-appellant.'^^ The supreme
court was not constrained by the stay from issuing its opinion, stating simply that
the decision was "subject to applicable rules of bankruptcy law."'^^

/. Appellate Standard of Review Established in Counsel
Disqualifications Cases

The defendant in Robertson v. Wittenmyer^^^ filed a motion seeking to
disqualify the plaintiffs attorney due to an alleged conflict of interest. The trial
court granted the motion and an appeal ensued. '^^ On a question of first
impression in Indiana, the court of appeals held that it would apply an abuse of
discretion standard of review in determining whether error occurred.'^^

J. Law Firm Name a Necessary Part of Brief Captioning

In Stone v. Stakes,^^ the court of appeals admonished counsel about failing
to include the name of their law firm in the captioning of the briefs filed.'^' The
court noted that the failure to include the firm name gives the sometimes-
misleading impression of being a solo practitioner,'^^ in contradiction of the spirit
of the supreme court's opinion in Cincinnati Insurance Co. v. Wills.^^^

K. Miscellanies of Note During the Reporting Period

1. The Least and the Most at Stake. — The Damon Corporation (successful ly)
appealed a judgment entered against it in the total amount of $121.14 plus
costs. '^ The Kroger Company (unsuccessfully) appealed a compensatory
damage judgment entered against it in the amount of $55 million. '^^

2. Best Use of a Pop Culture Reference. — During a dispute about a vehicle
blocking traffic, Jaron Johnson made vulgar comments to the driver of another
vehicle. The offended driver started to get out of his car, possibly to explain why

1999)).

154. 754 N.E.2d 905 (Ind. 2001).

155. Seeid.dX9\6.

156. Id.

1 57. 736 N.E.2d 804 (Ind. Ct. App. 2000).

158. /c/. at 805.

159. Id. at 805-06. The trial court judgment was ultimately affirmed. Id. at 809.

160. 749 N.E.2d 1277 (Ind. Ct. App.), aJTdon reh g, 755 N.E.2d 220 (Ind. Ct. App. 2001),
trans, denied, 2002 Ind. LEXIS 182 (Feb. 15, 2002).

161. Seeid2X\l%2n.l.

162. Id

163. 717N.E.2d 151, 165 (Ind. 1999).

164. Damon Corp. v. Estes, 750 N.E.2d 891 (Ind. Ct. App. 2001).

165. Ritter V. Stanton, 745 N.E.2d 828 (Ind. Ct. App. 2001), trans, denied, 2002 Ind. LEXIS
100 (Ind. Jan. 31, 2002), cert, denied, 70 U.S.L.W. 3642 (U.S. 2002).

2002] APPELLATE PRACTICE 1151

it was unlikely he was going to comply with Johnson's explicit suggestions.
Johnson lifted his jacket to show the driver an automatic weapon he was carrying
and coolly stated, "Don't even think it."'^ A majority of a panel of the court of
appeals reversed Johnson's conviction for intimidation, holding that Johnson's
vague remark did not communicate a threat within the meaning of the applicable
statute. '^^ In his dissent, the Honorable James Kirsch wrote: "In the Dirty Harry
movies, Clint Eastwood's famous 'Go on . . . make my day' line was equally
vague, but neither the derelicts invited to make Harry's day in the movie, nor the
millions of movie goers who viewed it, had any doubts as to whether Harry was
communicating a threat."'^* The supreme court unanimously agreed with the
dissent, granting transfer and affirming the trial court. '^^ The high court also
credited Judge Kirsch's Dirty Harry analogy in its opinion. '^°

3. Appellate Brief-Writing Shortcoming of the Year. — ^The most frequently
occurring problem with appellate briefs during the reporting period was
improprieties in the statement of facts section, particularly, appellants' failures
to prepare a concise but complete statement of facts in narrative form that is not
argumentative, stated in a manner consistent with the applicable standard of
review.'^' No fewer than twelve published opinions made specific reference to
this problem. '^^ Doubtless, many such problems occurred without comment from
the court of appeals or occurred in cases in which the opinion was unpublished.
These documented reminders to counsel in the reported decisions probably
represent the tip of an iceberg.

166. 125'H.E2^9%A,9%6{\T\(\.Ci. AppXvacated and trans, granted,! A\ N.E.2d 1254(Ind.
2000), trial court ajfd by 743 N.E.2d 755 (Ind. 2001).

167. /f^. at 987.

168. /c/. at 988 (Kirsch, J., dissenting).

169. yo/iwjo/i, 743 N.E.2d at 755.

170. 743N.E.2dat756n.l.

171. See Ind. Appellate Rule 46(A)(6); App.R. 8.3(A)(5) (repealed Jan. 1, 2001).

172. See Boczar v. Meridian St. Found., 749 N.E.2d 87, 92 (Ind. Ct. App. 2001); Walker v.
Pillion, 748 N.E.2d 422, 424 n.3 (Ind. Ct. App. 2001 ); Elliott v. Sterling Mgmt. Ltd., 744 N.E.2d
560, 562 n.l (Ind. Ct. App. 2001); Burrell v. Lewis, 743 N.E.2d 1207, 1209 (Ind. Ct. App. 2001);
Dunson v. Dunson, 744 N.E.2d 960, 962 n.2 (Ind. Ct. App), trans, granted and vacated by 761
N.E.2d 415 (Ind. 2001); S.E. v. State, 744N.E.2d 536, 538 n.l (Ind. Ct. App. 2001); Buchanan v.
State, 742 N.E.2d 1018, 1021 n.2 (Ind. Ct. App.), trans, granted, 753 N.E.2d 13 (Ind. 2001), affd
inpart and vacated in part, 767 N.E.2d 967 (Ind. 2002); Kanach v. Rogers, 742 N.E.2d 987, 988
n.l (Ind. Ct. App. 2001); Major v. OEC-Diasonics, Inc., 743 N.E.2d 276, 278 n.3 (Ind. Ct. App.),
trans, denied, 753 N.E.2d 15 (Ind. 2001); Speed v. Old Fort Supply Co., 737 N.E.2d 1217, 1218
n. ! (Ind. Ct. App. 2000); Rogers ex rel. Rogers v. Cosco, Inc., 737 N.E.2d 11 58, 1 1 61 n. 1 (Ind. Ct.
App. 2000), trans, denied, 761 N.E.2d 419 (Ind. 2001); Walker v. McTague, 737 N.E.2d 404, 406
n.2 (Ind. Ct. App. 2000), trans, denied, 753 N.E.2d 8 (Ind. 2001 ).

1152 INDIANA LAW REVIEW [Vol. 35:1133

IV. Other Noteworthy Developments

A. Some Change, Some Constancy in Leadership

Every five years, the Indiana Judicial Nominating Commission must appoint
a new chief justice for the state. '^^ The seven members of the Commission
unanimously voted in December of 2001 to retain the Honorable Randall T.
Shepard in the job he has held since IQS?.'^"* Shepard has now begun his fourth
term as chief justice. '^^ No other jurist has served as chief justice of Indiana for
so long.'^^ Shepard initially joined the court as an associate justice in 1985.'^^

The former chief judge on the Indiana Court of Appeals decided that his
nine-year tenure was long enough. Effective January 1, 2002, the Honorable
John Sharpnack voluntarily relinquished the reins ofappellate court leadership.*^*
The fifteen-member court of appeals elected the Honorable Sanford Brook to the
position of chief judge of the court.'^^ Chief Justice Randall T. Shepard stated,
"I've always thought Judge Brook was one of the best and brightest the Indiana
judiciary has to offer."'*° Judge Brook hopes to follow in the well-respected
footsteps of Judge Sharpnack, who will now be free to focus on opinion writing.
With regard to his predecessor. Judge Brook stated: "We're in wonderful shape
in terms of how we manage our caseloads and how we go about writing our
opinions."'*'

B. Phasing in of New Jurisdictional Rule

On November 7, 2000, the voters of Indiana gave fmal approval to an
amendmenttothelndianaConstitution, limiting the obligatory criminal appellate
jurisdiction of the Indiana Supreme Court to only those cases in which a sentence
of death has been imposed.'*^ Previously, the state constitution required the
State's highest court to assume direct jurisdiction over any case in which the
appellant received a sentence in excess of fifty years on any one count.'" The
purpose of the amendment was to free up the supreme court's docket to accept
a broader range of civil and criminal cases based upon the importance of the legal
questions presented through its discretionary authority to transfer jurisdiction

173. IND. Const, art. VII, § 3.

1 74. Denise G. Callahan, Commission Confirms Chief Justice Shepard, iND. LAW., Dec. 19,
2001, at 5; Shepard to Continue as Chief Justice, RES GESTAE, Dec. 2001, at 29, 29.

1 75. Shepard to Continue as Chief Justice, supra note 1 74, at 29.

176. Id

177. Id.

1 78. Denise G. Callahan, New Chief Judge Takes Over on CA, iND. LAW., Jan. 2, 2002, at 3.

179. Id.

180. Id.

181. Id.

1 82. See Certification of Ratification (Nov. 7, 2000) (on file with the Indiana Secretary of
State) (amending iND. Const, art. VII, § 4).

1 83. iND. Const, art. VII, § 4 (amended 2000).

2002]

APPELLATE PRACTICE

1153

from the court of appeals.'*^

Once the constitutional amendment became effective, the court immediately
changed its jurisdictional rule to route all criminal cases in which a fixed term of
years has been imposed to the court of appeals.'*^ However, the new
jurisdictional rule only became effective as to cases initiated with the filing of a
notice of appeal on or after January 1, 2001 .'** All the cases already pending in
the appellate courts, those being briefed, and those still in the record preparation
process remained in their existing appellate pipeline. Therefore, despite the rule
change, cases involving sentences in excess of fifty years continued to be sent to
the supreme court at the usual rate throughout most of the year 2001 .

Table 1 documents the number of direct criminal appeals transmitted to the
supreme court over an eighteen-month time period ending January 1, 2002.'*^
Transmission to the court does not occur until the appeal is fully briefed. The
table illustrates the effect of the court's phased-in approach to the jurisdictional
change.

Table 1.

Direct Appeals Transmitted to the Indiana Supreme Court for Opinion

Two-Month
Period

Criminal Appeals

Transmitted to

the Supreme Court

for Opinion

July-Aug. 2000

Sept.-Oct. 2000

Nov.-Dec. 2000

Jan.-Feb.2001

Mar.-Apr. 2001

May-June 2001

July-Aug. 2001

Sept.-Oct. 2001

Nov.-Dec. 2001

As Table 1 demonstrates, the number of transmitted new cases over which
the supreme court exercised mandatory jurisdiction dropped off significantly in
September 2001. Depending on the number of new capital and life without
parole cases, the number of direct appeals transmitted to the supreme court for

184. See Randall T. Shepard, Equal Access to the Supreme Court Requires Amending the
Indiana Constitution, RES GESTAE, Sept. 2000, at! 2, 13.

1 85. See IND. APPELLATE Rule 4(A)( 1 )(a) (amended Nov. 9, 2000).

1 86. Order Amending Indiana Rules of Appellate Procedure (Ind. Nov. 9, 2000) (No. 94S00-
0002-MS-77), available at http://www.in.gOv/judiciary/opinions/archive/l 1090001.ad.html.

1 87. The information used to compile this table is on file with the Division of Supreme Court
Administration, 315 State House, 200 W. Washington Street, Indianapolis, IN 46204.

1154 INDIANA LAW REVIEW [Vol. 35:1133

opinion as a matter of primary jurisdiction should remain at a fairly stable low
number. Of course, the court will be required to vote and write on all the cases
already transmitted under the old jurisdictional rule. However, once those cases
have worked their way through the system, the supreme court can, for the first
time in its history, fully realize its role as the court of last resort in Indiana.

C. Appellate Dockets Online

Checking the status of a pending appeal has been significantly easier since
October 2001 . During that month, the chronological case summaries (dockets)
of appeals before the Indiana Supreme Court, Indiana Court of Appeals, and
Indiana Tax Court became available over the Internet.'** In addition to currently
active appeals, the website includes docket information dating back many years.

The website permits the user to search for appellate dockets by the appellate
cause number, the trial court cause number, litigant name, or attorney name.
Once an individual case is identified, a listing of all the filings and orders entered
in the appeal is available, along with party and counsel information. This
information is of great value in determining the status of a pending appeal,
especially whether a petition to transfer jurisdiction to the supreme court has
been filed, is pending, or may have been granted in a particular case.

D. Webcasts of Oral Arguments

Since September of 2001, the supreme court has been broadcasting its oral
arguments live over the Internet. In addition, alt the video and audio recordings
of the oral arguments that have been previously "webcasted" are being archived
and may be viewed at any time via the Internet.'*^ Only a few states produce
their oral arguments for broadcast in this manner.

Conclusion

The early indications are that the new Rules of Appellate Procedure are
working well following this year of transition. By the end of their first year in
operation, only minor clarifying amendments to the rules were necessary. Court
reporters and trial court clerks seem to be handling their new duties, and
attorneys are learning to use the new rules. The Indiana Court of Appeals
continues to issue its opinions within a short time period from when each appeal
is fully briefed.'^ In the coming years, the Indiana Supreme Court will become

1 88. As of this writing, access to the online appellate docket is achieved by logging on to the
Indiana Judicial System webpage located at http://www.in.gov/judiciary and clicking on the words
"Online Docket: Case Search."

189. As of this writing, access to the live webcasts and archived arguments is achieved by
logging on to the webpage located at http://www.in.gov/judiciary/education and clicking on the
graphic labeled "Watch Oral Arguments." Certain software is needed to view the arguments.

190. See COURT OF APPEALS OF Indiana, 2000 Ann. Rep. 1 (2001 ) (stating that the average
age of appeals pending before the court, measured from the date the appeal was fully briefed, was

2002] APPELLATE PRACTICE 1155

more active in the civil arena. Information about the status of cases pending on
appeal is now available at the click of a button, and an attorney can watch an
appellate oral argument from the comfort of her office. In sum, the rules and the
tools are in place to make Indiana an accommodating place to practice appellate
law.

1.5 months).

Recent Developments in Civil Procedure

JoEllenLind*
Table of Contents

Introduction 1 158

I. Indiana Supreme Court Decisions 1 160

A. Decisions Clarifying Important Policies 1 1 60

1 . Attorney's Fees . . . . » 1 160

2. The Indiana Tort Claims Act and Trial Rule 65(C) 1 1 63

3. Compensation to Appointed Counsel in Civil Matters 1 166

4. Batson Challenges 1 169

5. Tolling the Statute of Limitations 1171

6. Nonparty Defendant Notice and Product Identification for

Purposes of Summary Judgment 1 1 74

7. Availability of Wrongful Death Remedies 1 176

B, Other Significant Indiana Supreme Court Decisions 1181

1. Appeals 1181

2. Attorney Solicitation 1 1 85

3. Corporate Privacy Rights and Injunctions 1 1 85

.4. Juries , 1 186

5. Law of the Case 1 186

6. Local Rules 1 187

7. New Trial Versus Judgment on Evidence 1 1 88

8. Proceedings to Vindicate Minority Shareholder Rights 1 1 89

9. Public Lawsuits 1 189

10. Relief from Judgment Under Rule 60(B) 1191

11. Statute of Limitations , 1 192

12. Summary Judgment 1 193

II. Selected Decisions from the Indiana Court of Appeals 1 194

A. Amendment of Pleadings 1 194

B. Arbitration 1 196

C Asbestos 1 196

D. Attorneys' Fees 1200

E. Bankruptcy Stay 1202

F. Burden of Proof 1203

G. Discovery 1204

K Findings 1205

/. Injunctions, Declarations, and Other Special Relief 1206

J. Instructions 1208

K. Judgment on the Evidence 1208

L Jurisdiction 1209

1. "Jurisdiction over the Case" 1209

2. Personal Jurisdiction 1210

3. Subject Matter Jurisdiction 1211

Professor of Law, Valparaiso University School of Law.

1158 INDIANA LAW REVIEW [Vol. 35:1 157

M Limitation of Actions 1213

N. Local Rules 1214

O. Preclusion 1215

P. Real Party in Interest 1216

Q. Right to Counsel 1217

R. Service/Notice 1218

S. Settlement 1218

T. Standard of Review 1219

U. Standard of Review Where No Appellee Brief 1220

V. Standing 1220

W. Summary Judgment 1221

X. Tort Claims Act 1224

III. Indiana's New Jury Rules 1224

IV. Other Indiana Rule Changes 1227

V. Federal Practice 1230

A. Procedural Legislation 1230

1 . Resident Aliens and the Diversity Statute 1 230

2. Multiparty, Multiforum Litigation 1230

3. Class Actions 1230

4. Television in the Courtroom 123 1

5. Electronic Communications 123 1

6. Government Lawyers 1 23 1

7. Terrorism 123 1

B. U.S. Supreme Court and Seventh Circuit Decisions 123 1

C Rules Changes 1236

1 . The Federal Rules of Civil Procedure ("FRCP") 1236

2. Seventh Circuit and Local Rule Matters 1237

Introduction

In his January 2002 address to the legislature on the state of the judiciary,
Chief Justice Shepard described the evolution of Indiana's court system as a
process of "re-constructing courts so substantially that the change is a matter of
kind and not of degree."' Courts now foster public policy not just by rendering
decisions for discrete controversies, but by connecting vitally to the community
through a series of innovative programs. It seems especially fitting in the wake
of recent events that Indiana's judiciary should strive to promote the rule of law
through a series of projects to modernize and humanize the delivery of legal
services in the state. Many of these programs came to fruition in 2001 , and many
others have made substantial progress. They will affect the nature of civil
practice substantially now and for the future.

For instance, after four years of work, the "Juries for the 21st Century

1. Chief Justice Randall T. Shepard, Address to the Indiana Legislature, State of the
Judiciary, The Changing Nature of Courts (Jan. 16, 2002) [hereinafter "Address"], available at
http://www.in.gov/judiciary/supreme/02stjud.html.

2002] CIVIL PROCEDURE 1159

Project" has been completed, and the court has issued a coherent set of Indiana
Jury Rules in response.^ The Family Court Project has proved so successful that
it has been extended to five additional counties.^ The Indiana Pro Bono
Commission distributed its first funds to local communities to begin the delivery
of legal services/ In response to technological change and as part of a broader
move to improve the statewide management of the courts, the Judicial
Technology and Automation Committee ("JTAC"), headed by Justice Sullivan,
is promoting the advantages of electronic communications and records forjudges
and lawyers. These are just a few of the efforts shaping the nature of courts in
the state. Aside from these programs, the Indiana Supreme Court has
promulgated important rule changes affecting not just juries but also the trial
rules,^ administrative rules,^ and even rules for digital transcripts on appeal.^ In
addition, it has revised the process of appeal from the Indiana Tax Court.*

The decisions rendered in 2001 by the Indiana Supreme Court itself are
complex and cover a broad array of topics; throughout they show a keen
sensitivity to the capacity of the judiciary to act as a "strong partner" with the
executive and legislative branches.' One of the most important themes
underlying the court's 2001 cases is the impact of civil litigation on
governmental organizations and the need to mediate between the ability of
citizens to curb improper official action with the freedom of public entities to
function.

The Indiana Court of Appeals has been operating under the new appellate
rules for a year and has issued numerous decisions. Many of them cover
technical issues in civil procedure — for instance, in 2001 a remarkable number
of appellate cases dealt with amendment of pleadings'*^ — ^while others touch on
some of the most controversial policy questions that a reviewing court could be
asked to resolve.''

At the federal level, court decisions and proposed legislation threatened
increased barriers to plaintiffs' ability to bring actions, particularly class actions.

2. IN Order 01-19 (Dec. 2 1 , 200 1 ). See also Citizens Commission for the Future of Indiana
Courts, Juries for the 2 1st Century: Reports of the Citizens Commission for the Future of Indiana
Courts and the Judicial Administration Committee of the Indiana Judicial Conference, [hereinafter
Reports], available at http://www.state.in.us/judiciary/citizen/; and Comparison of
Recommendation, available at http://www.state.in.us/judiciary/citizen/comparison.html.

3 . Press Release, Indiana Supreme Court, Division of State Court Administration, Supreme
Court Family Court Project Expands (Nov. 16, 2001), available at http://www.in.gov/judiciary/
supreme/press/prl 1 1601.html.

4. See Address, supra note 1 .

5. See infra notes 644-67 and accompanying text.

6. See infra notes 665-67 and accompanying text

7. See i/i/ra notes 668-69 and accompanying text.

8. See infra notes 663-64 and accompanying text.

9. See Address, supra note 1 .

10. See infra?m\\A.

11. 5ee m/ra Part II.C (regarding the plethora of asbestos cases).

1 160 INDIANA LAW REVIEW [Vol. 35: 1 157

Federalism continued as a theme in Supreme Court opinions as well. However,
on the rulemaking level, less significant changes were made than in 2000.

I. Indiana Supreme Court Decisions

A, Decisions Clarifying Important Policies

1. Attorney's Fees. — ^The decision by the Indiana Supreme Court with the
largest policy implications may well be State Board of Tax Commissioners v.
Town of St. John}^ It rejects the "private attorney general" exception to the
"American Rule" on fee shifting. Contrary to the legal regimes of other
industrialized democracies — ^most notably England — ^the winner of a lawsuit in
an American court is typically prohibited from recovering attorney's fees from
the loser, unless there is a specific statute or contract provision authorizing fee
shifting.'^ The rationale for this approach is that fee shifting would have a
chilling effect on plaintiffs' willingness to bring claims that deserve to be
litigated but might still be lost. If the cost of failure would bring with it the risk
of a hefty "fine" in the form of having to pay the winner's fees, the strong
commitment of the American legal regime to open access to the courts might be
frustrated.'* Indiana follows the American Rule.'^

Despite the American Rule, courts have developed common law exceptions
to promote competing goals, most notably preventing unjust enrichment and
sanctioning bad faith conduct in litigation. For instance, when litigation results
in the generation of a common store of money to be distributed to a class, the
"common fund" exception allows the court to award the named plaintiff
attorneys' fees from the fund. This prevents class members from being unjustly
enriched by not having to pay their fair share of the costs of the litigation.'^
Similarly, when litigation results in a nonmonetary common benefit that aids an
ascertainable group, courts have applied various techniques to shift fees to the
group for the same reason.'^ Expenses for litigation frivolously initiated can be
recovered in a separate suit for malicious prosecution, and fees are often awarded

12. 751 N.E.2d 657 (Ind. 2001).

13. 5ge Alyeska Pipeline Serv. Co. V. Wilderness Soc'y, 421 U.S. 240, 257 (1975); see a/jo
John Yukio Gotanda, Awarding Costs and Attorneys' Fees in International Commercial
Arbitrations, 21 MiCH. J. InT'l L. 1 (1999).

1 4. See Gotanda, supra note 1 3, at 38. n. 1 72.

15. See Gavin v. Miller, 54 N.E.2d 2^7, 280 (Ind. 1 944).

16. See Douglas La ycxxk. Modern American Remedies : Cases and Materials 869-70
(2ded. 1999).

17. See, e.g.. Mills v. Elec. Auto-Lite Co., 396 U.S. 375 (1970) (fees assessed against
corporation and thus the cost of litigation that benefitted shareholders of the corporation
derivatively shifted to them); Cmty. Care Ctrs., Inc. v. Ind. Family & Soc. Servs. Admin., 716
N.E.2d 519 (Ind. CL App. 1999). As the Indiana Supreme Court noted in Town of St. John,
sometimes the common benefit theory overlaps or is confused with the private attorney general
exception. See Town of St. John, 751 N.E.2d at 658 n.3.

2002] CIVIL PROCEDURE 1161

as a form of sanction against a party's misconduct in litigation as part of the
courts' power to control the behavior of those who appear before them.'^ The
most controversial and least recognized common law exception to the American
Rule is the idea that fees can be shifted when a litigant creates a public good by
acting as a private attorney general.

One functions as a private attorney general when one initiates litigation that
would normally be brought by the government to promote important public
policies, but the government is either unable or unwilling to bear the enforcement
burden involved.'^ The private attorney general exception became extremely
significant in the late 1960s and early 1970s — especially at the federal
level — ^when it was used to justify the award of fees in public impact litigation.^^
However, the doctrine posed a substantial risk to public entities, for they were
often the targets of such lawsuits.^' In 1975, the U.S. Supreme Court prohibited
fee shifting in federal courts on a private attorney general theory through the
landmark case, Alyeska Pipeline Service Co. v. Wilderness Society?^ This
decision resulted from a challenge to the Alaska oil pipeline on environmental
grounds. Pursuant to federalism principles, the case had no binding effect on the
states, allowing them to retain the freedom to entertain common law exceptions
to the American Rule for state-based claims litigated in state courts.^^ Until the
Indiana Supreme Court's decision in Town of St. John^^ it was not clear what the
status of the private attorney general exception was in Indiana.

The fee issue in Town of St. John arose from the protracted litigation that

18. Indiana has codified fee awards based on the notion of "obdurate" litigation behavior.
IND. CODE §34-52-1-1 (1998).

19. See, e.g., Serrano v. Priest, 569 P.2d 1304 (Cal. 1977) (class action brought to reform
California's method of public school financing justified fee shifting on private attorney general
theory).

20. See, e.g., Lee v. Southern Home Sites Corp.. 444 F.2d 143 (5th Cir. 1971) (fees shifted
where private litigation successfully challenged racial discrimination in home sales).

21. To the extent constitutional rights were the subject of litigation, the state action
requirement insured the presence of a governmental entity as a defendant. Moreover, when suits
involved statutes or regulations, the governmental agency charged with their enforcement might be
joined as a party. See, e.g.. La Raza Unida v. Volpe, 57 F.R.D. 94 (N.D. Cal. 1972) (litigants
procured injunction prohibiting the Secretary of Transportation and others from violating housing
displacement and relocation legislation and were awarded attorneys' fees), ajf'd, 488 F.2d 559 (9th
Cir. 1973).

22. 421 U.S. 240 (1975). In response to the holding of Alyeska, Congress passed the Civil
Rights Attorneys Fees Award Act of 1976, 42 U.S.C. § 1988. It allows for one-way fee shifting in
civil rights cases.

23. Several federal circuit courts treat the issue of attorneys' fees as procedural under the £r/e
doctrine and so do not follow state practice on fees in diversity actions. This is apparently the
position of the Seventh Circuit, as least where a Federal Rule of Civil Procedure conflicts with a
state approach. See Minnesota Power & Light Co. v. Hockett 14, Fed. Appx. 703, 706 (7th Cir.
2001) (unpublished opinion) (declining to apply Indiana Trial Rule 65(C) as a basis for fees).

24. 751 N.E.2d 657 (Ind. 2001).

1162 INDIANA LAW REVIEW [Vol. 35:1 157

invalidated Indiana's method of property taxation.^^ The prevailing taxpayers
requested an award of their attorneys' fees from the tax court and it granted the
request. The State Tax Board sought review in the Indiana Supreme Court,
which in an opinion by Chief Justice Shepard, rejected the private attorney
general exception to the American Rule.^^

The court conceded that some Indiana appellate cases appeared to allow the
private attorney general exception, but it characterized those opinions as
involving mere dicta.^^ Thus, to allow the taxpayers' request would be to adopt
the exception, not just retain it. Chief Justice Shepard canvassed those states that
follow and reject the private attorney general exception. Those who allow it, do
so to motivate private litigants to undertake complex litigation to vindicate
important public policies, or, in the words of New Hampshire's supreme court,
to insure funding for lawsuits designed to "guard the guardians."^* On the other
hand, states rejecting the doctrine are concerned with "unbridled judicial
authority to 'pick and choose' which plaintiffs and causes of action merit an
award . . . and would not promote equal access to the courts . . . [because] it lacks
sufficient guidelines . . . ."^' The exception would also impose a burden on
judicial resources, forjudges would have to revisit the merits of each case to
determine whether it sufficiently promoted the public good.^°

In light of these competing concerns, Chief Justice Shepard characterized the
private attorney general exception as a "double-edged sword," and concluded that
there is "no proven need" in Indiana for it, given the numerous statutes that
already allow for fee-shifting:

It is apparent that the General Assembly knows how to create statutory
exceptions to the American rule, and that it has been willing to do so
when it deems appropriate. Taking into account the plethora of statutory
provisions already on the books, we are not persuaded that the judiciary
needs to adopt a sweeping common-law exception to the American rule
for all public interest litigation.^'

Moreover the test commonly used for applying the doctrine gives rise to a
"slippery slope,"^^ for it injects subjective determinations as to what is socially
important into judicial decisions, it expends judicial resources, and it raises the
questions of how to determine what is a benefit and to whom the benefit should

25. State Bd. of Tax Comm'rs v. Town of St John, 751 N.E.2d 657, 657, 658 (Ind. 2001).

26. /^. at 664.

27. /fif. at 659-60.

28. Id. at 661 (quoting Claremont Sch. Dist. v. Governor, 761 A.2d 389, 394 (N.H. 1999)).

29. Id. (quoting N.M. Right to Choose v. Johnson, 986 P.2d 450, 459 (N.M. 1999)).

30. Id

31. Id 2X662.

32. The test looks at **( 1 ) the societal importance of the vindicated right; (2) the necessity for
private enforcement and the accompanying burden; and (3) the number of people benefitting from
the decision." Id.

2002] CIVIL PROCEDURE 1163

be given, among other problems."

The court did not emphasize the oft-cited rationale for the private attorney
general exception — ^that it is the only way to obtain enforcement of important
rights and policies in the face of recalcitrant governmental entities that are
unwilling, or unable, to act.^"* The court conceded that private litigation was
necessary to force a change in the way the state assessed the value of property in
the very case before it," however, it was also concerned that the private attorney
general justification could make Indiana a magnet for litigators who might be
more motivated by the prospect of fees than vindicating rights.^^ It is fair to infer
that one of the court's underlying concerns was the negative impact on
governmental functioning that a geometric increase in public interest lawsuits
might bring.

2. The Indiana Tort Claims Act and Trial Rule 65(C). — ^Another decision
that echoes a concern for the impact of procedure on governmental functioning
is Noble County v. Rogers}^ Rogers raised the issue of whether a governmental
entity that has procured an invalid temporary restraining order or preliminary
injunction is immune under the Indiana Tort Claims Act from paying the
wronged party damages in compensation under Trial Rule 65(C). On its surface
it looks quite different from the policies surrounding the private attorney general
doctrine, but at a higher level of description, the questions are the same: to what
extent and for what goals should civil litigation be allowed to affect — even
burden — ^the activities of public entities?

The remedies for an improperly issued injunction specified in Indiana Trial
Rule 65(C) are quite unique. In most jurisdictions public entities need not
procure a bond in order to seek injunctive relief In those jurisdictions,^* when
a preliminary injunction has been obtained by a government agency in error,
there is no remedy for the wronged defendant for there is no bond to satisfy any
claim for compensation and the governmental entity is typically exempted from

33. Id. at 662>64. In this discussioil the court also included an intriguing comparison of the
nature and importance of Indiana constitutional and statutory rights. Id. at 661-62. To remove
some of the court's concems about subjective evaluations of the public good that could be
occasioned by the doctrine, the taxpayers had asked that the private attorney general concept be
limited to constitutional rights. Id. at 662. But, according to Chief Justice Shepard,

because statutory law is far more easily updated than constitutional law, in many areas
it more accurately reflects current social priorities .... It does not belittle the rights
embodied in the Indiana Constitution to say that we cannot presume that constitutional
mention automatically equates to the degree of current social importance.
Id

34. 5ge Serrano V. Priest, 569 P.2d 1304, 1314(Cal. 1977). See gewera//y Matthew D.Zinn,
Policing Environmental Regulatory Enforcement: Cooperation, Capture, and Citizen Suits, 21
Stan. Envtl. L.J. 81 (2002).

35. Town ofSt. John, 75\}^.E.2d at 663.

36. Id at 662.

37. 745 N.E.2d 194 (Ind. 2001).

38. /flf. at 201 (Boehm J., dissenting).

1 164 INDIANA LAW REVIEW [Vol. 35:1 157

paying monies in the absence of a bond.^' However, Indiana Trial Rule 65(C)
specifically provides: "No such security [bond] shall be required of a
governmental organization, but such governmental organization shall be
responsible for costs and damages as may be incurred or suffered by any party
who is found to have been wrongfully enjoined or restrained. '"^^ But, in Rogers
the county argued that this rule violates the immunity granted to it by the ITCA,'*'
because the remedy given a defendant in the trial rule amounts to a tort. The
court of appeals disagreed, characterizing the measure as procedural ."^^

By a 3-2 margin and in an opinion crafted by Justice Sullivan, the court
mediated between the need to protect government employees from "harassment
by litigation or threats of litigation over decisions made while in the scope of
their employment,"*^ and the need to preserve the courts' power to sanction
litigants for improper behavior.^ The court chose not to explicitly characterize
the rule as either one of procedure or one of tort — a difficult task since it shows
traits of both and employs the term "wrongful." Instead, Justice Sullivan limited
the application of Rule 65(C) to injunctions procured by governmental entities
acting in bad faith. Only in those cases would the ITCA fail to shield
government entities from paying compensation. This was necessary in his view
because, otherwise, the ITCA would be constitutionally infirm."**

The majority noted that the legislature's power to immunize government has
"few limits."*^ However, one of those limits stems from the courts' ability to
sanction those appearing before them, a capacity essential to the courts'
independent function in government.'*^ Moreover, a long line of Indiana cases
makes it clear that the government and its lawyers are subject to sanctions for
litigation misconduct.** An accommodation through statutory interpretation was
warranted:

The parties ask us to resolve this apparent conflict by applying either the
Trial Rule or the ITCA to the exclusion of the other. This posture puts
into tension the powers of coordinate branches of our state government
by asking us to ignore the pronouncement of one such branch. However,
we have long held that "if an act admits of two reasonable
interpretations, one of which is constitutional and the other not, we

39. Id at 202.

40. IND. TRIAL Rule 65(c).

41. iND. CODE §§ 34-13-3-1 to -25 (1998).

42. Rogers, 745 N.E.2d at 196.

43. Id at 197 (quoting Celebration Fireworks Inc. v. Smith, 727 N.E.2d 450, 452 (Ind.
2000)).

44. Id

45. IdsLi\99.

46. Mat 197.

47. /^. at 197-98.

48. /d at 198-99.

2002] CIVIL PROCEDURE 1 1 65

choose that path which permits upholding the act.'"*^

The key was the interpretation of the rule's reference to "wrongfully." The court
explicitly construed the meaning of that term in Rule 65(C) to require
compensation only when the government acts "with such bad faith and malice
that their actions undermine the authority of the court issuing the restraining
order or inj unction. "^° This holding created an appropriate "balance" between
the legislative policy of the ITCA and the judiciary's role and inherent power to
sanction litigants. Thus, only in "rare cases" when the acts of government are so
egregious as to "threaten the proper functioning of the court" would immunity
be stripped and compensation would lie under Trial Rule 65(C).^'

In an intriguing dissent joined by Justice Dickson, Justice Boehm argued that
the remedial provisions of 65(C) ought to be definitively characterized because
when identified, they sound in contract, not tort. Thus, Rule 65(C) compensation
is totally outside the ICTA." After canvassing the practice of other jurisdictions
on injunction bonds and governmental liability, as well as the histories of the
ICTA and Trial Rule 65(C), Justice Boehm concluded that compensating a party
affected by an erroneously issued injunction is a quid pro quo voluntarily
undertaken by the plaintiff to obtain provisional relief.^^ Noting that in the past,
Indiana law required governmental entities to post a bond, he asserted that:

The 1970 changes [to Trial Rule 65] merely replaced the bond
requirement, which plainly directed a contractual obligation of the
governmental entity with a simple requirement that the entity reimburse
directly. Basic contract principles and the doctrine that statutes are to be
construed in harmony . . . lead me to conclude that the action for

"wrongful injunction" is not a tort If the legislature wants to change

that rule of substantive law, it may do so, but the laws on the books do
not provide the immunity Noble County claims.^*

This was because Noble County voluntarily accepted the arrangement imposed
by the rule^^ when it sought a restraining order against Rogers. Moreover, in
Justice Boehm's view, removing governmental immunity solely for bad faith
conduct still conflicts with the ITCA.^^

Regardless of which category best identifies the remedy of Rule 65(C), it is
important to note that the majority 's holding is limited to governmental entities.^^
Where private parties are involved, compensation from a bond ought to be

49. Id. at 196, 197 (quoting Price v. State, 622 N.E.2d 954, 956 (Ind. 1993)).

50. /rf. atl97.

51. Mat 199.

52. Id. at 200, 201, 204 (Boehm, J. dissenting).

53. Mat 202-04.

54. Id

55. Id

56. Mat 205-07.

57. Matl97n.4.

1166 INDIANA LAW REVIEW [Vol. 35:1157

available whenever it is later determined that a temporary restraining order or
preliminary injunction should not have issued.

3. Compensation to Appointed Counsel in Civil Matters. — Another opinion
showing the tension statutory enactments can create over the power of courts as
a separate and co-equal branch of government is Shales v. Sholes,^^ decided in
December 2001 . It has far reaching significance for pro bono practice because
it clarifies whether an indigent person must have counsel appointed in a civil
matter and whether appointed counsel must be compensated.

Sholes involved a divorce sought by the wife of an inmate serving a life
sentence in state prison.^^ He filed two requests to be allowed to proceed as a
pauper and he also requested a free record.^ The trial court made no findings on
Sholes' indigency status and denied the request to furnish a record. A judgment
was entered in which the wife received virtually all the marital property and all
of Sholes' retirement funds. Sholes moved to have the judgment set aside and
also requested appointment of counsel. The trial court did not set the judgment
aside and denied the request for counsel without making findings. The court did,
however, find that Sholes lacked sufficient funds to obtain an appellate transcript
and ordered one at public expense.^' On review, the Indiana Court of Appeals
reversed the trial court's decision not to set the judgment aside,^^ basing its
holding on Indiana Code section 34-1 0- 1 , which governs appointment of counsel
for indigents.^^ It concluded that because Sholes had presented sufficient
evidence of his indigency, the judgment should have been set aside.^
Accordingly, all matters after the request for counsel were vacated.

On transfer, the Indiana Supreme Court stated that:

[I]n ruling on an application for appointment in a civil case, the trial
court must determine whether the applicant is indigent, and whether the
applicant, even if indigent, has means to prosecute or defend the case.

58. 760N.E.2d 156 (Ind. 2001).

59. /^. at 157.

60. Id. at 157-58.

61. Mat 158.

62. Id.

63. iND. Code §34-10-1-1 (1998) provides:

Sec. 1 . An indigent person who does not have sufficient means to prosecute or defend

an action may apply to the court in which the action is intended to be brought, or is

pending, for leave to prosecute or defend as an indigent person.

Sec. 2. If the court is satisfied that a person who makes an application described in

section 1 of this chapter does not have sufficient means to prosecute or defend the

action, the court shall:

(1 ) admit the applicant to prosecute or defend as an indigent person; and (2) appoint an

attorney to defend or prosecute the cause.

All officers required to prosecute or defend the action shall do their duty in the case

without taking any fee or reward from the indigent person.

64. 5/zo/e5,760N.E.2datl58.

2002] CIVIL PROCEDURE 1167

If those criteria are met, and there is no funding source or volunteer
counsel, the court must determine whether the mandate of expenditure
of public funds is appropriate in the case."

The court reached this result through a complex series of arguments.

The first issue the court considered was whether appointment of counsel in
a civil case is mandatory or discretionary under Indiana Code section 34-10-1 .
It noted that in 1999, the court of appeals had determined in Holmes v. Jones^
that the plain language of the statute mandated appointment of counsel and did
not leave the question to trial court discretion.^^ However, the process of
appointment requires a multilevel inquiry. As Justice Boehm opined,
appointment of counsel is not automatic upon indigency status but also requires
that the indigent be without "sufficient means" to proceed.^* How could one who
is indigent have sufficient means? That might occur when the matter is one
typically undertaken by nonindigents on a pro se basis (e.g., small claims
matters), funded through a contingent fee, one to which a fee shifting statute
applies, or is one for which a nonpaid volunteer attorney is available.^^ However,
if both requirements are met — indigency and insufficiency— an attorney must be
appointed. The question then becomes whether the attorney must be
compensated. It is here that controversy arises and an element of court discretion
is re- introduced.

According to the express terms of Indiana Code section 34-10-1-2 an
appointed attorney is prohibited from collecting a "fee or reward from the
indigent person."^° In Justice Boehm 's view, this language should not prohibit
payment from other sources for several reasons. First, courts have inherent
power to "incur and order paid all such expenses as are necessary for the holding
of court and the administration of its duties,"^' which has been codified in Trial
Rule 60.5.^^ Second, no other legislation prohibits compensation. Third, if the

65. Id. 2X151.

66. 719 N.E.2d 843 (Ind. Ct. App. 1999).

67. Notwithstanding that the legislature attempted to modify this result, these attempts were
not successful, so in the court's view, the statute had to be taken at face value, Sholes, 760 N.E.2d
atl59n.2.

68. Mat 161.

69. Id

70. iND. CODE §34-10-1-2 (1998).

71 . Sholes, 760 N,E.2d at 164 (quoting Knox County Council v. State ex rel. McCoimick,
29N.E.2d405,413(1940)).

72. Trial Rule 60.5(A) states:

Courts shall limit their requests for funds to those that are reasonably necessary for the
operation of the court or court-related functions. Mandate will not lie for extravagant,
arbitrary or unwarranted expenditures nor for personal expenditures (e.g., personal
telephone bills, bar association memberships, disciplinary fees).
Prior to issuing the order, the court shall meet with the mandated party to demonstrate
the need for said funds.

1 168 INDIANA LAW REVIEW [Vol. 35: 1 157

statute were read to require uncompensated appointment, then it would be
unconstitutional for impressing the services of lawyers in violation of article 1,
section 21 of the Indiana Constitution.^^

While Justice Boehm recognized that attorneys have a duty to provide pro
bono services — a point that was central to the dissent — he characterized it as an
obligation of the whole profession that could not be imposed on a single attorney
without violating the Indiana Constitution. In reaching this conclusion, the
majority characterized the long and complex history of Indiana's commitment to
making counsel available to litigants quite differently from Justice Dickson's
characterization in dissent. The majority alleged that early cases construing
article 1, section 21 of the 1851 Indiana Constitution stand for the proposition
that attorneys, like all other persons, cannot have their labor "conscripted" by the
states without compensation. Although the populist view of the profession (one
which had allowed any voter to function as an attorney) was eventually replaced
with a regulatory view that includes pro bono service as an ethical requirement,^"*
that change did not impliedly except lawyers from the prohibition of unpaid
services contained in article 1, section 21.^^

In making this analysis, Justice Boehm had to confront Board of
Commissioners v. Pollard J^ which Justice Dickson read (along with other cases)
to authorize mandatory unpaid representation.^^ Justice Boehm distinguished its
facts, in that the Pollard attorney had already rendered the services in issue but
had not been paid by the county. The Pollard court did not require the county
to pay, distinguishing the payment obligation for criminal from civil cases.
Nonetheless in dicta it stated, "An attorney at law cannot, in this state, be
compelled by an order of a court to render professional services without
compensation."^* Noting that the Pollard court did not have to answer the
question of what to do when no volunteer is available. Justice Boehm
distinguished the case by concluding: "Although Pollard refused to hold that the
statute required payment in civil cases, it also refused to press attorneys into
uncompensated service."^^ Since Pollard, the inherent power of Indiana courts
to order payment of monies to assist in the administration of justice has been
established. Given this history, the Sholes majority found that when Indiana

Trial Rule 60.5(B), in relevant part, states:

Whenever a court . . . desires to order either a municipality, a political subdivision of
the state, or an officer of either to appropriate or to pay unappropriated funds for the
operation of the court or court-related functions, such court shall issue and cause to be
served upon such municipality, political subdivision or officer an order to show cause
why such appropriation or payment should not be made.

73. IND. Const, art. 1,§21.

74. 5/io/ej,760N.E.2d at 163-64.

75. Mat 164.

76. 55 N.E. 87 (Ind. 1899).

77. Sholesyieo N.E.2d at 167 (Dickson, J., dissenting).

78. Id. at 162 (quoting Bd. of Comm'rs v. Pollard, 55 N.E. 87, 87 (Ind. 1899)).

79. Id.

2002] CIVIL PROCEDURE 1 1 69

Code section 34-10-1 mandates a lawyer's appointment in a civil matter, the
attorney must be compensated, unless she or he volunteers to serve without pay .^°
This, however, does not end the analysis.

As an additional tier of inquiry the court reasoned that when an appointed
lawyer seeks payment under Trial Rule 60.5, payment is only justified when
circumstances warrant the serious measure of a court ordering compensation
from general public funds. This final level of inquiry re-introduces discretion in
the trial court's process of determining whether counsel must be made available
in a civil matter. This is permissible because appointment of counsel in a civil
case is statutory, not constitutional, and so can be balanced against other
concerns:

In most civil cases ... we have only a statutory directive, and there is no
constitutional requirement that counsel be appointed for indigent

litigants As explained, before appointing counsel, the trial court is

to consider the type of case presented to determine whether even an
indigent applicant has "sufficient means" to proceed without appointed
counsel. In addition, the trial court is obliged to consider whether any
specific fiscal or other governmental interests would be severely and
adversely affected by a Trial Rule 60.5 order requiring payment of any
appointed counsel.*'

The majority suggested several relevant factors for courts to consider, many of
which involve the merits of the action at issue — ^whether, inter alia, the matter
is "frivolous," whether it raises legal principles that are "insignificant," and
whether it presents a "vendetta."*^ The court ordered a remand in Sholes for a
determination of all these issues but underscored that: "If no uncompensated
attorney is willing to serve and the trial court finds itself unable to order
payment, then ... the statutory obligation to appoint counsel fails as an
unconstitutional order to attorneys to work without compensation."*^ Justice
Boehm argued that if the statute were interpreted to obviate courts' discretion at
this level, it would be an unconstitutional intrusion on the judiciary's inherent
powers to administer justice.*^ Thus, while the Sholes majority requires
appointment of counsel in a proper civil case, an indigent's actual ability to
obtain representation is by no means assured.

4. Batson Challenges. — A decision that directly connects constitutional
rights with procedural issues is Ashabraner v. Bowers,^^ a case that underscores
the concern for diverse juries emanating from the Indiana Jury Rules themselves.
The sequence of events in Ashabraner is important. The lawsuit was between

80.

Id at 166.

81.

Id at 165-66.

82.

Id at 166.

83.

84.

85.

753 N.E.2d 662 (Ind. 2001),

1170 INDIANA LAW REVIEW [Vol. 35:1157

two motorists whose cars collided.*^ During voir dire, the defendant's attorney
exercised a peremptory challenge to the sole African-American potential juror.
The plaintiff — ^who was not of the same race as the defendant — made a
^'BatsorC'^^ challenge to the striking of the juror, arguing that the juror's answers
showed her to be neutral and intelligent; the inference was that the only basis for
striking the juror must have been her race.'* Defense counsel gave no real reason
for the? challenge'^ but simply assured the court it was not race-based. The trial
court overruled the plaintiffs objection stating, "peremptory challenges can be
utilized for any reason."^ This statement indicated that the trial court had not
followed the mandate of Batson v. Kentucky ^^ which establishes a two-tiered
procedure for questioning. First, a prima facie case must be made by the
objecting party that a challenge is race-based. If that is accomplished, the burden
shifts to the peremptory challenger to give a race-neutral reason for the challenge.
Batson was extended to civil cases in Edmonson v. Leesville Concrete Co.^^

On review the court of appeals clearly applied Batson, but concluded that the
plaintiff had not made a prima facie case that the challenge was race-based, so
the defendant did not have to give a race neutral reason.

On transfer and by a 3-2 decision, the Indiana Supreme Court found the court
of appeals' ruling erroneous. First, the court noted that McCants v. State^^
established that removing the sole juror of color from the venire is enough to
establish prima facie racial discrimination — ^at least in a criminal matter. In the
civil context, it is "evidence of discrimination that must weigh in the balance."^"^
This evidence, coupled with the juror's neutral answers on voir dire and her
apparent competency, was sufficient to shift the burden to the defendant to give
a race-neutral explanation. The majority was particularly concerned that:

"[W]hen a Batson objection has been made, [the objecting party] is
entitled to the benefit of the proposition that peremptory challenges
allow those inclined to discriminate to do so." By fmding that a party
has established a prima facie case where the only minority juror gave
"neutral" answers to jury selection questions but was removed anyway,
we recognize that there may be an unconstitutional discrimination where

86. Id. at 664.

87. This is the informal reference to the requirement of Batson v. Kentucky, 476 U.S. 79
(1986), a criminal case, that when a pattern of peremptory challenges suggests racial bias, the
challenger must provide a race-neutral explanation.

88. Ashabraner, 753 N.E.2d at 665.

89. Later, defense counsel explained that the strike was exercised in order to make room for
another potential juror, a law student, whom the defense believed would be more understanding of
the doctrine of res ipsa loquitur. Id. at 665 n.7.

90. /rf. at666.

91. 476 U.S. 79,96-98(1986).

92. 500 U.S. 614 (1991).

93. 686N.E.2d 1281, 1284 (Ind. 1997).

94. /l5/ia6ra«er, 753 N.E.2d at 667.

2002] CIVIL PROCEDURE 1171

the venire contained a single or a small number of minority jurors. We
believe it appropriate that trial courts make a Batson investigation into
potential discrimination in such circumstances.^^

The Indiana Supreme Court concluded that the lower courts had not handled the
first phase of Batson* s two-tiered procedure properly and remanded without
reaching the second level of inquiry.^ Nonetheless, it warned that an explanation
for a challenge stating "I did not strike the juror because of race. I struck [the
juror] because of the way I saw the jury panel being made up," is not sufficient
under Batson's mandate.^^ Ashabraner shows that the court will carefully
scrutinize the compliance of Indiana's courts with the goal of removing racial
discrimination in jury selection.

5. Tolling the Statute of Limitations. — With its decisions from City of St.
John through Ashabraner, the court shows its clear willingness to confront
difficult policy and theoretical questions,^^ yet its most significant recent
opinions may be ones that impact the nuts and bolts of everyday civil litigation.
Leading this group is Ray-Hayes v. Heinamann,^^ which resolves a split in the
court of appeals over the steps to be taken to commence an action for purposes
of tolling the statute of limitations. Moreover, because the court has determined
that something more than mere filing with the clerk's office is required — a
deviation from federal practice — ^the new requirements may pose a trap for the
unwary.'^ A complete understanding of the Indiana requirements for
commencement are essential to the litigator.

The ambiguity over what counts as the beginning of a case for purposes of
tolling can be traced to the court's opinion in Boostrom v. Bach,^^^ a small claims
matter in which the court held that payment of the filing fee, and not the mere
tender of the complaint to the clerk, is necessary to "commence" an action. '°^

95. Id at 668 n. 1 0 (quoting Henry F. Greenberg, Criminal Procedure, 44 SYRACUSE L. Rev.
189,226(1993)).

96. Chief Justice Shepard and Justice Dickson dissented, asserting that the trial court's
comments did not show definitively that it had not followed Batson. In addition, they concluded
that the defendant had complied with the second aspect of Batson by volunteering a race neutral
reason for striking the juror. At that stage, the dissenters argued that the explanation need not be
"persuasive or even plausible," id. at 669 (Dickson, J., dissenting), but rather that Batson
contemplates a third level of inquiry when the trial judge, taking into account that the objector has
the ultimate burden of persuasion on racial motivation for the challenge, has met that challenge.
Id at 669-70.

97. Id at 666.

98. See generally id. (clarifying Batson objections for racial discrimination to peremptory
strikes of potential jurors); State Bd. of Tax Comm'rs v. Town of St. John, 751 N.E.2d 657 (Ind.
200 1 ) (rejecting private attorney general doctrine as basis for award of attorneys' fees).

99. 760 N.E.2d 172 (Ind. 2002).

100. Id at 174.

101. 622 N.E.2d 175 (Ind. 1993), cert, denied, 513 U.S. 928 (1994).

102. Mat 176-77.

1 1 72 INDIANA LAW REVIEW [Vol. 35:1157

The rationale was that "the commencement of an action occurs when the plaintiff
presents the clerk with the documents necessary for commencement of suit."'°^
In a footnote the court identified the necessary documents as the complaint, the
summons and the filing fee.^^"* Because Boostrom was a small claims case and
turned on nonpayment of the filing fee, court of appeals' decisions were in
conflict over its applicability to summonses and its precedential value for larger
controversies.

In Fort Wayne International Airport v. Wilhum^^^^ the plaintiff timely
tendered the complaint and fee to the clerk of the circuit court, but did not
provide the summons until shortly after the running of the statutory period. The
court of appeals concluded the action was time-barred and treated the footnote
in Boostrom (identifying the summons as an essential document) as
controlling.'^ However, the court of appeals decisions in Ray-Hayes, ^^^ and
later, in Oxley v. Matillo,^^^ limited Boostrom to its particular facts and judged
its references to the summons as dictum. They also justified doing so because
current Trial Rule 3 provides literally that commencement of an action occurs by
"filing a complaint with the court."'^ Thus it trumped the "dictum" in Boostrom
so that the plaintiffs' tendering of their summonses after the limitations period
did not bar their claims due to untimeliness. The Indiana Supreme Court granted
transfer in Ray-Hayes and made it clear that Boostrom — broadly read — is
controlling.

In Ray-Hayes, the plaintiff timely filed an amended complaint to add Nissan
Motor Company as a new defendant on a products liability claim, but she did not
tender the summons to the clerk until more than four months after the two-year
limitations period had run.''° On these facts, and by a 3-2 decision, the court
found the action time-barred, citing Boostrom^^ It also stated:

Requiring that the summons be tendered within the statute of limitations
is also good policy, because it promotes prompt, formal notice to
defendants that a lawsuit has been filed. This not only helps to prevent
surprise to defendants, but it also helps to reduce stagnation that might
otherwise occur if the claims could be filed only to remain pending on

103. Id. at 111.

104. Id ax Ml n.2.

105. 723 N.E.2d 967 (Ind. Ct. App.), trans, denied, 735 N.E.2d 237 (Ind. 2000).

106. /c/. at 968.

1 07. 743 N.E.2d 777 (Ind. Ct. App.), trans, granted sub nom., Nissan N. Am. v. Ray-Hayes,
2002 Ind. LEXIS 1 (Ind. 2001), superceded by Ray-Hayes v. Heinamann, 760 N.E.2d 172 (Ind.
2002).

108. 747 N.E.2d 1179 (Ind. Ct. App.), trans, granted, 2002 Ind. LEXIS 166 (Ind. 2001),
superceded by 762 N.E.2d 1 243 (Ind. 2002).

1 09. Id at 1 1 80; see also iND. TRIAL R. 3.

110. /?ay-//fl7ej, 760N.E.2datl74.

111. Id

2002] CIVIL PROCEDURE 1173

court dockets without notified defendants."^

In addition to these policy concerns, imminent changes in Trial Rule 3 were a
consideration for the majority.''^ These took effect on April 1, 2002 and
explicitly require tender of the complaint (or its equivalent), payment of the filing
fee, if any, and "furnishing to the clerk of the court as many copies of the
complaint and summons as are necessary" to effectuate service, where service is
required.""^ Now, to begin an Indiana action within any applicable limitations
period, one must tender the complaint, the filing fee and the summons to the
clerk."'

The issue of the steps needed to toll a statute of limitations is complicated by
federal practice. The Federal Rules of Civil Procedure provide that an action is
commenced on the filing of the complaint."^ Federal Rule of Civil Procedure 4
details the requirements of proper service as a separate matter, but it does provide
that if the summons and complaint are not served on the defendant within 120
days from filing the case must be dismissed without prejudice or the court must
order a specific time within which service must be accomplished."^ Federal
cases establish that in federal matters, commencement occurs on the tendering
of the complaint to the clerk,"* and the Seventh Circuit has held that the even the
filing fee is not necessary."' These differences in approach to tolling between
the federal system and Indiana can cause confusion. This is especially true when
a state claim is filed in federal court under diversity jurisdiction, and the federal
court is confronted with the question of how to apply the Erie doctrine'^° in light
oi Ray-Hayes, The landmark case of Hanna v. Plummer^^^ established that where
a Federal Rule of Civil Procedure directly governs in a diversity action, it
prevails over contrary state practice so long as it is a validly promulgated rule

112. Id.

113. 5ee/>i/ra notes 639-41 and accompanying text.

1 1 4. The new text of IND. Trial R. 3 provides:

A civil action is commenced by filing with the court a complaint or such equivalent
pleading or document as may be specified by statute, by payment of the prescribed filing
fee or filing an order waiving the fee, and, where service of process is required, by
furnishing to the clerk as many copies of the complaint and summons as are necessary.

115. In a dissent, with which Justice Dickson concurred, Justice Rucker pointed out that given
the ambiguity in the law existing at the time the claim in Ray-Hayes was filed, it was not clear that
plaintiff should have had her action time-barred, under a proper construal of T.R. 41(E) (procedure
on dismissals), and T.R. 1 2(B)(6) (dismissals for failure to state a claim for relief). Ray-Hayes^ 760
N.E.2d at 175 (Rucker, J., dissenting).

116. Fed. R. Civ. P. 3.

117. Fed. R. Civ. P. 4.

118. Henderson v. United States, 517 U.S. 654, 657 n.2 (1996).

1 1 9. See Robinson v. Doe, 272 F.3d 92 1 , 922-923 (7th Cir. 200 1 ), reh 'g en banc denied by
2002 U.S. App. LEXIS 585 (7th Cir. 2002); see also FED. R. Civ. P. 5(e).

120. 5ee Erie R.R. V.Tompkins, 304 U.S. 64 (1938).

121. 380 U.S. 460 (1965).

1174 INDIANA LAW REVIEW [Vol. 35:1157

under the Rules Enabling Act,'^^ that is, so long as it is arguably procedural.
However, in Walker v. Armco Steel, Corp. '^^ the U.S. Supreme Court concluded
that Federal Rule of Civil Procedure 3 does not speak directly to the issue of
when a state action is commenced under the rule for purposes of tolling.'^'' It
held a case time-barred when the plaintiff had filed his tort claim within the state
limitations period but did not achieve actual service on the defendant until after
the statutory period ran.'^^ These cases caution the litigator who practices both
in Indiana and federal courts to pay attention to the possibility that the Indiana
rule on tendering all essential documents, including the summons might not be
applied in a diversity action.

6. Nonparty Defendant Notice and Product Identification for Purposes of
Summary Judgment. — Another opinion with practical impact on everyday
litigation decisions is Owens Corning Fiberglass Corp. v. Cohb}^^ It explores
the proper standard for summary judgment when product identification is the
issue, and it details the considerations governing timely notice of the nonparty
defense.

In Owens Corning Fiberglass the plaintiff brought claims for products
liability, negligence, strict liability and breach of warranty against thirty-three
defendants in connection with his development of lung cancer from asbestos. '^^
Owens Corning was one of the named defendants. It filed an answer presenting
a plethora of affirmative defenses, including the nonparty defense and also
reserved the right to object to the dismissal of any settling defendant and to
amend its answer to identify such settling defendant as a nonparty. '^^

A little more than a year later, plaintiff Cobb and Owens Corning filed cross-
motions for summary judgment. The plaintiff sought partial summary judgment
on Owens Coming's affirmative defenses and Owens Coming, in tum, sought
summary judgment on the theory that plaintiff could not carry his burden to show
that he had ever been exposed to Owen Coming's products. '^^ The trial court
denied the Owens Coming motion for summary judgment without comment.

A few days later, Owens Coming opposed plaintiffs motion by a two-part
strategy: it moved for leave to amend its answer to specifically identify other
asbestos-producing nonparties — some of which had settled with plaintiffs and
some of which had not — ^and it filed a response to plaintiffs motion in which it
cross-referenced to the new answer and designated evidence as to each nonparty.

122. 28 U.S.C. §2072(1999).

123. 446 U.S. 740,752-753(1980).

124. /fl^. at 748-51.

125. Id.

126. 754 N.E.2d 905 (Ind. 2001).

127. Mat 907.

128. Following the Indiana Supreme Court's opinion last year in Mendenhall v. Skinner &
Broadbent Co., 728 N.E.2d 140 (Ind. 2000), a settling defendant must be identified as a nonparty
after dismissal so that credit for sums paid in settlement in the context of comparative negligence
is subject to the jury process.

1 29. Owens Corning Fiberglass, 754 N.E.2d at 908.

2002] CIVIL PROCEDURE 1175

Owens Corning argued that it thereby created a material issue as to whether it
could meet its burden of proof that the nonparties had contributed to plaintiffs
condition. Cobb countered that Owens Coming had not met its burden on
product identification for the nonparties. Moreover he claimed the answer
should not be allowed because timely notice of nonparties had not been given.
The trial court granted plaintiffs motion for partial summary judgment and
denied the motion to amend. '^°

Although the defendant had the burden of proof on the nonparty defense,'^'
the Indiana Supreme Court characterized the cross-motions for summary
judgment as "mirror images'"^^ of each other. Both parties were attempting to
exploit the paucity of evidence on product identification — Owens Corning
alleged that plaintiff had not shown a triable issue as to whether its product
caused his injuries; Cobb alleged that Owens Coming had not shown a triable
issue as to whether any of the nonparties' products contributed to his condition.
But in both instances, the court concluded that each had mustered enough
evidence to avoid summary judgment'" and that it need not apply Jarboe v.
Landmark Community Newspapers of Indiana, Inc. '^^ Nonetheless, the issue of
the timely identification of the nonparties was still central.

According to the court, the main purposes of notice are to allow the plaintiff
an opportunity to join the nonparty as an additional named defendant prior to the
running of the statute of limitations'" and, secondarily, to apprise the plaintiff
of defense strategy. Thus, Indiana Code section 34-4-33- 10(c)'^^ requires
designation of nonparties with "reasonable promptness." But, the reasonablity
of notice depends on when the defendant becomes aware that there is a nonparty

1 30. Id. The trial court did allow amendment to name one entity as a nonparty, Rutland Fire
Clay. As the Indiana Supreme Court noted, this was inconsistent with the ruling in plaintiffs favor
granting summary judgment on all affirmative defenses. See id. at 91 2 n. 1 1 . After trial, the jury
awarded almost $700,000 in compensatory damages against Owens Corning and $15 million in
punitive damages, which the trial court remitted in conformity with Indiana legislation capping
punitive damages. Id. at 908.

131. See Cornell Harbison Excavating, Inc. v. May, 546 N.E.2d 11 86, 1 1 87 (Ind. 1 989); Ind.
Code §51-2-15 (1999).

132. Owens Corning Fiberglass,15A^.E2(^d!i9U.

133. Cobb's testimony that he had seen defendant's product, Kaylo, in sites where he had
worked was sufficient to create a genuine issue regarding whether Owens Coming's product were
a cause of his lung cancer. Similarly, Cobb's testimony that he purchased and used various
asbestos-containing goods from nonparty defendant, Sid Harvey, should have precluded summary
judgment on Owens Coming's motion at least with regard to it. Id.

1 34. 644 N.E.2d 1 1 8, 1 23 (Ind. 1 994). By the opinion in Jarboe, Indiana rejects the approach
to summary judgment established for the federal courts in Celotex Corp. v. Catnett, 477 U.S. 317
(1986).

135. See Owens Corning Fiberglass, 754 N.E.2d at 913-14.

136. Ind. Code § 34-4-33-1 0(c) (1998) (repealed by P.L. 1-1988, Sec. 201) (current version
at Ind. Code § 34-51-2-16 (1999)).

1176 INDIANA LAW REVIEW [Vol. 35:1 157

to be identified. In the case of a defendant who is dismissed, '^^ this awareness
can come late in the proceedings. Moreover, when the plaintiff has knowledge
of the existence and identity of a potential nonparty — ^which is certainly the case
with a settling defendant— the plaintiff cannot logically be prejudiced by delay
in identifying the nonparty. Thus the court stated: "No violence is done ... by
permitting a defendant to assert a nonparty affirmative defense reasonably
promptly after receiving notice that a named party defendant has been dismissed
from the lawsuit."'^* Because Owens Coming did not move to amend its answer
as to certain nonsettling and nonjoined entities for more than one year after it
knew or should have known their identities, the timeliness of notice was not met
as to them. However with regard to one defendant that had settled with the
plaintiff, notice was reasonably prompt and the motion to amend was not too late.
Thus, the trial court committed reversible error when it granted plaintiff summary
judgment on Owens Coming's nonparty defense relating to that entity.

7. Availability of Wrongful Death Remedies. — The topic of remedies blurs
the distinction between procedure and substance. In 2001 , the Indiana Supreme
Court decided a quartet of cases clarifying the remedies available under the
wrongful death and child wrongful death statutes, primarily in regard to punitive
damages. The most important of these is Durham v. U-Haul International P'^ It
explicitly prohibits recovery of punitive damages for wrongful death and it
overrules Burk v. Anderson,^^^ which had excluded loss of consortium damages
from the scope of the statute.

In Durham, a driver was killed in a head-on collision with a U-Haul truck.
The driver's husband and ex-husband sued for wrongful death as co-
representatives on behalf of her estate. Her husband also filed an independent
common law claim for loss of consortium. All plaintiffs sought punitive
damages. On reconsideration, the trial court granted partial summary judgment
in favor of all defendants on punitive damages, but denied summary judgment as
to the loss of consortium claim. The court of appeals affirmed in part and
reversed in part. Most importantly, it held that sound policy reasons support
recovery of punitive damages in a wrongful death action, and so reversed on that
ground. The Indiana Supreme Court granted transfer and, in an opinion written
by Justice Boehm, identified three issues raised by the case — whether punitive
damages are recoverable under the wrongful death statute; whether excluding
them from recovery would be unconstitutional; and whether loss of
consortium — ^and punitive damages premised on it — survives as an independent
claim outside the purview of the statute.'*'

At common law, one who killed the victim of his or her tortious conduct

137. This is especially true where the dismissal is pursuant to settlement, and the nonparty
should be identified pursuant to Mendenhal v. Skinner & Broadbent Co., 728 N.E.2d 140 (Ind.
2000).

138. Owens Corning Fiberglass, 754 N.E.2d at 91 5.

139. 745 N.E.2d 755 (Ind. 2001).

140. 109 N.E.2d 407 (Ind. 1952).

141. Z)Mr/iflm, 745 N.E.2d at 758.

2002] CIVIL PROCEDURE 1 1 77

outright could escape paying any compensation, because the victim's personal
cause of action was extinguished by death. ''^^ Wrongful death statutes were
enacted to remove this injustice and provide deterrence. They have been strictly
construed to give only a narrow remedy to dependents of the deceased to
compensate them for the pecuniary losses caused by the death. "*^ The Indiana
General Assembly adopted the state's first wrongful death statute in 1 852 and has
repeatedly amended it.*^^ In all its permutations, the statute has never explicitly
mentioned the topic of punitive damages.'"*^ Relying on the doctrine of
"legislative acquiescence," the court concluded that punitive damages are not
available under the statute notwithstanding the statutory gap.

The plaintiffs argued that since the ban on punitive damages under the statute
was judicially created, it could be judicially removed. Justice Boehm disagreed,
positing that the legislature's long failure to amend the statute in the face of case
law disallowing punitive damages expressed its agreement with the judicial
interpretation. He noted that the legislative response to Indiana cases construing
the child wrongful death statute shows how swiftly the legislature can act when
it disagrees with the courts' interpretation'^^ and he argued that the legislature's
lack of action suggests it agreed with the conclusion of courts that punitive
damages were not available.'*' In the majority's view, this, along with the
doctrine of stare decisis, restricted its discretion to allow punitive damages as a
element of recovery:

[I]f a line of decisions of this Court has given a statute the same
construction and the legislature has not sought to change the relevant
parts of the legislation, the usual reasons supporting adherence to

1 42. Id. ; see also DAN B. DOBBS, Law OF REMEDIES § 8.3( 1 ) (2d ed. 1 993).

143. 5eeZ)Mr/iam, 745 N.E.2d at 758.

144. /c/. at 758-59.

145. Id. at 758. Justice Boehm noted that, in contrast, the wrongful death statute governing
unmarried adults does expressly prohibit punitive damages. Id. at 758-59. He also noted that the
child wrongful death statute provides a specific, enumerated list of recoverable items and does not
mention punitive damages. Id. at 759. See also infra text accompanying notes 166-74, discussing
Forte V. Connerwood Healthcarey 745 N.E.2d 796 (Ind. 2001), in which the court construed the
child wrongful death statute to prohibit punitive damages.

1 46. Durham, 745 N.E.2d at 761 . One the cases relied on was Andis v. Hawkins, 489 N.E.2d
78 (Ind. Ct. App. 1986). It held that recovery for love and affection was not available under the
statute. The legislature immediately responded with an amendment making it clear that such items
are recoverable. Justice Boehm argued that though this was an appellate opinion, it should be
treated as if the appellate court were one of last resort due to the difficulty of civil cases making
their way to the Indiana Supreme Court as a result of the requirement that the court review so many
criminal cases. Durham, 745 N.E.2d at 760-61 & 761 n.2.

147. Id at 761. The court cited Huff v. White Motor Corp., 609 F.2d 286 (7th Cir. 1979);
Herriman v. Conrail, Inc. , 887 F. Supp. 1 1 48 (N.D. Ind. 1 995); Kuba v. Ristow Trucking Co. , 508
N.E.2d 1 (Ind. 1987); and Rogers v. R.J. Reynolds Tobacco Co., 557 N.E.2d 1045 (Ind. Ct. App.
1990) as the cases establishing judicial construction of the statute to preclude punitive damages.

1178 INDIANA LAW REVIEW [Vol. 35:1 157

precedent are reinforced by the strong probability that the courts have
correctly interpreted the will of the legislature.^'**

In addition, the court noted that since the wrongful death statute derogates the
common law it should be strictly construed. Finally, the majority disagreed with
the court of appeals' claim that Indiana law showed a general trend in favor of
punitive damages. '^^

Turn ing to the constitutional question, the court construed the issue under the
Federal Constitution because the plaintiffs had not challenged the exclusion of
punitive damages under the state constitution. The plaintiffs alleged that not
allowing punitive damages violated the Equal Protection Clause. '^^ The court
scrutinized the statute using the "rational basis" analysis. Finding that the goal
of the wrongful death statute is to compensate statutory beneficiaries for the
pecuniary loss caused by the victim's death, the court did not punish the
defendants. The court reasoned that the statute passed muster because it
rationally advanced that goal.'^' In addition, the court found that the statute
reflects the "qualitative difference" between injuries to tort victims themselves
and harms to their survivors caused by their deaths.'"

This left the third question to be addressed: what was the status of the
husband's loss of consortium claim?'^^ In resolving this question, the court gave
the plaintiff half a loaf Justice Boehm began the analysis by noting that loss of
consortium is derivative of a victim's personal injury claim. Moreover, allowing
such a claim to survive independent of the statute would promote easy
circumvention of the ban on punitive damages.'^"* Because these factors militated
in favor of including consortium claims within the purview of the legislation, the
court overruled Burkv. Anderson,^^^ which had indicated that the cause of action
for loss of consortium did survive outside the statute.

This conclusion did not mean that the period for which recovery was

148. Durham, 745 N.E.2d at 759 (citing Heffner v. White, 47 N.E.2d 964, 965 (1943)).

149. Id. at 762-63. Justices Rucker and Dickson dissented. They argued that the legislative
history cuts both ways — ^the failure of the legislature to speak on the issue of punitive damages at
the same time that it responded specifically regarding the unmarried persons and child wrongful
death statutes could just as easily lead to the inference that availability of punitive damages under
the wrongful death statute itself was, at a minimum, an open question. Id at 767-68 (Rucker, J.
dissenting). Moreover, they asserted that the doctrine of legislative acquiescence was not appl icable
because it required legislative inaction in the face of a clear line of cases by the state's highest
court — a factor not present here in their view. Id. at 768. Their dissent is especially significant
because Justice Boehm himself noted that the policy arguments in favor of punitive damages under
the wrongful death statute were persuasive had the court been writing on a clean slate.

150. /^. at 763-64.

151. Id

152. Mat 764.

153. Id

154. Mat 764-65.

155. 109 N.E.2d 407 (Ind. 1952).

2002] CIVIL PROCEDURE 1179

available was similarly limited to the contours of the common law. Although
most states treat consortium claims as covering only the period between the
victim's injury and the date of death, the court concluded that simply because
death extinguishes the common law claim for post-mortem consortium damages
does not mean they are excluded under the wrongful death statute. '^^ It held that
damages for consortium thereunder can cover losses to the date of the surviving
spouses' s death in a proper case.^^^ The court also noted that the traditional items
of damage for consortium are included in the wrongful death claim; however,
consistent with the main holding that the wrongful death statute does not support
punitive damages, they are not available for the consortium elements as well.

Bemenderfer v. Williams^^^ is a companion case with Durham and is also
authored by Justice Boehm. It further refined how loss of consortium should be
handled under the wrongful death statute and specifically addressed the problem
of the death of a beneficiary which occurs after filing but before verdict. In
Bemenderfer^ the decedent's death was allegedly caused by a doctor's
negligence. '^^ The victim's elderly husband suffered from Alzheimer's disease,
and she had cared for him at home. A lawsuit was filed naming the husband and
decedent's daughter as plaintiffs.'^ Soon after the wife's death, the husband had
to be put in a nursing home and he died relatively quickly. The inference that the
wife's absence hastened his death was strong.'^' His daughter was substituted as
the party plaintiff in his place, but the doctor moved for summary judgment
arguing that the husband's death precluded wrongful death recovery for the
pecuniary loss to him and further, that his consortium claim only covered the
three days between decedent's injury and her demise.'" The Indiana Supreme
Court rejected both arguments.

Citing to Durham, the court reiterated that consortium claims are subsumed
by the wrongful death statute. '^^ In contrast to Durham, the court denied that any
doctrine of legislative acquiescence applied to the issue of the effect of a
beneficiary's death prior to verdict.'^ Consequently, the court was free to
consider the policy questions directly. Recognizing that the death of the
beneficiary can give a defendant a windfall, the court held that a beneficiary may
recover damages from the decedent's death up to the beneficiary's death and that
these damages are an asset of the beneficiary's estate.'^^

In Forte v. Connerwood Healthcare Inc. '^ the issue was whether punitive

1 56. Durham, 745 N.E.2d at 765.

157. Id.

158. 745 N.E.2d 212 (Ind. 2001).

159. Mat 214.

160. Id

161. Id at214.15.

162. Id at 215.

163. Id at 216.

164. Id

165. Id at 218-19.

166. 745 N.E.2d 796 (Ind. 2001).

1180 INDIANA LAW REVIEW [Vol. 35:1157

damages could be recovered under the child wrongful death statute. There a
disabled child died within days of being admitted to a nursing home.'^^ The
child's mother filed an action for compensation under a complaint that was pled
very generally. She also asked for punitive damages. Defendants moved for
partial summary judgment, claiming that punitive damages are not recoverable
under the Child Wrongful Death Act.'^* The plaintiff responded that punitive
damages were allowable and that her complaint could be read to include an
independent loss of consortium claim supporting punitive damages. ^^^ On
interlocutory appeal, the court of appeals affirmed the trial court's conclusion
that the mother had no statutory right to punitive damages, but treated the
consortium argument as a claim for loss of the child's services that survived the
wrongful death statute. '^°

In an opinion by Justice Rucker, the court first reviewed the child wrongful
death statute and noted that it contains a highly specific list of damages. This list
does not include punitive damages.'^' Because the statute is in derogation of the
common law and therefore should be strictly construed, the court concluded that
the statute did not include claims for punitive damages. '^^ However, in contrast
to the analysis in Durham, the court allowed loss of services as an independent
tort, but argued that the tort does not support punitive damages either. '^^ Justice
Rucker reached this conclusion on the premise that loss of services is derivative
of the personal injury claims of the victim. In the absence of legislation and
following the common law approach, the cause of action dies with the child. '^"^

Finally, in Elmer Buchta Trucking, Inc. v. Stanley^^^ the court had to
determine whether the 1965 amendments to the wrongful death statute dispensed
with the requirement that the decedent's expenses be deducted from the damages
to beneficiaries for pecuniary loss.'^^ These amendments established three
groups of beneficiaries and designated the personal representative of the estate
as the proper party plaintiff.*^' The estate receives compensation for discrete
pecuniary losses for funeral, medical, and hospital expenses and the beneficiaries
receive the remainder of any recovery.'^* The statute does not expressly require
a deduction for monies the decedent would have spent personally or for his or her
own maintenance. Noting that the language dictating recovery for "lost earnings"
could support interpretations both requiring and excluding the deduction, the

167.

Id. at 798.

168.

Id.

169.

170.

/i/. at 798-99.

171.

Id at 800.

172.

173.

Id at 802-03.

174.

Id at 803.

175.

744 N.E.2d 939 (Ind. 2001)

176.

/^. at 940-41.

177.

/(i. at 941.

178.

2002] CIVIL PROCEDURE 1181

majority treated the statute as ambiguous. ^^^ Noting that cases construing the
statute had characterized it as a remedy for pecuniary loss and being concerned
with the over-compensation that would arise if a deduction was not made, the
court stated: "'That juries should account for actual fmancial loss has been held
the object of the statute from the Nineteenth Century through to the last two
decades. We cannot find legislative desire to alter that formula in the relatively
general amendments adopted thirty-six years back."'*° The defendant should
have been able to introduce evidence as to the expenses the decedent would have
incurred during his lifetime.

B. Other Significant Indiana Supreme Court Decisions

1. Appeals. — ^The court used the controversy in GKNCo. v. Magness,^^^ as
an opportunity to clarify the standard of appellate review when scrutiny of a Rule
1 2 motion to dismiss for lack of subject matter jurisdiction is the issue. There the
question concerned whether the plaintiff cement truck driver was a dual
employee for purposes of the worker's compensation statute.**^ The trial court
made its ruling on the basis of a paper record, and dismissed the case without
making fmdings as to disputed facts.'"

In a unanimous opinion authored by Justice Rucker, the court established as
a general principle that

a review of the case authority shows that the standard of appellate review
for Trial Rule 12(B)(1) motion to dismiss is indeed a function of what
occurred in the trial court. That is, the standard of review is dependent
upon: (i) whether the trial court resolved disputed facts; and (ii) if the
trial court resolved disputed facts, whether it conducted an evidentiary
hearing or ruled on a "paper record.'"*^

Where no disputed evidence is at issue, the matter is a pure question of law and
therefore the standard of review is de novo.'*^ However, even if facts are
disputed, where the trial court rules on a paper record and conducts no
evidentiary hearing, the standard of review is also de novo because the appellate
court is in the same position as the trial court to judge the evidence.'^^ Justice
Rucker reiterated that the trial court's ruling will be sustained on any applicable
legal theory and that, in the case of a paper record review, "we will reverse on the
basis of an incorrect factual finding only if the appellant persuades us that the

179.

Id at 942.

180.

Id. ai943.

181.

744 N.E.2d 397 (Ind. 2001),

182.

/(/.at 400.

183.

184.

IdsAAOl.

185.

186.

1182 INDIANA LAW REVIEW [Vol. 35:1 157

balance of the evidence is tipped against the trial court's findings.'"*^ The court
went on to conclude that, applying the factors for dual employee status developed
in Hale v. Kemp,^^^ the trial court had correctly dismissed the action, despite the
absence of findings.'"'

In addition to the question of appellate review, the court also addressed
burdens of pleading and proof. Despite the strong public policy of subsuming
employee injury claims under the Worker's Compensation Act, Justice Rucker
stated that coverage under the statute is an affirmative defense that must be raised
by the defendant and that the defendant has the burden of proof on the question
unless "the employee's complaint demonstrates the existence of an employment
relationship .... Thus we disapprove of the language in those cases declaring
that once an employer raises the issue of the exclusivity of the Act, the burden
automatically shifts to the employee.'"^

Tom-Wat, Inc. v. Fink,^^^ is an important case that sheds light on the court's
standards for appellate review of personal jurisdiction challenges, the scope of
appeal from interlocutory orders, and late affidavits on summary judgment,
among other issues.

The case involved a trade debt between Tom- Wat, Inc. ("Tom-Wat"), a
Connecticut corporation, and George Fink ("Fink"), an Indiana sole proprietor. '^^
When Fink failed to pay for goods ordered, Tom- Wat sued him in a Connecticut
state court and obtained a default judgment. '^^ In 1 994, Tom- Wat filed an action
to enforce this judgment in an Indiana state court, and Fink both answered and
moved to dismiss the action for lack of personal jurisdiction over him in
Connecticut. ''"* Because he attached an affidavit to his motion to dismiss, the
Indiana Supreme Court treated it as a motion for summary judgment based on
invalidity of the Connecticut judgment. However, the affidavit gave no specific
information as to the jurisdictional facts. '^^ In the trial court, Tom-Wat had
timely filed opposition and designated particular facts as creating genuine issues
for trial. A month later, Tom- Wat filed its own cross-motion for summary
judgment, which it supported by designations of facts and an affidavit.''^ In the
summer of 1995, Tom- Wat requested a hearing on its motion for summary
judgment and reiterated that request in 1997. A hearing was set, but Fink
requested a continuance, which was granted. The matter was finally heard in
March 1998.'^'

187.

188.

579N.E.2d63(Ind. 1991).

189.

G/CA^, 744N.E.2dat402.

190.

Id. at 404.

191.

741 N.E.2d 343 (Ind. 2001),

192.

Id at 345.

193.

194.

195.

196.

197.

2002] CIVIL PROCEDURE 1 1 83

Two days before this hearing Fink filed a designation of material facts and
two affidavits alleging, among other things, that he had never been to
Connecticut and that he had contracted to buy the goods in a meeting in
Louisiana. On the basis of this information, Fink's only connection with
Connecticut was his purchase of goods from a Connecticut corporation while
outside the state. Tom- Wat then moved to strike this material for lateness. No
ruling on that motion was evident from the record and the transcript of the
hearing on all motions was lost.'^* The trial judge denied both Fink's motion to
dismiss and Tom- Wat's motion for summary judgment and then recused himself.
Tom- Wat filed an interlocutory appeal from the order denying the motions for
summary judgment, but alleged that the trial court had actually stricken Fink's
new material.'^

The court tackled this procedural morass by first noting that on interlocutory
appeal every issue entailed by the order appealed from must be reviewed.
Although the cross-motions for summary judgment were mutually inconsistent,
because the trial court denied both, the Indiana Supreme Court had to review the
matters raised by each.^°° Citing to Anthem Insurance Co. v. Tenet Healthcare
Corp.,^^^ which was decided just last year. Justice Boehm reiterated that
"personal jurisdiction is a question of law and, as such, it either exists or does
not."^°^ Where there is no question as to the jurisdictional facts, the appellate
court will make a "final determination" of the issue, taking into account the
normal standard on review of summary judgment, that is, one which is the same
as that which applies at the trial level. This standard construes all facts and
reasonable inferences therefrom in favor of the nonmoving party and requires
that the moving party show that no genuine issue of material fact exists to be
resolved.^°^

From the court's perspective, there was no dispute over the operative facts
regarding Fink's connection with Connecticut — "In sum, the facts established by
both parties present a familiar pattern: Buyer ... is never physically present in
Seller's . . . state, but places an order . . . with Seller to be shipped from Seller's
facility in Seller's state."^°^ To reach this characterization, the court had to
consider the facts in Fink's late-filed affidavits. This is consistent with the
court's opinion in Indiana University Medical Center v. Logan^^^ which
authorized trial court discretion to consider late-filed affidavits. It then treated
the procedural history of the case as if the trial court had denied the motion to
strike and found that this was not an abuse of discretion.^^^ The later-presented

198.

Id.

199.

Id. at 345-46.

200.

Id at 346.

201.

730 N.E.2d 1227 (Ind. 2000).

202.

Tom-Wat, 741 N.E.2d at 346.

203.

204.

Id at 347.

205.

728 N.E.2d 855 (Ind. 2000).

206.

Tom-Wat, 741 N.E.2d at 347.

1 1 84 INDIANA LAW REVIEW [Vol. 35: 1 1 57

material was supplemental to the earlier conclusory affidavit of Fink and did not
really present facts different from those relied on by Tom-Wat.^°^ This left the
merits of the personal jurisdiction question for determination.

The court resolved this by asserting that under both federal and Indiana law,
Fink had the burden of showing the invalidity of the Connecticut judgment due
to lack of personal jurisdiction.^^* It pointed out that the Connecticut approach
to personal jurisdiction parallels the analysis adopted by Indiana in
Anthern^^^ — that is, in both states a defendant's activities must fit within the long
arm statue of the jurisdiction and the long arm as applied must comport with due
process.^'^ For Justice Boehm, whether the Connecticut judgment should be
enforced rested ultimately on federal principles, which require that the
defendant's activities show minimum contacts with the forum and that
jurisdiction not be so unfair as to be unreasonable.^" While under federal cases,
one contact might be enough to satisfy the minimum contacts prong of the
analysis, it would be too unfair to require a one time, out-of-state purchaser with
no other connections to Connecticut to go there to defend himself Based on the
facts before it, the Indiana Supreme Court concluded that the Connecticut
judgment could not be enforced.^'^ However, because it conceded that Tom-Wat
might not have had an adequate opportunity to respond to Fink's late-filed
affidavits, the court remanded the action to the trial court.^'^ Again, the Indiana
Supreme Court has shown that it will give parties opposing summary judgment
every opportunity to show genuine issues for trial.

Finally, in Bemenderfer v. Williams^^^ previously discussed in connection
with the wrongful death,^'^ the court reviewed the proper procedure for appeal
from a nonfmal order. In Bemenderfer, the trial court denied the defendant-
doctor's motion for partial summary judgment.^'^ Thereafter, rather than
following the certification procedure for interlocutory appeals, a procedure which
requires the court of appeals to accept jurisdiction before the appeal can proceed,
the trial court signed an "Agreed Final Judgment and Agreement Preserving the
Issue of the Appropriate Measure of Damages"^'^ to create a final judgment
pursuant to Rule 54(8).^'* The court of appeals then reviewed the decision and
affirmed. On transfer, the Indiana Supreme Court pointed out that, as a private
agreement between the parties, the "Agreed Judgmenf was not an appealable

207. Id.

208. Mat 348.

209. Anthem Ins. Co. v. Tenet Healthcare Corp., 730 N.E.2d 1227 (Ind. 2000).

210. Tom-^af, 741 N.E.2d at 348.

211. M at 348-50.

212. Mat 350.

213. Id.

214. 745 N.E,2d 212 (Ind. 2001).

215. See supra notes 158-65.

216. Bemenderfer, 145 l^.E.2d2Lt2\9.

217. M. at215n.2.

218. Ind. Trial R. 54 (B).

2002] CIVIL PROCEDURE 1 1 85

final judgment.^ '^ Because both the trial court and the court of appeals treated
the matter as appealable and remanding for certification would only delay
resolution of the merits, the court exercised its discretion to grant review.^^°
However, it is clear that the Indiana Supreme Court disapproved of this method
of attempting to construct appellate jurisdiction.

2. Attorney Solicitation. — In Re MurgatroycF^^ is an interesting per curiarh
opinion that blends issues of personal jurisdiction and subject matter jurisdiction
in the context of attorney discipline. It involved solicitation of potential Indiana
clients by two out-of-state California lawyers. The lawyers sent targeted mail to
families and victims of a 1992 Indiana airliner crash offering representation
without following the Indiana professional conduct rules restricting such
solicitation.^^^ In prior litigation, the respondents had challenged Indiana's
personal jurisdiction over them directly and lost.^^^ In the case before the court,
the specific issue was the Indiana Supreme Court's regulatory power to impose
discipline over out-of-state lawyers pursuant to an agreed judgment. Chief
Justice Shepard wrote:

Notwithstanding the fact that the respondents hold no Indiana law
licenses and therefore are not subject to this Court's usual disciplinary
sanctions for licensed Indiana attorneys who engage in professional
misconduct, any acts which the respondents take in Indiana that
constitute the practice of law are subject to our exclusive jurisdiction to
regulate professional legal activity in this state. By directing the
solicitations to the prospective clients, the respondents communicated to
those persons that they were available to act in a representative capacity

for them in Indiana courts As such, they held themselves out to the

public as lawyers in this state when neither was admitted to practice
here. Those acts constituted professional legal activity in this state
subject to our regulatory authority .^^^

The court concluded that while it may not directly subject the law license of
another state to discipline, it can impose penalties on persons for professional
misconduct that occurs /« Indiana.^^^

3. Corporate Privacy Rights and Injunctions. — Felsher v. University of
Evansville,^^^ is a significant torts and injunction case. Most important, it
establishes as a matter of first impression that a corporation does not have a
common law right of privacy where there is an alleged misappropriation of its
name and likeness. It also reiterates that injunctive relief must be narrowly

219. Bemenderfer, 745 N.E.2d at 2 1 5 n.2.

220. Id.

221. 741 N.E.2d 719 (Ind. 2001).

222. Id at 720.

223. Id

224. Id. at 720-21 (footnotes omitted).

225. Id 2X122.

226. 755 N.E.2d 589 (Ind. 2001).

1 1 86 INDIANA LAW REVIEW [Vol. 35:1157

tailored.

The defendant, a former University of Evansville professor, created a website
and e-mail accounts that purported to be those of the university and certain of its
officials. He used these means to pursue a vendetta against the university and
others. One of his activities was to nominate university personnel for positions
with other institutions. The University of Evansville and several of the
individuals he targeted sought an injunction against him for violation of their
rights to privacy. Summary judgment was granted for all defendants and a
permanent injunction issued.

On transfer, the supreme court rejected the privacy theoiV insofar as the
university was concerned, holding that a corporation has no privacy right to
vindicate and should pursue business-related causes of action for
misappropriation. This had procedural implications, for although the court
concluded that other state claims unrelated to privacy would authorize injunctive
relief for the university, for example, state unfair competition, the injunction
could not be affirmed as to the university on those grounds because they had not
been presented in the pleadings. The court also stressed that in reviewing grants
of summary judgment it will carefully scrutinize prior proceedings to insure that
the nonmoving party has not been deprived of its day in court. Moreover, in
passing on the more substantive issues raised by the case, the court noted that the
defendant professor could not raise an issue for the first time on appeal by reply
brief. Finally, the court found that the injunctive order issued was overbroad
insofar as it prohibited the defendant from nominating individuals for positions
in his own name and narrowed it to exclude this prohibition.

4. Juries. — Rogers v. R.J. Reynolds Tobacco^^^ combined issues of harmless
error and a trial judge's ex parte communication with a jury. The case involved
claims brought by the widow of a smoker and had been previously appealed after
the grant of summary judgment for defendants. In connection with the trial on
remand, one of the jurors asked the bailiff whether the jury could hold a press
conference after the verdict. The trial judge was informed and responded to the
jury via the bailiff simply, "yes."^^* On appeal, the Indiana Supreme Court found
this to be harmless, although the process violated the requirement that when the
jury has questions or requests of the court, the parties are to be notified so they
may be present and have knowledge of the judge's response before it is
communicated to the jury .^^' The court suggested that one important factor for
determining whether a judge's ex parte communication to a jury is harmful is to
scrutinize the reaction of the jury, and particularly whether it returns a verdict
shortly thereafter.^^°

5. Law of the Case. — In City of New Haven v. Reichhart,^^^ the court was
faced with an issue of first impression: whether the First Amendment right to

227. 745 N.E.2d 793 (Ind. 2001).

228. Id. at 795.

229. Id

230. Id

231. 748 N.E.2d 374 (Ind. 2001).

2002] CIVIL PROCEDURE 1 1 87

petition the government prohibits an official entity from bringing a malicious
prosecution claim against a person who exercises a statutory right to challenge
governmental action. ^^^ However, the court did not reach the constitutional
question, determining that the dispute could be resolved on other grounds.^" In
the case, the plaintiff-taxpayer was an employee of a business that would have
been adversely affected by an annexation ordinance adopted by the city of New
Haven. The employer funded a lawsuit brought to challenge the city's process
as a violation of the Open Door Act and to challenge the ordinance itself. A
temporary restraining order was granted to plaintiff on the Open Door grounds; |

thereafter the city rescinded the ordinance.^^^ However, it filed a counterclaim I

against plaintiff for abuse of process. The plaintiff sought summary judgment
thereon, which was denied. The court of appeals reversed, finding that the ;

plaintiffs suit was not improper and summary judgment should have been <

granted. While the interlocutory appeal was pending, the city amended its I

complaint on remand to present a claim for malicious prosecution. ^^^ Later, the i

plaintiff argued that the court of appeals' ruling on abuse of process was the law I

of the case and presented other challenges to support a motion to dismiss the I

malicious prosecution claim. The motion was granted and then affirmed by the <

court of appeals, which held that its previous ruling on abuse of process was not I

the law of the case as to malicious prosecution, but that the First Amendment did '

bar such a cause of action.^'^ «

The Indiana Supreme Court affirmed, but on other grounds. It agreed with '

the court of appeals on the law of the case issue, pointing out that the elements
of both theories are distinct, so that the city was not precluded by the prior ruling
on the element of probable cause.^" Rather than reaching the constitutional
question, the court concluded that no probable cause to bring the action existed
on the facts of the case.^^*

6. Local Rules. — Buckalew v. Buckalew^^^ raised the issue of whether a trial
court's failure to follow a local rule is jurisdictional, rendering its actions
thereafter void. In a dissolution proceeding, the trial court allowed the filing of
a financial disclosure form, although both parties were not represented by
counsel as explicitly required by a Howard County local rule.^*° The wife filed
for relief from the judgment, which was denied. On appeal, she argued that the
trial court's action was void.^*' Writing for a unanimous court. Justice Dickson

232.

Id. at 378.

233.

Id. at 379.

234.

Id at 376-77.

235.

Id at 377.

236.

237.

Id at 379.

238.

239.

754 N.E.2d 896 (Ind. 2001).

240.

/^. at 897.

241.

1188 INDIANA LAW REVIEW [Vol. 35:1157

disagreed. Notwithstanding Mere J/Y/i v. State ^^^ which suggested that some local
rules involving the substantive rights of the parties are mandatory and cannot be
waived, Justice Dickson declared that the wife's attempt to characterize the
question as one of jurisdiction was incorrect.^*^ He pointed out that there are
only two requisites for trial court jurisdiction — competency over the subject
matter and personal jurisdiction over the defendant. When both are present, there
is no jurisdictional defect, although there may be reversible error in the manner
in which the court employs its jurisdiction. In general, the failure to follow a
local rule leads to error which might provide the basis for appeal, but does not
render a judgment void ab initio}^

7. New Trial Versus Judgment on Evidence. — In Neher v. Hobbs^^^ the
Indiana Supreme Court gave guidance as to the fmdings and procedures needed
for a new trial motion to be properly granted. The case involved a collision
between a van and an automobile. The van driver brought a claim for damages
for his injuries and his wife presented a claim for loss of consortium and services.
Although the jury found the automobile driver was at fault, it awarded the van
driver no damages for his injuries and found for the automobile driver on the
wife's claims. The plaintiffs filed a motion to correct error, which was granted
and the trial court ordered a new trial. The car driver appealed, arguing that the
trial court had not made the proper findings and followed the proper procedure
in advance of giving the remedy of a new trial, especially one premised on the
idea that the jury's verdict was against the weight of the evidence. The van
driver filed a cross-appeal. The court of appeals reversed.

On transfer and in an opinion by Justice Dickson, the Indiana Supreme Court
discussed the requirements of a new trial motion and distinguished between the
findings necessary when the ground for granting such a motion is that it is against
the weight of the evidence versus the ground that it is clearly erroneous. In the
latter circumstance, the trial court does not have to set forth the evidence both
supporting and opposing the verdict in findings. Disagreeing with the defendant,
the court concluded that the basis for the new trial order was that the verdict was
clearly erroneous and it concluded that the findings sustained the new trial relief.
The defendant also argued that the court was required to show why it did not
grant judgment on the evidence rather than ordering a new trial. The supreme
court rejected this claim of error as well, noting that the explanation process
under Indiana Trial Rule 59 is designed to assist the appellate court on review;
in the case before it, the reasons for not using the judgment on the evidence
procedure were clear from the trial court's findings-the verdict was clearly
erroneous because no damages were awarded though the defendant was at fault.
In that circumstance, the trial court could not assess damages itself and enter
judgment. However, noting that when a motion for new trial is granted, the
scope of retrial should be limited only to those issues affected by error, the court

242. 679N.E.2d 1 309 (Ind. 1997).

243. ^McJb/ew, 754 N.E.2d at 897-98.

244. Id. at 898.

245. 760N.E. 2d602(lnd. 2001).

2002] CIVIL PROCEDURE 1 1 89

limited the trial court's order so that only the issue of damages and the wife's
right to recovery were subject to retrial and remanded for proceedings consistent
with that limitation.

8. Proceedings to Vindicate Minority Shareholder Rights. — Galligan v.
Galligan^^^ presented procedural issues in the context of a lawsuit over alleged
breaches of fiduciary duty owed to minority shareholders by a majority
shareholder. The controversy arose from sales made of corporate assets to a third
party. The trial court granted defendants partial summary judgment and denied
plaintiffs partial summary judgment. The Indiana Supreme Court affirmed in
part and reversed in part. In so doing, it stated that the failure to comply with
statutory requirements of the corporations statutes does not automatically result
in a breach of fiduciary duty as a matter of law; instead undisputed facts that the
majority shareholder failed to act in the interests of the corporation were
required. This precluded summary judgment for plaintiffs on that issue. The
court also concluded that the minority shareholders' primary remedy came from
their statutory rights to dissent to the transaction, but that they could pursue
separate claims against the persons responsible for the violation of those rights
due to the absence of required notice.^*^ Similarly, in G cfe N Aircraft, Inc. v.
Boehm^^^ the court again canvassed the remedies available to minority
shareholders, holding among other things that the minority shareholder did not
need to bring a derivative action where breach of fiduciary duty was the claim
and that the primary remedy was the forced sale of the minority shareholder's
interest. The court also rejected a claim for attorneys' fees, except insofar as the
defendant had presented a frivolous counterclaim.

9. Public Lawsuits. — In litigation stemming from the controversy over the
revitalization of Gary, the court clarified the bond requirement in the context of
a "public lawsuit" as defined by Indiana Code section 34-13-5-2.^*^ Hughes v.
City of Gary^^^ involved two members of the Gary Common Council who
objected to the council's approval of a plan to use casino revenues as security for
municipal bonds to finance the Genesis Center, a baseball stadium, waterfront
redevelopment, and other matters. They filed a lawsuit to invalidate the action.^^'

Under Indiana legislation governing "public lawsuits,"^" one who sues to
challenge public works projects must meet certain procedural hurdles not
imposed in normal litigation."^ The purpose of these is to protect governmental
entities from delay in and increased expense of public improvements caused by

246. 741 N.E.2d 1217 (Ind. 2001).

247. Mat 1228.

248. 743 N.E.2d 227 (Ind. 2001).

249. IND. CODE §34.13-5-2(b) (1998).

250. 741 N.E.2d 1168 (Ind. 2001).

251. Mat 1170.

252. Ind. CODE §34-13-5-2 (1998).

253. They are to show in a preliminary hearing that one's action raises '^substantial questions
to be tried/' and, if this showing cannot be made, to post a bond to avoid dismissal of the case.
//Mg/ie5,741N.E.2datn70.

1190 INDIANA LAW REVIEW [Vol. 35:1157

nonmeritorious litigation.^''* The trial court certified the action as a public
lawsuit and held an interlocutory hearing. At the hearing, the city presented
evidence of the increased costs the projects might incur as a result of the
lawsuit.^'' The statute also required the plaintiffs to make a showing that would
justify the issuance of a temporary injunction, despite the risk to the city from
delay. The trial court made various conclusions (which the Indiana Supreme
Court treated as fmdings) and determined that the plaintiffs had not met their
burden. It ordered that they post a $2.35 million bond to cover the minimum
expenses the city might incur from the effects of the suit on the contemplated
projects. Because plaintiffs did not then post the bond, the case was dismissed
and they appealed.^'^

Under an unusual procedure, the Indiana Supreme Court granted emergency
transfer from the court of appeals.^'^ In so doing, it held that the public lawsuit
statute requires that ''plaintiffs must introduce sufficient evidence that there is a
substantial issue to be tried in order to avoid the bond requirement."^^* It
underscored that the legislation balances the right of citizens to challenge public
improvements against unwarranted delay, frustration, and additional expense
caused by "harassing litigation. "^'^

In a concurring opinion joined by Justice Sullivan, Justice Rucker pointed
out that Indiana "case authority does not make clear what is meant by a
'substantial question' in the context of a public lawsuit."^^ However, the statute
incorporates the standards for a temporary injunction. In 1970, in the case of
Johnson v. Tipton Community School Corp.^^^ the court had established a
multipart test for the necessary showing: that the question to be tried is
substantial, that the status quo be maintained pending fmal determination (absent
clear imminent injury); that there is no remedy at law, and that a bond be
posted.^" Justice Rucker asserted that when a plaintiff in a public lawsuit does
not seek temporary injunctive relief, then only the first prong oi Johnson should
apply .^" He asserted further that when preliminary injunctive relief w sought in
a public lawsuit, as it was in Hughes, all Xhe Johnson factors should be part of the

254. Indiana ex. rel. Habercom v. DcKalb Circuit Court, 241 N.E.2d 62, 65 (Ind. 1968).

255. //Mg/ie^, 741 N.E.2d at 1169-70.

256. /£/. atll70.

257. Id. See also iND. APPELLATE RULE 56(A), which authorizes such transfer when the
supreme court determines that "an appeal involves a substantial question of law of great public
importance and that an emergency exists requiring speedy determination."

258. Hughes, 741 N.E.2d at 1 171 . The court also reiterated that a trial court's findings are
challenged under the "clearly erroneous" standard, which also applies to the procedural processes
involved in filtering our nonmeritorious public lawsuits. Id. at 1 1 72.

259. Id (quoting Johnson v. Tipton Cmty. Sch. Corp., 255 N.E.2d 92, 94 (Ind. 1970)).

260. Id. at 1 175 (Rucker, J., concurring).

261. 255N.E.2d92,94(Ind. 1970).

262. Id

263. Hughes, 741 N.E.2d at 1 175 (Rucker, J., concurring).

2002] CIVIL PROCEDURE 1191

plaintiffs showing, including maintenance of the status quo.^^'* Notwithstanding
the justices' unanimous agreement on the result, at a minimum Hughes
demonstrates the complexities and ambiguities surrounding the procedure for
matters classified as "public lawsuits."

1 0. Relief from Judgment Under Rule 60(B) . — In Clear Creek Conservancy
District v, Kirkbride^^^ the court had to determine whether landowners who filed
untimely requests for exceptions to an appraiser's report governing their
conservancy district assessment could obtain relief under Trial Rule 60(B)( 1 )}^^
Justice Sullivan concluded that if the principles of Lehnen v. State^^^ (governing
eminent domain) extend to conservancy district matters, Rule 60 relief would not
be available.^^* While the court of appeals had distinguished Lehnen on the
ground that the conservancy district legislation was not comprehensive, Justice
Sullivan agreed with Judge Friedlander in the dissent below, that the rule of
Lehnen requires that a statute's fixed procedure be followed: "[T]he
Conservancy Act provides a definite procedure for interested landowners to

follow when contesting an appraiser's report Allowing landowners to file

untimely exceptions in the trial court is simply not authorized by the conservancy
district statutory scheme."^^^ For the court, requiring landowners to follow the
statute insures that a district's financial arrangements can proceed with final ity.^^^
Allowing the use of Rule 60 to get around the requirement would "undermine the
statutory scheme for fixing in place the financing arrangements of conservancy
districts, and by extension, other governmental units operating under similar
statutory arrangements."^^'

Allstate Insurance Co. v. WatsorP^ provides some welcome direction from
the supreme court as to the standards for setting aside a default judgment under
Indiana Trial Rule 60(B) in the context of settlement negotiations. In that case,
the plaintiffs sought recovery from Allstate for uninsured motorists coverage and
protracted settlement discussions ensued over several years. Originally,
plaintiffs' lawyer represented that a default judgment would not be pursued while
negotiations were pending. Later the lawyer made a settlement demand and
represented that it would be held open for a time certain. Before the running of
that time, the plaintiffs' lawyer took Allstate's default. The trial court denied
Allstate's motion to set the default aside and the appellate court affirmed. In an
opinion by Justice Dickson, the Indiana Supreme Court reversed and stressed
again the disfavor in which default judgments are held. Although the court
recognized that trial court rulings on Rule 60(C) motions are given deference.

264. /^. at 1175-76.

265. 743 N.E.2d 1 i 16 (Ind. 2001).

266. /^. at 1118.

267. 693 N.E.2d 580 (Ind. Ct. App.), trans, denied, 706 N.E.2d 169 (Ind. 1998).

268. Kirkbride, 743 N.E.2d at 1 1 18.

269. /flf. atll20.

270. Id

271. Id

272. 747 N.E.2d 545 (Ind. 2001).

1 192 INDIANA LAW REVIEW [Vol. 35: 11 57

that deference must be seen in the context of a public policy in favor of trial on
the merits and the unique facts of each case, which bear on the justness of setting
the judgment aside. Moreover, the court noted that an attorney's conduct might
be technically correct under the trial rules and still violate the rules of
professional responsibility. This bore on the case before the court, as the
plaintiffs attorney did not honor his own representation. The opinion strongly
suggests that where the granting of a default judgment rewards what is arguably
attorney misconduct, all things being equal, the default should be set aside.

11. Statute of Limitations. — Revisiting issues similar to those involved in
Van Dusen v. Stotts^^^ the Indiana Supreme Court construed the application of
the "discovery" rule for the running of the statute of limitations in Degussa Corp.
V. Mullens }^^ Degussa Corp. was an action based on negligence and products
liability involving a worker who alleged lung injury from chemicals used in the
making of animal feed. Defendants moved for summary judgment on the theory
that plaintiffs claims were time-barred."^ The trial court denied the motion. On
transfer. Justice Sullivan noted that the court has adopted a "discovery" rule to
clarify the negligence and products liability limitation statute"^ where injuries
are caused by exposure to foreign substances.^^^ Even on defendant's theory, the
action was commenced only eight days after the running of the period. Although
plaintiff visited her doctor complaining of respiratory problems more than two
years before she filed suit, she was only told then that there was a reasonable
possibility^ not a probability^ that her condition was caused by exposure to
defendants' products. Plaintiff diligently pursued further testing to "transform
speculation into a causal link."^^' Because that link had not been made in the
eight days at issue in the case, the cause of action had not yet accrued and the
trial court properly denied the motion to dismiss."^ The court's opinion suggests
that although certainty is not necessary to trigger the running of the statute of
limitations, the mere possibility that an injury is caused by a defendant's product
is not sufficient either.^*® Whether mere possibility has ripened into something

273. 712 N.E.2d 491 (Ind. 1999) (construing the issue of when a patient should be on inquiry
notice regarding medical malpractice such that a cause of action accrues).

274. 744 N.E.2d 407 (Ind. 2001).

275. One defendant also moved to dismiss for lack of subject matter jurisdiction claiming
exclusive worker's compensation jurisdiction. This motion was also denied by the trial court.
Because the court was evenly divided on this question, the trial court's judgment was affirmed
pursuant to Indiana Appellate Rule 59(B). In scrutinizing the questions raised regarding worker's
compensation, Justice Dickson, writing for the dissenting members of the court, followed the
analysis ofGNK Co. v. Magness, 744 N.E.2d 397 (Ind. 2001), and reiterated that where the trial
court rules on a paper record, the standard of review is de novo. Degussa Corp. , 744 N.E.2d at 4 1 5
(Dickson, J., dissenting).

276. Ind. CODE §33-1-1.5-5 (1998).

277. Dej^Mwa Corp., 744 N.E.2d at 410.

278. /«/. at4Il.

279. Id

280. /J. at41M2.

2002] CIVIL PROCEDURE 1 1 93

more is a question of fact that will be determined on a case-by-case basis. In
analyzing the case. Justice Sullivan explicitly stated that decisions under the
Medical Malpractice Act are persuasive as to questions of when a plaintiff should
have discovered a possible negligence or products liability cause of action.^^'

12. Summary Judgment. — Mangold v. Indiana Department of Natural
Resources^^^ is an important torts decision involving governmental immunity and
duty that also has significance for summary judgment. There a twelve-year-old
boy returned home after watching a school-sponsored Department of Natural
Resources (DNR) demonstration of firearm safety. He took apart a shotgun shell,
struck it with a hammer and chisel and was injured when it exploded. An action
was filed on his behalf against the school and the DNR. The school presented
the affirmative defense that it owed no duty for injuries sustained off of school
grounds and the DNR defended on grounds of governmental immunity.
Contributory negligence was also interposed as a defense by each defendant.
Both the school and the DNR moved for summary judgment, which was granted
by the trial court and affirmed on appeal. The Indiana Supreme Court allowed
transfer and held that a school's duty is not dependent on the plaintiffs injuries
occurring on school property. It also reaffirmed that governmental immunity
under section nine of the Indiana Tort Claims act should be narrowly construed,
following Hinshaw v. Board of Commissioners of Jay County^^^ so as to apply
only where vicarious liability is premised on the acts of third parties other than
government employees. Nonetheless, three of the members of the court. Chief
Justice Shepard and Justices Sullivan and Boehm, found that summary judgment
still should be affirmed due to the contributory negligence of the boy.

Several significant principles for summary judgment arise from the case.
First, citing to the standards for summary judgment established in early 200 1 by
Tom-Wat, Inc. v. Fink^^^ the court reiterated that summary judgment is only
proper where there is no genuine issue of material fact in dispute, after all facts
and reasonable inferences therefi*om are construed in favor of the nonmoving
party, and the movant is entitled to judgment as a matter of law. Second,
although Justice Rucker noted that the existence of duty is normally a question
of law for the court, not one of fact for the jury, he reiterated that breach of duty,
"which requires a reasonable relationship between the duty imposed and the act
alleged to have constituted breach is usually a matter left to the trier of fact."^^^
Finally, in Chief Justice Shepard's concurring opinion for the majority, he
strongly suggested that because "even the slightest contributory negligence by the
plaintiff bars recovery," it is much more likely for contributory negligence to
succeed on summary judgment as an affirmative defense than the defense of
comparative negligence.

281. Mat 410-11.

282. 756N.E.2d 970 (Ind. 2001).

283. 61 1 N.E.2d 637 (Ind. 1993).

284. 74 1 N.E.2d 343 (Ind. 200 1 ). See also supra text accompanying notes 191-213.

285. Mangold, 756 N.E. 2d at 975 (citing Delta Tau Delta, Beta Alpha Chapter v. Johnson,
712 N.E.2d 968, 974 (Ind. 1999)).

1 194 INDIANA LAW REVIEW [Vol. 35:1157

II. Selected Decisions from the Indiana Court of Appeals

As expected, the decisions from the court of appeals affecting Indiana civil
procedure were extremely varied. Along with the usual crop of opinions
grappling with Rule 12 and summary judgment motions, there were a surprising
number of cases dealing with amendment of pleadings and attorneys' fees. One
of the most significant cluster of decisions involved the application of Indiana's
Product Liability Act to asbestos-related injuries. What follows is a description
of selected court of appeals opinions, organized by topic.

A. Amendment of Pleadings

SLR Plumbing & Sewer, Inc. v. Turk^^^ involved an action by a subcontractor
on a mechanic's lien. The court of appeals held that the denial of plaintiff s oral
motion to amend to add a claim for homeowners' personal responsibility was
harmless.^'^ This is because in ruling on the homeowner's motion for summary
judgment, the trial court already scrutinized the key issue in the amended
opinion — whether the subcontractor's letter gave notice of personal
responsibility as required by Indiana Code section 32-8-3-9.^''* The court also
noted that the amendment of pleadings is within the broad discretion of the trial
court and enjoys a deferential standard of review.^*^

In Osterloo v. Wallar,^^ sl car collided with a child on a sled. The case raised
the same nonparty "Catch-22" that was resolved by the Indiana Supreme Court
in Owens Coming Fiberglass Corp. v. Cobb?^^ The question was whether the
defendant-motorist could amend his pleading to add as a nonparty the child's
father, who had previously been a defendant but was dismissed from the
action.^^^ The problem was whether the amended pleading met the timeliness
rules under the Comparative Fault Act.^^^ Relying directly on Cobb, the court of
appeals determined that the purpose of the nonparty requirement — ^to apprise the
plaintiff of potential defendants — ^was met where the plaintiff was surely aware
of the potential nonparty's existence; thus the amendment was "reasonably
prompt" under the statute and should have been allowed.^^"*

Davis V. Ford Motor Co.^^^ showed the overlap of Indiana Trial Rules
12(B)(6) (dismissal for failure to state a claim) and 12(C) (motion for judgment
on the pleadings). Rule 12(C) does not provide for amendment as an alternative
to dismissal, but 12(B)(6) does. The issue was whether in a circumstance where

286. 757 N.E.2d 193 (Ind. Ct. App. 2001).

287. Mat 197-98.

288. Id.

289. Id

290. 758 N.E.2d 59 (Ind. Ct. App. 2001).

291. 754 N.E.2d 905 (Ind. 2001).

292. 0^rer/oo,758N.E.2dat61.

293. /(^. at 63-64.

294. Mat 64-65.

295. 747 N.E.2d 1 146 (Ind. Ct. App. 2001).

2002] CIVIL PROCEDURE 1195

a defendant strategically files a motion for judgment on the pleadings that could
be characterized as a 1 2(B)(6) motion, the trial court should treat it as a 1 2(B)(6)
request, thus affording plaintiff the opportunity to amend.^'^ Answering this
question turned on the nature of the defect in the pleading. Quoting Federal
Practice and Procedure, ^^^ the court of appeals suggested that a Rule 12(B)
motion goes to a plaintiff's failure to satisfy a "procedural" condition for his
claim, such as insufficient particularity in the pleading.^'* In contrast, a motion
for judgment on the pleadings, which presumes an end to the pleadings, goes to
the substantive merits.^^ Where the defect is procedural, a trial court commits
reversible error when it puts form over substance and treats the matter under
12(C), thereby preventing amendment.^°° One problem with this approach is the
difficulty of distinguishing between procedural and substantive defects. Another
is that following Rule 12(C) could end the pleading stage prematurely by
precluding amendments that might correct defects that are not easily classified
in terms of these categories.

In Russell v. Bowman, Heintz, Boscia & Vician, Inc.^^^ an action brought
under the federal Fair Debt Collection Practices Act,'°^ the debtor amended his
complaint to add his wife as a party-plaintiff and to add the assignee of the debt.
Bowman, as a new defendant.^®^ Bowman filed a motion to dismiss the amended
complaint, arguing that the husband's settlement with the assignor was fatal and
that the amendment came too late. The trial court granted dismissal for lack of
subject matter jurisdiction due to the settlement.^^ The court of appeals reversed
because no responsive pleading had been filed by the original settling defendant.
Under the express terms of Indiana Trial Rule 15(A), the plaintiff has a right to
amend without leave of court. Plaintiff could also add new claims and parties so
long as the joinder rules were met.^°^ Finally, there was no subject matter defect
because the action was still pending against the original defendant when the
amendment was made.^°^ In contrast, the court concluded in Kuehl v. Hoyle ^°^
that the amendment of right rule in 1 5(A) does not trump the relation-back
requirements of Rule 15(C) simply because no responsive pleading is filed.^^*

296. Mating.

297. 5 A Charles Alan Wright & Arthur r. Miller, Federal Practice and Procedure
§ 1369 (2d ed. 1990).

298. Davw,747N.E.2datn50.

299. Id.

300. /^. at 1149.

301. 744 N.E.2d 467 (Ind. Ct. App.), trans, denied, 761 N.E.2d 420 (Ind. 2001).

302. Fair Debt Collection Practices Act, Pub. L. 95-109, 91 Stat. 874 (codified as amended
in scattered sections of 1 5 U.S.C, ch. 41).

303. /?MMe//,744N.E.2dat469.

304. Mat 469-70.

305. Mat 471.

306. Id

307. 746 N.E.2d 104 (Ind. Ct. App. 2001).

308. Mat 108.

1 196 INDIANA LAW REVIEW [Vol. 35: 1 1 57

Thus, the statute of limitations may still bar amendment.^°^

B. Arbitration

Mislenkov v. Accurate Metal Detinning, Inc}^^ involved a claim of
misappropriation of trade secrets by a former employee, Mislenkov, and that
employee's second employer, Shoreland. Both defendants moved to dismiss,
claiming an arbitration agreement between Mislenkov and Accurate Metal
Detinning ("Accurate Metal") deprived the court of subject matter jurisdiction.^ ' ^
The court of appeals applied a two-tiered test for arbitration: whether there is an
enforceable agreement to arbitrate between the parties and whether the dispute
falls within the scope of that agreement.^ ^^ Because Shoreland was not in privity
on agreement, the company could not enforce it, so the first prong of the test was
not met as to Shoreland.^" Although there was an enforceable arbitration
agreement between Mislenkov and Accurate Metal, it did not cover the whole
employment relationship, but only matters occurring after a release had created
a new contractual relationship. As to Mislenkov, the second tier of the analysis
was not satisfied because the dispute related to pre-agreement actions.^'*

C Asbestos

Asbestos cases present difficult problems for issues relating to limitation of
actions and product identification/causation. The diseases caused by asbestos
take a very long time to develop. In the typical circumstance where a worker
might be exposed, numerous companies could have produced the article creating
the exposure. After many years, workers' memories fade and documentary
evidence linking the asbestos of a particular defendant to a specific work
environment is difficult to discover. Where asbestos is a component part of a
product, a worker might never have been aware of the identity of the supplier of
the asbestos in the first place. From a procedural perspective, these issues
typically arise on summary judgment. Complicating matters, the ten-year repose
period of the Indiana Products Liability Act^'^ ("PLA") runs from the date a
product is delivered to the initial user or consumer, regardless of when the claim

309. /</. at 108-09.

310. 743 N.E.2d 286 (Ind.CtApp. 2001).

311. Mat 288.

312. Mat 289.

313. Mat 290.

314. Id.

315. IND. Code § 34-20-3-1 (1998) provides in part that:
[A] product liability action must be commenced:

(1) within two (2) years after the cause of action accrues; or

(2) within ten (10) years after the delivery of the product to the initial user or consumer.
However, if the cause of action accrues at least eight (8) years but less than ten (10)
years after that initial delivery, the action may be commenced at any time within two (2)
years after the cause of action accrues.

2002] CIVIL PROCEDURE 1197

accrues as to a particular plaintiff. However, it does not apply to certain actions
for asbestos exposure. Instead, where the requirements of Indiana Code section
34-20-3-2 ("the asbestos exception") are met, a claim may be brought within two
years from the date it accrues, regardless of when the product was put on the
market.^ '^ The asbestos exception raises problems of statutory interpretation,
and, depending on how they are resolved, exposes the PLA to constitutional
infirmity under Martin v. Richey^^^ and related cases.

Black V. ACandS, Inc?^^ may prove to be one of the most important
decisions from the court of appeals in 2001 because it construes the asbestos
exception broadly. It has already had an impact on the many asbestos-related
actions brought in Indiana courts. Black arose from a suit brought by the widow
and the estate of a blast furnace worker who worked in the Gary USX steel
works. He died from asbestos- induced lung cancer.^^^ The action came up for
review after the Indiana Supreme Court granted transfer in Owens Corning
Fiberglass Corp. v. Cobb,^^^ but before it issued its opinion. In Cobb, the
supreme court affirmed the trial court's determination that the plaintiffs had
shown sufficient evidence linking defendant's product to decedent to avoid
summary judgment. It disagreed with the court of appeals that the evidence
presented no issue of material fact for trial.^^*

The Blacktrial court had granted summary judgment for two different groups
of defendant-companies on two different grounds. For the first group, it
concluded that the PLA ten-year repose period applied, not the two-year asbestos
exception, because the defendants in this group were not both miners a«(i sellers
of asbestos.^^^ Regarding the second group, the court found insufficient evidence
on product identification.^^^

As to the first ground, the court of appeals construed the language "persons
who mined and sold" in the statutory exception to determine whether it was
meant in the conjunctive — so that both mining aA7^ selling were required of the
same defendant — or the disjunctive — so that either mining or selling would
suffice.^^'* Despite a line of previous cases that suggested both attributes were

3 1 6. Id. § 34-20-3-2. The statute provides, in pertinent part, that the exception is available as
follows:

(d) This . . . [exception] applies only to product liability actions against:

(1 ) persons who mined and sold commercial asbestos; and

(2) funds that have, as a result of bankruptcy proceedings or to avoid bankruptcy
proceedings, been created for the payment of asbestos related disease claims or asbestos
related property damage claims.

317. 7 1 1 N.E.2d 1 273 (Ind. 1 999).

318. 752N.E.2d 148 (Ind. Ct. App. 2001).

319. Mat 150.

320. 754 N.E.2d 905 (Ind. 2001).

32 1 . See supra notes 1 26-38 and accompanying text.

322. Black, 752 N.E.2d at 156.

323. /^. at 157.

324. /^. at 151-52.

1 198 INDIANA LAW REVIEW [Vol. 35: 1 1 57

required,^^^ the court of appeals determined that "the construction [of the statute]
urged by defendants is inconsistent with other provisions of the products liability
act and with our supreme court's precedent and would lead to an absurd
result."^^^ The "absurd result" would be that a company that mined but did not
sell asbestos, and a company that sold but did not mine asbestos, would both be
able to take advantage of the ten-year limit, despite causing the same harm to
plaintiffs as companies that both mined and sold it. Moreover, this interpretation
would not promote the purpose of giving plaintiffs in asbestos cases an adequate
time from discovery of their condition to sue. This policy was suggested by the
Indiana Supreme Court in Covalt v. Carey Canada, Inc.^^^ a case that was
decided prior to the asbestos exception statute. There the supreme court argued
that the ten year limit ought not to apply "to cases involving protracted exposure
to an inherently dangerous foreign substance which is visited into the body."^^*
The court of appeals agreed with the distinction in Covalt between a regular
product in the marketplace and asbestos, "a hazardous foreign substance which
causes disease,""^ especially because the diseases it causes take a long time to
develop. It reversed the trial court's grant of summary judgment based on the
PLA."^

In resolving the issue of product identification, the court of appeals was
persuaded by the Seventh Circuit's opinion in Peerman v. Georgia-Pacific
Corp?^ ' Peerman suggests that a plaintiff must come forward with facts showing
the victim's inhalation of a particular defendant's asbestos to avoid summary
judgment on product identification.^^^ The court of appeals interpreted Peerman
to mean that "concrete facts" would be required to show product identification,
not speculative inferences.^^^ Although there was some evidence that the
defendants' products might have been in the firebricks or used as insulation
where decedent worked, the court of appeals discounted it as speculative and
inferential.""* It concluded that the trial court had not erred in granting the
defendants summary judgment therefore. However, given the Indiana Supreme

325. See Novicki v. Rapid-American Corp., 707 N.E.2d 322, 324 (Ind. Ct. App. 1 999); Sears
Roebuck & Co. v. Noppert, 705 N.E.2d 1065, 1068 (Ind. Ct. App. 1999); see also Spriggs v.
Armstrong World Indus., No. IP91-651, 1999 U.S. Dist. LEXIS 19874 (S.D. Ind. 1999).

326. B/acife,752N.E.2datl52.

327. 543 N.E.2d 382 (Ind. 1989).

328. Mat 385.

329. Mat 386.

330. BlacK 752 N.E.2d at 151, 154.

331. 35 F.3d 284, 287 (7th Cir. 1994) (applying Indiana law).

332. Id. at 286. Moreover, according to Peerman, no Indiana court had articulated a test for
causation in asbestos cases.

333. M. at 286-87. The reference to "concrete facts" comes from the court of appeals decision
in Owens Coming Fiberglass Corp. v. Cobb, 7 1 4 N.E.2d 295, 303 (Ind. Ct. App. 1 999), which was
vacated when the Indiana Supreme Court granted transfer. See Owens Coming Fiberglass Corp.
V. Cobb, 754 N.E.2d 905 (Ind. 2001).

334. 5/flc^, 752 N.E.2d at 155-57.

2002] CIVIL PROCEDURE 1199

Court's opinion in Cobb, this conclusion is in doubt.^^^

Jurich V. Garlock, Inc?^^ also raised the question of how to construe the PLA
in the case of a worker whose claim was filed more than ten years after he could
have been exposed to defendants' products but within the asbestos exception.
This panel of the court of appeals found the analysis of the exception statute in
^/acA: "reasonable" and followed it."^ However, it confronted anew interpretive
problem — ^whether plaintiffs would have to show that defendants were miners or
sellers of commercial asbestos, defined as asbestos in the raw processed form.
If so, the exception would not apply to persons who sold products that contained
asbestos as a component.^^* In that circumstance, the PLA could be
unconstitutional as applied for violating the Indiana Constitution open courts
provision."^

The court of appeals reasoned that the word "commercial" was intended to
have effect in the statute and not be mere surplusage. Moreover, it was
persuaded by a regulation of the Environmental Protection Agency that
"commercial asbestos" must be defined in terms of its raw state.-^''^ Thus, the
exception did not apply to defendants who only sold products incorporating
asbestos. Therefore, the court had to reach the question of whether the PLA
violates the Indiana Constitution open courts provisions in light of the Indiana
Supreme Court's holdings in Martin v. Richey^^^ and its progeny.^"^^ The court
concluded that it might in two circumstances: where a person is injured by an
asbestos product within the PLA ten-year period but does not gain knowledge of
the injury until afterward; and where a person is injured prior to the passage of
the PLA and the date of the product's delivery is unknown.^*^ This latter
situation was presented by the facts of the case and the court held the PLA
unconstitutional as applied to plaintiffs.

Allied Signal, Inc. v, Herring^^ combined the issues raised by both Black and
Jurich. There the defendants argued the plaintiff would have to show they were
both miners and sellers of asbestos to prevail.^"*^ A different panel of the court
of appeals found the analysis in Black on that question compelling and adopted
it.^"*^ As in Jurich, the defendants also argued that plaintiffs would have to show
they dealt in commercial Sisbestos?^^ However, the court did not reach this issue,

335. See supra notes 126-38 and accompanying text.

336. 759 N.E.2d 1066 (Ind. Ct. App. 2001).

337. Id at 1069-70.

338. Mat 1070-71.

339. Id. at 1071; Ind. Const. art.l2, § 1.

340. Jurich, 759 N.E.2d at 1070.

341. 71 1 N.E.2d 1273 (Ind. 1999).

342. See, e.g., Mcintosh v. Melroe Co., 729 N.E.2d 972 (Ind. 2000).

343. Jurich, 759 N.E.2d at 1071 .

344. 757 N.E.2d 1030 (Ind. Ct. App. 2001).

345. Id at 1032-33.

346. Id at 1035-36.

347. Id at 1036-37.

1200 INDIANA LAW REVIEW [Vol. 35:1 157

for it found that defendants had not raised it below and so waived it on appeal.^"**
This waiver also obviated the need to discuss constitutional questions raised by
thePLA.

Fulk V. Allied Signal, Inc.^^^ is yet another asbestos case involving Allied
Signal as a defendant. Judge Mattingly-May, who wrote the opinion in Black,
used its analysis on the asbestos exception again in Fulk?^^ The opinion also
followed the same reasoning on product identification and affirmed the trial
court's grant of summary judgment for a number of defendants where there was
some evidence of decedent's exposure to their products, but it was not strong.^^*
Once again, after Cobb the product identification aspect of this case is in
doubt.^"

Parks V. A.P. Green Industries^^^ again presented issues of product
identification and the statute of repose. In Parks a boilermaker with lung cancer
and his wife sued a variety of asbestos producers for products liability and loss
of consortium. ^^'^ The defendants moved for summary judgment on the grounds
that the plaintiffs had failed to bring their actions in time and that they had failed
to muster sufficient evidence to link the boilermaker's lung cancer with inhaling
their asbestos.^^^ Among its rulings, the trial court denied summary judgment to
defendant Chicago Firebricks on the issue of product identification, but granted
all defendants summary judgment for the plaintiffs' failure to bring their claims
within the ten-year repose period of the PLA.^^^ The court of appeals affirmed
denial of summary judgment as to Chicago Firebricks on product identification,
but reversed as to a number of defendants on the timeliness issue following the
analysis in 5/ac^.^^'

The cases from Black to Parks show an emerging consensus on whether a
defendant must be both a miner and a seller of asbestos for the asbestos
exception to the PLA to apply. However, the issue of whether "commercial
asbestos" is limited to raw processed asbestos is an open question, as is the
manner in which the court of appeals will interpret the showing necessary to
avoid summary judgment on product identification after Cobb.

D. Attorneys ' Fees

Former Appellate Rule 15(G) allowed appellate courts to assess damages
when a judgment was affirmed on appeal. This award was informally referred

348. Mat 1037.

349. 755 N.E.2d 1 198 (Ind. Ct. App. 2001).

350. /c/. at 1202-03.

351. Mat 1203-06.

352. See supra notes 126-38 and accompanying text.

353. 754 N.E.2d 1052 (Ind. Ct. App. 2001).

354. Mat 1054-55.

355. Id at 1055.

356. Id

357. Mat 1059.

2002] CIVIL PROCEDURE 1201

to as "appellate attorneys' fees.""* In Kuehl v. Hoyle^^^ the court of appeals
strictly construed the application of the rule to avoid a chilling effect on the
taking of appeals. Even though the plaintiff in Kuehl waited more than eight
years to amend her complaint, there had been two previous appeals in the action,
and it was possible she was litigating matters that had been settled, the appellate
court declined to award attorney fees.'^ Sanctions for frivolous or bad faith
appeals are now governed by Indiana Appellate Rule 66(E), which provides:
"The Court may assess damages if an appeal, petition, or motion, or response, is
frivolous or in bad faith. Damages shall be in the Court's discretion and may
include attorneys' fees. The Court shall remand the case for execution."^^'

In SLR Plumbing & Sewer, Inc. v. Turk^^^ described above, the court of
appeals reviewed the process for determining whether a prevailing party should
be awarded fees under Indiana Code section 34-52-1-1 covering "groundless"
claims. Citing Emergency Physicians of Indianapolis v. Pettit^^^ the court
described three steps for reviewing a fee award, two of which go to merit
questions: a review of the trial court's fmdings of fact under the clearly
erroneous standard, a review de novo of the trial court's legal conclusions, and
a review of the trial court's decision to award attorney fees under an abuse of
discretion standard.^^ Concluding that there were facts to support the
subcontractor's claim, but that the legal significance he gave them was incorrect,
the court of appeals did not consider the action "groundless" and reversed the
award of fees. ^^^

Stephens v. Parkview Hospital, Inc?^ injects some confusion over the
applicable standard of review on fees for it states:

We note that the trial court's decision to grant or deny attorney fees will
not be disturbed absent an abuse of discretion. When the trial court
determines that attorney fees were not warranted under the statute
permitting the award of attorney fees for bringing or pursuing a frivolous
claim, we will review that conclusion de novo.'^^

In Davidson v. Boone County^^^ the trial court awarded the county almost

358. See Greasel v. Troy, 690 N.E.2d 298, 304 (Ind. Ct. App. 1997).

359. 746 N.E.2d 104 (Ind. Ct. App. 2001).

360. Matin.

361. Ind. Appellate Rule 66(E).

362. 757 N.E.2d 193 (Ind. Ct. App. 2001). See suprq notes 286-89 and accompanying text.

363. 71 4N.E.2d 1111,11 15 (Ind. Ct. App.), flafopte£/o«/rfl/w/er, 71 8N.E.2d 753 (Ind. 1999).

364. SRL Plumbing & Sewer, Inc., 757 N.E.2d at 201. iND. CODE §§ 34-52-1-1 (1998)
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 . . . ."

365. SRL Plumbing, 757 r^.E.ld at 20U02.

366. 745 N.E.2d 262 (Ind. App. 2001).

367. Id. at 267 (citations omitted).

368. 745 N.E.2d 895 (Ind. Ct. App. 2001 ).

1202 INDIANA LAW REVIEW [Vol. 35:1157

$80,000 in attorneys fees without the county's requesting them.^^' Plaintiffs had
filed a claim against Boone County alleging discrimination and other
constitutional violations stemming from its construction of a building without a
permit. The court of appeals affirmed the trial court and also cited to Emergency
Physicians of Indianapolis?^^ It held that a trial court has the power under the
statute to award fees sua sponte.^^' The facts were particularly egregious in the
case before the court and it found that, among other things, the plaintiffs had
brought their claims for purposes of harassment.

In Grubnich v. Renner^^^ the court of appeals concluded that, given the
changes in Indiana case law and ambiguity as to the extent of retroactivity of
relevant decisions, the question concerning whether the Medical Malpractice Act
limited a defendant's liability for post-judgment interest was so complex it
prevented his defense from being groundless.^^^ The decision includes a useful
summary of the standards for the award of interest and review of an award of
attorneys' fees. With regard to the latter, it follows the multistep process
outlined by Emergency Physicians of Indianapolis.

Major V. OEC-Diasonics, Inc?^^ presented a different fee question. There
a law firm sought to foreclose on an attorney's fee lien and based the claim on
unjust enrichment, an equitable remedy. The defendant alleged that the lawyer's
professional misconduct in entering into an oral contingent fee modification, and
other acts, prevented quantum meruit recovery due to unclean hands. ^^^ He also
argued that the lawyer must disgorge any fees as a result of ethical violations.
The court of appeals disagreed and ruled these arguments were factors to be
balanced, but were not complete barriers to recovery .^^^ Moreover, the risk to the
firm of losing the case on which the firm had worked for more than a decade
justified consideration of the oral contingent fee agreement. It supported the
quantum meruit award, which included a $650,000 bonus in addition to fees
calculated on the firm's hourly rates.^^^

E. Bankruptcy Stay

In Zollman v. Gregory ^^^ plaintiffs filed a medical malpractice claim with the
Indiana Department of Insurance after the doctor sought federal bankruptcy
protection. Nonetheless, the federal bankruptcy court later allowed plaintiffs

369. Mat 898.

370. Id. at 849. See also Emergency Physicians of Indianapolis v. Pettit, 714 N.E.2d 1111,
1115(Ind. Ct. App. 1999).

371. Davidson, 745 N.E.2d at 900. See IND. CODE §§ 34-52-1-1 (1998).

372. 746 N.E.2d 1 1 1 (Ind. Ct. App. 2001).

373. /fi^. at 119-20.

374. 743 N.E.2d 276 (Ind. Ct. App.), trans, denied. 753 N.E.2d 1 5 (Ind. 2001).

375. /c?. at 281-82.

376. /^. at 282-83.

377. /of. at 360-61.

378. 744 N.E.2d 497 (Ind. Ct. App.), trans, denied, 753 N.E.2d 17 (Ind. 2001).

2002] CIVIL PROCEDURE 1203

relief from the stay to pursue their action.^^^ The court of appeals treated this
relief as a nunc pro tunc order, although it was not labeled as such. The
bankruptcy court had specifically directed that the plaintiffs be able to proceed
with their action and described that action as "pending" in state court.^^^ Thus,
the plaintiffs' filing was not void and tolled the running of the statute of
limitations on their claim.^*'

F. Burden of Proof

In B.E.I., Inc. v. Newcomer Lumber & Supply Co.,^^^ a lumber supplier sued
a homeowner on a theory of account stated for building supplies delivered. The
homeowner disputed certain charges and credits, despite the fact that the supplier
had sent him invoices to which he never objected.^*^ The trial court entered
judgment against him inferring that his nonresponse to the invoices showed his
agreement that the amount claimed was correct.^*"* The court of appeals affirmed
and approved the principle that "[a]n agreement that the balance is correct may
be inferred from delivery of the statement and . . . failure to object . . . within a
reasonable amount of time."^*^ This creates a prima facie presumption that the
debtor must rebut. The trial court's findings of fact that the homeowner had a
reasonable time to object and had not rebutted the presumption were not
erroneous, given the deferential standard of review.

Under worker's compensation law, the "odd lot" doctrine treats a worker as
totally disabled, even though the worker is not completely unable to work, if the
disability would prevent employment "in any well-known branch of the
competitive labor marked absent superhuman efforts, sympathetic friends or
employers, a business boom, or temporary good luck."^*^ When raised, it can
affect burdens of production. In Schultz Timber v. Morrison,^^^ the employer
used the odd-lot theory to argue that it had rebutted the employee's prima facie
case of total disability before the Worker's Compensation Board.^*^ The court
of appeals declined to recognize the principle stating that in Walker v. State,
Muscatatuck State Development Center ^^^"^ our supreme court "did not expressly
adopt the odd lot doctrine."^^

379. Mat 498.

380. Mat 50 1-02.

381. Id.

382. 745 N.E.2d 233 (Ind.Ct.App. 2001).

383. Mat 235-36.

384. Mat 236.

385. Id. at 237 (quoting Auffenberg v. Bd. of Tr. of Columbus Reg'l Hosp., 646 N.E.2d 328,
331 (Ind.Ct.App. 1995)).

386. See BLACK'S LAW DICTIONARY 559 (5th ed. 1983).

387. 751 N.E.2d 834 (Ind.Ct.App. 2001).

388. Mat 837-38.

389. 694 N.E.2d 258 (Ind. 1998).

390. Schultz Timber, 751 N.E.2d at 838.

1204 INDIANA LAW REVIEW [Vol. 35:1 157

United Farm Insurance Co. v. Riverside Autosales^^^ was a bailment action
brought by the insurance company as subrogee of the insured over a fire that
destroyed an automobile. The trial court granted the bailee, Riverside, judgment
on the evidence as to breach of warranty, but allowed the case to go forward on
negligence. Thereafter, the trial court made fmdings of fact and conclusions of
law sua sponte and entered judgment for Riverside as to negligence.^^^ In a
bailment where the arrangement benefits both parties, and property is delivered
to the bailee in good condition but is returned damaged, the inference arises that
the bailee has been negligent.^^^ The court of appeals concluded that Riverside
rebutted the inference by showing evidence of due care as reflected in the
fmdings. Thus, plaintiff had the ultimate burden of proof on negligence.^'*
Finally, the trial court's sua sponte findings and conclusions resulted in the court
of appeals treating the verdict as a general verdict and viewing the special
findings as going only to the specific issues they covered.^'^

G. Discovery

Davidson v. Perron^^^ involved a wrongful termination action by a former
police officer brought on the theory that he had been fired in retaliation. Under
the authority of Tyson v. State,^^^ the trial court struck the affidavit of one of the
officer's witnesses though he was proceeding pro se.^^' The witness had not been
listed for trial, the officer did not provide a witness list to defendant until after
the discovery cutoff date, and the testimony was prejudicial.^^ The court of
appeals also upheld the trial court's disallowance of discovery regarding alleged
retaliatory firings of other officers stating that the officer's claim had to stand on
its own.*"*^

Potts. V. Williams^^^ was a medical malpractice action brought by a minor
child for injuries suffered during delivery ."^^^ The plaintiff obtained depositions
and trial transcripts of testimony of the defendant's expert for cross-examination.
The trial court denied the defendant's motion to compel discovery on the ground
the materials were attorney work-product.''^^ The court of appeals agreed because
the items were obtained in anticipation of litigation as required by Trial Rule

391. 753 N.E.2d 681 (Ind. Ct. App. 2001).

392. /t/. at 684.

393. Id sti 6^5.

394. Id.

395. Id at 684.

396. 756 N.E.2d 1007 (Ind. Ct. App. 2001).

397. 619 N.E.2d 276 (Ind. Ct. App. 1993).

398. Davidson, 756 N.E.2d at 1013.

399. Id at 1014.

400. Id a.t\0\5.

401 . 746 N.E.2d 1000 (Ind. Ct. App. 2001).

402. Mat 1003-04.

403. Mat 1005-06.

2002] CIVIL PROCEDURE 1205

26(B)(3) and the defendant did not show substantial need overbalancing work
product protection, because he had equal or better access to the previous
testimony of his own expert.^

H. Findings

The court of appeals continues to distinguish the significance of trial court
findings of fact when reviewing summary judgment rulings and judgments
resulting from bench trials or trials with advisory juries. Indiana Trial Rule 52^^^
requires the trial court to make findings whenever a bench trial takes place or
judgment is rendered with the help of an advisory jury. Those findings can result
from a request by the parties or sua sponte. There is a two-part process for
reviewing the findings-first, the appellate court must determine if the findings
are supported by the evidence, and second, whether the judgment is supported by
the findings. The appellate court will affirm the judgment on any legal theory
supported by the findings, not just those theories '"espoused in the trial court
proceeding,'"**^ and will only reverse if the judgment is clearly erroneous.^^ The
Indiana Supreme Court reiterated this approach this year '\nG& N Aircraft, Inc.
V. Boehm.^^^ Moreover, findings issued sua sponte are entitled to the same
standard of review.*^

In contrast, when a court makes findings in connection with a summary
judgment motion, they are not entitled to the same deference given in the case of
a bench trial or an advisory jury and they do not change the de novo standard of
review on summary judgment. As the court explained it in Ferrell v. Dunescape
Beach Club Condominiums Phase 7:*'®

Here, the trial court entered specific findings of fact and conclusions
thereon, which would normally trigger the two-tiered appellate standard
of review contained in Indiana Trial Rule 52. However, specific findings
and conclusions entered by the trial court when ruling on a motion for
summary judgment merely afford the appellant an opportunity to address
the merits of the trial court's rationale. They also aid our review by
providing us with a statement of reasons for the trial court's actions, but
they have no other effect. Rather than relying upon the trial court's
findings and conclusions, we must base our decision upon the materials
properly presented to the trial court under Indiana Trial Rule 56(C).^"

404. Id. However, Marshall v. State, 759 N.E.2cl 665, 669-70 (Ind. Ct. App. 2001),
distinguished the applicability of Potts in a criminal case where the defendant did not seek
information of his own expert.

405. Ind. Trial R. 52.

406. Mitchell V. Mitchell, 695 N.E.2d 920, 924 (Ind. 1998).

407. Shenvar v. Johnson, 741 N.E.2d 1275, 1279 (Ind. App. 2001).

408. 743 N.E.2d 227, 234 (Ind. 2001).

409. Klotz V. Klotz, 747 N.E.2d 1287, 1 190 (Ind. App. 2001). See also supra Part II.F.

410. 751 N.E.2d 702, 709 (Ind. App. 2001).

411. /cf. (citations omitted).

1206 INDIANA LAW REVIEW [Vol. 35:1157

/. Injunctions, Declarations, and Other Special Relief

To obtain injunctive relief, the plaintiff typically has to show "irreparable
harm," that is, that there is no adequate remedy at law to redress his or her injury.
This usually means that compensatory damages will not make the plaintiff whole
due to the uniqueness of the wrong involved.*'^ When an injunction is sought
before disposition of a case on the merits, the plaintiff must show additional
factors — ^that there is a likelihood of success on the merits, that the status quo
will be maintained, that the balance of hardships is in favor of the plaintiff if an
injunction is issued, and that the public interest is not harmed by issuance."*'^ The
court of appeals decided a number of injunction cases in 2001 illuminating the
type of injury that satisfies the irreparable harm requirement.

Normally, irreparable harm is absent where plaintiffs loss is purely
economic,'*''* but in Barlow v. Sipes*^^ the court issued a preliminary injunction
against an insurance adjuster who had accused a body shop of fraud. The body
shop owners sued for defamation and intentional interference with business
relationships.'*'^ Because they could not quantify the economic losses threatened
and because intangible reputational harm to the business was involved, the
remedy at law was inadequate.*'^ The court of appeals affirmed, despite
acknowledging that preliminary injunctive relief should be used sparingly.'*'^

In Cohoon v. Financial Plans & Strategies, Inc.^^^ irreparable harm for the
preliminary injunction was supplied by the presence of an enforceable covenant
not to compete and the difficulty of ascertaining the loss to the former
employer's business goodwill from the employee's breach.*^^

Indiana strictly construes covenants not to compete against enforcement. So
to obtain an injunction based on one, the covenant must be reasonable in terms
of the employer's legitimate business interests and the geographic and
chronological limits it imposes.'*^' If it is enforceable, then the uncertainty as to
the exact monetary losses associated with loss of goodwill — ^a property
right — can support a fmding of irreparable harm.'*^^ Moreover, the court of
appeals gives deference to the trial court's findings on these issues.'*^^ Hence, the
court of appeals affirmed the trial court's injunction against the certified financial
planner's violation of a two-year long covenant not to compete. It also found that

412. See DOBBS, supra note 1 42, § 25( 1 ).

413. Id.

414. Id.

41 5. 744 N.E.2d 1 (Ind. Ct. App.), trans, denied, 753 N.E.2d 16 (Ind. 2001).

416. Wat 2.

417. /^. at 6-8.

418. /^. at 9-10.

419. 760 N.E.2d 190 (Ind. Ct. App. 2001).

420. /flf. atl93.

421. /f/. at 194.

422. /i/. at 195.

423. /flf. at 193-94.

2002] CIVIL PROCEDURE 1207

the covenant was specific enough in terms of customers that this cured any
geographic overbreadth/^*

In contrast, in Mercho-Roushdi'Shoemaker-Dillery-ThoracO' Vascular Corp.
V. Blatchforct^^ the trial court denied the issuance of a preliminary injunction
sought by a group of physicians to enforce a noncompetition agreement.'*^^ The
court of appeals affirmed the denial because pure economic loss does not
generally resuh in injunctive relief/^^ Giving deference to the trial court, the
appellate court stated the trial court had not erred in determining that plaintiffs
failed to carry their burden to show that monetary losses were difficult to
calculate/^^

In Indiana Family & Social Services Administration v. Legacy Healthcare,
Inc.^^^'^ which focused on a dispute over the termination of a Medicaid provider
agreement, the court of appeals agreed with the trial court that the operator of a
nursing home did not show irreparable harm to itself or its mentally disabled
residents. This was because the nursing home only alleged pure economic harm,
even though in the form of threatened business failure/^*^ Moreover, because a
receiver had been appointed to run the nursing home, the court found no
irreparable harm to the residents who were being cared for under the control of
the receiver.'*^' The nursing home's reliance on pure economic harm to justify
a stay was particularly ineffective because it had failed to exhaust administrative
remedies/^^

In Reed Sign Service, Inc. v. Reid,^^^ an important decision for TRO
procedure, the court held that where a billboard owner who was ordered to
dismantle a sign had actual notice of the order, but was not served after a number
of service attempts, did not deprive the court of personal jurisdiction. This was
the result because actual notice, coupled with the attempts at service, showed that
notice reasonably calculated to inform the defendant of the proceeding was
undertaken. Moreover, the failure to order a bond did not void the TRO and
prevent a contempt citation where the TRO had dissolved and the defendant had
not complied with the order.

In Ferrell v. Dunescape Beach Club Condominiums Phase I, Inc.^^^ the court
discussed declaratory relief and also detailed the showing necessary for the
issuance of a preliminary injunction. The case also provides a useful description
of the differences between preliminary and injunctive relief It emphasizes that

424. M at 195-96.

425. 742 N.E.2d 519 (Ind.Ct.App. 2001).

426. /(i. at 521.

427. /^. at 526.

428. /£/. at 523-24.

429. 756 N.E.2d 567 (Ind. Ct. App. 2001), trans, denied, 2002 Ind. LEXIS 254.

430. /d at 571.

431. Id

432. Mat 571-72.

433. 755 N.E.2d 690 (Ind. App. 2001).

434. 75 1 N.E.2d 702 (Ind. App. 2001 ).

1208 INDIANA LAW REVIEW [Vol. 35:1 157

difference as one of timing — a preliminary injunction issues during the pendency
of an action while a permanent injunction is a remedy given after a final
determination. Finally, in Malone v. Price,^^^ the court canvassed the proper
procedures to follow to establish entitlement to the statutory remedy of mandate,
to declaratory relief, and to a writ of mandamus.

J. Instructions

Several appellslte cases give good guidance on the standards for review of
trial court instructions. Review of the appropriateness of an instruction is
undertaken pursuant to an abuse of discretion standard. The appellate court
determines abuse of discretion using a three-part test: whether the tendered
instruction correctly states the law; whether there is evidence in the record to
support giving the instruction; and whether the substance of the instruction is
covered by other instructions that are given .^^^ Moreover, the harmless error
doctrine is particularly applicable to the giving of an erroneous instruction, for
one must show that it affected the outcome of the proceeding to gain reversal .^^^

K. Judgment on the Evidence

S.E. Johnson Co. v. Jack,^^^ another auto case, involved a dispute over
whether a subcontractor should be liable to a motorist for an accident at a road
construction site where asphalt had been removed leaving the yellow line
marking the roadway obscured.*'^ The subcontractor's theory was that its work
was accepted by the general contractor. Under Hill v. Rieth-Riley Construction
Co.y^^ '^acceptance'' eliminates the independent contractor's liability to third
parties. But, such acceptance is subject to the fact-sensitive, multifactoral test
of Blake V. Calumet Construction Corp.^*^ The contractor moved for judgment
on the evidence at close of all the evidence, which was denied.^^ The court of
appeals asserted that there was sufficient evidence for the case to go to the jury
when it was not clear that the Indiana Department of Transportation had accepted
the work at the end of each day.^^ The court strongly suggested that under
Blake, it would be difficult to take a case from the jury. ^

435. 755 N.E.2d 213 (Ind.App. 2001).

436. Faulk v. Northwest Radiologists, P.C., 751 N.E.2d 233, 241(lnd. App. 2001). See also
Kostidis V. General Cinema Corp. of Indiana, 754 N.E.2d 563, 570 (Ind. App. 2001 ).

437. Centennial Mortgage, Inc. v. Blumenfeld, 745 N.E.2d 268, 278 (Ind. App. 2001).

438. 752N.E.2d72(Ind.Ct.App.200l).

439. Id. at 15.

440. 670 N.E.2d 940, 944 (Ind. Ct. App. 1996).

441. 674 N.E.2d 167 (Ind. 1996).

442. 5.£.yo/i«jo«, 752 N.E.2d at 75-76.

443. /i/. at78.

444. Mat 77-78.

2002] CIVIL PROCEDURE 1209

L Jurisdiction

1. "Jurisdiction over the Case. " — Georgetown Board of Zoning Appeals v.
Keele*^^ presented a dispute over a use variance granted by the Georgetown
municipal zoning board for the construction of multifamily housing on
agricultural land. Keele and other residents of the county sued to have the
variance invalidated on the ground that the municipal board had no subject-
matter jurisdiction to grant a variance, as the land was outside the city. The trial
court agreed and the board and developer appealed/*^ On review, the court of
appeals distinguished lack of subject matter jurisdiction which cannot be waived
from jurisdiction over the case, which can be waived. The court defined subject
matter jurisdiction as "the power of [a tribunal] to hear and determine a general
class of cases to which the proceeding before it belongs'"^'*^ and derives from a
constitutional or statutory grant of power. It cannot be forgone by a party. In
contrast, "jurisdiction over the case" is the authority to hear a specific case
within a category of cases over which a court has subject matter jurisdiction.'*'*^
The court of appeals concluded that the board did have subject matter jurisdiction
over the variance.^*'

First, the court noted that an Indiana statute allows municipalities to control
zoning of land within a two mile fringe of city boundaries.'*^^ Second, it stated
that the board had subject matter jurisdiction over zoning variances. Thus,
following the reasoning of Board of Trustees v. City of Fort Wayne, *^^ the court
concluded that even though the board did not fulfill the conditions of the statute,
that failure went to jurisdiction over the case, not over the subject matter.
Because Keele never raised his objections with the board originally, he and the
other plaintiffs waived the defect.^^^

In matters involving the Uniform Child Custody Jurisdiction Act
("UCCJA"),'*^^ a trial court must first decide if it has jurisdiction and then
whether that jurisdiction should be exercised.^^* Christensen v. Christensen^^^
raised the issue of whether the jurisdictional inquiry of the UCCJA goes to
subject matter, personal jurisdiction, or something in between, that is,
"jurisdiction over the case."

Under classic principles of personal jurisdiction, a defendant can consent to

445. 743 N.E.2d 301 (Ind. Ct. App. 2001).

446. Mat 302.

447. Id. at 303 (quoting Santiago v. Kilmer, 605 N.E.2d 237, 239-40 (Ind. Ct. App. 1992))
(alteration in original).

448. Id.

449. /J. at 304.

450. 5eea/5olND. Code 36-7-4-205 (1998).

451. 375N.E.2d. 1112(1978).

452. Georgetown Bd. of Zoning Appeals, 743 N.E.2d at 305.

453. IND. CODE §31-17-3-3 (1998).

454. See Ashburn v. Ashbum, 661 N.E.2d 39, 41 (Ind. Ct. App. 1996).

455. 752 N.E.2d 179 (Ind. Ct. App. 2001).

1210 INDIANA LAW REVIEW [Vol. 35:1157

a court's jurisdiction over his or her person, thereby waiving any defects in the
geographic power of the court/'^ One way for a defendant to consent is to seek
affirmative relief from the court in question. In Christemen, the former wife
filed a petition to enforce a foreign support decree in an Indiana court under the
Uniform Reciprocal Enforcement of Support Act."*^^ Prior to the Indiana
proceeding, she and her husband had shared legal custody, but she had been the
primary custodial parent of the children, who lived with her in Virginia.'*^^ The
court enforced the support order, but thereafter the husband sought to
domesticate the foreign decree and pursued a change in custody .'^^^ The trial
court domesticated the action on the assumption that both parties agreed and
were proceeding pro se. Thereafter the wife sought to vacate the domestication
and requested dismissal of the custody matters. The court denied this relief and
eventually changed physical custody to the father.*^

The court of appeals affirmed the trial court's jurisdiction to do so. First,
under the authority of Williams v. Williams,^^^ the court held that the
jurisdictional requirement of the UCCJA did not, on the facts before it, go to
subject matter. Instead, it raised the issue of jurisdiction over the case."^^^ Using
the same framework applicable to consent to personal jurisdiction, it held that the
wife waived objection to the court's authority because she expressly consented
to the trial court's power when she originally sought affirmative relief from the
court."*^^ The court of appeals also justified this result in policy terms, arguing
that failing to give effect to the trial court's ruling would promote forum
shopping by parents unhappy with custody determinations in one jurisdiction."*^

2. PersonalJurisdiction. — Bartle v. HCFP Funding, Inc.^^^ raised issues of
preclusion and personal jurisdiction and also characterized choice of law
provisions in the context of personal jurisdiction. The action was one to enforce
a judgment obtained in a Maryland court proceeding against the Indiana
guarantor of a sale of accounts receivable. The defendant defaulted in the action,
so he never appeared and consented to the Maryland court's jurisdiction over
him."*^^ The facts relating to personal jurisdiction were not actually litigated in
the Maryland proceeding and so they did not give rise to issue preclusion on the
jurisdictional questions. This meant that the guarantor could collaterally attack
the validity of the Maryland judgment in the Indiana court.^^^

456. See Pennoyer v. Neff, 95 U.S. 714 (1877).

457. Christensen, 752 N.E.2d at 181.

458. Id. at 181-82.

459. Id.

460. Id

461. 555 N.E.2d 142 (Ind. 1990).

462. Christensen, 752 N.E.2d at 183.

463. Id

464. Mat 184.

465. 756 N.E.2d 1034 (Ind. Ct. App. 2001).

466. /^. at 1035.

467. /c/. at 1036.

2002] CIVIL PROCEDURE 1211

The guarantor had no contact with Maryland other than his execution of the
guaranty agreement. The plaintiff was not even a Maryland entity and there was
no evidence the guarantor had any other connection with the jurisdiction."*^* On
the facts of the case, the court of appeals concluded that the guarantor's actions
did not come within the Maryland long-arm statute which required that he
transact business in the state. The threshold requirement for personal jurisdiction
was not satisfied.'*^' Moreover, the court held that a choice of law provision is
not the equivalent of a forum selection clause. Thus, the choice of law provision
alone could not establish the guarantor's consent to Maryland jurisdiction."*^^

3. Subject Matter Jurisdiction. — Lake County Sheriff's Corrections Merit
Board v. Peron^^^ combined issues of mootness with failure to exhaust
administrative remedies. In that case, a group of correctional officers sought a
preliminary injunction to stay the merit board from holding disciplinary hearings
before they could conduct discovery .^^^ The officers were accused of leaving
work without permission and falsifying time sheets, among other things. Notice
was given to them only three days before the hearing.*^^ The trial court granted
the injunction on the ground that the officers would be irreparably harmed and
stayed proceedings for forty- five days. On appeal by one of the officers, the
court ruled that the injunction had expired after forty-five days and the merit
board granted an additional continuance, rendering the appeal moot."*^"* The court
of appeals disagreed and held that the public interest exception to the mootness
doctrine applied.'*^^ It considered the issue raised — ^whether a stay of
administrative proceedings is proper to allow discovery — ^to be one of great
importance and likely to reoccur.*^^ The court also held that the trial court lacked
subject matter jurisdiction because the officers aborted the administrative process
and did not exhaust their administrative remedies. Thus, no special exception to
the exhaustion requirement was made for discovery .^^^

In Boone County Area Planning Commission v. ShelburneJ^^^ the question
was whether the trial court abused its discretion when it ordered the planning
commission to certify that it had no recommendation to make to the board of
commissioners after it had a matter pending for many months. Construing
Indiana Code section 36-7-4-608(b/^^ and related statutes, the court of appeals
held that a planning commission is statutorily required to initiate a public hearing

468.

469.

470.

Id at 1037-38.

471.

756 N.E.2d 1025 (Ind. Ct. App. 2001),

472.

Id at 1026-27.

473.

Id at 1027.

474.

475.

476.

477.

/£/. at 1028-29.

478.

754 N.E.2d 576 (Ind. Ct. App. 2001).

479. IND. Code § 36-7-4-608(b) (1998).

1212 INDIANA LAW REVIEW [Vol. 35:1 157

on a proposed zoning map amendment within sixty days/*° However, it is not
required to complete all its information gathering within that time frame/^' But,
not only did the planning commission repeatedly delay concluding any hearing,
it also decided not to take any action on the matter before it. Because the
planning commission abandoned its role in the zoning process, it was not a
violation of subject matter jurisdiction or an abuse of discretion for the trial court
to mandate that the commission certify to the board of commissioners that it had
no recommendation.'**^

In Turner v. Richmond Power & Light Ca,"**^ the court of appeals reversed
the trial court's conclusion that it had no subject matter jurisdiction over an
action brought against the Richmond Power and Light Company by a city
employee. The dismissal had been made on the basis of the exclusive
jurisdiction of the worker's compensation system, but the court of appeals found
that the trial court had mischaracterized the nature of the utility.**"* It concluded
that, as a matter of law, it was not a city agency, but a hybrid entity,
distinguishable enough from the city that the plaintiff was not its employee."**^
The court of appeals reiterated this analysis on Petition for Rehearing"**^ and cited
the Indiana Supreme Court's opinion in GKNCo. v. Magness.^^^ GKNholds that
when an appellate court reviews a trial court's disposition of a case made purely
on a written record, the trial court's fmdings of fact are not entitled to deference
but are treated as issues of law.***

Grubnich v. Renner,^^^ discussed supra, involved an action for dental
malpractice and questioned whether the trial court retained jurisdiction to grant
post-judgment interest three years after entry of a judgment that did not mention
interest.*^ Noting that the post-judgment interest statute directs that interest
accrues on the date of the verdict and that case law treats such interest as part of
the money judgment, the appellate trial court found the court did have the power
to assess interest when the plaintiffs sought to have their judgment enforced.*^'

The Indiana Supreme Court has granted transfer and vacated the opinion of
the court of appeals in Green v. Hendrickson Publishers, Inc., which had
concluded that certain counterclaims for failure to timely pay royalties were not

480. 5/ie/6MrAie, 754 N.E.2d at 581-82.

481. Id

482. Id.

483. 756 N.E.2d 547 (Ind.Ct.App. 2001).

484. /^. at 558.

485. Id

486. See Turner v. Richmond Power & Light Co., 763 N.E.2d 1005 (Ind. Ct. App. 2002)
(Petition for Rehearing).

487. 744 N.E.2d 397 (Ind. 2001).

488. See Turner, 163 't^.Eld at 1005.

489. 746 N.E.2d 1 1 1 (Ind. Ct. App. 2001); see also supra notes 372-73 and accompanying
text.

490. Grubnich, 746 N.E.2d at 1 13.

491. /^. at 115.

2002] CIVIL PROCEDURE 1213

Sims V. Beamer^^^ involved a § 1983 action traceable to a judge's denial of
a request for default after the judge had entered an order changing venue. The
court of appeals stated that when judicial immunity is in question, a court's
jurisdiction will be broadly construed. This fosters the policy "to preserve
judicial independence in the decision-making process .... Judicial decision-
making without absolute immunity would be driven by fear of litigation and
personal monetary liability.'"*^^

M Limitation of Actions

Allen V. Great American Reserve Insurance Ca*^^ involved relating back an
amendment of pleadings so as to satisfy the statute of limitations. There
subagents sold tax-deferred annuities for a general life insurance agent."*^^ They
brought actions against the general agent and the insurance company on
numerous theories involving misconduct regarding misrepresentations about
front- loading provisions of the annuities."*'^ The trial court granted the
defendants partial summary judgment and the subagents appealed."*^* The court
of appeals concluded that the subagents' claims related back, but found that the
agents did not reasonably rely on representations concerning the annuity
provisions in question.*^

Indiana Code section 22-3-3-27 imposes a one-year limit on modifying a
worker's compensation award for permanent partial impairment awards.^°°
Halteman Swim Club v. Duguicf^^ raised the question of whether this limit also
applies to claims for medical expenses incurred after the permanent partial
impairment award under Indiana Code section 22-3-3-4(c).^°^ It showed again the
courts' use of the doctrine of legislative acquiescence.

Twenty years previously, in Gregg v. Sun Oil Co, ,^°^ the court of appeals had
decided that claims for medical expenses can be brought if the claim "is filed
within one year from the last day on which compensation was paid, whether
under the original award or a previous modification."^^* Thereafter in Berry v.

492. Green v. Hendrickson Publishers, Inc., 75 1 N.E.2d 81 5 (Ind. App. 2001), trans, granted,
2002 WL 1397891 (Ind. Jun 27, 2002) (NO. 79S02-0206-CV-352).

493. 757 N.E. 2d 1021 (Ind. App. 2001).

494. Id. at 1024.

495. 739 N.E.2d 1080 (Ind. Ct. App. 2000).

496. /^. at 1081-82.

497. Id at 1082.

498. Id at 1083.

499. /^. at 1085.

500. iND. CODE §22-3-3-27 (1998).

501. 757N.E.2d 1017 (Ind. Ct. App. 2001).

502. Ind. Code § 22-3-3-27(c) ( 1 998).

503. 388 N.E.2d 588 (Ind. App. 1979).

504. Gregg, 388 N.E.2d at 590.

1214 INDIANA LAW REVIEW [Vol. 35:1 157

Anaconda Corp.^^^ the question was whether the one-year statute of limitations
runs from the date of the last benefit payment or from the date of the last medical
expense payment. The court concluded that the operative date was the last
benefit payment date.^^

In Halterman Swim Club, the court of appeals characterized the distinction
between medical expenses and the permanent partial disability award as "a
distinction without a difference" under Gregg.^^^ Therefore plaintiff would have
to provide a significant reason for failing to follow Gregg and related cases.
Because the claimant presented no justification for deviating from the
legislature's tacit agreement with the courts' interpretation, the Worker's
Compensation Board erred when it denied the employer's motion to dismiss.^^*

In Rogers v. MendeP^ and following Boggs v. Tri-State Radiology, Inc.,^^°
the court of appeals concluded that the two-year, occurrence-based limitations
of action under the medical malpractice statute was constitutional as applied
where, in a lawsuit over alleged malpractice in connection with uterine cancer,
the plaintiff discovered or should have discovered her possible claim within ten
months of the running of the period. In contrast, in Shah v. Harris, ^^^ the plaintiff
was allowed to have the limitations period run from the date of discovery and not
the occurrence, where seven years previously her doctor had misdiagnosed her
multiple sclerosis as a vitamin deficiency and she gained no information within
the two-year period to put her on notice of a potential claim.

In Lusk V. Swanson,^^^ the court of appeals concluded that the standard form
letter sent to the plaintiff from the Indiana Department of Insurance concerning
her medical malpractice claim and stated in hypothetical terms, for example, ""If
Indiana Code 34-18-1-1, et seq. is applicable to this claim," did not toll the
running of the statute of limitations on her action against a provider who was not
covered by the Medical Malpractice Act.

A^. Local Rules

In Spudich v. Northern Indiana Public Service Co.,^^^ plaintiff Spudich was
stringing lights on the trees at the East Chicago City Hall building. He was hurt
by power from noninsulated lines owned by the Northern Indiana Public Service
Commission ("NIPSCO") while standing in an aerial bucket.^** One issue that
developed in the case was whether expert testimony would establish a duty on

505. 534 N.E.2d 250 (Ind. Ct. App. 1989)

506. /J. at 253.

507. Halteman Swim Club v. Duguid, 757 N.E.2d 1017, 1020 (Ind. Ct. App. 2001).

508. Id ai 1020.

509. 758 N.E.2d 946 (Ind. Ct. App. 2001).

510. 730 N.E.2d 692, 694 (Ind. 2000).

511. 758 N.E.2d 953 (Ind. Ct. App. 2001).

512. 753N.E.2d748(Ind.Ct.App.200I).

513. 745 N.E.2d 281 (Ind. Ct. App. 2001).

514. /^. at 284-85.

2002] CIVIL PROCEDURE 1215

NIPSCO's part to insulate wires within a certain distance from the tree where
Spudich was working. During discovery, NIPSCO asked Spudich to designate
experts he would call at trial.^'^ This information had not been provided when
NIPSCO moved for summary judgment.^^^ Spudich then filed supplemental
interrogatory answers in which he designated an expert witness, and then
opposed NIPSCO's motion, arguing, among other things, that NIPSCO had a
duty to insulate lines within a certain distance from trees. He used the affidavit
of the expert to support his opposition.^'^

Lake County Local Rule 4 permits the moving party to file a reply to the
nonmoving party's opposition. Conversely, Trial Rule 56 makes no mention of
a reply. After deposing the expert, NIPSCO filed a reply in which it designated
evidence in support of its motion that it had not previously used.^'* The trial
court granted NIPSCO summary judgment and the plaintiff appealed. He argued
that Local Rule 4 was in conflict with Rule 56.

The court of appeals stated that, as a general proposition, Indiana Trial Rules
trump contrary local rules, although Trial Rule 81 itself allows for local rules to
be promulgated.^'^ The question is one of consistency. The test established by
the Indiana Supreme Court is whether it is possible to apply both a trial rule and
a local rule at the same time."*^ In the case of Rule 56, a reply is neither
authorized nor prohibited. However, the court of appeals noted that the rule
contemplates supplemental information being provided, so that "additional
evidence after initial filings is contemplated . . . and the Local Rule [4] merely
provides a mechanism for filing that evidence not inconsistent with the Trial
Rule.""' Spudich also argued that even if Local Rule 4 were proper, the content
of NIPSCO's reply still violated Rule 56(C),"^ which speaks of making
evidentiary designations at the time the motion is filed. The court of appeals
rejected this argument as well, again relying on that portion of Rule 56 which
authorizes supplementation."^

O. Preclusion

City of Anderson v. Davis^^* was a case that arose out of a police dog's attack
of an officer."^ The plaintiff officer charged that the dog should not have been
used because his propensity to attack was known. He also claimed excessive

515. Id ai2S5.

516. Id

517. Id

518. Id

519. Mat 286.

520. Id (citing State v. Bridenhager. 279 N.E.2d 794, 796 (Ind. 1972)).

521. Mat 287.

522. Id at 288.

523. Mat 288-89.

524. 743 N.E.2d 359 (Ind. CtApp. 2001).

525. Mat 288-89.

1216 INDIANA LAW REVIEW [Vol. 35:1 157

force. ^^^ The officer had previously filed a civil rights claim in federal court that
was dismissed on summary judgment.^^^ The court of appeals held that the
officer's argument concerning knowledge of the dog's propensity was a
negligence claim barred by governmental immunity. While the court conceded
that the status of an excessive force claim in the context of immunity is not clear,
it concluded that the plaintiff was collaterally estopped by the federal case on
that theory."* Indiana recognizes the doctrine of collateral estoppel (issue
preclusion) in an inter-system context between state and federal courts. Because
the same issues were litigated in the federal action and the officer had a full and
fair opportunity to develop them there, he was precluded from relitigating them
in the Indiana court."^ The court also stated that appellate review of
governmental claims of immunity is de novo and that no particular deference is
given the trial court determination of the issue.^^°

In re Adoption ofA.N.S.^^^ involved the concurrent jurisdiction of a court
determining paternity and a court authorizing adoption. The biological father
notified the mother of his intention to contest the adoption of a child bom out of
wedlock, but did not begin a paternity proceeding until a few days after the time
required by statute.^^^ The mother contested paternity by a summary judgment
motion, which argued that the father's notification came too late, but her motion
was denied. Later she initiated a separate adoption action in another court of the
same county and argued that the father should not be allowed to intervene
because he had not objected to the adoption within the statutory period. The
adoption court eventually allowed intervention and the mother appealed.^^^ The
appellate court did not reach the merits of the case, but instead determined that
the prior proceeding precluded relitigation of the issue of paternity, foreclosing
the adoption. The court recognized the concurrent jurisdiction of both courts, but
treated preclusion as dispositive."'*

P. Real Party in Interest

IDEMv. Jennings Northwest Regulatory Utilities^^^ involved a dispute over
the status of a water and sewage utility district. The Indiana Department of
Environmental Management ("IDEM") originally established the utility such that

526. Mat 361.

527. Id.

528. /flf. at366.

529. Id.

530. Mat 362.

531. 741 N.E.2d 780 (Ind. Ct. App. 2001).

532. Id. at 782. ^ee iND. CODE § 3 1-3 -1-6.4 (repealed and reenacted as iND. CODE §3 1-1 9-3 -4
(1998)). The statute requires the putative father to establish paternity by action to contest an
adoption within thirty days of notice.

533. y^.A^.S.,741N.E.2dat784.

534. Id at 787.

535. 760 N.E.2d 184 (Ind. Ct. App. 2001).

2002] CIVIL PROCEDURE 1217

its board would be elected by customers and it would be independent of the
county commissioners. Later, IDEM sought to change that structure by issuing
an "Amended Order" to its previous final order of agency action.^^^ The utility
filed a petition for judicial review of the Amended Order and IDEM defended on
the bases that the utility lacked standing to sue and was not the real party in
interest. The petition was dismissed, and the utility amended its petition, but
only after the thirty-day period specified in the Administrative Orders and
Procedures Act for judicial review. The trial court proceeded with the action and
set aside the Amended Order. IDEM appealed on the ground of lack of subject
matter jurisdiction. ^^^

The court of appeals agreed with IDEM that the later petition could not relate
back to the earlier one, in order to bring the utility's action within the time period
for seeking judicial review of agency action. It thus rejected the argument that
the dismissal should have been treated as a simple 12(B)(6) failure to state a
claim that could be remedied.^^* However, it disagreed that the original petition
was subject to dismissal, for it found that the utility did have standing to sue and
was the real party in interest. The utility had standing under Indiana Code
section 4-21.5-5-3(a)(4) as an entity "aggrieved or adversely affected by the
agency action."^^^ This was because the Amended Order removed the utility's
independence, which was prejudicial. Moreover, there was standing because the
utility should have received notice of the action as the entity created by the
original order and would be affected by its amendment.^^^ For similar reasons,
the utility was the real party in interest, for the right threatened — ^to be
independent — ^was owned by the utility.^'*'

Q, Right to Counsel

In a decision that raised some of the issues the Indiana Supreme Court
grappled with in Sholes v. Sholes,^^^ the court in Lattimore v. Amsler^^^ held that
the pauper statute creates an independent right to court-appointed counsel. The
case involved a father who filed a pro se proceeding to establish paternity, which
was dismissed. The court believed the opinion in Holmes v. Jones^^ required the
counsel, so that once the trial court found the father indigent and waived the
filing fee, it had no discretion to deny him representation. How this opinion
should be read in light of the Indiana Supreme Court's refinement of these issues
in Sholes is an open question.

536. /^. at 186.

537. /^. at 186-87.

538. /flf. at 187-88.

539. Id. at 188; see also IND. CODE § 4-21 .5-5-3 (a)(4) (1998).

540. Je«rtmg5, 760 N.E.2d at 188-89.

541. Id.

542. 760 N.E.2d 156 (Ind. 2001 ). See also supra notes 58-84 and accompanying text.

543. 758 N.E. 2d 568 (Ind. Ct. App. 2001).

544. 719 N.E.2d 843 (Ind. Ct. App. 1999).

1218 INDIANA LAW REVIEW [Vol. 35:1157

R. Service/Notice

In a dispute over a permanent protective order issued against a father, the
court of appeals construed proper service under Trial Rule 4. 1 (A)(3). In Hill v.
Ramey,^^^ the father, Hill, was served with a temporary protective order and later
with a permanent protective order by the sheriff leaving a copy of the papers with
his parents at their home. However, Hill was living in Louisville, Kentucky, not
with his parents, at the time of service.^"*^ He requested relief from the default
judgment leading to the permanent protective order on the grounds of lack of
notice. This was denied.^"*^ The court of appeals reversed and held that even if
service was made at Hill's parents home on the theory that it was his last known
address, this was not sufficient to satisfy the requirement that it be made at his
"dwelling house or usual place of abode."^*' Thus, no personal jurisdiction had
ever been established over Hill, rendering the court's action void. This was true
even if he had received actual notice of the proceeding. Hill is a good example
of the fact that the procedures for service are strictly construed. ^"^^

Boczar v. Reuherf^^ involved a lawsuit by an attorney to collect his fee. The
court of appeals made a number of points concerning personal jurisdiction and
service. In that action, the plaintiff attorney used abode service to acquire
jurisdiction over the defendants but did not follow it up by mailing a copy of the
summons to them as required by Indiana Trial Rule 4.1(B). Distinguishing the
decision in Barrow v. Penningion,^^^ the court concluded that this failure did not
deprive the court of personal jurisdiction over the defendants where they received
actual notice and the "exigencies" of Barrow were not present.^^^ In Volunteers
of America v. Premier Auto Acceptance Corp,,^^^ the appellate court opined that
in a garnishment action, a summons addressed simply to the employer and not to
a specific officer or person is inadequate for service where the employer did not
have actual notice of the proceeding.

S. Settlement

Last year in Vernon v. Acton, the Indiana Supreme Court established that a
settlement agreement need not be in writing to be enforceable.""* The court of
appeals applied this principle in a novel context in In re Estate ofSkalka.^^^ The
case involved a family dispute over real estate and an action to partition. During

545. 744 N.E.2d 509 (Ind. Ct. App. 2001).

546. /^. at 510.

547. Mat 511.

548. Id

549. /^. at 512.

550. 742 N.E.2d 1010 (Ind. Ct. App. 2001).

55 1 . 700 N.E.2d 477 (Ind. Ct. App. 1998).

552. Boczar Sit \0\5'\6.

553. 755 N.E.2d 656 (Ind. Ct App. 2001).

554. 732 N.E.2d 805, 809 (Ind. 2000).

555. 751 N,E.2d 769 (Ind. Ct. App. 2001).

2002] CIVIL PROCEDURE 1219

the pretrial conference, the trial judge met with the parties without their attorneys
present and reached a settlement.^^^ Thereafter, the plaintiffs' attorney reduced
the settlement agreement to writing, but the parties never signed it. Later, the
plaintiffs alleged that they had not entered into a settlement agreement.
Nonetheless, the court enforced one and made supportive findings. Plaintiffs
appealed, arguing among other things, that there was insufficient evidence they
had agreed to settle, that the judge acted as a mediator in violation of the ADR
rules, and that in meeting with them without their lawyers, the judge improperly
pressured them to settle.

The court of appeals rejected all arguments. First, and given the deference
accorded to trial court findings, it concluded that there was sufficient evidence
to support the judge's opinion that there was a settlement, particularly because
plaintiffs' own lawyer drafted an agreement incorporating it. That fact removed
any concern over undue pressure. If the plaintiffs did not really agree to a
settlement, their lawyer would not have drafted the document."^ Finally, the
court rejected the notion that the judge functioned as a formal mediator in
violation of the ADR rules. Although in remarks the judge spoke of "no longer
going to be the mediator"^^^ this statement, in context, showed that he was simply
attempting to assist the parties to reach settlement.

T. Standard of Review

In Justiniano v. Williams^^^ the court of appeals applied the principle that
review of a paper record requires no special deference on findings in the context
of a worker's compensation proceeding. In Walker v. State, the Indiana Supreme
Court held that where there is no evidentiary hearing below, the facts are not in
dispute, and review is of a documentary record, the questions on appeal are akin
to legal ones.^^° The court of appeals stated that in making such "legal analysis"
under the Worker's Compensation Act, the doubts as to the Act's meaning should
be construed in favor of coverage to foster the humane purpose of worker's
compensation.^^'

In Justiniano, 2i worker whose legs were injured in a single accident, argued
that the board did not give him a large enough award because it used the wrong
standard to judge his degree of impairment.^^^ The court of appeals disagreed,
noting that the award made was supported by the statement of plaintiff s own
doctor as to the percentage of his impairment in terms of the "whole body
standard."^^^ The board's hearing judge was not required to accept a stipulation

556. Id. 2X110.

557. Id ai 112-13.

558. Id at 112.

559. 760 N.E.2d 225 (Ind. Ct. App. 2001).

560. 694 N.E.2d 258, 266 (Ind. 1998).

561 . Justiniano, 760 N.E.2d at 228.

562. Id 2X221.

563. Mat 228-29.

1220 INDIANA LAW REVIEW [Vol. 35:1157

that showed a larger injury, but could make independent inquiry into the matter
by analyzing the claimant's medical records, which findings could then be
adopted by the board.^^

Although it ultimately reversed the trial court's disposition, Homer v.
Burman^^^ reiterates that on appellate review, extreme deference is generally
accorded the actions of the Small Claims Divisions of Indiana courts of general
jurisdiction: "Indiana Small Claims Rule 8(A) provides for informal hearings
with relaxed rules of procedure in order that speedy justice can be dispensed. As
a result, we are particularly deferential to the trial court's judgment."^^

U. Standard of Review Where No Appellee Brief

What should the response of the courts of appeals be when an appeal is taken
but the winner below, the appellee, files no brief in opposition? Unfortunately,
this is a frequently recurring situation. The appellate decisions are in agreement
that in that circumstance, a lesser showing is required of an appellant to obtain
a reversal. All that need be demonstrated is that there is a "prima facie" showing
of error below. As the court explained in Muncie Indiana Transit Authority v.
Smith,''''

At the outset we note that Smith has failed to file an appellee's brief.
When an appellee fails to submit a brief in accordance with our rules, we
need not undertake the burden of developing an argument for the
appellee. Rather, Indiana courts have long applied a less stringent
standard of review with respect to showings of reversible error when an
appellee fails to file a brief. Thus, we may reverse if the appellant is
able to show prima facie error. In this context, "prima facie" is defined
as "at first sight, on first appearance, or on the face of it."

As these cases show, this will continue to be the approach even under the new
Appellate Rules.

V. Standing

Cittadine v. Indiana Department of Transportation'^^ presented the questi on
whether a local Elkhart citizen could use the public standing doctrine to force the
Indiana Department of Transportation (INDOT) to prevent a railroad from
placing rolling stock on an interchange on Elkhart city streets. In general, the
public standing doctrine allows a member of the public with no specific interest
or injury at stake to initiate litigation to enforce a public right. Because of
inquiries from acquaintances, plaintiff Cittadine sought a writ of mandamus

564. Id. at 229.

565. 743 N.E.2dl 144 (Ind.Ct.App. 2001).

566. /t/. at 1146.

567. 743N.E.2d 1214, 1 2 16 (Ind.Ct.App. 2001) (citing Robinson v. Valladares, 738 N.E.2d
278, 280 (Ind. Ct. App. 2000)) (all other citations omitted).

568. 750 N.E.2d 893 (Ind. Ct. App. 2001).

2002] CIVIL PROCEDURE 1221

requiring INDOT to interpret Indiana Code section 8-6-7.6-1 (governing
obstructions of motorist views at railway-highway intersections) to prevent the
railroad practice. He specifically relied on the public standing doctrine to sue.^^^
But according to the court of appeals, the Indiana Supreme Court has
sign ificantly narrowed the doctrine in Pence v. State ^^^^ and now requires extreme
circumstances to justify a lawsuit based solely on taxpayer or citizen status. The
rationale for this approach is to protect state separation of powers. The court
noted that there were legitimate reasons for the manner in which INDOT acted,
and it exercised its executive branch power consistently with its authority, so the
suit would not be allowed.^^'

In In re Guardianship ofK.T.^^^ the court of appeals reiterated that the
fundamental principles of standing are whether the person seeking relief has a
demonstrable injury in respect of the lawsuit and is the proper person to invoke
the court's power for such relief. Under those guidelines, it concluded that the
natural father and custodial parent of a child bom out of wedlock had standing
to seek a modification of the court order allowing visitation by the child's
maternal grandparents, who had been the previous guardians of the child.

W. Summary Judgment

In Board of Commissioners of the County of Harrison v. Lowe,^^^ the trial
court granted the county partial summary judgment on the ground it was
"legislatively" immune from suit arising from an auto accident under the Indiana
Tort Claims Act.^^^ However, the county was not totally immune because posting
warning signs regarding road conditions is not statutorily mandated. On appeal,
the county argued that summary judgment in its favor was still appropriate,
because the plaintiff had not designated the warning issue as a material fact when
opposing the motion."^ The court of appeals disagreed, citing to Cavinder
Elevators, Inc. v. Hall,^^^ a 2000 decision of the Indiana Supreme Court that
made it clear the nonmoving party has no obligation to present opposition
evidence to avoid summary judgment, if the moving party has not first met its
burden of showing no genuine issue of material fact .^^^ The case also contains
an exhaustive discussion of the history of immunity under the Act and ^he
legislative exception.^^*

569. Id at %95.

570. 652 N.E.2d 486, 488 (Ind. 1995).

571. OY/fli/me, 750N.E.2dat896.

572. 743 N.E.2d 348 (Ind. Ct. App. 2001).

573. 753 N.E.2d 708 (Ind. Ct. App. 2001).

574. /^. at 710-11.

575. /t/. at 720.

576. 726 N.E.2d 285, 290 (Ind. 2000).

577. Zowe, 753 N.E.2d at 720.

578. Mat 716-19.

1222 INDIANA LAW REVIEW [Vol. 35:1157

In Steuben County Waste Watchers v. Family Development Ltd.^^^ the
controversy was over whether a developer was required to obtain an
improvement location permit before building a landfill. The county and
environmental groups sued to require the permit. The developer moved for
summary judgment, which the trial court granted.^*^ In opposition to the motion
for summary judgment, plaintiffs attached affidavits that referred to the prior
condition of the landfill and that also included statements from the county zoning
administrator as to the steps by which the permit could be obtained.^*' On
review, the Indiana Court of Appeals held that the trial court had properly struck
these materials. The prior condition of the landfill was irrelevant to the building
of a subsequent landfill, and the county zoning commissioner's comments
represented a statement of legal conclusions, not facts.^'^ In reviewing the
adequacy of the administrator's affidavit, the court of appeals noted that,
normally, not even expert witnesses are competent to testify as to legal
conclusions.^" Although it agreed with the trial court's striking of the affidavits,
the court reversed, stressing that a reviewing court gives no special deference to
a trial court's interpretation of a statute.^**

In Chandler v. Dillon^*^ the trial court granted the plaintiff an extension of
time to respond to a motion for summary judgment and then rescinded the
extension, giving the plaintiff only one day to oppose the motion. Thereafter the
trial court granted summary judgment.^*^ It gave numerous reasons for the
rescission: that the extension was "inconsistent" with prior orders establishing
a case management schedule; that the order had a stamped, not written, signature;
and that the order was issued without a hearing.^*^ The court of appeals
concluded that such a short time to respond after the grant of an extension
deprived the plaintiff of due process.^'* It also rejected the trial court's reasons
for the rescission.^*^ It noted that under State ex rel. Peacock v. Marion Superior
Court, Civil Div., Room No. 5,^^ a stamped signature is given the same effect as
a written one, absent specific evidence of irregularity.^^' Nothing in the
applicable trial rules for enlarging time or granting summary judgment requires
a hearing before an extension to respond to a summary judgment motion may be
given.

579. 753 N.E.2d 693 (Ind.Ct.App. 2001).

580. Mat 696.

581. Id.

582. Mat 699.

583. Mat 697-700.

584. Id.

585. 754 N.E.2d 1002 (Ind. Ct App. 2001).

586. Mat 1004.

587. Mat 1005-06.

588. Mat 1006.

589. Id (citing Harder v. Estate of Rafferty. 542 N.E.2d 232, 234 (Ind. Ct. App. 1989)).

590. 490N.E.2d 1094, 1096 (Ind. 1986).

591. C/ia«£^/er,754N.E.2datl005.

2002] CIVIL PROCEDURE 1223

Azhar v. Town of Fisher s^"*^ involved a citizen lawsuit for violation of the
Open Door Act against the town, town council, and an ad hoc committee of the
town council. The trial court granted defendants summary judgment.^^^ The
court of appeals concluded that the plaintiff was not prejudiced when the
defendants' motion to dismiss was converted to summary judgment motion
without express notice.^^^ This was because he was given adequate time to
respond. Moreover, the obvious use of evidence outside the pleadings should
have put the plaintiff on notice that the motion was actually a summary judgment
request.^^^ However, summary judgment was unwarranted because genuine
issues of material fact existed regarding whether the defendants had cured their
previous violation of open door requirements.^^

In Deuitch v. Fleming^^^ the trial court granted summary judgment, but the
court of appeals reversed concluding that there were genuine issues of material
fact as to breach of duty, causation, and elements of res ipsa loquitur. In so
doing, the court described what it characterized as ambiguity in the standards for
granting summary judgment.^'* The court was particularly critical of the Indiana
Supreme Court's opinion in Jarboe v. Landmark Community Newspapers of
Indiana, Inc.,^^ which prohibits a movant on summary judgment from meeting
its prima facie burden by merely pointing out that a plaintiff has failed to produce
evidence raising material issues of fact on essential elements of a claim. For the
Deuitch court, this created the following reality: "Thus, applying the standard
as articulated in Jarboe permits a plaintiff who has no evidence supporting his
claim to proceed to trial, thereby wasting the parties' time and money as well as
judicial resources. One would hope that this anomaly would be addressed by the
supreme court."^°° Thus, it requested direction from the Indiana Supreme Court
on these questions.^'

A number of appellate cases reiterate that simply because cross-motions for
summary judgment are filed, this does not change the standard of review and
each motion should be scrutinized on its own under the applicable requirements
for summary judgment.^°^

592. 744 N.E.2d 947 (Ind.Ct.App. 2001).

593. /t/. at 950.

594. /^. at 950-51.

595. Id.

596. /fl?. at953.

597. 746 N.E.2d 993 (Ind.Ct.App. 2001).

598. /£/. at 999-1000.

599. 644 N.E.2d 118, 123 (Ind. 1994).

600. Dg«//c/i, 746N.E.2datl000.

601. /(i. at 1000.

602. See, e.g., Conseco Fin. Servicing Corp. v. Old Nat' I Bank, 754 N.E.2d 997 (Ind. App.
2001); Hoosier Ins. Co. v. Audiology Found, of Am., 745 N.E.2d 300, 306 (Ind. Ct. App. 2001).

1224 INDIANA LAW REVIEW [Vol. 35:1 157

X. Tort Claims Act

In Indiana Department of Transportation v. Shelly & Sands, Inc. ,^^ an action
in which a contractor sued the Department of Transportation on theories of
constructive fraud and estoppel, the court of appeals held that such claims, when
grounded in tortious conduct, are still subject to the notice requirements of the
Tort Claims Act.*^

Porter v. Fort Wayne Community Schools^^ involved a collision between a
car and a school bus. On the advice of the school district's insurance adjuster,
the driver's lawyer sent a letter to the defendant that included detailed
information about the accident, fairly inferred that a lawsuit was contemplated,
but did not formally state an intent to sue.^ The trial court granted summary
judgment for failure to provide notice under the ITCA. The court of appeals
reversed, concluding that the letter substantially complied with the notice
requirements.^^ In so holding, the court noted that compliance with the Act is
a preliminary procedural issue that must be resolved prior to trial. ^'

III. Indiana's New JURY Rules

The "Juries for the 21st Century" project has culminated in the approval of
new Indiana Jury Rules by the Indiana Supreme Court.^^ It was undertaken
jointly by the Citizens Commission for the Future of Indiana Courts ("CCFC")
and the Judicial Administration Committee of the Judicial Conference (both
collectively referred to as the "Commission")^'^ to promote a number of goals.
Among these were to make all rules affecting juries accessible in one place, to
increase public understanding of the role of jurors in the trial process, to expand
jury service, to diversify the jury pool, to increase respect for jurors, and to
protect juror privacy and safety.^" The new rules take effect on January 1 , 2003 .

The Indiana Jury Rules introduce new matters and preserve features of
current practice.^'^ Many of the Commission's recommendations became rules,
though not all. The Commission felt strongly that virtually no exemptions from
jury service should be granted. Instead, a process of deferral should be utilized
when undue hardship, extreme inconvenience, or public necessity would support

603. 756N.E.2d 1063 (Ind.Ct.App. 2001).

604. Mat 1077.

605. 743 N.E.2cl 341 (Ind. Ct. App. 2001).

606. /^. at 342-43.

607. Mat345.

608. Id at 344.

609. Press Release, The Indiana Supreme Court Adopts Most Rules Proposed by Coalition of
Citizens and Judges [hereinafter CCFC Press Release], copy on file with the Indiana Law Review.
See also Reports^ supra note 2.

610. See Reports, supra note 2, at \.

611. See CCFC Press Release, supra note 609, at 1-2.

612. /^. atl.

2002] CIVIL PROCEDURE 1225

a delay in a citizen's participation.^'^ The Indiana Jury Rules strictly limit
exemptions from service to those specifically enumerated by statute. However,
the Indiana Supreme Court felt that it did not have the power to eliminate the
substantive right not to serve accorded to some citizens by the legislature.^"* As
a compromise, where a specific exemption does not apply and burden is alleged
to justify nonparticipation, rather than completely excusing a potential juror,
service will be deferred.^'^

Innovative rules to educate the jury on its role and to increase its
understanding of the processes and substantive issues unfolding during trial will
affect trial practice.^'^ While these changes might improve functioning, they also
allocate more responsibility to the trial judge and might alter the order of classic
procedures such as the giving of final instructions. Juror understanding and
efficiency could be being bought at the expense of the trial lawyer's ability to
control the presentation of his or her case. For instance, upon welcoming the
panel, the trial judge must now immediately introduce the jury to the case.^'^ The
introduction must include a description of the nature of the matter and applicable
standards and burdens of proof, among other things.^*^ At this early stage, and
with the court's consent, the parties are allowed to present "mini" opening
statements.^'^ Carrying forward this same theme, Indiana Jury Rule 20 provides
that the court shall again guide the jury before opening statements by reading
instructions on the issues for trial, burdens of proof, credibility of witnesses and
how to weigh evidence.^^° The trial judge must also inform jurors that they
themselves may seek to ask questions by giving the questions in writing to the
judge.^^' Rule 23 authorizes the judge to issue to jurors a trial book which can
include instructions, witness lists, and copies of all admitted exhibits.^^^ The
Commission also recommended a new chronology for final instructions. It would
have had the trial judge give the instructions prior to closing arguments to
provide jurors with a framework for the arguments."^ The Indiana Supreme
Court did not mandate this sequence, but instead left it to the discretion of the
trial judge.^^* According to the Commission, the purpose of the repeated
guidance of these rules is to increase jury understanding: "Repetition of complex
legal issues, such as standards of proof, are [sic] expected to assist jurors to learn

613. Compare Reports^ supra note 2, at 6, 34-37, 65-66, w/Y/? IND. JURY R. 6 (effective Jan.
1,2003).

614. See CCFC Press Release, supra note 609, at 1.

615. iND. Jury R. 7 (effective Jan. 1, 2003).

616. See Reports, supra noXt 2^ ?XA9'55.

617. iND. Jury R. 14 (effective Jan. 1,2003).

618. Id.

619. Id.

620. iND. Jury R. 20 (effective Jan. 1, 2003).

621. Id

622. iND. JURY R. 23 (effective Jan. 1 , 2003).

623. See CCFC Press Release, supra note 609, at 2.

624. iND. Jury R. 27 (effective Jan. 1 , 2003).

1226 INDIANA LAW REVIEW [Vol. 35:1157

unfamiliar concepts and apply them during deliberations."^^^

Another important topic and one allied to exemptions and excusals is the
need to diversify the jury pool. Survey results obtained by the Commission^^^
and citizen comments at public hearings around the state showed that Indiana
citizens are deeply concerned that jury panels become more demographically
representative, not just in terms of race, but also in terms of vocation, life
experience, and economic background."^ To achieve this, the Indiana Jury Rules
direct that the jury pool be derived not just from voter registration lists, but also
from lists of utility customers, property taxpayers, income tax form mailing lists,
motor vehicle registrations and drivers' licenses, as well as city and telephone
directories."*

The Commission recognized that the practice of peremptory challenges
undermines jury diversity, but could not agree on a solution to the problem."^
Instead, it recommended that the court require documentation of juror
disqualification, exemptions and deferrals,^^° and that the process of jury
selection be recorded, including sidebar conferences,^^' so that a study could be
made. The court enacted these suggestions in Indiana Jury Rules 8 and 12.^^^ It
is interesting to note that in Ashahraner v. Bowers ^^^^ ']ust decided in 2001, the
court insisted on strict adherence to the BatsorP^ doctrine, which is designed to
reduce peremptory challenges motivated by racial bias.

On the issues of jury respect, privacy, and safety, a number of changes have
been instituted. According to the Commission, respect for jurors is increased by
Rule 4, which requires a minimum of two weeks notice of potential service; Rule
9, which limits service to one day or one trial; Rule 7, which allows deferrals for
service whose timing works a hardship on the citizen (e.g., farmers in the
growing season; accountants at tax time); and Rule 3, which prevents bystanders
from being conscripted for jury service.^^^ Issues of juror privacy and safety can
coalesce. Rule 10 provides that personal information obtained about jurors be
kept confidential, unless discussed in open court."^ To reduce hostility to the
jury. Rule 30 now requires that the verdict be read aloud by the judge, rather than
the foreperson .^^^

625. ^ee CCFC Press Release, 5wpra note 609, at 2.

626. See Reports, supra note 2, at 26-3 1, 37-41 .

627. 5ee CCFC Press Release, 5M/7ra note 609, at 2.

628. IND. Jury R. 2 (effective Jan. 1 , 2003).

629. See Reports, supra noXt 2, diX'il'AX.

630. See CCFC Press Release, supra note 609, at 2.

631. Id

632. iND. JuryR. 8, 12 (effective Jan. 1, 2003).

633. 753 N.E.2d 662 (Ind. 2001). ^ee^i/pra Part I.A.4.

634. 476 U.S. 79 (1986).

635. See Reports, supra note 2, at 30; CCFC Press Release, supra note 609, at 4.

636. IND. Jury R. 10 (effective Jan. 1, 2003).

637. iND. Jury R. 30 (effective Jan. 1 , 2003).

2002] CIVIL PROCEDURE 1227

IV. Other Indiana Rule Changes

On April 1, 2002, a series of changes to the Indiana Trial Rules became
effective. The most important of these involves Trial Rule 3 and parallels the
Indiana Supreme Court's decision in Ray-Hayes, ^^^ which required tender of the
summons to the clerk of the court to commence an action. Now the rule
expressly provides that a civil action is not begun unless the complaint is filed
along with "payment of the prescribed filing fee or filing an order waiving the
filing fee, and, where service of process is required, by furnishing to the clerk as
many copies of the complaint and summons as are necessary."^^^ This change
makes it clear that a litigant can no longer toll the statutes of limitations while,
at the same time, delaying tender of the summons to the clerk of the court.
Where practitioners initiate an action at the last moment, failure to tender the
summons until after the statute has run will be fatal. Trial Rule 4(B) has also
been amended to conform to the changes in Rule 3 and remove any ambiguity as
to the required chronology .^^

In response to changing technology. Rule 5(E), which defines "filing with the
court," allows electronic filings not just by facsimile, but by all forms of
electronic transmission. This is consistent with Indiana's recent adoption of the
Uniform Electronic Transactions Act,^' which contains provisions designed to
encourage electronic records for governmental entities.^^ Recognizing the heavy
use of express delivery services by attorneys, new Rule 5(E)(4) allows filing with
the clerk by use of "any third-party commercial carrier" so long as service is to
take place within three calendar days.^^ Renumbered Rule 5(E)(5) makes third-
party commercial carrier filing effective on deposit with the carrier. However,
if any method of filing with the clerk other than personal delivery is employed,
parties must retain proof of filing.*^

Like the changes to Rule 3, amendments to Trial Rule 1 5(C) will impact the
ability of parties to meet the statute of limitations. Previously, when a new party
was to be added by amending a pleading, that amendment would not relate back
to the date of commencement unless, within the limitations period, the new party
both received notice of the lawsuit so as not to be prejudiced, and was or should
have been aware that he or she was mistakenly omitted from the action. ^'^^ Now
these requirements must be met within 120 days of "commencement of the
action."^^

638. 753 N.E.2d 662 (Ind. 2001).

639. Ind. Trial R. 3 (amended 2001).

640. Ind. Trial R. 4(B) (amended 2001).

641. Ind. Code § 26-2-8 (1998 & Supp. 2001).

642. Id.

643. Ind. Trial R. 5(E)(4) (amended 2001).

644. Ind. Trial R. 5(E)(5) (amended 2001).
645 Ind. Trial R. 15(C) (amended 2001).
646. Id.

1228 INDIANA LAW REVIEW [Vol. 35:1 157

Last year in Old Indiana Ltd. Liability Co. v. Montana, ^^ the court of appeals
strictly construed the language of Rule 35 on mental and physical exams to
require all examinations thereunder to be performed by a licensed physician.^"**
This interpretation prevented important categories of professionals, such as
psychologists, physical therapists, vocational specialists, and the like, from
eligibility to conduct court-ordered examinations. Amended Rule 35 now
specifies that a court may order an examination by any "suitably licensed or
certified examiner."^'

Trial Rule 53.1 imposes time limits on trial courts for ruling on motions.^^^
It has been amended to better accommodate the effects of alternative dispute
resolution ("ADR") on the chronology of cases. Now, the time from the point
when a matter is referred to ADR until the ADR report is submitted is excluded
for purposes of computing the time when a judge must rule on a motion."'

As the previous discussion of Sholes v. Sholes^^^ shows, Indiana Trial Rule
60.5 is a unique provision that affords courts a procedure for mandating the
expenditure of public funds for the operation of the court or court-related
activities."^ The rule specifies that when a court seeks to mandate funds, an
order to show cause why the appropriation should not be made shall issue and a
bench trial should be undertaken, presided over by a special judge.""* Previously,
the Indiana Supreme Court was to appoint such a judge from a panel of judges
and former judges maintained by the court."^ Now, Rule 60.5 has been amended
to dispense with the panel."^ Under the previous version of the rule, any
determination that expenditure of funds should occur was automatically reviewed
in the Indiana Supreme Court, unless the government entity waived review within
two days after entry of the decree. The time for waiver is now extended to a full
thirty days."^

Trial Rule 75 on venue has been amended to refer generally to "actions," not
"causes" or "proceedings," and to impose the duty of paying the costs associating
with transferring an action for improper venue within twenty days of the order
of transfer."* If this payment is not timely made, the action must be dismissed
(though without prejudice) and attorneys' fees and costs must be awarded.
Subdivision (E) of the Rule has also been changed to cross-refer to new
Appellate Rule 14(A)(8) on interlocutory appeals.

647. 732 N.E.2d 179 (Ind. Ct. App. 2000).

648. /rf. at 186-87.

649. Ind. TRIAL R. 35 (amended 2001).

650. Ind. Trial R. 53.1.

651. Ind. Trial R. 53.1(B) (amended 2001).

652. 760 N.E.2d 156 (Ind. 2001).

653. See supra Part I.A.3.

654. Ind. Trial R. 60.5.

655. Id.

656. Ind. Trial R. 60.5 (amended 2001).

657. Id.

658. Ind. Trial R. 75(1)(2) (amended 2001).

2002] CIVIL PROCEDURE 1229

Finally, Rule 79 governing the appointment of special judges in conjunction
with provisions such as Rule 60.5 has been amended to allow a judge who has
granted a change of venue to serve as a special judge in the same matter in its
new location. This is conditioned on agreement of the parties and the sending
and receiving judges of the respective counties.^^^ Subdivision (K) has also been
changed to specifically include special judges appointed pursuant to Indiana
Code section 34-13-5-4 on public lawsuits.^^^ Part (P) has been modified to
provide a special fee for senior judges who serve as special judges and the last
sentence of that section, mandating that their payment be determined by the fee
schedule of the Director of the Division of State Court Administration, has been
deleted.""'

Effective January 1 , 2002 are revisions to Tax Court Rules 1 through 9, and
1 6 through 20."" These changes are in response to the new Indiana Board of Tax
Review, established in 2001 by Indiana Code section 6-1.5-2-1 and provide
procedures for appeal in state tax matters, among other things.""^ In addition, a
new form, entitled "Verified Petition for Judicial Review of a Final
Determination of the Indiana Board of Tax Review" has been added. While state
tax court procedure is beyond the scope of this Article, tax practitioners should
take care to familiarize themselves with the rule amendments and their focus on
the requirement of exhausting administrative remedies. This is found in the
constant references to the "final determinations" of taxing authorities in the new
rules.

Changes to three Indiana Administrative Rules will become effective on

various dates. Rule 5 governing senior judges has been amended to afford them

state insurance benefits and entitlements, effective January 1, 2002.""^

Administrative Rule 8 immediately institutes a new type designation for the case

numbering system affecting civil plenary matters — ^"PL" for all cases filed after

January 1, 2002, not "CP."""^ In conformity with the concern for juror privacy

and safety expressed in the reports of the Commission, Administrative Rule 9 has

been amended so that, effective January I, 2003, personal information about

i jurors and prospective jurors that is not disclosed in open court will be kept

confidential from public dissemination.""" Finally, pursuant to Appellate Rule

30, the Indiana Supreme Court has promulgated technical standards for digital

& transcripts to be used on appeal.""^ Among these standards is the requirement

s that all eligible documents be converted into the Adobe Portable Document

659. IND. Trial R. 79(J)(1) (amended 2001).

660. iND. Trial R.79(K) (amended 2001).

66 1 . iND. Trial R. 79(P) (amended 200 1 ).

662. See http://www.in.gov/judiciary/research/amend02/tax.pfd (last visited May 21, 2002).

663. Id.

664. iND. Admin. R. 5 (amended 2001).

665. iND. Admin. R. 8.

666. iND. Admin. R. 9(L) (amended 200 1 ; amendment effective 2003).

667. http://www.in.gov/judiciary/research/amend02/digital.pfd.

1230 INDIANA LAW REVIEW [Vol. 35:1 157

Format by the court reporter for transmission to the court of appeals.^^* Civil
practitioners should also review changes to the Rules for Small Claims Court,^^'
the Rules of Judicial Conduct,*^^ and the Rules of Evidence.^^'

V. Federal Practice

The year 2001 proved a particularly discouraging one for the plaintiffs bar
insofar as federal practice was concerned. The U.S. Supreme Court decided a
number of cases that reduce the incentives for taking civil litigation or make
access to court trials more difficult. Both Congress and the federal rulemakers
seem intent on restricting state class actions by federalizing them using minimal
diversity or erecting obstacles to class action status or attorney compensation.
The changes to the Federal Rules of Civil Procedure ("FRCP") for this
rulemaking cycle were less extensive than in 2000, although proposed rule
changes in the pipeline are controversial. What follows is a brief review of some
of the developments affecting civil practice in the federal courts.

A. Procedural Legislation

1. Resident Aliens and the Diversity Statute. — The Federal Court
Improvements Act of 2001^^^ would repeal the provision of 28 U.S.C. § 1332 that
deems a resident alien a citizen of the state of her/his permanent residence and
replace it with a rule that prohibits federal jurisdiction for disputes involving
such persons.

2. Multiparty, Multiforum Litigation. — In March 2001, the U.S. House of
Representatives passed the Multidistrict, Multiparty, Multiforum Trial
Jurisdiction Act of 2001 .^^^ It permits federal jurisdiction on minimal diversity
in mass tort cases where at least twenty-five persons have died or been injured
and each plaintiff claims damages in excess of $150,000.^^^ However, it also
mandates that federal courts abstain from exerting this jurisdiction where a
substantial portion of plaintiffs and primary defendants are from the same state.
Likewise, that state's law will govern the conflict. It also legislatively overrules
Lexecon, Inc. v. Milberg Weiss BershadHynes & Lerach,^^^ which had allowed
a judge who had received a case pursuant to 28 U.S.C. § 1407 (multidistrict
litigation) to retain the case for trial .^^^

3. Class Actions. — Several bills are pending in Congress that affect class
actions and parallel attempts from the FRCP rulemaking process ("FRCP") to

668. Id.

669. Available at http://www.in.gov/judiciary/research/rules.html.

670. Id.

671. Id

672. H.R. 2522, 107th Cong. (2001).

673. H.R. 860, 107th Cong. (2001).

674. H.R. 860, 107th Cong., § 3 (2001).

675. 523 U.S. 26(1998).

676. H.R. 860, 107th Cong., § 2 (2001).

2002] CIVIL PROCEDURE 1231

rein in state class actions.^^^ S. 1 7 1 2^^* expands the provisions of H.R. 234 1 , the
Class Action Fairness Act of 2001.^^^ The House bill, if passed, would provide
federal subject matter jurisdiction over state-based class actions where there is
minimal diversity among class members, there are at least 100 such members,
and the amount in controversy exceeds $2 million. H.R. 2341 also regulates the
adequacy of class notice and the attorneys' fees that are recoverable. In addition,
it heightens pleading requirements for such classes and stays discovery until
motions to dismiss can be heard. S. 1712 goes beyond this proposed legislation
because it allows removal to federal court of matters not formally designated as
class actions in two situations, any public interest lawsuit not filed by a state
attorney general and claiming monetary relief and any claim for monetary relief
tried jointly with 1 00 or more persons.

4. Television in the Courtroom. — In the fall of 2001, the Senate Judiciary
Committee approved the Sunshine in the Courtroom Act, S. 986. It gives federal
judges the discretion to allow television broadcasting of proceedings, even
though the Judicial Conference of the United States has been opposed to this
move.^*°

5. Electronic Commimications. — ^The E-Govemment Act of 2001, S.803,
would require all federal courts to establish a website where detailed information
about cases and other matters would be available.^*'

6. Government Lawyers. — S. 1437, introduced by Senator Leahy and
entitled the Professional Standards for Government Attorneys Act of 200 1 ,
would require federal rulemakers to regulate the conduct of government lawyers,
especially insofar as their ability to contact represented persons is concerned. It
would also authorize government lawyers to act in "sting" operations. ^^^

7. Terrorism. — S. 1 75 1 , the Terrorism Risk Insurance Act of 200 1 , would
use the multidistrict litigation approach to put all matters stemming from a
terrorist incident in one federal forum. It would also preclude punitive damages
for actions under the act.^*^ A similar approach is taken in the Terrorism Risk
Protection Act, H.R. 321 0.^*^ Finally, the Air Transportation Safety and System
Stabilization Act of 200 1 ,^'^ introduced in response to the September 1 1 disaster,
would limit the liability of airlines, but provide new causes of action to litigants.

B. U.S. Supreme Court and Seventh Circuit Decisions
In 2001 , the decision that will most affect civil practice is one that spans the

677. 5ee /w/ra text accompanying notes 741-43.

678. S. 1712, 107th Cong. (2001).

679. H.R. 2341, 107th Cong. (2001).

680. S. 986, 107th Cong. (2001). H.R. 2519 is the companion House bill.

681. S. 803, 107th Cong. (2001).

682. S. 1437, 107th Cong. (2001).

683. S. 1751, 107th Cong. (2001).

684. H.R. 3210, 107th Cong. (2001).

685. H.R. 2926, 107th Cong. (2001).

1232 INDIANA LAW REVIEW [Vol. 35:1157

categories of substance and procedure. Cooper Industries, Inc. v. Leatherman
Tool Group, Inc.^^^ introduces a stunning reconception of the nature of a jury's
determination of punitive damages. In so doing it revolutionizes the standard of
appellate review to be applied. Normally, the award of punitive damages is a
matter within the purview of the states, because the ability to recover monies in
a civil matter to punish a defendant's bad behavior is a creature of common law.
This makes it difficult to "constitutional ize" a jury's assessment of punitive
damages so as to reach the federal forum. Nonetheless, the U.S. Supreme Court
has decided a number of significant punitive damages cases.^*^ One of the most
controversial questions about those decisions is whether they involve substantive
due process, or whether they are procedural due process decisions.^^* This is
because the fundamental question inherent in all of them is this: When is the
amount of punitive damages simply too large to be constitutional, regardless of
any other factor?

To add to the controversy, issues of punitive damages have historically been
treated as questions of fact within the sound province of the jury to answer,
curbed by the ability of courts to review an assessment for excessiveness under
a deferential standard.^*^ In Cooper, the Supreme Court has struck at the heart
of this classic allocation of functions between judge and jury, and trial and
reviewing courts, by holding that punitive damage assessments are not matters
of fact, but are moral evaluations.^^^ Thus, an appellate court is now authorized
to use a de novo standard of review in scrutinizing them. Previously, when a trial
judge left the jury's verdict intact, the reviewing court was required to use an
abuse of discretion standard. Now, the court of appeals is free to make its own
determination of the jury's results as if it were deciding a question of law. This
view runs counter to a long history of allocating punitive damage issues to juries,
in part from the founders' concern that government can oppress a defendant by
fining in a civil context, almost as easily as by pursuing criminal prosecution.
The jury was to be a bulwark against political retaliation worked by this device.
Moreover, the Court's own opinions on the right to jury trial have treated as
especially jury-worthy any remedy that involves a penalty or fine.^^' And, the
classic factors a jury must consider for fixing punitive damages in most
jurisdictions plainly involve issues of fact — for example, given the defendant's
financial condition, what amount of damages is effective to deter?

By expressing its analysis in terms of the standard of review, the Court has
neatly finessed many of the difficult substantive issues raised by punitive

686. 532 U.S. 424(2001).

687. See, e.g., BMV of N. Am. Inc. v. Gore, 5 1 7 U.S. 559 (1995) (holding award of $4 million
in punitive damages as unconstitutionally "excessive").

688. See, e.g., id.

689. Cooper, 532 U.S. at 437.

690. One of the great debates in philosophy is whether there are any objectively verifiable
moral "facts" or whether when one makes an ethical judgment, one is merely expressing an opinion
or an emotion.

691. See, e.g., Tull v. United States, 481 U.S. 412 (1987).

2002] CIVIL PROCEDURE 1233

damages. However, as Justice Ginsberg suggested in Gasperini v. Center for
Humanities, ^^^ making it easier for appellate courts to undo jury verdicts can
function as an indirect cap on damages.^^^ There is also the practical issue of
how to define and demarcate this new category of "moral" assessment. For all
these reasons, Cooper is a troubling opinion. Its new conceptual framework
could have a far-reaching impact not just on jury determinations of punitive
damages, but also on any jury verdict that requires judgments about intangible
items such as pain and suffering and emotional distress.

Buckhannon Board and Care Home, Inc. v. West Virginia Department of
Health and Human Resources^^^ is another decision that significantly affects
plaintiffs. It rejects the "catalyst of reform"^^^ theory for shifting fees under two
fee-shifting statutes, the Fair Housing Act and the Americans with Disabilities
Act ("ADA").^^ One of the difficult questions raised by an award of fees is
whether a litigant is a "prevailing party" for purposes of fee shifting. In many
instances, especially when the defendant is goaded to change its behavior by
litigation, but a full merits determination is not made, "prevailing party" status
is not clear. Nine of the circuit courts had authorized an award of fees on the
theory that, if the litigation provoked significant change, it was a catalyst of
reform and should count as a win for the plaintiff. The Court ignored this
consensus and interpreted the Fair Housing Act and the ADA to prohibit fee
shifting for this reason. This case could have implications for any fee-shifting
statute.

Not only in Cooper and Buckhannon, but in a variety of other cases the U.S.
Supreme Court has affected civil practice. Circuit City Stores, Inc. v. Adams ^^^
will also negatively treat plaintiffs, for it holds that the Federal Arbitration Act
applies to all employment agreements, except those of transportation workers.^^^
This carries forward the Court's trend of vigorously applying the Act, but it
discounts the policy argument that it is inappropriate to force arbitration when
civil rights and other policy questions are raised in an employment context.^^
Continuing the same general theme, restricting plaintiff lawsuits, the Supreme
Court concluded in a 5-4 decision that there is no private right of action to
enforce regulations promulgated under Title VI of the Civil Rights Act dealing
with the disparate impact of state action.^°^ This was the question in Alexander

692. 518 U.S. 415(1996).

693. /f/. at 425 (Ginsburg, J., dissenting). /

694. 532 U.S. 598(2001).

695. See Nadeau v. Helgemoe, 581 F.2d 275 (1st Cir. 1978) (holding fees appropriate when
plaintiffs lawsuit is causally linked to defendant's change in behavior and there is some legal basis
for plaintiffs claim).

696. Buckhannon Bd. & Care Home, Inc., 532 U.S. 598 at 605.

697. 532 U.S. 105(2001). This decision overrules Cra/? v. Campbell Soup Co,, 177F.3d 1083
(9th Cir. 1999).

698. See, e.g.. Craft, Ml ^MziXmA.

699. See also Green Tree Fin. Corp. v. Randolph, 531 U.S. 79 (2001).

700. 42 U.S.C. § 2000d-l (1999); 28 CFR § 42.104(b)(2) (1999). See also 49 CFR §

1234 INDIANA LAW REVIEW [Vol. 35:1 157

V. SandovalJ^^ which challenged the State of Alabama's requirement that one
show proficiency in English in order to obtain a driver's license.

In Becker v. Montgomery^^^ by a unanimous opinion, the Court held that a
party's failure to sign a notice of appeal is not a fatal defect. This is because the
substance of the notice made it clear who the parties involved in the appeal were,
so that absence of a signature was a technical problem that did not go to the
reviewing court's appellate jurisdiction. Thomas v. Chicago Park Districf^^
emanated from the Seventh Circuit Court of Appeals and raised significant First
Amendment questions about parade permits. It held that because Chicago's
requirements do not constitute a content-based regulation, access to prompt
judicial review under the procedural requirement of Freedman v. Marylancf^^
governing prior restraints did not apply .^°^

Finally, important cases pending before the Court include Mathias v.
Worldcom Technologies, IncJ^ and Verizon Maryland, Inc. v. Public Service
Commission of Mary land. ''^^ These represent a circuit split over the appealability
of state commissions' actions regarding interconnection agreements. Among
other questions, they address whether prospective relief against such
commissions for violation of the Telecommunications Act of 1996 are
permissible under the £x/?(a[r/^ Young doctrine, ^^^ In Devlin v. Scardelletti,^^ the
Court will determine whether a nonintervening class member has standing to
appeal, even after the motion to intervene was properly denied. Dusenbery v.
United States, ^^^ orally argued in late October and decided in January 2002, held
that the proper standard for notifying a prisoner of a civil forfeiture proceeding
is designated by the "reasonable under the circumstances test" of Mullane v.
Central Hanover Bank & Trust Co.^" not the more stringent test of Mathews v.
Eldridge^^^ for notice and opportunity to be heard where provisional remedies are
sought.^'^ Another pending case just decided in 2002 is Raygor v. Regents of the
University of Minnesota J^^ It holds that the Eleventh Amendment is violated by
the thirty-day statute of limitations tolling provision of the federal supplemental

21.5(b)(2) (2000).

701. 532 U.S. 275 (2001).

702. 532 U.S. 757(2001).

703. 122 S.Ct. 755 (2001).

704. 380 U.S. 51(1965).

705. Thomas, 122 S. Ct. at 778-80.

706. U.S. No. 00-878, reported below as Illinois Bell Telephone Co. v. Worldcom
Technologies. Inc., 179 F.3d 566 (7th Cir. 1999), cert, granted, 532 U.S. 903 (2001).

707. U.S. No. 00-1531.

708. 209 U.S. 123(1908).

709. U.S. No. 01-417.

710. 534 U.S. 161(2002).

711. 339 U.S. 306(1950).

712. 424 U.S. 319(1976).

713. DM5e«6erv> 534 U.S. at 669.

714. 122 S.Ct. 999 (2002).

2002] CIVIL PROCEDURE 1 23 5

jurisdiction statute, § 28 U.S.C. 1367. This occurs where a state-based claim
filed against a nonconsenting state in federal court is subsequently dismissed on
Eleventh Amendment grounds and then refiling is sought in state court.^'^

The U.S. Court of Appeals for the Seventh Circuit has decided a number of
cases important to civil practice matters. A cluster of them were concerned with
arbitration agreements. For instance, in George Watts & Son v. Tiffany & Co.,^^^
the Seventh Circuit Court of Appeals held that the "manifest disregard of the
law" principle is not available to justify court intervention into arbitration on the
issue of attorneys' fees, because, although a Wisconsin statute authorized fees,
it did not prevent parties from agreeing to bear their own legal expenses and there
was no agreement to the contrary between them.^/^ In IDS Life Insurance Co. v.
Royal Alliance Ass '«^'* the Seventh Circuit stated that an arbitration award need
not be correct or reasonable to be binding, continuing thie theme of George Watts
& Son. However, in Penn v. Ryan 's Family Steak Houses, Inc.,^^^ a case from
Indiana, the court concluded that an arbitration agreement that allowed the
employer to modify its terms without notice and included other one-sided
provisions lacked contractual mutuality and was unenforceable.

Other opinions from the Seventh Circuit of interest to civil practitioners are
Downey v. State Farm Fire & Casualty Co?^^ (no federal subject matter
jurisdiction in an action against a private insurer that issued federal flood
insurance; consent judgment preserves the right to appeal where expressly
reserved); Ester v. Principf^^ (when an agency decides the merits of a complaint
without addressing the question of timeliness of exhaustion of remedies, it has
waived the defense in subsequent lawsuits); Thompson v. Altheimer & Gray ^^^
(abuse of discretion in racial discrimination case not to dismiss juror for cause
when juror could not assure court that, given her background, she could be
impartial); Hetreed v. Allstate Insurance Co.^^^ (when appealing decision on
merits litigant must file notice of appeal covering award of costs to appeal such
award); Indiana Civil Liberties Union v. O 'Bannon^^^ (preliminary injunction
against erection of stone monument with the Ten Commandments on statehouse
grounds proper because likelihood of success on merits showing violation of
Establishment Clause); Isaacs v. Sprint Corp.^^^ (no conditional grant of class
certification); United Air Lines, Inc. v. International Ass 'n of Machinist &

715. /^. at 1004-05.

716. 248 F.3d 577 (7th Cir. 2001).

717. IdatSSl.

718. 266 F.3d 645 (7th Cir. 2001).

719. 269 F.3d 753 (7th Cir. 2001).

720. 276 F.3d 243 (7th Cir. 2001).

721. 250 F.3d 1058 (7th Cir. 2001).

722. 248 F.3d 621 (7th Cir. 2001).

723. 135 F.3d 1 155 (7th Cir. 2001) (unpublished opinion).

724. 259 F.3d 766 (7th Cir. 2001).

725. 261 F.3d 679 (7th Cir. 2001).

1236 INDIANA LAW REVIEW [Vol. 35:1 157

Aerospace Workers^^^ (federal court had jurisdiction to issue injunction against
labor union despite Norris-LaGuardia Act because union actively promoted work
slowdown); Kalan v. City of Si Francis^^^ (where parties stipulate to specifically
identified magistrate judge, different magistrate judge cannot preside without
their consent); Lockwood International B, V. v. Volm Bag CoP^ (paying a
plaintiff to replead a complaint does not eliminate the liability of the insurer to
defend its insured); National Organization for Women, Inc. v. Scheidler^^^
(private party may obtain civil injunctive relief under the Racketeer Influenced
and Corrupt Organizations Act ("RICO"), in disagreement with Ninth Circuit on
same issue); Szabo v. Bridgeport Machines, IncP^ (when ruling on class
certification, a court does not have to accept the allegations in plaintiffs
complaint as true); In re Synthroid Marketing Litigation^^^ (gives detailed
guidance on notice of appeal for would-be intervenors who oppose class
settlement; requires trial court to estimate market rates to set fees; concludes
incentive awards not available where party does not become class representative
until after success is likely).

C Rules Changes

1. The Federal Rules of Civil Procedure CFRCP ") . — Proposed changes to
the FRCP became effective December 1, 2001. Rule 5(b)(2)(D) allows for
electronic service and service through court facilities.'" To conform with this
change. Rule 6(e) extends the time for response to documents so served for three
days.'" Rule 77(d) provides the clerk of the court with more alternatives for
notifying parties of entry of an order or judgment, including facsimile and
computer transmission. Rule 65 adds a new subdivision (f) to govern copyright
impoundment.'^"* Finally, Rule 81(a)(1) clarifies that the FRCP apply in
bankruptcy proceedings, mental health proceedings, and copyright
proceedings.'^^

In September 2001 , the Judicial Conference Committee on Rules of Practice
and Procedure approved changes previously proposed for comment. New Rule
7.1 would be added to require disclosures that will assist judges in avoiding
conflicts of interest. Among other things, it would require the disclosure of
corporate parties' financial interests, including the disclosure of parent

726. 243 F.3d 349 (7th Cir. 2001).

727. 274 F.3d 1150 (7th Cir. 2001).

728. 273 F.3d 741 (7th Cir. 2001).

729. 267 F.3d 687 (7th Cir. 2001).

730. 249 F.3d 672 (7th Cir. 2001).

731. 264 F.3d 712 (7th Cir. 2001).

732. Fed. R. Civ. Proc. 5(b)(2)(D), available at http://www.house.gov/judiciary/civil2001 .
pfd.

733. Fed. R. Civ. Proc. 6(e), available at http://www.house.gov/judiciary/civil2001.pfd.

734. Fed. R. Civ. Proc. 65, available at http://www.house.gov/judiciary/civil2001.pfd.

735. Fed. R. Civ. Proc. 8 1 (a)(1), available at http://www.house.gov/judiciary/civil200 1 .pfd.

2002] CIVIL PROCEDURE 1237

corporations and stock interests of at least ten percent held by public
corporations.'^^ Rule 58 will be changed to clarify when the time runs for filing
an appeal.'^' Section (b) thereof specifically designates the time of entry of
judgment and includes a provision that keys off of the date when a separate
document setting forth the court's action must be filed under proposed Rule
58(a)(1). That subsection makes it clear that, except for orders for disposing of
motions for judgment under Rule 50(b), to amend or make findings of fact under
Rule 52(b), for attorneys' fees under Rule54(d)(2)(B), for new trial or to alter or
amend the judgment under Rule 59, and for Rule 60 relief, a// judgments, even
amended ones, must be entered on a separate document.'^^ The rule also makes
it clear entry of judgment may not be delayed or the time for appeal enlarged due
to motion to tax costs or for fees and conforms the procedure for ruling on
motion for attorneys' fees to Appellate Rule 4. To be consistent with these
changes. Rule 54 would also be amended to delete the requirement of service
before the submission of a motion for attorneys' fees and to delete the
requirement of a separate judgment therefor.'^^ Rule 81(a)(2) would also be
amended to remove a conflict between the FRCP and the Rules Governing 2254
Cases and Rules Governing 2255 Proceedings. Finally, certain amendments to
Supplemental Rule C on Admiralty are proposed that would govern
interrogatories in civil forfeiture proceedings and other matters.

The advisory committee has also published for comment proposed changes
to Rules 23, 51, 53, 54(dX2), and 71(a). The proposed changes to Rule 23 are
significant. They are designed to address the general concerns for fairness of
class procedure for unnamed class members raised by the U.S. Supreme Court's
opinion in Anchem Products Inc. v. Windsor?^ In addition, like the proposed
class action legislation pending in Congress, they include measures that will
affect the ability of parties to bring class actions in state forums. Two
particularly controversial topics are measures to enjoin overlapping class actions
filed in multiple state courts and appointment and reimbursement of class
counsel.'^' Among other changes are those requiring notice to class members at
the certification stage, appeals by nonintervening class members, and the
preclusive effects of class certification and settlement.

2. Seventh Circuit and Local Rule Matters, — Effective December 1 , 200 1 ,
the Seventh Circuit amended a number of its Rules — ^22.2(a) (disclosure
statements of prior proceedings and other matters), 26. 1 (disclosure statements

736. Proposed Fed. R. Civ. Pro. 7.1(a)(lXA).

737. See Memorandum from Paul V. Niemeyer, Chair, Advisory Committee on the Federal
Rules of Civil Procedure, to Honorable Anthony J. Scircia, Standing Committee on Rules of
Practice and Procedure, at 91 (May 2000) (on file with the Indiana Law Review).

738. Id.

739. Id

740. 521 U.S. 59 (1997). See also BNA LEGAL WEEK, May 8, 2001, at. 2684.

74 1 . See Civil Rules Committee Hears Testimony on Proposals to Amend Class Action Rule,
BNA Law Week, Dec. 1 8, 200 1 , at 2366; Senators Offer New Class Action Legislation Similar to
Bill Approved Earlier by Committee, BNA LAW WEEK, Dec. 1 8, 200 1 , at 2367.

1238 INDIANA LAW REVIEW [Vol. 35:1 157

of identity of nongovernmental attorneys), 31(e) (digital briefs), 32(a) (brief lie
flat rule), and 34(h) (argument by law students)^*^ It also included in its Internal
Operating Procedures a provision concerning the sealing of records. It requires
a court order for records to be sealed, unless a stature provides to the contrary. ^"^^
Notice has also been given by the Administrative Office of the U.S. Courts that
interest rates on judgments in the federal courts have been changed pursuant to
statute, effective on all judgments entered on or after December 21, 2000.^*^

On January 2, 2002, a series of changes to the Local Rules for the U.S.
District Court for the Northern District of Indiana became effective^*^ and a new
fee schedule was introduced.^"*^ The U.S. District Court for the Southern District
of Indiana has also effectuated changes to certain of its Local Rules, effective
January 1, 2002.^"*^ In addition, all cases filed on or after November 16, 2001
must submit a Case Management Plan, unless otherwise exempted, that complies
with the Instructions for Preparing Case Management Plans promulgated by the
Southern District pursuant to its Local Rule 1 6. 1 .^^*

742. 5ee http://www.ca7.uscourts.gov/webnote.htm (last visited Mar. 15,2002).

743. See http://www.ca7.uscourts.gov/Rules/rules.htm (last visited Mar. 15, 2002).

744. Current rates are available at http://www.federaIreserve.gOv/releases/H 1 5/Current.

745. See Local Rules 5.1(c), 1(0, Kg). 1(h), 8.2, 16.1(b), 16.3, 24.1(a), 1(b), 1(c), 47.3,
72.1(d), 1(e), 1(0, 1(g), l(i), 10), 72,2(a), 79.1, 83.7(a), 7(c), 200.1 and Rule III of the Rules of
Disciplinary Enforcement, available at http://www.innd.uscourts.gov/localrules.html.

746. See http://www.innd.uscourts.gov/feeinfo.html.

747. 5ee Local Rules 4.6, 16.1(b), 1(c), 24.1, 72.1, 72.3,76.1, 81.2, 83.5, ava/Va^/e a/ http://
www.insd.uscourts.gov/pub_main.htm.

748. See http://www.insd.uscourts.gov/whats_new_main.htm.

Indiana's Revised Article 9 and Other
Developments in Commercial and Consumer Law

Matthew T. Albaugh*

Introduction

July 1, 2001 witnessed the long awaited arrival of Revised Article 9 to most
of the United States. A culmination of over a decade's work,' Revised Article
9 will be in effect in all fifty states plus the District of Columbia as of January
1, 2002.^ With these major changes to the law of secured transactions, the
coming months will be a significant challenge to secured parties, practitioners,
and the courts as the transition takes full effect. As Revised Article 9's
provisions have been in force for only a short period, few of the unavoidable gaps
and ambiguities have received judicial scrutiny. Indiana is not immune from the
challenges posed by the adoption of Revised Article 9. Revised Article 9's
changes not only represent a departure from numerous provisions in the old
Article 9, but also present an additional hazard for many parties in Indiana
because of several non-uniform amendments to the revised article.

Space does not permit a full treatise on the ramifications of Revised Article
9. Truly, others have already risen to the task.^ Instead, my objective in this
Article is to provide a sufficient framework of the present filing procedures in
Indiana and to highlight and explain those provisions in which the Indiana
General Assembly has departed from the uniform article. Also, reference both
to comparable state departures from the uniform act and to Revised Article 9's
official comments will be provided where applicable.

♦ Judicial Clerk to Chief Justice Randall T. Shepard, Indiana Supreme Court. A.S.,
summa cum laude, 1995, Vincennes University; B.A., 1997, Indiana University; J.D., summa cum
laude, 2001, Indiana University School of Law— Indianapolis. The views expressed are solely
those of the author. I would like to thank Professor James A. Nehf, Indiana University School of
Law—Indianapolis, for his invaluable assistance and feedback on this article.

1 . The Permanent Editorial Board of the Uniform Commercial Code (U.C.C.) established
a committee in 1990 to study the need for revising Article 9. See Donald W. Garland, Revised
Article 9: Understanding the Changes to Secured Transactions, 64 TEX. B.J. 974, 974 (2001).
Revised Article 9 was promulgated by the National Conference of Commissioners on Uniform State
Law (N.C.C.U.S.L.) in 1998. See Ingrid Michelsen Hillinger & Michael G. Hillinger, 2001: A
Code Odyssey (New Dawn for the Article 9 Secured Creditor), 1 06 COM. L.J. 1 05, 1 05 (200 1 ).

2. New York, New Jersey, and Massachusetts enacted Revised Article 9 j ust days before the
July 1 , 2001 deadline. In addition, four states pushed forward the effective date of Revised Article
9 to allow more time for their filing offices to adjust to the changes. Connecticut's law becomes
effective on October 1 , 2001 . Alabama, Florida, and Mississippi represent the final three states to
come on board with effective dates of January 1, 2002. See Press Release, National Conference of
Commissioners on Uniform State Laws, States Uniformly Enact U.C.C. 9 Revisions (July 2, 2001 ),
available at http://www.nccusl.org/nccusl/pressreleases/prl -07-01 .asp (last visited Dec. 5, 200 1 ).

3. See. e.g., JAMES J. WHITE & ROBERT S. SUMMERS, UNIFORM COMMERCIAL CODE: 1999

Article 9 Supplement (4th ed.Supp. 1999); The New Article 9: Uniform Commercial Code
(Corrine Cooper ed., 2d ed. 2000).

1240 INDIANA LAW REVIEW [Vol. 35:1239

In the second part of this Article, I will discuss other major legislative
developments and case law in the field of commercial law during the survey
period/ Included in this discussion is an important, though questionably
decided, opinion from the Indiana Supreme Court regarding payday loan
creditors.^

I. Indiana's Revised Article 9

In a nutshell, Revised Article 9 makes the law of secured transactions more
certain for the experienced practitioner and more daunting for the novice. As
White and Summers explain in their treatise, *1ength and complexity" are the
byproduct of resolving the ambiguities of the old Article 9.' Some of the major
developments, discussed in further depth below, include an expansion of Article
9's scope, new priority rules, changes to choice-of-law rules, and changes to the
enforcement provisions, to name but a few.

A. The Scope of Article 9

Article 9's basic scope provision, Indiana Code section 26-1-9.1-109,^
sweeps a huge array of transactions into the fold. As subsection (a)(1) states,
generally *'a transaction, regardless of its form, that creates a security interest in
personal property or fixtures by contract" is governed by Article 9.* The creation
of a security interest makes Article 9 applicable, regardless of the transaction's
form or the name parties assign to it.^ Reference to Indiana Code section 26- 1 - 1 *
201(37) must be made for the definition of "security interest."

Generally speaking, Revised Article 9 provides for sixteen categories of
collateral that can be subject to a security interest. They are:

Consumer Goods

Farm Products

Inventory

Equipment

Instruments

Documents

Accounts

Deposit Accounts

4. The survey period is from October 1, 2000 to September 31, 2001, although more
recently decided cases will be included in this Article to make it as timely as possible.

5. The Indiana Supreme Court was still suffering from the onslaught of direct criminal
appeals during the survey period. As the recently amended jurisdiction of the Indiana Supreme
Court ends mandatory review of criminal cases imposing sentences greater than fifty years,
practitioners should look to the Indiana Supreme Court to take a more direct role in shaping
consumer and commercial law. See Ind. Const, art. VII, § 4 (amended 2000).

6. White & Summers, jwpra note 3, at 33.

7. Formerly Ind. Code § 26- 1 -9- 1 02 ( 1 995).

8. Ind. Code §26-l-9.1-109(a)(I)(Supp. 2001).

9. 5ecU.C.C. §9-109 cmt. 2 (2000).

2002] COMMERCIAL AND CONSUMER LAW 1241

Health Care Insurance Receivables

Chattel Paper

Electronic Chattel Paper

Letter of Credit Right

Commercial Tort Claims

General Intangibles

Investment Property

Proceeds '°

The above list, with the exception of one category, is mutually exclusive (i.e.,
the type of collateral does not change if in the same person's hands). The one
category of collateral that can present problems to secured creditors is farm
products. For instance, a farmer that grows and harvests com possesses farm
products. But after processing the corn, it converts into inventory. A secured
party must be careful with regard to taking a security interest in a farmer's farm
products. An imprecise or under-inclusive description of the collateral in the
security interest may result in an invalid security interest.^'

Indiana has made two non-uniform amendments to Article 9's scope
provision. First, the uniform Article 9, subsection 9-1 09(d)(8) excludes several
transactions, including:

a transfer of an interest in or an assignment of a claim under a policy
insurance, other than an assignment by or to a health-care provider of a

10. See IND. Code §§ 26-l-9.1-102(a)(23) (Supp. 2001) (defining "consumer goods" as
"goods that are used or bought for use primarily for personal, family, or household purposes"); 26-
1 -9. 1 - 1 02(a)(34) (defining "farm products"); 26- 1 -9. 1 - 1 02(a)(48) (defining "inventory"); 26- 1-9.1-
102(a)(33) (defining "equipment," a catch-all provision covering "goods other than inventory, farm
products, or consumer goods"); 26- 1 -9. 1 - 1 02(a)(47) (defining "instrument"); 26- 1 -9. 1 - 1 02(a)(30)
(defining "document" as a "document of title," which functions as a substitute for the actual goods
(i.e., warehouse receipts, bills of lading)); 26-1 -9. 1-1 02(a)(2) (defining "account"); 26-1-9.1-
102(a)(29) (defining "deposit account"); 26-1-9. 1-1 02(a)(46) (defining "health-care-insurance
receivable" as an "interest in or claim under a policy of insurance that is a right to payment of a
monetary obligation for health-care goods or services provided"); 26-l-9.l-l02(a)(l 1) (defining
"chattel paper"); 26-l-9.1-102(a)(31) (defining "electronic chattel paper"); 26-1-9. l-102(a)(51)
(defining "letter-of-credit right"); 26-l-9.1-102(a)(l3) (defining "commercial tort claim" and
excluding "damages arising out of personal injury to or the death of an individual"); 26-1-9.1-
102(a)(42) (defining "general intangible"); 26-1-9. l-102(a)(49) (defining "investment property"
as a "security, whether certificated or uncertificated, security entitlement, securities account,
commodity contract, or commodity account"); 26-1-9. 1-1 02(a)(64) (defining "proceeds").

1 1 . A problem Revised Article 9 does not address is the whether a document labeled "lease"
is a lease outside of Article 9's provisions or a security agreement. While a "nervous lessor" is
permitted to file a financing statement under U.C.C. § 9-505, filing is not required. The distinction
between a lease and a security agreement can be very tricky, and a careless secured party could find
himself out in the cold in the event of a priority dispute. See generally White & Summers, supra
note 3, at 39-50 (describing in detail the problem of differentiating between leases and security
agreements).

1242 INDIANA LAW REVIEW [Vol. 35:1239

health-care-insurance receivable and any subsequent assignment of the
right to payment, but Sections 9-3 1 5 and 9-322 apply with respect to
proceeds and priorities in proceeds.'^

In its place, Indiana has carved out an exception in subsection 9- 109(a)(7) to
provide that "a transfer of an interest or a claim in a contractual right of a person
to receive commissions or other compensation payable by an insurer" is an
interest that falls within Revised Article 9.'-^ Indiana's subsection 9- 109(d)(8) is
amended to reflect these changes.'"*

The second non-uniform change is to section 9- 1 09's preemption provisions.
Under the uniform 9- 1 09(c)(2) and (3), Article 9 does not apply to the extent that

(2) another statute of this State expressly governs the creation,
perfection, priority, or enforcement of a security interest created by this
State or a governmental unit of this State;

(3) a statute of another State, a foreign country, or a governmental unit
of another State or a foreign country, other than a statute generally
applicable to security interests, expressly governs creation, perfection,
priority, or enforcement of a security interest created by the State,
country, or governmental unit ... .'^

These provisions provided that Article 9 would apply to security interests created
by state or foreign governmental units except to the extent another statute
governed the issue. Subsection (c)(2) would defer to all forum state statutes
while subsection (c)(3) would defer to foreign statutes only if they contained
rules specifically applicable to the security interests of the governmental unit.'^
Indiana's revised Article 9 eliminates both of these provisions.'^ As such,
subsection 9- 109(c) provides that only federal law preempts Article 9.

B. Creation and Attachment of the Security Interest

A secured party has two primary concerns. First, the secured party must
ensure the enforceability of the security interest against the debtor — ^through
creation of a security interest and attachment. Second, the secured party must
ensure the priority of his interest against other third parties — ^through perfection.
Generally, attachment and perfection are accomplished through the use of two
forms: the security agreement, an agreement between the debtor and the secured
party; and the financing statement, a filed form announcing the secured parties'

12. U.C.C. §9-109(d)(8)(200I).

13. IND. CODE § 26-l-9.I-109(a)(7) (Supp. 2001).

14. No other state has made a comparable change to its Article 9 scope provision. See
Penelope L. Christophorou et al., Under the Surface of Revised Article 9: Non-
uniformity AND Filing Office Procedures 3- 1 8 (200 1 ).

15. U.C.C. § 9-109(c)(2)-(3) (2001).

16. See id. cmt. 9.

1 7. Florida, Nevada, and West Virginia made comparable changes. See Christophorou ET
al., supra note 14, at 6, 1 1, 17-18.

2002] COMMERCIAL AND CONSUMER LAW 1 243

security interest to the rest of the world.

Security interests "attach" when they become enforceable against the debtor
with respect to the collateral specified in the security agreement.'^ The
requirements for attachment are set out in Indiana Code section 26- 1 -9. 1 -203(b)-
(c) (Supp. 2001). Those provisions provide:

(b) Except as otherwise provided in subsections (c) through (i), a
security interest is enforceable against the debtor and third parties with
respect to the collateral only if:

(1) value has been given;

(2) the debtor has rights in the collateral or the power to transfer
rights in the collateral to a secured party; and

(3) one (1) of the following conditions is met:

(A) The debtor has authenticated a security agreement that provides
a description of the collateral and, if the security interest covers timber
to be cut, a description of the land concerned.

(B) The collateral is not a certificated security and is in the
possession of the secured party under IC 26-1-9.1-313 pursuant to the
debtor's security agreement.

(C) The collateral is a certificated security in registered form and the
security certificate has been delivered to the secured party under IC 26-
1-8.1-301 pursuant to the debtor's security agreement.

(D) The collateral is deposit accounts, electronic chattel paper,
investment property, or letter-of-credit rights, and the secured party has
control under IC 26-1-9.1-104, IC 26-1-9.1-105, IC 26-1-9.1-106, or
IC 26- 1 -9. 1 - 1 07 pursuant to the debtor's security agreement.

As the official comments state, a valid security agreement requires the creditor
give value, the debtor retains rights in the collateral, and an agreement plus
"satisfaction of an evidentiary requirement."'^ The failure to properly attach
results in an unsecured status for the creditor.

Section 1-201(44) provides the definition of "value."^° Any consideration
sufficient to support a simple contract and a preexisting debt satisfy the
requirement of value, but attachment will not occur by gift. Because the security
agreement involves a conveyance of a property interest, the debtor must also
have some rights in the collateral. Section 9-204 provides that both after-
acquired property clauses (a present loan for future collateral) and future advance
clauses (present collateral for a future loan) are permissible.^' Nevertheless, no
attachment occurs until either the debtor acquires an interest in the property or
the secured party gives value.

18. U.C.C. §9-203(a)(2001).

19. Id. cmt. 2.

20. IND. CODE §26-1-1 -20 1 (44) ( 1 998).

21. Section 9-204(b) is an exception for after-acquired property clauses. In the case of
consumer goods or commercial tort claims, the debtor must generally acquire rights in them within
ten days after the secured party gives value. Id. § 26- 1-9.1 -204(b) (Supp. 2001).

1244 INDIANA LAW REVIEW [Vol. 35:1239

The final "evidentiary requirement" can be accomplished in a number of
ways. The first and simplest would be the secured party's actual possession of
the collateral.^^ A pawnshop would be a good example of this situation. As is
discussed later, possession also works to perfect a secured party's security
interest, so possession can work the two-fold purpose of enforcement of a
security interest and perfection. Second, if the collateral is deposit accounts,
electronic chattel paper, letter-of-credit right, or investment property, the security
agreement may be evidenced by "control. "^^ The third and most common way
to satisfy this evidentiary requirement is through a security agreement.

A security agreement is "an agreement that creates or provides for the
security interest."^'* It is both a contract and a deed conveying a property
interest.^^ Third parties look to the security agreement to determine what
collateral is covered, and therefore encumbered, and what collateral is available.
The sufficiency requirements of the collateral's description in the security
agreement, governed by section 9-108, is different than that in the financing
statement, governed by section 9-504.^^ The description is sufficient if it
"reasonably identifies what is described" or is "objectively determinable."^^
Listing the type of collateral (i.e., consumer goods, inventory, etc.) is sufficient,
but super-generic descriptions such as "all the debtor's assets" are deficient.^*

In addition to a sufficient description, a security agreement must also be
"authenticated."^^ As defined by section 1-201(39), "signed" includes "any
symbol executed or adopted by a party with present intention to authenticate a
writing." As set out in section 9- 102(a)(7), to "authenticate" includes the
definition of "signed," but is expanded to allow for electronic and other non-
written forms of security agreements.

Indiana made no material amendments to the uniform Revised Article 9.
Following these procedures will establish a secured party's rights against the
debtor. The additional step of perfection is required to establish lien priority
against third parties.

C Perfection

Following the creation of a security interest and attachment, the secured
party must then ensure perfection. Relevant only to third parties, perfection is
the process by which secured parties, either through filing a finance statement,
taking possession of the collateral, or taking "control" of the collateral, establish

22. 5ee/£/.§ 26- 1-9.1 -203(b)(3)(B).

23 . See id. § 26- 1 -9. 1 -203(b)(3)(D).

24. U.C.C. §9-102(a)(73)(200l).

25. See WHITE & SUMMERS, supta note 3, at 34.

26. See id. at 74. The description requirements for security agreements are more stringent
than those for financing statements. See id. at 75.

27. See IND. CODE § 26- 1 -9. 1 - 1 08 (Supp. 200 1 ).

28. See id.

29. See id § 26-1-9.1 -203(b)(3)(A).

2002] COMMERCIAL AND CONSUMER LAW 1245

lien priority. In specific instances, perfection is automatic. The rules for
perfection are generally found between U.C.C. sections 9-308 and 9-316.

1, Automatic Perfection. — Indiana Code section 26- 1 -9. 1 -309 provides that
certain security interests are perfected automatically upon attachment. The most
important of which is a purchase money security interest (PMSI) in consumer
goods. A PMSI is created when a secured party provides money to the debtor
that is used to acquire an interest in the collateral, and consumer goods are
defined as "goods that are used or bought for use primarily for personal, family
or household purposes."^® Other important security interests that are
automatically perfected include the sale of payment intangibles or promissory
notes and assignments of accounts, health care insurance receivables, or payment
intangibles.^'

2. Perfection by Possession. — Subsection 9-3 1 3(a) provides that a secured
party can perfect a security interest in negotiable instruments, goods, instruments,
money, or tangible chattel paper through possession.^^ Perfection of a security
interest in certified securities is accomplished by taking delivery of the certified

30. /£/. §26-1-9.1-102(23).

3 1 . See id. § 26- 1 -9. 1 -309. That section reads as follows:
The following security interests are perfected when they attach:

(1) A purchase-money security interest in consumer goods, except as otherwise
provided in IC 26- 1-9. 1-3 11 (b) with respect to consumer goods that are subject to a
statute or treaty described in IC 26- 1-9.1-311 (a).

(2) An assignment of accounts or payment intangibles which does not by itself or in
conjunction with other assignments to the same assignee transfer a significant part of
the assignor's outstanding accounts or payment intangibles.

(3) A sale of a payment intangible.

(4) A sale of a promissory note.

(5) A security interest created by the assignment of a health-care-insurance receivable
to the provider of the health-care goods or services.

(6) A security interest arising under IC 26- 1 -2-40 1 , IC 26- 1 -2-505, IC 26- 1 -2-7 1 1 (3),
or IC 26-1-2.1-508(5), until the debtor obtains possession of the collateral.

(7) A security interest of a collecting bank arising under IC 26- 1 -4-2 1 0.

(8) A security interest of an issuer or nominated person arising under IC 26-1-5. 1-1 1 8.

(9) A security interest arising in the delivery of a financial asset under IC 26-1-9.1-
206(c).

(10) A security interest in investment properly created by a broker or securities
intermediary.

(1 1) A security interest in a commodity contract or a commodity account created by a
commodity intermediary.

(12) An assignment for the benefit of all creditors of the transferor and subsequent
transfers by the assignee thereunder.

( 1 3) A security interest created by an assignment of a beneficial interest in a decedent's
estate.

Id.

32. /t/. §26-1-9.1-313.

1246 INDIANA LAW REVIEW [Vol. 35:1239

securities." Logically, possession is ineffective for certain categories of
collateral such as accounts and general intangibles because the law does not
recognize their embodiment in a tangible thing. Subsection 9-313 is a complex
provision, and because possession comports poorly with modern commercial
transactions, the reader is left to parse out perfection by possession elsewhere.

3. Perfection by Control. — Control is roughly the equivalent of possession
described above. Under subsection 9-3 10(b)(8), a secured party is permitted to
control deposit accounts, electronic chattel paper, investment property, and letter-
of-credit rights for purposes of perfection. Generally speaking, control is the
exclusive means for perfecting security interests in deposit account and letter-of-
credit rights. Subsections 9-104 through 9-107 describe the procedures to
acquiring "control" of these types of collateral.

4. Perfection by Filing, — The last and by far the most common method for
perfecting a security interest is by filing a financing statement. White and
Summers estimate that over ninety percent of security interests are perfected by
filing a financing statement.^"* Subsections 9-502, 9-516 and 9-520 are the key
provisions covering financing statements.

Subsection 9-502 sets out the three pieces of information that are essential
to make the financing statement effective. They are (1) the name of the debtor,
(2) the name of the secured party, and (3) a description of the collateral covered
by the financing statement.^^ It is no longer essential that a financing statement
include the debtor's signature or the addresses of the parties, as did former
subsection 9-402(1). These three pieces of information are the absolute
requirements of any financing statement; deficiency in any will result in an
ineffective filing.

Indiana made two non-uniform changes to section 9-502. First, 9-502(e)
states that to the extent other provisions of the Indiana Code require the
identification of the preparer of the financing statement, "the failure of the
financing statement to identify the preparer does not affect the sufficiency of the
financing statement."^^ Second, section 9-502(f) requires that the secured party
provide the debtor with a copy of the financing statement within thirty days of

33. See id.

34. White & Summers, supra note 3, at 1 02.

35. IND. Code § 26- 1-9.1 -502(a) (1998). Subsection 9.1-502(b) provides additional
requirements to cover real property related collateral (e.g., fixtures). For this collateral, the
financing statement must also:

(1) indicate that it covers this type of collateral;

(2) indicate that it is to be filed in the real property records;

(3) provide a description of the real property to which the collateral is related that is
sufficient to give constructive notice of a mortgage under the law of this state if the
description were contained in a record of the mortgage of the real property; and

(4) if the debtor does not have an interest or record in the real property, provide the
name of a record owner.

36. M§ 26- 1-9.1 -502(e).

2002] COMMERCIAL AND CONSUMER LAW 1 247

filing. But again, a secured party's failure to meet this requirement does not
affect the sufficiency or effectiveness of the financing statement.^^

Subsection 9-503 provides what is required of a financing statement to give
the name of the debtor.^* For registered organizations, the fmancing statement
is sufficient "only if the financing statement provides the name of the debtor
indicated on the public record of the debtor's jurisdiction of organization which
shows the debtor to have been organized."^^ In most other cases, the fmancing
statement is sufficient: "(A) if the debtor has a name, only if it provides the
individual or organizational name of the debtors; and (B) if the debtor does not
have a name, only if it provides the names of the partners, members, associates,
or other persons comprising the debtor.'"*^ Because the filings are indexed
according to the debtor's name, a precise recitation of the debtor's name is
absolutely crucial to provide adequate notice to third parties. Subsection 9-
503(c) provides that trade names are insufficient, although if a search using the
filing office's standard search logic would turn up the debtor's name, it would
be sufficient."" The test for determining whether an error in the debtor's name
is fatal is whether the error makes the financing statement "seriously
misleading.'"*^ Importantly, section 9-507 provides that a fmancing statement
must only satisfy the requirements of 9-502 at the time of filing. Subsequent
events that cause the financing statement to become seriously misleading
generally do not affect the financing statement's effectiveness."*^

Subsection 9-504, establishing the requirements for a financing statement's
description of the collateral, adopts the standard from section 9-108, covering
security agreements, with one important caveat."*"* If the financing statement
provides that it "covers all assets or all personal property" of the debtor, it is
sufficient."*^ Otherwise, applying the standard set forth in section 9-108, a
description of collateral is sufficient if it "reasonably identifies what is

37. M§ 26-9.1-502(1).

38. M§ 26-1-9.1-503.

39. M§ 26- 1-9.1 -503(a)(1).

40. /c/. §26-l-9.1-503(a)(4).

41 . See id. § 26- 1-9.1 -506(c). This provision may save an otherwise insufficient financing
statement.

(c) If a search of the records of the filing office under the debtor's correct name, using
the filing office's search logic, if any, would disclose a financing statement that fails to
sufficiently provide the name of the debtor in accordance with IC 26- 1-9.1 -503(a), the
name provided does not make the financing statement seriously misleading.
Id.

42. Id

43. See id. § 26-1-9.1-507. Nevertheless, if the debtor changes his name after filing, a
financing statement is effective to perfect a security interest in collateral acquired within four
months after the name-change. An amendment to the financing statement must be filed to perfect
collateral acquired after the four-month window. See id. § 267-1-9. 1 -507(c).

44. See id §§ 26-1-9.1-108, 26-1-9.1-504.

45. See id §26-1-9.1-504(2).

1248 INDIANA LAW REVIEW [Vol. 35:1239

described."'"

Section 9-5 1 6(b) sets out additional information that the financing statement
should include. The secured party, in addition to the requirements of section 9-
502, is required to:

(A) provide a mailing address for the debtor;

(B) indicate whether the debtor is an individual or an organization; or

(i) a type of organization for the debtor;
(ii) a jurisdiction of organization for the debtor; or
(iii) an organizational identification number for the debtor or indicate
that the debtor has none."*^

Nevertheless, if the filing office accepts a financing statement that fails to
meet the requirements of section 9-5 1 6 but satisfies section 9-502, the financing
statement will be valid. But the opposite is not true. Any deficiency in section
9-502 requirements will render the financing statement ineffective. Moreover,
if a filing statement satisfies the requirements of both 9-502 and 9-5 1 6(b) and the
filing office refuses to accept it, an effective filing has occurred despite the
rejection against everyone except "a purchaser of the collateral which gives value
in reasonable reliance upon the absence of the record from the files.'"**

Subsection 9-501 specifies the appropriate filing locations. Generally
speaking, the appropriate location for filing a financing statement is with the
office of the secretary of state unless the collateral is real estate related, in which
case the secured party should do a local filing.'^ Indiana made one non-uniform
change to this section. Section 9-501(c)-(k) generally provides that until July 1,
2002, a secured party is allowed to make a local filing for farm products, farm
equipment and accounts, or general intangibles arising from or relating to the sale
of farm products.^^

The adoption of Revised Article 9 represents a major challenge for Indiana
practitioners. In addition to several non-uniform changes peculiar to Indiana,
Revised Article 9 makes several significant changes to the prior version. By the
time of this Article's publication, the transition rules will have likely worked
their course. While Revised Article 9 is now the most complete and thorough
U.C.C. section, practitioners should look to the appellate courts over the coming
months to begin to tackle Article 9's difficult provisions.

46. See id. § 26-1-9. 1-I08(a).

47. Id. §26- 1-9. 1-5 1 6(b).

48. Id §26- 1-9. 1-5 16(d).

49. Id §26-1-9.1-501.

50. Id §26-l-9.1-501(c)-(k).

2002] COMMERCIAL AND CONSUMER LAW 1 249

IL Other Commercial and Consumer Law Developments

A. Indiana Supreme Court

The Indiana Supreme Court handed down a major decision against short-
term, consumer loan businesses operating in Indiana. In Livingston v. Fast Cash
USA, Inc.,^^ the United States District Courts for the Northern and Southern
District of Indiana^^ certified the following question to the Indiana Supreme
Court: "[I]s the minimum loan finance charge permitted by Indiana Code section
24-4.5-3-508(7), when charged by a licensed supervised lender, limited by
Indiana Code section 24-4.5-3-508(2) or Indiana Code section 35-45-7-2?"" The
Court answered in the affirmative. Justice Rucker authored the majority
decision, in which Justice Boehm concurred in a separate opinion. Chief Justice
Shepard filed the "loan" dissenting opinion.

While the facts of the case were not difficult, the interpretation of the badly
worded statute was. The plaintiffs were consumers who had taken out short-term
loans (anywhere from seven days to two weeks) ranging between fifty to $400
fi-om businesses engaged in providing "payday loans."*"* The borrowers wrote
post-dated checks for the principal and a fixed finance charge, ranging from
fifteen to thirty-three dollars. Borrowers would incur another charge if they had
insufficient funds when the loan came due."

Plaintiffs brought suit against the lenders in federal court, alleging that
although the lenders charged the minimum loan finance apparently permitted by
Indiana Code section 24-4.5-3-508(7),*^ the finance charge exceeded the
maximum annual percentage rated allowable under either Indiana Code section
24-4.5-3-508(2)*^ or section 35-45-7-2.** In other words, the plaintiffs argued

5 L 753 N.E.2d 572 (Ind. 200 1 ).

52. Contrary to the court's opinion, the cases pending in the Southern and Northern District
Courts were dismissed without prejudice. Livingston was dismissed without prejudice on March
9, 2001 . The parties had forty-five days to re-open the case following the supreme court's decision
on the certified question. The lead case of Livingston v. Fast Cash USA. Inc. was re-opened on
September 13, 2001, and the case is again pending before Magistrate Judge Godich. Case
information is available at http://www.insd.uscourts.gov/caseinfo.htm (last visited May 28, 2002).

53. 753 N.E.2d at 574.

54. See id.

55. See id. For instance, if the borrower took out a two-week loan and could not cover her
check when due, the lender would issue a new loan for another two weeks (essentially for the
money previously loaned) with additional finance charges. See id.

56. Regarding supervised loans not made pursuant to a revolving loan account, Indiana's
Uniform Consumer Credit Code (U.C.C.C.) states that a "lender may contract for and receive a
minimum loan finance charge of not more than thirty dollars." iND. CODE § 24-4.5-3-508(7)
( 1 998). This statute is indexed for inflation, and at the time of suit, the figure had an adjusted value
of thirty-three dollars.

57. The statute states the following:

(2) The loan finance charge, calculated according to the actuarial method, may not

1250 INDIANA LAW REVIEW [Vol. 35:1239

that charging a thirty-three dollar finance charge on a two-week loan far
exceeded the allowable loan finance charge annual percentage rate (APR), thirty-
six percent, for loans under three hundred dollars.

Two seemingly conflicting provisions governing the finance charge lenders
can assess are at the root of the argument, one limiting the APR and the other
allowing a specific minimum finance charge. The applicable provision of
subsection 3-508(2) states, "The loan finance charge, calculated according to the
actuarial method, may not exceed the equivalent of the greater of . . . thirty six
percent (36%) per year on that part of the unpaid balances of the principal which

is three hundred dollars ($300) or less "^^ But in subsection 3-508(7), the

statute goes on to provide: "With respect to a supervised loan not made pursuant
to a revolving loan account, the lender may contract for and receive a minimum
loan finance charge of not more than thirty dollars ($30)."^

In reconciling these two provisions, the court took three opposing views.
The majority opinion reasoned that subsection 3-508(7) was based on the
assumption that loans would last at least one year, thus short-term lenders are
prevented from taking advantage of this subsection.^' Justice Boehm agreed that
the statute was based upon an assumption, but instead reasoned that the
provisions first assumes lawful loans (i.e., that lenders cannot contract for loan
finance charges greater than those set by subsection 3-508(2) then seek refuge in
subsection 3-508(7))." Chief Justice Shepard, in dissent, took the most
straightforward view of the statute. He reasoned that the legislature intended that

exceed the equivalent of the greater of either of the following:

(a) the total of:

(i) thirty-six percent (36%) per year on that part of the unpaid balances of the

principal which is three hundred dollars ($300) or less;

(ii) twenty-one percent (21%) per year on that part of the unpaid balances of

the principal which is more than three hundred dollars ($300) but does not

exceed one thousand dollars ($1,000); and

(iii) fifteen percent ( 1 5%) per year on that part of the unpaid balances of the

principal which is more than one thousand dollars ($1,000); or

(b) twenty-one percent (21%) per year on the unpaid balances of the principal.
M § 24-4.5-3-508(2).

58. Indiana's loansharking statute states the following:

A person who, in exchange for the loan of any property, knowingly or intentionally
receives or contracts to receive from another person any consideration, at a rate greater
than two (2) times the rate specified in [Indiana Code section] 24-4. 5-3 -508(2)(a)(i),
commits loansharking, a Class D felony. However, loansharking is a Class C felony if
force or the threat of force is used to collect or to attempt to collect any of the property
loaned or any of the consideration for the loan.
Id. § 35-45-7-2.

59. /flf. § 24-4.5-3-508(2).

60. Id § 24-4.5-3-508(7).

61. Livingston v. Fast Cash USA, Inc., 753 N.E.2d 572, 576-77 (Ind. 2001).

62. Id, at 578-79 (Boehm, J., concurring).

2002] COMMERCIAL AND CONSUMER LAW 1 25 1

"if the loan period is so short or the loan so small that [the loan finance] rate
might produce just a few dollars, a minimum of $33 may be charged."^^ In one
of the most quotable lines of the survey period. Chief Justice Shepard expressed
the court's frustration in parsing through this badly crafted statute. He proposed:
"It has been awhile since we last encountered a statute in such serious need of
revision. Our federal cousins might take comfort in knowing that, like them, we
found the task of parsing its various provisions very difficult (but had nowhere
else to send out for help)."^

To understand the disagreement among the opinions, it is necessary to frame
these two conflicting provisions in their historical context. Curiously, none of
the three opinions discussed the road subsection 3-508(7) traveled before settling
in its present position. From 1971 until today, the basic idea encompassed by 3-
508(7) has taken on various forms and appeared in different provisions of the
U.C.C.C.

Indiana's U.C.C.C. was enacted in 1971 . As originally enacted, subsection
3-508 contained only a provision governing maximum loan finance charge
percentage rates.^^ Instead, the provision capping a specific finance charge dollar
amount was found in the U.C.C.C. 's prepayment section.^^ In pertinent part, it
stated:

[T]he lender may collect or retain a minimum charge within the limits
stated in this subsection if the loan finance charge earned at the time of
prepayment is less than any minimum charge contracted for. The
minimum charge may not exceed the amount of loan finance charge
contracted for, or five dollars ($5) in a transaction which had a principal
of seventy-five ($75) or less, or seven dollars and fifty cents ($7.50) in
a transaction which had a principal of more than seventy-five dollars
($75)."'

From its beginning, this provision worked to guarantee a minimum finance
charge to lenders, either the "loan finance charge contracted for" or in the event
of prepayment, a set dollar amount.

In 1982, subsection 3-508(7) was crafted by the Indiana General Assembly.
In whole the section stated:

Notwithstanding subsection (2) [subsection 3-508(2)], with respect to a
supervised loan not made pursuant to a revolving loan account, the
lender may contract for and receive a minimum loan finance charge of
not more than five dollars ($5) when the original principal balance of the

63. Id. at 580 (Shepard, C.J., dissenting). He went on to say, however, that the practice of
charging a new fee each time a loan rolled over violated Indiana Code § 24-4.5-3.509, prohibiting
sequential fee-charging practices. Id. at 581.

64. Id

65. Id §24-4.5-3.508(1971).

66. /^. § 24-4.5-3-210 (1971) (amended 1972).

67. Id §24-4.5-3-210(2).

1252 INDIANA LAW REVIEW [Vol. 35:1239

obligation does not exceed seventy-five dollars ($75), or not more than
seven dollars fifty cents ($7.50) when the original principal balance of
the obligation exceeds seventy- five dollars ($75).^'*

As initially drafted, subsection 3-508(7) acted as an explicit exception to 3-
508(2)'s percentage limit on loan finance charges. Subsection 3-210(2)
regarding prepayment remained the same. As such, the two provisions worked
together. For loans over seventy-five dollars, lenders could impose a minimum
finance charge of $7.50, regardless of the duration of the loan. Accordingly,
under subsection 3-210(2), lenders could collect up to this $7.50 figure in the
event of prepayment.

For ten years, these two provisions co-existed. In 1992, both were amended.
Subsection 3-210(2) was completely reworked to its present form. It reads:

Upon prepayment in full of a consumer loan, refinancing, or
consolidation, other than one (1 ) under a revolving loan account, if the
loan finance charge earned is less than any permitted minimum loan
finance charge (IC 24-4.5-3-201(6) or IC 24-4.5-3-508(7)) contracted
for, whether or not the consumer loan, refinancing, or consolidation is
precomputed, the lender may collect or retain the minimum loan finance
charge, as if earned, not exceeding the loan finance charge contracted
for.^^

In the same year, subsection 3-508(7) was amended to the following:
"Notwithstanding subsection (2), with respect to a supervised loan not made
pursuant to a revolving loan account, the lender may contract for a minimum loan
finance charge of not more than thirty dollars ($30)."^° The two provisions were
changed significantly in 1992, but their basic effect remained the same. One
stood as a clear exception to subsection 3-508(2)'s APR percentage limitation by
establishing a specific dollar amount which lenders could collect, regardless of
amount or duration. The other provided that, in the event of prepayment, lenders
could collect the lesser of the amount contracted for or $30, but recognized the
lenders' ability to charge up to this maximum dollar amount.

The latest amendment to these two provisions occurred in 1 994. The General
Assembly, most likely acting under the auspices of Legislative Services, made
a few changes to the language of the entire subsection 3-508, all of which appear
to be minor word and nonsubstantive changes. One of these changes was to
subsection 3-508(7). The words "notwithstanding subsection (2)" were
deleted.^' The whole of the other changes made to subsection 3-508 were very

68. 1982 Ind. Acts 149, sec. 4.

69. 1992 Ind. Acts 14, sec. 30 (codified as amended at Ind. CODE § 24-4.5-3-210(2) (1998)),

70. Mat 4.

71. Ind. Code Ann. § 24-4.5-3-508 (West 1998). The historical and statutory notes in
West's Annotated Code state that the 1994 changes "amended the section by deleting
notwithstanding IC 24-4.5-1-106(1), from Subsec. (6); deleting notwithstanding subsection (2),
from Subsec. (7), and making other nonsubstantive changes." Id.

2002] COMMERCIAL AND CONSUMER LAW 1253

minor, deleting gender specific pronouns and unnecessary cross-references. It
seems highly unlikely that the changes made to 3-508(7) were ever intended to
change the substantive meaning of the provision.

So what was the purpose and effect of this amendment? First, it is most
probable that Legislative Services thought that the ''notwithstanding subsection
(2)" language was superfluous, and did not fully recognize the effect this
amendment would have. However, one does not delete an exception simply by
deleting its reference point. For instance, if "rule one" says "the sky is blue" and
"rule two" says "notwithstanding rule one, the sky is pink on Sunday," the force
and effect of "rule two" is not lessened by deleting reference to "rule one."

Both before and after the 1994 amendment, subsection 3-508(7) acts as an
exception to 3-508(2). For nearly twenty years, the two provisions have acted
harmoniously to set a specific, minimum dollar amount for loan fmance charges,
which is then cross-referenced in the prepayment provision. Deleting the
language "notwithstanding subsection (2)" from 3-508(7) along with other minor
and nonsubstantive language changes should not have meant an end to the
general exception to 3-508(2). Remarkably, the majority of the court thought it
should.

The majority turned the seemingly clear meaning of the two provisions on
its head and said that these two provisions anticipated only one-year or longer
loans, which in essence limits 3-508(7) to 3-210(2)'s construction and function,
rather than the other way around. The major fallacy in the majority's opinion
is a comparison of the 1971 U.C.C.C. with its present form without sufficient
analysis of the effects the various amendments worked during the interceding
thirty years. From its inception, 3-508(7) has been an exception to 3-507(2),
unaffected by the language of 3-2 1 0(2). Justice Rucker, writing for the majority,
offered:

Subsection 3-508 has been amended three times since 1971 . However,
each amendment has referred to the prepayment section 3-210. At
present, subsection 3-508 as well as subsection 3-210 works
substantially the same as it has always worked: a lender is allowed to
charge up to the amount specified in subsection 3-508(7), limited by the
total fmance charge that was originally provided for in the contract.
Hence, a two-week $200 loan still generates $2.77 in maximum
interest.^^

In this, I would respectfully argue that the majority is wrong. Subsection 3-
210(2) states that if the loan finance charge actually earned is less than the
minimum loan finance charge (set by 3-508(7)), the lender can collect or retain
a minimum loan finance charge in the event of prepayment, not to exceed the
finance charge contracted for ?^ In the example Justice Rucker provides, he
incorrectly limits the amount collectable by the permissible APR requirements
of subsection 3-508(2) rather than the finance charge actually contracted fi)r.

72. Livingston v. Fast Cash USA, Inc., 753 N.E.2d 572, 576 (Ind. 2001 ) (footnote omitted).

73. lND.CODE§ 24-4-5-3-210(2) (1998).

1254 INDIANA LAW REVIEW [Vol. 35:1239

Thus, if the original agreement called for a set $33 finance charge, following 3-
10(2)'s wording, a lender could collect $33 from the borrower in the event of
prepayment.

While Justice Boehm in a separate concurring opinion justifies the majority's
decision on separate grounds, he too is dogged by a failure to fully to grasp the
actual wording and historical context of subsections 3-210(2), 3-508(2), and 3-
508(7). As Justice Boehm framed the issue: "As I see it, the issue is whether the
$33 minimum loan finance charge provided by subsection 508(7) is collectible
if it exceeds the loan finance charge allowed under subsection 508(2) for the loan
as written for its full term."^"* Although Justice Boehm recognizes that subsection
3-508(7) "sets the amount of the minimum charge," he believes that it does not
constitute an independent exception to 3-508(2)'s limits.^^ He argues that 3-
508(2) alone caps the permissible finance charge. Like the majority. Justice
Boehm fails to reconcile the historical framework of these subsections. As
section 3-508(7) was originally enacted and continues to function, it acts as a
specific exception to the APR limitations of section 3-508(2) and establishes a
minimum dollar amount that can be assessed as a finance charge.

Without doubt, both the majority and concurring opinions set forth plausible
policy arguments why such short-term lenders should be prohibited from
collecting these exorbitant finance charges. In truth, I too find much that is
abhorrent about this industry. But whatever one's view is of this
industry — ^whether it is a predatory lending institution, whether it targets the poor
and uneducated — ^to find it violates a section of Indiana Code requires a violation
of the language of the statute. In this case there is no such violation.

At the heart of both the majority's and Justice Boehm's argument is the basic
premise that the General Assembly never contemplated such a system of small
amount, short-term loans. Fair enough. But what should the court do when faced
with this question of statutory construction? As it has said many times, "The
primary rule in statutory construction is to ascertain and give effect to the intent
of the legislature. 'The best evidence of legislative intent is the language of the
statute itself, and all words must be given their plain and ordinary meaning unless
otherwise indicated by statute. '"^^

The opinion that most held true to these cardinal rules of statutory
construction was Chief Justice Shepard's dissenting opinion. He wrote:

I read subsection 508(7) to mean what it says, in straightforward terms
.... [S]ubsection 508(7) [i]s an exception to subsection 508(2), and it
makes $33 a true "minimum loan finance charge" using the common

meaning of the words Although subsection 3-508(7) does perform

this additional function [i,e., providing loan prepayment limitations], I

74. Livingston^ 753 N.E.2d at 578 (Boehm, J., concurring),

75. Id.

76. Chambliss v. State, 746 N.E.2d 73, 77 (Ind. 2001 ) (citing Bartlett v. State, 71 1 N.E.2d
497, 501 (Ind. 1999)).

=»ME

2002] COMMERCIAL AND CONSUMER LAW 1255

still find its primary purpose in its plain language/^

Unfortunately, his more straightforward, and what I consider correct, view could
find no support among his colleagues, and three members of the court settled
upon a much more strained, tenuous interpretation of the statute.

What are the effects of the supreme court's decision? A class action lawsuit
is currently proceeding in federal district court, and according to J. Phillip
Goddard, deputy director and chief counsel for the Indiana Department of
Financial Institutions, borrowers who were charged more than thirty-six percent
APR on these short-term loans should be entitled to restitution.^^ From the
businesses' standpoint, while there were early reports of some payday loan
companies going out of business, several have affiliated themselves with national
banks organized in other states with higher or no interest rate limitations, thereby
allowing them to bypass Indiana law.^^

In another case, the Indiana Supreme Court addressed a difficult issue
concerning express warranties under Indiana's version of the U.C.C. In Rheem
Manufacturing Co. v. Phelps Heating & Air Conditioning, Inc. ,*** Phelps Heating
& Air Conditioning ("Phelps") was a central Indiana contractor that installed
Rheem furnaces in several new homes. Several of the furnaces malfunctioned,
requiring Phelps to incur considerable expense repairing them, an estimated
$40,000 to $65,000. Phelps sued, alleging breach of implied and express
warranties. Rheem expressly warranted its furnaces against "failure under
normal use and service," but limited the warranty to replacement parts,
specifically disclaiming consequential damages, incidental damages, and costs
of servicing the furnaces.*'

At trial, Rheem sought summary Judgment on the warranty claims alleging
that damages were precluded because of the limitations under the express
warranty and because of lack of privity under the implied warranties. The trial
court denied this motion. On interlocutory appeal, the court of appeals affirmed
the denial of summary judgment.*^ The supreme court accepted transfer and
reversed as to the express warranty issue."

Rheem first argued that summary judgment should have been granted as to
the claim for lost profits because the warranty excluded consequential damages.
Both parties agreed that the warranty's remedy, repair and replacement, failed of
its essential purpose, but disagreed as to the construction of Indiana Code
sections 26-1-2-719(2) and (3). Section 2-719(2) provides "[w]here
circumstances cause an exclusive or limited remedy to fail of its essential

77. Livingston, 753 N.E.2d at 580 (Shepard, C.J., dissenting).

78. See Denise G. Callahan, Payday Decision Not Final, IND. LAWYER, Aug. 29, 200 1 , at 1 .

79. Id at 22.

80. 746N.E.2d 941 (Ind. 2001).

81. Mat 944.

82. Rheem Mfg. Co. v. Phelps Heating & Air Conditioning, Inc., 714 N.E.2d 1218 (Ind. Ct.
App. 1 999), vacated by 746 N.E.2d 94 1 (Ind. 200 1 ).

83. Rheem Mfg. Co., 7A6n.E.2dsiX956.

1256 INDIANA LAW REVIEW [Vol. 35:1239

purpose, remedy may be had as provided in IC 26-1."*^ Section 2-719(3)
provides that ''[c]onsequentiai damages may be limited or excluded unless the
limitation or exclusion is unconscionable. Limitation of consequential damages
for injury to the person in the case of consumer goods is prima facie
unconscionable, but limitation of damages where the loss is commercial is not."^^

Arguing a literal reading of section 2-719(2), Phelps contended that when a
remedy fails of its essential purpose, any remedy provided by 26-1 may be had,
including consequential damages. This is known as the "dependent" view that
overrides a contract's consequential damage exclusion.*^ On the contrary,
Rheem argued that the two subsections operated '"independently" and that the
consequential damage exclusion survived the failure of the warranty's essential
purpose. This is known as the "independent" view of subsections 2-719(2) and
2-719(3).*'

The supreme court found the independent view more soundly reasoned and
held that subsection 2-719(2) "does not categorically invalidate an exclusion of
consequential damages when a limited remedy fails of its essential purpose."**
The court gave four reasons for this conclusion. First, the court found the two
subsections contemplated different legal standards.*^ Second, the independent
view upheld the statutory construction maxim of giving full effect to every
term.^ Third, the independent view furthered the underlying legislative purposes
of the U.C.C' And finally, the court felt the independent view supported the
policy of favoring the parties' freedom of contract.'^

The supreme court next moved on to a discussion of Phelps' claim for labor
expenses incurred while fixing the defective furnaces. Phelps claimed that it lost
nearly $100,000 as a result of servicing the furnaces. Notwithstanding the
contract's express warranty excluding the recovery of labor expenses, Phelps
argued that the warranty failed of its essential purpose and was therefore entitled
to collect all damages.^^

In determining whether the warranty failed of its essential purpose, the court
first had to determine what the essential purpose was. The applicable warranty

84. IND. Code §26-1-2-719(2) (1998).

85. /^. §26-1-2-719(3).

86. Rheem, 746N.E.2d at 947 (citing Middletown Concrete Prod. v. Black Clawson Co., 802
F. Supp. 1135, 1151 (D. Del. 1992)).

87. Id (citing Waters v. Massey-Ferguson, Inc., 775 F.2d 587, 592-93 (4th Cir. 1985)).

88. Id (citing Schurtz v. BMW of N. Am., Inc., 814 P.2d 1 108, 1 1 12 (Utah 1991)).

89. Id. at 948 ("A limited remedy will be struck when it fails of its essential purpose; an
exclusion of consequential damages fails when it is unconscionable.'').

90. /i/. at 948-49.

91. Id. at 949. The purposes are: "(a) to simplify, clarify, and modernize the law governing
commercial transactions; (b) to permit the continued expansion of commercial practices through
custom, usage, and agreement of the parties; (c) to make uniform the law among the various
jurisdictions." Ind. Code § 26-1-1-102 (1998).

92. /?/iee/w,746N.E.2dat950.

93. /(^. at 953.

2002] COMMERCIAL AND CONSUMER LAW 1257

provision provided that "[u]nder this Warranty, R[heem] will furnish a
replacement part that will be warranted for only the unexpired portion of the
original warranty."^"* Further, the warranty provided that "[t]his Warranty does
not cover any labor expenses for service, nor for removing or reinstalling parts.
All such expenses are your responsibility unless a service labor agreement exists
between you and your contractor."^^ Additionally, officers of both Rheem and
Phelps testified regarding the customary practice of furnace manufacturers and
dealers. Both testified that it was custom for manufacturers to provide a one-year
warranty on parts while the dealer typically provided a one-year warranty on
labor.""

Looking at the record, the court determined that the purpose of the limited
warranty was "to maintain a reasonable division of responsibilities between the
manufacturer and the contractor when consumers experienced problems.""^ The
court then moved on to determine if the remedy failed of this purpose. It found
the warranty served its purpose (i.e., Rheem supplied the parts for the
malfunctioning furnaces and Phelps supplied the manpower to fix them). The
court concluded that Phelps accepted this allocation of responsibility by dealing
in Rheem furnaces."*

While the court stated that "a limited remedy fails when its application
operates to deprive either party of the substantial value of the bargain,""" the
court believed failure occurs only in "unusual circumstances" and in "relatively
few situations." '°^ The court described a failure of a warranty's essential purpose
as occurring "when an unexpected circumstance arises and neither party accepted
the risk that such circumstance would occur."'^' This seems like an appropriate
rule in commercial sales where the loss is almost entirely economic, but it could
work harsh results in a consumer sales context. It appears the court left open the
possibility of a different result in the area of consumer sales. '^^

The court went on to find that Phelps was not entitled to collect direct
warranty damages because of its position as an intermediate seller. '^^ Rather,
Phelps' claim sounded in indemnity and subrogation for the damages suffered by
its customers. The supreme court remanded the case for determination of
whether Phelps could recover on an indemnity theory. '°'*

94. Mat 944.

95. Id.

96. Id. at 953.

97. Mat 954.

98. Mat 955.

99. Id (quoting IND. CODE § 26-1-2-719 cmt. 1 (1998)).

100. M at 954 (citations omitted).

101. Mat 955.

1 02. See id (quoting V.M. Corp. v. Bernard Dist. Co., 447 F.2d 864, 865 (7th Cir. 1971 )) ("2-
719 was intended to encourage and facilitate consensual allocations of risk associated with the sale
of goods. This is particularly true where commercial, rather than consumer sales are involved.").

103. Mat 956.

104. See id.

1258 INDIANA LAW REVIEW [Vol. 35:1239

B. Court of Appeals' Decisions

The Indiana Court of Appeals was active on a number of fronts in the areas
of commercial and consumer law. In Walker v. McTague^^^^ the secured party,
Walker, who had sold business properties to the McTagues, reassumed
management and control of the businesses after the McTagues filed for
bankruptcy. The McTagues owed Walker over $250,000. To satisfy the
outstanding loan, Walker offered the business properties for sale via a sealed bid
auction by placing notices in Lafayette and Indianapolis newspapers. This was
the only notice of sale the McTagues received. The sole bid on the property was
$50,000, placed by a company controlled by Walker. '°^ Walker then sought a
deficiency judgment against the McTagues for the balance. After a bench trial,
the trial court entered judgment for Walker in an amount of only $7,400,
representing two months unpaid rent still owed by the McTagues, and Walker
appealed.

The court of appeals determined that advertisement through newspapers is
not sufficient to satisfy the notice requirement to defaulting debtors. '^^ It then
applied a two-prong test for determining whether a sale is commercially
reasonable following a deficient notice. The effect of Walker's failure to give
the McTagues notice was "to require [Walker] to prove that the reasonable value
of the collateral at the time of the sale was less than the amount of the debt and
that the sale was performed in a commercially reasonable manner."'"* As to the
first prong, the creditor must present "credible, independent evidence that the
sale price of the collateral was equal to the fair value of the collateral, but was
less than the indebtedness."'^ For the second prong, the court laid out multiple
factors for determining if a sale was commercially reasonable. These factors
include: (1) the price received by the secured party, (2) whether the collateral
was sold retail or wholesale, (3) the total number of bids solicited and received,
and (4) whether the time and place of sale were reasonably calculated to result
in a reasonable number of bidders. "°

While Walker presented evidence that the value of the business properties
was $250,000, because the sale resulted in only one bid, originated from Walker
and was $200,000 below the market value of the properties, the court of appeals
held that the trial court did not err in concluding "that the sale was not conducted
in a commercially reasonable manner."'"

InE & L Rental Equipment, Inc. v. Wade Construction, Inc.,^^^ the court of
appeals was presented with a barter agreement in which E & L Rental Equipment

1 05. 737 N.E.2d 404 (Ind. Ct. App. 2000).

106. Mat 406-07.

107. Mat 409.

1 08. Id. at 409- 1 0 (citation omitted).

109. Mat 410.

110. Id.

111. Mat 41 1.

1 1 2. 752 N.E.2d 655 (Ind. Ct. App. 200 1 ).

2002] COMMERCIAL AND CONSUMER LAW 1259

(E & L) argued that the value of Wade Construction's performance was deficient
and demanded additional payment. Pursuant to an agreement whereby E & L
promised to provide Wade Construction with the use of construction equipment
and various goods including sand, limestone and gravel in exchange for Wade
Construction's promise to provide E & L with recycling services, E & L provided
Wade Construction with $83,646 worth of goods and rental equipment between
1994 and 1997. In exchange, Wade Construction provided E & L with $18,000
worth of recycling services. '^^

E & L argued first that the agreement was a lease and not a barter. Looking
to the evidence, the court of appeals found several factors indicative of a barter
agreement. First, E & L did not invoice Wade Construction for use of its rental
equipment until twenty-six months after performance under the contract began.
The court also found that the U.C.C.'s definition of "lease," "a transfer of the
right to possession and use of goods for a term in return for consideration,"
helpful. ""* Not only did E & L not specify a specific period for the transfer of
right to possession, but E & L would also occasionally retrieve its equipment
from Wade Construction for its own use."*

In the alternative, E & L argued that the part of the agreement dealing with
goods — ^that is, the sand, limestone and gravel— was covered by Article 2 of the
U.C.C. The court of appeals concluded that Article 2 was applicable, but found
the trial court's conclusion was no different."^ Both parties had fully performed
their obligation, and it was only because the value of Wade Construction's
performance was significantly less that E & L's that E & L was complaining. In
essence, E & L entered into a bad agreement and sought to be bailed out by the
courts, an invitation the appellate court declined."'

In Pioneer Hi-Bred International, Inc. v. Key bank National Ass'n,^^^ the
court of appeals was faced with a federal statute preempting Article 9's
regulations of secured transactions in agricultural products. In the case, farmers
in Shipshewana executed several promissory notes in exchange for which they
granted Keybank a security interest in their real and personal property, including
the products of their land. Subsequently, the farmers obtained an additional loan
from Pioneer, and Pioneer took a security interest in the proceeds from the sale
of the farmers' crops. Pioneer did not file a financing statement."^ When the
farmers renewed their loans with Keybank, Keybank sent notice of their secured
status to all parties, including Pioneer. After the farmers harvested and processed
their crops, the proceeds of the sale were given to Pioneer. Later the next year,
the farmers defaulted, and Keybank filed suit to collect on the proceeds of the

113. Mat 657.

1 14. Id. at 659 (emphasis in original) (citing IND. CODE § 26-1-2.1-103 (1998)).

115. Id.

116. Mat 660.

117. Mat 660-61.

1 18. 742 N.E.2d 967 (Ind. Ct. App. 2001).

119. Mat 968-69.

1260 INDIANA LAW REVIEW [Vol. 35:1239

previous year's crops. '^°

The court of appeals found that Indiana's Article 9 was preempted by federal
regulations. The regulation provides that a buyer of farm products takes subject
to a security interest if the buyer receives notice of another party's security
interest within one year before the sale.'^' In this case, Pioneer received notice
of Keybank's security interest on August 16, 1997, and Pioneer purchased the
farmer's farm products on December 18, 1997.'^^ The court held that Pioneer
took subject to the security interest and was accountable to Keybank for the
amount it paid to the farmers. '^^

In Time Warner Entertainment Co. v. Whiteman,^^* customers filed a class
action against Time Warner alleging that the late fees it assessed were
"excessive, unreasonable, and a penalty.'"" Time Warner charged $4.65 to its
customers who failed to pay by a certain date. The class action plaintiffs sought
money damages and injunctive relief, and Time Warner argued that the voluntary
payment doctrine barred relief for money damages. The trial court denied Time
Warner's motion for summary judgment, and an appeal ensued to the court of
appeals.

The court of appeals found that summary judgment was appropriate based
upon the voluntary payment doctrine, which provides that '"a voluntary payment
made under a mistake or in ignorance of law, but with a full knowledge of all the
facts, and not induced by any fraud or improper conduct on the part of the payee,
cannot be recovered back.'"'^^ The court determined that the two key factors
under the voluntary payment doctrine are the payor's knowledge and fraud or
imposition by the payor. '^^

As to the first factor, the court held that the "onus is upon the party making
the payment to inquire about the reasonableness of the charge before making the

120. /(/.at 970.

121. The regulation reads as follows:

(d) Except as provided in subsection (e) and notwithstanding any other provision
of Federal, State, or local law, a buyer who in the ordinary course of business
buys a farm product from a seller engaged in farming operations shall take
free of a security interest created by the seller, even though the security
interest is perfected; and the buyer knows of the existence of such interest,

(e) A buyer of farm products takes subject to a security interest created by the
seller if—

( 1 )(A) within 1 year before the sale of the farm products, the buyer has received from
the secured party or the seller written notice of the security interest ....
Id. at 971 (quoting 7 U.S.C. § 1631 (1985)).

122. /</. at 969, 972.

123. Id ai 972.

124. 741 N.E.2d 1265 (Ind. Ct. App. 2001).

125. /c/. at 1267.

126. Id at 1270 (quoting City of Evansville v. Walker, 318 N.E.2d 388, 389 (1974) (citation
omitted)).

127. /(/. at 1270-71.

'■^

2002] COMMERCIAL AND CONSUMER LAW 1261

payment, or perhaps before signing the contract that specifies the late charge."'^*
As to the second factor, the court determined that "'in order to render payment
compulsory, there must have been some necessity and such pressure must be
brought to bear upon the person paying as to interfere with free enjoyment of his
rights of person or property. ""^^ The court of appeals held that potential loss of
cable service or the threat of litigation does not rise to the level of compulsion
necessary to satisfy the second factor of the voluntary payment doctrine. '^*^
Accordingly, the court found that summary judgment was appropriate as to the
money damages claim. '^' Because a dispute existed on whether Time Warner's
late fee was disproportionate to its actual loss, the court determined that a
genuine issue of material fact was in dispute and summary judgment was
inappropriate.'^^ The Indiana Supreme Court heard oral argument on the case,
but denied transfer.

Conclusion

It was an eventful survey period in the areas of consumer and commercial
law. The new and highly technical Revised Article 9 finally arrived. Moreover,
the supreme court and court of appeals issued a number of noteworthy decisions.
As of May 2002, it appears that the supreme court has issued the last of the direct
criminal appeals that have hampered its ability to address many areas of civil
law, including commercial and consumer law. With this newfound docket
freedom, Indiana practitioners should look to the supreme court for greater
guidance and development in these areas.

128. Mat 1272.

129. Id. (quoting Smith v. Prime Cable of Chicago, 658 N.E.2d 1325 (111. App. Ct. 1995)).

130. Id.

131. Id

132. /(i. at 1275.

State and Federal Constitutional
Law Developments

Rosalie Berger Levinson*

Introduction

This Article explores state and federal constitutional law developments over
the past year. Parts I-III examine both U.S. Supreme Court cases and significant
Indiana state and low^er federal court cases addressing federal constitutional
issues. Part IV will focus on state civil constitutional law cases.

I. First Amendment Speech Cases

During the 2000 term the U.S. Supreme Court decided several cases raising
First Amendment issues. In addition, both the district courts in Indiana and the
Seventh Circuit Court of Appeals were called upon to assess First Amendment
challenges to Indiana statutes. A recurring theme is the extent to which
government may regulate speech in order to protect children.

A. Regulating Commercial Speech to Protect Minors

In Lorillard Tobacco Co. v. Reilly,^ the tobacco industry successfully
challenged various Massachusetts regulations governing the advertising of
tobacco products. State regulations, promulgated by the Attorney General,
prohibited the outdoor advertising of smokeless tobacco or cigars within 1000
feet of a school or playground.^ Further, they proscribed indoor, point-of-sale
advertising of cigars and smokeless tobacco "placed lower than five feet from the
floor of any retail establishment which is located within a thousand foot radius"
of any school or playground.^ Despite the state's obviously strong interest in
protecting its children from the ills of tobacco use, the Court reasoned that the
regulations went too far.

After striking the cigarette advertising regulations on pre-emption grounds,"*
Justice O'Connor applied a four-prong analysis established in Central Hudson
Gas & Electric Corp. v. Public Service Commission^ to test the smokeless
tobacco regulations. Under the first prong, the court determines whether the
expression is protected at all, since the state may ban commercial speech if it is

* Associate Dean and Professor of Law, Valparaiso University School of Law. B.A.,
1969, Indiana University; J.D., 1973, Valparaiso University School of Law.

1. 533 U.S. 525(2001).

2. Id at 545.

3. Id at 566 (quoting Mass. Regs. Code tit. 940, §§ 21.04(5)(b), 22.06(5)(b) (2000)).

4. Id. at 553-57. The Court relied on the Federal Cigarette Labeling and Advertising Act,
which prescribes mandatory health warnings for cigarette packaging and advertising. The Court
rejected the Attorney General's argument that pre-emption should not apply because the regulations
targeted youth exposure to tobacco, rather than the health-related content of advertising. The Court
found the two concerns "intertwined." Id. at 526-27.

5. 447 U.S. 557(1980).

1264 INDIANA LAW REVIEW [Vol. 35:1263

false, deceptive, or misleading, or if it concerns unlawful activity.^ The second
prong asks whether the asserted governmental interest is substantial.^ The third
and fourth prongs require the court to determine whether the regulation directly
advances the asserted governmental interest and whether the regulation is more
extensive than necessary to serve that interest.* The first two prongs were
conceded by the parties and the Court found "ample documentation" of a
problem with underage use of smokeless tobacco and cigars, which could be
ameliorated by preventing campaigns targeted at juveniles.' The Court
concluded, however, that the ban on outdoor advertising failed the fourth prong
because it was more extensive than necessary to advance the state's interest in
preventing underage tobacco use.'° The Court expressed concern that the
regulations made no distinctions based on the size of the sign, nor did the
regulations differentiate between rural, suburban, or urban locales, which
"demonstrates a lack of tailoring."" The Court noted that in some areas the
regulations "would constitute nearly a complete ban on the communication of
truthful information about smokeless tobacco and cigars to adult consumers."'^
The Court reiterated the firmly established principle that the government's
interest in protecting children from harmful materials "does not justify an
unnecessarily broad suppression of speech addressed to adults."'^

As to the prohibition on indoor point-of-sale advertising, the Court concluded
that this regulation failed both the third and fourth prongs of the Central Hudson
analysis because it neither advanced the goal of preventing minors from using
tobacco products, nor curbed the demand for such activity.'"* The five-foot rule
would not curb demand for the product since children can obviously look up and
see the ads, and there was not a "reasonable fif between the restriction and the
goal of targeting advertising that entices children.'^ Further, the Court rejected
a "de minimis" exception for even limited restrictions on advertising, where the
restrictions lack sufficient tailoring.'^

The concurring opinions of Justices Kennedy, Scalia, and Thomas expressed
concern with the Central Hudson test. Justice Kennedy, joined by Justice Scalia,
opined that "the test gives insufficient protection to truthful, nonmisleading

6. Id Sit 566.

7. Id

8. Id

9. Z,on7/arfl^,533U.S. at563.

10. Id at 566.

11. Mat 564.

12. Id

13. Id at 565 (quoting Reno v. ACLU, 521 U.S. 844, 875 (1997)).

14. Id. at 566. The Court, however, did sustain regulations requiring "tobacco retailers to
place tobacco products behind counters and require customers to have contact with a sales-person
before they are able to handle a tobacco product." Id at 568.

15. Id at 567.

16. Id

2002] CONSTITUTIONAL LAW 1265

commercial speech."'^ Justice Thomas flatly stated that he would subject all
advertising regulations that restrict truthful speech to strict scrutiny analysis.'*
As to the state's interest in protecting minors. Justice Thomas emphasized that
the state did not focus its ban on "youthful imagery.'"^ More basically, he
emphasized that the state cannot pursue its interest in regulating speech directed
at children "at the expense of the free speech rights of adults."^^

Justice Stevens, joined by Justice Ginsberg and Justice Breyer, would have
remanded the case for a trial to better assess whether the measures were properly
tailored to serve the government's compelling interest in "ensuring that minors
do not become addicted to a dangerous drug before they are able to make a
mature and informed decision as to the health risks associated with that
substance."^' Because there was some doubt in the record as to the impact the
advertising ban would have, particularly in the state's largest cities, the breadth
of the ban was potentially problematic. However, the dissenters would have
upheld the point-of-sale advertising restrictions as not significantly implicating
First Amendment concerns."

Lorillard is significant for several reasons. The decision triggered nine
separate opinions, including four rather convoluted concurring opinions.
Nonetheless, Central Hudson remains intact, despite the urging of some members
ofthe Court that truthful, nonmisleading commercial speech should enjoy the full
First Amendment protection afforded non-commercial speech. On the other
hand, the decision indicates that the Central Hudson test is not toothless and that
the government will not be permitted to impose broad advertising bans to
discourage the use of legal but disfavored products, even where a child welfare
argument is invoked.^^ Either government must enact generally applicable

1 7. Id. at 570 (Kennedy, J., concurring). But see Commodity Trend Serv., Inc. v. Commodity
Futures Trading Comm'n, 233 F.3d 981, 994 (7th Cir. 2000) ("The government can directly
regulate deceptive advertising without any further justification.").

18. Lorillard, 533 U.S. at 570 (Thomas, J., concurring).

19. Mat 574.

20. Mat 575-76.

21 . Id. at 587 (Stevens, J., concurring in part and dissenting in part).

22. Mat 590.

23. The Supreme Court's strict analysis of advertising bans is also reflected in Thompson v.
Western States Medical Center, 122 S. Ct. 1497 (2002). The Court ruled 5-4 that the government
could not prohibit the advertising of compounded drugs even when the government, in return,
exempted such drugs from FDA standard drug approval requirements. The Court conceded that
the prohibition on wide advertising of compounded drugs where such drugs did not first undergo
safety testing might advance the government's interest in discouraging broad use of such drugs.
However, the new law failed to meet Central Hudson's requirement that the means be no more
restrictive than necessary: 'if the Government could achieve its interests in a manner that does not
restrict speech, or that restricts less speech, the Government must do so." Id. at 1 506. Again the
Court reiterated the principle that government cannot halt the dissemination of truthful commercial
information simply to keep members ofthe public from making bad decisions with this information.
Id at 1507.

1266 INDIANA LAW REVIEW [Vol. 35:1263

zoning ordinances that apply to all products, or it must take special care that its
restrictions are limited to advertising with special appeal to minors in especially
problematic geographical locations, in order to meet the narrow tailoring
requirement.

B. Regulating to Protect Minors from Violence

It is well established that obscene materials are unprotected by the First
Amendment. Further, even material that does not meet the adult standard of
obscenity may be proscribed for minors based on the potential harm such
material might cause to the psychological or ethical development of children.^*
On the other hand, the Supreme Court has never addressed the constitutionality
of laws aimed at shielding minors from depictions of graphic violence, despite
a growing body of evidence that such material is also harmful to minors. In
American Amusement Machine Ass 'n v. Kendrick^^ the Seventh Circuit was
called upon to address this issue in the context of an Indianapolis ordinance
aimed at limiting children's access to video games that depict violence.

Under an Indianapolis ordinance, establishments which feature five or more
coin-operated arcade games containing graphic violence or strong sexual content
were required to both segregate such games to ensure access only by adults and
to obtain parental consent prior to allowing a minor to play such games.^^ The
ordinance specifically targeted amusement machines that predominantly appeal
"to minors' morbid interest in violence or minors' prurient interest in sex, [that
are] patently offensive to prevailing standards in the adult community as a whole
with respect to what is suitable material for persons under the age of eighteen
(18) years," and that lack "'serious literary, artistic, political or scientific value
as a whole for persons under' that age."^^ The portion of the ordinance aimed at
sexually explicit material closely tracks a similar statute that was sustained by the
Supreme Court in 1 968.^^ The plaintiffs, manufacturers of video games and their
trade association, challenged only the "graphic violence" aspect of the ordinance,
which targeted "an amusement machine's visual depiction or representation of
realistic serious injury to a human or human-like being where such serious injury
includes amputation, decapitation, dismemberment, bloodshed, mutilation,
maiming or disfiguration [disfigurement]."^^ Violations triggered potential

24. See Ginsberg v. New York, 390 U.S. 629, 639-43 (1968).

25. 244 F.3d 572 (7th Cir. 200 1 ), cert, denied, \ 22 S. Ct. 462 (200 1 ).

26. See id. at 573.

27. Id. (quoting INDIANAPOLIS, IN, CiTY-CouNTY General Ordinance No. 72, § 831.1
(2000)).

28. In Ginsberg, the Court upheld a statute that forbade any representation of nudity that
"predominantly appeal [ed] to the prurient, shameful or morbid interest of minors," that was
"patently offensive to prevailing standards in the adult community as a whole with respect to what
is suitable material for minors" and that was "utterly without redeeming social importance for
minors." Ginsberg, 390 U.S. at 633.

29. Am. Amusement Mach. Ass'n, 244 F.3d at 573 (alteration in original) (quoting

2002] CONSTITUTIONAL LAW 1267

suspension or revocation of the right to operate the machines as well as monetary
penalties.^^

The district court upheld the Indianapolis ordinance.^' It applied a rational
basis analysis and concluded that empirical studies by psychologists, which
found that playing violent video games tends to make young persons more
aggressive in their attitudes and behaviors, sufficiently justified the enactment.^^
Further, the district court believed that the fact that the ordinance tracked the
conventional standard for obscenity eliminated any due process vagueness
concerns."

The Seventh Circuit rejected both the district court's analysis and its
conclusion. It reasoned that the ordinance had to be subjected to strict scrutiny
and, because it found that Indianapolis could not meet this heightened standard,
it ordered entry of a preliminary injunction prohibiting enforcement of the law.^"*

A core question in the case was whether the city appropriately relied on the
analogy to obscene material. Arguably, depictions of violence may be even more
harmful to minors than sexually explicit material and, thus, if the former may be
regulated, why not the latter? Judge Posner rejected the city's attempt "to
squeeze the provision on violence into a familiar legal pigeonhole, that of
obscenity. "^^ He reasoned that the U.S. Supreme Court has sustained regulation
of obscenity not on grounds that it is harmful, but on grounds that it is
offensive.^^ Government need not prove that obscene material is likely to affect
anyone's conduct before the material can be proscribed, because it is sheer
offensiveness that justifies the restriction.^^ On the other hand, because the city
argued a link to harmful consequences as the basis for restricting violent speech,
it was required to present some proof of a causal connection to some harm.^*
While conceding that "protecting people from violence is at least as hallowed a
role for government as protecting people from graphic sexual imagery," the court
found that the city had failed to create a record demonstrating that violent video
games led youthful players to breach the peace.^^

Judge Posner found the psychological studies relied on by the city
unpersuasive because they failed to show that violent video games are any more
harmful to the public safety than violent movies or other violent entertainment
readily accessible to minors.'*^ He reasoned that video games are no different

Indianapolis, FN, City-County General Ordinance, No. 72, § 831.1 (2000)).

30. Id.

31. See Am. Amusement Mach. Ass'n v. Cottey, 1 1 5 F. Supp. 2d 943 (S.D. Ind. 2000).

32. Mat 964-66.

33. Mat 978-81.

34. Am. Amusement Mach. Ass '«, 244 F.3d at 580.

35. Mat 574.

36. M

37. Mat 575.

38. Mat 576.

39. Mat 575.

40. M at 578-79.

1268 INDIANA LAW REVIEW [Vol. 35:1263

from literature; many games have story lines and even ideologies, just as books
and movies do.*' The facts that violent video games constitute a "tiny fraction"
of the media violence to which American children are exposed and the characters
in the video games are "cartoon characters" who could not be mistaken for real
people further persuaded Judge Posner that the ordinance's curtailment of free
expression could not be offset by any justification "'compelling' or otherwise.'"*^
Although access to such games was permitted when minors were accompanied
by their parents, the court concluded that the parental accompaniment
requirement would deter children from playinggamesand that most parents were
simply too busy to accompany their children, even if they thought their children
could be exposed to violent video games without suffering any harm."*^

The Indianapolis ordinance was addressed in the context of a preliminary
injunction, and, thus, the court did not discuss whether a more narrowly drawn
ordinance might survive a constitutional challenge. Judge Posner, however,
implied that a sufficiently narrow statute must restrict itself to games that use
actors in simulated real death and mutilation convincingly or to games that lack
any story line and instead consist merely of "animated shooting galleries.'"** It
can be questioned, however, whether strict scrutiny must be the analysis applied
when government seeks to protect children. Certainly, as Judge Posner
conceded, the Supreme Court has allowed greater government regulation where
speech is targeted at children.*^ Further, the Court has applied a somewhat more
deferential approach where the speech has little communicative value and
appears to lie at the periphery of the First Amendment. For example, the Court
has allowed much greater regulation of sexually explicit material, even where
such material does not meet the strict legal definition of obscenity.*^ Arguably,

41. /J. at 578.

42. Jd at 579.

43. Id at 578.

44. Id at 579.

45. For discussion of Ginsberg, SQQ supra nolQlS.

46. In City of Erie v. Pap 's A. M. , 529 U.S. 277 (2000), a plurality held that a city's concern
for the highly detrimental effects of lewd, immoral activities justified a ban on nudity as applied to
nude dancing. The plurality specifically rejected the suggestion that the city had to develop a more
specific evidentiary record of harm in order to justify its statute. Id. at 299-300. Similarly, in
Renton v. Playtime Theaters, Inc., 475 U.S. 41 (1986), the Court upheld restrictive zoning of adult
establishments, based on the alleged secondary effects associated with such businesses, without
mandating that the city conduct its own new studies proving adverse secondary effects. The Court
found that it sufficed that the studies relied on were "reasonably believed to be relevant to the
problem'' addressed, /af. at 51-52.

Further, in City of Los Angeles v. Alameda Books, Inc., 122 S. Ct. 1728 (2002), the Court in
a 5-4 ruling held that a city could reasonably rely on studies correlating crime patterns with the
concentration of adult businesses in single-use establishments to support an ordinance prohibiting
more than one adult entertainment business in the same building. The Ninth Circuit held that the
lack of more specific empirical data regarding multiple-use adult establishments was fatal to the
zoning ordinance. 222 F.3d 719 (9th Cir. 2000). Relying on Renton, Justice O'Connor criticized

2002] CONSTITUTIONAL LAW 1269

violent video games can be said to fail within this less protected category.

Judge Posner asserted that the ordinance could not meet even a lesser
standard because ''[cjommon sense says that the City's claim of harm to its
citizens from these games is ... at best wildly speculative.'"*^ He did so,
however, only after flatly rejecting the psychological studies, because the games
used in the studies were purportedly not similar enough to those marketed in
game arcades in Indianapolis, and because the studies found only that the games
triggered aggressive feelings, but not necessarily violent conduct.** Judge
Posner's concept of "common sense" may not necessarily comport with that of
other reasonable minds. He claims that children cannot "become well-
functioning, independent-minded adults and responsible citizens if they are raised
in an intellectual bubble[,]"*^ but common sense does not dictate that the
development of minors will be impeded or that minors will be left "unequipped
to cope with the world as we know it,"^° simply because they are denied access
to violent video games unless accompanied by an adult. Although concerns for
the First Amendment perhaps warrant a closer analysis than the reasonable basis
test imposed by the district court, it is difficult to understand the notion that

the court below for setting too high a bar on municipalities that were simply addressing the
secondary effects of protected speech. Id. at 1736. Renton required only that the city's evidence
*'fairly support the municipality 's rationale for its ordinance." Id. Justice O'Connor cautioned that
cities could not rely on "shoddy data or reasoning" to enact zoning ordinances, but concluded that
plaintiffs must cast doubt on the city's rationale by either demonstrating that its evidence does not
support its rationale or by furnishing evidence that disputes the city's factual findings. At least at
the summary judgment stage, plaintiffs had not produced such evidence and the city, therefore, met
Renton's evidentiary requirement. Id. In a concurring opinion. Justice Kennedy emphasized that
in the zoning context, cities have significant power to target the secondary effects of speech, and
provided the purpose of the ordinance is ''to limit the negative externalities of land use," the usual
presumption that content'based restrictions on speech are unconstitutional does not apply. Id. at
1741; see also Blue Canary Corp. v. City of Milwaukee, 270 F.3d 1 156 (7th Cir. 2001). The
Seventh Circuit held the city's denial of a permit for nude dancing at a burlesque theatre in a
residential district did not violate the First Amendment because it only barred the operation in
proximity to a residential neighborhood, leaving abundant convenient locations within the city.
Further, the court rejected the argument that the zoning commissioner was given too much
discretion in administering the zoning law, reasoning that '"some degree of discretion is an
unavoidable feature of law enforcement." Id, at 1 158. In an earlier ruling upholding the city's
refusal to renew the plaintiffs liquor license, the court reasoned that ''[t]he impairment of First
Amendment values is slight to the point of being risible, since the expressive activity involved in
the kind of striptease entertainment provided in a bar has at best a modest social value." Blue
Canary Corp. V. City of Milwaukee, 251 F.3d 1121, 11 24 (7th Cir. 2001). Although the subsequent
request did not involve the sale of alcohol, the court still found the same minimal impairment of
free speech. See Blue Canary Corp., 270 F.3d at 1 1 57.

47. Am. Amusement Mach. Ass'n, 244 F.3d at 579.

48. Id at 578-79.

49. Id. it 577,

50. Id

1270 INDIANA LAW REVIEW [Vol, 35:1263

government has a sufficiently important interest in restricting the exposure of
juveniles to sexually explicit material, but cannot restrict their access to video
games that depict graphic violence. Concerns of vagueness are always an issue
in the First Amendment context but, as the district court appropriately noted, the
Indianapolis ordinance tracks the definition for regulating sexually explicit
material aimed at minors that has been sustained by the Supreme Court. Further,
the definition of proscribed material is quite detailed.

Judge Posner concluded that the ordinance was overly broad because it was
not restricted to games using more realistic actors and more realistic depictions
of death and mutilation, or games lacking any story lines.^' Further, he
contended that the ordinance was under-inclusive because it was aimed only at
video games and not at violent movies and television." Concerns of over and
under-inclusiveness are a well established aspect of strict scrutiny analysis;
however, the Supreme Court has been less apt to apply this stringent analysis
vv^hen the speech is targeted only at minors and has limited First Amendment
value, and the state is exercising its power to protect minors.^^ Further, his
analogy to violent movies and television is inapt. Unlike television, it is feasible
for a city to restrict access to violent video games without affecting adult
access,^"^ and movies already have a rating system that denies minors access to
unsuitable films. The fact that parental rights are protected by allowing access
when children are accompanied by their parents, similar to the motion picture
industry, further supports the validity of the ordinance. Indianapolis appealed the
ruling, but its certiorari petition was denied.^^ The issue, however, is unlikely to
go away, as many state legislatures and municipalities have either enacted or are
in the process of enacting similar legislation.^^

51. /(/. at 579-80.

52. /^. at 578-79.

53. See, e.g., Bellotti v. Baird, 443 U.S. 622, 633-34 (1979) (four-Justice plurality
recognizing that the rights of minors cannot be equated with those of adults due to their peculiar
vulnerability, their inability to make critical decisions in an informed, mature manner, and the
importance of the parental role in child rearing).

54. Unlike the cigarette advertising ban previously discussed, this ordinance need not
adversely affect the rights of adults. See discussion supra Part I.A.

55. See Kendrick v. Am. Amusement Mach. Ass'n, 122 S. Ct. 462 (2001).

56. The Connecticut legislature passed similar legislation in May 2001, that was vetoed by
the governor. See S.B. 1 19, 2001 Gen. Assem., Reg. Sess. (Conn. 2001). A bill targeting business
owners who allow children to operate video games with "point and shoof' simulated firearms is
pending in the New York Assembly. See A.9019, 224th Leg., Reg. Sess. (N.Y. 2001). Tennessee
has recently amended its statute governing the sale, loan, or exhibition to minors of material that
depicts sexual conduct to include "excess violence." Tenn. Code Ann. §§ 39-1 7-911, 39-17-914
(2000). Similar legislation is pending in Oklahoma, Minnesota, Chicago and Honolulu. Indiana
is considering enacting a similar provision. See H.R. 1649, 112 Leg., First Session (Ind. 2001)
(referred to Senate on March 6, 200 1 ). Finally, St. Louis County, Missouri, is currently defending
an ordinance which requires parental permission for children to buy violent or sexually explicit
video games. See Interactive Digital v. St. Louis Co., No. OO-CV-2030, 2000 WL 826822 (E.D.

2002] CONSTITUTIONAL LAW 1271

The First Amendment has also posed an obstacle to Indiana lawmakers
seeking to protect children from violence through curfew laws. In July 2000, a
federal district court ruled that Indiana's first attempt to enact such a statute was
unconstitutional because it interfered with the First Amendment rights of
minors.^^ Although the statute created certain exceptions for work, school events
and religious activities, the court found that it did not allow for other important,
protected activities that take place after hours.^* The court reasoned that
"without a general First Amendment activities exception, a curfew law is
overbroad."^^

In response, the Indiana Legislature redrafted the law in May 2001 and
broadened the exceptions in order to avoid intrusion on the First Amendment
rights of minors. The new statute allows all First Amendment activity (free
speech, the right of assembly, and freedom of religion) to be asserted as a defense
to an arrest under the curfew statute.^*^ The Indiana Civil Liberties Union has
challenged the new law as an even greater intrusion on First Amendment rights,
because it requires minors to come forward and assert a defense.^' It contends
that the possibility of arrest will deter youths from exercising their federally
protected rights during curfew hours.^^ A district court last fall refused to enjoin
enforcement of the statute.^^ Judge Tinder reasoned that the ICLU failed to show
"a realistic threat" that minors would be arrested on curfew violations when they
were exercising their First Amendment rights.^ Judge Tinder agreed that an
exception for First Amendment activity was constitutionally mandated.^^ The
judge, however, was not troubled by the fact that the exemption in the ordinance
appeared as an affirmative defense, rather than as an exception, since state and
federal law requires an arresting officer to consider the totality of circumstances,
including the First Amendment activity defense.^ Further, he ruled that, even if
the law burdened some First Amendment conduct, the ordinance was narrowly

Mo. 2002).

57. See Hodgkins v. Goldsmith, No. IP99-1 528.C-T/G, 2000 WL 892964 (S.D. Ind. July 3,
2000).

58. See id. 2X*9'\0.

59. Id. at ♦IS. Subsequently, in Hodgkins v. Peterson, No. 1P00-1410-C-T/G, 2000 WL
33 128726 (S.D. Ind. 2000), the court rejected a challenge based on the substantive due process
rights of parents to raise and control their children without undue government interference.
Although the court applied intermediate scrutiny, it concluded that, at the preliminary injunction
stage, the parents had not made a clear showing that the ordinance was invalid in light of the city's
substantial interests in protecting its youth from victimization and protecting the city from crimes
committed by youth during curfew hours. See id. at ♦ 1 3- 1 5.

60. 5ee IND. Code §31-37-3-3.5 (2001).

61. Hodgkins ex rel. Hodgkins v. Peterson, 175 F. Supp. 2d 11 32 (S.D. Ind. 2001).

62. /flf. atll45.

63. /flf. atll67.

64. Mat 1149.

65. Mat 1140-44.

66. Mat 1147.

1272 INDIANA LAW REVIEW [Vol. 35:1263

tailored to serve the government's interest "in providing for the safety and well-
being of its children and combating juvenile crime."^^

In addition, the district court rejected the argument that the law interfered
with the parents' right to guide the upbringing of their children, reasoning that
"a parent's right to allow his or her minor children to be in public with parental
permission during curfew hours" should not be viewed as a fundamental privacy
right.^* The court applied the "intermediate scrutiny" standard of review,
because of the significance of the parental rights at stake, but concluded that the
curfew law was substantially related to the city's interests in "protecting its youth
from victimization and protecting others from crimes committed by youth during
curfew hours."^' Indeed, the court concluded that the curfew law would also
satisfy strict scrutiny 7^ The judge's decision has been appealed to the Seventh
Circuit.

Several cities have enacted similar legislation, and the litigation demonstrates
that the lower courts are divided as to both the standard of review that should
apply to such laws and as to the core question of whether the state's interest in
protecting juveniles from crime on the streets outweighs any potential First
Amendment harm.^' In general, however, curfew laws that do not broadly
exempt First Amendment activity have been disallowed, whereas ordinances that
insulate First Amendment activity have been sustained 7^

67. /J. at 1150.

68. Id. Hi 1161.

69. /</. at 1164.

70. See id at 1166.

71. S'ee, e.g., Hutchinsv.Dist. of Columbia, !88F.3d531,534(D.C.Cir. 1999) (finding that
a curfew statute with an explicit First Amendment exception does not implicate any fundamental
rights of minors or their parents, but ordinance could be sustained even under strict scrutiny
analysis); Schleifer v. City of Charlottesville, 159 F.3d 843, 847-49 (4th Cir. 1998) (holding that,
because minors' rights are not co-extensive with those of adults, the appropriate standard to use is
intermediate scrutiny, and that the city was justified in believing the curfew ordinance advanced the
state's interest); Qutb v. Strauss, 11 F.3d 488, 492-96 (5th Cir. 1993) (holding that, because
freedom of movement is a fundamental right under the Equal Protection Clause, strict scrutiny
applies, but the ordinance was narrowly tailored to meet the state's compelling interest in protecting
juveniles from crime on the streets, especially in light of the exemptions for First Amendment
activities and traveling); cf. Nunez v. City of San Diego, 1 14 F.3d 935, 949 (9th Cir. 1997)
(applying strict scrutiny because fundamental rights are implicated, and finding that the city could
not show its curfew law to be narrowly tailored, because it included few exceptions for otherwise
legitimate First Amendment activity).

72. Note that the curfew laws upheld in Hutchins, Schleifer, and Qutb, supra note 71, all
contained this exemption, contrary to the law struck in Nunez. The laws in Hutchins and Qutb also
used the term "defense," but, unlike the Indianapolis ordinance, required the arresting officer to
specifically determine that no defense existed before making an arrest. See Hutchins, 188 F.3d at
535; g«/M 1 F.3d at 490-91.

2002] CONSTITUTIONAL LAW 1273

C. Regulating Access to Public Forums

The Supreme Court this term revisited the question of how to resolve the
conflict that occurs when religious groups seek access to government-owned
property. In Capitol Square Review and Advisory Board v. Pinnette^ the Court
in 1995 ruled that prohibiting the Ku Klux Klan from erecting a large Latin cross
in the park across from the Ohio State House violated the Klan's free speech
rights and that allowing the religious display on public property would not violate
the Establishment Clause. The Court emphasized that government cannot
discriminate based on the content of the speech or the identity of the speaker in
a public forum that is open to everyone.^'* Even where government has not
indiscriminately opened its property for public use, and thus needs not allow
persons to engage in every type of speech, the Court has ruled that any regulation
in a so-called "limited public forum" must be reasonable and viewpoint neutral.^^
In two recent cases the Supreme Court has ruled that discrimination against
religious groups seeking the use of a limited public forum is impermissible
viewpoint discrimination. In Lamb 's Chapel v. Center Moriches Union Free
School District^^ the Court held that a school district violated the First
Amendment by precluding a group from presenting films at the school after
school hours based solely on the religious perspective of the films. Similarly, in
Rosenberger v. Rector & Visitors of University of Virginia^'' the Court held that
the university violated the First Amendment by refusing to fund a student
publication solely because it addressed issues from a religious perspective.

Despite these earlier rulings, the Milford Central School District denied the
request of the Good News Club, a private Christian organization for children
ages six to twelve, to hold weekly after-school meetings in the school cafeteria.
Because there are some 4600 local clubs and approximately 500 of these meet on
public school property, the Court's ruling in Good News Club v. Milford Central
Schoor^ is significant. The Good News Clubs are sponsored by a national
organization called Child Evangelism Fellowship, which states that its mission
is to evangelize boys and girls with the gospel of the Lord Jesus Christ. The
Milford Central School District adopted a community use policy allowing
residents to use the school for "social, civic, and recreational meetings and
entertainment events, and other uses pertaining to the welfare of the community,"

73. 515 U.S. 753(1995).

74. IdaXieX.

75. See, e.g.. Lamb's Chapel v. Center Moriches Union Free Sch. Dist., 508 U.S. 384, 392-93
(1993); Cornelius V.N AACP Legal Def. and Educ. Fund, Inc., 473 U.S. 788, 806(1985). Note that
the requirements of reasonableness and viewpoint neutrality apply even to the regulation of speech
in non-public forums, i.e., government property that has not been opened for First Amendment
activity.

76. 508 U.S. 384 (1993).

77. 515 U.S. 819 (1995).

78. 533 U.S. 98 (2001).

1274 INDIANA LAW REVIEW [Vol. 35:1263

but it prohibited uses that involved religious worship.^' The school determined
that the activities of the Good News Club were the equivalent of religious
instruction and worship.*'^ The district court and the Second Circuit had both
ruled that the school could deny the club access without engaging in
unconstitutional viewpoint discrimination because the school had never allowed
other groups to provide religious instruction and because the meetings here were
"quintessential ly religious," and thus fell outside the bounds of pure moral and
character development from a religious perspective.^'

The Supreme Court, in a 6-3 opinion, rejected the analysis of the lower
courts. First, the Court assumed that the school was a limited public forum and
thus was not required to "allow persons to engage in every type of speech."*^
The school could reserve use of its property for certain groups or certain topics
provided, however, that it did not discriminate on the basis of viewpoint and that
the restrictions were reasonable in light of the purpose of the forum. ^^ The Court
then concluded that the exclusion of the Good News Club was impermissible
viewpoint discrimination.^"* Affirming its earlier holdings, the Court stated that
"speech discussing otherwise permissible subjects cannot be excluded from a
limited public forum on the ground that the subject is discussed from a religious
viewpoint."*^ Justice Thomas reasoned that, like other permitted users such as
the Boy Scouts and the 4-H Club, the Good News Club was engaged in teaching
morals and character, but was excluded simply because its viewpoint was
religious: "we can see no logical difference in kind between the invocation of
Christianity by the Club and the invocation of teamwork, loyalty, or patriotism
by other associations to provide a foundation for their lessons."*^ The Court
expressly disagreed with the idea that something that is "quintessentially
religious" cannot also be characterized as the teaching of morals and character
development from a particular viewpoint.*^

Assuming the existence of viewpoint discrimination, Milford nonetheless
argued that its interest in not violating the Establishment Clause outweighed the
club's interest in gaining equal access to the school's facility.** The Supreme
Court in recent years has failed to agree on how to analyze Establishment Clause

79. /c/. at 102.

80. Id.

81. Id. zi99.

82. Mat 106.

83. Id

84. Mat 107.

85. Mat 112.

86. Matin.

87. Id See also DeBoer v. Village of Oak Park, 267 F.3d 558, 568 (7th Cir. 2001 ) (holding
that the village engaged in impermissible viewpoint discrimination by refusing to allow use of the
village hall for residents participating in a National Day of Prayer; the village's belief that prayer
and singing hymns could not be viewed as a civic activity violated the speech rights of those who
use these forms of expression to convey their viewpoint on matters relating to government).

88. GootyyVew5C/M6, 533U.S. atll3.

2002] CONSTITUTIONAL LAW 1275

claims. While some Justices contend that the clause is violated only where the
government exercises coercive pressure or discriminates among religious
organizations,^^ others, led by Justice O'Connor, assert that the appropriate
inquiry is w^hether the government has endorsed or demonstrated affirmative
approval of religion.^ In rejecting the school's Establishment Clause defense,
Justice Thomas invoked both of these "tests," while also emphasizing a neutrality
or equal access principle that he would have the Court adopt.^'

Justice Thomas focused on the facts that "the Club's meetings were held
after school hours, not sponsored by the school, and open to any student who
obtained parental consent."^^ He then reasoned that allowing the club to use the
facilities would ensure, rather than threaten, neutrality toward religion.^^ As to
the coercion argument. Justice Thomas observed that, because the children could
not attend without their parents' permission, there could not be coercion to
engage in the club's religious activities.^'* Finally, as to the endorsement test,
Justice Thomas reasoned that, even if elementary school children are more
impressionable than adults, the danger of children misperceiving the endorsement
of religion was no greater than the danger of their perceiving a hostility toward
religious viewpoints were the club excluded from the school.^^

Justice Scalia would paint with a broader brush; he asserted that there is no
Establishment Clause issue where the speech is purely private and occurs in a
public forum open to all on equal terms.^^ In sharp contrast. Justice Stevens, in
dissent, argued that government is permitted to distinguish between religious
speech that is simply about a particular topic from a religious point of view and
religious speech that amounts to worship or proselytizing.^^ Justice Stevens
concluded that a school district should be permitted to allow the first type of
religious speech while disallowing the second.^* Similarly, Justice Souter, joined
by Justice Ginsberg, stated that it was clear that the Good News Club intended
to use public school premises "for an evangelical service of worship calling
children to commit themselves in an act of Christian conversion."^ Justice
Souter's dissent also emphasized that only four outside groups met at the school
and that the Good News Club was the only one whose instruction followed
immediately on conclusion of the school day, thus raising a concern of
endorsement.'^

89. Lee v. Weisman, 505 U.S. 577 (1992) (opinion written by Justice Kennedy).

90. Wallace v. JafFree, 472 U.S. 38, 75-76 (1985) (O'Connor, J., concurring).

91. Goo^A^ew^C/M6,533U.S. atll4.

92. Matin.

93. Mat 113-14.

94. Mat 115.

95. Mat 117-18.

96. Id. at 120-21 (Scalia, J., concurring).

97. M at 130 (Stevens, J., dissenting).

98. Id. at 130-31 (Stevens, J., dissenting).

99. Id. at 138 (Souter, J., dissenting).
100. Id. at 144 (Souter, J., dissenting).

1276 INDIANA LAW REVIEW [Vol. 35:1263

Good News Club is significant for several reasons. First, it establishes that
government aid to even "pervasively sectarian" or religious practices will not
inevitably be impermissible; rather, neutrality and equal access appear to be the
watchw^ords of this Court. Second, the majority noted that it "would not find an
Establishment Clause violation simply because only groups presenting a religious
viewpoint have opted to take advantage of the [benefit] at a particular time."^°'
Both of these determinations may be critical in assessing the validity of school
vouchers, an issue currently pending before the Supreme Court. '^^ Third, the
decision extends the equal access principle to include use of facilities where
young children are involved, despite the argument that they may erroneously
assume that everything that occurs in a school is done under the auspices of
school authority.

Justice Thomas emphasized that the club reached students only after school
hours, with parental permission, and in the context of sharing facilities with other
groups, such as 4-H Clubs and the Scouts. '^^ Further, Justice Thomas found no
evidence in the record that children misperceived the club's activities as school
sponsored and stated that such a belief was unlikely because meetings were held
not in classrooms but in a special education room, public school teachers did not
participate as instructors, and children in the club were not of the same age as in
the normal classroom setting. '^'^ Although these factors leave open the possibility
that "endorsemenf could pose a problem in a different context and that more
than "neutrality" may be required on the part of government, it is significant to
note that five Justices were willing to assess this question in the context of a
summary judgment motion. Justice Breyer parted company with the majority,
opining that the majority assumed facts not in evidence and that the endorsement
question should have been remanded for a fuller factual development. '°^

This same clash between First Amendment values and the Establishment
Clause arose in a somewhat unique context at Indiana University-Purdue
University Ft. Wayne, when the University gave its permission for use of its
studio theater for a student-directed play, titled Corpus Christi. In Linnemeier
V. Indiana University-Purdue University Ft. Wayne ^^^ the plaintiffs sought to
enjoin the production, contending that the play constituted an "undisguised attack
on Christianity and the founder of Christianity, Jesus Christ," and that allowing
this production violated the Establishment Clause. '°^ In response, the university
argued that the studio theater was a limited public forum and that denying access

101. Mat 119.

102. See Simmons-Harris v. Zelman, 234 F.3d 945 (6th Cir. 2000), cert, granted, 122 S. Ct.
23 (2001).

103. Gooc/A^ew^C/M^ 533 U.S. at 136.

104. /^. at 118.

105. Id. at 128-29 (Breyer, J., concurring in part).

106. 155 F. Supp. 2d 1034 (N.D. Ind. 2001), motion for stay denied, 260 F.3d 757 (7th Cir.
2001).

107. /rf. at 1035-36.

2002] CONSTITUTIONAL LAW 1277

would be viewpoint discrimination in violation of the First Amendment. '°*

In denying the plaintiffs' motion for a preliminary injunction, Judge Lee
agreed with the university that exclusion of this play would constitute
impermissible viewpoint discrimination.'^' Further, he rejected the plaintiffs'
argument that performance of the play would send a message of government
endorsement. "° Judge Lee cautioned that courts must distinguish between the
government's permitting speech and endorsing speech.'" The endorsement
argument was weakened by a disclaimer in the playbill, which read "[t]his play
was selected for its artistic and academic value. The selection and performance
of the play do not constitute an endorsement by Indiana University Purdue
University Fort Wayne or Purdue University of the viewpoints conveyed by the
play.""^ The court distinguished recent cases involving display of the Ten
Commandments, where an Establishment Clause violation was found, by
emphasizing that this was a university setting, "a place citizens traditionally
identify with creative inquiry, provocative discourse, and intellectual growth.""^

II. First Amendment Religion Cases

A. Government Display of Religious Symbols

As discussed in the previous section, the key Supreme Court decision last
term addressing the Establishment Clause arose in the context of a school
district's denying access to its facilities based on a concern that allowing
religious worship to occur on school premises would violate the Establishment
Clause. In Good News Club the Supreme Court rejected the notion that allowing
access to religious groups, in the context of a limited public forum open to a
variety of groups and subject matters, would send a message of government
endorsement of religion."^ Where, however, it is government itself that is
sponsoring the religious observance or display, arguably a more difficult
Establishment Clause question is raised. Two recent Indiana cases address this
question in the context of the government's display of the Ten Commandments.

The Seventh Circuit, in Books v. City ofElkhart,^^^ ruled that displaying the
Ten Commandments near the entrance of the city hall in Elkhart violated the
Establishment Clause because it had both the purpose and the effect of
impermissibly endorsing religion. In finding a religious purpose, the court relied
on the dedication ceremony in 1958, wherein religious leaders urged the people

108. Mat 1037 n.5.

109. /flf. atl041.
no. Mat 1041-42.
HI. Mat 1042-43.

112. Mat 1043.

1 1 3. M. at 1042. The Ten Commandments cases are discussed infra. Part II. A.

1 14. Supra notes 78-105 and accompanying text.

115. 235 F.3d 292 (7th Cir. 2000), cert, denied, 532 U.S. 1058 (2001).

1278 INDIANA LAW REVIEW [Vol. 35:1263

of Elkhart to embrace the religious code of conduct taught in the Ten
Commandments."^ As to the effect prong of the analysis, Judge Ripple
expressed his view that displaying religious symbols at the seat of government
must be subjected to particularly careful scrutiny, especially where the symbol
represents a permanent fixture, rather than a mere seasonal display.''^

The appellate court's decision was appealed to the U.S. Supreme Court, but
the certiorari petition was denied.'** The denial, however, triggered comments
by three Supreme Court Justices who vehemently criticized the Seventh Circuit's
analysis of the Ten Commandments issue. Chief Justice Rehnquist, joined by
Justices Scalia and Thomas, argued that the Court should have taken the case "to
decide whether a monument which has stood for more than 40 years, and has at
least as much civic significance as it does religious, must be physically removed
from its place in front of the city's Municipal Building."''^ In response. Justice
Stevens wrote that the graphic emphasis of the words "THE TEN
COMMANDMENTS— I AM the LORD thy God," which appear at the top of the
monument and "in significantly larger font than the remainder," is "rather hard
to square with the proposition that the monument expresses no particular
religious preference."'^^

At the same time that Books was making its way through the courts, the
Indiana General Assembly adopted a statute, which authorized the display of the
Ten Commandments on real property owned by the state or a political
subdivision as part of an exhibit displaying "other documents of historical
significance that have formed and influenced the United States legal or
governmental system."'^' The law took effect on July 1 , 2000, and the Governor
of Indiana immediately announced his intent to erect a seven-foot limestone
monument of the Ten Commandments, which was to be donated to the state, on
the state house lawn. In compliance with the state statute, the monument was
designed as a four-sided structure, displaying the Ten Commandments, the
Federal Bill of Rights, and the Preamble of the 1851 Indiana Constitution.
Although the state argued that the display was intended to serve only as a
reminder of the nation's core values and ideals, the district court enjoined the
Governor from moving forward with his plans, finding that the state was unable
to cite any historical link between most of the Ten Commandments and "ideals

116. Seeid.?LiZ03.

117. /^. at 305-06.

118. City ofElkhartv. Books, 532 U.S. 1058(2001). Note that the Seventh Circuit remanded
with instructions that the district court should fashion a remedy that would not intrude on the
authority of local government, while at the same time correcting the condition that offended the
Constitution. See Books, 235 F.3d at 308-09. The Seventh Circuit also stayed the district court's
mandate while the issue was appealed to the U.S. Supreme Court. Books v. City of Elkhart, 239
F.3d 826, 829 (7th Cir. 2001).

1 19. Books, 532 U.S. at 1063 (Rehnquist, C.J., dissenting).

1 20. Id. at 1 059. Because only three Justices voted in favor of granting certiorari and the vote
of a fourth is required, the Court skirted the issue for now.

121. 5eelND. Code §4-20.5-21-2 (2000).

2002] CONSTITUTIONAL LAW 1279

animating American government." '^^ Last summer the Seventh Circuit affirmed
this ruling. '^^

In Indiana Civil Liberties Union, Inc. v. O'Bannon,^^^ the Seventh Circuit
agreed that the state's articulated purpose could not be viewed as secular, even
if some of our secular laws parallel the Ten Commandments.'^^ Further, the fact
that secular text would be displayed together with the Ten Commandments did
not lead the court to find a secular purpose, because the Ten Commandments is
an "inherently religious text."'^^ This case could not be distinguished from
Books, where the city alleged that providing a "Code of Conduct" constituted a
secular purpose. The court reasoned that the Ten Commandments indisputably
addresses subjects that were beyond the scope of any government and involve
instead the relationship of the individual and God.'^^ Further, since the display
of the Ten Commandments would actually stand apart from the other secular
texts, the design belied any suggestion that the texts were all presented simply to
"remind viewers of the core values and legal ideals of our nation."'^*

Focusing on the endorsement test, the court found that in light of the
permanence of the exhibit as well as its content, design, and context, a reasonable
person would believe that the display amounted to an endorsement of religion.'^'
Factors supporting this conclusion were that the state house grounds are the seat
of Indiana government, the limestone display would stand seven feet tall, six feet,
seven inches wide, and four feet, seven inches deep, and the limestone blocks are
tablet-shaped. These factors suggested the religious nature of the monument to
observers even from a distance, and the lettering of the Ten Commandments
would be larger than that of the Bill of Rights inscribed on the other side.'^°
Since the secular text would appear on different sides of the monument,
observers would be inhibited from visually connecting the texts, and nothing else
in the context of the monument or the surrounding grounds mitigated the
religious message conveyed.'^' Further, an observer who viewed the entire
monument might reasonably believe that it impermissibly links religion and law
since the Bill of Rights and the 1 85 1 preamble are located so close to the sacred
text, thus sending a message of endorsement. '^^

The ruling in O'Bannon was not surprising in light oi Books. On the other
hand, the U.S. Supreme Court has taken a contextual, highly fact-specific

1 22. Ind. Civil Liberties Union, Inc. v. O'Bannon, HOP. Supp. 2d 842, 85 1 (S.D. Ind. 2000),
affd, 259 F.3d 766 (7th Cir. 2001 ), cert, denied by 1 22 S. Ct. 1 1 73 (2002).

123. Ind. Civil Liberties Union, Inc. v. O'Bannon, 259 F.3d 766 (7th Cir. 2001).

124. Id

125. Id mm.

126. Id.

127. Id

128. Id at 17 \ '72.

129. /^. at 772-73.

130. Id

131. Id at 773.

132. Id

1280 INDIANA LAW REVIEW [Vol. 35:1263

approach in assessing Establishment Clause cases and in determining whether a
reasonable person would see a particular government display of religion as an
endorsement. Since the central theme in Books was that the Ten Commandments
is a religious document, it was apparent that the State of Indiana in O'Bannon
carried a heavy burden in demonstrating that the religiosity had been overcome.
In essence, the location of the monument at the seat of all branches of state
government made this display more problematic than that in Books. Nonetheless,
Judge Coffey argued in dissent that the monument would serve "as a well-
deserved recognition of our country's legal, historical, and religious roots."'"
Judge Coffey emphasized that any endorsement was muted by the fact that the
monument appeared on the state house lawn with at least twelve other secular
monuments recognizing historic figures, such as Christopher Columbus, George
Washington, former Indiana governors, and significant historic events, including
the Civil War.'''

Although only three justices appear ready to address this issue, it is unlikely
to go away. The Elkhart display was one of hundreds donated by the Fraternal
Order of the Eagles (FOE) in the 1950s."^ The planned display in O'Bannon
was intended to replace a similar FOE display that was on the state house
grounds in Indianapolis until its destruction by vandals in 1991, and a similar
display triggered litigation in Lawrence County.''^

B. Government Entanglement with Religion

In addition to the cases involving display of the Ten Commandments, Indiana
courts tackled Establishment Clause issues in two other contexts. In Moore v.
Metropolitan School District of Perry Township, '" a district court judge enjoined
Perry Township from continuing its religious education program, which allowed
students in grades four and five to leave school for approximately thirty minutes
per week to attend religious instruction. Students who chose not to attend
remained at school with a teacher, and they were not permitted to do school work,
purportedly because parents who sent their children for religious instruction
expressed concern that their children might fall behind in their studies.'^* The

133. Id at 781 (Coffey, J., dissenting).

134. /</. at 778-79.

135. See Ind. Civil Liberties Union v. O'Bannon, 1 10 F. Supp. 2d 842, 844 (S.D. Ind. 2000).

136. Kimberly v. Lawrence County, 119 F. Supp. 2d 856, 873 (S.D. Ind. 2000). See also
ACLU of Ky. v. McCreary County, 145 F. Supp. 2d 845 (E.D. Ky. 2001) (ordering immediate
removal of Ten Commandments from display entitled "The Foundations of American Law and
Government Display," which included Magna Carta, Declaration of Independence, the Bill of
Rights to the U.S. Constitution, Star Spangled Banner, Mayflower Compact of 1620, National
Motto and Preemible to Kentucky Constitution; reasoning that use of Ten Commandments was
permissible only in displays that demonstrate respect for law givers, and this display did not
qualify).

137. 2000 WL 243292 (S.D. Ind. 2001).

138. /f/. at*5.

2002] CONSTITUTIONAL LAW 1281

court held that this restriction was motivated by a desire to encourage
participation in the religious program, and thus violated the first prong of the
Lemon test,'^^ which mandates that any government program have a secular
purpose J"*® In addition, the court determined that a reasonable person would
perceive the township's insistence on the silent reading program as an
endorsement of religion, in violation of the second prong of the Lemon test."'*
At least at the preliminary injunction stage, the evidence suggested some
likelihood of success on the merits.''*^

The court also ruled that the township's practice of allowing the religious
program to take place in trailers on school property and then paying the electric
bills for at least some of the trailers violated both the Establishment Clause as
well as Indiana law, which specifically prohibits the expenditure of public funds
for religious instruction.*^^ Although the township agreed to move the trailers off
school property by March 1, 2001, the court enjoined the practice for the
remaining one month period."*"*

In the second case, Brazauskas v. Ft. Wayne-South Bend Diocese, Inc.,^^^ the
Indiana Court of Appeals ruled that the First Amendment barred a former diocese
employee from bringing suit against the diocese and parish priest for various
claims, including blacklisting and tortious interference with a business
relationship. The court relied upon well-established law that prohibits the
judiciary from resolving doctrinal disputes or determining whether a religious
organization acted in accordance with its canons and bylaws. '"^^ The court
recognized that it may apply neutral principles of law to churches without
violating the First Amendment, but in this case it would be required to actually
interpret Catholic precepts and procedures to determine whether the tortious
behavior was undertaken in compliance with religious teaching.'"*^ The
defendants argued that religious doctrine commands that church officials remain
"in close communion"'^* with one another, and that the conduct of church
officials in urging Notre Dame not to hire the plaintiff had "an ostensibly
ecclesiastical basis," which is not subject to judicial review.*"*^ The court
reasoned that since the defendants presented ostensibly ecclesiastical
justifications for their actions, it lacked subject matter jurisdiction over the
claims. '^° The Indiana Supreme Court has granted transfer and vacated the

139.

Lemon v. Kurtzman, 403 U.S. 602 (1971).

140.

Moore, 2000 WL 243282 at ♦S.

141.

Id.

142.

Id.

143.

Id at M.

144.

145.

755 N.E.2d 201, 208 (Ind. Ct. App. 2001).

146.

Mat 205.

147.

148.

Id alios.

149.

150.

1282 INDIANA LAW REVIEW [Vol. 35:1263

decisionJ^'

C The Free Exercise of Religion

The previous discussion suggests that the Supreme Court has moved toward
a more "accommodation ist" approach regarding claims brought under the
Establishment Clause. A majority of the Justices would allow greater interaction
between church and state, allowing, for example, religious groups access to
government forums. ^^^ On the other hand, the Court has exhibited a much more
restrictive approach when the group seeking accommodation is a minority faith
bringing claims under the Free Exercise Clause. Purportedly, this dichotomy is
reconciled by the theory of neutrality. Where government allows religious
groups to use its facility in conjunction with other speakers, it has simply adopted
a neutral stance towards religion. In Employment Division, Department of
Human Resources v. Smith,^^^ the Supreme Court, in 1990, held that when
government enforced neutral laws of general applicability, it was adhering to the
same position of neutrality — even where such laws significantly infringed upon
the free exercise rights of minority faiths. In Smith, the Supreme Court ruled that
facially neutral laws are constitutional provided government has a rational basis.
Government need not meet the strict scrutiny standard applied to laws that
intentionally burden fundamental rights or even the intermediate scrutiny test
applied in the free speech context with regard to government statutes not
intended to burden freedom of expression, but which have this effect.'^*

151. 2002 Ind. LEXIS 350 (Ind. May 3, 2002).

1 52. See supra notes 78-95 and accompanying text. The government aid issue will be revisited
by the Supreme Court this Term. Simmons-Harris v. Zelman, 234 F.3d 945 (6th Cir. 2000), cert,
granted 122 S. Ct. 23 (2001). The Sixth Circuit struck down Ohio's school voucher program
primarily because the program provided no means of guaranteeing that the state aid, derived from
public funds, would be used for exclusively secular purposes. In addition, no public schools chose
to participate in the program, and the overwhelming majority of private school participants were
sectarian.

153. 494 U.S. 872(1990).

1 54. See, e.g. , Hill v. Colo., 530 U. S. 703, 7 1 9 (2000) (holding that where a statute is a content
neutral restriction on speech the government must show a substantial interest and narrowly tailored
means, rather than the compelling interest and no less speech restrictive alternatives standard
imposed where government is regulating in order to suppress a particular message or a particular
speaker). But see Cosby v. State, 738 N.E.2d 709 (Ind. Ct. App. 2000) (rejecting a free exercise
claim where the accused was charged with driving without a license on his way to church); United
States V. Indianapolis Baptist Temple, 224 F.3d 627 (7th Cir. 2000), cert, denied, 531 U.S. 1112
(200 1 ) (rejecting a religious-based claim brought by the Indianapolis Baptist Temple that it should
not have to file federal employment tax returns or pay federal employment taxes). The court in
Cosby determined that this was a neutral law of general applicability, enacted for reasons of public
safety rather than for the purpose of restraining persons from traveling to their place of worship, and
thus the rational basis standard applied and was met. Cosby, 738 N.E.2d at 71 1-12. Relying on
Smith, the court in Indianapolis Baptist Temple concluded that tax laws are neutral laws of general

2002] CONSTITUTIONAL LAW 1283

In adopting the rational basis analysis in Smithy Justice Scalia distinguished
earlier free exercise cases that utilized a strict scrutiny approach by contending
that in those cases other "constitutional protections" were asserted in
conjunction with the free exercise claim. '^^ For example, cases brought by
Jehovah's Witnesses challenging licensing systems or taxes on the dissemination
of religious ideas also raised free speech questions. '^^ Similarly, a case
invalidating compulsory school-attendance laws as applied to Amish parents who
refused on religious grounds to send their children to school also raised the right
of parents to direct the upbringing of their children. '^^ This so-called hybrid
claim exception to Smith was addressed by the Indiana Supreme Court in the case
of City Chapel Evangelical Free, Inc. v. City of South Bend P^

City Chapel filed suit against South Bend after it instituted condemnation
proceedings to acquire the church's property for redevelopment. The City of
South Bend argued that the condemnation proceedings represented a "permissible
use of religious-neutral laws of general applicability,"'^^ and thus under Smith it
was not required to demonstrate a compelling government interest. City Chapel
contended that its claim was based on the Free Exercise Clause in conjunction
with the right to freedom of association, and thus it fell within the hybrid
exception to Smith}^ South Bend's taking of its church building was therefore
governed by the compelling interest test.'^' Although several courts have
recognized this hybrid exception, '^^ others have rejected it outright pending
further clarification by the Supreme Court, '^^ or have rejected it where the
companion claim did not involve a fundamental right. '^ South Bend relied on
a Third Circuit decision that held that freedom of association to worship was

application that did not run afoul of the Free Exercise Clause even if they burden religious
practices. Last fall, Judge Barker issued an order for the church to surrender its property to satisfy
this judgment, and the Seventh Circuit refused to intervene. United States v. Indianapolis Baptist
Temple, 2000 WL 1449856 (S.D. Ind. 2000).

155. 5m///z, 494U.S. at881.

156. /^. (citing Murdock V.Pennsylvania, 3 19 U.S. 105(1943)).

157. See id.

1 58. 744 N.E.2d 443, 45 1 (Ind. 2001 ).

159. Id.

160. Id

161. Id.

162. See, e.g., Swanson v. Guthrie Indep. Sch. Dist. No. I-L, 135 F.3d 694 (10th Cir. 1998)
(recognizing hybrid claim where free exercise and parental rights were asserted, but concluding that
claim failed because parental right to direct school criteria did not present a colorable claim);
Brown v. Hot, Sexy & Safer Prod., Inc., 68 F.3d 525 (1st Cir. 1995) (recognizing hybrid claim
where free exercise rights were asserted in conjunction with the parental right to direct upbringing
of children).

1 63. See, e.g. , Kissinger v. Bd. of Trs., 5 F.3d 1 77, 1 80 (6th Cir. 1 993) (declining to recognize
hybrid claim exception until clarified by Supreme Court).

164. See, e.g.. Miller v. Reed, 176 F.3d 1202 (9th Cir. 1999) (recognizing hybrid claim, but
holding that companion claim must be a violation of a fundamental right).

1284 INDIANA LAW REVIEW [Vol. 35:1263

merely a derivative right of the free exercise of religion and not a separate right
that can be used to trigger the hybrid exception.'" Chief Justice Shepard and
Justice Boehm agreed with the Third Circuit approach, while Justice Rucker and
Justice Dickson agreed with City Chapel that it qualified for the hybrid claim
exception. Justice Sullivan broke the tie by siding with the City of South Bend,
but not on grounds of the hybrid exception, which he did not address.

Justice Dickson carefully traced the language in Smith, which specifically
envisioned a hybrid case where freedom of association grounds would reinforce
the Free Exercise Clause claim. More specifically. Smith referred to an earlier
case that cited freedom to worship as an example of the right of expressive
association.'^^ Justice Dickson, joined by Justice Rucker, concluded that there
was no basis in Smith for disqualifying hybrid exception claims where freedom
of expressive association was linked to religious expression. '^^

Chief Justice Shepard, joined by Justice Boehm, agreed instead with the
Third Circuit that "assembling for purposes of worship is a derivative of free
exercise of religion," and thus City Chapel was not entitled to a higher level of
First Amendment protection. '^^

Justice Sullivan failed to break the 2-2 split on the issue. He reasoned that
City Chapel only asked that a hearing be conducted wherein it could raise its
First Amendment claims, but then it failed to provide a basis for a hearing under
any body of law, federal or state.'^^ Justice Sullivan argued that there was no
reason to address free exercise rights if City Chapel was not entitled to a
hearing. '^^ Further, any arguments City Chapel would make at this hearing had
already been raised during oral argument on the original motion for an
evidentiary hearing.'^' Justice Sullivan could see no point in granting an
additional hearing.'^^ Unfortunately, Justice Sullivan's opinion leaves litigants
in the dark as to whether hybrid claims will be recognized by Indiana courts. At
minimum, the debate among the justices demonstrates the need to characterize
a free association claim as a separate, additional right, rather than linking it to
worship or religious expression.

III. The DUE Process Clause

Although the text of the Due Process Clause appears to ensure only
procedural fairness, the U.S. Supreme Court has long recognized that it also
contains a substantive component that bars arbitrary, wrongful conduct. Further,

165. City Chapel Evangelical Free, Inc. v. City of South Bend, 744 N.E.2d 443, 453 (Ind.
2001) (citing Salvation Army v. Dep't of Cmty. Affairs, 919 F.2d 183 (3d Cir. 1990)).

166. /f^. at 452.

167. /^. at 454.

168. Id. at 455 (Shepard, C.J., concurring in part and dissenting in part).

169. Id. (Sullivan, J., dissenting).

170. Id

171. Id

172. Mat 456.

2002] CONSTITUTIONAL LAW 1285

where the government interferes with a fundamental right, the Court has
demanded that the government meet a heightened scrutiny standard. Both of
these aspects of substantive due process were raised by Indiana litigants this last
term.

A. Regulation of Abortion and Pregnancy

In Roe V. Wade,^^^ the Supreme Court characterized the woman's right to
terminate a pregnancy as a fundamental right protected by the Due Process
Clause from any legislation that fails to meet strict scrutiny analysis. In a 1992
decision, however, the Court ruled that a state may regulate the abortion decision
so long as the regulation did not impose an undue burden, which the Court
defined as regulation having the purpose or effect of placing a substantial
obstacle in a woman's attempt to obtain an abortion.'^* Subsequently, in
Stenberg v. Carhart, ''^ the Supreme Court, in a controversial 5-4 decision, found
that a Nebraska statute barring so-called partial-birth abortions imposed an undue
burden because it lacked any exception for the preservation of a mother's health,
and its definition of the proscribed procedure was so broad that it included the
most frequently used second-trimester abortion method. '^^

Applying this analysis, the district court, in A Woman 's Choice-East Side
Women's Clinic v. Newman,^^^ ruled that a provision in Indiana's abortion law
that required medical personnel to provide state-mandated information about
abortion and its alternatives "in the presence" of the pregnant woman at least
eighteen hours before an abortion, imposed an undue burden on a woman's
constitutional right to choose to end a pregnancy, and thus it violated the Due
Process Clause.'^*

The court reasoned that Indiana's "in the presence" stipulation effectively
required two trips to an abortion clinic, thus placing a substantial obstacle in the
path of a woman seeking abortion of a non-viable fetus.'^^ The Seventh Circuit
earlier upheld a Wisconsin statute that forced abortion patients to make two trips
to a clinic,'^^ and a similar Pennsylvania statute was upheld by the U.S. Supreme
Court in 1992.'" Nonetheless, the district court noted that both the Seventh
Circuit and the Supreme Court decisions left open the possibility that additional

173. 410 U.S. 113, 164-65(1973).

174. PlannedParenthoodofS.E. Pa. V.Casey, 505 U.S. 833,878(1992).

175. 530 U.S. 914 (2000).

176. Id at 930. See also Hope Clinic v. Ryan, 249 F.3d 603 (7th Cir. 2001) (holding that
partial-birth abortion statutes in Illinois and Wisconsin were unconstitutional in light of the
Stenberg opinion).

177. 132F.Supp. 2d 1150 (S.D.lnd. 2001).

178. /^. at 1181.

179. Id at 1151. This requirement mandated that medical personnel provide advanced
information eighteen hours before an abortion in the presence of the pregnant woman. Id.

1 80. See Karlin v. Foust, 1 88 F.3d 446 (7th Cir. 1999).

181. Planned Parenthood of S.E. Pa. v. Casey, 505 U.S. 833 (1992).

1286 INDIANA LAW REVIEW [Vol. 35:1263

empirical evidence establishing an undue burden could alter this result. Relying
on Casey, the court stated that the critical inquiry was whether the abortion
regulation would "operate to place a 'substantial obstacle' in the path of a large
fraction' of the women for whom the law operates as a restriction.'"*^ The court
then critically examined the new empirical data — 2l study that demonstrated that
abortion rates in Mississippi declined between ten and thirteen percent after the
two-trip law took effect, and data that the two-trip law caused a thirty-seven
percent increase in the number of Mississippi residents who went to other states
to obtain abortions. Statistics from Utah, which adopted a similar restriction,
showed a 9.3% decline in the abortion rate and a thirty-three percent decrease in
non-residents coming to the state to obtain abortions. Based in part on this data,
which was part of a study published in the Journal of the American Medical
Association, the court concluded that Indiana's requirement was likely to prevent
abortions for approximately ten to thirteen percent of Indiana women who would
otherwise chose to terminate a pregnancy.'*^

The U.S. Supreme Court has distinguished abortion regulation likely to have
a "persuasive effect" on the abortion decision, which is permissible, from
regulation likely to impose an undue burden.'** The district court nonetheless
concluded that there was no evidence that requiring this state-mandated
information in advance actually persuaded women to choose childbirth over
abortion. ^*^ Further, the court was skeptical of the state's proffered purpose for
the provision, namely to guard against telephonic impersonation of healthcare
professionals.^*^ The case is currently on appeal to the Seventh Circuit. It is
noteworthy that the court reached its conclusion only after a lengthy hearing
where the state presented experts who challenged the credibility of the plaintiffs'
statistician. Arguably, the appellate court should defer to the trial court's
weighing of the credibility of the experts in the case and affirm its ruling.

In a case of first impression, the Indiana Court of Appeals considered the
right to procreate in the context of a trial court ordering a woman not to become
pregnant as a condition of probation. In Trammell v. State,^^^ the defendant was
charged with neglecting her infant son, who died of emaciation and malnutrition.
She was found guilty but mentally ill due to her mental retardation, and she was
sentenced to eighteen years in prison, eight of which would be served on

182. A Woman 's Choice — East Side Women 's Clinic, 132 F. Supp. at 1 1 59.

1 83. Id. Although the statistician who appeared before the district court judge was the same
person whose statistical flaws were highlighted in the earlier Seventh Circuit ruling, the data was
revised and the new study was published in ih^ Journal of the American Medical Association. See
id. at 1 160-75. The new data convinced Judge Hamilton that women were indeed deterred by the
Indiana law. Id. ail \15.

1 84. Planned Parenthood, 505 U.S. 833 at 886 ("[U]nder the undue burden standard a State
is permitted to enact persuasive measures which favor childbirth over abortion, even if those
measures do not further a health interest.").

1 85. A Woman 's Choice — East Side Women 's Clinic, 1 32 F. Supp. at 1 175.

186. Mat 1179.

187. 75IN.E.2d283,285-86(Ind. Ct.App. 2001).

2002] CONSTITUTIONAL LAW 1287

probation. She challenged the no pregnancy condition as an unconstitutional
deprivation of her right to privacy.'^*

The court acknowledged that the right to beget or bear a child has been
recognized as "at the very heart of this cluster of constitutionally protected
choices."'*' On the other hand, those convicted of a crime do not have the same
rights as others. Probation conditions that impinge on constitutionally protected
rights are permitted provided they are reasonably related to the treatment of the
accused and the protection of the public.'^ The court must balance "(1) the
purpose to be served by probation; (2) the extent to which constitutional rights
enjoyed by law abiding citizens should be afforded to probationers; and (3) the
legitimate needs of law enforcement."'^'

Here the court found that the no pregnancy condition did not serve any
rehabilitative purpose since it would not improve Trammell's parenting skills.''^
Further, the state's interest in preventing injury to unborn children would be
better served "by alternative restrictions less subversive of appellant's
fundamental right to procreate," namely requiring Trammel to enroll in a prenatal
or neonatal treatment program if she becomes pregnant.''^ It is clear that in
balancing the competing interests, the court gave significant weight to the
privacy right at stake. Although finding that the condition served no discernible
rehabilitative purpose, the court proceeded to hold that the condition excessively
impinged on the privacy right of procreation because the state's goal could be
accomplished by less restrictive means — an analysis reserved for government
regulation that interferes with fundamental rights.'''^

B. Substantive Due Process as a Limitation on Punitive Damages Awards

In the absence of a fundamental right, the Supreme Court has shown a great
reluctance to sanction government conduct under the rather nebulous, open-
ended notion of substantive due process. The one notable exception to this
involves damages awarded by juries. In BMIV of North America, Inc. v. Gore,^^^
the Supreme Court held that a two million dollar punitive damages award was
grossly excessive and violated substantive due process limits. The Court outlined

188. Mat 288.

189. /^. at 290.

190. Id. at 288 (citing Carswell v. State, 721 N.E.2d 1255, 1258 (Ind. Ct. App. 1999)).

191. Id.

192. Mat 289.

193. Id.

194. Id Compare Doe v. City of Lafayette, 160 F. Supp. 2d 996, 1001-03 (N.D. Ind. 2001),
where the court upheld the city's action in permanently banning a convicted sex offender from all
city parks. The court determined that the defendant did not have a fundamental liberty interest in
wandering through the city parks, and it refused to acknowledge intrastate travel as a fundamental
right. Applying rational basis analysis, the court ruled that the ban was rationally related to the
city's interest in protecting the welfare of its children from sexual predators.

195. 517 U.S. 559,574-75(1996).

1288 INDIANA LAW REVIEW [Vol. 35:1263

three criteria that should be examined in determining whether a punitive damage
award should be deemed unconstitutionally excessive: "the reprehensibility of the
conduct, in particular, whether only economic harm is involved; the relation
between compensatory and punitive damages; and the relation of the damages to
other civil remedies authorized or imposed in comparable cases. '^

Applying this standard, the Indiana Court of Appeals rejected the
constitutional challenge to a $1 .64 million punitive damage award in Executive
Builders, Inc. v. Trisler.^^^ The court began its analysis by declaring that when
a judgment was the product of fair procedures — impartial jurors were selected,
they heard all the evidence presented by both sides, the trial court properly
instructed them, and it upheld the punitive award after considering its
constitutionality — ^there was a strong presumption that the award was
constitutional.'^* The court then applied the three guideposts set forth in BMW,
and concluded that the punitive damages award did not violate substantive due

199

process.

IV. State Constitutional Law Developments

Under the tutelage of Chief Justice Randall T. Shepard, the Indiana Supreme
Court has re-examined the Indiana Constitution as a potential source for the
protection of civil liberties.^^ Although the Indiana Supreme Court has made it
clear that it is not anxious to usurp the legislative role of the General Assembly
and has repeatedly cautioned that state statutes will be presumed constitutional,
it has also noted that state constitutional provisions will be interpreted
independently of their federal constitutional counterpart. The court will examine
the text and the history regarding the state constitutional provision as well as
early decisions interpreting the state constitution under this analysis.^^' These
core principles are reflected in the state constitutional cases decided this term.

196. /^. at 575, 580-81, 583-84.

197. 741 N.E.2d 351, 359-61 (Ind. Ct. App. 2000).

198. /^. at 360.

199. Id. at 360-61. See also Cooper Indus, v. Leatherman Tool Group, Inc., 532 U.S. 424
(2001) (holding that in determining whether a punitive damage award is unconstitutionally
excessive, appellate courts should apply a de novo standard of review because a jury's award does
not constitute a fmding of fact that is entitled to deference on appeal); In re Exxon Valdez, 270 F.3d
1215 (9th Cir. 2001) (the punitive damages award of $5 billion in this maritime tort suit was
disproportionate to the compensatory damages award of $287 million or to the potential criminal
fine of $1 billion, and thus was excessive in violation of the Due Process Clause).

200. See Randall T. Shepard, Second Wind for the Indiana Bill of Rights, 11 iND. L. REV. 575
(1989).

201. See, eg., Collins v. Day,644N.E.2d72,80(Ind. 1 994) (privileges and immunities clause
of the Indiana Constitution imposes duties independent of those required by the Fourteenth
Amendment to the U.S. Constitution).

2002] CONSTITUTIONAL LAW 1289

A. Religion Clauses

Unlike the Federal Constitution, which includes only the Establishment and
Free Exercise Clauses, the Indiana Constitution guarantees religious liberty
through seven distinct and separate provisions. Article I, section 2 insures that
"[a]ll people shall be secured in the natural right to worship ALMIGHTY GOD,
according to the dictates of their own consciences."^^^ Article I, section 3 bars
any law that might "control the free exercise" of religion, and also prohibits
enactments that "interfere with rights of conscience" or the "enjoyment of
religious opinions."^^^ Article I, section 4 reads that, "No preference shall be
given, by law, to any creed, religious society, or mode of worship; and no person
shall be compelled to attend, erect, or support any place of worship, or to
maintain any ministry, against his consent."^^ In City Chapel Evangelical Free,
Inc. V. South Bend^^^ City Chapel invoked ail three of these provisions as a
defense to a condemnation proceeding brought by the City of South Bend to take
its building for redevelopment.

Although the Indiana Supreme Court rejected City Chapel's federal free
exercise claim,^°^ it ruled, 3-2, that the framers of the 1851 Indiana State
Constitution did not simply paraphrase the language in the Bill of Rights and that
City Chapel indeed stated a separate, viable state constitutional law claim. The
majority relied heavily on an earlier Indiana Supreme Court decision, which
involved the free speech provisions of the Indiana Constitution. In Price v.
State^^^ the court held that political speech was a core value embodied in the
Indiana Constitution and, as such, the state could not punish political speech even
when offensive words were uttered in the context of resisting arrest. The court
in Price reasoned that government may not impose a material burden upon a
constitutionally protected core value.^°*

In this case, City Chapel contended that religious liberty was a core value,
and it asserted that the taking of its property would materially burden this value
because it threatened to "destroy the church."^*^ It urged that South Bend be
enjoined from taking the Chapel's building without a hearing where South Bend
would be required to prove that the need to exercise the police power of eminent
domain outweighed the restrictions imposed on Chapel's fundamental rights.^'°
Relying on Price, the court determined that the key question was whether the
condemnation proceedings would amount to a material burden upon a core

202. IND. Const, art. 1, § 2.

203. iND. Const, art. I, §3.

204. IND.CONST. art. l,§4.

205. 744N.E.2d443(In(i. 2001).

206. See supra TiOiQs\5%'69.

207. 622 N.E.2d 954, 962-63 (Ind. 1993).

208. Id. at 960. See also City Chapel Evangelical Free, Inc. v. South Bend, 744 N.E.2d 443,
446-47 (Ind. 2001) (discussing the material burden analysis).

209. a<v CAa;?^/, 744 N.E.2d at 445.

210. Id.

1290 INDIANA LAW REVIEW [Vol. 35:1263

value.^" The court explained that this analysis "looks only to the magnitude of
the impairment and does not take into account the social utility of the state action
at issue."^'^ Using the historical approach affirmed in previous cases. Justice
Dickson rejected the city's argument that the state constitution was intended to
guarantee only the "personal devotional aspect of religion."^'^ Instead, the court
concluded that "[s]ections 2 and 3 advance core values that restrain government
interference with the practice of religious worship, both in private and in
community with other persons."^''' In short, because the City of South Bend
sought to take property that might have materially burdened City Chapel's rights
embodied in the core values of sections 2, 3, and 4 of article I, City Chapel was
entitled to an opportunity to present its claim.

On the other hand, Justice Dickson emphasized that the condemnation
procedure would be presumed constitutional, that City Chapel must clearly
overcome that presumption, and that all doubts would be resolved against it.^'^
The church would have to show that taking its building would burden its
members' right to worship according to the dictates of conscience or their right
to exercise religious opinions or to be free from a government preference for a
particular religious society. Further, the effect of the taking must constitute a
material burden, not merely a permissible qualification.^'^ Chief Justice Shepard
and Justice Rucker concurred with this analysis of the state constitutional claim,
thus creating a three-judge majority in favor of City Chapel.

Justice Boehm, in dissent, agreed that the religion clauses in the Indiana
Constitution prevent the state from imposing material burdens on the exercise of
religious practice and that this protection included the public and group activities
associated with religious practices.^'^ However, Justice Boehm reasoned that
City Chapel failed to present any evidence that South Bend's exercise of its right
of eminent domain materially burdened any religious activity. There was no
claim that the downtown site had "an independent religious significance."^'*
Rather, City Chapel argued only the difficulty of finding another home at an
affordable price. This suggests that under takings law, South Bend might be
required to pay a higher price as just compensation, but this was not a basis for
prohibiting the city from acting: "Given the Chapel's representation that this is
a dispute over money, not religious principle, even if the Chapel proves all it
claims, the solution is in dollars, not injunctive relief."^'^ Justice Boehm
concluded that since City Chapel presented no evidence that would bar the
taking, but only evidence that might relate to establishing just compensation, it

211. Id. at 446.

212. /c/. at 447.

213. Id. at 448.

214. Id 31450.

215. Id at 450-51.

216. Id

217. Id. at 456 (Boehm, J., dissenting).

218. Id at 457.

219. Id at 458.

2002] CONSTITUTIONAL LAW 1291

failed to show the necessity for a hearing.^^^

Justice Sullivan agreed with Justice Boehm's conclusion that City Chapel
was not entitled to a hearing; however, he did not feel there was a need to address
the state religion clauses at all. He reasoned thai City Chapel's entitlement to a
hearing was an entirely separate issue from whether City Chapel's religious
rights were violated by South Bend's exercise of its eminent domain powers.^^'
City Chapel "failed to assert adequately a right to a hearing under any body of
law,"^^^ but instead tried to skip to the merits of the issues it would raise at a
hearing. Justice Sullivan's final justification for refusing the state constitutional
issues was that City Chapel failed to show the utility of an evidentiary hearing,
since its brief cited only to evidence already in the record, and thus Justice
Sullivan was not willing to decide the state constitutional issues.^^^

City Chapel is significant in establishing a separate role for the state religion
clauses, especially in the wake of the watered-down version of the Federal Free
Exercise Clause in Employment Division, Department of Human Resources v.
Smith?^^ Many litigants in other states have turned to state constitutional
provisions to secure religious liberty.^^^ It remains to be seen, however, whether
protection under Indiana's religion clauses will be significant, given Justice
Dickson's caveat regarding the difficulty of meeting the material burden
standard. Justice Boehm's dissenting opinion persuasively argues that City
Chapel will not meet this standard on remand unless it comes up with new
evidence as to how moving the church to a new location will materially burden
its right to worship. Nonetheless, the case establishes the principle that neutral
government action that has a significant negative impact on religious liberty
might be prohibited by the Indiana Constitution, even if such conduct is
permitted under the Federal Free Exercise Clause.

B. Due Course of Law and Equal Privileges Clauses

Article I, section 1 2 of the Indiana Constitution guarantees that a remedy "by

due course of law" is available to a person "for injury done to him and his

person, property or reputation. "^^^ In most cases, Indiana courts have reasoned

that the analysis under section 12 parallels that under the Federal Due Process
Clause.227

220. Id.

221. M at 455 (Sullivan, J., dissenting).

222. Id.

ll-i. /^. at 456.

224. 494 U.S. 872(1990).

225. See, e.g., Jeffery D. Williams, Humphry v. Lane.* The Ohio Constitution 's David Slays
the Goliath o/Employment Division v. Smith, Department of Human Resources of Oregon, 34
Akron L. Rev. 9 1 9 (200 1 ).

226. IND. Const, art. 1, § 12.

227. ^ee. e.g., G.B. V.Dearborn County Div. of Family and Children, 754 N.E.2d 1027, 1031
(Ind. Ct. App. 2001) ("Federal and state substantive due process analysis is identical"; although the

1292 INDIANA LAW REVIEW [Vol. 35:1263

Article I, section 23 of the state constitution provides that "[t]he General
Assembly shall not grant to any citizen, or class of citizens, privileges or
immunities, which, upon the same terms, shall not equally belong to all
citizens. "^^^ The Indiana Supreme Court, in a 1994 decision, held that this
provision should not be interpreted in the same manner as the Federal Equal
Protection Clause.^^^ After thoroughly investigating the text and the history of
this provision, the court set forth a two-prong test, which first requires that any
disparate treatment by government be reasonably related to inherent
characteristics that distinguish the unequally treated classes. Further, the
preferential treatment must be uniformly applicable and equally available to all
persons similarly situated.^^^ Most attempts to invalidate state legislative
enactments under this provision have been unsuccessful because the Indiana
Supreme Court requires that substantial deference be given to the legislative
judgment. Only where the legislature draws lines in an arbitrary and manifestly
unreasonable manner will the judiciary invalidate its laws.^^'

Despite this deferential approach, the Indiana Supreme Court, in Martin v.
Richey,^^^ held that Indiana's two-year occurrence-based medical malpractice
statute of limitations^" was unconstitutional as applied to a plaintiff who suffered
from a medical condition with a long latency period that prevented her from
discovering the alleged malpractice within the two-year period. The court left
the statute intact on its face, but held that its application to Martin's situation
violated both article I, section 23 and article 1, section 12.

Since the 1999 decision, however, the court has shown reluctance to expand

right to family integrity is fundamental, Indiana statute, which prescribes exceptions to the
requirement that government make reasonable effort to reunify and preserve family, satisfies
substantive due process requirements because the exceptions are narrowly tailored to protect the
welfare of children from parents who neglect, abuse, or abandon their children); M.G.S. v. Beke,
756 N.E.2d 990 (Ind. Ct. App. 2001) (the same analysis applies to both federal and state due
process claims and, in a case of first impression, court holds that father's due process rights were
not violated by the implied consent provision in Indiana's adoption law that requires father to file
a paternity action within thirty days of notice if he wishes to protect his peirental rights); Lake of
the Woods v. Ralston, 748 N.E.2d 396 (Ind. Ct. App. 2001) (court uses federal procedural due
process balancing standard and finds no violation of state or federal constitutional due process).

228. Ind. Const, art. I, § 23.

229. Collins v. Day, 644 N.E.2d 72, 73 (Ind. 1994).

230. See id. Sii 7^-19.

231. Jd. atSO. 5eea/.soLutzv.Fortune,758N.E.2d77,84(Ind.Ct. App.2001)(adopteewho
sought to be declared remainder beneficiary of testamentary trust could not state viable claim under
Indiana Privileges and Immunities Clause because such a claim requires state action, and here
plaintiffs exclusion occurred as the result of testate succession, not a legislatively created rule of
law or state action).

232. 71 1 N.E.2d 1273, 1279 (ind. 1999).

233. See iND. CODE § 34-18-7- 1 (b) ( 1 998) (statute of limitations begins to run at the time the
alleged malpractice occurred, rather than when victim discovers the alleged harm).

2002] CONSTITUTIONAL LAW 1293

Martin. In Boggs v. Tri-State Radiology, Inc. ^^^ the court held that a person who
discovers the malpractice within the two-year period, but files outside the
limitations period, loses her claim even if the filing occurs within two years of
discovery. The court reasoned that as long as the plaintiff has a meaningful
opportunity to bring her claim, there is no violation of the due course of law
provision.^^^

Relying on Boggs, the Indiana Court of Appeals, in Hopster v. Burgeson,^^^
rejected the argument that the statute of limitations is unconstitutional as applied
to persons who suffer a delayed injury. The plaintiff contended that it was not
until an autopsy was performed that he realized that the defendants had
misdiagnosed his wife's condition. He filed his lawsuit two years after her death,
and the trial court agreed that since he could not have discovered the alleged
malpractice until his wife's death, the action should proceed. On appeal, the
defendants argued that the case was not controlled by the Martin exception
because the physicians treated the plaintiffs wife within two years of her death,
and nothing prevented him from filing suit within the two-year statutory
period.^^^ Indeed, the court in Boggs held that, "[a]s long as the claim can
reasonably be asserted before the statute expires, the only burden imposed upon
the later discovering plaintiffs is that they have less time to make up their minds
to sue."^^* Boggs acknowledged that there may be situations where discovering
and presenting the claim within the time demanded by the statute might not be
reasonably possible, but it concluded that the plaintiffs eleven-month window
to file did not present this situation.

The husband in Hopster asked the court to reevaluate Boggs, opining that
it creates a system whereby determinations must be made on a case-by-case basis
as to whether plaintiff had a reasonable amount of time remaining to file suit
prior to the expiration of the statute.^^^ The appellate court agreed that the
current state of the law creates three different classes of medical malpractice
plaintiffs. Those who discover the alleged malpractice on the date it occurs have
two years to file suit; those who discover the alleged malpractice after the
expiration of the statute of limitations and have no opportunity to file suit prior
to the expiration will have a reasonable time to file; and those who, like this
plaintiff, discover the alleged malpractice after it occurs but prior to the
expiration of the two-year statute of limitations are bound by the two-year rule.^"^^
It means that those who suffer immediate injury due to malpractice will have a
full two years to file suit, while those who suffer delayed injury will have less
than two years.^"*' Nonetheless, the court felt constrained by the Indiana Supreme

234. 730 N.E2d 692, 696-97 (Ind. 2000).

235. /f/. at 698.

236. 750N.E.2d841,849(Ind.Ct. App. 2001).

237. /c/. at 848.

238. Id. at 849 (citing Boggs, 730 N.E.2d at 697).

239. Mat 850.

240. Id

24 L As to the family practitioner, for example, the husband would have had to sue within five

1294 INDIANA LAW REVIEW [Vol. 35:1263

Court's decision in Boggs?^^ Ironically, in this case, the law allowed the plaintiff
to maintain his claim against the physician who treated his wife almost six years
prior to filing the lawsuit since he could not with due diligence have filed within
the two-year period, but it prohibited him from pursuing his claims against the
physicians who treated his wife more recently, because the claims arose within
two years of the limitations period. ^"^^

Other Indiana litigants fared no better under the state constitution. In Indiana
Patient 's Compensation Fund v. Wolfe^^^ the court rejected a claim brought by
parents who challenged their inability to bring suit to recover excess damages
from the Indiana Patient's Compensation Fund. The statute^'*^ limits recovery to
patients and was interpreted to exclude a parent with a derivative claim. The
court ruled that this did not violate article 1 , section 1 2, because the limitation on
recovery under Indiana's Medical Malpractice Act was a rational means of
achieving the legislature's goal of protecting the healthcare industry and insuring
the availability of services for all citizens.^"*^ Further, the interpretation did not
violate article I, section 23, because each patient under the Act was entitled to
seek damages up to the statutory cap, and any subclassification created by the
definition of patient furthered the legislature's goal of maintaining medical
treatment and lowering medical costs in Indiana.^"*^

Innovative attempts to use article I, section 23 by criminal defendants have
been similarly unsuccessful. In Ben-Yisrayl v, State,^^^ the court upheld the
Indiana statute that excludes prospective jurors who have a conscientious
opposition to the death penalty. Since differential treatment need only be
reasonably related to inherent characteristics that distinguish the unequally
treated class, the court had little difficulty affirming the reasonableness of
excluding from a jury those "who so inherently opposed to the death penalty that
they could not recommend a death sentence regardless of the facts or the law."^"*^
Further, the court reasoned that the law treats all jurors who express this
conviction the same.

Similarly, in Cowart v. State,^^^ the court ruled that Indiana's child
molestation statute did not violate section 23, even though it provided for harsher

months of his wife's death to preserve his claim. See id at 845. The other health professionals
cared for the wife within three months of her death, thus giving Mr. Hopstera much longer window
within which to file his suit.

242. Mat 850.

243. Mat 851.

244. 735 N.E.2d 1 187 (Ind. Ct. App.), trans, denied, 741 N.E.2d 1261 (2000).

245. iND. CODE § 34.18-14-3(a) (1998).

246. 735N.E.2datll93.

247. Id at 1 193-94. See also Land v. Yamaha Motor Corp., U.S.A., 272 F.3d 514, 518 (7th
Cir. 2001) (Indiana has expressly held that its Statute of Repose contained in its Products Liability
Act does not violate article 1, section 12 or section 23 of the state constitution).

248. 753 N.E.2d 649 (Ind. 2001).

249. Mat 656.

250. 756N.E.2d581,586(lnd.Ct. App. 2001).

2002] CONSTITUTIONAL LAW 1295

punishment for defendants who were twenty-one years of age or older, than to
offenders between eighteen and twenty years old. Applying Collins v. Day,^^^ the
court reasoned that the increased punishment for child molesters who are at least
twenty-one years old is reasonably related to the inherent characteristics which
distinguish the two age groups at issue, namely the different intellectual and
emotional maturity and the fact that the greater age difference between the
perpetrator and the victim might arguably intensify the fear of the victim and
therefore justify a more severe punishment.^^^ Further, because the statute
applies equally to all persons who are at least twenty-one years old, there is no
disparate treatment among those who fall within the classification.

Finally, in Teer v. State, ^^^ the court rejected an equal privileges challenge
to the state's violent felon statute that distinguishes serious violent felons from
the general class of felons by listing serious violent felonies rather than
articulating a general definition. Again the court emphasized that a classification
need have only a reasonable basis, and the fact that the statute omitted a few
arguably violent crimes does not render the statute unconstitutional.^^'* All of
these cases suggest that attorneys seeking to invoke section 1 2 or section 23 have
an uphill battle to fight in light of the significant deference the court gives to
legislative enactments.

251. 644N.E.2d72(Ind. 1994).

252. Cowart, 756 N.E.2d at 584-86.

253. 738 N.E.2d 283 (Ind. Ct. App. 2001 ).

254. Mat 288-89.

Recent Developments in the Indiana Law of
Contracts and Sales of Goods

Harold Greenberg*

Introduction

Article 2 of the Uniform Commercial Code' has supplemented or, in some
instances, has replaced the common law of contracts with respect to the sale of
goods. Therefore, it is appropriate for this Article to discuss important cases
arising under Article 2 as wel I as those arising under the common law during this
survey period.

I. The Independence of U.C.C. § 2-719(3) from U.C.C. § 2-719(2)

An issue not previously raised in Indiana, which has caused a split among the
courts of other states, is whether an exclusion of consequential damages for
breach of warranty, as permitted in section 2-719(3), is independent of section
2-719(2), which authorizes all Code remedies if a limited remedy fails of its
essential purpose.^ If dependent, the failure of essential purpose of a limited

♦ Professor of Law, Indiana University School of Law— Indianapolis; A.B. summa cum
laude, 1959, Temple University; J.D. magna cum laude, 1962, University of Pennsylvania. The
author expresses thanks to Jeffrey W. Ferrand, J.D., 2003 (anticipated), Indiana University School
of Law— Indianapolis for his assistance in preparing this article.

1. IND. Code § 26-1-2 (1998). This Article will use the generic section numbers to refer to
Indiana's Uniform Commercial Code. For example, this article will cite to 2-719 instead of iND.
Code § 26-1-2-719 (1998) unless the version of the Code enacted in Indiana differs from the
current official draft.

2. U.C.C. §2-719 (1999) provides:

(1) Subject to the provisions of subsections (2) and (3) of IC 26-1-2-718 on liquidation
and limitation of damages:

(a) The agreement may provide for remedies in addition to or in substitution
for those provided in IC 26- 1 -2 and may limit or alter the measure of damages
recoverable under IC 26-1-2, as by limiting the buyer's remedies to return of
the goods and repayment of the price or to repair and replacement of
nonconforming goods or parts; and

(b) Resort to a remedy as provided is optional unless the remedy is expressly
agreed to be exclusive, in which case it is the sole remedy.

(2) Where circumstances cause an exclusive or limited remedy to fail of its essential
purpose, remedy may be had as provided in IC 26-1.

(3) Consequential damages may be limited or excluded unless the limitation or
exclusion is unconscionable. Limitation of consequential damages for injury to the
person in the case of consumer goods is prima facie unconscionable, but limitation of
damages where the loss is commercial is not.

Compare Chatlos Sys., Inc. v. Nat'l Cash Register Corp., 635 F.2d 1081 (3d Cir. 1980); and Am.
Elec, Power Co. v. Westinghouse Elec. Corp., 418 F. Supp. 435 (S.D.N.Y. 1976) ("independent"
cases), with R. W. Murray Co. v. Shatterproof Glass Corp., 758 F.2d 266 (8th Cir. 1 985) and Adams

1298 INDIANA LAW REVIEW [Vol. 35:1297

remedy under section 2-719(2) automatically entitles the plaintiff to all Code
remedies, including the recovery of consequential damages. If independent, the
failure of essential purpose does not automatically invalidate an exclusion of
consequential damages.

In Rheem Manufacturing Co. v. Phelps Heating & Air Conditioning, Inc.^
the Indiana Supreme Court ruled that the exclusion of consequential damages
subsection, 2-7 1 9(3), should be construed and applied independently of the prior
subsections of section 2-7 1 9. Based on this construction, the court reversed the
denial of defendant Rheem's motion for summary judgment on the issues of
limitation of remedies and exclusion of damages."*

Since the case was based on an interlocutory appeal from the denial of a
motion for summary judgment, there should have been no facts in dispute, and
all facts should have been viewed in the light most favorable to the nonmoving
party,^ plaintiff Phelps. However, as discussed below, the case may not have
been the best vehicle for the supreme court's decision. The facts were somewhat
unusual and the case left many unresolved questions. Indeed, the court may have
resolved the main issue prematurely.

Rheem manufactures furnaces for use in homes and offices and, at the
relevant times, sold them through a distributor. Federated Supply Corporation
("Federated").^ Phelps, a heating and air conditioning contractor, purchased
Rheem furnaces from Federated for resale to home builders or to private home
owners and for installation by Phelps.^ For approximately four years,
substantially all of Rheem's high efficiency furnaces were defective, failed to
function properly, and required many service calls and repairs by Phelps at
substantial cost to it.* Rheem was unable to correct the initial problems with its
furnaces for at least three and one half years but did supply replacement parts.^
In addition, allegedly as a result of the poor performance record of the Rheem
furnaces, Phelps also lost contracts for the sale and installation of furnaces in
new housing developments."^ In an action against Rheem and Federated, Phelps

V. J.I. Case Co., 261 N.E.2d 1 (III. App. Ct. 1970) ("dependent" cases).

3. 746N.E.2d941 (Ind. 2001) [hereinaner/?Aee/«//]. This case is also the subject of brief
commentary elsewhere in this survey issue. See Matthew T. Albaugh, Indiana 's Revised Article
9 and Other Developments in Commercial and Consumer Law, 35 IND. L. REV. 1239, 1255-57
(2002).

4. /?/ieem //, 746 N.E.2d at 955.

5. Mat 946.

6. /t/. at 944.

7. Rheem Mfg. Co. v. Phelps Heating & Air Conditioning, Inc., 714 N.E.2d 1218, 1219
(Ind. Ct. App. 1999) [hereinafter Rheem /]. The Indiana Supreme Court referred readers to the
court of appeals' decision for a more complete discussion of the facts. Rheem II, 746 N.E.2d at
944.

8. Rheem II, 746 N.E.2d at 944-45. Phelps incurred expenses of approximately $100,000
in servicing defective Rheem high efficiency furnaces. Id. at 953.

9. y?/ieem/, 714N.E.2datl220.

10. Rheem II, 746 N.E.2d at 945; R. 22, 225.

2002] CONTRACTS AND SALES OF GOODS 1 299

sought to recover two basic types of damages: the expenses incurred in repairing
the defective furnaces purchased by its customers and the profits it lost because
of canceled sale and installation contracts. The former may be characterized as
direct damages flowing naturally from the defects in the furnaces' ' and the latter
as consequential damages.'^

Every box in which a Rheem furnace was shipped contained a pre-printed
warranty captioned "Limited Warranty — Parts." This document expressly
warranted the component parts of the furnace against failure for a particular term,
limited the duration of the implied warranties of merchantability and fitness for
particular purpose, limited the buyer's remedy for breach of warranty to the
furnishing by Rheem of replacement parts, and excluded both the cost of labor
to install the replacement parts and the recovery of incidental and consequential
damages.'^

1 1 . See U.C.C. § 2-714(2) (1999). "The measure of damages for breach of warranty is the
difference at the time and place of acceptance between the value of the goods accepted emd the
value they would have had if they had been as warranted, unless special circumstances show
proximate damages of a different amount." Id.

12. See id. § 2-7 1 5(2)(a). "Consequential damages resulting from the seller's breach include
(a) any loss resulting from general or peulicular requirements and needs of which the seller at the
time of contracting had reason to know and which could not reasonably be prevented by cover or
otherwise . . . ." Id.

In a footnote, the court stated: "While Phelps seeks both consequential and incidental
damages, the same analysis applies to each and we will discuss only consequential damages."
Rheem II, 746 N.E.2d at 946 n.2. This statement ignores both the differentiation between incidental
damages and consequential damages in U.C.C. section 2-715 and the language of U.C.C. section
2-719(3) that refers only to consequential damages. That there is a difference between the two is
illustrated by Commonwealth Edison Co. v. Allied Chem. Nuclear Prods., Inc., 684 F. Supp. 1429
(N.D. 111. 1988), in which the contract expressly excluded consequential damages, but one party
recovered storage charges (incidental damages) of almost $300 million.

13. Rheem II, 746 N.E.2d at 944. The pertinent provisions of the typical Rheem warranty
were as follows.

GENERA!.: Manufacturer, RHEEM AIR CONDITIONING DIVISION, warrants ANY
PART of this furnace against failure under normal use and service within the applicable
periods specified below, in accordance with the terms of this Warranty. Under this
Warranty, RHEEM will furnish a replacement part that will be warranted for only the
unexpired portion of the original warranty ....

HEAT EXCHANGER: RHEEM warrants the heat exchanger for a period of TEN (10)
YEARS commencing from the date of original installation and operation .... In the
event of heat exchanger failure during the warranty period, RHEEM will furnish a
replacement heat exchanger. If not available for any reason, RHEEM shall have the
right to instead allow a credit in the amount of the then current suggested retail selling
price of the heat exchanger (or an equivalent heat exchanger) towards the purchase price
of any other RHEEM gas or oil furnace.

ANY OTHER PART: If any other part fails within ONE (1) YEAR after original
installation and operation, RHEEM will furnish a replacement part ....

1300 INDIANA LAW REVIEW [Vol. 35:1297

Notwithstanding the exclusion of labor costs, during the problematic four-
year period, Rheem issued numerous repair bulletins and allowed monetary
credits to contractors making the necessary repairs. ''^ After meetings with Rheem

SHIPPING COSTS: You will be responsible for the cost of shipping warranty
replacement parts from our factory to our RHEEM distributor and from the distributor
to the location of your product ....

SERVICE LABOR RESPONSIBILITY: This warranty does not cover any labor
expenses for service, nor for removing or reinstalling parts. All such expenses are your
responsibility unless a service labor agreement exists between you and your contractor.
HOW TO OBTAIN WARRANTY PERFORMANCE: Normally, the installing
contractor from whom the unit was purchased will be able to take the necessary
corrective action by obtaining through his RHEEM air conditioning distributor any
replacement parts. If the contractor is not available, simply contact any other local
contractor handling RHEEM air conditioning products ....

MISCELLANEOUS: . . . ANY IMPLIED WARRANTIES, INCLUDING
MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE, SHALL
NOT EXTEND BEYOND THE APPLICABLE WARRANTY PERIODS SPECIFIED
ABOVE. RHEEM'S SOLE LIABILITY WITH RESPECT TO DEFECTIVE PARTS
SHALL BE AS SET FORTH IN THIS WARRANTY, AND ANY CLAIMS FOR
INCIDENTAL OR CONSEQUENTIAL DAMAGES ARE EXPRESSLY EXCLUDED.

RHEEM suggests that you immediately complete the information on the reverse side
and retain this Warranty Certificate in the event warranty service is needed. Reasonable
proof of the effective date of the warranty must be presented, otherwise the effective
date will be based upon the date of manufacture plus 30 days ....

Id. at R. 105 (emphasis in original). Rheem's "90 Plus" furnaces had a lifetime warranty which

contained the following language:

HEAT EXCHANGERS: RHEEM warrants the primary heat exchanger and the
secondary heat exchanger (condensing coil) to the Original Owner for his or her
lifetime, subject to proof of purchase, provided the furnace is installed and used in the
Original Owner's principal residence. For any subsequent owner (or the original owner
where the above lifetime warranty conditions are not or cease being met), . . . RHEEM
will warrant the primary heat exchanger and the secondary heat exchanger (condensing
coil) for a period of TWENTY (20) YEARS commencing from the date of original
installation and operation .... In the event of heat exchanger failure during the
warranty period, RHEEM will furnish a replacement heat exchanger. If not available
for any reason, RHEEM shall have the right to instead allow a credit in the amount of
the then current suggested retail selling price of the heat exchanger (or an equivalent
heat exchanger) toward the purchase price of any other RHEEM gas furnace.
INTEGRATED IGNITION CONTROL: RHEEM warrants the integrated ignition
control for a period of FIVE (5) YEARS commencing from the date of original
installation and operation. In the event of an integrated control failure during the
warranty period, RHEEM will furnish a replacement integrated ignition control.

MatR. 117.

14. See, e.g., id. at R. 353. Bulletin #SR-I34 for Rheem Air Conditioning Division to AH

2002] CONTRACTS AND SALES OF GOODS 1301

representatives failed to yield results satisfactory to Phelps, Phelps brought suit
against both Rheem and Federated for breaches of express warranty and of the
implied warranties of merchantability and fitness for particular purpose.*^
Following some discoveiy, Rheem moved for summary judgment on the theories
"that the damages sought by Phelps were excluded by the service labor exclusion,
consequential damages exclusion, and incidental damage exclusion of Rheem 's
written limited warranties."'^ Rheem also asserted that a lack of privity with
Phelps entitled it to summary judgment on the implied warranty claims.'^

The trial court denied Rheem 's motion with regard to all the warranty
claims.'* Subsequently, the trial court granted Rheem's motion to certify its
ruling for interlocutory appeal.'^ As stated in the court of appeals' opinion, the
pertinent questions certified were:

Whether the failure of essential purpose of a limited warranty remedy
under [Indiana Code section 26- 1-] 2-719(2) is independent from
[Indiana Code section 26- 1-] 2-719(3) which reads consequential
damages may be limited or excluded unless the limitation or exclusion
is unconscionable and whether, because the tests for the two subsections
are different, a limited remedy of repair or replacement survives under
subsection (2) unless it fails of its essential purpose, but a limitation of
consequential damages survives under subsection (3) unless it is
unconscionable.

Whether an intermediate reseller of goods can avail itself of the doctrine
of failure of essential purpose under 2-719(2) where the intermediate
reseller has sold and therefore no longer owns the goods, and where the
intermediate reseller has created additional express warranties with
remedies of greater scope than that of the defendant manufacturer.^^

The court of appeals ruled that, in accord with the "majority" view, sections

Air Conditioning Distributors (July 15, 1992); Letter from Micheal D. Kaasa, Rheem Vice
President, Sales, to Michael D. Phelps, President, Phelps Heating & Air Conditioning, Inc. (July
12, 1994) (R. 390). In his letter, Mr. Kaasa stated: "We must acknowledge that the Update
Program of the past two years placed an unwanted burden on the entire Rheem distribution
network. At the onset, we made every effort to arrive at labor allowance levels that would minimize
the costs to the dealer." Id.

1 5. Rheem J, 714 N.E.2d 1 2 1 8, 1 22 1 (Ind. Ct. App. 1 999). Phelps also sued the defendants
for negligence. Id The trial court's ruling on the negligence issue is not part of this appeal.

16. Id

17. Id

18. Mat 1221-22.

19. IddXMll.

20. Id. The grant of summary judgment in favor of Federated against Phelps and its
principals on Federated's counterclaim for failure to pay an account due of approximately $106,000
was not part of the appeal and thus not a part of the supreme court's decision. Federated also filed
a cross-claim against Rheem. Id. at R. 28-32.

1302 INDIANA LAW REVIEW [Vol. 35:1297

2-719(2) and 2-719(3) should be read independently, with the former being
governed by a standard of failure of essential purpose of the limited remedy and
the latter by a standard of unconscionability.^' The court did not rule on the
unconscionability of the exclusion but remanded for a determination of fact:
"whether the cumulative effect of Rheem's actions was commercially
reasonable. ''^^^

With respect to Rheem's assertion that the absence of privity with Phelps
precluded recovery for breach of implied warranties, the court of appeals stated
that perfect vertical privity is not required, particularly when the distributor with
whom the buyer is in privity acts as the agent of the manufacturer, as Phelps had
alleged.^^ Whether Federated was Rheem's agent was a question of fact to be
determined at trial. ^"^

The supreme court, in a 3-1 decision,^^ granted transfer, declared that
sections 2-719(2) and 2-719(3) should be read independently, summarily
affirmed the court of appeals as to the implied warranty claims, held that the
language of the express warranty precluded Phelps from recovering its labor
expenses or incidental and consequential damages, and observed that Phelps may
still have a valid claim for breach of implied warranty or indemnity .^^

Reasonable judicial minds may differ on whether sections 2-719(2) and 2-
719(3) were intended by the Code drafters to be construed dependently or
independently. The current trend favors independence, and the court in Rheem
followed that trend. However, independence still requires a consideration of all
of the surrounding circumstances, including the failure of the essential purpose
of the limited remedies. The court should have simply declared its construction
of the relationship between sections 2-719(2) and (3), as requested by the trial
court, and should have remanded for further proceedings.

II. The Independence Issue

As both courts observed, there has been a split among the decisions in other
states on the question of whether sections 2-719(2) and 2-719(3) should be read
dependently or independently.^^ The supreme court stated that "[i]n light of the
depth of disagreement among the courts that have faced this issue, it is evident

21. /?/ieem/,714N.E.2datl227.

22. Id. at 1228 (emphasis in original).

23. /f/. at 1228-31.

24. Id. at 1 23 1 . This author has previously urged that Indiana should abolish the requirement
of vertical privity in implied warranty cases. See Harold Greenberg, Vertical Privity and Damages
for Breach of Implied Warranty under the U.C.C.: It 's Time for Indiana to Abandon the Citadel,
21 IND.L. REV. 23(1988).

25. Justice Dickson dissented and filed a short opinion. Rheem II, 746 N.E.2d 941, 956-57
(Ind. 2001 ) (Dickson, J., dissenting). Justice Rucker did not participate because he was a member
of the court of appeals that previously decided Rheem /. Id. at 956.

26. Rheem II, 746 N.E.2d at 944, 948, 956.

27. Id. at 947; Rheem /, 71 4 N.E.2d at 1 223; see, e.g., cases cited supra note 2.

2002] CONTRACTS AND SALES OF GOODS 1 303

that the UCC is ambiguous on this point."^* The court also noted that the
"modern trend" appears to be that the two sections should be read independently
of each other.^^

After a discussion of the rules of statutory construction and the justifications
for both views, the supreme court ruled, as had the court of appeals, that Indiana
should follow the majority position and adopt the independent view.^^ The court
stated:

[T]he legislature's intent to follow the independent view is also
supported by the UCC's general policy favoring the parties' freedom of
contract .... [T]he independent view refuses to override categorically
an exclusion of consequential damages and will give effect to the terms
of the contract. Indeed, consistent with the principle of freedom of
contract, the independent view al lows the parties to agree to a dependent
arrangement.^'

The court expressly rejected the "commercial reasonableness" test of the court
of appeals and, without discussion of whether Rheem's exclusion of
consequential damages was unconscionable or whether Phelps had ever agreed
to the exclusion other than by purchasing the furnaces for resale, reversed the
trial court's denial of Rheem's motion for summary judgment on Phelps's claim
for incidental and consequential damages.^^ The court declared that Phelps could
not "escape the conclusion that these goods were relatively sophisticated and
flowed between businesses [sic] entities."" In support, the court cited S.M.
Wilson & Co. V. Smith International, Inc.^^ a case involving the negotiation of
specifications for the design, construction, and delivery of a $550,000 tunnel
boring machine, the installation of which was to be supervised by an expert
provided by the seller.^^ The court also relied on and quoted one of the leading
cases supporting the independent view, Chatlos Systems, Inc. v. National Cash
Register Corp}^ In Chatlos Systems, the limitation of remedy and exclusion of
consequential damages terms were in a contract that was negotiated over a period
of months for a complex computer system expressly designed for Chatlos and to
be installed and tested over an extended period of time.^^ The Rheem II court
stated:

28. /?/igew //, 746 N.E.2d at 948.

29. Id. at 950; see JAMES J. White & Robert S. Summers, Uniform Commercial Code §
12-10(c)(4thed. 1995).

30. /?Aeem//, 746 N.E.2d at 948-50.

31. Id. at 950 (emphasis in original).

32. /flf. at952.

33. Mat 951.

34. 587 F.2d 1363 (9th Cir. 1978).

35. /t^. at 1365-67.

36. 635 F.2d 1081 (3d Cir. 1980).

37. 5eeiV/. at 1083-84.

1304 INDIANA LAW REVIEW [Vol. 35:1297

The limited remedy of repair and consequential damages exclusions are
two discrete ways of attempting to lim it recovery for breach of warranty .
The Code, moreover, tests each by a different standard .... We
therefore see no reason to hold, as a general proposition, that the failure
of the limited remedy provided in the contract, without more, invalidates
a wholly distinct term in the agreement excluding consequential
damages. The two are not mutually exclusive.^*

The court also relied upon Professors White and Summers.^^ They stated that
the leading case supporting the independent view, and with which they agree, is
American Electric Power Co. v. Westinghouse Electric Corp.^^ That case
involved "a commercial agreement painstakingly negotiated between industrial
giants" for a "highly complex, sophisticated, and in some ways experimental
piece of equipment .... It is for this very reason that the . . . contract
incorporates within it the limitation on the Seller's liability.'"*' The contract itself
was negotiated over a period of two years.*^ The contrast between the goods
involved in these three cases and the prepackaged Rheem furnaces with their
enclosed preprinted warranties is striking.

Furthermore, in S.M. Wilson, the court said the "holding [was] based upon
the facts of this case as revealed by the pleadings and record and [was] not
intended to establish that a consequential damage bar always survives a failure
of the limited repair remedy to serve its essential purpose. Each case must stand
on its own facts."*^ In Chatlos, the court stated:

The repair remedy's failure of essential purpose, while a discrete
question, is not completely irrelevant to the issue of the conscionability
of enforcing the consequential damages exclusion. The latter term is
"merely an allocation of unknown or undeterminable risks." U.C.C. §
2-719, Official Comment 3 . . . . Recognizing this, the question here
narrows to the unconscionability of the buyer retaining the risk of
consequential damages upon the failure of the essential purpose of the
exclusive repair remedy.'*'*

In these leading "independent" cases, the provisions of sections 2-719(2) and 2-
719(3) were not totally independent of each other but the latter section was
construed and applied in the context of the former, notwithstanding the differing
standards by which each section is judged.

38. Rheem II, 746 N.E.2d 941, 948 n.6 (Ind. 2001) (quoting Chatlos, 635 F.2d at 1086).

39. Mat 951.

40. 418 F. Supp. 435 (S.D.N.Y. 1976). See White & SUMMERS, supra note 29, § 12-10(c).
White and Summers suggest that the American Electric analysis should also apply in consumer
cases. Id. This is briefly discussed in the text accompanying infra notes 45-46.

41 . Am. Elec. Power Co., 418 F. Supp. at 458.

42. /^. at 439.

43. 587 F.2d 1363, 1375-76 (9th Cir. 1978).

44. 635 F.2d 1081, 1086-87 (3d Cir. 1980) (internal citation omitted).

2002] CONTRACTS AND SALES OF GOODS 1 305

The court also relied on Schurtz v. BMW of North America, Inc.^^ which
reconciled the split between the "independent" and "dependent" cases on a
contextual basis.

In cases where the buyer is a consumer, there is a disparity in bargaining
power, and the contractual limitations on remedies, including incidental
and consequential damages, are contained in a preprinted document
rather than one that has been negotiated between the parties, the courts
have held uniformly that if the limited warranty fails of its essential
purpose, the consumer should be permitted to seek incidental and
consequential damages. The courts usually reach this result by reading

the two subparts [of 2-71 9] dependently On the other hand, in cases

where the parties are operating in a commercial setting, there is no
disparity in bargaining power, and the contract and its limitations on
remedies are negotiated, most courts have concluded that if a limited
warranty fails of its essential purpose, any contractual limitation on
incidental and consequential damages is not automatically void. The
subparts are read independently and the surviving limitation . . . remains
valid absent a showing of unconscionability."*^

The difficulty that Rheem II presents is that it falls somewhere between the
two examples just posited. The transaction was commercial, but the warranty
and its limitations and exclusions were found in a preprinted form inside the box
that likely would not be opened until delivery at the ultimate buyer's residence
or office. Nevertheless, the court assumed throughout its opinion that Rheem and
Phelps were of equal bargaining power and had negotiated the terms of the
warranty.

Unfortunately, Rheem II is made even more difficult by the court's
observation, based on a reference to Phelps's brief, that "Phelps does not argue
that the clause at issue was unconscionable.'"*^ The Code, however, states that
unconscionability becomes an issue and evidence on it is required "[w]hen it is
claimed or appears to the court that the contract any clause thereof may be
unconscionable.'"** Phelps's failure to use the term "unconscionable" is

45. 814 P.2d 1 108 (Utah 1991), cited in Rheem I/, 746 N.E.2d 941, 947 (Ind. 2001).

46. Schurtz, 8 1 4 P.2d at 1 1 1 3- 1 4.

47. Rheem II, 746 N.E.2d at 947 n.5 (stating, see, e.g.. Appellee's Br. at 25-28).

48. U.C.C. § 2-302 ( 1 999) states:

(1) If the court as a matter of law finds the contract or any clause of the contract to
have been unconscionable at the time it was made the court may refuse to enforce the
contract, or it may enforce the remainder of the contract without the unconscionable
clause, or it may so limit the application of any unconscionable clause as to avoid any
unconscionable result.

(2) When it is claimed or appears to the court that the contract or any clause thereof
may be unconscionable the parties shall be afforded a reasonable opportunity to present
evidence as to its commercial setting, purpose and effect to aid the court in making the
determination.

1306 INDIANA LAW REVIEW [Vol. 35:1297

regrettable. The tone of Phelps's various briefs, however, emphasized the
unfairness of the exclusion, particularly in the light of Rheem's inability to
produce a defect free furnace for almost four years and the apparent assumption
by both parties throughout this phase of the litigation that the limited remedy
failed its essential purpose. Although neither the trial court nor the court of
appeals used the term "unconscionable," it is evident that both courts were
concerned with the inherent unfairness of the exclusion on the facts as they had
been developed as of the time of the motion for summary judgment.

In addition, throughout its opinion, the supreme court emphasized the
freedom of the parties to negotiate, to set contract terms, and to allocate risks.
The facts of the case do not reflect that Rheem and Phelps engaged in any
negotiation and discussion of allocation of risk, particularly allocation of the risk
that Rheem would be unable to manufacture furnaces that worked properly.

The consequence of Rheem II appears to be that in Indiana, whenever the
transaction is between business entities of whatever size, the exclusion of
consequential damages will be effective regardless of the failure of the essential
purpose of the limited remedy and without the further factual analysis that the
leading cases appear to require. Even following the line of cases established by
Chatlos and American Electric Power, the question in Rheem II which the
supreme court should have permitted to be resolved after the taking of evidence,
was whether, in light of the failure of the limited remedy as assumed by the
parties, it was unconscionable for Phelps to be financially responsible for
Rheem 's extended failure to manufacture defect- free furnaces.

In the words of the supreme court in a prior decision, "[a] substantively
unconscionable contract is one that no sensible man would make and such as no
honest and fair man would accept.'"*^ Perhaps this is what the court of appeals
had in mind when it remanded for a finding of whether the exclusion was
"commercially reasonable": In the light of Rheem's inability to produce defect-
free furnaces, would a sensible contractor undertake the repair costs on all the
furnaces for four years and would a fair manufacturer accept that undertaking?

Although the issue of unconscionability under section 2-302 is for the court
to determine, the parties "shall be afforded a reasonable opportunity to present
evidence."^^ Section 2-302 deals expressly with what happens "[i]f the court as
a matter of law finds the contract or any clause of the contract to have been
unconscionable at the time it was made."^' Section 2-7 19(3) "makes it clear that
[the limitations of remedies or exclusions of damages] may not operate in an
unconscionable manner."^^ The plain implication is that the existence of
unconscionability that would negate an exclusion of consequential damages
under section 2-719(3) is to be determined after the failure of the essential
purpose of the limited remedy under section 2-719(2) and in light of that failure.

Having interpreted the statute at the request of the trial court rather early in

49. Martin Rispens & Son v. Hall Farms, Inc., 621 N.E.2d 1078, 1087 (Ind. 1993).

50. U.C.C.§ 2-302(2) (1999).

51. Id. §2-302(1).

52. Id. §2-719cmt. 3.

2002] CONTRACTS AND SALES OF GOODS 1 307

the life of the litigation, the supreme court should have remanded for further
proceedings that would have permitted Phelps to introduce evidence to
demonstrate that the exclusion was unconscionable or perhaps did not apply to
Phelps at all, as discussed in the next section. 1 hus, even under the independent
view of section 2-71 9(3), the trial court's denial of Rheem's motion for summary
judgment appears to have been correct.

III. Was Phelps Bolind by the Limitation of Damages and the
Exclusion of Consequential Damages?

A significant issue in Rheem II on which the court declined to express an
opinion was whether Phelps was bound at all by the limitations and exclusions
found in the warranty documents.^' The language of those documents indicates
that they were directed to the buyers, not to an intermediary, such as a distributor
or contractor.

The court's reluctance to resolve whether the limitations and exclusions
applied to Phelps is understandable. Phelps never raised the issue directly but
seemed to argue around it. Phelps had based a major part of its claim on breach
of express warranty. However, Phelps did argue that the transactions were not
sophisticated and "that the warranties were simply found inside of the furnace
box and were not the product of detailed negotiations."^'* The court responded
that "Phelps's argument here may prove too much, i.e., that only the ultimate
consumer, and not Phelps at ail, was to benefit from the warranty ,"^^ but that both
parties "appear to assume" that Phelps was a beneficiary of the warranty .^^
Moreover, in discussing whether the essential purpose of the limitation to the
furnishing of replacement parts and the exclusion of labor costs failed, the court
stated very clearly: "The limitation is addressed to the end-user, warning them
that they must look to the contractor for repairs: 'All such expenses are your
responsibility unless a service labor agreement exists between you and your
contractor. '"^^ Thus, the supreme court was aware that the issue, though not
clearly delineated, was present in the case.

A reading of each of the warranties as a whole reveals that the entire
warranty and its limitations and exclusions were directed toward the end-user-
home-owner, not to any intermediate contractor. The length of the warranty
period was to begin on the date of original installation and operation, not on the
date of purchase by a contractor, and was to last for a period of years thereafter.
The lifetime warranty on the "90 plus" series of furnaces ran "to the Original
Owner for his or her lifetime . . . provided the furnace is installed and used in the
Original Owner's principal residence."^^ And in the event Rheem could not

53. Rheem II, 746N.E.2d 941, 947 n.4 (Ind. 2001).

54. Mat 951.

55. Id.

56. Id.

57. Id. at 953. See supra note 13 for the language of the warranty.

58. Rheem II, 746 N.E.2d at R. 1 1 7; see supra note 13.

1308 INDIANA LAW REVIEW [Vol. 35:1297

furnish a replacement of a defective heat exchanger, it would "allow a credit in
the amount of the then current suggested retail selling price of the heat exchanger
. . . toward the purchase price of any other RHEEM . . . furnace."^^ It would have
made no sense for Rheem to give credit for the retail price to a contractor such
as Phelps. The logical allowance would be the wholesale price unless Rheem
intended to give the contractor an allowance for loss of profit, a consequential
damage for which Rheem had excluded liability. The court of appeals,
commenting on Rheem 's brief, stated that Rheem characterized the labor cost
exclusion as being between itself and the home owner.^^

Nor can it be claimed that Phelps was an intended beneficiary of the Rheem
warranty. In most "pass-through" warranties,^' the manufacturer states that the
product is warranted for a specific time, that repairs of defects will be made at
no cost to the buyer, and that the buyer should take the product to or call an
authorized service facility for repairs.^^ In such situations, there is either an
agreement between the manufacturer and the service facility for reimbursement
to the latter of its costs of repair or the service facility can be considered an
intended third-party beneficiary of the warranty agreement. The Rheem warranty
made clear that Rheem did not intend to pay any costs of repair or to incur any
obligation beyond furnishing the replacement parts to the ultimate buyer for
installation at her own costs by her contractor.^^

As noted earlier, the court emphasized agreements between two sophisticated
business entities and an apportioning of the risk. In view of the language of
Rheem ' s express warranties, one wonders whether there was ever any negotiation
or discussion of risk apportionment. In its discussion of the limitation of remedy,
the court did note a possible usage of trade^ in the gas furnace industry," but the
issue of the details of that usage and its applicability to the case at hand is one
usually left to the fact finder, not an issue decided by an appellate court.

59. Id.

60. Rheem I,7\4 N.E.2d 1218, 1220 (Ind. Ct. App. 1999).

61 . A "pass-through" warranty is "an express warranty packaged with the goods." Gary L.
Monserud, Blending the Law of Sales with the Common Law of Third Party Beneficiaries^ 39 DUQ.
L. Rev. Ill, 142 (2000); see Harry M. Flechtner, Enforcing Manufacturers' Warranties, "Pass
Through" Warranties, and the Like: Can the Buyer Get a Refund?, 50 RUTGERS L. REV. 397
(1998).

62. See Flechtner, supra note 6 1 , at 398. The most frequent and difficult question that arises
in connection with pass-through warranty litigation is whether the ultimate purchaser can revoke
her acceptance and obtain a refund from the manufacturer whose warranty was passed through but
with whom she in not in privity. See id.

63. Rheem I, 714 N.E.2d at 1220.

64. "A usage of trade is any practice or method of dealing having such regularity of
observance ... as to justify an expectation that it will be observed with respect to the transaction
in question. The existence and scope of such a usage are to be proved as facts . . . ." U.C.C. § 1-
205(2) (1999).

65. ^/leem //, 746 N.E.2d 941, 953-54 (Ind. 2001).

2002] CONTRACTS AND SALES OF GOODS 1309

IV. The Failure of Essential Purpose

A further problem arises from several observations by the court early in part
one of its opinion regarding the issue of the independence of section 2-719(3).
The court stated that both Rheem and Phelps "appear[ed] to accept that the
remedy provided by Rheem failed of its essential purpose"^^ under section 2-
719(2);^^ that the trial court did not certify "the question of whether the [limited]
remedy actually failed of its essential purpose and Rheem concedes that this issue
'is not in debate'";^^ and that both parties assumed "that the warranty and its
remedy limitations are applicable,"^^ — all issues on which the court declined to
express an opinion.^^ Nevertheless, in part two of its opinion, the court
specifically ruled that the remedy limitation — covering replacement parts but
excluding the cost of installation of those parts did not fail of its essential
purpose and, therefore, Phelps was not entitled to its repair costs.''

Having found that the exclusion of consequential damages precluded Phelps
from recovering its lost profits from canceled contracts,'^ the court turned to the
question of whether Phelps was entitled to any other damages. Since section 2-
719(3) relates only to exclusion of consequential damages, whether Phelps was
entitled to any other damages depended on whether the limitation of remedies
solely to Rheem's furnishing of replacements of defective parts failed of its
essential purpose pursuant to section 2-719(2).'^ The drafters defined such a
failure as occurring "where an apparently fair and reasonable clause because of
circumstances fails in its purpose or operates to deprive either party of the

substantial value of the bargain "''' Notwithstanding the court's observations

that the trial court had not certified the question of whether the remedy actually
failed of its essential purpose, that Rlieem conceded that the issue was not in
debate,'^ and that a jury may determine "[w]hether a limited remedy failed of its
essential purpose,"'^ the court proceeded to decide that the limited remedy and
labor cost exclusion did not fail of its essential purpose.'^

The court followed the analysis used in Martin Rispens & Son v. Hall Farms,
/wc.,'* stating

that the method used to decide whether a particular limitation fails of its

66.

Id. at 946.

67.

id.

68.

Id at 947 n.4.

69.

70.

71.

See id at 954-55.

72.

See id at 952.

73.

/^. at 947.

74.

U.C.C.§ 2-719 cmt 1(1999).

75.

Rheem II, 746 N.E.2d at 947 n.4

76.

Id at 948.

Id at 954-55.

78.

621 N.E.2d 1078 (Ind. 1993).

1310 INDIANA LAW REVIEW [Vol. 35:1297

essential purpose is to identify the purpose underlying the provision and
determine whether application of the remedy in the particular
circumstances will further that purpose. If not, and only then, is there a
failure of essential purpose.^^

However, the Rheem court's application of Professor Eddy's analysis is
incomplete. At the conclusion of his article, Professor Eddy suggests a three-step
analysis:

The first, the most important, and the most ignored step is to examine
carefully the context of a particular transaction and to seek from an
understanding of the transaction some further understanding of what
purpose a given type of limited remedy might serve in it. The second
step is to determine whether application of the limited remedy to the
particular situation before the court furthers that essential purpose. If the
remedy's purpose may no longer be furthered by its application, it
remains for the court thoughtfully to fashion, from the Code's generally
available remedies, relief that will most closely reproduce the contours
of the parties' original bargain. Finally, even if the remedy's essential
purpose calls for application, a third step is required: scrutiny of the
remedy clause under the Code's unconscionability provision.*°

These issues are fact sensitive and should be determined by a trial court, not
on appeal. Moreover, "[1] imitations of remedy are not favored in Indiana and are
strictly construed against the seller on the basis of public policy."*'

Martin Rispens involved a single sale of diseased watermelon seeds. The
court limited the buyer's remedy to return of the purchase price and excluded any
incidental or consequential damages.*^ The court rejected the buyer's argument
that the presence of the disease "was a novel circumstance not contemplated by
the parties"*^ and stated that the parties could have allocated the risk of disease
as part of their bargain.*"* Later, however, the Martin Rispens court stated:

Left unanswered, however, is whether the parties in fact agreed to
redistribute the risk of a latent defect in the seed. The question is
whether there was mutual assent to the limitation of liability contained
on the . . . can [of seeds] and the . . . purchase order. Contract formation
requires mutual assent on all essential contract terms .... Assent to a
limitation of liability may be assumed where a knowledgeable party
enters into the contract, aware of the limitation and its legal effect

79. Rheem II, 746 N.E.2d at 954 (quoting Martin Rispens, 621 N.E.2d at 1085-86 (citing
Jonathan A. Eddy, On the "Essential" Purposes of Limited Remedies: The Metaphysics ofUCC
Section 2-719(2), 65 Cal. L. Rev. 28, 36-40 (1977))).

80. Eddy, supra note 79.

8 1 . Martin Rispens, 62 1 N.E.2d at 1 085.

82. Id at 1086.

83. Id

84. Id

2002] CONTRACTS AND SALES OF GOODS 1311

without indicating non-acquiescence to those terms. However, the
intention of the parties to include a particular term in a contract is
usually a factual question determined from all of the circumstances.*^

Accordingly, the court remanded for further proceedings on Rispens' warranty
claims.*^

Whether Phelps ever agreed to the warranty and its limitations has already
been discussed.*^ Even if Phelps had agreed, the court all but ignored the
contention that neither party ever contemplated that Rheem would be unable to
produce defect- free furnaces for four years.** The court noted that Phelps either
gave its own warranties to its customers or sold them extended warranties.*^ The
court concluded that this practice assured Rheem that "it would not be obligated
to make repairs,"^ and that "[i]t was reasonable for Rheem to expect Phelps to
use . . . [its own manpower and facilities] to go into local homes and offices to
fix the furnaces,"^' thus apparently allocating the risk of labor expenses.^^
However, the court's conclusion does not follow from its statement.
Manufacturers frequently do not make repairs themselves but rely on others,
whether independent contractors or franchisees, to make repairs to defective
goods on their behalf

The interesting feature of Rheem's warranty is that Rheem's only promise
was to furnish replacement parts, and nothing more. It is as if Rheem was saying
to the buyer, "Here are the parts; you fix it." However, as noted by Professor
Eddy, "the typical limited repair warranty embodies an exclusive remedy of
repair or replacement and an exclusion of consequential damages."^^ Section 2-
719(l)(a) approves of "limiting the buyer's remedies to return of the goods and
repayment of the price or to repair and replacement of non-conforming goods or
parts."^"* The official comments note that "it is of the very essence of a sales
contract that at least minimum adequate remedies be available"^^ and that there

85. /£/. at 1087 (citations omitted).

86. Id. at 1091.

87. See supra Part II.

88. An interesting question is why Phelps continued to purchase Rheem furnaces during the
entire four-year period. After a year, Phelps was certainly aware of Rheem's position as to
remedies. Perhaps Phelps continued the purchases because of continued assurances from Rheem
that the problems had been solved, thereby creating additional warranties. This is a factual issue
for resolution at trial. Another question is whether, by reimbursing the costs of contractors
installing and then repairing the defective furnaces, Rheem had actually waived the limitation of
remedy. 5ee discussion accompanying /«/ra notes 99-101.

89. /?/ieem //, 746 N.E.2d 941, 954 (Ind. 2001).

90. Id.

91. Id at 955.

92. /^. at 954.

93 . Eddy, supra note 79, at 6 1 .

94. U.C.C.§ 2-7 19(a) (1999).

95. Id § 2-719 cmt. 1.

1312 INDIANA LAW REVIEW [Vol. 35:1297

must be "at least a fair quantum of remedy for breach."'^ Again, in the Phelps
context, these appear to be issues of fact for a fact finder.

The Rheem court looked at the purpose of the limited remedy, decided that
its purpose was to insulate Rheem from the costs of repairs, and concluded that
the limitation served its essential purpose.^^ If the essential purpose of a limited
remedy were only to insulate the warrantor from exposure to damages, no limited
remedy would ever fail of its essential purpose. However, the limited remedy
must also leave the buyer with a minimum adequate remedy, one that will give
the buyer what was bargained for, namely, goods that are defect free and perform
as they are supposed to perform.^*

A further question not addressed by the court, and perhaps not ripe for
discussion because of the procedural posture of the case, is whether Rheem
waived the limitation of remedy when it engaged in its "furnace update
program," which included the cost to contractors of making repairs to the
defective furnaces. This conduct could have been a course of dealing that would
have furnished a basis for interpreting the contracts pursuant to which Phelps
purchased the fumaces^^ or to a course of performance that would have amounted
to a waiver or modification of the labor exclusion.'^ "[WJhether there has been
a waiver of a contract provision is ordinarily a question of fact."'°' However, by
reversing the denial of summary judgment, the court foreclosed any discussion
of this issue.

V. The Right to Direct Damages or Indemnity

A further interesting point is that the court's statement that even if the limited
remedy did fail of its essential purpose, Phelps would not be entitled to the costs
incurred in repairing the defective furnaces. '°^ The court observed that the cost
of repair is the common measure of damages for breach of warranty'^^ but
concluded, without any citation of authority in support, that because Phelps was
no longer in possession of the goods, this measure of damages would be
inapplicable.'^'* Instead, the court concluded that Phelps may have a cause of

96. Id.

97. Rheem 11, 746N.E.2d 941, 954-55 (Ind. 2001).

98. 5ee U.C.C. § 2-719 cmt. 1 (1999).

99. Id. § 1-205.

100. See id. §§ 2-208, 2-209. "Subject to the provisions of the next section on modification
and waiver, such course of performance shall be relevant to show a waiver or modification of any
term inconsistent with such course of performance." Id. § 2-208(3).

101. Harrison v. Thomas, 761 N.E.2d 816, 820 (Ind. 2002).

102. Rheem II, 746 N.E.2d 941, 955 (Ind. 2001).

1 03. Id. "The measure of damages for breach of warranty is the difference at the time and
place of acceptance between the value of the goods accepted and the value they would have had if
they had been as warranted, unless special circumstances show proximate warrant damages of a
different amount." U.C.C. § 2-714(2) (1999).

104. Rheem II, 7461^.E.2dat956.

2002] CONTRACTS AND SALES OF GOODS 1313

action against Rheem sounding in indemnity or subrogation.'^^

"'A right of indemnity exists where a party is compelled to pay damages that
rightfully should have been paid by another party.'"'^ In determining whether
Phelps has any claim for indemnity, the trial court would have to determine
whether the home owners who purchased Rheem furnaces for installation by
Phelps had any claims for damages against Rheem which were satisfied by
Phelps. In order for the ultimate buyers to have any such claims, the trial court
will have to find that the limitations and exclusions that the supreme court held
to be effective against Phelps were not effective against the ultimate buyers. This
would require a ruling that with respect to the ultimate buyers, the limited
remedy and labor cost exclusion failed their essential purpose; otherwise, there
would be no damages that rightfully should have been paid by Rheem. Since the
indemnification issue was not before the court, there is no hint in the opinion
whether these limitations and exclusions could be valid against one party, as the
court found with respect to Phelps, and invalid against the ultimate consumer-
buyer. '"'

The court also stated that Phelps may have a claim for breach of implied
warranty.'^* It is unclear whether the court meant that Phelps may have such a
claim against Rheem or against Federated, the distributor from which Phelps
purchased the furnaces. If the court meant that Phelps may still have such a
claim against Rheem, the fact there may have been implied warranties that
Rheem breached will be of little comfort to Phelps in view of the court's
construction and application of the limitation of remedies and exclusions of
damages. The limitations and exclusions found in the printed Rheem warranties
were expressly intended to apply equally to those express warranties and to the
implied warranties of merchantability and of fitness for particular purpose. '^^
Section 2-7 1 9 is intended to permit sellers to limit their liability for damages that
flow from warranties that they have made, whether express or implied. "°

VI. Covenants Not TO Compete

During the survey period, the Indiana Court of Appeals decided two cases
that dealt with covenants not to compete. The first, Kladis v. Nick's Patio,
Inc.^^^^ arose out of an agreement for the sale of a business. The second, Burkv.
Heritage Food Service Equipment, Inc. , ' '^ arose out of contracts of employment.
Although neither case breaks new ground in the law of Indiana, they are of

105. Id.

106. Jd. (referring to Black v. Don Schmid Motor, Inc., 657 P.2d 517, 529 (Kan. 1983),
quoting 41 Am. Jur. 2d Indemnity § 20 (1995)).

1 07. See supra notes 45-46 and accompanying text.

108. /?/igem //, 746 N.E.2d at 944.

109. ^ee 5M/7rfli Part III.

1 10. See White & Summers, supra note 29, § 12-9.

111. 735 N.E.2d 1216 (Ind.Ct.App. 2000).

1 12. 737 N.E.2d 803 (Ind. Ct. App. 2000).

1314 INDIANA LAW REVIEW [Vol. 35:1297

interest because of the clarity with which they explain the applicable law.

A. The Scope of Noncompetition Agreements in Contracts for

the Sale of a Business

In Kladis, Kladis, a restauranteur, sold his restaurant business to Samoilis
and Radokis. In order to preserve the goodwill built up by Kladis over the years,
the agreement of sale provided that Kladis would not engage as an employee,
agent, or owner of any competing restaurant business located within a radius of
five miles of his former restaurant. '^^ Subsequently, Samoilis bought out
Radokis' interest, but Radokis did not sign a noncompetition agreement.
Thereafter, Radokis opened a competing restaurant within the five mile radius
and hired Kladis to do roofing work and landscaping."*

Samoilis filed an action against both Kladis and Radokis seeking preliminary
and permanent injunctions, damages, and a declaratory judgment with respect to
Kladis' noncompetition agreement."^ The trial court found that Kladis had
assisted Radokis in opening the competing restaurant by performing landscaping
services and roofing work, directing a laborer with respect to work being done
inside the building, and meeting with Radokis on the premises, thereby
threatening harm to Samoilis in violation of the noncompetition agreement."^
The trial court entered a preliminary injunction against both Kladis and Radokis,
from which Kladis and Radokis filed an interlocutory appeal."^

The court of appeals reversed and remanded for trial."* At the outset of its
discussion of the merits, the court reiterated the essential difference between
covenants not to compete in employment agreements and agreements for the sale
of a business. Although both restrain trade to some degree, the former "are not
favored in the law . . . [and] are strictly construed against the employer,""^ in
part because of unequal bargaining power between employer and employee.'^^
Noncompetition provisions in the latter agreements, however, are not as "ill-
favored"'^^ because of more equal bargaining power between the parties and the

113. Kladis, 735 N.E.2d at 1218.

114. Id.

\ 1 5. Id. The named plaintiff was the corporation owned by Samoilis; however, for purposes
of simplicity, the plaintiff is referred to as Samoilis.

116. /^. at 1218-19.

117. Mat 1219.

1 18. Id. at 1221. It should be noted that Samoilis failed to file a brief for the appellee.
Although the court of appeals was not required to develop appellee's argument, and could have
reversed if it had found that the appellants made di prima facie showing of trial court error, it used
its discretion to consider the merits of the case. Id. at 1219.

119. M at 1220 (citations omitted).

1 20. See id. For further discussion of employment of non-compete agreements, see infra Part
VLB.

121. Kladis, 735 N.E.2d at 1 220 (quoting Fogle v. Shah, 539 N.E.2d 500, 502 (Ind. Ct. App.
1989)).

2002] CONTRACTS AND SALES OF GOODS 1315

business buyer's legitimate desire to preserve the goodwill of the business for
which he paid by preventing the seller from competing for the same (and the
latter' s former) customers. '^^

Kladis agreed that Samoilis had a protectible interest in the goodwill of the
restaurant/^^ However, the factual issue was, in the court's words, whether
Kladis had "reentered the market to compete for the same customers."'^"^ The
court concluded that the activities in which the trial court found Kladis had
engaged, without more, did not demonstrate that Kladis had reentered the
restaurant business to compete for his former customers and, therefore, did not
come within the prohibition of the noncompetition agreement. '^^

With respect to Radokis, the court stated that under Indiana law, "one not a
party to a noncompetition agreement may be enjoined from assisting a party to
such an agreement from breaching" that agreement. '^^ Since Samoilis had failed
to demonstrate that Kladis had breached the agreement, the preliminary
injunction against both Kladis and Radokis could not stand. ^^^

B. The "Blue-Pencil" and Noncompetition Agreements
in Employment Contracts

In Burk v. Heritage Food Service Equipment, Inc. , ^^* a former employer (Tri-
State) brought an action to enjoin and to recover damages from two former
employees (Burk and Rody) and their new employer (Bowman Aviation), for
their alleged violation of noncompetition and confidentiality agreements
contained in the employees' contracts of employment with Tri-State.'^^ At the
very outset of its opinion, the court described its task as being "to revisit the
complexities of restrictive covenants in employment agreements." '^°

As conditions of their respective employments at Tri-State, both Burk and
Rody signed identical noncompetition and confidentiality agreements.'^' In the
noncompetition agreements, the employees agreed, in essence, that for a period

122. Id.

123. Id.

124. Id

125. Mat 1221.

126. Id
Ml. Id

\ 28. 737 N.E.2d 803 (Ind. Ct. App. 2000). The plaintiff-former employer did business as Tri-
State Business Services and is referred to throughout the court's opinion as "Tri-State." In order
to avoid confusion for readers of the opinion, this discussion will also refer to plaintiff as "Tri-
State."

129. Id. at 810. Tri-State also sought damages for tortious interference with a contractual
relationship, and defendants-former employees counterclaimed for violation of the Indiana
Blacklisting Statute, iND. CODE § 22-5-3-2 (1998). Id. at 816-19. Neither of these issues is
discussed here.

130. Bwrife, 737 N.E.2d at 807-08.

131. /c^. at 808-09.

1316 INDIANA LAW REVIEW [Vol. 35:1297

of two years following the termination of employment for whatever reason, he
or she would not work for any competitor of Tri-State, would not solicit or
acquire any current or past customers of Tri-State, and would not disclose, copy,
or use any of Tri-State's marketing plans, ideas, product research or other trade
secrets. '^^ In the confidentiality agreement, the employee agreed that all
information, training procedures and customer information was of a proprietary
nature and that he or she would keep all such information confidential.'"

Tri-State was in the electronic data storage business. Burk had worked for
Tri-State as a clerical employee. Her duties included feeding documents into a
computer scanner, but "she did not have access to or knowledge of Tri-State's
customer pricing information."'^* She left Tri-State and became the office
manager of its competitor. Bowman, where her duties varied considerably from
those at Tri-State. '^^ The trial court did not enter an injunction against Burk; her
appeal was based on issues not pertinent to the present discussion. '^^

Rody, as a salesman for Tri-State, had "significant contact with Tri-State's
past, current, and prospective customers," had access to customer lists, and was
trained in Tri-State's marketing procedures. '^^ Following his termination, he was
hired by Bowman as its national sales manager and was ultimately charged with
developing and selling Bowman's new electronic record storage services that

1 32. Id. The pertinent parts of the employment agreement were as follows:

2. Covenants Against Unfair Competition and Disclosure of Confidential Information,
a) Employee agrees that during the term of employment, and for a period of two (2)
years following the termination of Employment for whatever reason by any party
thereto. Employee will not, directly or indirectly, do any of the following:
i) Own, manage, control or participate in the ownership, management or control of,
or be employed or engaged by or otherwise affiliated or associated as a consultant,
independent contractor or otherwise with any corporation, partnership,
proprietorship, firm, association or other business entity which competes with, or
otherwise engages in any business of the Corporation . . . ;
ii) Induce, solicit or acquire any current or past customers of the Corporation in the
territory where the Corporation has or is currently conducting business as of the date
of the execution of this Agreement for the purpose of engaging or soliciting sales,
selling or competing with the Corporation in its business; . . .
v) Disclose, divulge, discuss, copy or otherwise use or suffer to be used in any
manner in competition with, or contrary to the interests of the Corporation, the
marketing plans or strategies, inventions, ideas, discoveries, product research or
engineering data, if any, or other trade secrets, pertaining to the business of the
Corporation ....

Id.

133.

Id at 809.

134.

135.

136.

See supra noit 129.

137.

BMr/:,737N.E.2dat809,

2002] CONTRACTS AND SALES OF GOODS 1317

competed with Tri-State's business. One of Bowman's new customers had been
a prospective customer of Tri-State during Rody's prior employment and had
become a customer of Tri-State after Rody had left.'^" The trial court enjoined
Rody and Bowman from providing data storage services to entities that had been
customers during Rody's employment at Tri-State. '^^

In reviewing the decision of the trial court, the court of appeals set forth what
may be described as an outline of the law of enforceability of employees'
covenants not to compete. Such covenants are in restraint of trade, are not
favored in the law, are to be construed most strictly against the employer, and are
to be enforced only if reasonable."*^ A finding with respect to reasonableness is
to be based on whether the employer has a legitimate, protectible interest,
whether the scope of protection is reasonable as to time, geography, and type of
activity prohibited, and whether "'the former employee has gained a unique

competitive advantage or ability to harm the employer '""*' Using a process

called "blue-penciling," "if a covenant is clearly divisible into parts, and some
parts are reasonable while others are unreasonable, a court may enforce the
reasonable, severable parts''"*^ by striking the severable, unreasonable parts.'^^
However, the court may not redraw unreasonable provisions to make them
reasonable under the guise of interpretation or "blue-penciling," "'since this
would subject the parties to an agreement they have not made.'"''*^

Applying the foregoing analysis, the court of appeals found that the
noncompetition clause in paragraph 2(a)(i) of the employment agreement was
overbroad and unenforceable because it prohibited Rody from working for any
competitor of Tri-State in any capacity whatever. In an effort to interpret the
clause so as to furnish reasonable protection to the former employer, the trial
court had impermissibly rewritten the clause by adding a term and narrowing its
scope to a restriction of employment in any '"competitive capacity.'"'*^

Turning its attention to the trade-secrets clause in paragraph 2(a)(v) of the
employment agreement, the court noted the four general characteristics of a
protectible trade secret: "1) information; 2) deriving independent economic
value; 3) not generally known, or readily ascertainable by proper means by others
who can obtain economic value from its disclosure or use; and 4) the subject of
efforts, reasonable under the circumstances to maintain its secrecy."'** Although
the trial court had found that the identities of Tri-State's customers were easily
ascertainable from the telephone directory, publicly known, and, therefore, not
trade secrets, that court also found that Rody had breached the trade secrets

138. Mat 810.

139. Id

140. Mat 811.

141. Id. (quoting Silsz v. Munzenreider Corp., 41 1 N.E.2d 700, 705 (Ind. Ct App. 1980)).

142. Id.

143. Id

144. Id (quoting Smart Corp. v. Grider, 650 N.E.2d 80, 83 (Ind. Ct. App. 1995)).

145. Mat 812.

146. Mat 813.

1318 INDIANA LAW REVIEW [Vol. 35:1297

clause by using the marketing information and sales strategy he had learned while
employed at Tri-State.'"*^ Notwithstanding the apparent conflict between these
two findings, the court of appeals ruled that one of them was sufficient to support
the trial court's injunction against Rody from using any of Tri-State's marketing
information or sales strategy.*'**

Finally, with respect to the nonsolicitation clause in paragraph 2(a)(ii) of the
employment agreement, the court of appeals ruled that the trial court had
properly "blue-penciled" the clause.'"*^ As originally written, the clause would
have prohibited Rody from soliciting and selling to Tri-State's former or present
customers any goods or services even if unrelated to Tri-State's business. The
use of the "blue pencil" to delete the phrases "or past" "engaging or soliciting
sales," or "selling" which the court of appeals deemed severable, meant that the
overbreadth of the clause was eliminated and that Rody and Bowman would be
prohibited for fourteen months from competing for the business of entities who
had been customers of Tri-State during Rody's employment with Tri-State.'^®

Courts and scholars have hotly debated the use of the "blue pencil" in
employment contract cases. '^' The dispute usually revolves around the issue of
whether employers will draft overbroad restrictions to act in terrorem in order
to discourage litigation by former employees without true regard for the
protectible interest of the employer. '^^ Some states have refused to follow the
"blue pencil" rule even in cases of clear severability or the presence of
severability clauses. '^^ However, it has also been acknowledged that it is
difficult for employers to draft individually appropriate noncompetition
agreements for each employee based on his or her duties at the time of
employment, or as those duties change thereafter.'^"* It has been suggested,
therefore, that if the interest of the employer merits protection and the employer
appears to have acted fairly, the covenant should be "tailored" to give reasonable
protection to the employer with minimum inconvenience to the employee. *^^
However, this approach will likely act even more in terrorem than the "blue
pencil" approach because employers will draft the broadest restrictions with the
knowledge that the court will modify the contract if necessary. '^^

Without engaging in a lengthy analysis of the law of noncompetition

147. M. at813-14.

148. /(/.at 814.

149. /^. at 814-15.

150. /^. at 815-16.

151. Harlan M. Blake, Employee Agreements Not to Compete, 73 HaRV. L. Rev. 625, 68 1 -82
(1960).

152. Id.

153. See, e.g., Gary P. Kohn, Comment: A Fresh Look: Lowering the Mortality Rate of
Covenants Not to Compete Ancillary to Employment Contracts and to Sale of Business Contracts
in Georgia, 31 EMORY L.J. 635, 693 (1982).

1 54. See Blake, supra note 1 5 1 , at 683.

155. See id.; see also Kohn, supra noiQ 153,694-9^.

1 56. See E. ALLEN Farnsworth, CONTRACTS § 5.8, at 357 (3d ed. 1 999).

2002] CONTRACTS AND SALES OF GOODS 1319

provisions in employment agreements, '^^ it appears that Indiana has followed a
reasonable approach. The heavy burden remains on the employer to demonstrate
that it has a protectible interest and that the former employee has threatened to
violate that interest. If the employer has overreached by requiring an agreement
more broadly drafted than necessary to protect its interest, the court should not
rewrite that agreement. "Blue penciling" should be limited to clearly severable
provisions, and the burden will also be on the employer to demonstrate that
severability will not do violence to both its interest and the understanding of the
parties.

1 57. For a more complete discussion of covenants not to compete in Indiana, see John W.
Bowers et al., Covenants Not to Compete: Their Use and Enforcement in Indiana, 3 1 Val. U. L.
Rev. 65(1996).

Corporate Law: A Year in the Life
OF Indiana Corporate Law

Leah M. Chan*

Introduction

The area of corporate law is a broad area, as it can expansively be defined as
the law that affects incorporated businesses. Within this definition, other areas
of law such as contract, agency and tort law are included because corporations
are affected by these laws in one form or other. However, this Article will
address only a narrow slice of corporate law, including issues of shareholder
lawsuits, the well-established corporate doctrine of piercing the corporate veil,
sections of the Indiana Business Corporation Law and sections of the Indiana
Securities Act.

I. Shareholder ACTIONS

One of the more dynamic issues in corporate law is the area of shareholder
actions. In 1995 and again in 1998, Congress passed legislation intending to
reform the area of securities litigation, with the goal of protecting defendant-
corporations from their overly litigious shareholders (and their equally overly-
eager lawyers).' These reforms, although they apply to both public and closed
corporations, were aimed at curbing frivolous lawsuits brought against public
corporations.^ The focus in Indiana for the past few years, however, has been on
closed corporations and defining the ways in which the shareholders of such
corporations may bring suit.

In general, a shareholder is required to file a derivative action when actions
taken by the corporation itself, or taken by the officers or directors on behalf of
the corporation, resulted in harm to the corporation. The reasoning behind the
derivative action is that the cause of action the shareholder is alleging is one that
belongs to the corporation, not to the shareholder individually.^ This separation
of rights can become confusing, especially if the rights seemingly arise from
violations of both shareholders' rights and corporation rights.

There are special procedural steps a shareholder must take to perfect the
derivative action.* One of these steps requires the shareholder to make a demand
on the board of directors to bring suit. The shareholder must allege that she has

♦ Judicial Clerk to the Honorable Frank Sullivan, Jr., Indiana Supreme Court. B.A., 1998,
The George Washington University; J.D., 2001, New York University School of Law. The
opinions expressed are those of the author. The author wishes to thank Alison Chestovich for her
help with the preparation of this Article.

1. See 15 U.S.C. § 78u-4 (2001); see also Dominic Bencivenga, Appeal Reveals Reform
Act's Tortured History, N.Y.L.J., June 11, 1998, at 5; Elizabeth Strong, How the Courts &
Congress Are Changing Securities Litigation, N.Y.L.J., Mar. 4, 1999, at 1.

2. Bencivenga, supra note 1, at 5.

3. G&NAircraft, Inc. v.Boehm, 743 N.E.2d 227, 234 (Ind. 2001).

4. S'eelND.R. Trial P. 23.1.

1322 INDIANA LAW REVIEW [Vol. 35:1321

made this demand in her complaint.^ In addition, should the corporation establish
a committee of disinterested directors or persons to investigate the corporation's
rights and remedies,^ the court may suspend proceedings on the underlying
derivative action until the investigation is completed.^ If the committee finds that
there have been no violations, or finds that the lawsuit is not in the best interest
of the corporation, the court "shall" presume these findings conclusive as to the
suing shareholders.^ Unless the shareholder can prove that the committee
members were either not disinterested or the investigation was not conducted in
good faith, the shareholder will find herself without recourse.^

Compliance with these procedures is appropriate when the corporation is a
public company, with its shares traded on a national market. After all, if the
shareholder is dissatisfied at any point in the process, the shareholder can simply
sell her shares on the market. However, withdrawal is not so easy for an unhappy
shareholder in a closed corporation. The Indiana Supreme Court gave
recognition to this aspect of closed corporations in its 1995 decision, Barth v.
Barth}''

The court in Barth held that there are certain situations when a shareholder
of a closed corporation should be allowed to bring a direct action, instead of a
derivative one.'' In deciding to do this, the court followed a nationwide trend
and a path also suggested by the American Law Institute.'^ Barth stated that in
a closed corporation, shareholders are "more realistically viewed as partners, and
the formalities of corporate litigation may be bypassed."'^ There are three
situations in which a direct action can proceed, instead of a derivative one. A
direct action will be allowed when ( 1 ) such an action will not unfairly expose the
corporation or other defendants to several lawsuits; (2) the direct action will not
"materially prejudice the interests" of the corporation's creditors; or (3) the
action will not interfere with a "fair distribution" of any recovery "among all
interested persons.'"'* It appears from the case law applying the rule of Barth that
a finding of any one of these situations can preclude a direct action.'^ In this
survey period, there have been three cases that have dealt with this issue and

5. Id.\ see also IND. CODE § 23-1-32-2 (1998).

6. iND. CODE §23-1-32-4 (1998).

7. Id. § l-iA-^l-l.

8. Id. § 23-l-32-4(c).

9. Id. The official comments cite the businessjudgment rule as the underlying rationale for
presuming the disinterested committee's findings as conclusive, analogizing the decision to pursue
legal claims to "other questions of corporate policy and management." Id. at official cmt.

10. 659 N.E.2d 559 (Ind. 1995).

11. /t/. at 561.

12. Id at 562; see also G & N Aircraft, Inc. v. Boehm, 743 N.E.2d 227, 236 (Ind. 2001).

13. 5flr//2,659N.E.2dat561.

14. Mat 562.

15. See, e.g., Riggin v. Rea Riggin & Sons, Inc., 738 N.E.2d 292, 308 (Ind. Ct. App. 2000)
(applying the multiplicity of lawsuits situation).

2002] CORPORATE LAW 1323

Barth}^

A. A Reaffirmation o/Barth and Available Remedies:
G & N Aircraft, Inc. v. Boehm

In the early 1990s, G & N Aircraft was a closely held Indiana corporation
with five shareholders.'^ Paul Goldsmith, the founder, and his son, owned about
thirty-two percent; Eric Boehm owned thirty-four percent and Richard Gilliland
and James McCoy each owned 16 2/3%.'^ The five shareholders served as the
board of directors for G & N, and Goldsmith, Boehm and Gilliland served as
officers, with Goldsmith and Boehm as employees of G & N.'^ Goldsmith was
also the sole-owner of other corporations that dealt with G & N, in addition to
being G&N'slandlord.'°

In the mid 1990s, Goldsmith's other corporations, and himself personally,
were in fmancial difficulty.^' Goldsmith attempted to consolidate his
corporations with G & N as a way to lighten his financial burden.^^ Goldsmith
had G & N appraised, and its value was approximated at $961 , 000.^^ His initial
attempt to consolidate failed because a bank rejected his application for a loan
to buy out the other shareholders.^"* A year later. Goldsmith again initiated a
consolidation effort.^^ In 1 995, Goldsmith took coercive steps to force Gilliland,
McCoy and Boehm to sell their shares to Goldsmith.^^ One of these tactics
included an eviction threat from Goldsmith, as landlord of G & N, to evict them
from this hangar.^^ This persuaded Gilliland and McCoy to sell their shares to
Goldsmith, but they remained on the board.^*

Goldsmith had become the majority shareholder of G & N, but he could not
get Boehm to sell his shares. Goldsmith then tried other methods to force Boehm
to sell his shares by threatening Boehm with the fact that when G & N
consolidated with Goldsmith's other companies, G & N would suffer a financial
loss.^^ Goldsmith also cut off cash distributions from G & N and ultimately fired

1 6. G <fe N Aircraft. Inc., 743 N.E.2d at 227; Hubbard v. Tomlinson, 747 N.E.2d 69 (Ind. Ct.
App. 2001); /?<ggm, 738 N.E.2d at 292.

17. G&N Aircraft. Inc., lAZ'H.E2^2Am.

18. Id

19. Id.

20. Id at 232.

21. See zfl?. at 232-33.

22. Id

23. Id 2X222.

24. Mat 232-33.

25. Mat 233.

26. Id

27. Id

28. Mat 232-33.

29. Id

1324 INDIANA LAW REVIEW [Vol. 35:1321

Boehm and changed Boehm's office locks.^^

Boehm filed an action against Goldsmith and G & N for both direct and
shareholder derivative claims.^' The trial court found for Boehm in a four-day
bench trial and awarded Boehm a variety of remedies, including a forced sale of
Boehm's shares to Goldsmith, interest on back dividends, punitive damages, and
attorney's fees.^^ In a unanimous decision, the supreme court affirmed in part
and reversed in part.^^

As an initial matter, the court clarified the rights held by the corporation and
those held by an individual shareholder in the contexts of direct and derivative
actions. The court, adopting a New York-type definition, found that the rights
held by each dictate the type of action to bring.^"* A direct action should be based
on the rights the shareholder finds in the corporation's articles of incorporation,
bylaws or in state corporate law.^^ In contrast, a derivative action should be
brought by the shareholder on behalf of the corporation for a right that the
corporation has failed to act upon.^^ The court then reaffirmed Barthy restating
the three situations where a direct action was not appropriate in a closed
corporation.^^

The court divided Boehm's claims into three categories,^* the division of
which center around Goldsmith in his different capacities at G <& N and the
alleged breach in his fiduciary duties to G & N and/or Boehm. The first of the
three are Boehm's claims that Goldsmith as an officer and director breached his
fiduciary duties to G & N.^^ These claims are derivative because G & N itself
could have brought action against Goldsmith."*^ Goldsmith argued that the trial
court erred by allowing Boehm to proceed on a direct action that was based on
derivative claims."*' However, because G & N was a closed corporation
controlled by Goldsmith, such a lawsuit would be unrealistic.^^ But Goldsmith
argued that each of the situations outlined in Barth apply so that Boehm's direct
action should be dismissed."*^ The court analyzed each of these, finding that none
of the situations were present and the Barth exception applied to Boehm's

30.

Id. at 233.

31.

32.

Id at 234.

33.

Id at 246.

34.

Id at 235 (citing Schreiber v. Butte Copper & Zinc Co., 98 F. Supp. 106, 1 12 (S.D.N. Y.

1951)).

35.

36.

37.

Id at 236.

38.

39.

40.

Id at 237.

41.

42.

43.

2002] CORPORATE LAW 1325

lawsuit."^ The second and third categories of Boehm's claims alleged that
Goldsmith breached his fiduciary duty to Boehm as an officer and director and
also as a majority shareholder/^

The court found no merit in Boehm's allegation that Goldsmith breached his
duties to G & N as an officer and director/^ Although his transactions taken with
respect to G & N were self-interested transactions, these actions were not
concealed and there was no evidence to suggest that these actions harmed G &
N."*^ This finding comports with Indiana's highly deferential business judgment
rule/'

The second and third categories alleged breaches of fiduciary duty by
Goldsmith, in his capacities of officer, director, and majority shareholder, to
Boehm as a minority shareholder/^ The court recognized that Goldsmith's
actions were taken wearing his different hats — as landlord, majority shareholder,
and officer and director/^ But the court clumped together Goldsmith's roles and
addressed his actions in two parts — ^the first, before Goldsmith became a
controlling shareholder and the second, actions taken as a majority shareholder/^

Prior to gaining control of G & N, Goldsmith made an offer for Boehm's
shares, and Boehm alleged that this price was significantly less than the
appraised value of Boehm's shares and less than what Boehm originally paid to
purchase the shares/^ In and of itself, the court found that there is no duty to
purchase shares at a fair price/^ If, on the other hand, there were nondisclosure,
fraud or oppression, then Boehm would have a claim based on the low price
Goldsmith offered for Boehm's shares/'* Even though Goldsmith did not actually
succeed in forcing Boehm out of G & N, Goldsmith did succeed in gaining
control of the corporation, and the actions taken to force Gilliland and McCoy
to sell their shares were wrongs to Boehm /^

The court agreed with the trial court that the eviction notice after Goldsmith
resigned as president of G & N was a sham/^ This eviction threat and
Goldsmith's entire plan to gain total ownership of G & N was an abuse of
Goldsmith's office/^ The actions taken by Goldsmith as an officer and director

44. Mat 237-38.

45. Mat 236.

46. See id. at 238-40.

47. Mat 239.

48. Id. at 240. As discussed in Part IV, infra, directors can be held liable in very limited
situations.

49. G*A^.4/rcrq/?. /«c.,743N.E.2dat236.

50. Id^XlAX.

51. Mat 241-44.

52. IddHilAX.

53. M

54. M

55. Mat 242.

56. M

57. M

1326 INDIANA LAW REVIEW [Vol. 35:1321

were not for any "proper business purpose" designed to benefit the corporation,
but rather to force Boehm out so that Goldsmith could finalize his consolidation
plans.^* As a result, Boehm had a valid claim with respect to these actions.
Goldsmith's actions taken after he became a majority shareholder were to render
Boehm's shares worthless.^' Therefore, Goldsmith had breached his fiduciary
duty by subordinating the corporation's interests to his own.^

Finally, the court discussed the remedies available to Boehm. As the
"shareholder derivative action is a creature of equity"^' in Indiana, the court saw
no reason why trial courts cannot be flexible when fashioning remedies for close
corporation wrong-doings.^^ Therefore, the court upheld the forced sale of
Boehm's shares to Goldsmith that the trial court ordered.^^ But the court
cautioned future application of this remedy, as "[t]his remedy should be
exercised only after careful thought. It amounts to a forced withdrawal of capital
from the enterprise if the enterprise itself is the only realistic source of funding
the buyout."^'*

Judicially ordered dissolution is a drastic remedy, and one commentator
describes this holding as "sweeping change to established law regarding
shareholder disputes."^^ Prior to G d^ N Aircraft, Inc., the proper remedy was
damages, and in cases of mergers and take-overs, the only remedy was under the
dissenters' rights statute.^^ This same commentator predicts that this decision
might have a "drastic impact" on future dealings between shareholders in a
closed corporation.^'

The court also upheld the punitive damages awarded because of Goldsmith's
deliberate actions which were also found to be malicious and oppressive.^* In
addition, Boehm was awarded attorney's fees but only as to the frivolous
counterclaim asserted by Goldsmith.^^ However, Boehm was not entitled to
attorney's fees for the derivative claims because the court upheld Boehm's

58. Id.

59. Id at 242-43.

60. Id

61. Mat 243-44.

62. Id ax 244.

63. Mat 243.

64. Mat 244.

65. Leanne Garbers, One Bad Apple: How One Evil Actor Can Rewrite Corporate Law, IND.
Law., Aug. 29, 2001, at 25.

66. Id

67. Id. This prognosis seems a bit pessimistic. Situations analogous to the facts of this case
are few and far between. It is rare to see a corporate officer, director and shareholder act in such
a coercive manner and with a disregard for corporate formality liice Goldsmith did in this case. For
other situations where there is no malicious intent, the business judgment rule will generally apply
to deny a remedy to unhappy shareholders.

68. G&N Aircraft, Inc., 743 N.E.2d at 245.

69. Id

2002] CORPORATE LAW 1327

actions as direct claims, not derivative ones.^°

B. When Barth Does Not Apply: Hubbard v. Tomlinson^'

This is a straight-forward case involving the appl ication of Barth and G&N
Aircraft, Inc. Eli Tomlinson was a shareholder of Multimedia, a closely-held
bankrupt corporation, consisting of five shareholders.^^ Tomlinson filed suit
against Joseph Hubbard, another shareholder, and S & A, an accounting firm that
had provided the corporation services.'^ Tomlinson alleged that Hubbard had
breached fiduciary duties, and had conspired with S & A to "'loot' the
corporation."^'* The trial court denied S & A's motion for summary judgment,
and the court of appeals accepted jurisdiction of S & A's interlocutory appeal of
this denial.

The court of appeals reversed, holding that Tomlinson had to bring his claims
as a derivative action, as he was alleging harms to the corporation from an
outside party, namely S & A.^^ Furthermore, the court conducted a Barth
analysis and found that all three situations existed in Tomlinson' s case — ( 1 ) there
were three other shareholders who could conceivably bring suit against
Multimedia, subjecting it to several lawsuits; (2) Multimedia had more than fifty
creditors, and their interests would be harmed by a direct action since Multimedia
was insolvent; and (3) Tomlinson requested that the recovery be directly awarded
to him, and not the corporation or shareholders.^^

C. When Does a Class Action Plaintiff in a Derivative Suit Fairly

and Adequately Represent Similarly Situated Shareholders? :

Riggin V. Rea Riggin & Sons, Inc.^^

Riggin addressed several issues, many procedural, in the context of a
shareholder derivative and direct action. Although a procedural matter, one of
the important parts of this case was the discussion of when a shareholder,
bringing a derivative action on behalf of the corporation and all other similarly
situated shareholders, can be deemed to fairly and adequately represent the
class.^* This was a matter of first impression for the Indiana Court of Appeals
and is fairly relevant to corporate litigation.^^

70. The court briefly discusses Boehm's vicarious liability claims against G & N for
Goldsmith's actions. The court did not hold G&N liable under this theory, finding that the logic
behind it became circular. Id. at 245-46.

71. 747 N.E.2d 69 (Ind. Ct. App. 200 1 ).

72. /^. at70.

73. Id

74. Id

75. Id at 72.

76. Id

77. 738 N.E.2d 292 (Ind. Ct. App. 2000).

78. See id at 302-04.

79. The other procedural issues raised in the case, such as contempt, paying witness fees, and

1328 INDIANA LAW REVIEW [Vol. 35:1321

Rea Riggin & Sons, Inc. was formed in 1927 by Rea and Nellie Riggin.*®
Since that time, the board of directors has always consisted of Riggin family
members.^' In 1997, there were twenty-nine shareholders, including Richard
Riggin.*^ Richard, unhappy with the actions of the board and other shareholders,
filed both a derivative action and a direct action against Rea Riggin & Sons, Inc.
and the board members individually.*^ After Richard suffered a series of mishaps
involving attorneys wishing to withdraw from representation, the trial court
finally granted summary judgment in favor of the corporation. Richard was also
found in contempt of court for not paying deposition fees of the corporation's
accountant and was in the custody of the Delaware County Sheriff until he paid
the fee.*'^ On appeal, Richard contended that the grant of summary judgment in
favor of the corporation was improper.*'

As a preliminary matter, the court of appeals considered the burden of proof
required of Trial Rule 23.1, which governs derivative shareholder actions, as
opposed to Trial Rule 23, which governs class actions.*^ Relying on an
interpretation of the Federal Rules of Civil Procedure by the Fifth Circuit,*^ the
court of appeals held that in a derivative shareholder action, the burden of proof
was on the defendants to show that the plaintiff-shareholder did not fairly and
adequately address the interests of similarly situated shareholders.**

Next, the court divided its inquiry of this issue into two parts — ^first, the court
defined what constituted similarly situated shareholders, and second, the court
set out factors to consider whether the plaintiff fairly and adequately represented
the class. As to the first prong of the inquiry, the court rejected both the
corporation's suggested meaning (all the shareholders of the corporation should
be similarly situated in order to have a proper class) as well as Richard's
proposed meaning (those shareholders who support the lawsuit).*^ The court
instead adopted several factors used by federal courts in similar situations.^

The court instructed trial court judges, when defining the class of similarly
situated plaintiffs, to exclude two types of shareholders: those named as

motions for continuance will not be discussed in this Article.

80.

Riggin, 738 N.E.2d at 299

81.

Id.

82.

Id.

83.

84.

85.

86. /^. at 299-301.

87. The court of appeals, explaining its reason for relying heavily on the interpretation of the
Federal Rules of Civil Procedure, stated that "[djue to the similarity between T.R. 23.1 and the
corresponding Federal Rule, we will utilize federal law in interpreting T.R. 23.1." Id. at 300.

88. Mat 301.

89. Id at 302.

90. Id. at 303. In his analysis, Judge Sullivan relies heavily on a 1 995 article, Mary Elizabeth
Matthews, Derivative Suits and the Similarly Situated Shareholder Requirement, 8 DePaul BUS.
L.J. 1 (1995).

2002] CORPORATE LAW 1329

defendants in the suit, and those in financial or personal conflict with the
corporation.^' In considering the opposition to the plaintiff-shareholder, the trial
court judge should merely look at that as a factor in determining the adequacy of
the representation, not in defining the class itself'^ The shareholders not
excluded were then considered the class of similarly situated shareholders.

After defming the class, the court instructed trial court judges to then look
at the adequacy of the plaintiff-shareholder representation.^^ As set forth by Trial
Rule 23.1, the plaintiff-shareholder must "fairly and adequately represent the
interests of the shareholders or members similarly situated in enforcing the right
of the corporation or association."^"* The court elected to adopt the eight factor
test set forth by the Ninth Circuit in Larson v. Dumke!^^ However, the court
cautioned that, as with any multi-factor test, the trial court judge should not focus
in on one factor to the exclusion of others.^^ The overall goal of the inquiry was
to determine adequacy of the representation so that the plaintiff-shareholder's
suit may proceed.^^

The eight factors that the trial court judge should consider were: ( 1 ) whether
the plaintiff is the true party in interest; (2) whether the plaintiff is familiar with
the lawsuit or exhibits unwillingness to become familiar; (3) the degree of
control the plaintiffs attorney exercises over the lawsuit; (4) the degree of
support the plaintiff receives from the other shareholders; (5) whether the
plaintiff is personally committed to the lawsuit; (6) the remedy sought by the
plaintiff; (7) the "relative magnitude of the plaintiffs personal interest in the suit
as compared to his interest in the derivative action;" and (8) whether there is any
vindictiveness on the part of the plaintiff toward defendants. As with any multi-
factor test, several factors overlap.^*

The court applied this test, in light of the evidence presented by both parties
in the summary judgment motion. The court eventually concluded that summary
judgment was inappropriate because the corporation did not meet its burden of
proof in showing that there were no material issues in dispute.^^ The court found
that there was an unresolved question of whether Richard was a fair and adequate
representative of the putative class of Rea Riggin & Sons' shareholders. ^°°
Although the corporation had presented evidence that there were some
shareholders in the court-defined class who opposed Richard's claims, the court

91. /?/ggm, 738 N.E.2d at 304.

92. Id.

93. Id.

94. Ind.T.RuleP. 23.1.

95. Riggin, 738 N.E.2d at 304 (referencing Larson v. Dumke, 900 F.2d 1 363, 1 367 (9th Cir.
1990)).

96. /^. at 305.

97. Id

98. Id. For example, factors ( 1 ) and (3) go to the same point — is this the plaintiffs action
or another person's action? Factors (2) and (5) are essentially the same questions.

99. /^. at 312.
100. /t/. at 307.

1330 INDIANA LAW REVIEW [Vol. 35:1321

found that this was not sufficient evidence to satisfy whether Richard should
proceed as the class representative. '°'

As to Richard's direct claims, the court applied the Earth factors after
concluding that Rea Riggin & Sons was a closed corporation. •^^ The court held
that to allow Richard to proceed with his direct claims would unfairly expose the
corporation to more than several lawsuits.'^^ There were seven named
defendants, all of whom were shareholders. '^'^ Aside from Richard, that left
twenty-one shareholders as potential plaintiffs in suits against the corporation.
Therefore, the court held that the trial court's grant of summary judgment on this
issue was appropriate.'^^

II. Dissenters' Rights and Control Share Acquisition Statutes

The Indiana Business Corporation Law ("I BCL") includes several provisions
that limit the liability of directors for their transactions taken on behalf of the
corporation.'*^ These same provisions limit the ability of a shareholder in a
publicly traded corporation to object to certain actions taken by their corporation.
Two such provisions of the IBCL that have generally been the subject of
litigation are the Dissenters' Rights Statute ("DRS"), Indiana Code sections 23- 1 -
44- 1 to -20, and the Control Share Acquisitions statute ("CSAS"), Indiana Code
sections 23-1-42-1 to -11.

The DRS, and in particular, Indiana Code section 23-1-44-8, is the sole
remedy for shareholders in a closed corporation who are unhappy with the
corporation's merger, share exchange, a substantial sale of all the corporation's
assets, or a control share acquisition under section 23- 1 -42 (as discussed below).
The remedy available to the unhappy shareholder is the right to demand the
corporation buy back her shares and to demand an appraisal proceeding if the
shareholder does not agree with the valuation of her shares made by the
corporation.'®^

Subsection (c) of section 23-1-44-8, the heart of the DRS, makes patently
clear that the remedy provided for in the statute is an exclusive one. The
shareholder cannot protest the merger or other action in a separate proceeding,
and should the shareholder bring such a separate suit, the suit will be barred by
operation of the DRS.'°* In addition, any allegations of wrong-doing during the

101.

Id.

102.

Id. at 308

103.

104.

105.

106. The IBCL, passed by the legislature in 1986, was a wholesale revision of the former
General Corporation Act. The official comments, recognized as authoritative, reflect an overall
desire to limit director liability. See Fleming v. Int'l Pizza Supply Corp., 676 N.E.2d 1051, 1054
(Ind. 1997).

1 07. Ind. Code §23-1 -44- 19(1 998).

108. See Young v. Gen. Acceptance Corp., 738 N.E.2d 1079 (Ind. Ct. App. 2000).

2002] CORPORATE LAW 1331

execution of the corporation's plan, such as breach of fiduciary duty, must be
brought up in the appraisal proceeding. '^^ If the shareholder does not bring up
these issues in the appraisal proceeding, there will be no other venue for them. ^'°

Moreover, shareholders in a publicly traded corporation are not entitled to
this remedy. As the official comments state, "the policy reason for this exception
is that the market itself establishes both a fair price for the shares and a means by
which a 'dissenting' shareholder can sell his shares for that price."'" An
interesting consequence of this preclusion is that since allegations of wrong-
doing during the merger must be brought up in the appraisal proceeding, these
shareholders might not get their day in court at all on these claims."^

The CSAS's purpose is to provide shareholders of a corporation with more
than 100 shareholders (and other "substantial ties" to Indiana) a right to vote on
an acquisition of stock that would give an entity a controlling portion of the
corporation."^ Control shares are defined in Indiana Code section 23-1-42-1 as
shares that would give the acquirer certain voting power in the election of the
board of directors in three percentage ranges.""* The idea behind this right to
vote is premised on the traditional right of shareholders to vote on fundamental
corporate changes. ' '^

However, this statute applies only to just that — a fundamental change. The
statute does not apply to shifts in ownership blocks, rather it applies to shifts
from a multi-shareholder control of a corporation to a single-shareholder
domination."^ The disinterested shareholders (those not involved in the
controlling share acquisition) are permitted to vote on whether the new
controlling shareholder will be given those voting rights, that but for the statute,
the new controlling shareholder would have. This statute was upheld by the
United States Supreme Court in CTSCorp. v. Dynamics Corp. ofAmericaV^

A. Failing to Follow DRS Procedures: Galligan v. Galligan

118

In late 1996, Irish Park, a family-owned Indiana construction business, was
having financial difficulties."^ To solve these financial troubles, the majority
shareholder, Thomas Galligan, who had previously been a director and president

1 09. See id ; Fleming, 676 N.E.2d at 1 058; Settles v. Leslie, 70 1 N.E.2d 849, 853-54 (Ind. Ct
App. 1998).

no. F/emmg,676N.E.2datl058.

111. iND. Code §23-M4-8(c) official cmt. (1998).

1 12. See Am. Union Ins. v. Meridian Ins. Group, 137 F. Supp. 2d 1096, 1 102-03 (S.D. Ind.
2001).

113. iND. CODE §23-1-42, official cmt. (1998).

114. M §23-1-42-1.

115. Id.

1 16. See id; see also Galligan v. Galligan, 741 N.E.2d 1217 (Ind. 2001).

117. 481 U.S. 69, 94 (1987).

118. 741 N.E.2d 1217 (Ind. 2001).

119. Id at 1220.

1332 INDIANA LAW REVIEW [Vol. 35:1321

of Irish Park, decided to sell all of Irish Park's assets to Golden Shamrock, a
corporation owned by Larry Rice.'^° Although the court was not entirely sure of
Rice's role in Irish Park at the time of the lawsuit, it appeared that Rice had been
a long-time employee and member of Irish Park board of directors and possibly
the president at the time of the sale. In conducting its sale to Golden Shamrock,
Irish Park did not comply with any of Indiana's statutory requirements for a
corporation's sale of substantially of all its assets.'^'

Four of Galligan's children were minority shareholders in Irish Park, and
three objected to the sale based on a variety of claims, including fraud and breach
of fiduciary duty.'^^ In response, Galligan sent a notice to all the shareholders
indicating that a meeting would be held on March 11,1 998, at which time a new
board was to be elected and the sale discussed. '^^ On March 1 1 , Galligan was the
only shareholder present at this meeting, although the three dissenting minority
shareholders had served a "Shareholders' Notice Asserting Dissenters' Right" on
all the potential members of the board of directors, including Galligan. '^^ At this
meeting, Galligan elected himself the sole director of Irish Park, acting as the
majority shareholder. Galligan subsequently elected himself as president and
secretary of Irish Park, acting as a director. '^^ Finally, as the majority
shareholder, Galligan voted to ratify the sale of Irish Park to Golden Shamrock.'^^

The court found that although Irish Park's initial actions with respect to the

sale of its assets were defective, the ratification of the sale by Galligan as

majority shareholder in the March 1 1 meeting was sufficient to render the sale

proper. '^^ However, the court went on to find that Irish Park had subsequently

failed to follow any of the procedures with respect to its dissenting

shareholders.'^* More specifically, Irish Park had failed to send out a notice

detailing the steps that the dissenting shareholders needed to take in order to

receive payment for their shares, as befitted their only remedy under Indiana's
DRS.*29

This situation was a novel one for the court to consider. The DRS outlines
specifically the remedy when dissenters fail to follow procedures: they forfeit
their right to receive payment for their shares. However, the statute is silent on
remedies when a corporation fails to follow the procedures. '^° The court found
that it would be inequitable to keep the dissenters from being paid for their shares
as "[tjhey cannot be held to have forfeited their rights by reason of the

120. Id.

121. Id.

122. Id

123. Id

124. Id

125. Id

126. Id

127. Mat 1222.

128. /^. at 1224.

129. Id

1 30. Id at 1 225; IND. Code §23-1 -44- 1 3(c) ( 1 998).

2002] CORPORATE LAW 1333

corporation's ineptitude."'^'

However, the court was concerned that a consequence of holding that the
remedy for the corporation's failure to follow DRS was to allow dissenters to
bring an action to compel the corporation to follow DRS procedures. First, this
remedy could create a disincentive for the corporation to follow DRS procedures
initially. And, as bringing an action to compel the corporation to act incurs legal
expenses and fees, the remedy might even be a possible barrier for dissenters to
ever receive payment. In order to stop such a fallout from this decision, the court
held that should a corporation breach the statutory duty to follow procedures
under DRS, like Irish Park did in this case, another cause of action arises from
that failure because it is "an independent wrong that is not itself subject to the
dissenters' rights provisions."'^^

This cause of action, the court was quick to point out, was not a "new" cause
of action, but "[r]ather, we simply apply the commonly accepted principle that
the directors may be liable for disregarding a statutory mandate to these unusual
facts, where the directors failed to take the steps necessary to enjoy the safe
harbor provided by the dissenters' rights statute."'" In further explanation of its
holding, the court stated that the dissenting shareholders in this case could bring
an action to force Irish Park to comply with the DRS.'^'* As to other remedies the
plaintiffs could recover against Irish Park, the court found that if the plaintiffs
could show that Irish Park's failure to comply with the DRS caused attorney's
fees and other expenses, these could be recovered, including interest. '^^ And in
the appraisal proceeding, the shareholders could bring up the alleged wrong-
doings of Irish Park, but those claims were bound to only the appraisal
proceeding, as per Fleming}^^ "Finally, if damages can be shown to have been
caused by a breach of a statutory duty with respect to the dissenters' rights
proceedings, the plaintiffs may bring a separate claim against the persons
responsible."'^^

This final suggestion provoked a concurrence by Justice Sullivan who wrote
merely to state that majority's recognition of a private cause of action for a
breach of statutory duty was not necessary.'^* Instead, Justice Sullivan pointed
to common law agency and contract principles cited by the official comments to
Indiana Code section 23- 1 -36-2, wh ich shou Id be sufficient to remedy any breach
of a statutory duty in situations such as these.'^^

131.

Gfl///ga«,741N.E.2datl225.

132.

Id. at 1226-27.

133.

Id. at 1226.

134.

Id at 1227.

135.

136.

137.

138.

Id. at 1228 (Sullivan, J., concurring)

139.

1334 INDIANA LAW REVIEW [Vol. 35:1321

B. CSAS and DRS Applicability: Young v. General Acceptance Corp.^"*^

The plaintiffs in Young brought their action under the CSAS and the DRS. '"*'
General Acceptance Corp. ("GAC") was a publicly traded corporation, with
thirty percent of its outstanding stock publicly held.'*^ The rest of the stock was
held by the two founding members, Malvin and Russell Algood, and six other
Algood family members.''*^ In April 1997, GAC and the Algoods entered into a
Stockholders' Agreement and Securities Purchase Agreement with Conseco and
Capital American Life Insurance Company.''*'* The primary purpose of the two
agreements was to provide a financing arrangement, and as long as there were
debentures outstanding, Conseco would be guaranteed two positions on the GAC
board of directors. '^^

Thisplan was carried out in July 1997. In September 1997 and March 1998,
GAC entered into additional financing agreements with Conseco. '^^ Sometime
after March 1998, Conseco presented a merger proposal to GAC's board,
proposing a merger between GAC and a wholly-owned subsidiary of Conseco,
CIHC.'*^ Shareholders, other than Conseco, would be bought out for thirty cents
per share.*'** The common shareholders filed for a preliminary injunction, which
was denied, and also filed actions under the CSAS and DRS."*^ The merger was
consummated and plaintiffs continued with this suit.'^°

The trial court granted defendant's summary judgment motion on plaintiffs'
claims based on breach of fiduciary duty, finding them barred by the DRS.'^'
The trial court also granted defendant's motion to dismiss plaintiffs' claims based
on the CSAS.'" The court of appeals affirmed the trial court on all grounds. '^^

The first issue dealt with was the CSAS claim. After reviewing the purposes
behind the statute, the court of appeals discussed its applicability. Through a
reading of the official comments, and CTSCorp.^ the court of Ippeals held that
the CSAS was meant to apply in hostile takeover situations.'^'* The court found
that the transactions between GAC and Conseco were not hostile. '^^

140. 738N.E.2d 1 079 (Ind.Ct.App. 2000).

141. /flf. atl082.

142. Mat 1083.

143. Id.

144. Id.

145. Id. at 1083-84. CALI was a wholly-owned subsidiary of Conseco. Id.

146. Id

147. Mat 1084.

148. Id. The stock had been trading at $3.25 per share on April 10, 1997. Id. at 1083.

149. Id at 1084.

150. Id

151. Mat 1085.

152. Id

153. Mat 1083.

154. Mat 1087.

155. Mat 1088.

2002] CORPORATE LAW 1335

Alternatively, the court found that even assuming hostility, there was no
fundamental change in GAC's shareholder make-upJ^^ The common
shareholders had always been a minority in the corporation, whether the majority
shareholders were the Algoods or Conseco.'^' In addition, the court reasoned
that the acquisition of shares by Conseco did not harm the common shareholders,
because the common shareholders were always at a disadvantage in the decision
making process of GAC, as the Algoods had been majority shareholders until the
1997 and 1998 transactions.'^*

Interestingly, the court of appeals did not look to the language of the statute
to support its holding that the CSAS did not apply. The CSAS provides several
exceptions to the applicability of the statute in section 23-1-42-2. Arguably,
several of the exceptions could apply to the Conseco-GAC securities purchase
agreement, depending on a reading of the agreement and the statute. '^^

The second issue the court of appeals reviewed was the trial court's grant of
summary judgment in favor of defendant on plaintiffs' breach of fiduciary duty
claims. The trial court found that all ten of plaintiff s contentions were barred
by the DRS.'^° Summary judgment was also granted on the basis that plaintiffs'
claims were derivative and their direct actions against GAC could not proceed.'^'

Plaintiffs alleged that the DRS should not apply to them for three reasons:
the violation of the CSAS voided the merger; the merger was void because of
fraudulent statements in the proxy statement; and application of the DRS violated
public policy considerations.'^^ The court of appeals upheld the application of
the DRS to bar plaintiffs' breach of fiduciary duty claims, notwithstanding
plaintiffs' three reasons to the contrary.'" Since the CSAS was addressed in part
one of the opinion and was found to have not been violated, the court did not
further discuss it in part two.'^ As to fraudulent statements in the proxy
statement, the court held that even assuming the statements were fraudulent (as
the court could fmd no support for plaintiffs' contentions that the statements
were, in fact, fraudulent or misleading), fraud did not necessarily void a merger,
but provided an additional matter to litigate within the DRS proceedings.'^^

Lastly, the court discussed plaintiffs' public policy argument as a basis for
the decision not to apply the DRS in plaintiffs' situation.'^ Plaintiffs argued that
the actions of GAC and Conseco were so "heinous" that by applying the DRS,

156. Id.

157. Id.

158. Id

1 59. The securities purchase agreement was apparently not made part of the record. Id. at
1083.

160. Mat 1089-93.

161. /rf. at 1089.

162. /(/.at 1090.

163. Mat 1091-93.

164. Mat 1091.

165. Mat 1091-92.

166. Mat 1092-93.

1336 INDIANA LAW REVIEW [Vol. 35:1321

the court would be sanctioning such heinous behavior. '^^ In dismissing this
argument, the court provided a lengthy discussion of the public policy behind the
statute, the discussion of which did not really reach plaintiffs' contention.'^*

The court correctly acknowledged that the corporation, as the party that must
initiate an appraisal proceeding under the statute, was also the party most
interested in not paying dissenters anything for their shares. '^^ Although this
works as a disincentive to hold up the corporation's responsibilities under the
statute, the court pointed out that the penalty for not complying with the appraisal
proceedings was for the corporation to pay the amount the dissenters demand. *^°

This was all very interesting, but the court seemed to have missed the point
of plaintiffs' argument, which was that the statute should not apply at all, and
their claims of breach of fiduciary duty by GAC should not be barred. The
appraisal portion of the DRS that the court spent time talking about did not
answer plaintiffs' argument because the plaintiffs were shareholders in a publicly
traded corporation.'^' The right of appraisal is available only for shareholders in
a closed corporation, because the ability to withdraw from a close corporation is
more difficult to do than in a public company. '^^

In addition, the Indiana General Assembly amended the statute to extend
coverage of the sole remedy of dissenting and demanding payment to
shareholders of a publicly traded corporation. The official comments to section
23-l-44-8(c) state that the publicly traded company's shareholders were added
because the public market was an available outlet for their shares. Therefore,
plaintiffs had no right to a direct action at all, only a derivative one, a conclusion
that the court fmally reached and properly affirmed the trial court's dismissal of
plaintiffs' claims. '^^

III. Piercing THE Corporate Veil

One of the basic premises of business law is that by forming a corporation,
it has limited liability for actions taken in furtherance of the corporation's
business. The concept of limited liability in the corporate entity has been a part
of the United States for over a century.'^"* Even if there is only one shareholder,
that one person will generally be immune from liability that the corporation may
incur during its normal course of business. In Indiana, this rule is codified in the

167. /^. at 1092.

168. Mat 1092-93.

169. See id ai\092.

170. /flf.;^eelND. Code §23-l-44-19(a) (1998).

171. Unless there is another, undisclosed reason that dissenters' rights would be available to
plaintiffs.

172. IND. CODE § 23-l-44-8(b) (1998); Am. Union Ins. v. Meridian Ins. Group, 137 F. Supp.
2d 1096, 1101 (S.D.Ind. 2001).

173. Young, 738 N.E.2d at 1093.

174. William J. Rands, Domination of a Subsidiary by a Parent, 32 iND. L. REV. 421, 423
(1999).

2002] CORPORATE LAW 1337

IBCL.*^^ This rule also holds true when a corporation is a wholly-owned
subsidiary of another corporation.

The IBCL, unlike the Revised Model Business Code upon which it was
based, limits liability of a corporation's directors to situations where directors
have willfully or recklessly breached their duties to their corporation.'^^ And,
officers and employees are subject to common law agency and contract doctrines
and do not have a separate standard of conduct to which to conform. '^^

However, there are situations where the corporate entity is used wrongfully
as a shield by parent corporations or shareholders against prosecutions from third
parties or even its own shareholders. In these situations, courts will pierce the
corporate veil and hold the individual shareholder or corporation liable for
actions taken by them in furtherance of the corporation's business.'^* Indiana
courts, unlike other jurisdictions that generally apply a two or three factor "alter
ego test,"'^^ apply an eight factor test'^^ which was articulated by the Indiana
Supreme Court in Aronson v. Price. ^^^ These factors focus on whether "the
corporate form was so ignored, controlled or manipulated that it was merely the
instrumentality of another and that the misuse of the corporate form would
constitute a fraud or promote injustice."'*^

Since September 2000, one supreme court case and two court of appeals
cases dealt with piercing the corporate veil ("PCV"). Although the supreme
court case, Commissioner v. RLG, Inc.^^^^ is not really a PCV case because it
handles individual liability under environmental statutory law, it is still relevant
to corporate law. The two court of appeals cases. Smith v. McLeod Distributing,

175. IND. Code § 23- l-26-2(d) (1998).

176. Id. §23-1-36-2.

177. Id at official cmt.

1 78. For a more in-depth analysis of this issue, see Rands, supra note 1 74.

1 79. See Cynthia Nance, Ajjiliated Corporation Liability Under the WARN Act, 52 RUTGERS
L. Rev. 495, 507 (2000).

1 80. The eight factors are:

(1) undercapitalization; (2) absence of corporate records; (3) fraudulent representation

by corporation 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.

Aronson v. Price, 644 N.E.2d 864, 867 (Ind. 1994). These eight factors are a combination of the

two-factor and three-factor tests used in other jurisdictions. See Nance, supra note 179, at 507

(noting that the two-factor test focusing on "unity of ownership and interest*' and fraud or inequity

would be a fallout of holding the corporations as separate entities; the three-factor test consists of

(1) exercise of excessive control; (2) inequitable or wrongful conduct; and (3) causation).

181. 644 N.E.2d 864, 867 (Ind. 1994).

182. Id

183. 755 N.E.2d 556 (Ind. 2001).

1338 INDIANA LAW REVIEW [Vol. 35:1321

Inc., and Apollo Plaza Ltd v. Antietam Corp., are more run-of-the-mill PCV
cases.

A. Responsible Corporate Officer Doctrine v. Veil-Piercing:
Commissioner v. RLG, Inc.

RLG, Inc. was a corporation in the business of operating a landfill in
Wabash, Indiana.'*^ Lawrence Roseman was RLG's sole shareholder, director,
president, secretary, and treasurer.'*^ In 1993, the Indiana Department of
Environmental Management ("IDEM") brought suit against both RLG and
Roseman for violations at the landfill.'** RLG negotiated agreements whereby
RLG would remedy the wrong done at the landfill, and in return IDEM would
drop the lawsuit.'*^ Remedial steps were not taken and in 1 994, IDEM reinitiated
its proceedings. RLG failed to answer the complaint so the court entered a
default judgment against RLG for three million dollars.'^ RLG was insolvent
at this point. '^' In 1999, Roseman was found to not be personally liable for
RLG's debt to IDEM by the trial court, and the court of appeals affirmed this
judgment. '^^

The supreme court granted transfer, '^^ and Justice Boehm wrote for the
unanimous court, holding that Roseman was indeed personally liable for RLG's
default judgment award under the doctrine of responsible corporate officer.*^"*
This doctrine, which is substantively different from the piercing the corporate
veil doctrine, has the same effect as veil-piercing in that an individual
shareholder is held liable for the actions of the corporation.'^^

The responsible corporate officer doctrine arose out of a 1 943 U.S. Supreme
Court case and the Court's interpretation of a section of the Federal Food, Drug
and Cosmetic Act.'^^ The doctrine was upheld and expanded upon by another
U.S. Supreme Court case in 1975.'^^ The thrust of the responsible corporate
officer doctrine was to hold a corporate officer liable, if that officer directed the
actions of the corporation, and those actions constituted a public welfare

184. 744 N.E.2d 459 (Ind.Ct.App. 2000).

185. 751 N.E.2d 336 (Ind. Ct. App. 2001).

186. /?IG, 755 N.E.2d at 558.

187. /^. at 561.

188. Mat 558.

189. Id.

190. Id.

191. Id

192. Mat 558-59.

193. Commissioner v. RLG, Inc., 753 N.E.2d 5 (Ind. 2001).

194. /2Z,G, 755 N.E.2d at 561-62.

195. Mat 558.

196. Id. (citing United States v. Dotterweich, 320 U.S. 277 (1943)).

197. Id (citing United States v. Park, 421 U.S. 658 (1975)).

2002] CORPORATE LAW 1 339

offense.*^* The RLG court adopted this doctrine, as well as the three factors
forming the standard to find a corporate officer responsible for the corporation's
actions. *^^ The court found Roseman liable, in both his capacities as corporate
officer and in an individual capacity under the Indiana environmental
management laws, finding that Roseman acted in a direct capacity to violate the
landfill laws.'"^

RLG mainly deals with a type of corporate liability where public welfare
offenses are at issue, whereas PCV cases are not "dependent on the nature of the
liability."^°' Therefore, this case will probably not have major consequences for
corporations who are not in lines of business similar to RLG. The court draws
a distinction between public welfare offense cases where a corporate officer
would be held individually responsible and PCV cases, noting that the
responsible corporate officer doctrine was more expansive in holding the
corporate officer liable.^"^ If this were not the case, it would be rare that an
officer could be held liable for public welfare offenses, where, as here, there was
no wrongful use of the corporate entity .^°^

B. Two Corporations in One: Smith v. McLeod Distributing, Inc.^^*

McLeod Distributing was a corporation in the business of wholesale
distribution of carpets and other floor coverings.^^^ Michael Smith was the
president of Colonial Industrial and Colonial Mat Corporations.^^ Colonial
Industrial was incorporated in 1981, and Colonial Mat was incorporated in
l^gy 207 Colonial Mat and McLeod began doing business a few months after
Colonial Mat was incorporated. In order to obtain a line of credit for Colonial
Mat with McLeod, Smith signed a personal guarantee that he would be liable for
any debts Colonial Mat would incur.^°*

In 1989, Smith sent McLeod a letter indicating that it would be doing its
carpeting business under a different name. Colonial Carpets.^^ McLeod changed
Colonial Mat's account name to Colonial Carpets in its internal invoice system,
but the original account opened by Smith under the Colonial Mat name was never
closed by either Smith or McLeod.^'° Business between the two companies

198.

Mat 560-61.

199.

/of. at 561.

200.

Id. at 559-60.

201.

Id. at 563.

202.

203.

204.

744 N.E.2d 459 (Ind. Ct. App. 2000).

205.

Mat 461.

206.

207.

208.

209.

210.

1340 INDIANA LAW REVIEW [Vol. 35:1321

remained smooth until 1990, when McLeod stopped deliveries to Colonial
Carpets because several invoices sent to Colonial Carpets had not been paid, the
total amount coming to over $6000.^' ' After several demands for payment went
unanswered, McLeod filed a lawsuit against Colonial Mat and Smith in
September 1990.^'^ In November 1990, Colonial Mat was administratively
dissolved by the Secretary of State because Colonial Mat had failed to file an
annual report.^ *^

The case between McLeod and Smith remained pending in the trial court for
ten years, and, finally, McLeod was awarded a judgment for the debt, plus
interest of eighteen percent before the judgment and eight percent for after the
judgment.^'"* Smith and Colonial Mat appealed to the court of appeals on two
issues: that Colonial Mat was not the corporation to which McLeod' s invoices
were addressed and therefore not liable for the judgment, and that Smith himself
should not be held personally liable for Colonial Mat's debt because the
guarantee agreement was invalid.^'^

As to the first issue, the court of appeals affirmed the long-held principle that
piercing the corporate veil is a "fact-sensitive inquiry."^'^ As such, the reviewing
court should give great deference to the trial court's determination to hold one
corporation liable for the debt of a related corporation.^'^ Here, the court of
appeals took into account several factors, other than the ones listed in Aronson
by the Indiana Supreme Court,^'* as the court of appeals stated, "[w]e do not
believe the eight Aronson factors were intended to be exclusive . . . ."^'^ The
court of appeals distinguished Aronson from McLeod because in Aronson, the
court was asked to hold a shareholder liable for the debts of a corporation,
whereas in McLeod, the court here was being asked to hold a corporation
accountable for another corporation's debts.^^°

The additional factors considered by the court of appeals were (1) whether
similar names were used by the two corporations; (2) whether the two
corporations had similar management personnel (i.e., officers, directors and
employees); (3) whether the two corporations were pursuing similar lines of
business; and (4) whether the internal office structure and premises were
identical (i.e., office phone numbers, business cards, etc.).^^' The court of
appeals then applied these additional factors, finding that although McLeod (who
as plaintiff had the burden to prove the Aronson factors) had not produced much

211. Id.

212. Id.

213. Id at 462.

214. Id

215. Id

216. Id (quoting Winkler v. V.G. Reed & Sons, Inc., 638 N.E.2d 1228, 1232 (Ind. 1994)).

217. Id

218. See supra note 1 80.

219. McLeod, 744 N.E.2d at 463.

220. Id ai 464.

221. Id ai 463.

2002] CORPORATE LAW 1341

evidence, there was sufficient evidence in the record to find that holding Colonial
Mat liable for the debts owed to McLeod was equitable.^^^ Most notable to the
court of appeals was that the Colonial corporations (Colonial Mat and Colonial
Industrial) were run from the same office, had the same office manager as the
sole employee of both corporations, and had comingled fmancial accounts.^^^

The second issue on appeal concerned the validity of Smith's personal
guarantee to McLeod and dealt with the protocol needed to create an enforceable
continuing guarantee agreement in Indiana.^^"^ This issue is beyond the scope of
this Article, as it is better discussed as a contracts issue.

C *'Outside Reverse Piercing": Apollo Plaza Ltd. v. Antietam Corp.^^^

This was not the first time the parties to this dispute had been before the
court of appeals. On their first occasion, the court, in a memorandum opinion,
affirmed the judgment of the trial court in the litigation matter between Antietam
and Alex Shiriaev.^^^ In the present matter, the court was called upon to analyze
whether Apollo, a corporation wholly owned by Shiriaev, should be pierced to
have Antietam 's judgment satisfied.^^^

Although not necessarily relevant to the issue of PCV, the background
litigation provides an amusing story. Antietam Corporation was a construction
business and had borrowed money from Alex Shiriaev, giving as collateral a
security interest in a Bobcat that the corporation owned. ^^^ The Bobcat was
ostensibly "stolen" from Antietam in October 1 994 and Shiriaev locked Antietam
out of its offices and demanded Antietam assign the insurance proceeds from the
stolen Bobcat to him.^^^ Antietam filed suit against Shiriaev, alleging conversion,
and Shiriaev countered with a negligence action with respect to the lost
Bobcat.^^^ Surprisingly, once the Bobcat was found at the residence of Shiriaev' s
brother by a private detective, Shiriaev dropped his claims regarding the Bobcat.
However, Antietam proceeded to trial with its claims against Shiriaev and was
awarded over $130,000, plus legal fees.^^'

Antietam attempted to enforce this judgment and obtain payment by freezing
a bank account titled, "Alex Shiriaev d/b/a Apollo Plaza Limited."^^^ The trial

222. /flf. at464.

223. Id.

224. /^. at 465-66.

225. 75 1 N.E.2d 336 (Ind. Ct. App. 200 1 ).

226. Shiriaev v. Antietam Corp., 733 N.E.2d 542 (Ind. Ct. App. 2000), trans, denied.

227. Apollo Plaza, 751 N.E.2d at 337.

228. Actually, the corporation was formed a few months after the loan and security interest
were given, but after the corporation was formed, all assets of the former sole proprietorship were
conveyed to the corporation. Id.

229. Id

230. Id

23 1 . Id. The court of appeals affirmed this award. Shiriaev, 733 N.E.2d at 542.

232. >4;7o//o/'/aza, 751N.E.2dat338.

1342 INDIANA LAW REVIEW [Vol. 35:1321

court conducted a hearing to decide whether Apollo's corporate veil should be
pierced to satisfy Antietam's judgment against Shiriaev. The trial court found
for Antietam.^" Apollo appealed, arguing that the trial court conducted an
"outside reverse piercing" of Apollo's corporate identity because Apollo never
had any dealings with Antietam.^^"^ In addition, Apollo claimed that Shiriaev was
just a minority shareholder.^^^ Shiriaev also unsuccessfully tried to convince the
judge that he was not involved in Apollo, having recently resigned as president
of Apollo in favor of his brother.^^^ The court of appeals affirmed the trial
court's findings, holding that "a contrary decision by the trial court would have
allowed Shiriaev to further a fraud by using Apollo as the means to hide assets
in order to avoid paying the legal judgment rendered against him."^^^

IV. Indiana Securities Act — Fraudulent or Deceitful Acts

Most securities cases are litigated under the numerous federal securities
statutes dealing with fraudulent sales and the like. It is surprising, therefore, to
see a case like Carroll v. J.J.B. Hilliard,^^^ brought solely under Indiana
securities law. One of the claims in Carroll was premised on Indiana Code
section 23-2-1-12,^^^ which is almost identical in wording to the Securities
Exchange and Commission Rule 10b-5.^''° However, Gertrude Carroll filed a
lawsuit against R. Dale Cassiday and his brokerage firm. Milliard Lyons, under
the Indiana Securities Act and not premised on any violations of federal

233. Id

234. Id

235. Id

236. /^. at 339.

237. Mat 340.

238. 738 N.E.2d 1069 (Ind. Ct. App. 2000).

239. Section 12 reads,

It is unlawful for any person in connection with the offer, sale or purchase of any
security, either directly or indirectly, ( 1 ) to employ any device, scheme or artifice to
defraud, or (2) to make any untrue statements of a material fact or to omit to state a
material fact necessary in order to make the statements made in the light of
circumstances under which they are made, not misleading, or (3) to engage in any act,
practice or course of business which operates or would operate as a fraud or deceit upon
any person.
iND. Code § 23-2-1-12 (2001).

240. It is identical except for the federal jurisdiction requirement in Rule lOb-5: "use of any
means or instrumentality of interstate commerce, or of the mails or of any facility of any national

securities exchange " 15 U.S.C. § 78j ( 1 998). As will be discussed below, although Cassiday 's

presentation to Gertrude was done in person, and therefore the "instrumentality of interstate
commerce" requirement might have been in question, there were subsequent phone calls made
between Cassiday and Gertrude concerning the investments that might have qualified. But as
Gertrude brought her lawsuit solely under Indiana law, this is mere speculation.

2002] CORPORATE LAW 1343

securities law.^*'

Carroll was a seventy-five year old woman with the goal of increasing her
annual income by changing her stock portfolio.^'*^ She contacted Cassiday in July
1986 on the recommendation of a friend. Cassiday met with Carroll at her home
in August 1986 and discussed her options. After the meeting, Cassiday prepared
a detailed memo which summarized his conversations with Carrol 1.^"*^ Cassiday
met with Carroll on another occasion in late August 1986, and at this meeting,
Cassiday proposed a plan to Carroll to meet her goal of increased income.^"^
Cassiday suggested she invest in two mutual funds which had histories of having
fairly high yearly yields, and each month Carroll would make withdrawals.^"*^
The overall plan was for the mutual funds to yield a yearly percentage higher
than that of Carroll's yearly withdrawals.^"*^

Carroll decided to take Cassiday's suggestion.^"*^ In order to raise the money
needed to invest in these mutual funds, Cassiday suggested Carroll sell eight of
the stocks in her existing portfolio.^"** Cassiday warned Carroll that she would
incur tax liability from the sale of her stocks, but also warned her that he was not
an expert on taxes.^"*^ Carroll gave her authorization to sell on September 2,
1986. All went according to plan. Cassiday sold the eight stocks, which netted
Carroll approximately $127,000."^ Carroll purchased a new portfolio with the
two mutual funds suggested by Cassiday and seven common stocks. However,
in December 1986, one of Carroll's sons told Carroll that she should no longer
conduct business with Cassiday .^^' Carroll terminated Cassiday's and his
brokerage firm's services. It was not until Carroll discovered that her tax liability
was going to be fifty percent higher than Cassiday had estimated did Carroll look
into filing a lawsuit for fraud and violation of securities laws.^^^ Carroll filed her
lawsuit on February 2, 1 990, and died on February 9, 1 998. Her sons proceeded
with the lawsuit as representatives of Carroll's estate."^

Carroll sold her shares in one of the mutual funds that Cassiday suggested in
1 99 1 and, ironically, had Carroll retained these shares, the total return of the fund
would have covered Carroll's withdrawals and her investment would have
appreciated in value.^^"* Carroll retained her shares in the second mutual fund

24 1 . Carroll, 738 N.E.2d at 1 07 1

242. Mat 1071-72.

243. /i/. at 1072.

244. Id.

245. Id.

246. Id

247. /flf. atl073.

248. Mat 1072.

249. Id

250. Mat 1073.

251. Id

252. Id

253. Mat 1072-73.

254. Mat 1074.

1344 INDIANA LAW REVIEW [Vol. 35:1321

suggested by Cassiday and that fund, as well, had a total return that covered
Carroll's withdrawals in addition to appreciating in value.^" Both mutual funds
were appropriate vehicles for Carroll to meet her stated goals of increasing her
monthly cash flow.^^^

In her lawsuit, Carroll alleged that Cassiday committed fraud and violated the
Securities Act with respect to his presentation to her and the sale and purchases
of her portfolios.^^^ The trial court made several specific fmdings of fact, and
concluded that neither Cassiday nor his brokerage firm were liable to Carroll
(now her estate) under any theory al leged.^^* The court of appeals, through Judge
Friedlander, affirmed.^^^

The first issue was Carroll's allegations that Cassiday's recommendations
and presentation at their second meeting violated 710 Indiana Administrative
Code section 1-1 7-1 (d), which defines the unethical practices of broker-dealers
or investment advisors in Indiana Code section 23-2- 1 1 (a)(6). More specifically,
Carroll contended that Cassiday did not sufficiently inform her that the
withdrawals from the two mutual funds might consist of principal and interest.^^
This failure, Carroll further contended, violates 7 1 0 Indiana Administrative Code
section l-17-l(d), which prohibits an investment advisor from presenting an
investment scheme, the return on which would consist of "income and
distributions from capital, or any other source."^^' The court found that Cassiday
did not violate this section, and furthermore, that this section did not even apply
to Cassiday's presentation.^^^

The court pointed to Cassiday's testimony at trial where he described his
conversation with Carroll at their second meeting.^^^ Cassiday testified that he
warned Carroll that should the mutual funds not give a yearly return higher than
ten percent, Carroll's withdrawals might include both interest and principal,
thereby dwindling the amount left in the fund.^^^ However, had Cassiday not
given this warning, subsection (d) did not reach Cassiday's actions.^^^ The court
limits subsection (d) to "Ponzi schemes."^^^ As the court described, "the primary
purpose of subsection (d) is to prohibit brokers from representing a return on an
investment that includes an infusion of capital supplied by later investors in the
program in question."^^^ And if subsection (d) were to apply to the type of

255. Mat 1075.

256. Id. at 1074-75.

257. /f/. at 1073.

258. Mat 1075.

259. Mat 1071.

260. Mat 1076.

261. iND.ADMIN.CODEtit. 710 r, 1-1 7-1 (d)( 1998).

262. Carroll, 738 N.E.2d at 1076.

263. Id.

264. Mat 1073.

265. M at 1076 (referencing IND. Admin. Code tit. 70 r. 1-17-I(d) (1998)).

266. Mat 1077.

267. Id. Or in other words, subsection (d) prohibited a pyramid scheme, where one investor

2002] CORPORATE LAW 1345

investment vehicle Cassiday suggested, the court added, subsection (e) of the
same section would be nullified.^^* Subsection (e) clearly states that an
investment advisor must point out to the client that distributions from
investments might reduce the value of that investment, the very thing Cassiday
had warned Carroll about.^^^

Carroll's second contention was that Cassiday violated section 23-2-1-12
because he failed to inform her of the time period needed to recover her
transactional costs.^^° Due to Carroll's age, the time to recover her costs would
have been approximately her remaining life expectancy at age seventy- five.^^'
Under this section, Cassiday was required to inform Carroll of all material facts
about the investment portfolio that he was suggesting so as to not make his
presentation misleading.^^^ Had Cassiday omitted a fact which would have been
"relevant to the investment decision," then Cassiday would have violated the
Securities Act.^^^

However, the court found that no material fact was omitted and upheld the
trial court's determination by looking at two pieces of evidence.^^'* First, the
court pointed to Carroll's undisputed goal of meeting with Cassiday and
obtaining his advice — ^to increase her monthly income.^^^ Second, the court
noted the expert testimony given by a president of a local broker dealer. This
expert witness testified that had he been presented with Carroll's stated goal of
increase in income, and not investment growth, he would not have made a time-
to-recover-costs analysis.^^^ The witness also pointed out the fact that there was
no regulation, either state or federal, or any industry custom to give such an
analysis at all, regardless of the client's stated purpose for her investments.^^'
Based on these two factors, the court declined to include within the duties of the
broker-dealer a requirement to provide such an analysis.^'*

Lastly, Carroll contended that Cassiday violated subsection (x) of 710
Indiana Administrative Code section 1-17-1 by not conducting a reasonable
inquiry into her tax liability.^'^ Carroll alleged that Cassiday indicated to her that
her tax liability would be approximately $10,000, when she actually had to pay

brings in two investors, and then those two investors bring in three investors. The creator of the
scheme uses the later investors' money to pay "dividends" or distributions on the investment, but
there has not really been any investing or growth.

268. /^. at 1076.

269. M at 1076-77.

270. Mat 1077.

271. Id.

272. Id. (referencing IND. CODE § 23-2-1-12(2) (1998)).

273. W. at 1077.

274. Mat 1077-78.

275. Mat 1077.

276. Id

111. Id &i ion.

278. Id

279. Id (citing iND. ADMIN. CODE tit. 710 r. 1-14-1 (x) (1998)).

1346 INDIANA LAW REVIEW [Vol. 35:1321

approximately $17,000.^*^ The court held that subsection (x) "requires brokers
to conduct a reasonable inquiry into a customer's individual circumstances."^*'
The court looked to the testimony of Cassiday and Carroll's accountant, Jim
Winemiller. Cassiday testified that during his presentation, he informed Carroll
that she would incur tax liability on her sales of stock, but that he was not an
accountant and could not be sure whether $10,000 was an accurate figure.
Carroll authorized the sale nonetheless.^*^ On the tfay after the sale, she called
Winemiller to inform him of the sales and to ask about her tax liability. The
court found it to be telling that Carroll continued to sell additional stocks even
after her phone call with Winemiller.^*^ In short, the court determined that
Cassiday conducted a reasonable investigation into Carroll's situation in order
to consider all relevant information before suggesting an investment vehicle to
Carroll.'**

Looking at the opinion as a whole, it seems that the court was taken with the
fact that Carroll was not an elderly woman who had fallen prey to Cassiday.
Throughout the opinion, the court mentions the fact that prior to her dealings
with Cassiday, Carroll had contact with other brokers.'*^ She had managed her
portfolio and although she was not on the level of a stockbroker, Carroll had
more than an average understanding of her investments.'*^ It was just an
unfortunate happenstance that she felt she had been defrauded, although one
wonders how she could have felt that way, looking at the returns her investments
eventually did yield. But perhaps this is the benefit of hindsight.

Conclusion

One survey article cannot come close to discussing all the changes to Indiana
corporate law in the past year. This Article has attempted to discuss case law in
four different areas of corporate law in an attempt to provide a partial analysis
of any shifts in the landscape. The two major shifts this year have been in the
area of shareholder suits in closed corporations and suits brought under the DRS.
Both G & N Aircraft, Inc. and Galligan outline remedies to which shareholders
can be entitled, which was a slight expansion of the statutory remedies provided
for by the IBCL. However, as the majority of the cases discussed in this article
were court of appeals cases, the supreme court might decide to grant transfer and
change the landscape even further.

280.

Id.

281.

Id. at 1078.

282.

Id at 1079.

283.

284.

Id at 1077.

285.

Id at 1072, 1075

286.

Mat 1071-72.

Recent Developments in Indiana Criminal
Law and Procedure

Joel M. SCHUMM*

The survey period, October 1, 2000 to September 30, 2001, produced
legislation and decisional law that both broke new ground and clarified existing
confusion. The pages that follow provide a summary of some of the most
significant developments in the realm of Indiana criminal law and procedure.

I. Legislative ENACTMENTS

The General Assembly enacted a number of bills to define new crimes,
toughen penalties for existing crimes, and correct or clarify issues and problems
raised in recent court opinions.

A. New or Enhanced Offenses

The General Assembly both created new offenses and amended existing
statutes to criminalize previously legal conduct or enhance the penalty for
previously illegal conduct.

The new offense of "identity deception," a Class D felony, was created. It
occurs when a person "knowingly or intentionally obtains, possesses, transfers,
or uses the identifying information^'^ of another person: (1) without the other
person's consent; and (2) with intent to harm or defraud the other person . . . ."^
The statute includes a number of exceptions, which apply to underage persons
who use false identification to obtain alcohol, cigarettes, pornography, etc.^ In
addition, the legislature created the offense of "Interference with a Firefighter,"
which can vary from a Class C infraction to a Class D felony, for various forms
of conduct that hamper firefighters' ability to perform their duties.'^

The intimidation statute was amended to criminalize communication of a
threat with intent "of causing: (A) a dwelling, a building, or another structure;
or (B) a vehicle; to be evacuated . . . ."^ The base offense is a Class A
misdemeanor but becomes a Class D felony if "the threat is communicated using
property, including electronic equipment or systems, of a school corporation or
other governmental entity."^ Finally, the battery statute was amended to create
a Class A felony offense when the conduct "results in the death of a person less

* Lecturer in Law, Indiana University School of Law— Indianapolis. B.A., 1992, Ohio
Wesleyan University; M.A., 1994, University of Cincinnati; J.D., 1998, Indiana University School
of Law-Indianapolis.

1 . "Identifying information" is defined broadly to include, among other things, Social
Security numbers, fingerprints, and telecommunication identiiying information. Ind. Code § 35-
43-5-l(h) (Supp. 2001).

2. /^. § 35-43-5-3.5(a).

3. Id § 35-43-5-3.5(b).

4. !d. § 35-44-4.

5. W. §35-45-2-l(a)(3).

6. /^. §35-45-2-l(b)(l)(D).

1348 INDIANA LAW REVIEW [Vol. 35:1347

than fourteen (14) years of age and is committed by a person at least eighteen
(18) years of age."^

B. DNA Evidence

The General Assembly also enacted two bills relating to DNA evidence that
highlight such evidence may be a double-edged sword in criminal prosecutions.
The first bill allows DNA evidence to be used to lengthen the statute of
limitations for certain crimes, while the second bill allows many convicted felons
greater access to DNA testing and analysis to exonerate themselves. First, the
general statute of limitations of five years for Class B and C felonies was
extended in prosecutions

that would otherwise be barred . . . [to] one (1) year after the earlier of
the date on which the state: (1) first discovers the identity of the
offender with DNA (deoxyribonucleic acid) evidence; or (2) could have
discovered the identity of the offender with DNA (deoxyribonucleic
acid) evidence by the exercise of due diligence.*

The statute also extended the one-year period to July 1 , 2002, for Class B and C
felonies "in which the state first discovered the identity of the offender with
DNA (deoxyribonucleic acid) evidence after the time otherwise allowed for
prosecution and before July 1, 2001 . . . ."' The second bill established detailed
procedures by which persons convicted of murder or a Class A, B, or C felony
can petition the sentencing court to require DNA testing in certain
circumstances. '°

C. Crimes of Violence

In Ellis V. State, ^^ the defendant was convicted of several crimes, including
murder and two counts of attempted murder. He was sentenced to the maximum
term of sixty-five years for murder and fifty years for each attempted murder, to
be served consecutively. On appeal to the supreme court, he argued that the
sentences for his attempted murder conviction could not exceed fifty-five years,
the presumptive sentence for the next higher level felony. Indiana Code section
35-50-l-2(c) limits the total of the consecutive terms of imprisonment to which
a defendant may be sentenced "for felony convictions arising out of an episode
of criminal conduct," except for "crimes of violence," to "the presumptive term
for a felony which is one (1) class felony higher than the most serious of the
felonies for which the person has been convicted."'^ The court noted that the
statute clearly listed "crimes of violence," including murder and aggravated

7. Id § 35-42-2-1 (a)(5).

8. Id § 35-41-4-2(b).

9. Id

10. M§ 35-38-7.

11. 736N.E.2d 731 (Ind. 2000).

1 2. Id at 736 (citing Ind. Code § 35-50- 1 -2(c) ( 1 998)).

2002] CRIMINAL LAW 1349

battery, but did not include attempted murder.'^ Although aggravated battery is
a lesser included offense of attempted murder, the court found this to be of no
consequence in the face of the clear statutory language.''* In addition, the rule of
lenity requires that the limitation be interpreted to apply "for consecutive
sentences between and among those crimes that are not crimes of violence."'^
Accordingly, the court concluded that Ellis could be sentenced for his two
attempted murder convictions to no more than fifty-five years, the presumptive
sentence for murder.'^

Justice Boehm, joined by Justice Dickson in dissent, reasoned that the
majority's construction was not consistent with legislative intent, would produce
"upside-down or absurd results," and seemed to violate the proportionality
requirement of article I, section 16 of the Indiana Constitution.'^ Although a
minority view in 2000, Justice Boehm 's conclusion became the law in 200 1 when
the General Assembly made its intent clear and amended Indiana Code section
35-50-1 -2(a) to include "attempted murder" as a "crime of violence."'*

D. Sentencing

During the survey period the General Assembly either corrected or clarified
a few statutory provisions regarding sentencing. First, the defmition of
"minimum sentence" was updated for the offenses of murder (to forty-five years)
and Class D felonies (to one-half year) to be consistent with the statutory scheme
and the presumptive sentences that had been altered years earlier.'^ Second, the
misdemeanor probation statute was amended to clarify that probation for any
class of misdemeanor may be one year but "the combined term of imprisonment
and probation for a misdemeanor may not exceed one (1) year."^° Finally, the
habitual offender statute was amended, presumably in response to Ross v. State?^
and its progeny, as discussed in last year's survey .^^ Subsection (b) of the statute
now prohibits the State from seeking to have a defendant sentenced as a habitual
offender if "(1) the offense is a misdemeanor that is enhanced to a felony in the

13. Id.

14. Id.2Xmi.

15. Id

16. Id

17. /</. at 741 (Boehm, J., dissenting).

18. IND. Code § 3 5-50-1 -2(a)(2) (Supp. 2001). The statute was also amended to include
"sexual misconduct with a minor as a Class A felony (IC 35-42-4-9)" within the definition. Id. §
35-50-l-2(a)(ll).

19. Id § 35-50-2-l(c).

20. Id § 35-50-3-l(b).

21. 729N.E.2dll3(Ind.2000).

22. See Joel M. Schumm, Recent Developments in Indiana Criminal Law and Procedure., 34
Ind. L. Rev. 645, 662-63 (2001). As explained in text, however, the amendment was the opposite
of what prosecutors had vowed to seek, as certain offenses and categories of offenses have been
removed from eligibility for enhancement under the general habitual offender statute.

1350 INDIANA LAW REVIEW [Vol. 35:1347

same proceeding as the habitual offender proceeding solely because the person
had a prior unrelated conviction; or (2) the offense is an offense under IC 9-30-
10-16orIC9-30-10-17."2' However,

The requirements in subsection (b) do not apply to a prior unrelated
felony conviction that is used to support a sentence as a habitual
offender. A prior unrelated felony conviction may be used under this
section even if the sentence for the prior unrelated offense was enhanced
for any reason, including an enhancement because the person had been
convicted of another offense [except several offenses under Title 9].^"^

II. Decisional Law Developments

A. Search and Seizure

Scores of opinions during the survey period addressed issues relating to
searches and seizures under the Fourth Amendment, article I, section 1 1 of the
Indiana Constitution, and allied Indiana statutory law. This survey is limited to
a few significant cases that either broke new ground or raised issues likely to lead
to future litigation.

J. Vehicle Searches and Seizures. — In Lockett v. State ^^ the supreme court
granted transfer to consider whether the Fourth Amendment^^ prohibits police
from routinely inquiring about the presence of weapons during a traffic stop.
After reviewing U.S. Supreme Court decisions on the general issues of the length
and method of vehicle stops and concerns for officer safety, the court reiterated
well-settled Fourth Amendment jurisprudence that allows police to order a
motorist stopped for a traffic violation to exit his or her vehicle.^^ The court
reasoned that "asking whether the stopped motorist has any weapons is far less
intrusive and presents insignificant delay."^* Although the federal circuits are
split on whether the Fourth Amendment permits police to ask questions unrelated
to the purpose of the traffic stop, the court found no Fourth Amendment violation
in Lockett?'^ The court noted that the officer smelled alcohol as he approached
the vehicle and asked the occupant if he had any weapons during his
investigation of that offense: "The question was justified by police safety
concerns, and it did not materially extend the duration of the stop or the nature

23. IND. Code § 35-50-2-8(b) (Supp. 2001).

24. Id. § 35-50-2-8(e).

25. 747N.E.2d 539 (Ind. 2001).

26. The defendant waived any claim under the state constitution by failing to cite any
authority or independent analysis supporting a standard different from the Fourth Amendment. Id.
at 541.

27. Id at 542.

28. Id

29. /t/. at 543.

2002] CRIMINAL LAW 1351

of the intrusion."^^

In a separate opinion in which he concurred in the result, Justice Rucker
disagreed with the majority's adoption of a bright-line rule that allows officers
routinely to ask drivers stopped for traffic violations if they are carrying a
weapon.^' Instead, he would require the officer to have "an objectively
reasonable safety concern before making such an inquiry."^^ Quoting from a
Tenth Circuit case, he agreed that such routine questioning "could conceivably
result in a full-blown search of the passenger compartment of the detainee's
vehicle, no matter how minor the traffic infraction that initially prompted the
stop, and even if the officer had no reasonable safety concerns when he posed the
question."^^

Although the majority's approach is likely the one more consistent with the
Fourth Amendment jurisprudence of the current membership of the U.S. Supreme
Court, Justice Rucker' s concurring opinion is arguably the better-reasoned
approach. It is certainly true that a simple weapon inquiry does not materially
extend the duration of a traffic stop or the nature of the intrusion; however, the
notion that such an inquiry is "justified by police safety concerns" is not so clear.
First, Supreme Court authority allows citizens the right to refuse to answer an
officer's questions during a Terry stop.'* Moreover, as Justice Rucker aptly
pointed out, "the notion that asking a driver if he has any weapons somehow
advances officer safety is suspect. In reality a driver could in fact be heavily
armed and simply say no to an officer's inquiry."" Indeed, the holding in Lockett
will likely do little to further the protection of police officers because the average
citizen will likely answer truthfully in the negative and those who are illegally
carrying guns may well be less forthright than Mr. Lockett, who admitted to
having a handgun in his car.'^ Finally, by finding the state constitutional claim
waived, the supreme court has left open the possibility of later striking down the
practice under the reasonableness test of article I, section 1 1 ." However, in light
of the court's heavy reliance on officer safety concerns, a state constitutional
challenge would appear unlikely to succeed.

Just a month before deciding Lockett, the supreme court took a slightly
different approach in Wilson v. State^^ in which it addressed the propriety of
police officers performing pat-down searches of motorists pulled over for traffic
stops before asking them to enter their police vehicle. In Wilson, the defendant
was pulled over for speeding, and the officer suspected that he was intoxicated.

30. Id.

31. /<i. at 544 (Rucker, J., concurring).

32. Id.

33. Id (quoting United States v. Holt, 229 F.3d 931, 940 (10th Cir. 2000)).

34. Id. at 545 n.4 (Rucker, J., concurring) (citing Florida v. Royer, 460 U.S. 491, 497-98
(1983)).

35. Id

36. See id. at 541.

37. See generally Brown v. State, 653 N.E.2d 77, 79 (Ind. 1995).

38. 745 N.E.2d 789 (Ind. 2001).

1352 INDIANA LAW REVIEW [Vol. 35:1347

Noting that neither the field sobriety tests nor the portable breath test required the
motorist to enter the police vehicle and that the officer did not suspect that the
motorist was armed, the court concluded that the search violated the Fourth
Amendment because "the pat-down search was not supported by a particularized
reasonable suspicion that Wilson was armed, and because there was no
reasonably necessary basis for placing Wilson in the squad car . . . ."^^

Wilson is not cited or discussed in Lockett, but the two cases can be easily
reconciled. In Lockett the defendant was not subjected to a Terry frisk and
therefore, in the majority's view, particularized suspicion was not required as it
was in Wilson.^^ Although a pat-down search is certainly more intrusive than the
mere asking of a question, which is not a search or seizure standing alone, the
majority opinion in Lockett does not base its holding on this distinction but rather
on the more dubious issue of officer safety concerns. It would appear that those
concerns were equal in both cases of suspected drunk driving. Moreover, the
holding in Lockett would appear to suggest that officers cannot routinely ask
motorists if they have any drugs in their vehicles because such an inquiry would
not be justified on officer safety concerns.

Finally, the supreme court and court of appeals addressed two other issues
of first impression in the vehicle context. In Mitchell v. State, ^^ the supreme
court held that the Indiana Constitution does not prohibit pretextual stops. The
court reasoned that the potential for unreasonable police conduct is most likely
to arise "not in the routine handling of the observed traffic violation, but in the
ensuing police investigatory conduct that may be excessive and unrelated to the
traffic law violation.'"*^ Although it is certainly true that most constitutional
violations will occur during subsequent investigatory conduct, the court did not
acknowledge that pretextual stops allow officers to observe potentially
incriminating items in plain view and, in light of Lockett, ask questions that could
lead motorists to incriminate themselves.*^ It would seem that the larger problem
with pretextual stops, if they were deemed unconstitutional, would be the means
by which a defendant could establish that a valid traffic stop was a pretext for
another purpose.'** Short of an officer's admission that a stop was pretextual, the
proof would seemingly come in the form of a pattern of pretextual stops by a
certain officer, which might be difficult to establish depending on the specificity

39. Mat 793.

40. Compare Lockett, 747 N.E.2d at 541-43, with Wilson, 745 N.E.2d at 793-94.
Nevertheless, Justice Rucker's concurring opinion in Lockett draws upon Terry and other U.S.
Supreme Court authority to support his view that a weapon's inquiry should be based on some sort
of particularized (and reasonable) suspicion. See Lockett, 747 N.E.2d at 544-45 (Rucker, J.,
concurring).

41. 745 N.E.2d 775, 789 (Ind. 2001).

42. Id3Xni.

43 . See generally Wesley MacNeil Oliver, With an Evil Eye and Unequal Hand: Pretextual
Stops and Doctrinal Remedies to Racial Profding, 74 TUL. L. REV. 1409, 1416-22 (2000)
(reviewing the federal constitutional implications of pretextual stops).

44. See generally id at \422-25.

2002] CRIMINAL LAW 1353

of police records and the demographics of an officer's given patrol area.

In Wilkinson v. State,"^^ the court of appeals held that a random computer
check of license plate numbers was not a search under the Indiana Constitution.
In that case, the officer ran a random check on the license plate of a truck parked
in a convenience store lot and learned that the truck was registered to Wilkinson,
who was a habitual traffic violator. Because the driver of the truck matched the
physical description provided from the license plate check, the officer stopped
the truck as it departed the store lot, and upon confirming the identity of the
driver, arrested him."*^ Relying on cases from other states, the court noted that
"[a] search connotes prying into hidden places to observe items which are
concealed; there is no search attendant to viewing an object which is open to
view."*^ Although it affirmed the conviction that resulted from the random
license plate check, the court nevertheless noted that it shared the defendant's
concern that this procedure "could lead to pretextual stops" and in an unusual
display of candor "question[ed] whether random checks of license plates in
convenience store parking lots represent[ed] an efficient use of the limited
resources of law enforcement agencies.'"**

2. Execution of Warrants and Stale Probable Came. — In Huffines v. State, ^"^
the court of appeals addressed the interplay of Indiana Code section 35-33-5-7(b),
which requires search warrants to be executed within ten days of issuance, with
the Fourth Amendment and article I, section 1 1 of the Indiana Constitution.
Adopting the "totality of the circumstances" approach used by federal courts, the
court held that the State must demonstrate that the warrant was supported by
probable cause at the time of execution. ^^ In that case, eight days lapsed between
the time the warrant, which sought cocaine evidence and was based on a single
observation and purchase, was issued and executed. Additionally, no criminal
activity was suspected or corroborated during this time. Therefore, the court held
that the search was improper under the Fourth Amendment.^' After considering
Indiana cases of both pre-issuance and pre-execution delay, the court reached the
same conclusion under the state constitution, seemingly applying the same
requirement that probable cause continue to exist at the time of execution. ^^ The
court did not specifically address the usual line of inquiry under article I, section
1 1 , i.e., whether the "police behavior was reasonable."^^

Six months after Huffines, the court of appeals in Caudle v. State^^ addressed
another claim of stale probable cause in a case in which the warrant was executed

45. 743 N.E.2dl267(Ind.Ct.App. 2001).

46. /^. at 1269.

47. Id. at 1270 (quoting People v. Bland, 390 N.E.2d 65, 67 (III. App. Ct. 1979)).

48. Id.

49. 739 N.E.2d 1093 (Ind. Ct. App. 2000).

50. /£/. atl097.

51. M at 1097-98.

52. 5ge jf/. at 1098-99.

53. See generally Brown v. State, 653 N.E.2d 77, 79 (Ind. 1995).

54. 749 N.E.2d 616 (Ind. Ct. App. 2001).

1354 INDIANA LAW REVIEW [Vol. 35:1347

seven hours before the ten-day statutory period would have expired. Assuming
arguendo that the probable cause was stale, the court nevertheless affirmed the
trial court's admission of evidence based on the good faith exception to the
exclusionary rule.^^ Noting that the search preceded the issuance of the Huffines
opinion by eighteen months, the court found that the detective was acting in good
faith in delaying the execution of the warrant for nine days while he waited to
catch the defendant at home.^^ The court acknowledged, however, that after
Huffines "a question exists about whether or not a police officer can in good faith
execute a warrant under circumstances similar to those in Huffines because that
decision should cause an officer to no longer 'reasonably believe' that such a
warrant would be valid" under the constitutional provisions.^^

On rehearing Caudle argued that federal circuit courts have held that the
good faith exception does not apply to errors in the execution of warrants and
should not have been applied in his case.^* Nevertheless, the court of appeals
affirmed its earlier opinion, reiterating that the detective was permitted to rely on
the ten-day statutory period when executing the warrant "unless the statute was
'clearly unconstitutional.'"^^ Although many circuit courts have held that
probable cause must exist at the time of execution of a warrant regardless of a
statutory outer limit, some state courts have held that the execution of a warrant
within the statutory period is per se timely.^ Because execution within the
statutory period was not "clearly unconstitutional" in the absence of any Indiana
authority and conflicting authority from other jurisdictions, the court affirmed the
application of the good faith exception and the admission of the evidence seized
during execution of the warrant.^'

In light of Huffines and Caudle, one would expect that, in the future, law
enforcement officers will execute warrants as soon as feasible and well before
the ten-day statutory period. If they do not, however, and probable cause has
dissipated in the interim, it would appear unlikely that an Indiana court will allow
them to seek refuge in the good faith exception. The law is now both clear and
simple: the statute sets an outer limit often days, but the relevant inquiry is
whether probable cause continues to exist at the time of issuance.

B. Confessions

The Indiana Supreme Court addressed several challenges to the admissibility
of confessions during the survey period; most of these were resolved in the
State's favor in the trial court and affirmed on appeal by application of existing
precedent and a highly deferential standard of review. Two opinions stand

55. /f/. at 620-22.

56. /£/. at622.

57. Id.

58. Caudle v. State, 754 N.E.2d 33, 34 (Ind. Ct. App. 2001).

59. Id. at 35 (quoting Illinois v. Krull, 480 U.S. 340, 349-50 (1987)).

60. Id

61. Mat 36.

2002] CRIMINAL LAW 1355

out — one for its holding that significantly clarified the law relating to juvenile
confessions and the other for its refusal to modify or reconsider existing law in
an area where reconsideration seems appropriate.

In Stewart v. State,^^ the supreme court addressed the admissibility of a
juvenile's murder confession in the face of a waiver signed by his biological non-
custodial father. According to statute, the constitutional rights of an
unemancipated person under eighteen may be waived only "by the child's
custodial parent, guardian, custodian, or guardian ad litem" if four conditions are
met.^^ In relatively short order, the court held that Stewart's biological father
was not a custodial parent.

The undisputed facts were that Stewart was born out of wedlock, no court
order of custody was admitted at trial or otherwise claimed to exist, and Stewart
did not live with his biological father.^ The court considered a number of
statutory provisions that did not provide "a direct answer" to the issue, but which
all pointed to the conclusion that the term "custodial parent" applied to "either
a person who has been adjudicated by a court to have legal custody of the child,
or a parent who actually resides with the unemancipated juvenile."^^ Finally, the
court rejected the State's contention, that because of the biological relationship,
Stewart's father satisfied the statutory mandate that requires the juvenile's
"parent" join in the waiver: "This contention plainly reads 'custodial' out of the
statute. It seems clear that the statute contemplates consultation and waiver by
a person in the close relationship afforded by either formal custody or actual
residence in addition to a biological or adoptive relationship."^^ Because
Stewart's father met neither test, the court held that admission of his confession
was error.^^ Moreover, because the State's remaining evidence did not directly
place Stewart at the scene of the murder, the court was unwilling to find that the
error was harmless, that is, that it did not affect Stewart's substantial rights.^*

Stewart represents an important victory for juvenile defendants by ensuring
the voluntariness of their confessions through a requirement that the parent with
whom they consult is one that is likely to make the consultation a meaningful
one. Henry v. State,^^ on the other hand, rejects a requirement that could bolster
the reliability of adult confessions.

In Henry, the defendant confessed to the murder of an antique storeowner
after being told by police that his fingerprints were found at the scene of the

62. 754 N.E.2d 492 (Ind. 2001).

63. Id. at 494 (citing iND. CODE § 31-32-5-1(2) (1998)).

64. Mat 495.

65. Id. at 495 & n.2.

66. Id at 496.

67. Id

68. Id; see also Fleener v. State, 656 N.E.2d 1 140, 1 141 (Ind. 1995) (discussing harmless
error under Indiana law, which differs from federal constitutional harmless error as explained in
Chapman v. California, 386 U.S. 18 (1967)).

69. 738 N.E.2d 663 (Ind. 2000).

1356 INDIANA LAW REVIEW [Vol. 35:1347

crime and a person in the store had identified him as the killer.^° However,
"[njeither statement was true'V* the police had lied to Henry.

Henry challenged the admissibility of his confession in the trial court, but his
motion to suppress was denied.^^ On appeal he acknowledged the supreme court
precedent of Light v. State,^^ which had upheld the admissibility of a confession
following a four-hour interrogation punctuated by police conduct involving
cursing, lying, and smacking the defendant on the arm,^"* but urged the court to
revisit the issue and "announce a bright line rule which would render
inadmissible[] a confession obtained solely by deceitful police activity ."^^

The court declined the invitation to revisit Light, preferring instead to
continue to review each confession based on the "totality of the circumstances"
test.^^ Although the court stated that it "continue[s] to disapprove of deceptive
police interrogation tactics," it nevertheless upheld the admissibility of Henry's
confession because he was a man of average intelligence; the interrogation was
brief (one hour); he was Mirandized three times; the police made no threats or
promises to him; and he did not ask for an attorney.^^ "Balanced against the
officer's obvious deception, these facts tip the scales in favor of the conclusion
that Henry's statement was not involuntary."^*

The court's reasoning is less than compelling. Had Henry asked for an
attorney or not been Mirandized, his confession would have been inadmissible
as a matter of well-settled federal constitutional law.^^ What remains to support
admissibility is Henry's "average intelligence" and the absence of any "threats
or promises." If police deception truly "weighs heavily against the voluntariness
of the defendant's confession,"*^ it is difficult to understand why police telling
two separate lies during a short confession should be disregarded to support
admissibility. As the court reiterated in Henry, the State must prove beyond a
reasonable doubt that a confession was voluntarily given.*' This differs from the
federal constitutional requirement of voluntariness merely by a preponderance
of the evidence.*^ If the supreme court is serious about this heightened burden,
one might suspect it to find the scales tipped in favor of inadmissibility in some,
if not most, cases of police deception. Although the court relied on its opinion
in Light, Light does not discuss the "beyond a reasonable doubt" standard and

70. Id. at 664.

71. Id.

72. Id

73. 547N.E.2ci 1073 (Ind. 1989).

74. Henry, 738 N.E.2d at 664 (citing Light, 547 N.E.2d at 1079).

75. Id. (citing Brief of Appellant at 9) (omission in original).

76. Id

77. Id at 665.

78. Id

79. See, e.g., Edwards v. Arizona, 451 U.S. 477 (1981).

80. Henry, 738 N.E.2d at 665 (citing Heavrin v. State, 675 N.E.2d 1075, 1080 (Ind. 1996)).

81. Id at664.

82. Id. at 664 T\.\,5ee also Schumm, supra note 22, at 648-5 1 .

2002] CRIMINAL LAW 1357

was decided well before the court had adopted a consistent view on this
heightened requirement.

C. Waiver of the Right to Counsel

In Poynter v. State,^^ the supreme court granted transfer to address
inconsistencies in its prior opinions and those of the court of appeals regarding
the requirements for a valid waiver of the right to counsel before a defendant
elects self-representation. The defendant asserted, and the State agreed, that the
record must reflect that such a waiver is knowing, intelligent, and voluntary.^"*
However, the court in Poynter set out to define just what that standard means in
practice.

The court began by acknowledging the importance of the right at issue: "Of
all the rights that an accused person has, the right to be represented by counsel
is by far the most pervasive for it affects his ability to assert any other rights he
may have."*^ To protect this important right, the U.S. Supreme Court has long
held that a defendant who asserts his right to self-representation must be told of
the "dangers and disadvantages of self-representation,"*^ although there are no
prescribed "talking points" that the trial court must include in its advisement.*^
The trial court must make a "considered determination" that the waiver is
voluntary, knowing, and intelligent, a determination that is made "with the
awareness that the law indulges every reasonable presumption against a waiver
of this fundamental right."**

At issue in Poynter was whether a defendant's conduct in failing to hire
counsel, despite warnings and advisements by the trial court, constituted a valid
waiver. The court acknowledged that two of its prior cases had reached opposite
results, although the latter case did not overrule or even discuss the former one.*^
Seizing the opportunity to clarify this "inconsistent precedent," the court
considered the general standards from Supreme Court cases but then seemingly
adopted^° the more specific approach of the Seventh Circuit, which considers
four factors: "(1) the extent of the court's inquiry into the defendant's decision,
(2) other evidence in the record that establishes whether the defendant
understood the dangers and disadvantages of self- representation, (3) the
background and experience of the defendant, and (4) the context of the

83. 749 N.E.2(11 122 (Ind. 2001).

84. /^. at 1123.

85. Id at 1 125-26 (quoting United States v. Cronic, 466 U.S. 648, 654 (1984)).

86. Id. at 1 126 (quoting Faretta v. California, 422 U.S. 806, 835 (1975)).

87. Id

88. Id (citing Johnson v. Zerbst, 304 U.S. 458, 464 (1938)).

89. Id (citing Houston v. State, 553 N.E.2d 1 17 (Ind. 1990); Fitzgerald v. State, 257 N.E.2d
305 (Ind. 1970)).

90. The court never explicitly adopts the test but states that it 'Tind[s] this approach helpful
in analyzing waiver of the Sixth Amendment right to counsel under the facts and circumstances of
waiver by conduct cases." Id. at 1 128.

1358 INDIANA LAW REVIEW [Vol. 35:1347

defendant's decision to proceed pro se."^^

Applying the factors to Poynter's case, the court noted that the trial court had
advised him of his trial rights and the procedural outcome of failing to secure
counsel but did not advise him of the "dangers and disadvantages of self-
representation," a factor that "weighs heavily against finding a knowing and
intelligent waiver."^^ The defendant's background and unknown experience with
the criminal justice system pointed in neither direction, and his conduct of
choosing to go to work instead of hiring an attorney did not result in delays or
appear to manipulate the process.^^ Weighing these factors, the court concluded
that the record did not support a finding of a knowing and intelligent waiver.^*

Poynter is significant not only because it clarified contradictory precedent
but it also took a seemingly clear path that should be relatively easy to apply in
future cases. Indeed, less than three months after Poynter was decided, the court
of appeals applied it in Slay ton v. State ^^^ a case in which the trial court "made
mention of counsel" at three pretrial hearings but never advised the defendant of
disadvantages of self-representation. Because the other factors did not weigh in
either direction, the court in Slayton similarly concluded that there had not been
a knowing and intelligent waiver of counsel.^^

In both Poynter and Slayton, the trial court failed to advise the defendant of
the dangers and disadvantages of self-representation, which proved to be the
dispositive factor in finding the purported waivers of counsel invalid. Therefore,
the lingering question for future cases is what form that advisement should take
and whether a cursory advisement will be assailable on appeal.

D. Statute of Limitations

In Wallace v. State,^^ the supreme court granted transfer to address the
applicability of the statute of limitations in a child molestation case. The
defendant's two daughters testified that he had molested them during a sixteen-
month period beginning in the summer of 1988.'* However, for reasons
undisclosed in the record, the State did not file charges — ^four C felony counts of
child molestation — until March of 1998.^' Although at the time of the offense
the applicable statute of limitations for a Class C felony was five years, Wallace
did not object to the charges on the basis that the statute of limitations had
expired, but rather proceeded to trial by jury and was convicted of three of the

91.

Id. at 1 127-28 (quoting United States v. Hoskins, 243 F.3d 407,

410

(7th Cir. 2001)).

92.

Mat 1128.

93.

Id.

94.

95.

755 N.E.2d 232, 236 (Ind. Ct.

App.2001).

96.

Id at 237.

97.

753 N.E.2d 568 (Ind. 2001).

98.

Id at 569.

99.

2002] CRIMINAL LAW 1359

counts. '^°

Repeating well-established legal precepts, Justice Rucker, writing for the
three-justice majority, observed that the applicable statute of limitations is "that
which was in effect at the time the prosecution was initiated,"'^' and "the statute
to be applied when arriving at a proper criminal penalty is that which was in
effect at the time the crime was committed.'"^^ Because a "statute of limitations
might be construed narrowly and in a light most favorable to the accused," the
court rejected the State's argument that the extended statute of limitations from
another subsection of the statute should apply to Wallace's crimes. '^^ Reiterating
the primary purpose of the statute of limitation as ensuring against the "inevitable
prejudice and injustice to a defendant that a delay in prosecution creates,"'^ the
supreme court reversed Wallace's convictions because the State had not filed
charges within the applicable five-year limitation period. '°^

Justice Boehm, joined by Justice Dickson in dissent, did not disagree with
anything in the majority's opinion, save its conclusion. Relying on Indiana Trial
Rule 8(c) and federal precedent, the dissent opined that defendants should be
required to raise a statute of limitations defense in a pretrial motion or forfeit the
claim on appeal.'^ It reasoned that this view was also consistent with policy
considerations: "A criminal defendant, like a civil defendant, should not be able
to sit on a statute of limitations defense until long after trial is completed. The
result is a waste of taxpayer funds and court time."'^' Moreover, because many
other "more fundamental" constitutional and statutory rights may be waived by
criminal defendants either affirmatively or by failure to assert them, the dissent
found no reason to accord more favorable treatment to a statute of limitations
defense. '"«

Although the dissent's view is arguably the better reasoned one, it correctly
recognized its practical limitations. "In this case, affirming the conviction
obviously sets the defendant up for an ineffective assistance of counsel claim,
and the end result of my view may be the same as the majority's."'^ Moreover,
it is questionable whether the dissent's approach would actually save judicial
resources. It is unlikely that competent defense counsel, who realizes that raising
a statute of limitations defense in a pretrial motion would lead to immediate
dismissal of the charges, would nevertheless choose to proceed to trial to attempt
to secure an acquittal with the knowledge that, should this effort fail, a guilty
verdict would be set aside on appeal when the statute of limitations issue was

100. Id.

101. Id.

102. Id

103. Mat 570.

104. Id (quoting Kifer v. State, 740 N.E.2d 586, 587 (Ind. Ct. App. 2000)).

105. Mat 570-71.

106. M. at 571-72 (Boehm, J., dissenting).

1 07. Id. at 572 (Boehm, J., dissenting).

108. Id.

109. Id.

1360 INDIANA LAW REVIEW [Vol. 35:1347

raised. A defendant charged with any crime — most of all child molesting as in
Wallace — would certainly prefer the quickest resolution of the case; lingering
charges and an eventual trial are likely to take a serious toll on the defendant and
his reputation in the community. It is hard to imagine a scenario where failing
to raise the defense would be tactical, but rather, it would seem to be a classic
example of deficient performance, which, when coupled with the obvious
prejudice, constitutes an archetypical case of ineffective assistance.

E. Voluntary Intoxication

In 1996, the U.S. Supreme Court held in Montana v. Egelhoff^^^ that,
consistent with the Due Process Clause, a state could prohibit a defendant from
offering evidence of voluntary intoxication to negate the requisite mens rea of a
criminal offense. Although the Indiana Supreme Court had struck down a
legislative attempt to limit the use of voluntary intoxication as a defense in Terry
V. State^ ' Mn 1 984, after Egelhojf the court noted that the Terry doctrine was "no
longer good law"'*^ insofar as it was grounded in the federal constitutional
guarantee of due process. In response to Egelhojf, the General Assembly in 1 997
enacted Indiana Code section 35-41-2-5, which provides: "Intoxication is not a
defense in a prosecution for an offense and may not be taken into consideration
in determining the existence of a mental state that is an element of the
offense . . . ."'''

In Sanchez v. State, ^^^ the Indiana Supreme Court granted transfer to address
whether the 1 997 statute violated various provisions of the Indiana Constitution.
In addressing the claimed violation of article I, section 1 2 (the due course of law
provision), the court reiterated that the first sentence of that provision applies
only in the civil context,''^ but held that the second sentence, although not
identical with the federal right to due process, included the "basic concepts of
fairness that are frequently identified with 'due process' in the federal
constitution.""^ However, recognizing that the General Assembly "redefined the
mens rea element in Indiana to render irrelevant" evidence of voluntary
intoxication, the court found no due course of law violation."^ The court also
held that the statute did not violate article I, section 13 because that provision
"does not require that any specific claim of a defense be recognized by Indiana
law," and "[i]f the substantive law renders the evidence irrelevant . . . there is no

110. 518 U.S. 37(1996).

1 1 1. 465 N.E.2d 1085 (Ind. 1984).

1 1 2. State V. Van Cleave, 674 N.E.2d 1 293, 1 302 n. 1 5 (Ind. 1 996).

113. Ind. Code §35-41-2-5 (1998).

1 1 4. 749 N.E.2d 509 (Ind. 2001 ).

115. Mat 514.

116. Id. at 515. The second sentence provides: "Justice shall be administered freely and
without purchase; completely, and without denial; speedily, and without delay." Ind. Const, art.
U§12.

117. 5a«c^ez, 749 N.E.2d at 515.

2002] CRIMINAL LAW 1361

right under Article I, Section 13 to present it.""* In addition, the court found no
violation of the jury's right to determine the law and facts under article I, section
19 because "[t]he voluntary intoxication instruction does not unconstitutionally
compel the jury to make a finding of intent.""' Finally, the court found no
violation of the equal privileges and immunities clause of article I, section 23
because the statute makes distinctions that are rationally related to legislative
goals and a permissible balancing of the competing interests involved. '^^

Justice Sullivan, joined by Justice Rucker, concurred in the result, reasoning
that the "principles underlying Terry remain sufficiently viable that we must
adhere to this well-settled precedent," but nevertheless reached the same result
because the erroneous reftisal of the intoxication instruction was harmless
beyond a reasonable doubt. '^'

F. Jury Instructions on Flight from Crime Scene

Sorting though a decade of wishy-washy pronouncements on flight
instructions, the supreme court in Dill v. State^^^ finally resolved long-standing
confusion by holding that it is per se erroneous for trial courts to give an
instruction that "flight and other actions calculated to hide a crime, though not
proof of guilt, are evidence of consciousness of guilt and are circumstances
which may be considered by [the jury] along with other evidence."'^^

The confusion began with BeUmore v. State,^^^ in which the supreme court
found that the standard flight instruction did not violate the defendant's right to
due process. However, the court recommended against future use of the
instruction without articulating the reasons for its recommendation or otherwise
providing guidance for alternative instructions.'^^ Post-Bellmore cases found no
error in the giving of flight instructions but repeated the cautionary warning
against such instructions.'^^ "Since BeUmore, we have repeatedly noted this
recommendation [for disuse] but have not actually applied it to find error."'^^

In DilU the defendant objected to the instruction on several grounds,
including the recommendation from BeUmore and its progeny, as well as its
engendering of confusion and focusing of excessive attention on evidence of
flight.'^* "Implementing [its] directive in BeUmore,'' the Dill court found that the
trial court erred in giving the flight instruction because it was confusing; it

118. /</. at 520-21.

119. Id.2^52\.

120. Id 2X522.

121. Id. 2X 527 (Sullivan, J., concurring) (emphasis in original).

122. 741 N.E.2d 1230 (Ind. 2001).

123. /^. at 1231.

124. 602N.E.2dlll(Ind. 1992).

125. Z)///,741N.E.2datl231.

126. /t/. at 1231-32.

127. /flf. atl231.

128. /cf. at 1232.

1362 INDIANA LAW REVIEW [Vol. 35:1347

unnecessarily emphasized certain evidence; and it had great potential to mislead
the jury.^^^ Nevertheless, because the conviction was clearly sustained by the
evidence and the jury could not properly have found otherwise, the court found
the erroneous instruction to be harmless error. '^^

Chief Justice Shepard dissented, reasoning that putting flight instructions on
"the extremely short list" of completely prohibited instructions runs counter to
Indiana's trial practice, which includes "scores of instructions about particular
aspects of various causes of action, given regularly by trial judges and regularly
approved on appeal."'^ ^ In addition, the dissent made clear that the majority's
new rule was a minority view, citing numerous state supreme court and federal
circuit court opinions that have upheld properly worded flight instructions
supported by sufficient evidence. '^^ Chief Justice Shepard concluded his dissent
by noting that in the future he "would not be surprised to see defense counsel
now begin to tender their own instructions on flight as a way to safeguard their
clients against the possibility that the prosecutor might oversell the matter during
final argument."'^^

The majority's opinion in Dill, although likely foreclosing the State from
tendering or trial courts from giving flight instructions in the future, seems to
give the green light to the State admitting evidence of flight at trial and arguing
its significance in closing argument.^''* Without an instruction that places this
evidence in some perspective, it seems entirely possible that a jury of laypersons
untrained in the law will attach greater weight to the defendant's flight than it
would if a proper, carefully- worded instruction had been given. Thus, as the
dissent noted, defense counsel likely will want to craft an instruction that limits
the significance of flight evidence in those cases where the trial court deems it
admissible. Trial judges would seemingly be willing to give such an instruction
when supported by the evidence, in part, because if tendered by the defendant,
it would foreclose any claim of error on appeal. Refusing such an instruction,
however, could present a viable issue for appeal, especially if the defendant
could show that the prosecutor was overzealous in arguing the significance of
flight in closing argument or that the evidence of flight admitted at trial was not
relevant — issues that are likely to be fleshed out in ftiture cases, the sorting out
of which "should prove challenging."^^^

G. Limits on Retrials After Hung Juries
In Sivels v. State, ^^^ the supreme court addressed limitations on retrials after

129. Id.

130. Mat 1233.

131. /flf. at 1 234 (Shepard, C.J., dissenting).

132. Id. at 1234-35 (Shepard, C.J., dissenting).

133. Id. at 1235 (Shepard, C.J., dissenting).

134. See id. si mi.

135. Id. at 1235 (Shepard, C.J., dissenting).

136. 741 N.E.2d 1 197 (Ind. 2001).

2002] CRIMINAL LAW 1363

repeated hung juries. In that case, the defendant was charged with murder,
felony murder, and robbery. He was acquitted of the felony murder and robbery
charges in his first trial, but the jury could not reach a unanimous verdict on the
murder charge."^ A second trial also resulted in a mistrial due to a hung jury,
and the defendant then filed a motion to dismiss, alleging that the multiple
prosecutions violated his right to due process. ^^* The trial court agreed with
Sivels that it had the inherent authority to dismiss the case on this basis, but
denied the motion on its merits. '^^

On direct appeal the supreme court agreed that the trial court possessed this
authority to dismiss the case. After reviewing cases from several other
jurisdictions, the court noted that "[w]hile different jurisdictions refer to different
sources of the trial court's authority to dismiss after multiple mistrials, the
majority of the appellate courts rely on precepts of fundamental fairness and
notions of fair play and substantial justice."'*^

The supreme court proceeded to adopt guidelines for future use when trial
courts are confronted with such a challenge. These include:

(1) the seriousness and circumstances of the charged offense; (2) the
extent of harm resulting from the offense; (3) the evidence of guilt and
its admissibility at trial; (4) the likelihood of new or additional evidence
at trial or retrial; (5) the defendant's history, character, and condition; (6)
the length of any pretrial incarceration or any incarceration for related
or similar offenses; (7) the purpose and effect of imposing a sentence
authorized by the offense; (8) the impact of dismissal on public
confidence in the judicial system or on the safety and welfare of the
community in the event the defendant is guilty; (9) the existence of any
misconduct by law enforcement personnel in the investigation, arrest, or
prosecution of the defendant; (10) the existence of any prejudice to
defendant as the result of passage of time; (11) the attitude of the
complainant or victim with respect to dismissal of the case; and (12) any
other relevant fact indicating that judgment of conviction would serve no
useftil purpose.'"*'

In addition, the court should consider "the number of prior mistrials and the
outcome of the juries' deliberations, as known" and "the trial court's own
evaluation of the relative strength of each party's case . . . ."''*^ The court
declined to adopt a categorical rule limiting retrials to a specific number but
instead held that trial courts are in the best position to weigh the relevant factors
and that abuse of discretion is the appropriate standard for appellate review of the

137. Id. at 1 198-99. Several months earlier, a jury was selected and dismissed (before being
sworn) because of a continuance. Id. at 1 198.

138. Id.

139. /c/. at 1202.

140. Mat 1201.

141. Id (quoting Stale v. Sauve, 666 A.2d 1 164, 1 168 (Vt. 1995) (citations omitted)).

142. Id (quoting State v. Abbati, 493 A.2d 513, 521-22 (N.J. 1985)).

1364 INDIANA LAW REVIEW [Vol. 35:1347

trial court's decision. ^^^

In reviewing the relevant factors in Sivels, the supreme court noted that the
charged offense involved the beating and shooting of an unarmed man during the
commission of a robbery.'^ The first two trials ended injuries that voted 7-5 and
9-3 in favor of acquittal, and the defendant had been incarcerated without bond
for two and a half years. '"^^ Perhaps most significantly, however, the trial court
had indicated its own evaluation of the strength of the State's case and its belief
that Sivels had committed the charged offense.''*^ Based on these considerations,
the supreme court found no abuse of discretion in allowing the State to retry its
case for a third time.'"*^

Although a fifteen-factor test may appear at first blush to be inadvisable, the
test adopted by the supreme court in Sivels will likely be easily applied in future
cases because, although it includes all the relevant considerations, generally only
few will apply in a given case. More importantly, the supreme court properly
gives the authority to dismiss charges to the trial court, whose time and docket
is at the mercy of the State's repeated retrials in such cases. If repeated retrials
result in hung juries and the trial court finds the State's evidence less than
compelling, one would expect most trial judges to exercise the authority to
dismiss a case. However, if the trial court declines to do so, the issue is now one
that can be easily and meaningfully raised and reviewed on appeal.

K Appellate Review of Sentences

This year's survey concludes, as did last year's, with a review of the morass
of appellate sentence review. As predicted, the constitutional amendment that
eliminated the mandatory jurisdiction of the supreme court in all but death
penalty and life without parole cases*^^ has, when combined with the court of
appeals' new membership, led to the court of appeals' newfound role as the
primary arbiter of appel late sentence review. '^^

Although several court of appeals opinions during the survey period reduced
sentences as being manifestly unreasonable, the supreme court's newly-
discretionary docket not surprisingly led to only two sentence reductions: one
on direct appeal and one on transfer. On direct appeal, the supreme court, in
Winn V. State,^^^ took the unusual action of finding that a thirty-year habitual
offender enhancement added to a fifty-year sentence for rape was manifestly

143. /^. at 1202.

144. Id

145. Id

146. Id

147. Id

1 48. The constitutional amendment limited mandatory jurisdiction to death penalty cases but
the supreme court retained jurisdiction for life without parole cases by rule. See IND. Appellate
Rule 4(A)(1)(a).

1 49. Schumm, supra note 22, at 669.

150. 748 N.E.2d 352, 360 (Ind. 2001).

2002] CRIMINAL LAW 1365

unreasonable. Winn is unusual because the defendant did not challenge, and the
court did not evaluate, the aggregate sentence as being manifestly unreasonable,
as in most previous cases addressing such claims. Rather, the defendant
requested that the habitual offender enhancement be attached to a crime other
than the rape count and that his enhancement therefore be reduced from thirty to
ten years because the two prior felony convictions that formed the basis for the
enhancement were non-violent Class D felonies.'^' In addressing this claim, the
court summarized the relevant factors of the nature of the offense (the defendant
confronted the victim with a deadly weapon, struck her, threatened her, and
required her to submit to more than one sexual act) and the character of the
offender (an Operation Desert Storm veteran with a non-violent criminal history
of misdemeanor or D felony offenses).'" In light of these considerations and the
trial court's imposition of the maximum sentences for rape and criminal deviate
conduct, the court concluded that imposing the maximum habitual enhancement
by attaching it to the rape conviction was manifestly unreasonable and therefore
ordered that the enhancement be reduced to ten years and attached to one of the
class B or C felony counts, thereby reducing the aggregate sentence by twenty
years.'"

In Walker v. State,^^^ the supreme court granted transfer to address a claim
that the "aggregate sentence" of eighty years for two counts of A felony child
molesting was manifestly unreasonable.'" The court began by tracing the origins
of article VII, section 4 of the Indiana Constitution, noting that the framers "had
in mind the sort of sentencing revision conducted by the Court of Criminal
Appeals in England.'"^^ In England, the appellate court

shall, if they think a different sentence should have been passed, quash
the sentence passed at trial, and pass such other sentence warranted in
law by the verdict (whether more or less severe) in substitution therefore
as they think ought to have been passed, and in any other case shall
dismiss the appeal. '^^

Despite having its origins in such a liberal standard, Indiana appellate courts have
exercised their responsibility "with great restraint, recognizing the special
expertise of the trial bench in making sentencing decisions."'^* Although the
deferential standard of review "means that trial court decisions will be affirmed
on the great majority of occasions," the appellate courts should revise sentences
when they are "manifestly unreasonable in light of the nature of the offense and

151. Id

152. /^. at 361.

153. Id

154. 747 N.E.2d 536 (Ind. 2001).

155. Id Bi 53^.

156. /^. at 537-38.

1 57. Id. at 538 (quoting Criminal Appeal Act, 1907, 7 Edw. 7, ch. 23 § 4(3) (Eng.)).

158. Id

1366 INDIANA LAW REVIEW [Vol. 35:1347

the character of the offender."'^^

In applying the standard to Walker's case, the supreme court noted that
although he did not have a history of criminal behavior, he had molested the
same child twice without physical injury, was on probation, and had fled the
jurisdiction. '^° Weighing these considerations the court found that "this is some
distance from being a worst offense or the most culpable offender" and ordered
Walker's two forty-year sentences to be served concurrently.'^'

Following Walker or other precedent, the court of appeals reduced sentences
as being manifestly unreasonable in five cases during the survey period.'"
Relying heavily on Walker, the court of appeals in Perry v. State^^^ held that
consecutive sentences for dealing and conspiracy to deal cocaine were manifestly
unreasonable because Perry's prior felony convictions were used as the
aggravating circumstance to justify consecutive sentences and formed the basis
of the habitual offender charge.'^ Accordingly, the case was remanded for the
imposition of concurrent sentences. '^^ In a similar vein, in Simmons v. State^^^
the court ordered a reduction of the defendant's maximum fifty-year sentence for
Class A felony child molesting to forty years because the defendant's "criminal
history was not lengthy, did not demonstrate a tendency toward violence or a
propensity to commit sexual acts, and was the only proper aggravating factor
considered by the trial court . . . ."'^^

In Love v. State,^^^ the court of appeals reduced the defendant's maximum
sentence of fifty years for possession with intent to deliver cocaine to the
presumptive term of thirty years. The court based its decision on the defendant's
lack of a violent criminal history and his youthful age of nineteen: "In
sentencing Love to fifty years' imprisonment, the trial court has effectively
determined that Love is beyond rehabilitation at age nineteen.'"^^

In contrast, in Peckinpaugh v. State^^^ the court reduced a sentence for

159. Id.

160. Id.

161. Id

162. This number does not include Mann v. State, 742 N.E.2d 1025 (Ind. Ct. App.), trans,
denied, 753 N.E.2d 13 (Ind. 2001), cited in Walker as an example of a sentence properly reduced
as manifestly unreasonable. Although Judge Baker noted in his dissent that he would have reduced
the sentence under the manifestly unreasonable doctrine, id. at 1028-29 (Baker, J., dissenting), the
majority relied on procedural sentencing doctrine in remanding "to the sentencing court with
instructions to impose the forty-five year sentence it deemed appropriate after identifying and
balancing the aggravating and mitigating circumstances." Id. at 1028.

163. 751 N.E.2d 306 (Ind. Ct. App. 2001).

164. IddX^W.

165. Id

166. 746 N.E.2d 81 (Ind. Ct. App.), trans, denied, 761 N.E.2d (Ind. 2001).

167. Mat 93.

168. 741 N.E.2d 789 (Ind. Ct. App. 2001).

169. /^. at 795.

170. 743 N.E.2d 1238 (Ind. Ct. App. 2001).

2002] CRIMINAL LAW 1367

burglary from the maximum of twenty years to the presumptive sentence often
because of the nature of the offense. The court found the crime not to be a
"particularly egregious example" of burglary and noted that no injury was
attempted against the occupant and no damage was caused to the dwelling.'^'
The court, however, upheld the maximum sentence of eight years for stalking
because it was based on repeated harassment in the face of several warnings by
law enforcement.'^^ The court also affirmed the decision to order the sentences
served consecutively because of the defendant's need for an extended
incarceration in a penal facility. '^^

Finally, in Biehl v. State^^^ the court of appeals broke new ground in finding
a presumptive sentence to be manifestly unreasonable. Biehl, unlike the
previously-discussed cases, presented both a mitigated nature of the offense and
a sympathetic character of the offender. As to the nature of the offense, the court
noted that the victims had to some extent sought out the defendant when they
entered the bam where he was living, threw bricks and boards at him, and refused
to leave when asked. *^^ As to the character of the offender, the court noted that
the defendant, who was thirty-five years old, had no criminal history and had
been suffering from a longstanding and severe mental illness.'^^ Weighing these
considerations, the court found that the presumptive sentence of thirty years for
voluntary manslaughter was manifestly unreasonable and ordered the sentence
to be reduced to the minimum of twenty years. '^^ Not only did the supreme court
deny the State's petition for transfer in Biehl, it also cited the case with approval
several months later in Walker ^^

Although substantive sentence review in Indiana continues to challenge the
appellate courts in large part because the unique nature of sentencing decisions
which defy easy quantification, these opinions suggest a recognition of the
important goal of consistency that has not been a constant feature in prior years.
As highlighted in many of these opinions, the appellate courts seem especially
concerned by consecutive sentences and appear more inclined to reduce a
sentence when a defendant is given enhanced sentences for more than one
offense and ordered to serve the counts consecutively, as in Walker and Perry.
The Winn opinion also suggests that the same principle may begin to be applied
to habitual offender cases; although the habitual offender enhancement is not a
separate charge, it nevertheless represents the same sort of "piling on" as in
consecutive sentencing cases. Winn also suggests somewhat of a departure from
the usual considerations by looking at the predicate offenses that formed the
basis of the habitual offender charge instead of the aggregate sentence.

171. /f/. at 1243.

172. Mat 1243-44.

173. /t^. at 1244.

174. 738 N.E.2d 337 (Ind. Ct. App. 2000), trans, denied, 753 N.E.2d 3 (Ind. 2001).

175. Mat 339.

176. /flf. at 339-40.

177. Mat 341.

1 78. See Walker v. State, 747 N.E.2d 536, 538 (Ind. 2001).

1368 INDIANA LAW REVIEW [Vol. 35:1347

Beyond these limitations, the remaining cases suggest a greater appreciation
and depth of review for the relevant calculus of the "nature of the offense" and
"character of the offender." In Peckinpaugh the court considered the specifics
of the burglary offense and found that it did not call for a sentence beyond the
presumptive. However, analysis of "nature of the offense" represents only half
of the equation, and most cases have turned in larger part on the "character of the
offender." The most salient attributes, as evidenced by the cases decided during
the survey period, appear to be a lack of or minimal criminal history, a
defendant's youthful age, and long-standing mental illness.

Biehl is perhaps the most significant of these opinions because it represents
the first successful challenge to a presumptive sentence. Previously, most
successful challenges have been to sentences at or near the maximum and have
led to reductions to the presumptive sentence (or above). The court of appeals'
opinion in BiehU and the supreme court's later approval of it, makes clear that
any sentence may be successfully challenged under the manifestly unreasonable
doctrine. Although many, if not most, challenges to the presumptive sentence
will likely prove unfruitful, a particularly mitigated nature of the offense or
sympathetic character of the offender could lead to a reduction. However,
reduction to the minimum sentence as in Biehl yjo\x\d appear unlikely unless both
factors are particularly strong.

In short, both the supreme court and court of appeals issued opinions that
have begun to shape a landscape for consistency in substantive sentencing
challenges. Many of the court of appeals' opinions relied heavily on and
reconciled themselves with existing authority. Although these decisions have not
taken the form of explicit sentencing principles, these recent cases represent a
useful and large step in the direction of consistency in sentencing.

Survey of Employment Law Developments
FOR Indiana Practitioners

Susan W. Kline'
Ellen E. Boshkoff'

Introduction: National Trends and Developments

One immediate reaction to last year's terrorist attacks on the United States
was an upsurge in religious observance and expression.' Issues of religious
accommodation and tolerance in the workplace are therefore very much in the
public eye. Ironically, it was on September 1 1, 2000 that the Seventh Circuit
heard oral arguments in Anderson v. U.S.F. Logistics (IMC), Inc.,^ the "Have a
Blessed Day"^ case.

The controversy began when a representative of U.S.F.'s largest customer,
Microsoft, complained about Elizabeth Anderson's use of this phrase in business
communications."* Anderson twice ignored her supervisor's instruction not to use
the phrase in correspondence to Microsoft.^ In a meeting called to discuss the
situation, Anderson offered to refrain from using the phrase with any individuals
who took offense, but her supervisor did not respond to the proposed
accommodation.^

The next step was a written reprimand and distribution of a company policy
to all Indianapolis employees instructing them to refrain from using "additional
religious, personal or political statements" to communications with customers.^
Although the policy also prohibited such communications with co-workers,
Anderson was allowed to continue wishing her fellow employees blessed days.*

Anderson took the matter public and a local newspaper published an article
that quoted a Microsoft spokesperson as saying Microsoft had no objection to the
phrase.^ Based on her reading of the article, Anderson decided she could resume
using the phrase. The day after the article appeared, Anderson again used the

* Judicial Clerk to Chief Justice Randall T. Shepard, Indiana Supreme Court. B.S., 1 980,
Butler University; M.B.A., 1992, Butler University; J.D., 2000, Indiana University School of
Law—Indianapolis.

* * Partner, Baker & Daniels, Indianapolis. B. A., 1 983, Swarthmore College; J.D., 1 990,
Indiana University; Judicial Clerk to Chief Judge J. Clifford Wallace, Ninth Circuit Court of
Appeals, 1990-91.

1 . See Laurie Goodstein, As Attacks ' Impact Recedes, a Return to Religion as Usual, N. Y.
Times, Nov. 26, 2001, at Al.

2. 274 F.3d 470 (7th Cir. 2001).

3. Mat 473.

4. Id.

5. See id.

6. Id.

1. /c/. at 474.

8. Id.

9. Id

1370 INDIANA LAW REVIEW [Vol. 35:1369

"Blessed Day" closing in a communique to Microsoft.'^ U.S.F. did not push the
issue by imposing further discipline but did not retract the previous reprimand."

For several months Anderson refrained from using the "Blessed Day" phrase.
She then sent an e-mail to Microsoft with the phrase "HAVE A BLESSED
DAY" in capital letters, surrounded by quotation marks. She received another
reprimand.'^

More than six months later, Anderson brought suit under Title VII of the
Civil Rights Act of 1964'^ (Title VII), claiming failure to reasonably
accommodate her religious practice and seeking injunctive relief^ Judge John
Daniel Tinder of the Southern Districtof Indiana denied a preliminary injunction,
concluding that it was unlikely Anderson would succeed on the merits. ^^
Anderson filed an interlocutory appeal with the Seventh Circuit, which affirmed
on December 14,2001.'^

Judges Cudahy, Easterbrook and Williams all agreed that because Anderson
used the phrase only sporadically and had no religious commitment or
requirement to use the phrase all the time, "an accommodation that allows her to
use the phrase with some people but not with everyone could be a reasonable
accommodation."^^ The court also noted that the employer had not sought "to
denigrate" Anderson's belief.'^ In fact, U.S.F. had invited her to open a
company-sponsored event by saying a prayer over the loudspeaker and allowed
her to use the "Blessed Day" phrase with co-workers, display religious sayings
in her work area, and listen to religious radio broadcasts at her work station.'^

The Anderson decision may help employers and employees better understand
religious accommodation. An employer's obligation to provide reasonable
religious accommodations is measured differently than under the ADA.
Employers may legally refuse, as an undue hardship, religious accommodations
that would involve more than de minimis cost.^°

An important point, not raised in Anderson, is that Title VII's requirement
of reasonable religious accommodation applies to any sincerely held religious
belief, not merely traditional Judeo-Christian beliefs.^' On November 1 9, 2001 ,

10. Id.

11. Id

12. See id.

13. 42U.S.C. §2000e(1994).

14. Anderson, 274 F3daX 414.

15. Anderson v. U.S.F. Logistics (IMC), Inc., 2001 U.S. Dist. LEXIS 2807, ♦45-46. (S.D.
Ind. 2001).

16. Anderson, 274 ¥ 3d at 410.

17. 7^.476.

18. Id

1 9. Id. at 476-77. Note that the court did not say these accommodations were required, but
it considered them as evidence of the employer's tolerance toward expressions of faith. Id.

20. See Trans World Airlines, Inc. v. Hardison, 432 U.S. 63, 84 (1977) ("To require TWA
to bear more than a de minimis cost in order to give Hardison Saturdays off is an undue hardship.").

21. See Bushouse v. Local Union 2209 UAW, 164 F. Supp. 2d 1066, 1072 n.l4 (N.D. Ind.

2002] EMPLOYMENT LAW 1371

the Equal Employment Opportunity Commission (EEOC) and U.S. Departments
of Justice and Labor issued a joint statement reaffirming their commitment to
combat workplace discrimination based on religion, ethnicity, national origin or
immigration status.^^ The statement urged victims of workplace bias to promptly
report incidents to allow timely investigation.^^ The statement specifically refers
to acts directed toward individuals who are, or are perceived to be, Arab,
Muslim, Middle Eastern, South Asian or Sikh.^'*

The EEOC has therefore put employers on renewed notice that adverse
actions or harassment based on religious or national affiliation, physical or
cultural traits and clothing, perception and association may violate Title VII. ^^
As of December 6, the EEOC had already logged 166 formal workplace
discrimination complaints specifically related to the September 1 1 attacks.^^

Another tolerance-related issue on the rise is disability harassment.^^ This
has become the fourth most frequent form of harassment claim (following racial,
sexual, and national origin harassment), with 2,400 complaints logged annually .^^
A New Jersey man with dyslexia and other neurological impairments recently
won a six-figure jury award.^^ Other cases have involved allegations of
horseplay targeting a mentally retarded restaurant worker, hostility toward and
ostracism of an HIV-infected woman, and taunting of a man with bipolar illness

2001).

22. Press Release, U.S. Equal Employment Opportunity Commission, EEOC and
Departments of Justice and Labor Issue Joint Statement Against Workplace Bias in Wake of
September 1 1 Attacks, at http://eeoc.gOv/press/l 1-19-01. html (last visited Nov. 19, 2001).

23. Id.

24. Id.

25. See U.S. Equal Employment Opportunity Commission, Employment Discrimination
Based on Religion, Ethnicity, or Country of Origin, at http://eeoc.gov/facts/fs-relig_ethnic.html
(last visited Dec. 12,2001).

26. Press Release, U.S. Equal Employment Opportunity Commission, EEOC Confers with
Minority Groups on Combating September 1 1 Backlash Discrimination, at http://ee0c.g0v/press/l 2-
12-Ol.html (last visited Dec. 12, 2001).

27. See Reed Abelson, Employers Increasingly Face Disability-Based Bias Cases, N.Y.
Times, Nov. 20, 2001 , at CI . Note that the Seventh Circuit has yet to decide in favor of a plaintiff
on a disability harassment claim. In each case raising such a claim, the court has therefore assumed
without deciding that the claim is cognizable under the Americans with Disabilities Act (ADA).
See, e.g., Casper v. Gunite Corp., 2000 U.S. App. LEXIS 16241, * 12 (7th Cir. 2000) (unpublished
opinion); Silk v. City of Chicago, 194 F.3d 788, 803-04 (7th Cir. 1999). The Seventh Circuit has
signaled its receptivity to such claims by noting that a cause of action for disability harassment
appears to exist based on ADA language prohibiting discrimination in any "term, condition, or
privilege of employment" — language that parallels Title VII. Casper, 2000 U.S. App. LEXIS
16241 at * 12-13. During the survey period, the Fourth and Fifth Circuits, which are usually
considered relatively conservative, recognized claims of hostile environment based on disability.
See Marcia Coyle, New Tool for Job Bias Suits, Nat'l L.J., May 14, 2001 at Al.

28. Abelson, supra note 27.

29. Id.

1372 INDIANA LAW REVIEW [Vol. 35:1369

as a "psycho" and "freak."^°

Employees who are appropriately sensitive to issues of race and gender may
not be as well educated when it comes to disabilities. These issues become more
complicated when an employer is entrusted with medical information about an
employee because, for example, the employee has submitted a certification in
support of a request for leave under the Family and Medical Leave Act (FMLA).
Employers must protect the disabled individual's privacy by strictly limiting
disclosure of information regarding the disability to those with a legitimate need
to know.^'

These privacy concerns have been affected by the September 1 1 attacks. On
October 3 1 , 200 1 , the EEOC issued technical assistance to employers concerned
about special needs of disabled employees in the event of an emergency
evacuation.^^ According to the EEOC, when an employer knows of an employee
disability, it may inquire about special emergency assistance needs. However,
the EEOC cautions that employers should not assume that all disabled
individuals require special help, but should rather consult the individuals who are
best able to assess their own situations. The information also helps employers
determine how much medical information they may request, and with whom they
may share it."

The remainder of this Article will review some of the survey year's most
significant and interesting legal developments affecting Indiana employers and
employees. It begins by looking at Title VII, the Americans with Disabilities Act
(ADA), the Age Discrimination in Employment Act (ADEA), and other federal
law developments. It continues with a summary of worker's compensation and
other state law developments, followed by a brief update on the force and effect
of arbitration agreements. It concludes by mentioning three pending cases worth
monitoring.

I. Title VII

A. What Qualifies as an Adverse Action?

Under McDonnell Douglas' burden-shifting method of proof,^* a plaintiff
establishes a prima facie case of discrimination by showing she was a protected
class member who performed satisfactorily but suffered some adverse
employment action to which others outside the class were not subjected.^^
Similarly, a party claiming retaliation under Title VII must show that because he

30. Id

31. See 42 U.S.C. § 121 12(d)(3H4) (1994).

32. U.S. Equal Employment Opportunity Commission, EEOC Provides Technical Assistance
to Employers on Requesting Medical Information as Part of Emergency Evacuation Procedures, at
http://eeoc.gov/press/10-3 1-01 .html (last visited Oct. 3 1, 2001).

33. Id.

34. McDonnell Douglas Corp. v. Green, 41 1 U.S. 792 (1973).

35. Grube v. Lau Indus., 257 F.3d 723, 728 (7th Cir. 2001).

2002] EMPLOYMENT LAW 1373

engaged in a protected activity he suffered an adverse employment action.^^

A key issue in several recent cases has been whether the alleged action was
legally adverse (sometimes referred to as a "tangible employment action").^^ In
Stutler V. Illinois Department of Corrections^ the court provided a brief recap of
some Seventh Circuit holdings on this point.^* The court requires a "'significant
change in employment status, such as hiring, firing, failing to promote,
reassignment with significantly different responsibilities, or a decision causing
a significant change in benefits'" that materially alters the terms and conditions
of employment.^^ Negative performance evaluations, job title changes, greater
travel distance to work and/or loss of a telephone or workstation do not qualify
standing alone/^ Retaliatory harassment by a supervisor or co-workers may
qualify but only if it is sufficiently severe."*' Here, the court held that neither
Stutler' s lateral transfer with no loss of benefits or responsibilities nor an
"unpleasant" working environment qualified as a legally adverse action."^^

In Molnar v. BoothJ^^ the court took a more liberal view in a case involving
a junior high school principal who allegedly propositioned a teaching intern.'*'*
On the intern's first day on the job, the principal "ogled her and made
appreciative noises," then took her into his office and suggested that he could
provide permanent room space and supplies not normally available to junior
teachers."*^ In ensuing weeks he did other things that Molnar perceived as
advances, such as calling her to his office to discuss personal matters and inviting
her out on his boat."*^ Molnar's rejection of these offers led to retraction of the
art supplies and the offer of an art room, plus a negative evaluation (later
retracted) that could have kept Molnar from receiving her teaching license."*^

A jury awarded Molnar $500 in actual damages and $25,000 in punitive
damages.^* The Seventh Circuit affirmed, calling the tangible employment action
issue close but concluding that confiscation of essential supplies and a negative
evaluation were sufficiently adverse.*^ Although the criticism was temporary, it

36. Stutler v. 111. Dep't of Corr., 263 F.3d 698, 702 (7th Cir. 200 1 ).

37. See, e.g., Haugerud v. Amery Sch. Dist., 259 F.3d 678, 698 (7th Cir. 2001) (citing
Burlington Indus., Inc. v. Ellerth, 524 U.S. 742, 761 (1998)).

38. 5/«r/er, 263 F.3d at 703 (citations omitted).

39. Haugerud, 259 F.3d at 698 (quoting Burlington Indus., Inc. v. Ellerth, 524 U.S. 742, 761
(1998); citing Rabinovitz v. Pena, 89 F.3d 482, 488 (7th Cir. 1996)).

40. Stutler, 763 F.3d at 703 (citing Hill v. Am. Gen. Fin., Inc., 218 F.3d 639, 645 (7th Cir.
2000); Place v. Abbott Labs., Inc., 215 F.3d 803, 810 (7th Cir. 2000)).

41. Id.

42. Mat 702-04.

43. 229 F.3d 593 (7th Cir. 2000).

44. Id. Sit 591.

45. Id.

46. Id.

47. /^. at 597-98.

48. Id. at 599.

49. /^. at 600.

1374 INDIANA LAW REVIEW [Vol. 35:1369

threatened Molnar's career for a period of time. ^° The court was concerned about
allowing supervisors to punish employees and then avoid liability by reversing
the action later.^^

In Russell v. Board of Trustees^^ the court deemed a five-day unpaid
suspension materially adverse.^^ Plaintiff Russell claimed a spotless thirty-year
employment record.^"* Russell's problem arose when she filled out a time card
in advance, anticipating that she would be attending a full day of training." A
flat tire caused her to miss the afternoon session of the training, and she failed to
correct the entry when she submitted the card the next day.^^ When Russell
returned from a two week vacation, her supervisor asked how the seminar went.^^
Russell responded that she only attended the morning session, and immediately
acknowledged her error when shown the time card discrepancy.^*

Russell claimed the resulting five-day suspension was an act of retaliation for
her complaints about her supervisor's mistreatment of female employees.^^ The
district court held that the suspension was not sufficiently adverse to be
actionable.^^ The Seventh Circuit disagreed, finding the entry on a formerly
spotless record that Russell committed "theft of services" by "falsifly ing]" a time
record even worse than the loss of five days' pay.^*

Other employees were less successful during the survey period in proving
adverse employment actions. In Haugerudv. Amery School District, ^^ a longtime
custodial worker claimed that her employer tried to pressure her into resigning,
told male custodians not to help female custodians, gave her additional
responsibilities not assigned to males, and intentionally interfered with her work
performance." The court concluded that the alleged incidents could collectively
constitute a pervasively hostile environment.^ However, Haugerud was never
disciplined, demoted, terminated, denied wage or benefit opportunities or
increases, or made to perform more menial tasks.^^ The appeals court therefore
affirmed summary judgment for the school district on the sex discrimination

50. /flf. at 600-01.

51. Id.

52. 243 F.3d 336 (7th Cir. 2001).

53. Mat 341.

54. Id.

55. Mat 339.

56. Mat 339-40.

57. M at 340.

58. Id.

59. Id. Among other things, the supervisor allegedly said one female employee "dressed like
a whore," called another a bitch, and called Russell "grandma." Id. at 339.

60. M. at 341.

61. Id.

62. 259 F.3d 678 (7th Cir. 2001).

63. M. at 684-87.

64. M. at 698.

65. M. at 692.

2002] EMPLOYMENT LAW 1375

claim, although it reversed on the harassment claim. ^^

In Grube v. Lau Industries,^^ the plaintiffs complaint arose from a shift
reassignment after more than twenty years working the day shift.^* The court
said, "Title VII simply was never intended to be used as a vehicle for an
employee to complain about the hours she is scheduled to work or the effect
those hours have upon the time an employee spends with family members. "^^
The change in working hours was not, therefore, an adverse employment action^*^

In Aviies v. Cornell Forge Co. ,^' the plaintiff argued that "[c]alling the police
on someone is always an adverse act."^^ The Seventh Circuit had considered this
case in a previous appeal and remanded^^ On successive appeal, Aviies
mischaracterized the earlier Seventh Circuit opinion, which held that a false
report that Aviies was armed and lying in wait outside the plant after threatening
his supervisor cow/flf constitute an adverse action.^"* At the ensuing trial, however,
it was established that Aviies was escorted by police from the plant after he
refused to leave following a suspensions^ Aviies then ignored police instructions
not to return and parked within two blocks of the plant entranceS^

Someone from the plant telephoned the police to report Aviies' presenceS^
In response to an officer's question the caller expressed uncertainty but said
Aviies might be armed.^* The police forcibly removed Aviies from the vicinity
of the plant but did not arrest him.^^ The appeals court agreed with the district
court that Aviies suffered no adverse action, because Aviies did not prove the
report false.*° Furthermore, any injury Aviies incurred was unforeseeable
because the company caller had no reason to expect that Aviies would resist or
that the police would overreact in removing Aviies from the area.*'

B. Standards and Methods of Proof
This survey marks the first full year following the Supreme Court's decision

66. Id. at 700.

67. 257 F.3d 723 (7th Cir. 2001).

68. /c/. at 728.

69. Id. 2X129.

70. /^. at 729-30.

71. 241 F.3d 589 (7th Cir. 2001).

72. /flf. at 590, 593.

73. Ariles v. Cornell Forge Co., 1 83 F.3d 598 (7th Cir. 1999).

74. 241 F.3d at 593.

75. /£/.at591.

76. Id
11. Id.

78. Id.

79. /c/. at 591-92.

80. /c/. at 593.

81. /flf.at592.

1376 INDIANA LAW REVIEW [Vol. 35:1369

in Reeves v. Sanderson Plumbing Products, Inc.,^^ a case many believed would
have a significant impact on summary judgment practice in employment
discrimination cases.*^ In Reeves, the Court resolved a circuit split regarding the
standard of proof necessary for a plaintiff to survive a motion for judgment as a
matter of law.^ At issue was whether a trier of fact could infer discrimination
from the falsity of the employer's explanation for its action (known as the
"pretext" standard) or whether the plaintiff had to present additional evidence of
intentional discrimination ("pretext plus").^^ Opting for the lower standard, the
Court ruled that "[i]n appropriate circumstances, the trier of fact can reasonably
infer from the falsity of the explanation that the employer is dissembling to cover
up a discriminatory purpose."^^

Reeves was hailed as a major victory for plaintiffs*^ and seemed to signal a
sea change in approach to dispositive motions in employment cases. Early
predictions were that Reeves would make it easier for an employment plaintiff
to get to a jury and harder for jury verdicts to be overturned.**

Actual experience, however, has proved otherwise. Based on the limited
post-Reeves data available, several authors have found no significant change in
the number of cases being resolved on motion, nor on the fate of summary
judgment rulings on appeal.*^

Seventh Circuit practice seems consistent with this finding. During the
survey period, the Seventh Circuit considered appeals of summary judgment
rulings in seventy-two employment discrimination cases. The Seventh Circuit
affirmed the entry of summary judgment in sixty- two of these cases, affirmed in
part in five more, and reversed outright in only five.^

An interesting point is that the Seventh Circuit rarely cited the Reeves
decision in these cases. Only twelve of the summary judgment discrimination

82. 530 U.S. 133(2000).

83. See Philip M. Berkowitz, An Early Analysis of the Impact o/ Reeves v. Sanderson,
N.Y.L.J., Sept. 28, 2000, at 5.

84. See Susan W. Kline, Survey of Employment Law Developments for Indiana Practitioners,
34 IND. L. REV. 675, 678 (2001).

85. See Berkowitz, supra note 83.

86. Reeves, 530 U.S. at 147.

87. See, e.g., Tim A. Baker, Supreme Court Decision Eases Burden for Discrimination
Plaintiffs, iND. LAW., July 19, 2000, at 4.

88. See, e.g., Marcia Coyle, New High Court Bias Ruling May Spark More Jury Trials,
Settlements, Nat'l L.J., June 26, 2000 at Bl ("Employers will likely face more jury trials, increased
pressure for settlement and greater caution in making employment-related decisions because of an
age bias ruling by the U.S. Supreme Court."); Linda Greenhouse, The Justices Make It Easier to
Win Suits for Job Bias, N.Y. TIMES, June 13, 2000 at A24; Peter N. Hillman, Risks of
Discrimination Suits Increase for Employers Following Supreme Court Ruling in Reeves, Emp.
LITIG. REP., July 1 1, 2000 at 3.

89. See, e.g., Tamara Loomis, Employment Bias; After 'Reeves, ' Little Has Changed in the
Circuit, N.Y.L.J., July 5, 2001, at 5.

90. Authors' calculations.

2002] EMPLOYMENT LAW 1 3 77

cases decided during the survey period contain any mention of Reeves, and most
of those cases cite the decision only in passing.^' The explanation for this
omission may be that Reeves did not technically change the standards in the
Seventh Circuit — ^which has always been a "pretext" circuit.^^ Thus, pre-Reeves
case law on summary judgment standards remains viable in this circuit.

One case illustrating the continuity of standards in the Seventh Circuit is
Pugh V. City of Attica?^ Pugh, a former city animal control officer, sued the city,
alleging discharge due to a perceived disability and retaliation for protesting
police harassment.^"* In its motion for summary judgment, the employer
presented its explanation for the discharge — ^that it believed Pugh had
misappropriated funds.^^ The trial court granted summary judgment for the
city.^

On appeal, Pugh attempted to bring the case within the Reeves framework by
arguing, among other things, that he had not actually committed the misconduct
for which he had been fired.'^ In support of this argument, Pugh relied on his
own denials and explanation of the incident.^* Pugh argued that this created a
dispute regarding whether the employer's explanation for its decision was
"unworthy of credence."^^

The Seventh Circuit summarily rejected this argument. Relying on pre-
Reeves case law, the court ruled that the issue on summary judgment was not
whether Pugh had actually misappropriated funds, but whether the city had
honestly believed that he did so:

Mr. Pugh's argument is misplaced. By arguing that he did not mishandle
funds, he has not cast any doubt on the honesty of the City's belief that
he had engaged in such conduct. Mr. Pugh offers no evidence to suggest
that the City had additional information or knowledge . . . which would
have indicated that the City did not truly believe that Mr. Pugh had
misappropriated funds. '°^

Based on the city's evidence explaining its investigation and conclusions, the

Seventh Circuit easily found that the city had met this "honest belief standard. '°^

The plaintiff in Logan v. Kautex Textron North America^^^ was similarly

unable to capitalize on Reeves. Plaintiff Logan's six co-workers evaluated her

91. Authors' calculations.

92. See, e.g., Sheehan v. Donlen Corp., 173 F.3d 1039 (7th Cir. 1999).

93. 259 F.3d 619 (7th Cir. 2001).

94. /f/. at 621, 624.

95. /flf. at624.

96. Id.

97. Id.?x621.

98. Id

99. Id

100. Id

101. Mat 629.

102. 259 F.3d 635 (7th Cir. 2001).

1378

FNDIANA LAW REVIEW

[Vol. 35:1369

performance at the end of her probationary period, and four recommended that
she not be offered permanent employment. '^^ Logan attributed the decision to
retaliation for her complaints about two alleged racial comments and one alleged
threat to her job security, all made by one of the voting co-workers. '^"^ Kautex,
according to Logan, attributed its decision to Logan's "bad attitude, sabotaging
tanks, performance, and absenteeism."'®^ Logan argued that this inconsistency
would allow a jury to infer that these proffered reasons were not the actual
reasons for her discharge.'^

The Seventh Circuit disagreed, noting that all the reasons except absenteeism
were related and concluding, "no reasonable jury could find that Logan was
terminated for any reason other than that she was voted out by her team."'°^ The
court acknowledged that race discrimination may be camouflaged under the label
"attitude," but Logan failed to produce any objective evidence that Kautex was
engaging in such a subterfuge. '°*

On the other hand. Reeves may have made a difference in a few of the close
cases decided during the survey period. For example, in Bell v. Environmental
Protection Agency ^^^ the court showed a willingness to consider the substantive
merits of the employment decision in question. There, sixteen candidates applied
for four available promotions. '^^ All selectees were white, native-born
Americans.'" Two African-American applicants sued claiming racial
discrimination, and two other foreign-born applicants sued claiming national
origin discrimination."^

The selection process included a personal interview and a rating system."^
Two successful applicants achieved ratings of sixty-nine and two scored a perfect
seventy- five."* Two plaintiffs achieved perfect scores, one scored sixty-nine,
and one scored sixty-three."^ All four plaintiffs had been employed by the EPA
for a longer time than any selectee, and each plaintiff had received more service
achievement awards than at least three selectees."^ The plaintiffs presented
statistical data suggesting that the EPA promoted blacks and foreign-born
employees less often than non-black and native-bom employees, although only

103. /c/. at 638.

104. /^. at 638, 640.

105. /fl?. at640.

106. Id.

107. Id.

108. /J. at 640-41.

1 09. 232 F.3d 546 (7th Cir. 2000).

110. /(i. at 549.

111. Id

112. W. at 548.

113. /t/. at 549.

114. Id

115. Id

116. /f/. at 551.

2002] EMPLOYMENT LAW 1 3 79

the data on foreign-bom employees qualified as statistically significant."^ They
also presented a memorandum written before the promotion decision was made
by one of the interview panelists, expressing the opinion that two plaintiffs were
better qualified than two selectees."*

The court held that the comparative qualifications evidence and statistics
precluded summary judgment on the discrimination claims."^ It said, "Even if
the pieces of evidence were not conclusive by themselves, they sufficiently
countered the EPA's assertion that it honestly believed it was promoting the best
candidates."'^°

The court was similarly receptive to the plaintiffs arguments in Gordon v.
United Airlines, Inc. '^' In Gordon, a probationary flight attendant on layover in
Los Angeles found his hotel room unsatisfactory.'^^ The crew desk was closed,
so he decided to return home to Chicago to shower and change clothes, then
return in time for his next scheduled flight. *^^ He checked in at the Chicago crew
desk and (by his account) offered to carry out this plan, but was excused from the
assignment.'^"* United ultimately terminated Gordon for the unauthorized
schedule deviation, and he claimed race and age discrimination.'^^

The district court granted summary judgment to United. '^^ The Seventh
Circuit reversed in a split decision. '^^ The majority focused on United's lack of
a clear definition of "unauthorized deviation" and noted that it was a rarely-
invoked infraction.'^* In addition, it was unclear who decided Gordon should be
charged with an unauthorized deviation, and the only other "unauthorized
deviation" action on record did not result in the (white female) employee's
termination.'^^ The court said:

A reasonable jury could conclude, given United's inconsistent definition
of unauthorized deviation, the rarity with which the unauthorized
deviation provision was invoked, the disparate ways it was applied when
it was invoked in Mr. Gordon's case, and United's inability to identify
the management employee responsible for characterizing Mr. Gordon's
conduct, that United's stated reason was a pretext for discrimination. '^°

117. /flf. at 553-54.

118. Mat 551-52.

119. M. at 554.

120. Id.

121. 246 F.3d 878 (7th Cir. 2001).

122. /rf. at881.

123. /c/. at 881-83.

124. /(i. at 882.

125. Mat 880.

126. Id.

127. Mat 893.

128. Mat 890.

129. M. at 891-92.

130. M. at 893.

1380 INDIANA LAW REVIEW [Vol. 35:1369

Judge Easterbrook dissented, saying that the McDonnell Douglas approach
"has become so encrusted with the barnacles of multi-factor tests and inquiries
that it misdirects attention."'^' The proper summary judgment focus, he argued,
was whether a reasonable trier of fact could conclude that Gordon was
terminated because of his age or raceJ^^ Unless United's explanation for the
discharge was "a fraud on the court — not just an overreaction, but a
lie" — summary judgment was proper.'" Even foolish, trivial or baseless reasons
are sufficient, Easterbrook asserted, as long as they are honestly believed and
nondiscriminatory.'^'* Here, there was no evidence that United tried "to pull the
wool over judicial eyes" or "bamboozle the court," and Easterbrook disagreed
that "blunders and intra-corporate disarray support an inference of deceit."'^^ He
characterized the majority view as "'added vigor' in action" and noted that
"[s]ummary judgment is a hurdle high enough without 'added vigor'"'^^

The last word on the subject of summary judgment standards during the
survey period was Alexander v. Wisconsin Department of Health & Family
Services. '^^ Prompted, most likely, by Judge Easterbrook's dissent in Gordon^
the Seventh Circuit used the case as a vehicle to address the court's prior use of
the phrase "added rigor" in employment cases. '^* In 1992, the court first said it
reviewed summary judgment dispositions in such cases with "added rigor"
because intent is a central issue, and subjective issues such as good faith and
intent are "notoriously inappropriate" questions for summary judgment. '^' Since
1 992, the "added rigor" wording has appeared in thirty published Seventh Circuit
opinions.''*^

In Alexander, the court explained that this phrase merely emphasized that
employment discrimination cases usually involve questions of credibility and
intent, which are seldom appropriate summary judgment issues.'"*' Despite the
implication, grants of summary judgment in employment discrimination cases are
reviewed under the same standards as all other cases in which summary judgment
is granted."*^

Plaintiff Alexander offered evidence of racially offensive remarks by co-

rn. Id,

132. Id.

133. /^. at 894.

134. Id. (quoting Hartley v. Wis. Bell, Inc., 124 F.3d 887, 890 (7th Cir. 1997)).

135. /£/. at 894-95.

136. /flf. at896.

137. 263 F,3d 673 (7th Cir. 2001).

138. /f/. at 680-81.

139. Id. at 681 (quoting McCoy v. WGN Cont'l. Broad. Co., 957 F.2d 368, 370-71 (7th Cir.
1992); Stumph v. Thomas & Skinner, Inc., 770 F.2d 93, 97 (7th Cir. 1985)).

140. Mat 681 n.2.

141. Mat 681.

142. Id. (citing Wallace v. SMC Pneumatics, Inc., 103 F.3d 1394, 1396 (7th Cir. 1997)).

2002] EMPLOYMENT LAW 1381

workers.''*^ He offered no evidence, however, that his five-day suspension for a
confrontation with a co-worker, his ten-day suspension for insubordination, and
his eventual termination for making a threatening gesture were either motivated
by discrimination or in retaliation for his complaints of racial discrimination."*'*
The court therefore affirmed summary judgment for the employer. '^^

The case trend indicates that, while Reeves may have had some impact in the
Seventh Circuit, that effect appears modest and somewhat sporadic. Judge
Easterbrook's dissent in Gordon makes clear that the court is not united in its
view of the required proof for summary judgment. This area of law therefore
warrants continued monitoring.

Two other cases dealing with standards and methods of proof are worth brief
mention, although the Seventh Circuit gave fairly short shrift to the plaintiffs
novel burden-of-proof argument in Price v. City of Chicago }^^ Price argued that
Title VII allows a plaintiff to establish disparate impact liability by showing that
the employer refused to adopt an alternative employment practice with a lesser
adverse impact.'"*' The dispute arose after Price, who is African- American,
received the same score on a qualifying examination as another older but equally
senior police officer.'"** The older officer got the only promotion available
because the city used birth dates to break such ties.'"*' Although Price argued that
this practice had a disparate impact on African-Americans, the record did not
support her assertion. '^^ Alternatively, Price argued that her employer should
have been required to promote her as well as the older officer as a less
discriminatory alternative.*^'

The court made clear that proof of disparate impact is required for the
plaintiffs prima facie case. '^^ Only after such proof must the employer show that
the challenged practice is job-related.'" If the employer succeeds, the plaintiff
may offer evidence that the justification is pretextual because a less
discriminatory alternative is available.'^"* Price placed the alternatives analysis
at the wrong end of the process, and her claim failed. '^^

The final survey period case worth noting dealt with comments as evidence
of harassment. In Mason v. Southern Illinois University^^^^ an African- American

143.

Id. at 683.

144.

/(f. at 683-88.

145.

Id. at 689.

146.

251 F.3d 656 (7th Cir. 2001).

147.

Id. at 659.

148.

Id. at 658.

149.

Id. at 658-59.

150.

Id. at 659.

151.

Id. at 660.

152.

Id.

153.

Id.

154.

Id.

155.

Id. at 66\.

156.

233 F.3d 1036 (7th Cir. 2000),

1382 INDIANA LAW REVIEW [Vol. 35:1369

campus police dispatcher's claim of supervisory harassment was based in part on
racist comments by co-workers. *^^ The Seventh Circuit held that comments
neither Mason nor his supervisor ever heard were properly excluded at trial. '^^
The trial court did allow evidence of comments made by the supervisor or in the
supervisor's presence. '^^ The concurring opinion emphasized that, in order to use
co-worker comments to prove harassment by a supervisor, the plaintiff must
show that the supervisor was or should have been aware that the words or deeds
offered as evidence would lead to co-worker misconduct.*^

C The Continuing Violation Doctrine

As a general rule, discrimination charges must be based on alleged
misconduct that occurred during specified filing timeframes. Plaintiffs
sometimes argue, however, that earlier misconduct should be considered under
the continuing violation doctrine. This doctrine allows plaintiffs to link
otherwise time-barred acts to acts within the limitations period.*^'

During the survey period, the Seventh Circuit issued two noteworthy
opinions discussing this doctrine. In Sharp v. United Airlines, Inc.,^^^ the airline
offered to reinstate fourteen flight attendants who sued on grounds of sex, age,
and disability discrimination after they were terminated for exceeding weight
restrictions.'^^ Plaintiff Sharp turned the offer down because she was pregnant,
although she could have accepted and immediately taken maternity leave. '^ She
later asked United to renew the offer on the same terms, but United declined to
do so despite Sharp's ongoing efforts to persuade various United officials. '^^

Two years after United declined to renew the offer. Sharp brought suit.'^^
The Seventh Circuit found the continuing violation doctrine inapplicable and
said, "[A]n employer's refusal to undo a discriminatory decision is not a fresh act
of discrimination."'^'

The plaintiff in Shanoffv. Illinois Department of Human Services^^^ was
similarly unsuccessful in invoking the continuing violation doctrine. '^^ Shanoff

157. Mat 1039-41.

158. Mat 1045.

159. M. at 1047.

160. M at 1048 (Ripple, J., concurring).

161. Shanoff V. 111. Dep't of Human Servs., 258 F.3d 696, 703 (7th Cir. 2001).

162. 236 F.3d 368 (7th Cir. 2001).

163. Mat 369.

164. Mat 370.

165. M

166. M.

1 67. Id. at 373 (quoting Lever v. Northwestern Univ., 979 F.2d 552, 555-56 (7th Cir. 1 992)).

168. 258 F.3d 696 (7th Cir. 2001).

169. M at 703. Plaintiff ShanofTdid succeed in convincing the appeals court to reverse
summary judgment for the employer, because a reasonable jury could have found that alleged
supervisory remarks made during the limitations period that expressed animosity toward Shanoff s

2002] EMPLOYMENT LAW 1383

claimed that he suffered a hostile work environment based on actions by his
supervisor such as referring to Shanoff as a "haughty Jew" and threatening to
"keep [his] white Jewish ass down."^^° Shanoff first complained internally in
November 1997, after several hostile remarks, but was told that the employer
would take no action to resolve the situation.'^' At that point, the court held,
Shanoff was on notice that he had a substantial claim and the filing clock began
to run.'^^ Shanoff did not sue until October 1998, so the court only considered
allegations that fell within the 300 days prior to that filing dateJ^^

Different circuits have adopted varying continuing violation standards.'^'*
The Seventh Circuit holds that plaintiffs may not procrastinate; they must sue "as
soon as the harassment becomes sufficiently palpable that a reasonable person
would realize [he] had a substantial claim under Title VII" in order to base claims
on conduct prior to the limitations period. '^^

The U.S. Supreme Court may soon shed some light on the continuing
violation question. The Court has granted certiorari in Morgan v. National
Railroad Passenger Corp. '^^ Plaintiff Morgan claimed race-based harassment
that occurred over a four-year period. '^^ The Ninth Circuit held that courts can
consider time-barred conduct if "the evidence indicates that the alleged acts of
discrimination occurring prior to the limitations period are sufficiently related to
those occurring within the limitations period."'^* It found the pre- 1 imitations
conduct at issue sufficiently related under the totality of the circumstances to
invoke the doctrine. ^^'

D. Remedies
The U.S. Supreme Court answered an important question in Pollard v. E.I.

race and religion were sufficiently severe to create a hostile work environment. Id. at 706.

170. Mat 698, 700.

171. M. at 699-700. Compare to Frazier v. Delco Elec. Corp., 263 F.3d 663, 666 (7th Cir.
2001) (allegedly harassing conduct that occurred while the company said it was investigating
Frazier's complaints not time-barred; it is "a principle more fundamental than the doctrine of
continuing violation" that an employer "cannot plead for time to rectify a situation of harassment
... but deny the time to the victim of the harassment to learn that the company has failed to rectify
it after all").

172. 5Aa«o/^ 258 F.3d at 703-04.

173. Id.

174. See Lisa S. Tsai, Note, Continuing Confusion: The Application of the Continuing
Violation Doctrine to Sexual Harassment Law, 79 TEX. L. REV. 531 (2000).

1 75. Shanoff, 258 F.3d at 703 (quoting Galloway v. Gen. Motors Serv. Parts Operations, 78
F.3d 1 164, 1 166 (7th Cir. 1996)).

176. 232 F.3d 1008 (9th Cir. 2000), cert, granted, 533 U.S. 927 (2001).

177. Mat 1010-13.

178. Mat 1015.

179. Mat 1017-18.

1384 INDIANA LAW REVIEW [Vol. 35:1369

DuPont de Nemours & Co. '^^ by holding that front pay is not an element of
compensatory damages under the Civil Rights Act of 1991J*' Pollard sued for
CO- worker sexual harassment and received $300,000 (the maximum
compensatory damages available to her under the Act) plus additional amounts
for back pay, benefits and attorney fees.'^^ The district court expressed the view
that $300,000 was insufficient to compensate Pollard but followed Sixth Circuit
precedent holding that front pay was subject to the cap.'^^

The U.S. Supreme Court looked to the original language of the Civil Rights
Act of 1964, which was very similar to the National Labor Relations Act
(NLRA) and which provided remedies of injunction and/or reinstatement with
or without back pay.'*^ The NLRA's back pay provision had consistently been
interpreted to allow compensation up to the employee's reinstatement date, even
if that occurred after judgment.^**

In Title VII parlance, post-judgment compensation is considered front pay.'*^
After the 1964 Act was expanded in 1972 to allow "any other equitable relief,"
all circuits that addressed the issue allowed front pay, including front pay in lieu
of reinstatement when reinstatement was not a viable option.'*^

The Court concluded in Pollard thait Congress intended to provide additional
remedies when it passed the 1991 Act.'** The 1991 Act therefore expands
previously available remedies by allowing compensatory and punitive damages
in addition to front pay pending or in lieu of reinstatement.'*^

The Seventh Circuit took this rationale a step farther in Hertzberg v. SRAM
Corp. '^ A jury awarded Hertzberg $20,000 in punitive damages for sexual
harassment, but found for the employer on Hertzberg's retaliatory discharge
claim. Despite the latter fmding, the district court added equitable relief in the
form of back and front pay to the award, reasoning that but for the harassment,
Hertzberg would not have left the company.'^'

The Seventh Circuit acknowledged Pollard's holding that the 1991 Act left
previously available equitable remedies undisturbed, and reasoned that the
required showing for those equitable remedies was also unchanged. '^^ Therefore,
a plaintiff who leaves her job because of discrimination must prove actual or
constructive discharge to earn the equitable remedy of reinstatement or back and

180.

532 U.S. 843 (2001).

181.

Id. at 845.

182.

Id.

183.

Id at 846-47.

184.

/^. at 848.

185.

/t/. at 849.

186.

187.

Id. at 849-50.

188.

/t/. at 851.

189.

Id at 853.

190.

261F.3d651 (7th Cir. 2001)

191.

/J. at 654, 657.

192.

/J. at 659.

2002] EMPLOYMENT LAW 1 3 85

front pay in lieu of reinstatement. ^^^ Hertzberg failed to do so because the only
bases for relief she argued were sexual harassment and retaliatory discharge, and
the jury rejected the latter claim J^"^ The appeals court therefore reversed the lost
pay award. ^^^

In reaching this conclusion, the Seventh Circuit distinguished "ordinary"
sexual harassment, defined as hostile conduct that an employee is expected to
endure while seeking redress, from "aggravated" harassment that makes working
conditions so intolerable that the employee is forced to resign (i.e., is
constructively discharged).'^ Only in the latter case may an employee who quits
his job receive post-resignation back and front pay.'^^

Another remedies issue addressed during the survey period was punitive
damages. The Seventh Circuit reheard EEOC v. Indiana Bell Telephone Co. '^^
en banc to consider whether evidence regarding arbitration and a collective
bargaining agreement is admissible on the issues of whether an employer
responded reasonably to a sexual harassment complaint and whether the
employer's state of mind justified punitive damages.'^ The district court had
disallowed the evidence for all purposes.^^

The original Seventh Circuit panel held the evidence admissible on both
points. ^^' Judge liana Diamond Rovner wrote a spirited dissent in which she
deplored a "pattern of inaction in the face of . . . unrelenting misconduct" that
spanned twenty years, and concluded that "Ameritech has won ... the right to
invoke the collective bargaining agreement as an excuse for sitting on its hands
while [employee Gary] Amos kept on terrorizing his female colleagues."^°^

The rehearing inspired four different decisions, with the majority holding
arbitration and collective bargaining agreements inadmissible on the question of
liability, but admissible as a defense to punitive damages.^^^ Judge Easterbrook
wrote:

An employer is entitled to show that things were not as bad as they
appeared .... The district court's order enabled the EEOC to ask the
jury rhetorically why any conscientious employer would have acted as
Ameritech did unless it wanted harm to befall female workers, while

193. Id

194. Id. at 661.

195. Id

196. /^. at 658.

197. Id

198. 256 F.3d 516 (7th Cir. 2001) (en banc).

199. Mat 519.

200. Id

20 1 . 2 1 4 F.3d 8 1 3, 825 (7th Cir. 2000), vacated and reh 'g en banc granted by No. 99- 1155,
2000 U.S. App. LEXIS 22797 (7th Cir. Sept. 6, 2000).

202. Id. at 826, 836 (Rovner, J., concurring in part and dissenting in part).

203. Ind Bell Tel. Co., 256 F.3d at 519, 528-29, 531, 537.

1386

INDIANA LAW REVIEW

[Vol. 35:1369

disabling Ameritech from giving what may have been its best answer.^^"*

Employers will no doubt take issue with some of the court's reasons for
disallowing this evidence on the liability issue. A majority of the court agreed
that collective bargaining agreements and arbitration systems are not imposed
upon employers by forces beyond their control, and called employers "wrong to
suppose that an arbitrator is some outside force even ex post its agreement to a
given arbitration clause," because the contract defines the arbitrator's
authority.^^^ Here, if Ameritech feared that Amos' discharge would be
overturned by an arbitrator, the majority suggested that it could have
"transfer[ed] Amos to an empty room and give[n] him make- work tasks" because
"[f]eatherbedding ensues from some collective bargaining agreements, and the
lateral arabesque solves many a personnel problem. "^°^

Two additional Seventh Circuit survey period cases dealt with punitive
damages. In both, the court discussed and applied Kolstadv. American Dental
Association,^^^ a 1999 U.S. Supreme Court case that clarified when punitive
damages are available in Title VII cases. To justify punitives under Kolstad, an
employer must act "in the face of a perceived risk that its actions will violate
federal law," but need not be specifically aware that it is engaging in
discrimination.^^^ The plaintiff must show that the discriminatory actor was a
managerial agent acting within the scope of her employment.^*^ The employer
may avoid punitive damages by proving that it made a good faith effort to
implement an antidiscrimination policy .^^°

In Bruso v. United Airlines, Inc.,^^^ an airline supervisor claimed he was
demoted in retaliation for reporting sexual harassment of female employees by
a fellow supervisor.^'^ The district court granted summary judgment to the
airline on the issue of punitives without applying the Kolstad framework.^ '^ The
Seventh Circuit reversed, noting that the managerial agents who demoted Bruso
were aware of Title VII's antidiscrimination principles and United's zero-
tolerance antidiscrimination policy.^''* Bruso presented evidence that the
investigation of the alleged harasser's conduct was merely a sham to discredit
Bruso and to cover for management's failure to address the harassment sooner.^'^
The appeals court therefore found a triable issue on the question of punitive

204. /^. at 528.

205. /cf. at 521-22.

206. Mat 524.

207. 527 U.S. 526(1999).

208. Id. at 536.

209. Id at 543.

210. Mat 545.

211. 239 F.3d 848 (7th Cir. 2001).

212. Mat 852-53.

213. Mat 859.

214. Mat 859-60.

215. Mat 860-61.

2002] EMPLOYMENT LAW 1 3 87

damages.^'^

The court was less receptive to the plaintiffs argument in Cooke v. Stefani
Management Services, Inc}^^ Plaintiff Cooke, a gay bartender, was fired the day
after he rejected his male supervisor's advances.^^* A jury awarded Cooke $7500
in back pay and lost benefits and $10,000 punitive damages.^'^

The employer appealed the punitive damage award,^^° citing Kolstad's good
faith effort defense. Stefani had sexual harassment policies, conducted
management training, and displayed an anti-harassment poster.^^' Although the
reporting policy for harassment lacked a provision allowing the complainant to
bypass his or her manager if that manager was the harasser, the court said that
Cooke should have exercised common sense and talked to someone higher in the
chain of command.^^^

Because the manager committed "rogue acts motivated by a desire to amuse
himself, not benefit his employer," the court refused to impute the manager's
knowledge of harassment to the company.^^^ The court therefore reversed the
punitive damages award based on the employer's good faith efforts defense.^^"^

Though it does not involve a substantive employment law issue, Kenseth v.
Commission of Internal Revenue^^^ involves taxation of attorneys' fee awards, an
issue that can significantly affect remedies available for employment
discrimination. In that case, the plaintiff settled an age discrimination suit with
his former employer.^^^ Pursuant to a contingent fee agreement, the attorney
deducted forty percent of the settlement proceeds for his fee, and paid the
remainder of the settlement to the plaintiff, who did not report as taxable income
the $91,800 deducted by the law firm. ^^^

The tax court ruled that the entire amount was taxable as income, and the
Seventh Circuit acknowledged a circuit split but found the tax court resolution
of the issue "clearly correct. "^^* The court reasoned that the attorneys' fees were
simply part of the "cost of generating income" and thus part of gross income like
other business expenses.^^^

That attorneys' fees are part of gross income does not mean, of course, that
they are actually taxed in all cases. As the Seventh Circuit pointed out in

216. Mat 861.

217. 250 F.3d 564 (7th Cir. 2001).

218. Mat 565.

219. M. at 566.

220. Mat 568.

221. Id.

111. Id. at 569.

111. Id

114. Id. at 570.

225. 259 F.3d 881 (7th Cir. 2001).

226. Mat 882.

227. Id

228. M. at 883, 885.

229. Mat 883-84.

1388 INDIANA LAW REVIEW [Vol. 35:1369

Kenseth, a taxpayer may deduct those fees as a miscellaneous itemized
deduction.^^^ However, due to limitations on this and other deductions, it is
unlikely that the taxpayer will be able to deduct the full amount paid to his or her
attorneys. Further, attorneys' fees are not deductible for purposes of the
alternative minimum tax.^^*

The practical effect of Kenseth may be that it will become more expensive
for an employer to settle an employment discrimination case because the
employee will seek additional compensation to defray the "tax effect" of the
ruling. In Kenseth's situation, the Seventh Circuit's ruling cost the employee an
additional $26,992.^^^ Ironically, Kenseth may have its greatest impact on
"nuisance value" settlements, because the tax impact of the settlement may dwarf
its value to the plaintiff.

Practitioners may also wish to take note of United States v. Cleveland
Indians Baseball Co. ,^" a U.S. Supreme Court case dealing with payroll taxes on
settlements. The question there was whether Social Security and unemployment
taxes are assessed in the year a back pay award is actually paid, or the year the
wages should have been paid.^^* The answer made a $100,000 difference in that
case because in 1994 a group of former Indians players collected settlements
totaling over $2 million for violations of free agency rights that occurred in 1986
and 1987.^^^ These players all exceeded the taxable wage ceilings in 1986 and
1 987, but they were no longer team employees in 1 994.^^* The Court sided with
the Internal Revenue Service and held that the tax is assessed when the wages are
actually paid.^^^

II. Americans With Disabilities ACT

A. Substantial Limitation in a Major Life Activity

To qualify for the employment-related protections of the Americans with
Disabilities Act, a person must prove an impairment that substantially limits one
or more of his major life activities.^^* Regulations define a substantial limitation
as the inability to perform a major life function or a significant restriction in the
duration, manner or condition under which the plaintiff can carry out the activity

230. U at 882.

231. Id.

232. Kenseth owed $17,000 in alternative minimum tax. In addition, his deduction was
reduced by two percent ($5298) due to the floor on miscellaneous itemized deductions and by
$4694 due to the overall limitation on itemized deductions. Id. at 882.

233. 532 U.S. 200 (2001).

234. Id. at 204.

235. /^. at 204, 207.

236. /c/. at 207.

237. /fi^. at 207-08.

238. 42 U.S.C. § 12102(2) (1994). Alternatively, a plaintiff may show a record of such an
impairment or that he was regarded as having such an impairment. Id.

2002] EMPLOYMENT LAW 1 3 89

compared to the general populace.^^^ Some examples of major life activities are
walking, seeing, hearing, speaking, breathing, learning, and — ^according to EEOC
regulations — ^working.^'*^ A limitation on working must significantly restrict a
plaintiffs ability to perform a class of jobs or a broad range of jobs in various
classes.^"*'

The U.S. Supreme Court recently handed down Toyota Motor
Manufacturing, Inc. v. Williams^^^ addressing whether a substantial limitation
in performing manual tasks due to carpal tunnel syndrome qualifies an employee
for reasonable accommodation under the ADA.^'*^ Williams, an assembly line
worker, developed problems gripping tools and working with her arms elevated
and outstretched.^"*^ A reassignment to quality control temporarily resolved the
situation, but this solution broke down when additional duties were assigned to
quality control workers.^^^ Toyota refused to relieve Williams of these additional
duties and she sued, asserting that Toyota should have accommodated her carpal
tunnel syndrome.^"*^

The Sixth Circuit held that Williams was substantially limited in the major
life activity of performing manual tasks, and awarded her partial summary
judgment on the issue of whether she was disabled under the ADA.^'*^ Justice
O'Connor, writing for a unanimous Court, disagreed, saying "[T]he Court of
Appeals did not apply the proper standard ... it analyzed only a limited class of
manual tasks and failed to ask whether respondent's impairments prevented or
restricted her from performing tasks that are of central importance to most
people's daily lives."^"*'

In proving a substantial limitation in a major life activity — here, the activity
of performing manual tasks — ^the Court said a plaintiff must offer more than
medical diagnosis of impairment.^**' The evidence must show a substantial
limitation in the context of the plaintiffs own experience, which requires
individualized assessment.^^^ This is especially true when dealing with a
condition such as carpal tunnel syndrome, which has widely varying
symptoms.^^*

In this assessment, the "central inquiry" is how well the plaintiff can perform

239. 5ee 29 C.F.R.§ 1630.2(1) (2002).

240. 29C.F.R. § 1630.2(i)(2002).

241 . Webb v. Clyde L. Choate Mental Health & Dev. Ctr., 230 F.3d 991 , 998 (7th Cir. 2000).

242. 534 U.S. 184(2002).

243. Linda Greenhouse, Justices Try to Determine the Meaning of Disability, N.Y. TIMES,
Nov. 8, 2001, at A 18.

244. W^/7/wm5,534U.S.at686.

245. Mat 686-87.

246. Mat 687.

247. Mat 686.

248. Mat 690.

249. Mat 69 1-92.

250. Mat 692.

251. Mat 693.

1390 INDIANA LAW REVIEW [Vol. 35:1369

tasks that are centrally important to daily life, not just to the plaintiffs particular
job.^^^ Here, Williams' ability to do personal hygiene tasks and household chores
was relevant.^^^ Her difficulty with repetitive work requiring elevation of her
arms and hands to shoulder level for long periods of time was not.^^"* Williams
could still brush her teeth, wash her face, bathe, tend a flower garden, prepare
breakfast, do laundry, and tidy up her house.^^^ She avoided sweeping,
occasionally needed help getting dressed, and was less frequently able to play
with her children, garden, and drive long distances, but "these changes in her life
did not amount to such severe restrictions in the activities that are of central
importance to most people's daily lives that they establish a manual-task
disability as a matter of law."^^^ The Court therefore reversed the partial
summary judgment Williams won in the Sixth Circuit.^^^

The Court left two significant questions unanswered. First, it expressed no
opinion on whether working should be considered a major life activity.^^*
Second, the Court noted that the ADA does not authorize any agency to interpret
the term "disability," but did not decide whether the EEOC regulations are
entitled to any deference because Toyota did not attack the reasonableness of
those regulations."^

During the survey period, the Seventh Circuit dealt with three other notable
cases where substantial limitation in a major life activity was a central issue. In
Contreras v. Suncast Corp.^^ the plaintiffs back injury allegedly made him
unable to lift more than forty-five pounds for a long period of time, do strenuous
work, or drive a forklift more than four hours daily .^^' The court "fail[ed] to see
how such inabilities constitute a significant restriction on one's capacity to work,
as the term is understood within the ADA" because they would not preclude the
plaintiff from performing any broad class of jobs.^^^ Other circuits have said that
a restriction on lifting as little as twenty-five pounds is not significant under the
ADA definition.^"

Contreras went on to make the novel claim that he was disabled in the major
life activities of sexual reproduction and engaging in sexual relations because his

252. Id.

253. Id.

254. Id

255. Id

256. /^. at 694.

257. Id

258. /^. at 689.

259. Id at 689-90.

260. 237 F.3d 756 (7th Cir. 2001).

261. Mat 763.

262. Id

263. Id. (citing, inter alia, Wooten v. Farmland Foods, 58 F.3d 382, 384, 386 (8th Cir. 1995)
(holding that plaintiff was not substantially limited in major life activity of working where plaintiff
was restricted to light duty with no working in cold environment and no lifting items weighing more
than twenty pounds).

2002] EMPLOYMENT LAW 1391

ability to engage in intercourse dropped from a rate of twenty times per month
before his injury to two times per month after.^^ He pointed out that in Bragdon
V. Abbott,^^^ the U.S. Supreme Court recognized that reproduction is a major life
activity and implied that engaging in sexual relations may be as well.^^^
However, Bragdon dealt with the impact of HIV on reproductive ability. ^^^ The
Seventh Circuit declined to extend that holding and rejected Contreras' argument
that his decreased capacity for sex due to his bad back qualified as an impairment
substantially limiting a major life activity. ^^

The court found the plaintiffs situation in Lawson v. CSX Transportation,
Inc}^^ more persuasive. Lawson's diabetes required him to administer insulin
injections three times a day, to test his blood sugar four to six times a day,
exercise, and to carefully monitor his diet."° The court readily determined that
this condition was a physical impairment, because it affected Lawson's joints,
eyes, and metabolic, vascular, urinary and reproductive systems. The court also
accepted that eating is a major life activity under the ADA, because it is central
to life.

The more difficult question was whether Lawson's diabetes substantially
limited him in the activity of eating, because the U.S. Supreme Court held in
Sutton V. United Airlines, IncP^ that corrective or mitigating measures must be
taken into account in this evaluation."^ This did not require, as the district court
concluded, that Lawson's actual physical ability to ingest food be restricted;
rather, the analysis considers the difficulties that the treatment regimen caused
and the consequences of noncompliance."^

Even with the insulin, Lawson's "perpetual, multi-faceted and demanding
treatment regime" required constant vigilance.^^* Any breakdown in that regime
would have "dire and immediate" consequences including dizziness, weakness,
loss of concentration and impairment of bodily functions.^^^ Lawson's situation
went well beyond mere dietary restrictions; in fact, the treatment itself could
cause hypoglycemia and trigger these life-threatening symptoms."^

The court acknowledged language in Sutton saying "[a] diabetic whose
illness does not impair his or her daily activities" would not qualify as disabled

264. /t/. at 763-64.

265. 524 U.S. 624 (1998).

266. Contreras, 237 F.3d at 763-64.

267. Id at 764.

268. Id.

269. 245 F.3d 916 (7th Cir. 2001).

270. Mat 918.

271. 527 U.S. 471 (1999).

272. /J. at 482.

273. 245 F.3d at 924.

274. Id

275. Id

276. /flf. at 924-25.

1392 INDIANA LAW REVIEW [Vol. 35:1369

under the ADA.^^^ It noted, however, that Sutton requires an individualized
inquiry and did not say that diabetes could never qualify as a disability .^^* Not
only w^ere Lawson's daily activities inipaired even after taking insulin treatment
into account, but the life- long duration and severity of the condition further
convinced the court that Lawson was entitled to ADA protection.^^^ The court
therefore remanded for further proceedings.^'^

A final case, EEOC v. Rockwell International Corp,^^^ provides insight
regarding the evidence required to establish that a condition constitutes a
"substantial limitation" on the major life activity of working. Rockwell
Corporation required applicants for positions in its plant to undergo "nerve
conduction tests."^'^ The tests were designed to confirm the presence of
neuropathy — ^a condition characterized by sensory loss and muscle weakness.^*^
Rockwell believed that individuals with abnormal test results were more likely
to develop repetitive stress injuries, such as carpal tunnel syndrome.^^"* The
entry-level positions for which Rockwell was hiring — ^trimmer, finisher, final
finisher and assembler — ^all involved repetitive motion.^'^ Therefore, Rockwell
refused to hire any nonskilled applicant who scored outside the normal range on
the nerve conduction test.^'^

The EEOC brought suit on behalf of seventy-two job applicants rejected on
the bases of the test results.^'^ Notably, Rockwell stipulated that all of the
applicants were otherwise qualified for the positions they sought.^** In addition,
none of the applicants suffered from any impairments at the time that they were
turned away by Rockwell.^*' Instead, the EEOC argued that Rockwell had
perceived the applicants as disabled — in this case, as unable to perform jobs
requiring frequent repetition or the use of vibrating power tools.^'^

Although the case was based on a "regarded as" theory, this did not prove
significant to court's analysis. Instead, the court considered whether Rockwell
regarded the applicants as suffering from a condition that would, if true,
constitute a bona fide disability .^^' Thus, the court's decision turned on whether

277. Id.2LX916.

278. Id.

279. Id.

280. Id at 932.

281. 243 F.3d 1012 (7th Cir. 2001).

282. Id. at 1014. See also infra Part II.G (discussing EEOC action against employer that
conducted genetic testing of employees for susceptibility to carpal tunnel syndrome).

283. Rockwell Int'l Corp., 243 F.3d at 1012.

284. See id.

285. M.

286. Id

287. Id

288. /£/. atl015.

289. Id

290. Id. at 1016.

291. Mat 1017.

2002] EMPLOYMENT LAW 1393

the inability to perform repetitive motion jobs, such as the jobs at issue,
constituted a substantial limitation on the major life activity of working.^^^

In resolving this issue, the Seventh Circuit considered the type of evidence
required to meet this defmition of disability. Rockwell argued that the EEOC
could sustain its burden of proof only by presenting quantitative vocational data
regarding the jobs available in the relevant market.^^^ The EEOC, on the other
hand, suggested that it could prove that Rockwell regarded the applicants as
disabled based solely on the Rockwell's admitted perception that the applicants
could not perform four specific jobs in its plant.^^"*

The Seventh Circuit struck a middle ground between the two approaches.
The court stopped short of holding that a plaintiff "cannot prevail without
quantitative evidence of the precise characteristics of the local job market."^^^
On the other hand, the court suggested that such evidence would almost always
be necessary. In affirming the entry of summary judgment for Rockwell,^^^ the
court held that "this is not one of the rare cases in which the claimants'
impairments are so severe that their substantial foreclosure from the job market
is obvious."^^^

This conclusion seems reasonably consistent with the result of Toyota v.
Williams. The Seventh Circuit's resolution of Rockwell shows that ADA
plaintiffs seeking relief based on actual or perceived repetitive stress injuries,
particularly carpal tunnel syndrome, face an uphill evidentiary battle.

B, Attendance as a Job Requirement

During the survey period, the Seventh Circuit twice reiterated its stance that
most jobs require regular attendance. In Amadio v. Ford Motor Co.^^^ an
assembly line worker took seventy weeks of sick leave in the three years prior to
his termination.^'^ The district court rejected his bid for ADA protection in part
because his inability to work on a regular basis made him unable to perform all
essential job functions.^°° The Seventh Circuit agreed, citing previous holdings
that work attendance is an essential employment requirement for clerical
workers, teachers, account representatives, production employees, and plant
equipment repairmen.^^* The Seventh Circuit stopped short of saying that every

292. Id.

293. Id. Due to the district court's rulings regarding expert reports, the EEOC was unable to
present evidence from a vocational expert. Id. at 1016.

294. /rf. at 1016-17.

295. /c/. at 1017.

296. Mat 1018.

297. W. 1017 (emphasis added).

298. 238 F.3d 919 (7th Cir. 2001).

299. Id2X92\.

300. A/, at 924.

301. Id. at 927 (citing Jovanovic v. In-Sink-Erator Div. of Emerson Elec. Co., 201 F.3d 894
(7th Cir. 2000); Waggoner v. Olin Corp., 169 F.3d 481 (7th Cir. 1999); Corder v. Lucent Tech.,

1394 INDIANA LAW REVIEW [Vol. 35:1369

job requires attendance, but easily concluded that Amadio's position should be
on that list because factory maintenance and production require employees to be
on the premises.^^^

In EEOC V. Yellow Freight System, Inc. ,^°^ a forkl ift driver with AIDS-related
cancer also had a "woeful" attendance record.^^"* As in Amadio, the Seventh
Circuit emphasized, "[L]et us be clear that our court, and every circuit that has
addressed this issue, has held that in most instances the ADA does not protect
persons who have erratic, unexplained absences, even when those absences are
a result of a disability."^^^ The plaintiffs job, like Amadio's, required his
presence at the employer's work site.^*^ Because he was not fulfilling the
essential job function of regular attendance, his ADA claim failed.^^^

C Reasonable Accommodation and Seniority Systems

One difficult area for employers is the interplay between reasonable
accommodation and seniority systems. The U.S. Supreme Court has granted
certiorari in US Airways, Inc. v. Barnetf^^ to address this question. In that case,
an injured cargo handler was transferred to a mailroom position that did not
require heavy lifting.^*^^ He was then bumped from that job by a more senior
employee under the airline's non-union bidding system,^ '°

A Ninth Circuit panel originally agreed with the district court that the airline
did not violate the law by following its legitimate seniority system.^ ^^ The court
later granted rehearing en banc and reversed on this issue, holding that "a
seniority system is not a per se bar to reassignment" although it is a factor in
evaluating undue hardship on the employer.^ '^

D. Direct Evidence of Discrimination in Training

In Hoffman v. Caterpillar, Inc.,^^^ the Seventh Circuit considered an
interesting aspect of the ADA: the prohibition against discrimination in "regard
to job application procedures, the hiring, advancement, or discharge of

Inc., 162 F.3d 924 (7th Cir. 1998); Nowak v. St Rita High Sch., 142 F.3d 999 (7th Cir. 1998);
Vande Zande v. Wis. Dep't of Admin., 44 F.3d 538 (7th Cir. 1995)).

302. Id. (citing Jovanovic, 201 F.3d at 900).

303. 253 F.3d 943 (7th Cir. 2001).

304. /c^. at 945-46, 949-50.

305. Mat 948.

306. /^. at 949.

307. /J. at 948-50.

308. 228 F.3d 1 105 (9th Cir. 2000), cert, granted, 532 U.S. 970 (2001).

309. /c/. at 1108.

310. Mat 1109, 1119-20.

311. Bamett v. U.S. Air., Inc., 1 96 F.3d 979 (9th Cir. 1 998), vacated and rehearing en banc
granted, 201 F.3d 1256 (9th Cir. 2000).

312. 228F.3datll20.

313. 256 F.3d 568 (7th Cir. 2001).

2002] EMPLOYMENT LAW 1395

employees, employee compensation, yo6 training, and other terms, conditions
and privileges of employment."^ '^ Hoffman, who is missing her lower left arm,
indexed documents in Caterpillar's optical services department.^ '^ She was able
to perform all essential functions of that job with accommodations such as a
typing stand.^'^ She requested training on a high-speed scanner upon which the
department's productivity relied.^ '^ Her supervisor denied the request because
he thought that clearing paper jams and straightening documents as they came out
of the machine required the use of two hands.^'*

Hoffman lost at the district court level because she failed to show that the
supervisor's refusal to train her affected her compensation, benefits, hours, title
or promotion potential. ^'^ She therefore had not shown an adverse employment
action, which (as discussed above) is generally required in employment
discrimination cases following the McDonnell Douglas framework.^^°

The Seventh Circuit questioned the assumption that denial of training must
materially affect a disabled individual's employment to be actionable, noting that
Hoffman's was the rare case involvingdirect evidence of discriminatory intent.^^'
The court took into account the fact that plaintiffs alleging discrimination in
hiring, termination or other statutorily listed actions are not required to separately
prove that the action was materially adverse, and concluded, "[W]ith respect to
employment actions specifically enumerated in the statute, a materially adverse
employment action is not a separate substantive requirement."^^^ It remanded the
case to allow Hoffman to prove her physical capability to operate the scanner.^^^

E. Direct Threats to Health or Safety

Another interesting ADA provision deals with employees who pose
"significant risk to the health or safety of others that cannot be eliminated by
reasonable accommodation."^^* In Emerson v. Northern States Power Co.^^^
Emerson, a customer service representative, handled mostly routine customer
calls, but also spent up to ten percent of her time fielding calls about gas and
electrical emergencies.^^^ After she fell and hit her head while rollerblading, she
experienced occasional panic attacks that required her to take breaks of

314.

Id. at 575 (citing 42 U.S.C. § 121 12(a) (1994)) (emphasis added).

315.

Id. at 570.

316.

317.

318.

Id. Sit 511.

319.

See id. at 514.

320.

Id. at 514.

321.

Id. at 516.

322.

Id. at 575-76.

323.

Id. at 576-77.

324.

42 U.S.C. § 121 11(3) (1994).

325.

256 F.3d 506 (7th Cir. 2001).

326.

Id. at 508.

1396 INDIANA LAW REVIEW [Vol. 35:1369

indeterminate duration.^^^ Northern States Power Co. (NSP) rejected Emerson's
request that someone else handle safety-sensitive calls during these episodes
because it could not ensure that a co-worker or supervisor would always be
available when needed.^^* Iteventuallyterminated her employment after no other
mutually agreeable assignment could be found.^^^

NSP defended its action on the basis that Emerson posed a direct threat under
the ADA defmition."^ The Seventh Circuit agreed, looking to duration of the
risk and the nature, severity, likelihood, and imminence of potential harm.^^' It
noted that Emerson had already suffered two panic attacks on the job and agreed
that the attacks amounted to a direct threat in a job that required prompt and
accurate response to power emergencies.^^^ NSP could not sufficiently reduce
that risk by any reasonable accommodation.^^^

F. Contingent Workers

The EEOC issued guidance during the survey period on the ADA's
applicability to workers provided by staffing firms such as temporary agencies."'*
The agency's position is that these workers frequently qualify as employees of
both the agency and the client, so both must offer ADA protections. The
guidelines cover several important questions. Disability-related questions and
medical examinations are not permissible, according to the agency, until the
individual has been offered an assignment with a particular client. Merely
adding the individual to an agency roster of available staffers is not enough. The
staffing firm bears responsibility for reasonable accommodations in the
applications process, but both the firm and client may be responsible for on-the-
job accommodations. The guidelines also talk about how undue hardship is
measured if both entities provide accommodations."^

G. Genetic Testing

Another issue on the EEOC's agenda during the survey period was its first
lawsuit challenging genetic testing under the ADA."^ Burlington Northern Santa

327. /^. at 508-09.

328. Mat 509-10.

329. Mat 510.

330. Mat 513-14.

331. Mat 514.

332. Id.

333. M. at 514-15.

334. Press Release, U.S. Equal Employment Opportunity Commission, EEOC, Enforcement
Guidance: Application of the ADA to Contingent Workers Placed by Temporary Agencies and
Other Staffing Firms (Dec. 22, 2000), at http://www.eeoc.gov/docs/guidance-contingent.html.

335. Id.

336. Press Release, U.S. Equal Employment Opportunity Commission, EEOC, EEOC Petitions
Court to Ban Genetic Testing of Railroad Workers in First EEOC Case Challenging Genetic Testing
Under Americans with Disabilities Act (Feb. 9, 200 1 ), at http://www.eeoc.gov/press/2-9-0 1 -c.html.

2002] EMPLOYMENT LA W 1397

Fe Railroad allegedly tested blood samples of employees who filed work-related
injury claims based on carpal tunnel syndrome, without the employees'
knowledge or consent."^ The EEOC took the position that the ADA forbids
genetic testing as a prerequisite of employment, and that tests intended to predict
future disabilities are irrelevant to the employee's present job performance
capabilities."* On April 17, 2001, the railroad agreed to stop the testing
program, but stipulated to preserve related evidence pending resolution of
discrimination charges that were filed."^

in. AGE Discrimination in Employment Act

A, Statistical Evidence

In October 2000, in Adams v. Ameritech Services, /wc.,'^ the Seventh Circuit
issued an important decision on the role of statistical evidence in age
discrimination cases. The plaintiffs, who had been terminated during a company-
wide reduction in force (RIF), proffered expert reports that examined correlations
between employee ages and termination rates.^"** The district court ruled that the
reports were not admissible for several reasons, including unreliability of the
underlying information, lack of causation analysis, lack of control for other
variables, and the likelihood of jury confusion. ^"^^ It then granted summary
judgment to the defendants on all significant issues in the case.^^^

The Seventh Circuit remanded for reconsideration, pursuant to the Daubert
standard, of whether the expert reports were "prepared in a reliable and
statistically sound way, such that they contained relevant evidence."^^ The court
held that regression analysis is not a prerequisite to admissibility and that, if
bolstered by other evidence, a report may meet the Daubert standard even if it
merely eliminates the possibility that a RIF's disproportionately adverse effect
on Age Discrimination Employment Act (ADEA) protected employees was due
to mere chance.^^^

The Seventh Circuit handed down two other decisions during the survey
period that dealt with statistical evidence and the ADEA. In Kadas v. MCI
Systemhouse Corp.^^^ Judge Posner took the opportunity, in affirming summary

337. Id.

338. Id.

339. See, e.g.. Settlement with EEOC Requires Employer to Stop Genetic Testing, EMP.Litig.
Rep., May 15, 2001, at 4.

340. 23 1 F.3d 414 (7th Cir. 2000). The Seventh Circuit does not recognize disparate impact
claims of age discrimination. Id. at 422.

341. Id sX 425.

342. Id. at 427.

343. /^. at 417.

344. Mat 425.

345. M. at 425, 427-28.

346. 255 F.3d 359 (7th Cir. 2001).

1398 INDIANA LAW REVIEW [Vol. 35:1369

judgment for the employer, to clarify three statistical evidence issues in
discrimination cases.^"*^ First, he addressed dicta that has appeared in opinions
from five different circuits suggesting that if the supervisor who "riffed" the
plaintiff was older than the plaintiff, that fact would weigh heavily against a
finding of age discrimination,^"** Judge Posner offered "counterdictum" that "the
relative ages of the terminating and terminated employee are relatively
unimportant" for several reasons.^^^ He noted that older people often do not feel
old and in fact prefer to work with younger people, and might wish to protect
themselves against potential age discrimination by proactively winnowing out
other older workers.^^^ He also noted that people are often oblivious to their own
prejudices.^^' In this case, the plaintiff was terminated within months of his
hiring, and arguably a discriminatory employer would be much more likely to
decline to hire older workers than to invite lawsuits by hiring and then promptly
firing them.^"

Judge Posner' s second point dealt with a circuit split on whether statistical
evidence is only admissible in proving discrimination if it reaches a five percent
significance level, that is, two standard deviations.^^^ He described the five
percent benchmark as an arbitrary measure adopted by scholarly publishers, and
said, "Litigation generally is not fussy about evidence."^^* Under the Daubert
standard the judge must determine whether the significance level is worthy of the
fact-finder's consideration in the context of the case and the particular study. ^^^

Finally, Judge Posner discussed another circuit split, on whether statistical
evidence alone can establish a prima facie case of intentional discrimination if
it is deemed sufficiently significant.^^^ He concluded, "Although it is unlikely
that a pure correlation, say between age and terminations, would be enough . . .
it would be precipitate to hold that it could never do so.""^ He offered the
example of a RIF of 1 00 out of 1 000 employees, where all 1 00 were age forty or

347. Mat 361-63.

348. See id. at 361 (citations omitted).

349. Id.

350. Id

351. Id

352. /t/. at 361-62.

353. /(i. at 362.

354. Id

355. Mat 362-63.

356. Mat 363.

357. Id. See also Bell v. EnvtI. Prot. Agency, 232 F.3d 546 (7th Cir. 2000). The plaintiffs
alleged disparate treatment in promotions based on race and national origin discrimination in
violation of Title VII. Id. at 548. Their statistical evidence was too broad to establish a prima facie
case of systemic disparate treatment, but was admissible as probative evidence of pretext. Id. at
553. The national origin data was statistically significant and *'suggest[ed] a general pattern of
discrimination toward the foreign bom." Id. at 553-54. The data examining differences based on
race was not statistically significant but was nonetheless admissible as circumstantial evidence of
possible discrimination. Id. at 554.

2002] EMPLOYMENT LAW 1399

older and all those retained were under forty, as a case where the statistics alone
might justify shifting the burden to the employer to explain.^^*

B. Disparate Impact Claims

The disparate impact theory is widely accepted as a means of establishing
employer liability under Title VII, and Congress codified this theory when it
amended Title VII in 1991 .^^^ The ADEA contains no comparable language. In
Adams v. Ameritech Services, Inc. ,^^ the Seventh Circuit acknowledged a circuit
split on the cognizability of disparate impact claims under the ADEA and
reiterated its stance that "disparate impact is not a theory available to age
discrimination plaintiffs in this circuit."^^'

The U.S. Supreme Court has granted certiorari to resolve this issue in Adams
V. Florida Power Corp.^^^ a case brought by 1 1 7 former employees of a Florida
utility company. ^^^ More than seventy percent of the workers terminated in a
corporate reorganization were at least forty years old, and therefore protected
under the ADEA.^^ They claimed that the corporate environment was
"pervaded by ageism" and "subtle systemic bias."^^^ With Adams v. Florida
Power Corp. , the U.S. Supreme Court will decide whether older workers may sue
claiming that company layoffs targeted them more heavily than younger workers.
This decision could have widespread implications for employers, particularly if
troubled economic times, including layoffs, continue.

Indiana employment practitioners should watch for the decision in this case
to see if it alters the Seventh Circuit's stance by interpreting the ADEA to
prohibit policies that appear neutral but that affect older workers more harshly.

C. Tender Back Rule

On December 1 1, 2000, the EEOC issued a final regulation^^ on the ADEA
"tender back" rule, addressing the U.S. Supreme Court's 1998 decision in Oubre
V. Entergy Operations, Inc?^^ The Older Workers Benefits Protection Act of
1990 (OWBPA)^^* amended the ADEA and, among other things, permitted

358. /:arfflj, 255 F.3d at 363.

359. 5ee 42 U.S.C.§ 121 12(b)(3)(A) (1994).

360. 231 F.3d 414 (7th Cir. 2000).

361. /flf. at 422 (citing Blackwell v. Cole Taylor Bank, 1 52 F.3d 666, 672 (7th cir. 1 998) (citing
cases on both sides of issue from various circuits); Maier v. Lucent Techs, Inc., 120 F.3d 730, 735
& n.4 (7th Cir. 1997); EEOC v. Francis W. Parker Sch., 41 F.3d 1073, 1077-78 (7th Cir. 1994)).

362. 255 F.3d 1322 (1 1th Cir. 2001), cert granted, 122 S. Ct. 643 (2001).

363. Linda Greenhouse, Ju^/icia/Ca^j^/f^^/ej 'Speech to Be Reviewed by Justices, N.Y. TIMES,
Dec. 4, 2001, at A16.

364. Id

365. Id

366. 29 C.F.R. § 1625.23 (2000).

367. 522 U.S. 422 (1998).

368. 29 U.S.C. §626(0(1998).

1400 INDIANA LAW REVIEW [Vol. 35:1369

employees to waive their ADEA rights in return for consideration such as
increased severance or early retirement benefits.^^^ Such waivers are, however,
governed by specific OWBPA requirements, such as a requirement that the
waiver be written in understandable language."^

Prior to the regulation, an employee who entered into a waiver agreement but
thereafter sought to bring suit under the ADEA faced two obstacles arising out
of traditional contract law. First, the "tender back" rule required an individual
who wished to challenge a waiver to first repay the consideration received for the
waiver.^^' Second, the "ratification" principle provided that an individual who
failed to return the payment was deemed to have approved the waiver."^

The final EEOC rule directs that neither of these principles applies to ADEA
waivers."^ The new rule provides that any condition precedent or penalty to
challenge an ADEA waiver is invalid, including tender-back requirements and
provisions that an employer may recover attorney's fees or damages because of
the filing of an ADEA suit.^^^ Therefore, employees who wish to challenge the
validity of their ADEA waivers may do so without first repaying the amount
received for signing the waiver. If the employee prevails in overturning the
waiver and then proves age discrimination and obtains a monetary award, the
employer may, however, be able to deduct the amount paid for the waiver in
calculating the amount owed.^^^

IV. OTHER Federal Law Developments

A. Family and Medical Leave Act

The U.S. Supreme Court has granted certiorari in its first case involving the
Family and Medical Leave Act (FMLA). In Ragsdale v. Wolverine Worldwide,
Inc.^^^ the plaintiff was entitled to up to seven months of medical leave under the
employer's policy.^^^ She took time off for cancer treatment, and the company
failed to tell her that the time would count toward her FMLA entitlement.^^^
When she was unable to return to work at the end of the seven months, the
employer terminated her for exhausting all available leave, including FMLA

369. Id.

370. 29U.S.C. §626 (0(1 )(AHG)( 1998).

371. See U.S. Equal Employment Opportunity Commission, Questions and Answers: Final
Regulation on "Tender Back" and Related Issues Concerning ADEA Waivers, at
http://www.eeoc.gov/regs/tenderback-qanda.html [hereinafter Questions and Answers] (last visited
Dec. 15,2000).

372. Id.

373. 29 C.F.R. § 1625.23(a) (2000).

374. 29 C.F.R. § 1625.23(b).

375. 29 C.F.R. § 1625.23(c); see also Questions and Answers, supra note 371 .

376. 218 F.3d 933 (8th Cir. 2000), cm. ^ra/iteJ, 533 U.S. 928 (2001).

377. /</.at935.

378. Id.

2002] EMPLOYMENT LAW 1 40 1

Department of Labor regulations make it "the employer's responsibility to
designate leave, paid or unpaid, as FMLA-qualifying, and to give notice of the
designation to the employee."^*° Employees retain their rights to twelve weeks
of FMLA leave if their employers fail to notify them that leave will count under
the FMLA.'^'

The Eighth Circuit concluded that this latter regulation creates rights not
conferred by statute, and invalidated it.^^^ The Sixth Circuit reached the opposite
conclusion in Plant v. Morton International, Inc?^^ The pending Supreme Court
decision should resolve this circuit split.

Two Seventh Circuit cases during the survey period provide a helpful
reminder that the proper focus in FMLA cases is whether the employer acted
against an employee because he took leave to which he was entitled. In Gilliam
V. United Parcel Service, Inc.,^^ the plaintiff told his supervisor that he wanted
a "few" or a "couple" of days to join his fiancee, who had just given birth to their
child.^^^ The supervisor allowed him to take Friday off, waiving the collective
bargaining agreement's ten-day notice requirement.^*^

Gilliam did not contact the employer again until the following Thursday,
when he heard his supervisor was trying to locate him.^*^ The union contract
required a call by the start of the shift on the third working day of leave, that is,
the Tuesday after the Friday he first took leave.^** UPS terminated Gilliam for
abandoning his job.^*^ Gilliam argued that he was entitled to leave of up to 120
days under the FMLA without informing UPS of his expected date of return.^^°

The Seventh Circuit affirmed summary judgment for UPS saying, "[T]he
FMLA does not provide for leave on short notice when longer notice readily
could have been given. Nor . . . does it authorize employees on leave to keep
their employers in the dark about when they will retum."^^' Because Gilliam did
not give the thirty days notice that Department of Labor regulations require for
foreseeable leaves, UPS could have insisted that he wait that long to take leave.^^^
Furthermore, he was not fired for taking leave, but for failing to let his employer

379.

Id.

380.

Id at 937 (quoting 29 C.F.R. § 825.208(a) (2001)).

381.

Id (quoting 29 C.F.R. §§ 825.208(c), 825.700(a) (2001))

382.

Id at 939.

383.

212 F.3d 929 (6th Cir. 2000).

384.

233 F.3d 969 (7th Cir. 2000).

385.

Id at 970.

386.

387.

388.

389.

390.

391.

Id. 3X911.

392.

1 402 INDIANA LAW REVIEW [Vol. 35 : 1 369

know on a timely basis when he expected to return to work.^^^

The plaintiff in Kohls v. Beverly Enterprises Wisconsin, Inc.^^^ was
unsuccessful for a similar reason.^^^ Kohls, an activities director at a nursing
home, took maternity leave.^^ Shortly before the leave began, she admitted to
errors in checking account records she maintained for a resident's trust fund.^^^
During her absence, her temporary replacement outshone her in several
respects.^^^ Kohls was terminated the day she returned from leave based on
alleged misappropriation of funds and unsatisfactory job performance.^^^

The Seventh Circuit affirmed summary judgment for the employer, saying
that although an employee may not be terminated for taking FMLA leave, she
may be terminated for poor performance if the same action would have been
taken absent the leave/°° This is true even if the problems for which the
employee is terminated come to light as a result of the employee's absence
during the leave/^' Kohls argued that the reasons given for her firing were
pretextual, and that the real reason was that the employer liked the temporary
replacement better /°^ The court countered by saying, "Nothing in the record
indicates that [the employer] preferred [the temporary replacement] for any
reason related to Kohls' taking of leave.'"*^^

B. State Immunity

On February 21, 2001, the U.S. Supreme Court held in Board of Trustees of
the University of Alabama v. Garretf^ that the Eleventh Amendment bars suit
in federal court by state employees to recover money damages for the state's
failure to comply with title I of the ADA."*^^ In the aftermath of Garrett, the
Seventh Circuit revisited its conclusion in Varner v. Illinois State University^^^

393. Id.

394. 259 F.3d 799 (7th Cir. 2001).

395. /^. at 801.

396. Id.

397. Id. at 802. While she was on leave, the employer determined that Kohls did not always
record dates and check numbers for transactions; threw away bank statements without reconciling
the account; did not record what checks written to "cash" were for; and could not account for a
$30.93 check. Id

398. See id. The replacement responded to several programming complaints by substantially
revamping Kohls' programs. Id. Numerous residents, their family members, and co-workers
wanted the temporary staff member to stay on permanently in the activities position. Id. at 806.

399. Id at 803.

400. M at 805, 807.

401. /J. at 806.

402. Id

403. Id

404. 531 U.S. 356(2001).

405. Id

406. 226 F.3d 927 (7th Cir. 2000).

2002] EMPLOYMENT LAW 1403

C'Varner IF) that the Equal Pay Act (EPA) qualifies as "remedial or preventive
legislation aimed at securing the protections of the Fourteenth Amendment," so
that state immunity is inapplicable/^^ In Varner II, which was decided before
Garrett, the court contrasted the EPA with statutes aimed at age and disability
discrimination/^^ The former focuses on gender-based classifications that
receive heightened constitutional scrutiny, while the latter types of claims receive
only rational basis review /^^

In Garrett, the Supreme Court considered whether Congress had identified
"a history and pattern of unconstitutional employment discrimination by the
States against the disabled," and concluded that it had not/'^ In Cherry v.
University of Wisconsin System Board of Regents, "^^^ an EPA case, the defendant
tried to convince the Seventh Circuit that "no abrogation of States' immunity
against federal statutory claims is valid without express findings in the statute
itself, grounded in sufficient legislative record evidence, that States had engaged
in a pattern and practice of committing unconstitutional conduct of the type being
prohibited by that statute.'"*'^ The Seventh Circuit disagreed, finding no
indication in Garrett of a bright-line rule requiring such specific findings, and
reaffirmed the holding of Varner //that state immunity does not preclude EPA
suits/^^

C The Fair Labor Standards Act "Window of Correction "for
Improper Deductions from Exempt Employees

The Fair Labor Standards Act requires that executive, administrative, and
professional employees be paid on a salary basis in order to be classified as
exempt from overtime pay/'"* These employees must receive a predetermined
compensation amount each pay period that is not subject to reduction based on
the quality or quantity of work/'^ Department of Labor regulations offer a
"window of correction" for employers to remedy improper deductions/'^ The
Seventh Circuit reversed its position regarding when this window of correction
is available in Whetsel v. Network Property Services, LLC.^^^

407. Id. at 936 (quoting Coll. Sav. Bank v. Fla. Prepaid Postsecondary Educ. Expense Bd., 527
U.S. 627, 639 (1999)).

408. /^. at 934.

409. Id,

410. 531 U.S. at 368.

411. 265 F.3d 541 (7th Cir. 2001).

412. /^. at 552.

413. /t/. at 553.

414. See Auer v. Robbins, 519 U.S. 452, 454-55 (1997) (citing Fair Labor Standards Act of
1938, 52 Stat. 1060 (codified as amended in sections of 29 U.S.C), 29 C.F.R. §§ 541.1-541.3
(1996)).

415. Id. at 455 (citing 29 C.F.R. § 541.1 18(a) (1996)).

416. See 29 C.F.R. § 541.1 18(a)(6) (2001).

417. 246 F.3d 897 (7th Cir. 2001).

1404 INDIANA LAW REVIEW [Vol. 35: 1369

Plaintiff Whetsel was one of sixteen employees treated as exempt/'* She
filed suit after leaving the company, claiming that she should have been paid for
overtime because the employer had an unwritten policy that subjected her and
other exempt employees to possible pay deductions for partial-day absences/'^
She cited four salaried employees allegedly subjected to partial-day deductions
on eight occasions/^*^ The employer had circulated a memo to all employees
acknowledging that partial-day deductions from exempt employee salaries
occurred on "isolated occasions," but further saying that past and current policy
was not to deduct for partial day absences of salaried employees, even if they had
insufficient benefit time available to cover the missed time/^' It also repaid the
four affected salaried employees/^^

The secretary of the Department of Labor interprets the regulation to deny
curative opportunities to employers with policies of deducting pay from exempt
employees as a disciplinary measure /^^ In a prior case, the Seventh Circuit had
concluded differently, although arguably in dicta/^^ In Whetsel, the court
overruled this conclusion and adopted the Department of Labor position,
"[W]hen an employer has a practice or policy of improper deductions as defined
. . . the window of correction provided in 29 C.F.R. § 541.118(a)(6) is not
available."*^^ It remanded the case to resolve the issue of whether this
employer's actions did constitute such a practice or policy/^^

V. Worker's Compensation

A. Employer-Employee Relationship

In GKNCo. V. Magness*^^ the Indiana Supreme Court clarified the analysis
for determining whether an employer-employee relationship exists for worker's
compensation purposes/^* Magness, a truck driver hired by a subcontractor,
suffered injuries while working on a highway construction project and sued
GKN, the general contractor/^^ GKN argued that Magness was its employee as
well as the subcontractor's employee, so his exclusive remedy was worker's
compensation/^^

418. /J. at 899.

419. Id.

420. Id

421. Id.

All. /^. at 899-900.

423. /^. at 900-01.

424. Id. at 903 (citing DiGiore v. Ryan, 172 F.3d 454, 465 (7th Cir. 1999)).

425. /^. at 904.

426. /c/. at 904-05.

427. 744 N.E.2d 397 (Ind. 2001).

428. Mat 402-03.

429. Mat 399-400.

430. Mat 400.

2002] EMPLOYMENT LAW 1405

The supreme court applied the seven-factor analysis of Hale v. Kemp^^^ but
emphasized that the factors must be weighed in a balancing test and not tallied
in a majority-wins approach/-^^ Furthermore, the right to exercise control weighs
most heavily, rather than intent of the parties, as previous cases had indicated."*"
After applying this revised approach, the court concluded that Magness was not
a GKN employee/^*

The court also clarified the burden of proof in jurisdictional challenges where
the employer argues that the trial court lacks jurisdiction because worker's
compensation is the plaintiffs exclusive remedy /^^ The employer carries the
burden of proving that the complaint falls under worker's compensation unless
the complaint itself demonstrates that an employment relationship exists."*^^ In
the latter case, the burden shifts to the employee to show why worker's
compensation would not apply /^^ The court therefore disapproved language in
prior cases indicating that if an employer raises the issue of preclusion under the
worker's compensation statute, the employee automatically assumes the
burden.^^*

The degree of judgment involved in this seven-factor test was illustrated in
Degussa Corp. v. Mullens.*^'* There, the court applied the analysis and split two-
to-two on the conclusion."*^^ Reasonable minds will often differ when applying
the factors to a particular set of facts.

B. Purely Emotional Injury

The Indiana Court of Appeals held in two cases that worker's compensation
does not apply to purely emotional injuries. In Branham v. Celadon Trucking
Services, Inc.J*^^ Judge Kirsch prefaced his analysis by quoting, "The law does
not provide a remedy for every annoyance that occurs in everyday life. Many
things which are distressing or may be lacking in propriety or good taste are not
actionable."'"'

Plaintiff Branham fell asleep during a work break, and a co-worker dropped

43 1 . 579 N.E.2d 63, 67 (Ind. 1 991 ) (listing the most important factors as right to discharge,
mode of payment, supplying tools or equipment, belief of the parties in the existence of employer-
employee relationship, control over means used in results achieved, length of employment, and
establishment of work boundaries).

432. 744 N.E.2d at 402.

433. Id at 402-03 (citing Rensing v. Ind. State Univ. Bd. ofTr., 444N.E.2d 1 170 (Ind. 1983)).

434. /^. at 407.

435. Mat 403-04.

436. /t/. at 404.

437. Id

438. Id

439. 744 N.E.2d 407 (Ind. 2001).

440. Id. at 414. Justice Rucker did not participate. /^. at 41 5.

441. 744 N.E.2d 514 (Ind. Ct. App. 2001).

442. Id at 518 (quoting Kelley v. Post Publ'g Co., 98 N.E.2d 286, 287 (Mass. 1951)).

1406 INDIANA LAW REVIEW [Vol. 35:1369

his own pants so another prankster could photograph the two men in a suggestive
pose/"*^ Management found out what had happened after the picture circulated
among other co-workers/'*'* Both perpetrators received a week's unpaid
suspension, and the photographer was demoted.'*'*^ Branham was so humiliated
by the incident that he left the company/'*^

The court of appeals observed that Indiana's worker's compensation statute
covers on-the-job injuries, defined as including disabilities resulting in an injured
employee's inability to work and impairments in the form of loss of physical
function/"*^ Branham 's injury was not physical, and he remained fully fit for
employment.'*^^ Therefore, the worker's compensation statute did not preclude
Branham 's tort claims, although those claims failed on the merits.'*'*^

A similar result was obtained in Dietz v. Finlay Fine Jewelry Corp.^^^ Dietz,
a sales clerk, sold fine jewelry for a company that leased space in L.S. Ayres
retail stores/^' She gave an unauthorized discount to a customer who had
become irritated because Dietz had to seek help in processing her transaction,
and the assistance was slow in coming/^^ The store security manager called
Dietz in for an hour-long interview during which he allegedly insisted that she
stay in the room and accused her of stealing jewelry to support a substance abuse
problem /^^ As in Branham^ the court of appeals held that worker's
compensation did not preclude Dietz's tort claims because Dietz alleged no
physical injury or loss of physical function/^'* It remanded for consideration of
her false imprisonment and defamation charges.'*^^

C When Is Expert Testimony Required?

Two survey period cases provide guidance on the role of expert testimony in
worker's compensation cases. The first is Muncie Indiana Transit Authority v.
Smith,*^^ where the issue was whether Smith's carpal tunnel syndrome arose out
of his employment as a bus driver.'*^^ None of the medical records Smith offered

443.

/t/. at 518-19.

444.

Id. at 519.

445.

Id.

446.

447.

Id. at 520 (citing Perry v. Stitzer Buick GMC, Inc., 637 N.E.2d 1282, 1288-89 (Ind.

1994)).

448.

449.

Id at 520-25.

450.

754 N.E.2d 958 (Ind. Ct. App. 2001).

451.

/^. at 963.

452.

453.

Id. at 963-64.

454.

Id. at 965.

455.

/(i. at 971.

456.

743 N.E.2d 1214 (Ind. Ct. App. 2001).

457.

/c/. at 1215.

2002] EMPLOYMENT LAW 1407

as evidence contained any opinion as to the cause of this condition, and Smith
was the sole witness at the worker's compensation hearing/^^ The court
considered guidance from other states regarding what qualifies as competent
evidence of causation in worker's compensation cases and concluded that both
lay and expert evidence are admissible if "the injury was not caused by a sudden
and unexpected external event.'"*^' If, however, "the cause of the injury is not
one which is apparent to a lay person and multiple factors may have contributed
to causation, expert evidence on the subject is required.'"*^ Smith offered no
expert evidence, so his claim failed."*^*

In Schultz Timber v. Morrison,^^ a truck driver suffered broken bones and
a punctured lung when a load shifted, causing his truck to overturn."*"
Thereafter, he experienced severe headaches that were exacerbated by physical
activity/^ Schultz argued that only the testimony of a vocational expert could
satisfy Morrison's burden of proof that he could not obtain or perform reasonable
types of employment."*^^ Schultz' s vocational expert testified that Morrison could
work an eight-hour day of light or "light plus" duty/^ Morrison offered only
testimony by his two treating physicians, who said that Schultz' s expert failed to
consider Morrison's level of pain and ability to function with that pain.'*^^

The court held, "Although vocational experts are utilized in many workmen's
compensation cases, they are not a prerequisite to obtaining total permanent
disability payments.'"*^^ Here, Morrison's doctors testified that Morrison could
not stand, walk, or read for extended periods of time, could not make repetitive
motions with his shoulders and arms, and required pain medication that interfered
with cognitive functions/^^ The appeals court upheld the Worker's
Compensation Board's four-to-three decision granting Morrison total and
permanent disability /^^

D. Acquiescence

The issue in Wimmer Temporaries, Inc. v. Massoff^^ was whether the
employer acquiesced in the claimant's violation of a conspicuously posted safety

458. Mat 1216.

459. Mat 1217.

460. id.

461. M. at 1218.

462. 751 N.E.2d 834 (Ind. Ct. App. 2001).

463. M. at 836.

464. Id.

465. Id.

466. M. at 837.

467. Mat 836-37.

468. Mat 837.

469. M

470. Id at 836.

471 . 740 N.E.2d 886 (Ind. Ct. App. 2000).

1408 INDIANA LAW REVIEW [Vol. 35:1369

rule/^^ Massoff, a caster working on a temporary basis at a foundry, failed to
shut down a piece of equipment before cleaning a spout/^^ This was common
practice, although a posted safety notice threatened disciplinary action against
anyone found inside the safety enclosure while the equipment was running/^"*

The employer emphasized that no one specifically told Massoff to violate the
written rule/^^ The statute denies compensation if an employee knowingly fails
to obey a conspicuously posted, reasonable rule of the employer ."^^^ The court,
however, focused on the fact that before the safety rule was posted Massoff was
trained to clean with the table in operation, and other employees continued to
follow this practice after the rule's posting/^^ Any shutdown slowed production
and increased scrap/^* Six hours before Massoff s accident, a co-worker and a
team leader saw Massoff violating the rule and, although both had disciplinary
authority, said nothing/^^ The court affirmed the award of benefits to Massoff,
finding that the employer acquiesced in the safety violation/*^

VI. State Law Developments

A. Indiana 's Wage Payment Statute

The Indiana Supreme Court has granted transfer in St. Vincent Hospital &
Health Care Center, Inc. v. Steele^^^ to decide whether the liquidated damages
provisions of Indiana's Wage Payment Statute*'^ govern the amount of pay as
well as the frequency .^*^ St. Vincent owed Dr. Steele bi-weekly compensation
under an employment agreement."**^ In years three and four of the agreement, St.
Vincent began to exclude payment for certain services because it believed the
payments were impermissible under proposed Health Care Financing
Administration regulations.^*^ Steele sued, and the trial court granted him
summary judgment. Under the Indiana Wage Payment Statute's treble damages
provision, the court awarded Steele $277,812.92 in unpaid wages and

472. /^. at 887.

473. /df. at 887-88.

474. /£/. at888.

475. 7^. at 889.

476. 7^. (citing IND. Code §22-3-2-8 (1998)).

477. 7^. at 892.

478. Id.

479. Id.

480. 7^. at 892-93.

48 1 . 742 N.E.2d 1 029 (Ind. Ct. App. 200 1 ), trans, granted and opinion vacated, 76 1 N.E.2d
413 (Ind. 2001).

482. Ind. CODE §22-2-5-2 (1998).

483. St. Vincent Hasp., 742 N.E.2d at 1032.

484. 7^. at 1030.

485. 7J. at 1031.

2002] EMPLOYMENT LAW 1409

$555,625.84 in liquidated damages, plus attorney fees/*^

St. Vincent appealed, arguing that the statute covers only the frequency, not
the amount, of payment.^*^ The statute reads, in relevant part:

Sec. 1. (a) Every person, firm, corporation, limited liability company,
or association, their trustees, lessees, or receivers appointed by any
court, doing business in Indiana, shall pay each employee at least
semimonthly or biweekly, if requested, the amount due the
employee ....

(b) Payment shall be made for all wages earned to a date not more than
ten ( 1 0) days prior to the date of payment . . , ."***

Alternatively, St. Vincent argued that it had a good faith basis for
withholding a portion of Steele' s wages.**^

The court of appeals noted conflicting authority, and was persuaded by
Steele's argument that if the statute only deals with frequency of payment, an
employer could avoid any penalty by paying a de minimis amount at least
biweekly, regardless of the amount of salary actually due.'*'^ It also noted the
statutory language "the amount due," and affirmed the trial court's award."*^' It
rejected St. Vincent's argument for a good faith exception, because no such
exception appears in the statute."*^^

The Indiana Supreme Court granted transfer,^^^ thereby vacating this holding,
and heard oral argument on September 19, 2001 . A decision will be forthcoming
in due course.

The court of appeals dealt with another aspect of the Wage Payment Statute
during the survey period in Wank v. St. Francis College.^^^ This time the
question was whether severance pay offered in connection with a reduction in
force is covered by the statute.^^^ Plaintiff Wank's position was eliminated as a
result of a merger, and the college offered him a severance package in
recognition of his years of service."*^

Almost immediately thereafter, the college separately advised Wank that the
severance bonus package was contingent upon Wank's execution of an
agreement releasing the college from liability .*^^ When Wank declined to sign
the release, the college paid him only wages due, including accrued vacation

486. /J. at 1031-32.

487. /f/. at 1032.

488. /^. (citing IND. Code § 22-2-5-1 (1998)).

489. /c/. at 1035.

490. /f/. at 1033-35.

491. /flf.atl035.

492. Id.

493. St. Vincent Hosp. & Health Care Ctr., Inc. v. Steel, 761 N.E.2cI 413 (Ind. 2001).

494. 740 N.E.2d 908 (Ind. Ct. App. 2000).

495. /£/. at 909-10.

496. /flf.at909.

497. /rf.at910.

1410 INDIANA LAW REVIEW [Vol. 35:1369

pay/^^ Wank sued, but the trial court held that Wank had no employment
contract and that the severance pay was not a wage under the Wage Payment
Statute/'^

Wank argued on appeal that he earned the severance pay through his years
of service, making the amount in effect deferred compensation.^^ The court of
appeals disagreed, although it reiterated that merely calling a payment a bonus
does not automatically exempt it from the statute.^^' Compensation that accrues
during an employee's tenure is a wage, even when payment is deferred, if it
relates to work performed. ^^^

Here, however, the court concluded that although the severance pay was
based on years of service, it was not connected to work performed.^^^ Also, the
college had no severance pay policy, so the offered amount was an optional
bonus in recognition of Wank's past service rather than compensation accrued
during employ ment.^^ Because the package was not a term of Wank's
employment, the court concluded, "absent a policy creating an entitlement to
severance pay, such compensation is not a wage for purposes of the Wage
Payment Statute. The severance package at issue . . . was a discretionary,
gratuitous benefit offered to employees as an act of benevolence."^^^

B. Enforceability of Vacation Pay Accrual Policies

Another survey period case applying Indiana law is worth noting. Damon
Corp. V. Estes^^ dealt with vacation pay liability upon termination.^^^ Damon's
employee handbook read: "Employees will receive their vacation pay, when
eligible, on the regular payday, the week following their anniversary date. An
employee does not earn vacation pay each year until his/her anniversary date."^°*
Estes, upon termination, claimed entitlement to vacation pay calculated from his
most recent anniversary date (August 27, 1999) to his termination date (May 1 ,
2000).^^^ The trial court awarded him $121 .14 plus costs.^'^

The court of appeals reversed, accepting Damon's argument that its company

498. Id.

499. Id. at 9 1 0. The trial court found genuine issues of material fact on St. Francis' promissory
estoppel claim, and denied summary judgment on that question. Id.

500. /^. at 911.

501. Mat 912-13.

502. See id 2A 913.

503. Id.

504. Id

505. /^. at 913-14.

506. 750 N.E.2d 891 (Ind. Ct. App. 2001).

507. See id at 892.

508. Id.

509. Id.

510. Id

2002] EMPLOYMENT LAW 1411

policy precluded "accrued" vacation time.^'^ The court cited Die & Mold, Inc.
V. Western, ^^^ where it characterized vacation pay as "additional wages, earned
weekly" but went on to say, "where only the time of payment is deferred . . .
absent an agreement to the contrary, the employee would be entitled to a pro rata
share of it to the time of termination."^'^ The court in Die & Mold, Inc. went on
to say that any agreement or published policy to the contrary would be
enforceable.^'"* Here, a policy Estes had acknowledged in writing clearly stated
that an employee earned no vacation pay until his anniversary date.^'^ The court
therefore reversed and upheld the policy as written.^'^

VII. The Force and Effect of Arbitration Agreements

An important and ongoing issue is how far employers may go in requiring
employees to agree to arbitrate employment disputes. On March 21, 2001, the
U.S. Supreme Court resolved a circuit split by upholding an arbitration
agreement in Circuit City Stores, Inc. v. Adams. ^^^ Plaintiff Adams signed a form
as part of his application process when Circuit City hired him in 1995, agreeing
to submit all employment disputes to binding arbitration.^'* Two years later, he
brought suit in state court alleging employment discrimination under California
law.^'^ The Ninth Circuit interpreted language in the Federal Arbitration Act
exempting "contracts of employment of seamen, railroad employees, or any other
class of workers engaged in foreign or interstate commerce" as excluding
virtually all employment contracts from the Act's coverage."^ It reversed the
federal district order compelling arbitration."'

The U.S. Supreme Court reversed the court of appeals in a five-to-four
decision based upon the text of the statute rather than its legislative history."^
The majority interpreted the Act's exemption narrowly as excluding only
transportation worker employment contracts from coverage."^ Justice Anthony
M. Kennedy, writing for the majority, noted, "Arbitration agreements allow
parties to avoid the costs of litigation, a benefit that may be of particular

511. /£/. at893.

512. 448 N.E.2d 44 (Ind. Ct App. 1983).

513. Damon Corp. , 750 N. E.2d at 893 (quoting Die & Mold. /«c. , 448 N . E.2d at 48) (emphasis
supplied).

5 1 4. Id. (quoting Die & Moid. Inc., 448 N.E.2d at 47-48).

515. See id.

516. Id.

517. 532 U.S. 105(2001).

518. /^. at 109-10.

519. Mat 110.

520. Id. at 109 (referring to 9 U.S.C. § 1 (2000)).

521. /flf. atl24.

522. Mat 119, 124.

523. Mat 119.

1412 INDIAN A LAW REVIEW [Vol. 35:1369

importance in employment litigation. "^^^ The Court was not persuaded by the
attorneys general of twenty-two states, who argued as amici that the Federal
Arbitration Act should not be read to pre-empt state employment laws that
protected employees by prohibiting them from signing away their rights to pursue
state-law discrimination actions in court."^

The decision clarified the overall scope of the Federal Arbitration Act but
left many questions unanswered. The Court reiterated a prior holding that "by
agreeing to arbitrate a statutory claim, a party does not forgo the substantive
rights afforded by the statute; it only submits to their resolution in an arbitral,
rather than a judicial, forum."^^^ It remains to be seen whether workers who
agree to arbitration retain their rights to collect punitive damages and attorney
fees, and to pursue class actions. Another open question is how broadly the
classes of transportation workers specifically referenced in the statute will be
defined.

On June 20, 2001, five Democratic members of the U.S. House of
Representatives introduced legislation to amend the Federal Arbitration Act and
overturn the holding of Circuit City.^^^ Sponsor Dennis Kucinich attacked
mandatory employment dispute arbitration agreements as depriving employees,
who have inferior bargaining power, of their rights to due process, trial by jury,
discovery and appeal."*

In another recent development, the U.S. Supreme Court has held that an
agreement between an employer and an employee to arbitrate employment
disputes does not bar the EEOC from pursuing such victim-specific relief as back
pay, reinstatement, and damages."^ The case arose when Eric Baker, who signed
a mandatory arbitration agreement as a condition of employment at a Waffle
House restaurant, suffered a seizure sixteen days after he began working as a grill
operator. ^^° He filed a charge with the EEOC after he was discharged, and the
EEOC filed an enforcement action.^^'

Justice John Paul Stevens, writing for the six-justice majority, said that Title
VII "clearly makes the EEOC the master of its own case" and that the Federal
Arbitration Act "does not mention enforcement by public agencies; it ensures the
enforceability of private agreements to arbitrate, but otherwise does not purport
to place any restriction on a nonparty's choice of a judicial forum."^^^ Although
the EEOC does not file many lawsuits (fewer than 300 in 2000, compared to

524. /c^. at 123.

525. /c^. at 121-22.

526. Id. at 123 (quoting Gilmer v. Interstate/Johnson Lane Corp., 500 U.S. 20, 26 (1991)).

527. Susan J. McGoIrick, House Democrats Introduce Legislation to Overturn High Court 's
Circuit City Ruling, DAILY LAB. Rep., June 21, 2001, at A-3.

528. Id

529. EEOC V. Waffle House, Inc., 122 S. Ct. 754 (2002).

530. Id at 758.

531. Id

532. Id at 762-63.

2002] EMPLOYMENT LAW 1413

nearly 80,000 discrimination complaints received),^" the Court's conclusion is
important because employees with arbitration agreements will likely continue to
file discrimination complaints with the EEOC, hoping that the agency will pursue
damages on their behalf.

CONCLUSION: The Watch List

Three noteworthy employment law cases, not discussed above, are pending
before the U.S. Supreme Court. In Edelman v. Lynchburg College,^^^ the Court
will consider the validity of the EEOC's regulation permitting individuals to
"verify" their charges by signing to affirm that the assertions are true after the
filing deadline has passed.^^^ The EEOC mailed a draft charge to plaintiff
Edelman on March 18, 1998, but he did not file the charge until April 1 5, which
was thirteen days past the filing deadline."^ Edelman pointed to a signed letter
he sent the EEOC the previous November 1 4, and an EEOC regulation saying
"[a] charge may be amended to cure technical defects or omissions, including the
failure to verify the charge, or to clarify or amplify allegations made therein.
Such amendments . . .will relate back to the date the charge was first
received.""^

The Fourth Circuit concluded that this regulation contravened statutory
language limiting the EEOC's authority and establishing certain prerequisites:
charges "shall be in writing under oath or affirmation and shall contain such
information and be in such form as the Commission requires.""*' It
acknowledged contrary authority from the Fifth, Seventh, Eighth, Ninth and
Tenth Circuits but affirmed dismissal of Edelman's charge as untimely filed.^^^

Another case worth watching is Swierkiewicz v. Sorema,^^^ which deals with
Rule 1 2(b)(6) motions. Plaintiff Swierkiewicz' s national origin complaint stated
only that he is Hungarian, others employed by Sorema were French, and his
termination was motivated by national origin discrimination. He supported his
claim of age discrimination only by asserting that the company president said he
wanted to "energize" Swierkiewicz' s department.^"*'

533. /flf. at 762 n.7.

534. 228 F.3d 503 (4th Cir. 2000), cert, granted, 533 U.S. 928 (200 1 ).

535. Susan McGolrick, New Term to Begin with Bumper Crop of Employment-Related Cases
to Be Heard, DAILY LAB. REP., Sept. 28, 2001 , at B-1 .

536. £flfe//«a«, 228 F.3d at 506.

537. Id at 507 (quoting 29 C.F.R. § 1601.12(b) (2001)).

538. Id at 508 (quoting 42 U.S.C. § 2000e-5(b) (1994)).

539. Id at 510-1 1 (citing Lawrence v. Cooper Cmtys., Inc., 132 F.3d 447 (8th Cir. 1998);
Philbin v. Gen. Elec. Capital Auto Lease, Inc., 929 F.2d 321 (7th Cir. 1991); Peterson v. City of
Wichita, 888 F.2d 1307, 1308 (10th Cir. 1989); Casavantes v. Cal. State Univ., 732 F.2d 1441,
1442-43 (9th Cir. 1984); Price v. S.W. Bell Tel. Co., 687 F.2d 74 (5th Cir. 1982)).

540. 2001 U.S. App. LEXIS 3837 (2nd Cir. 2001) (unpublished opinion), cert, granted, 533
U.S. 976(2001).

541. Id

1414 INDIANA LAW REVIEW [Vol. 35:1369

The Second Circuit affirmed the district court ruling granting Sorema's
motion to dismiss for failure to state a plaim.^*^ The U.S. Supreme Court's
decision should provide guidance on the subject of what a plaintiff must plead
to withstand such a motion to dismiss.

The third case, Echazabal v. Chevron USA, Inc.,^^^ presents an interesting
issue of statutory interpretation under the ADA. The ADA prohibits
discrimination against "otherwise qualified" individuals, including "using
qualification standards . . . that screen out or tend to screen out an individual with
a disability."^'*'* However, the ADA provides an affirmative defense that allows
employers to adopt as a "qualification standard" the requirement that the
individual not pose "a direct threat to the health or safety of other individuals in
the workplace."^'*^ At issue in Echazabal is whether the employer may also adopt
qualification standards to protect the disabled employee from threats to his or her
own health.^'*^ The Ninth Circuit ruled that the employer may not adopt such
standards, creating a conflict with a prior ruling from the Eleventh Circuit.^'*^
The Supreme Court has agreed to hear the case.^'*^

542. Id. (citing FED. R. Civ. P. 12(b)(6) (1994)).

543. 226 F.3d 1063 (9th Cir. 2000), cert, granted, 122 S. Ct. 456 (2001).

544. 42U.S.C. § 12112(b)(6).

545. Id § 12113.

546. Echazabal, 226 F.3d at 1064.

547. Id at 1072, 1075; Moses v. American Nonwovens, Inc., 97 F.3d 446 (1 1th Cir. 1996).

548. 122 S.Ct. 456 (2001).

The Continuing Complexity of
Indiana Rule of Evidence 404(b)

Jeffrey O. Cooper*

Introduction

Of the numerous provisions in the Indiana Rules of Evidence, few have
proved as complicated in application as Rule 404(b). The rule — ^which provides
generally that evidence of crimes, wrongs, or acts other than the conduct that is
the subject of the particular case is not admissible as proof of the actor's
character, but is admissible for other purposes' — has produced challenging cases
in each of the years since the Indiana Rules of Evidence went into effect in 1 994.
This past year was no exception, as decisions of the Indiana Supreme Court and
the Indiana Court of Appeals confronted the numerous problems of application
raised by the rule.^ Because the rule remains the subject of confusion eight years
after the adoption of the Indiana Rules of Evidence, and more than twenty-five
years after the adoption of a parallel provision in the Federal Rules of Evidence,
this Article will focus not on the full range of issues addressed by the courts
under the Indiana Rules of Evidence during the survey period, but rather will
focus on the past year's Rule 404(b) cases.

I. The Substantive Requirements of Rule 404(b)

Rule 404(b), at its heart, has three substantive requirements. First, the rule's
reference to "other crimes, wrongs, or acts" means that the proffered evidence
must involve a crime, wrong, or act that is not itself the subject of the case in
which the evidence is sought to be introduced. Second, the rule excludes
evidence of such acts if offered solely as character evidence to show action in
conformity with that character in the events giving rise to the case. In other
words, the evidence must not be used to support the "forbidden inference" that,
because an individual has engaged in wrongdoing on occasions other than those
at issue in the particular case, she must have done so on the occasion pertinent
to the case as well.^ If the evidence is offered for another purpose, however, it

* Associate Professor of Law, Indiana University School of Law— Indianapolis.

1. Rule 404(b) provides:

Evidence of other crimes, wrongs, or acts is not admissible to prove the character of a
person in order to show action in conformity therewith. It may, however, be admissible
for other purposes, such as proof of motive, intent, preparation, plan, knowledge,
identity, or absence of mistake or accident, provided that upon request by the accused,
the prosecution in a criminal case shall provide reasonable notice in advance of trial, or
during trial if the court excuses pre-trial notice on good cause shown, of the general
nature of any such evidence it intends to introduce at trial.
IND. R. EviD. 404(b).

2. The survey period for this Article is the year beginning October 1 , 2000 and terminating
September 30, 2001.

3. See Thompson v. State, 690 N.E.2d 224, 233 (Ind. 1997).

1416 INDIANA LAW REVIEW [Vol. 35:1415

may be admitted. Finally, because of the danger that the jury will indulge in the
forbidden inference even if the evidence is offered for a proper purpose, the court
must engage in a careful Rule 403 balancing to ensure that the probative value
of the Rule 404(b) evidence is not substantially outweighed by the danger of
unfair prejudice. Each one of these requirements raises difficulties in
application.

A. What Are "Other Crimes, Wrongs, or Acts? "

L "Crimes, Wrongs, or Acts. " — Rule 404(b) implicates evidence of "crimes,
wrongs, or acts."* If the evidence in question does not specifically reference an
act, the Indiana Supreme Court has held that Rule 404(b) does not apply. Thus,
a witness's statement that she feared the defendant was not barred by Rule
404(b), even though the jury reasonably could infer from the witness's testimony
that the defendant had engaged in acts that engendered her fear.^ In addition, it
is not enough that there be evidence of a particular act; the act must also be
wrongful in some sense.^

The Indiana Court of Appeals reiterated both of these points during the past
year. In Allen v. Stated during the defendant's trial on a charge of burglary, the
prosecution sought to introduce evidence that, during questioning by the police,
the defendant offered to purchase drugs as a confidential informant and that
"[h]e'd done these things in the past."* The court initially determined that the
reference to "these things" plausibly could be interpreted to mean that the
defendant had previously acted as a confidential informant, not that the defendant
had previously made drug purchases.^ Evidence of having acted as an informant,
however, would not be barred by Rule 404(b), because there was nothing
wrongful about the act.'° And while evidence of having previously acted as a
confidential informant might support an inference that the defendant had
previously engaged in misconduct, Rule 404(b) did not bar evidence that merely
raised such an inference."

The line thus seems to be drawn clearly: if direct evidence of an act by the
defendant is presented. Rule 404(b) is implicated, whereas if the evidence
presented requires an inference to support the conclusion that the defendant
engaged in an act, the Rule does not apply. One recent decision of the Indiana
Supreme Court, however, introduced a note of uncertainty. In McCarthy v.
•S/a/e,^^ the defendant, a high school teacher, was charged with sexual misconduct

4. IND. R. EVID. 404(b).

5. See Haak v. State, 695 N.E.2cl 944, 947 (Ind. 1998).

6. See Allen v. State, 743 N.E.2d 1222 (Ind. Ct. App. 2001).

7. Id.

8. /£/. atl232.

9. Mat 1232 n.l3.

10. Id. at 1232.

11. Id

12. 749 N.E.2d 528 (Ind. 200 1 ).

2002] EVIDENCE 1417

with a minor based on allegations that he had molested two of his students. At
trial, the prosecution presented evidence that the defendant had played "strip
perdiddle," a sexual game with two other underage girls. '^ The trial court
admitted the evidence over the defendant's objection that the evidence was
improper under Rule 404(b)."* The supreme court, concluding that the trial
court's decision was correct, questioned whether the evidence of the defendant's
participation in "strip perdiddle" even constituted evidence of other acts within
the meaning of the Rule. '^

The court's objection is difficult to fathom. Playing a game that involves
removing one's clothes unquestionably constitutes conduct and thus would seem
to fit within the Rule. The most likely basis for the court's objection is that the
conduct at issue in McCarthy was not sufficiently wrongful to fall under the
Rule. Again, though, the uncertainty that the court suggests seems unfounded.
The inclusion of "wrongs, or acts" in Rule 404(b) suggests that an act need not
be criminal to fall within Rule 404(b). '^ And while an adult male teacher who
plays a non-contact stripping game with minor females over whom he has
authority may not be engaged in criminal conduct, his act certainly is wrongful
in the ordinary sense of the word. In any event, the court did not ultimately
resolve the issue, resting its decision on other grounds, '^ hence it would seem
best not to make too much of this aspect of the opinion.

2. "Other. " — Courts commonly refer to Rule 404(b) as addressing evidence
of "prior" acts.'* In many instances, this may simply be because, as a factual
matter, the events discussed under Rule 404(b) in the particular cases occurred
prior to the events underlying those cases. Repeated use of the word "prior,"
however, may suggest, at least implicitly, that the rule requires that the acts in
question have occurred before the events giving rise to the case.

The rule contains no such requirement, as a case from this past year
demonstrates. In Murray v. State,^^ the Indiana Supreme Court considered under
Rule 404(b) evidence of uncharged conduct that occurred concurrently with the
conduct that was the subject of the criminal charge. The defendant, charged with
attempted murder following the shooting of an acquaintance, claimed that the
shooting had been accidental.^® To rebut this claim, and as evidence that the
defendant had intended tci^hoot the victim, the prosecution offered evidence that
the defendant did not have a license for the handgun used in the shooting. The

13. Mat 535.

14. /c/. at 536.

15. Mat 536-37.

1 6. See Christopher B. Mueller & Laird C. Kirkpatrick, Evidence 2 1 6 (2d ed. 1 999).

1 7. See infra notes 23-24 and accompanying text.

18. See Dickens v. State, 754 N.E.2d 1, 4 (Ind. 2001) ("Rule 404(b) protects against
convictions based on past actions . . . rather than facts relevant to the matter at issue."); Grain v.
State, 736N.E.2d 1223, 1234-35 (Ind. 2000); Allen v. State, 743 N.E.2d 1222, 1232 (Ind. Ct. App.
2001); Atwell v. State, 738 N.E.2d 332, 336 (Ind. Ct. App. 2000).

19. 742 N.E.2d 932 (Ind. 2001).

20. Mat 933.

1418 INDIANA LAW REVIEW [Vol. 35:1415

court, noting that carrying a handgun without a license was a crime, concluded
that the evidence was admissible under Rule 404(b) as evidence of an other act
relevant to the defendant's intent to engage in the charged conduct: when a
person unlawfully in possession of a firearm "openly brandishes" the weapon, "a
factfinder could conclude that the person was highly motivated by a specific
intent for doing so."^'

B, Purpose for Offering the Evidence

Rule 404(b) bars evidence of other crimes, wrongs, or acts only when offered
for the purpose of showing the actor's character as a means of highlighting that
the actor behaved in a manner consistent with that character on the occasion at
issue in the particular case. If the evidence is offered for a purpose other than as
support for this "forbidden inference," the evidence may be admitted. Because
evidence admitted for a proper purpose may be misapplied by the jury in support
of the forbidden inference, however, the court is obliged to ensure that the true
purpose for offering the evidence is a proper one.

The Indiana Supreme Court and Indiana Court of Appeals have proved
receptive to arguments that evidence of other acts is being offered for a purpose
other than as character evidence, with one significant exception. Following
Wickizer v, State^^ the courts carefully scrutinize other-acts evidence that is
offered to show intent. For the most part, though, the cases in this past year
demonstrate that reversal on the ground that evidence is offered for an improper
purpose under Rule 404(b) is unusual, as is reversal on the ground that the
probative value of the evidence is substantially outweighed by the danger of
unfair prejudice.

1. Routine Application. — Many of the instances in which evidence is
admitted under Rule 404(b) are routine: the evidence plainly relates to an aspect
of the case other than the defendant's character. In McCarthy v. Stated for
example, the defendant, accused of sexual misconduct with a minor, disclaimed

21. Id.

11. 626 N.E.2d 795 (Ind. 1993).

23. 749 N.E.2d 528 (Ind. 2001 ). The McCarthy decision is more notable for the fact that it
applies harmless error analysis to a deprivation of the defendant's right to cross-examine witnesses,
as guaranteed by the Sixth Amendment of the U.S. Constitution and article 1, section 13 of the
Indiana Constitution. Id. at 534. In rejecting the defendant's argument that deprivation of the right
to cross-examine witnesses should be considered Qrror perse, the court discarded court of appeals
precedent that had supported the defendant's position. Id. at 533-34 (overturning Tucker v. State,
728 N.E.2d 261 , 262 (Ind. Ct App. 2000), trans, denied; Kleinrichert v. State, 530 N.E.2d 32 1 , 322
(Ind.Ct. App. 1 988); Higginbothamv. State, 427 N.E.2d 896, 901 (Ind. Ct. App. \9%\\ overruled
on other grounds by Micinski v. State, 487 N.E.2d 150 (Ind. 1986); Pfefferkom v. State, 413
N.E.2d 1088, 1090 (Ind. Ct. App. 1980); Haeger v. State, 390 N.E.2d 239, 241 (Ind Ct. App.
1 979)). The court noted that the U.S. Supreme Court had previously determined that harmless error
analysis should be used to assess the impact of violations of the right to impeach for bias. Id. at 534
(citing Delaware v. Van Arsdall, 475 U.S. 673, 684 (1986)).

2002] EVIDENCE 1419

knowledge of the game in which he had allegedly indulged with the minor victim
before molesting her. To demonstrate that the defendant did in fact have
knowledge of the game, the prosecution introduced evidence from two minor
witnesses who testified that the defendant had played the game with them as
well. The supreme court held that this use of the evidence to show knowledge
was proper.^'*

Prior acts of violence by the defendant against the victim of the charged
offense are often admitted to show motive, the idea being that the prior acts
demonstrate a hostile relationship between the defendant and the victim, a
relationship that in turn explains the charged conduct. This use of the evidence
avoids the forbidden inference by focusing not on the defendant's propensity for
violence broadly but rather on the particulars of the defendant's relationship with
the victim. In Wrinkles v. State,^^ for example, the trial court admitted (without
objection from defendant's counsel) evidence that, two months prior to
murdering his wife and two others, the defendant had pointed a gun at his wife.^^
On collateral review, the Indiana Supreme Court concluded that the failure to
object did not deprive the defendant of effective assistance of counsel, because
the evidence was properly admissible to show motive.^^

Cases in which evidence is excluded can be equally clear-cut. In Buchanan
V. State^^ a child-molesting case, the trial court admitted over the defendant's
objection photographs and drawings seized from his home of children in various
states of undress, accepting the prosecution's argument that the materials
constituted evidence of the defendant's plan to molest young children. The court
of appeals made short work of the argument. To constitute proper evidence of
plan, the court asserted, the charged offense and the evidence of other acts "*must
... be so related in character, time, and place of commission as to establish sorhe
plan which embraced both the prior and subsequent criminal activity and the
charged crime. '"^^ Under this test, the drawings and photographs did not
constitute evidence of an overarching plan.

2. Intent. — An effort to show intent is a proper purpose for introducing

24. A/cCflr%, 749N.E.2dat536.

25. 749 N.E.2d 1 179 (Ind. 2001). Wrinkles is most noteworthy for its conclusion that
criminal defendants may not be required to wear stun belts in the courtroom. Id. at 1 195. The court
acknowledged the need for defendants to wear restraints in limited circumstances, but concluded
that, unlike shackles and other forms of restraint, stun belts generated a fear in the minds of their
wearers that had the potential to chill defendants from participating fully in their own defense. See
id. at 1194-96. Justice Boehm, concurring in the result, opined that stun belts should not be
categorically barred, reasoning that, because they were less visible than shackles and thus were less
likely to be observed by the jury, some defendants might prefer them. See id. at 1205 (Boehm, J.,
concurring).

26. See id atn96&n.7.

27. ld.2X\\91.

28. 742 N.E.2d 1018 (Ind. Ct. App. 2001).

29. Id. at 1022 (quoting Lannan v. State, 600 N.E.2d 1334, 1339 (Ind. 1992)). Lannan, it
should be noted, predated the adoption of the Indiana Rules of Evidence.

1420 INDIANA LAW REVIEW [Vol. 35:1415

evidence of other acts under Rule 404(b). Permitting evidence of other acts to
be introduced to show intent in criminal cases is problematic, however, in that
evidence tending to show intent is almost always relevant in such cases.
Moreover, the intent argument, which the rule recognizes as proper, is not far
removed in operation from the forbidden inference based on character. Each is
in a sense a propensity argument; the intent argument is simply more narrowly
focused on a particular aspect of the defendant's state of mind, rather than on his
general character.

Recognizing this reality, in the 1 993 case of Wickizer v. State^^ the Indiana
Supreme Court held that evidence of other acts may not be offered to show intent
unless the defendant specifically denies intent. A mere denial of involvement in
the offense does not amount to a denial of intent; rather, the defendant must
argue that, whatever conduct he may have engaged in, he did not possess the
necessary mens rea for the offense.^' In many instances, it is readily apparent
that the defendant has made the requisite denial, thus opening the door to other-
act evidence probative of intent. In Grain v. State^^ for example, the defendant,
charged with murder of his wife, claimed that her death was accidental.^^ This
claim allowed the prosecution to introduce evidence of several prior batteries by
the defendant against his wife as evidence of the requisite intent.^^ And in
Murray v. State^^ when the defendant, charged with attempted murder, claimed
that he shot the victim by accident, the Indiana Supreme Court held that the
prosecution could properly introduce evidence that the defendant's possession
of the firearm was illegal, on the theory that one in possession of an illegal
firearm would not casually flaunt it but would reveal it only if there were intent

30. 626 N.E.2d 795 (Ind. 1993).

31. The federal courts of appeals, applying the parallel federal rule, are divided in their
approaches as to whether the defendant must controvert intent before evidence of other acts may
be introduced pursuant to Rule 404(b). A number follow an approach similar to that of Wickizer.
See United States v. Karas, 950 F.2d 3 1 , 3 7 ( 1 st Cir. 1 99 1 ); United States v. Colon, 880 F.2d 650,
656-57 (2d Cir. 1989); United States v. Walton, 602 F.2d 1 176, 1 180-81 (4th Cir. 1979); United
States v. Silva, 580 F.2d 144, 148 (5th Cir. 1978). Other circuits take the position that, where the
crime is a specific intent crime^ evidence of other acts may be used to demonstrate intent even if the
defendant did not specifically place intent at issue. See United States v. Himelwright, 42 F.3d 777,
782 (3d Cir. 1994); United States v. Hadley, 918 F.2d 848, 851-52 (9th Cir. 1990); United States
V. Weddell, 890 F.2d 1 06, 1 07-08 (8th Cir. 1 989); United States v. Mazzanti, 888 F.2d 1 1 65, 1 1 70-
71 (7th Cir. 1989), cert, denied, 495 U.S. 930 (1990); United States v. Soundingsides, 820 F.2d
1232, 1237-38 (10th Cir. 1987); United States v. Williams, 816 F.2d 1527, 1531 (1 1th Cir. 1987);
United States v. Hamilton, 684 F.2d 380, 384 (6th Cir), cert, denied, 459 U.S. 976 (1982). The
position of the D.C. Circuit appears still to be unresolved, although in admitting other-acts evidence
to demonstrate intent, the court in one case did note that the defendant had squarely placed his
intent at issue. See United States v. Watson, 894 F.2d 1345, 1349 (D.C Cir. 1990).

32. 736 N.E.2d 1223 (Ind. 2000).

33. Id at 1235.

34. Id at 1235-36.

35. 742 N.E.2d 932 (Ind. 2001).

2002] EVIDENCE 1421

to use it.^^

Although the Wickizer rule is now well established, it sometimes proves
troublesome in application. A recent decision of the Indiana Court of Appeals
suggests that it can be difficult to determine whether a defendant has placed his
intent in issue. In Weme v. Slate,^^ the defendant was charged with molesting a
six-year-old child who lived nearby. According to the child-victim, the defendant
had touched her several times "on her shorts" in the pelvic area.^^ The
defendant's attorney asserted in his opening statement, without explaining the
significance of the assertion, that the case "was an over the clothing type
touching case."^^ Based on this argument, the trial court concluded that the
defendant had denied intent and therefore had opened the door to evidence of a
prior incident of molestation.'*^

A divided panel of the court of appeals disagreed. Writing for the majority,
Judge Mathias noted that the defendant's opening statement did not explicitly
assert that the alleged touching had been inadvertent or accidental; rather, it
simply "sought early on to minimize the seriousness of the charge and thus the
unfavorable light in which some jurors may have viewed" the defendant."*'
Dissenting, Judge Bailey noted that the defendant "did not deny that the touching
took place"; rather, the emphasis on the fact that the alleged touching occurred
over the victim's clothes "suggest[ed] inadvertence."^^ The split is perhaps
understandable, given the lack of clarity in the defense counsel's argument; the
interpretations of both the majority and the dissent seem plausible. The Weme
decision therefore is somewhat troubling; however, perhaps because of the fact-
specific nature of the split in the appellate panel, the Indiana Supreme Court
denied transfer."*^

3. Other Purposes. — Although Rule 404(b) lists a number of purposes for
which other-acts evidence may be admissible, it is important to remember that
the list set forth in the Rule is not exclusive.'*^ Indiana courts are receptive to
other-acts evidence offered for purposes other than those listed in the Rule,
provided they are satisfied that the proffered purpose is not simply a stand-in for
the forbidden inference. Thus, in Dickens v. State^^ a murder prosecution, the
fact that the defendant was observed in possession of a handgun two days before

36. Mat 933.

37. 750N.E.2ci420(Ind. Ct. App. 2001).

38. /</. at421.

39. Id. 2Lt 422.

40. Id.

41 . Id. at 423. The majority further concluded that the trial court's error was not harmless.
See id. at 423-24.

42. Id. at 425 (Bailey, J., dissenting).

43. Weme V. State, 761 N.E.2d 418 (Ind. 2001).

44. Dickens v. State, 754 N.E.2d 1,4 (Ind. 2001); Atwell v. State, 738 N.E.2d 332, 336 n.4
(Ind. Ct. App. 2000).

45. 754N.E.2dl (Ind. 2001).

1422 INDIANA LAW REVIEW [Vol. 35:1415

the murder was deemed relevant to the issue of opportunity/^ A somewhat more
complicated situation arose in Atwell v. Siate*^ In Atwell, the defendant was
charged with attempted murder after shooting a neighbor. The shooting occurred
after the victim intervened in an argument between the defendant and the
defendant's girlfriend."*^ At trial, the victim acknowledged that he had threatened
to hit the defendant prior to the shooting; he explained his threat by saying that,
several nights before the shooting, the defendant had hit his girlfriend, and that
the victim wanted to prevent that from happening again."*^ On appeal, the court
rejected the defendant's argument that the evidence that the defendant had
previously hit his girlfriend was inadmissible because it invited the jury to
indulge in the forbidden inference; instead, the court accepted the government's
argument that the other-acts evidence was properly admitted on the question of
whether the victim provoked the shooting in some manner.^°

C Rule 403 Balancing

That evidence of other acts is being offered for a proper purpose and is
relevant to that purpose is not sufficient to warrant its admission; the court must
also determine, pursuant to Rule 403, whether "its probative value is
substantially outweighed by the danger of unfair prejudice, confusion of the
issues, or misleading the jury, or by considerations of undue delay, or needless
presentation of cumulative evidence."^' Of course, Rule 403 applies generally
to all forms of evidence, not simply to those offered under Rule 404(b). The
need for balancing is especially acute under Rule 404(b), however, because of the
constant danger that the jury will fall prey to the allure of the forbidden
inference. The danger of unfair prejudice is always present in Rule 404(b) cases,
then; the only question is how that danger compares to the evidence's probative
value when considered for its proper purpose.

The Indiana Supreme Court has recognized the importance of Rule 403
balancing in determining admissibility under Rule 404(b), specifically directing
courts to undertake the balancing inquiry when considering other-acts evidence."
In practice, however, reversals on appeal based on Rule 403 have been rare. In
part, this is because of the standard of review: an appellate court will not
overturn a trial court's determination that evidence does not violate Rule 403
absent abuse of discretion. ^^ Beyond that, though, the Indiana Supreme Court has
effectively set the tipping point between probative value and unfair prejudice at
such a high level that even highly prejudicial evidence is deemed admissible if

46. Mat 4.

47. 738 N.E.2d 332 (Ind. Ct. App. 2000).

48. Id. at 334.

49. Id. at 334-35.

50. /d/. at 336.

51. iND. R. EviD. 403.

52. Hicks V. State, 690 N.E.2d 215, 221 (Ind. 1997).

53. Grain v. State, 736 N.E.2d 1223, 1235 (Ind. 2000).

2002] EVIDENCE 1423

it has minimal probative value.

An example from this past year was Grain v. State.^^ In Grain, the defendant
was charged with murder after allegedly beating his wife severely in a motel
room and leaving her to die.^^ At trial, the prosecution offered evidence that, at
the time of the defendant's arrest, the defendant had four outstanding battery
charges involving the victim in the five months prior to her death, as well as two
prior battery convictions, one three years old and one six years old, both
involving the victim. The prosecution contended, and the trial court agreed, that
these charges and convictions were proper other-acts evidence, admissible to
show intent by rebutting the defendant's argument that the victim's death had
been accidental.^^ On appeal, the supreme court agreed that the evidence was
proper to show intent; it also concluded that the evidence withstood Rule 403
scrutiny. The four battery charges, being close in time to the victim's death, had
sufficient "probative force" to warrant admission. The two prior convictions
were "in the lower range of probative value," given the passage of time and the
fact that, with the admission of the four battery charges, the evidence of the prior
convictions was cumulative.^^ Nevertheless, the court concluded that the
admission of the convictions did not constitute an abuse of discretion.^*

Grain focuses largely on assessing the probative value of the proffered
evidence; it largely fails to consider the extent of the danger of unfair prejudice
caused by the evidence. The court acknowledges that "[a]t some point testimony
about every incident of violence between the [defendant and the victim] becomes
more prejudicial than probative."^^ Beyond that, though, the court has little to
say. It briefly suggests that if the testimony about the prior convictions had been
both "graphic" and "prejudicial," it might have excluded the evidence.^^ Again,
though, the court says virtually nothing about what would make evidence in this
context prejudicial. In particular, the failure to acknowledge the inherent unfair
prejudice lurking in the forbidden inference undermines the court's own previous
insistence on the importance of Rule 403 balancing in the Rule 404(b) context.
Given the one-sided nature of the court's inquiry, it is not surprising that, as long
as the evidence's probative value is more than de minimis, the court concludes
that it is not barred by Rule 403.^^

54. 736 N.E.2d 1223 (Ind. 2000).

55. Id. at 1229.

56. Mat 1235-36.

57. /i/. atl236&n.9.

58. Mat 1236.

59. Id at 1236 n.9 (quoting Hicks v. State, 690 N.E.2d 215, 222 (Ind. 1997)).

60. Id

61. Crain dealt with a Rule 403 problem in another portion of the opinion as well. To
illustrate expert testimony, the prosecution presented not photographs, video, or charts, but the
murder victim's own skull, which the jury was invited to examine up-close. See id. at 1233-34.
On appeal, the Indiana Supreme Court acknowledged that the use of the victim's skull in this
manner was "unsettling," but concluded that "the skull was neither particularly gruesome nor
ominous." Id. at 1234. Although the court expressed a preference for other means of illustrating

1424 INDIANA LAW REVIEW [Vol. 35:1415

Only once in this past year did the Indiana Court of Appeals conclude that
evidence of other acts proffered under Rule 404(b) should be excluded under
Rule 403, and the circumstances of that case demonstrate the limited
circumstances in which the courts are willing to make such a decision on Rule
403 grounds. In Buchanan v. State,^^ the defendant, charged with child
molesting, objected to the introduction of photographs of semi-nude children and
drawings of nude children seized from his home, claiming that the evidence
violated both Rule 404(b) and Rule 403." The government responded that the
photographs and drawings were properly admitted under Rule 404(b) as evidence
of the defendant's motive and plan.^"* The court of appeals disagreed, concluding
that the evidence was relevant to neither motive nor plan." Having reached that
conclusion, it further opined that Rule 403 required exclusion of the evidence
because "the sheer volume of the drawings and photographs" was "extremely
prejudicial."^^ This decision reinforces the impression that the only
circumstances in which the Indiana courts are willing to bar Rule 404(b)
evidence under Rule 403 are those in which the evidence is not proper under
Rule 404(b) to begin with.

II. Procedural Requirements of Rule 404(b)

Rule 404(b) requires that "upon request by the accused, the prosecution in
a criminal case shall provide reasonable notice in advance of trial, or during trial
if the court excuses pre-trial notice on good cause shown, of the general nature
or any such evidence it intends to introduce at trial. "^^

The absence of a firm deadline for the provision of notice under Rule 404(b)
occasionally causes difficulties. In Hatcher v. State ^^^ for example, the
prosecution informed the defendant six days before his trial for murder that it
intended to offer evidence concerning a protective order that the victim had
previously obtained against him.^^ The defendant objected, claiming that six
days advance notice was not "reasonable" within the meaning of Rule 404(b) and
that the state had failed to demonstrate good cause for its untimely disclosure.
The trial court rejected the defendant's contention, and the Indiana Supreme
Court affirmed. The purpose of the notice requirement, the court asserted, "Ms
to reduce surprise and to promote the early resolution of questions of

the expert's testimony, it ultimately concluded that the use of the victim's skull did not constitute
an abuse of discretion. See id.

62. 742N.E.2d 1018 (Ind. Ct. App. 2001).

63. /^. at 1021.

64. ld.2X\021.

65. Id.

66. Mat 1022-23.

67. iND. R. EviD. 404(b).

68. 735 N.E.2d 1 155 (Ind. 2000).

69. See id. at 1158.

2002] EVIDENCE 1425

admissibility."'^® Neither of these purposes was offended: the emergency
protective order that the prosecution sought to introduce had been disclosed to
the defendant during discovery, as had the identity of the Rule 404(b) witnesses
that the prosecution intended to call. In addition, the trial court was able to
resolve the dispute in a timely manner, without disrupting the trial/'

Although exclusion for lack of timely notice is relatively unusual, a decision
from this past year demonstrated that such a decision has real teeth. In Johnson
V. State,^^ the trial court found inadequate notice by the government identifying
the names of potential Rule 404(b) witnesses but failing to state the general
nature of their testimony .^^ The court therefore excluded the other-acts evidence.
The prosecution then moved to dismiss the charges and, once that motion was
granted, refiled the charges, adding a number of new counts relating to the
previously-excluded witnesses.^* On appeal, the Indiana Supreme Court found
the tactic improper, noting: "If the State may circumvent an adverse evidentiary
ruling by simply dismissing and refiling the original charge, and also 'punish' the
defendant for a successful procedural challenge by piling on additional charges,
defendants will as a practical matter be unable to avail themselves of legitimate
procedural rights."^^

Conclusion

Rule 404(b) continues to prove among the most troublesome of the Indiana
Rules of Evidence, and controversial decisions have been common in the years
since the Rule was adopted.'^ This is perhaps not surprising, given the multiple
factors at play in any application of Rule 404(b). Yet the decisions applying
Rule 404(b) in the past year suggest that the application of the Rule has stabilized
in some ways. There remain areas in the application of the Rule that could profit
from further explication by the Indiana Supreme Court, particularly in the nature
of the Rule 403 balancing that Rule 404(b) requires.^^ But as the courts become
more familiar with the contours of the Rule, there is reason to hope that its
application will continue to become more consistent.

70. Id. (quoting Abdul-Musawwir v. State, 674 N.E.2d 972, 975 (Ind. Ct. App. 1996)).

71. 5ee/c/. at 1158-59.

72. 740 N.E.2d 118 (Ind. 2001).

73. 5ee/W. at 119-20.

74. See id at no.

75. /flf. atl21.

76. I have discussed Indiana decisions applying Rule 404(b) in my two previous surveys for
the Indiana Law Review. See Jeffrey O. Cooper, Recent Developments in Indiana Evidence Law,
32 Ind. L. Rev. 811, 819-22 (1999); Jeffrey O. Cooper, Recent Developments Under the Indiana
Rules of Evidence, 30 iND. L. REV. 1049, 1051-56 (1997).

77. See supra notes 5 1 -66 and accompanying text.

Survey of Recent Developments in
Indiana Product Liability Law

Joseph R. Alberts*

Introduction

The first year of the Twenty-first Century was a busy one for Indiana judges
and practitioners in the area of product liability law.' During the 2001 survey
period, which is October 1 , 2000 to September 30, 200 1 ^ state and federal courts
in Indiana answered some lingering questions, tackled some new issues, and
added to an already impressive body of law interpreting the Indiana Product
Liability Act ("IPLA").'

This survey does not attempt to address in detail all cases decided during the
survey period that apply Indiana product liability law. Rather, it examines
selected cases that are representative of the seminal product liability issues that
courts applying Indiana law have handled during the relevant time frame. This
survey also provides some background information and context where
appropriate.

I. Cases Interpreting Statutory Definitions
All claims users or consumers'* file in Indiana against manufacturers^ and

* Senior Litigation Attorney, Dow AgroSciences LLC, Indianapolis; B.A., cum laude,
1991, Hanover College; J.D., magna cum laude, 1994, Indiana University School of
Law— Indianapolis; Chairman, Product Liability Section, Defense Trial Counsel of Indiana ( 1 999-
2001); Chairman, Corporate Counsel Section, Indiana State Bar Association. The author thanks
Brenda Ferguson, Knight Anderson, James Boyers, Jeff McKean, Nelson Nettles, and Tom
Jarzyniecki for their contributions.

1 . Many commentators and courts use the term "products liability" when referring to actions
alleging damages as a result of defective and/or unreasonably dangerous consumer products. The
applicable Indiana statutes, however, utilize the term "product liability" (no "s"). This survey
follows the lead of the Indiana General Assembly and likewise employs the term "product liability."

2. This Article includes some cases decided on the periphery of those dates.

3. The Indiana General Assembly first enacted the IPLA in 1978. See Pub. L. No. 141, §
28, 1978 Ind. Acts 1298, 1308, repealed by 1995 Ind. Acts 4051 (1995). It originally covered
claims in tort using both negligence and strict liability theories. In 1983, the legislature amended
the statute to apply only to strict liability actions. See Pub. L. No. 297-1983, § 1, 1983 Ind. Acts
1815. In 1995, the legislature amended the statute to once again encompass tort theories of
recovery based on both strict liability and negligence theories. See Pub. L. No. 278- 1 995, §1,1 995
Ind. Acts 405 1 ; see also Progressive Ins. Co. v. Gen. Motors Corp., 749 N.E.2d 484, 487 n.2 (Ind.
2001).

4. For purposes of application of the IPLA, "consumer" means:

(1) a purchaser; (2) any individual who uses or consumes the product; (3) any other
person who, while acting for or on behalf of the injured party, was in possession and
control of the product in question; or (4) any bystander injured by the product who
would reasonably be expected to be in the vicinity of the product during its reasonably

1428 INDIANA LAW REVIEW [Vol. 35:1427

sellers^ for physical harm^ a product* causes are statutory. The IPLA governs all
such claims "regardless of the substantive legal theory or theories upon which the
action is brought."^ The 1 995 amendments to the IPLA incorporated negligence
principles in cases in which claimants base their theory of liability upon either
defective design or inadequate warnings. '° "Strict liability" remains only in cases
in which the theory of liability is a manufacturing defect." The 1995
amendments also limited actions against sellers,'^ more specifically defined the
circumstances under which a distributor or seller can be considered a
manufacturer,'^ converted the traditional state of the art defense into a rebuttable

expected use.
IND. Code § 34-6-2-29 (1998). "User" has the same meaning as "consumer." Id. § 34-6-2-147.

5. For purposes of application of the IPLA, "manufacturer" means "a person or an entity
who designs, assembles, fabricates, produces, constructs, or otherwise prepares a product or a
component part of a product before the sale of the product to a user or consumer." Id. § 34-6-2-
77(a). "Manufacturer" also includes a seller who

(1) has actual knowledge of a defect in a product; (2) creates and furnishes a
manufacturer with specifications relevant to the alleged defect for producing the product
or who otherwise exercises some significant control over all or a portion of the
manufacturing process; (3) alters or modifies the product in any significant manner after
the product comes into the seller's possession and before it is sold to the ultimate user
or consumer; (4) is owned in whole or significant part by the manufacturer; or (5) owns
in whole or significant part the actual manufacturer.
Id.

6. For purposes of application of the IPLA, "seller" means "a person engaged in the business
of selling or leasing a product for resale, use, or consumption." Id. § 34-6-2-136.

7. For purposes of application of the IPLA, "physical harm" means "bodily injury, death,
loss of services, and rights arising from any such injuries, as well as sudden, major damage to
property." Id. § 34-6-2-1 05(a). It does not include "gradually evolving damage to property or
economic losses from such damage." Id. § 34-6-2- 105(b).

8. For purposes of application of the IPLA, "product" means "any item or good that is
personalty at the time it is conveyed by the seller to another party." Id. § 34-6-2-1 14(a). The term
does not encompass a "transaction that, by its nature, involves wholly or predominantly the sale of
a service rather than a product." Id. § 34-6-2-1 14(b).

9. /^. §34-20-1-1.

10. See id §34-20-2-2.

1 1 . See id. The editors of Bums Indiana Statutes Annotated have included a title that could
be misleading to their readers. The short title the editors have chosen for Indiana Code section 34-
20-2-2 is "Strict Liability— Design Defect." iND. Code Ann. § 34-20-2-2. That title might cause
a reader to incorrectly assume that the statute allows a claimant to prove a design defect case
without proving as part of that claim that the manufacturer or seller failed to conform to what is
really a negligence standard — the exercise of "reasonable care under the circumstances in designing
the product." iND. CODE § 34-20-2-2.

12. See id §34-20-2-3.

13. See id §34-20-2-4.

2002] PRODUCT LIABILITY 1429

presumption/'* and injected comparative fault principles into product liability
cases. '^

As such, cases interpreting the IPLA are of the utmost importance. The
following cases are a sampling of those decided during the survey period that
interpret terms the IPLA incorporates.'^

14. See id. § 34-20-5-1. The presumption is that the product is not defective and that the
product's manufacturer is not negligent. Id The IPLA entitles a manufacturer or seller to such a
presumption if,

before the sale by the manufacturer, the product: (1) was in conformity with the
generally recognized state of the art applicable to the safety of the product at the time
the product was designed, manufactured, packaged, and labeled; or (2) complied with
applicable codes, standards, regulations, or specifications established, adopted,
promulgated, or approved by the United States or by Indiana, or by any agency of the
United States or Indiana.
Id

15. The 1995 amendments changed Indiana law with respect to fault allocation and
distribution in product liability cases. The Indiana General Assembly made it clear that a defendant
cannot be liable for more than the amount of fault "directly attributable to that defendant," as
determined pursuant to Indiana Code section 34-20-8, nor can a defendant "be held jointly liable
for damages attributable to the fault of another defendant." Id. § 34-20-7-1.

The 1995 amendments now require the trier of fact to compare "the fault of the person
suffering the physical harm, as well as the fault of all others who caused or contributed to cause the
harm." Id. § 34-20-8- 1(a). The statute requires that the trier of fact compare such fault "in
accordance with IC 34-51-2-7, IC 34-51-2-8, or IC 34-51-2-9." Id The IPLA mandates that
[i]n assessing percentage of fault, the jury shall consider the fault of all persons who
contributed to the physical harm, regardless of whether the person was or could have
been named as a party, as long as the nonparty was alleged to have caused or
contributed to cause the physical harm.
Id § 34-20-8-l(b).

Practitioners also should recognize that the definition of "fault" for purposes of the IPLA is
not the same as the definition of "fault" applicable in actions that the Comparative Fault Act
governs. Compare id. § 34-6-2-45(a), with id. § 34-6-2-45(b). For purposes of the IPLA, the
definition of "fault" does not include the "unreasonable assumption of risk not constituting an
enforceable express consent, incurred risk, and unreasonable failure to avoid an injury or to mitigate
damages." Id.

1 6. As noted in the opening paragraph of this survey Article, there are several cases that this
piece does not address in great detail that are, nevertheless, worthy of special mention. One such
case is Rogers ex rel. Rogers v. Cosco, Inc., 737 N.E.2d 1 158 (Ind. Ct. App. 2000), trans, denied,
761 N.E.2d 419 (Ind. 2001), which the Indiana Court of Appeals decided on November 2, 2000.
Although that decision technically falls within the survey period for this Article, last year's survey
Article fully addressed it. See Joseph R. Alberts & David M. Henn, Survey of Recent Developments
in Indiana Product Liability Law, 34 iND. L. REV. 857, 882-86, 917-20 (2001).

In addition to Rogers, there are several published state and federal cases that Indiana product
liability practitioners may be interested in that are not reviewed in this article because, although
they are product liability cases, substantive product liability issues are not the focus of the opinions.

1430 INDIANA LAW REVIEW [Vol. 35:1427

See In re Bridgestone/Firestone, Inc., ATX, ATX II, & Wilderness Tires Products Liability
Litigation, 1 55 F. Supp. 2d 1069 (S.D. Ind.) (applying Michigan and Tennessee substantive law to
claims involving tort, contract, consumer protection, express and implied warranty, and unjust
enrichment claims; applying federal law on RICO and Magnuson-Moss warranty issues),
reconsideration granted in part by 205 F.R.D. 503 (S.D. Ind. 2001), rev 'din part by 2SS F.3d 1013
(7th Cir. 2002); In re Bridgestone/Firestone, Inc., ATX, ATX II, & Wilderness Tires Products
Liability Litigation, 199 F.R.D. 304 (S.D. Ind. 2001) (allowing plaintiff to voluntarily dismiss
federal action and pursue state action if she paid defendants any filing fees they incurred); In re
Bridgestone/Firestone, Inc., ATX, ATX II, & Wildemess Tires Products Liability Litigation, 131
F. Supp. 2d 1027 (S.D. Ind. 2001) (finding plaintiffs entitled to discovery about defendants'
motions to dismiss on forum non conveniens grounds); In re Bridgestone/Firestone, Inc., ATX,
ATX II, & Wilderness Tires Products Liability Litigation, 129 F. Supp. 2d 1207 (S.D. Ind. 2001)
(determining case management procedures); In re Bridgestone/Firestone, Inc., ATX, ATX II, &
Wildemess Tires Products Liability Litigation, 129 F. Supp. 2d 1202 (S.D. Ind. 2001) (denying
plaintiffs' request to join tire dealer who would defeat diversity jurisdiction); In re
Bridgestone/Firestone, Inc., ATX, ATX II, & Wildemess Tires Products Liability Litigation, 198
F.R.D. 654 (S.D. Ind. 2001) (allowing press to intervene in case, but limiting intervention to
responses to motions for protective orders); In re Bridgestone/Firestone, Inc., ATX, ATX II, &
Wildemess Tires Products Liability Litigation, 128 F. Supp. 2d 1198 (S.D. Ind. 2001) (denying
plaintiffs' motion to remand case to state court); In re Bridgestone/Firestone, Inc., ATX, ATX II,
& Wildemess Tires Products Liability Litigation, 128 F. Supp. 2d 1 196 (S.D. Ind. 2001 ) (refusing
to issue suggestion for remand of case to state court); Szabo v. Bridgeport Machines, Inc., 199
F.R.D. 280 (N.D. Ind. 2001) (addressing, in a case involving the manufacture of an allegedly
defective machine, class certification, choice of law, and misrepresentation); Ray-Hayes v.
Heinamann, 743 N.E.2d 777 (Ind. Ct. App. 2001) (holding, in product liability case alleging
defective passenger vehicle restraint, that trial court erred by dismissing plaintiffs' cause of action
despite the fact that the summonses were filed after the expiration of the statute of limitations
period), vacated by 760 N.E.2d 1 72 (Ind.), rev 'd on reh 'g, 768 N.E.2d 899 (Ind. 2002); Allstate
Ins. Co. V. Dana Corp., 737 N.E.2d 1 177 (Ind. Ct. App. 2000) (insured manufacturer did not own
contaminated groundwater within the meaning of insurance policy's exclusion), ajfd in part and
vacated in part, 759 N.E.2d 1049 (Ind. 2001).

There are also several helpful opinions, by federal district judges, that are available from
sources other than official reporters. Note that those cases made available to the public only by way
of the Southern District of Indiana's web site are not intended for publication either electronically
or in paper form. Aside from the law of the case doctrine, federal district judges' decisions have
no precedential authority and are not binding on other courts, other judges within the district, or
even other cases before the same judge, N.H. Ins. Co. v. Farmer Boy AG, Inc., No. I/P 98-003 1 -C-
T/G, 2000 U.S. Dist. LEXIS 19502, at ♦ 1 n.l (S.D. Ind. Dec. 19, 2000); see also Howard v. Wal-
Mart Stores, Inc., 160 F.3d 358, 359 (7th Cir. 1 998); Malabarba v. Chi. Tribune Co., 149F.3d690,
697 (7th Cir. 1998); Old Republic Ins. Co. v. Chuhak & Tecson, P.C, 84 F.3d 998, 1003 (7th Cir.
1 996). There are a number of federal cases that might be helpful to practitioners but are not
available in the official reporter system. See Chubb Group of Ins. Cos. v. Buddy Gregg Motor
Homes, Inc., No. IP 00-1378-C H/G, 2001 U.S. Dist. LEXIS 5040 (S.D. Ind. Apr. 17, 2001)
(dismissing manufacturer's cross-claim against seller finding that Indiana allows implied
indemnification only under narrow exceptions that the cross-claim did not meet); In re Lawrence

2002] PRODUCT LIABILITY 1431

A. Recovery of Damage to Defective Product

Two related cases decided on June 6, 2001, by the Indiana Supreme Court
reaffirm that the IPLA does not allow a claimant to recover for damages to the
defective product itself even when "other property" is damaged in the event or
accident that also destroys or damages the defective product.

In the first case, Progressive Insurance Co. v. General Motors Corp. ,'^ three
insurance companies sued General Motors and Ford in subrogation in five
separate cases after vehicles were destroyed in fires allegedly caused by defects
in the wiring, the fuel lines, and transmission lineJ* Because the vehicles
themselves were the only property the fires allegedly damaged, the manufacturers
filed motions for summary judgment in the trial court.'' They argued, in part,
that the owners, and therefore their subrogees, may not recover damages in
product liability claims under the IPLA.^^ The trial courts granted summary
judgments to the manufacturers in two of the cases and denied them in the other
three.^'

Considering itself bound by precedent in Martin Rispens & Son v. Hall
Farms, Inc?^ and Reed v. Central Soya Co,}^ the court of appeals affirmed those
decisions in the consolidated appeal that ensued.^'* In doing so, the court of
appeals, in the language of Justice Boehm, expressed the view that "policy
considerations favored the plaintiffs' claims under the [IPLA]."^^ Because the

W. Inlow Accident Litig., No. IP 99-0830-C H/G, 2001 U.S. Dist. LEXIS 2747, Prod. Liab. Rep.
(CCH)*j| 16,044(S.D. Ind. Feb. 7, 2001) (discussing indemnification and contribution, compliance
with Local Rule 56.1, personal knowledge required for an affidavit, exclusivity provision in the
Indiana Worker's Compensation Act, federal preemption pursuant to the Federal Aviation Act, and
the quantum of evidence necessary to defeat summary judgment motion); Land v. Yamaha Motor
Corp., No. IP 00-220-C H/G, 2000 U.S. Dist. LEXIS 201 17 (S.D. Ind. Dec. 20, 2000) (denying
plaintiffs attempt to add non-diverse defendants to defeat federal jurisdiction); N. H. Ins. Co. , 2000
U.S. Dist. LEXIS 19502 (deciding tort, contract claims arising out of installation of ventilation
system in hog breeding facility).

17. 749 N.E.2d 484 (Ind. 2001).

1 8. See id. at 486. The three insurers were Progressive Insurance Co., United Farm Bureau
Insurance Co., and Foremost Insurance Co. See id. at 486 n. 1 .

19. See id 2X^9^6.

20. See id.

21. See id at 491.

22. 621 N.E.2d 1078 (Ind. 1993).

23. 621 N.E.2d 1069 (Ind. \99'i\ modified on reh'g,6W^.E.ldU {\r\d. 1994).

24. The court of appeals affirmed the two cases where summary judgment was granted and
reversed the three where it had been denied. See Progressive Ins. Co. v. Gen. Motors Corp., 730
N.E.2d 218 (Ind. Ct. App. 2000), vacated, 749 N.E.2d 484 (Ind. 2001).

25. Progressive Ins. Co., 749 N.E.2d at 486. Although acknowledging the decisions in
Martin Rispens and Reed, the court of appeals nevertheless seemed troubled by the proposition that

1432 INDIANA LAW REVIEW [Vol. 35:1427

issue was "a recurring subject of transfer petitions," the Indiana Supreme Court
granted transfer and reaffirmed the position in Martin Rispens and Reed that
there is no recovery under the [IPLA] where the claim is based on damage to the
defective product itself.^^

The IPLA provides, in relevant part:

[A] person who sells, leases, or otherwise puts into the stream of
commerce any product in a defective condition unreasonably dangerous
to any user or consumer or to the user's or consumer's property is
subject to liability for physical harm caused by that product to the user
or consumer or to the user's or consumer's property if:

(1) that user or consumer is in the class of persons that the seller
should reasonably foresee as being subject to the harm caused by the
defective condition;

(2) the seller is engaged in the business of selling the product; and

(3) the product is expected to and does reach the user or consumer
without substantial alteration in the condition in which the product is
sold by the person sought to be held liable under this article.^^

"Physical harm" for purposes of the IPLA means "bodily injury, death, loss of
services, and rights arising from any such injuries, as well as sudden, major

damage to property The term does not include gradually evolving damage to

property or economic losses from such damage."^*

Justice Boehm's opinion in Progressive framed the issue as whether the
IPLA "imposes liability when the 'harm' caused by a 'product' is damage to the
product itself, and not personal injury or damage to other property."^^ The
insurance companies argued that the term "property" includes the "product,"
pointing out that the user or consumer "presumably views the product that self-
destructs as his or somebody else's property. "^° In response, the court wrote that
"[ajlthough it is undoubtedly true that 'products' are ordinarily somebody's
'property,' we think that 'property' as used in the [IPLA] does not embrace the
product itself"^*

In its earlier Reed decision, the Indiana Supreme Court concluded that the
legislature already had determined that the plaintiffs only remedy lay in contract

a consumer may not recover under the IPLA for damage caused by a defective product unless the
product also damages other property or injures a person. See Progressive Ins. Co., 730 N.E.2d at
220-2 1 . Because the court of appeals recognized its inability to "recast" the Martin Rispens and
Reed opxmons, it was constrained to affirm the trial court's entry of summary judgment for GM in
two of the cases and to reverse the denials of summary judgment in the other three. Id. at 221 .

26. Progressive Ins. Co., 749 N.E.2d at 486.

27. IND. CODE § 34-20-2-1 (1998).

28. Id §34-6-2-105.

29. Progressive Ins. Co., 749 N.E.2d at 487.

30. Id

31. Id

2002] PRODUCT LIABILITY 1 43 3

law "where the loss is purely economic,^^^^ and there is no damage to other
property and no personal injury."^^ Also significant to the Progressive court was
the fact that the General Assembly did not provide for recovery for injury to the
product itself even though it amended the IPLA in 1995, well after the Indiana
Supreme Court's rulings in Reed and Martin Rispens:

[T]he legislature has not acted in the face of two opinions from this
Court concluding that the legislature did not intend that damage to the
product itself be recoverable under the [IPLA], That silence is not
insignificant.

Rejection of a tort claim for self-inflicted damage to a product is a
choice the legislature is plainly free to make. It is grounded in the
distinction between tort and contract law. It also involves a number of
different policy considerations. As a general matter, when the product
does not operate up to expectations and deprives its user of the benefit
of the bargain, commercial law sets forth a comprehensive scheme
governing the buyer's and seller's rights.^"*

The insurance companies also argued that the fire damage was "sudden" and
therefore covered by the IPLA, whereas the injury suffered in Martin Rispens
(damage to a watermelon crop) developed over time.^^ The Progressive court
rejected any distinction between the situation before it and the one before the
court in Martin Rispens. The majority rejected the argument that "the issue turns
on whether 'sudden, major' damage is incurred"^^ noting "[t]hat may be the case
in many product malfunctions, including those involving no fire or other self-
destructive result. It may be a necessary component of a products liability claim,
but it is not itself sufficient."^^

Near the conclusion of the opinion, the Progressive court addressed
additional policy arguments raised by the insurance companies, including that it

32. Justice Boehm's majority opinion acknowledges that "'property damage' is distinct from
'economic damage . . .'" from the point of view of the policyholder's insurance coverage. Id. at
488. The opinion also notes:

However, when addressing the validity vel non of a tort or products liability claim
based on failure of a product, the self-destruction of the product through property
damage, if caused by an external force, is indistinguishable in consequence from the
product's simple failure to function. In both cases, the owner's loss is the value of the
product. Thus, the United States Supreme Court and others refer to damage to the
product itself as "economic loss" even though it may have a component of physical
destruction. Viewing such a loss as purely "economic loss" and not personal or
property damage loss is consistent with Indiana law in other contexts as well.
Id.

33. Id (citing Reed v. Cent. Soya Co., 621 N.E.2d 1069 (Ind. 1993)).

34. /af. at489.

35. See id. at 489-90.

36. Id. at 490.

37. Id. (footnote omitted).

1434 INDIANA LAW REVIEW [Vol. 35:1427

is simply unfair for them to bear the burden of the cost of compensating
consumers for products that are defective. In response, the court observed that:

[t]he insurers can rewrite their policy exclusions to deal with this if they
choose. Presumably competitive forces compel them to cover these
risks, but if some insurers seek to write the coverage out of their policies,
this is their choice. To the extent insurance regulators insist on such
coverage, the fairness of that position is not an issue for this Court.
[0]ne efficient way for economic losses to be managed is through
insurers because they have the ability to adjust their rates to reflect their
loss experience .... The legislative policy to favor this means of
addressing the problem is entirely rational. If it is to be changed, the
General Assembly must make that determination.^^

Justice Rucker concurred in the result in a separate opinion in which Justice
Dickson joined. The concurring opinion merely states that the doctrine of stare
decisis compelled the outcome, citing Martin Rispens and Reed?*^

In the second case decided on June 6, 2^0\ , Fleetwood Enterprises, Inc. v.
Progressive Northern Insurance Co. ,^^ the court disposed of essentially the same
issue as in Progressive^ but in a case in which the product defect at issue
allegedly damaged both the product itself and other property. The Fleetwood
court held that personal injury and property damage to other property from a
defective product are actionable under the IPLA, but that their presence does not
create a claim for damage to the product itself."*'

In Fleetwood, a, fire destroyed a motor home that Fleetwood manufactured
and some of the owner's personal property inside the motor home. Progressive
Insurance had issued a homeowner's policy covering the motor home and
reimbursed the owner for the value of the motor home and the personal
property ."^^ As subrogee. Progressive sued Fleetwood under a product liability
theory to recover its losses. The trial court refused to give Fleetwood's tendered
jury instruction stating that the only amount of damages it could consider was the
loss of personal property. Instead, the trial court read the Indiana pattern jury
instruction allowing for recovery of fair market value of destroyed property at the
time of its destruction."^^ The jury awarded Progressive the full value of the
motor home and the personal property plus prejudgment interest. "*"*

The Indiana Supreme Court began its discussion by citing Progressive for the
proposition that the IPLA does not provide recovery when the only damage is to

38. M at 491 (citation omitted).

39. See id. at 491-92 (Rucker, J., concurring).

40. 749 N.E.2d 492 (Ind. 2001).

41. Mat 493.

42. The homeowner's insurance policy "paid the owner $1 62,500 for damages to the motor
home and $6,587.89 for damages to other personal property in the home." Id.

43. Id. The trial court chose to read Indiana Pattern Jury Instruction No. 1 1 .40. Id.

44. The total judgment for Progressive was $2 1 5,969.24. Id.

2002] PRODUCT LIABILITY 1 43 5

the defective product itself."*^ The court acknowledged, however, that other
decisions, including its /?ee<i decision, "have discussed that doctrine in language
suggesting that damage to the product might be recoverable under a products
liability theory if the defective product also causes personal injury or damage to
other property.'"*^ Whether damage to the defective product itself is recoverable
in product liability where it is accompanied by damage to other property or
personal injury is a question about which the Fleetwood court found a paucity of
authority. The Fleetwood court discussed only one relevant case, Dutsch v. Sea
Ray Boats, Inc.,^^ an Oklahoma decision in which the court permitted recovery
of damage to the defective product when accompanied by damage to other
property even though Oklahoma is a state that does not permit recovery when the
only damage is to the defective product itself.

In the case before it, the Fleetwood coxxrX recognized that there was damage
to "other" personal property in the motor home. There is no question that the
IPLA contemplates recovery for such "other" personal property. "However," the
court wrote, "we find no persuasive reason to sustain a products liability claim
for damage to the product if it is accompanied by personal injury or damage to
other property when there is no products liability claim if that other damage is
absent.""^^ On that point, the Fleetwood court commented that the reason given
in Dutsch for its contrary finding (avoidance of dual theory trials) did "not seem
very forceful.""^^ The court, recognizing that a product liability claim in Indiana,
unlike Oklahoma, is governed by statute and that there is no support in the IPLA
for the result reached in Dutsch^ reasoned that

[p]recedent from this Court has not regarded the "product" whose defect
gives rise to liability as "property" whose damage gives rise to a claim
under the [IPLA]. That result, apparently accepted by the legislature,
dictates disallowance of the claim for damage to the defective product,
whether or not accompanied by other damage. Thus, for the same
reasons given in Progressive^ we hold that damage caused to other
property by a defective product does not create a claim for damage to the
product itself. We also think there are other persuasive reasons to reject
the Dutsch rule. If recovery hinges on the presence of other damage,
many cases will be launched into quests for some collateral damage. An
oil stain on a garage floor from a failed engine or a burnt blade of grass

45. Id.

46. Id. In Reed, the court wrote that, "where the loss is solely economic in nature, as where
the only claim of loss relates to the product's failure to live up to expectations, and in the absence
of damage to other property or person, then such losses are more appropriately recovered by
contract remedies." Reed v. Cent. Soya Co., 621 N.E.2d 1069, 1074-75 (Ind. 1993), modified on
reh 'g, 644 N.E.2d 84 (Ind. 1994).

47. 845P.2dl87(Okla. 1992).

48. F/eerwoo^, 749 N.E.2d at 495.

49. Id

1436 INDIANA LAW REVIEW [Vol. 35:1427

from a fire should not create a claim where none existed.^°

Accordingly, the court determined that the trial court erred in failing to instruct
the jury that damage to the product itself was not recoverable under the IPLA.^'
As in Progressive, Justice Rucker concurred in the result in a separate
opinion in which Justice Dickson joined. The concurring opinion states that the
doctrine of stare decisis compelled the outcome, citing Martin Rispens and
Reed.'''

B. Bystanders

The opinion of the court of appeals in Stegemoller v. ACandS, Inc.P raised
an interesting definitional question and, in the process of answering it, confirmed
that the IPLA has subsumed "common law" negligence in Indiana product
liability cases. At issue in Stegemoller was whether the plaintiff qualified as a
"user" or a "consumer" of an allegedly defective product and, if she did not,
whether she could maintain a separate "common law" negligence claim, that was
not within the IPLA's purview.^^ According to the Indiana Court of Appeals, the
answer to both questions is "no."^^ The Indiana Supreme Court has since
reversed the court of appeals' opinion.^^ This survey Article reviews the court
of appeals decision. The opinion of the Indiana Supreme Court will presumably
be treated in next year's survey Article.

In Stegemoller^ Lee Stegemoller worked for several years as a union insulator
for many different companies and, during the course of his career, worked with
asbestos products.^^ He and his wife, Ramona, contended that some of the
asbestos dust remained on his clothes when he left the various jobsites and that

50. Id. (citation omitted).

5 1 . See id. The court determined that the trial court's failure to read the appropriate jury
instruction gave the jury "the mistaken impression that it should award full damages for the motor
home ... if it determined that Fleetwood was liable." Id. The court ultimately affirmed the jury's
award of damages in the amount of $6,587.89 for the personal property, but reversed the damages
award in the amount of $162,500 for the motor home. See id. at 496.

52. See id. (Rucker, J., concurring). The same issues were raised and addressed by the court
of appeals in Hitachi Construction Machinery Co. v. AMAXCoal Co., 737 N.E.2d 460 (Ind. Ct.
App. 2000). On August 28, 2001, the Indiana Supreme Court denied appellee's and cross-
appellant's petition to transfer. See Hitachi Constr. Mach. Co. v. AMAX Coal Co., 761 N.E.2d 416
(Ind. 2001).

53. 749 N.E.2d 1216 (Ind. Ct. App.), trans, granted, 761 N.E.2d 423 (Ind. 2001 ), rev 'd, 767
N.E.2d 974 (Ind. 2002).

54. See id at 1218.

55. See id at 1219-20.

56. See Stegemoller v. ACandS, Inc., 761 N.E.2d 423 (Ind. 2001), rev'd, 767 N.E.2d 974
(Ind. 2002); see also Camplin v. ACandS, Inc., 768 N.E.2d 428, 429 (Ind. 2002); Martin v.
ACandS, 754 N.E.2d 52 (Ind. Ct. App. 2001), trans, granted, 2002 Ind. LEXIS 158 (Ind. Feb. 15,
2002).

57. See Stegemoller, 749 N.E.2d at 1217-18.

2002] PRODUCT LIABILITY 1437

she inhaled the dust that he brought home from his workplace.^* Ramona "was
diagnosed with colon cancer, pulmonary fibrosis and pleural thickening," which
she alleged was caused by inhalation of asbestos fibers, specifically "as the result
of interacting with [her husband] and laundering his work uniforms."^^

The Stegemollers sued several entities believed to be responsible for
Ramona's condition because they were either involved in the manufacture or sale
of asbestos-containing products, are the successors-in-interest to such entities, or
had some other alleged responsibility for her physical condition.^ Several of
those entities filed motions to dismiss, asserting that Ramona was not a "user"
or "consumer" as defined by the IPLA and therefore had no cause of action.^'
The trial court agreed and dismissed her claims because she did not fall within
the IPLA and, further, because there is no common law negligence claim for a
user or consumer who sues a seller or a manufacturer for that which the IPLA
contemplates and governs."

The court of appeals affirmed the trial court's decision on both grounds.^^
With respect to the definitional matter, the salient question was whether Ramona
qualified as a "user" or a "consumer" of an asbestos product under the IPLA. For
purposes of application of the IPLA, "consumer" means:

( 1 ) a purchaser;

(2) any individual who uses or consumes the product;

(3) any other person who, while acting for or on behalf of the injured
party, was in possession and control of the product in question; or

(4) any bystander injured by the product who would reasonably be
expected to be in the vicinity of the product during its reasonably
expected use.^

"User" means the same as "consumer."^^

Because the Stegemollers did not establish that Ramona either used,
consumed, possessed, or controlled any of the asbestos products with which Lee
worked, the only claim they could make was that Ramona was a "bystander."^^
In order to be considered a "bystander," however, the Stegemoller court
recognized that Stegemollers had to prove that Ramona was a person reasonably
expected to be in the vicinity of asbestos products during their use in an

58. /^. at 1218.

59. Id.

60. Specifically, the Stegemollers argued that the asbestos material originated from the
products attributable to those entities or from the premises for which they were responsible. Id.
They also alleged that some of the defendants "participated in a conspiracy to conceal the known
hazards of asbestos from the public." Id.

61. Id

62. Id

63. /rf. at 1220.

64. IND. Code §34-6-2-29 (1998).

65. Id § 34-6-2-147.

66. Stegemoller, 749 N.E.2d at 1219.

1438 INDIANA LAW REVIEW [Vol. 35:1427

"industrial setting."^^ She was not. Indeed, the Stegemollers never argued that
Ramona was present at any of the sites where Lee came into contact with
asbestos or that she was in the vicinity when the products were being used as
industrial insulation products in an industrial setting.^*

The Stegemoller court rejected the argument that Ramona may recover
simply because the appellees reasonably should have foreseen that she would be
in the vicinity of the asbestos-containing products during their expected use in
an industrial setting.^^ According to the court, such an argument ignores the
plain meaning of the IPLA because Ramona could not "meet the requirement that
she was an individual who would have reasonably been expected to be in the
vicinity of asbestos-containing insulation material meant for industrial purposes
during the reasonably expected use of the product."^°

Alternatively, the Stegemollers argued that Ramona should be able to
maintain "a separate claim under the common law of negligence even though she
may not qualify as a user, consumer or bystander" under the IPLA.^' The court
rejected the argument that an independent common law negligence theory is
viable in Indiana apart from the IPLA under the circumstances presented.^^ The
Stegemoller court first pointed out that "the IPLA governs all actions brought to
recover for personal injury caused by a product regardless of the substantive legal
theory ."^^ The court next reviewed two important Indiana cases in this regard,
Dague V. Piper Aircraft Corp?^ and Interstate Cold Storage, Inc. v. General
Motors Corp. ''^ The Interstate decision makes it clear that the IPLA governs both
strict liability and negligence claims.^^

C. The IPLA 's "Product " Requirement

The IPLA governs all claims users or consumers file in Indiana against
manufacturers and sellers for physical harm that a product causes. As used in

67. Id.

68. Id.

69. Id

70. Id
1\. Id

72. See id. at 1220.

73. M at 1219 (citing IND. CODE § 34-20-1-1 (1998)). The court also pointed to Indiana
Code section 34-6-2-1 1 5, which provides that "[pjroduct liability action" means one that is brought
"(1) against a manufacturer or seller of a product; and (2) for or on account of physical harm;
regardless of the substantive legal theory or theories upon which the action is brought." Id. (citing
iND. Code § 34-6-2-1 15 (1998)).

74. 418 N.E.2d 207 (Ind. 1981). The Dague court observed that "it seems clear the
legislature intended that the act govern all product liability actions, whether the theory of liability
is negligence or strict liability in tort .... The [IPLA] expressly applies to all product liability
actions sounding in tort, including those based upon the theory of negligence . . . ." Id. at 212.

75. 720 N.E.2d 727 (Ind. Ct. App. 1999).

76. See Stegemoller, 749 N.E.2d at 1220 (citing Interstate, 720 N.E.2d at 730).

2002] PRODUCT LIABILITY 1 439

Indiana Code section 34-20-2-1, a "product" is "any item or good that is
personalty at the time it is conveyed by the seller to another party. "^^ The term
"does not apply to a transaction that, by its nature, involves wholly or
predominately the sale of a service rather than a product."^* Thus, whether the
sale of a "product" occurred can be a dispositive threshold question because only
manufacturers or sellers who place "products" into the stream of commerce may
be liable under the IPLA. Such was the case in R.R. Donnelley & Sons Co. v.
North Texas Steel Co. ^^ an opinion that is significant to Indiana practitioners for
a number of reasons.

The R.R. Donnelley case involved the collapse of large metal storage racks
at the R.R. Donnelley & Sons Co. ("RRD") facility in Warsaw, Indiana.^^ RRD
purchased the racks from Associated Material Handling Industries, Inc.
("Associated"). Associated purchased the racks from Frazier Industrial Co.
("Frazier"). Frazier designed the racks and contracted with North Texas Steel
Co. ("NTS") to manufacture the component parts.*'

Frazier gave NTS written instructions on how to manufacture [the] parts.
NTS received raw steel from the steel mill, and then cut, punched,
welded, and painted the steel. Frazier instructed NTS to ship the
component parts of the storage racks from its Texas plant to RRD's plant
in Warsaw, . . . where the racks were . . . erected. Associated supervised
the installation of the racks . . . .*^

RRD sued NTS, Associated, and Frazier, claiming more than $12 million in
economic loss as a result of the collapsed racks and asserting product liability,
breach of contract, and negligence claims.*^ Associated and Frazier settled with
RRD before trial. The trial court "granted summary judgment to NTS on the
breach of contract and negligence claims," leaving the parties to try only the
product liability claim against NTS.*"* At trial, RRD argued that NTS defectively
welded the rack's component parts.*^ "NTS countered that the welds were
sufficient to hold the load" and "did not cause the collapse," and argued that
Frazier defectively designed the system.*^ According to the court, the trial

77. IND. Code §34-6-2-1 14(a) (1998).

78. Id. §34-6-2-1 14(b).

79. 752 N.E.2d 1 12 (Ind. Ct. App. 2001), trans, denied, 2002 Ind. LEXIS 433 (Feb. 22,
2002).

80. See R. R. Donnelley, 752 N.E.2d at 1 20. RRD used the racks to store catalogs. The racks
collapsed on June 14, 1994, during a shift change. Id. Because the accident occurred before June
30, 1995, the 1995 amendments to the IPLA did not apply.

81. Id

82. Id

83. Id

84. Id

85. Id

86. Id

1 440 INDIANA LAW REVIEW [Vol . 3 5 : 1 427

"amounted to a battle of the experts as to the cause of the accident."^^ The jury
returned a defense verdict.**

RRD appealed all claims, and NTS cross-appealed regarding the trial court's
denial of its summary judgment on the product liability claim.*^ The court of
appeals handled the product liability claim first. The "product liability" issue
was whether "NTS created a product sufficient to invoke the [IPLA] by cutting,
punching, welding and painting" the steel Frazier provided.^^ NTS argued that
it merely provided labor and that the work it performed for Frazier "was
predominately the sale of a service and, therefore, not subject" to the IPLA.^^
NTS supported its argument by pointing out that it "billed Frazier based on the
number of production hours required, and that the purchase order reflected that
NTS was billing for 'labor costs.'"^^ Relying on the court of appeals' 1998
decision in Lenhardt Tool & Die Co. v. Lumpe^^ RRD argued that NTS was
subject to liability under the IPLA.^'*

The R.R. Donnelley court found Lenhardt "instructive" and cited it for the
proposition that "where an entity reconditions, alters, or modifies a product or
raw material to the extent that a new product has been introduced into the stream
of commerce, the entity is a manufacturer and provider of products under the
[IPLA]."^^ In the court's view, NTS "modified a raw material, steel, to produce
the component parts of the RRD rack system" and, in so doing, transformed the
steel into a "'new product' that [was] substantially different from the raw
material used."^ Accordingly, the R.R. Donnelley court concluded that "NTS
introduced a new product into the stream of commerce and provided products,"
not merely services to RRD.'^

Judge Tinder's unpublished federal order^* in New Hampshire Insurance Co.

87. /^. at 120-21.

88. Id. dii\2\ n.l.

89. Id at 12). The trial court denied NTS's motion for summary judgment on the product
liability issue and, at the same time, granted RRD's cross-motion for summary judgment on the
same issue. Id.

90. Id

91. Id

92. Id. NTS cited deposition testimony by a Frazier employee stating that, when Frazier
subcontracts for its work, it buys labor from the contract fabricators. Id.

93. 703 N.E.2d 1079 (Ind. Ct. App. 1998).

94. R.R. Donnelley,752}^.E.2d Hi \2\-22.

95. Id. at 122 (quoting Lenhardt, 703 N.E.2d at 1085). Lenhardt involved a plant that
"would ship solid blocks of metal" to the defendant along "with drawings and specifications." Id.
The defendant "would then machine the block of metal into molds per the designs found in the
drawings and specifications." Id.

96. Id

97. Id. Accordingly, NTS was a "manufacturer" and "provider" of products under the IPLA,
and the trial court "did not err in denying NTS's Motion for Summary Judgment" on that issue. Id.

98. As noted earlier, unpublished federal orders have extremely limited precedential value.
See supra note 16. Such decisions are included in this survey because they are instructive for

■m

2002] PRODUCT LIABILITY 1441

V. Farmer Boy AG, Inc.^ also is instructive to practitioners on this issue. That
order, among other things, reaffirms that a prima facie case under the IPLA
requires that the party pursuing the claim show that a "product" is involved. '°°
In that case, Clark Electric Heating and Cooling ("Clark") installed a custom
ventilation system and related electrical materials at a hog breeding facility. Less
than one year later, lightning struck the facility, disabled the ventilation system,
and resulted in the loss of 1 88 pregnant sows. The insurance carrier, as subrogee
for the owner of the facility, sued Clark, alleging that its improperly designed
electrical system caused the ensuing property loss.'°'

In a similar case, Sapp v. Morton Buildings, Inc.,^^^ the Seventh Circuit Court
of Appeals, applying Indiana law, held that the remodeling of a bam into a stable
was a transaction involving predominately the sale of a service rather than a
product.^®^ In light of Sapp, Judge Tinder agreed that Clark's installation of a
custom-fit electrical system involved "wholly or predominately the sale of a
service rather than a product."'^^ It is also interesting to note that Clark argued
that it was entitled to summary judgment on the breach of warranty claim to the
extent the plaintiffs were pursuing a claim for breach of implied warranty in
tortJ*^^ Judge Tinder agreed, concluding that "[t]he theory of breach of implied
warranty in tori is a theory of strict liability in tort and, therefore, has been
superseded by the theory of strict liability."'^ However, the plaintiff could
proceed on a warranty theory so long as it was limited to a contract theory. '°^

D. Strict Liability in Inadequate Warning Cases

Although it is not published in an official federal reporter and has very
limited precedential value,'*^' Judge Young's decision in Eve v. Sandoz
Pharmaceutical Corp.^^ illustrates why inadequate warning cases are
challenging and confusing when both negligence and strict liability theories are
used. Ellen and Matthew Eve claimed that Ellen suffered serious and disabling
injuries after she was administered several doses of two pharmaceuticals in the
days following the delivery of her second child. "° Sandoz Pharmaceutical Corp.

practitioners despite the fact that they may not be binding.

99. No. IP 98-003 1-C-T/G, 2000 U.S. Dist. LEXIS 19502 (S.D. Ind. Dec. 19, 2000).

100. /</. at*7.

101. Seeid.2X*3-*A.

102. 973 F.2d 539 (7th Cir. 1992).

103. /c/. at 541.

104. N.H. Ins. Co., 2000 U.S. Dist. LEXIS 19502 at ♦7-*8 (citation omitted).

105. 5geiV/. at*9-*10.

106. Id.z!i*9.

107. /</. at*10.

1 08. See supra note 1 6.

109. No. IP 98-1429-C-Y/S, 2001 U.S. Dist. LEXIS 4531 (S.D. Ind. Mar. 7, 2001).

1 1 0. Ellen received seven oral doses of Methergine in the hospital in the three days following
delivery. See id. at *4. Methergine is "used to reduce the size of the uterus and postpartum

1442 INDIANA LAW REVIEW [Vol. 35: 1427

(now known as Novartis Pharmaceutical Corp.) manufactured the drugs, both of
which contained package inserts containing warnings, precautions, indications,
instructions, and other material required and approved by the United States Food
and Drug Administration.'*'

Novartis requested partial summary judgment on many of the plaintiffs'
claims, one of which was their strict liability claim. Novartis argued that, under
Indiana law, product liability fai lure-to- warn cases are governed by negligence
standards, regardless of the causes of action formally pled."^ Plaintiffs
responded by arguing that, "although strict liability product claims and
negligence claims involve similar analysis, that fact alone" should not be the
basis for summary judgment."^ After reviewing the briefs and the law. Judge
Young concluded that he found "no definitive answer" to the question presented
and, accordingly, found "no clear reason" why Novartis' motion should be
granted.""*

With respect to the "law" reviewed in Eve, it appears to be limited to case
law and, specifically, to Ortho Pharmaceutical Corp. v. Chapman. ^^^ After a
brief review of the differences between fai lure-to- warn cases based on strict
liabi lity and fai lure-to- warn cases based on negligence, the court determined that
"'there is no practical difference between the two theories in [the fai lure-to- warn]
context' because the ordinary negligence concept of duty-to-wam governs.""^
Having so stated. Judge Young recognized that the Chapman court also
referenced an Oregon case that distinguished the two theories and summarized:

[T]he main difference between the two theories is that with strict
liability cases, the dangerousness of the drug is at issue whereas with
negligence cases the seller's culpability is at issue, or as it has been
described, "the distinction lay in 'the manner in which the decisional
functions are distributed between the court and the jury.'" ... In other
words, the difference is that with strict liability cases, "actual or
constructive knowledge need not be proved. Otherwise the tests of
culpability and dangerousness are identical.""^

hemorrhage." Id at *2. Ellen "received six doses of Parlodel in the hospital" and was sent home
with more. Id. at *5. Parlodel is used to inhibit postpartum lactation. Id. at *2.

111. Mat*2,*29-*31.

112. See id. at *S9-*90.

113. M at*90.

114. Id.

115. 388N.E.2d 541 (Ind. App. 1979).

1 16. Eve, 2001 U.S. Dist. LEXIS 4531 at *90-*91 (quoting Chapman, 388 N.E.2d at 550)
(alteration by court).

1 1 7. Id. at *91-*92 (citations omitted) (discussing Chapman's citation to Phillips v. Kimwood
Machine Co., 525 P.2d 1033 (Or. 1974)). The specific language Chapman borrowed from Phillips
is as follows:

In a strict liability case we are talking about the condition (dangerousness) of an article
which is sold without any warning, while in negligence we are talking about the

2002] PRODUCT LIABILITY 1443

The C/za/7/wa« court also cited a California decision stating that strict liability had
yet not been applied to a failure-to-wam pharmaceutical case in that state. "^

Judge Young's order briefly discusses Chapman's explanation about why,
from a jury instruction standpoint, it is to a plaintiffs' advantage to bring both a
strict liability and a negligence claim, stating that:

At some points the Chapman court indicates it is to plaintiffs'
benefit to pursue only one theory and in other points, the court indicates
that it is to plaintiffs' benefit to pursue both theories. Thus, the most
that can be taken from this opinion is that it may behoove a plaintiff to
elect one of the two theories — strict liability failure to warn or
negligence — ^yet the court does not mandate that proposition. ' '^

Judge Tinder's opinion, in Spangler v. Sears, Roebuck & Co.^^^ appears to
admonish counsel against pursuing claims based on both strict liability and
negligence in the same case:

Cases in which recovery is sought under the alternative theories of strict
liability and negligence are marked by necessity of confusing and
inconsistent jury instructions regarding such matter as comparative fault
and the open and obvious danger defense. The failure to elect one or the
other of these theories can result in an unnecessarily lengthy trial, a
confused and unconvinced jury and a disappointed plaintiff.'^'

Following the lead of Judge Tinder in Spangler, Judge Young ultimately
concluded in Eve that it might be in plaintiffs' best interest to elect to pursue only
one theory when the case goes to trial, but that he simply could not grant
Novartis' motion for summary judgment at the time it was presented. '^^

Because Judge Young's decision does not specifically address the point,
readers must assume that the court and the parties acknowledged that the post-
1995 statutory language was inapplicable because Eve's claim accrued in the
days after Eve delivered her second child in October 1989, nearly six years

reasonableness of the manufacturer's action in selling the article without a warning. The
article can have a degree of dangerousness because of a lack of warning which the law
of strict liability will not tolerate even though the actions of the seller were entirely
reasonable in selling the article without a warning considering what he knew or should
have known at the time he sold it.
/•/zi7//p5,525P.2datl039.

1 1 8. See Eve, 2001 U.S. Dist. LEXIS 453 1 at *92-*93. The California case cited in Chapman
is Love V. Wolf, 38 Cal. Rptr. 183, 197-98 (Ct. App. 1964).

1 19. Eve, 2001 U.S. Dist. LEXIS 4531 at *95.

120. 752 F. Supp. 1437 (S.D. Ind. 1990), ajpdon reconsideration, 759 F. Supp. 1337 (S.D.
Ind. 1991).

121. Eve, 2001 U.S. Dist LEXIS 4531 at *95-*96 (quoting Spangler, 752 F. Supp. at 1441
n.3).

122. Mat*96.

1444 INDIANA LAW REVIEW [Vol. 35:1427

before the 1 995 amendments to the IPLA took effect. '^^ The General Assembly ' s
1995 amendments to the IPLA, which eliminate strict liability as a theory of
product liability recovery in warning defect and design defect cases, should clear
up the confusion in cases such as Eve. Indiana Code section 34-20-2-2 now
provides that strict liability remains only in cases in which the theory of liability
is a manufacturing defect.

II. Limitations AND Repose Issues

A. Limitations Issues

A claimant filing a tort-based product liability claim in Indiana must do so
within two years after the cause of action "accrues."'^'* The IPLA does not define
the meaning of "accrues," but Indiana courts have adopted a discovery rule for
the accrual of tort-based damage claims caused by an allegedly defective
product. '^^ Under the discovery rule a cause of action accrues when the claimant
knew or should have discovered that he or she "suffered an injury or
impingement, and that it was caused by the product or act of another."'^^

On March 16, 2001, the Indiana Supreme Court issued a much-anticipated
decision in Degussa Corp. v. Mullens. ^^^ The decision confirms that the date
upon which a product liability claim accrues may depend upon a subjective
analysis of a patient's communications with his or her doctor about when a
causal link between a disease and the defendant's product is established. Lenita
Mullens was an employee of an animal feed company,'^* "whose responsibilities

1 23. The 1995 amendments to the IPLA apply to causes of action that accrue after June 30,
1995. 5'ee Pub. L. No. 278-1995, § 16, 1995 Ind Acts 405 1,4062. The important events triggering
the claim in Chapman occurred between 1968 and 1970, several years before Indiana first enacted
the IPLA in 1978. In deciding the issues before it, the Chapman court had to rely entirely upon the
Restatement (Second) of Torts and other case law. As discussed above, the IPLA encompassed and
governed both strict liability and negligence theories until 1983, when it was amended to govern
only strict liability cases. In 1995, the legislature amended the IPLA to once again encompass and
govern strict liability theories (for manufacturing defects) and negligence theories (for design defect
and inadequate warnings).

124. iND. Code § 34-20-3-1 (1998).

125. For an excellent discussion of accrual issues, see Nelson A. Nettles, When Does a
Product Liability Claim "Accrue"? When Is It "Filed"?, iND. LAW., May 9, 2001, at 23.

126. Barnes v. A.H. Robins Co., 476 N.E.2d 84, 87-88 (Ind. 1985).

127. 744 N.E.2d 407 (Ind. 2001).

1 28. "Mullens began work for Grow Mix, a company formed by Richard Martin and Agritek
Bio Ingredients, Inc. ... to produce feed additive products for Agritek." Id at 409. According to
the court, there was some dispute about "whether Mullens was employed by Grow Mix or Gro-
Tec," two separate companies "housed in the same building." Id. at 409 n. 1 . A significant portion
of the opinion is related to Mullens' employment status in connection with application of the
exclusive remedy for tort claims provided by the Indiana Worker's Compensation Act. The
employment-related issues are not addressed in this survey.

2002] PRODUCT LIABILITY 1445

included the physical mixing of liquid and dry ingredients to make animal
feeds."'^^ Three to four months after starting her job on September 4, 1990,
"Mullens experienced a persistent cough that would diminish after she went
home from work and on weekends.'"^*^

Within the next year or so, Mullens sought treatment for what the treating
physicians determined was bronchitis.'^' After the antibiotics prescribed during
her second trip to the emergency room did not clear up her condition, Mullens
saw her general practitioner on March 17, 1992. During that visit, her general
practitioner "told Mullens that it was possible that her coughing and breathing
problems were work-related, but that there were several other potential
causes.'"^^ A few days later, on March 26, 1992, Mullens saw a pulmonary
specialist who repeated that it was possible that work-related chemical exposure
"was triggering an injury caused by something else." A follow-up with the same
specialist on June 11, 1992, revealed that Mullens' "airflow obstruction and its
relationship to her work environment" was still "unclear."'" Mullens saw yet
another pulmonary specialist in June 1992, who repeated what her general
physician and her first specialist had said: "that chemical exposure at work might
be related to her ailments but that other causes were possible."'^*

On March 25, 1994, Mullens filed suit against her alleged employer and
manufacturers, sellers, and suppliers of various chemical ingredients used in the
animal feed. It was not until March 1 994 that Mullens and her attorney "received
the first unequivocal statement from any doctor that her lung disease was caused
by exposure to chemicals consistent with those" used at her workplace. '^^ The
defendants joined in a motion for summary judgment, arguing that Mullens failed
to assert her claims within the two-year statute of limitations.'^^ The trial court

129. Mat 409.

130. Id

131. See id. Mullens was treated for bronchitis in March 1 991 and again in February 1 992.

132. Id

133. Id. While Mullens was working with the pulmonary specialist in April of 1992,
representatives of Degussa Corporation "visited her at work and told her that their product could
not be causing her medical problems." Id. Degussa produced "one of the ingredients used in
making the feeds." Id. at 409 n.2.

1 34. Id. at 409 (emphasis added).

135. Mat 409-10.

136. Agritek also filed a motion to dismiss Mullens' tort claims against it, claiming that
Mullens was an employee and, therefore, "the Indiana Worker's Compensation Act provided her
exclusive remedies for work-related injuries on the job." Id. at 410. The trial court's denial of
Agritek's separate motion is also the subject of a large portion of the opinion. Interestingly, Justice
Rucker did not participate because he had been part of the court of appeals panel that decided the
case at that level. That turned out to be significant because the justices split two to two on the
question of whether the Worker's Compensation Act precluded Agritek's tort liability to Mullens.
Mat 409. As such, the trial court's denial of Agritek's motion to dismiss was affirmed. Id. As
explained supra, this survey does not address the employment-related issues. See supra note 1 28.

1446 INDIANA LAW REVIEW [Vol. 35:1427

denied the motions, but the court of appeals reversed after concluding that
Mullens failed to file her claims within the limitations period. '^^ The Indiana
Supreme Court affirmed the trial court, concluding that Mullens' timely filed her
claim because it accrued sometime after she began seeing the second specialist.'^*
The Degussa court began its analysis by drawing a comparison between the
facts before it and those presented in recent medical malpractice cases. The court
initially agreed with the court of appeals that "a plaintiff need not know with
certainty that malpractice caused his injury, to trigger the running of the statutory
time period."'^^ According to the court, "[o]nce a plaintiffs doctor expressly
informs the plaintiff that there is a 'reasonable possibility, if not a probability'
that an injury was caused by an act or product, then the statute of limitations
begins to run and the issue may become a matter of law."''*^ The Degussa court
further explained that

[wjhen a doctor so informs a potential plaintiff, the plaintiff is deemed
to have sufficient information such that he or she should promptly seek
"additional medical or legal advice needed to resolve any remaining
uncertainty or confusion" regarding the cause of his or her injuries, and
therefore be able to file a claim within two years of being informed of a
reasonably possible or likely cause. An unexplained failure to seek
additional information should not excuse a plaintiffs failure to file a
claim within the statutorily defined time period.

Although "events short of a doctor's diagnosis can provide a
plaintiff with evidence of a reasonable possibility that another's" product
caused his or her injuries, a plaintiffs mere suspicion or speculation that
another's product caused the injuries is insufficient to trigger the
statute.'^'

In applying the foregoing standard to the case before it, the court recognized
that although Mullens "might have suspected that a chemical from work was the
cause of her problems when she first visited" her general practitioner on March
1 7, 1 992, the best that the doctor could do was emphasize that there was "a range
of potential causes."''*^ Indeed, telling a patient that a particular product or act
is but one of several possible causes of an injury triggers a "complex of factually
and legally relevant questions about how the physician conveyed the information
to the patient and what emphasis the physician placed on the potentially tortious
cause over other causes. "^''^ It was undoubtedly important to the court that
Mullens "diligently followed" her doctor's recommendations, "undergoing
further tests and attempting to gather information" about her condition and its

1 37. Degussa, 744 N.E.2d at 4 1 0.

138. /of. at 408-09.

139. Mat 411.

140. Id. (quoting Van Dusen v. Stotts, 712 N.E.2d 491, 499 (Ind. 1999)).

141. M at 4 1 1 (citations omitted).

142. Id.

143. Id

2002] PRODUCT LIABILITY 1 447

possible cause or causes before filing suit.'*'* The Degussa court concluded that

[o]n March 1 7, 1992, Mullens merely suspected that work products
had something to do with her illness and [her general practitioner] said
nothing to confirm, deny, or even strengthen her suspicions. In light of
the ongoing medical consultation that Mullens undertook between March
1 7, 1 992, and March 25, 1 994, the date Mullens filed her complaint, we
do not believe that the statute was triggered as late as March, 1994, as
argued by Mullens. However, we also see nothing in the record to
indicate that on March 1 7, 1 992 (or even in the following eight days that
would have been outside of the statutory period), Mullens's physicians
had yet informed her that there was a reasonable possibility, if not
probability, that her ailments were caused by work chemicals.''*^

In addition to the important holding in Degussa, practitioners should be
aware that judges on the Indiana Court of Appeals continue to disagree about
whether the filing of a summons after the expiration of the statute of limitations
constitutes the timely filing of the lawsuit. In Ray-Hayes v. Heinamann,^*^ the
parent and natural guardian of a child injured in an automobile accident sued
both the driver of the vehicle and two entities allegedly involved in its
manufacture and design. The plaintiff alleged that her daughter was injured
while riding as a passenger in a 1991 Nissan Sentra driven by the defendant,
Heinamann. She contended that Heinamann fell asleep at the wheel, resulting in
a collision with a cement culvert wall."*^ The accident occurred on October 2 1 ,
1997. Plaintiff filed the initial complaint against Heinamann on July 22, 1998.
On September 13, 1999, plaintiff amended her complaint to include two entities
alleged to be responsible for a defective restraint system, Nissan North America,
Inc. and Nissan Motor Company, Ltd. (the "Nissan defendants"). The
summonses for those two defendants were not filed with the court until January
21,2000.''*'

The Nissan defendants filed a motion to dismiss because Hayes failed to file
the summons relating to them until after the statute of limitations had expired (on
October 21, 1999). Citing Fort Wayne International Airport v. Wilburn,^^'^ the
trial court agreed and dismissed the Nissan defendants. The court of appeals
reversed, pointing out that Rule 3 of the Indiana Rules of Trial Procedure
provides that "[a] civil action is commenced by filing a complaint with the court
or such equivalent pleading or document as may be specified by statute."'^^
Because the plaintiff in Ray-Hayes filed her complaint within the applicable

144. Id.

145. /^. at 41 1-12.

1 46. 743 N.E.2d 777 (Ind. Ct. App. 2001 ), vacated by 760 N.E.2d 1 72 (Ind.), rev 'd on reh 'g,
768 N.E.2d 899 (Ind. 2002).

147. Id

148. Id 2X111 -n,

149. 723 N.E.2d 967 (Ind. Ct. App.), trans, denied, 735 N.E.2d 237 (Ind. 2000).

1 50. Ray-Hayes, 743 N.E.2d at 779-80 (alteration by court).

1448 INDIANA LAW REVIEW [Vol. 35:1427

statutory time period governing accrual of product liability actions,'^^ the
majority determined that she complied with Rule 3 and that the trial court erred
in dismissing her cause of action.'"

The majority opinion in Ray-Hayes is openly at odds with Wilburn, which
earlier held that a plaintiff must tender the complaint, the summons, and the fee
before the statute of limitations expires for the action to be deemed commenced.
The dispute centers around the Indiana Supreme Court's decision in Boostrom
V. Bach}^^ The Wilburn court overly relied upon Boostrom when it stated that
"[t]he plaintiff, of course, controls the presentation of all the documents
necessary to commencement of a suit: the complaint, the summons, and the
fee. . . . [Plaintiff] thus filed two of the three items necessary to the
commencement of her action."'^"* The Wilburn court interpreted the Boostrom
footnote to mean that commencement of all actions requires the presentation of
a complaint, summons, and a fee before the statute of limitations expires. '^^ The
majority in Ray-Hayes disagreed, pointing out that Boostrom "involved a small
claims action" and that it "should be limited ... to its facts."'^^ In addition, the
Ray-Hayes court recognized that Rule 3 of the Indiana Rules of Trial Procedure
contains no language requiring that the summons be filed before the statute of
limitations expires. '^^

Judge Sullivan's dissent in Ray-Hayes crystallizes the discord because, in his
view, it is not within the court of appeals' prerogative to overrule what he termed
"a clear and unmistakable ruling of the Indiana Supreme Court."'^^ Judge
Sullivan wrote that the court in Wilburn recognized that Boostrom was a small
claims matter, but pointed out that the rules governing small claims actions
consider the complaint or the notice of claim to be the summons, and, as such,
the plaintiff in small claims litigation "is not required to tender a separate
summons to the court for issuance by the Clerk."'^'

151. "[A] product liability action must be commenced: ( 1 ) within two (2) years after the cause
of action accrues . . . ." IND. Code § 34-20-3-(b) (1998).

1 52. Ray-Hayes, 743 N. E.2d at 780. The majority in Ray-Hayes acknowledged that Rule 4(B)
requires the filing of a summons contemporaneously with the filing of a complaint. Id. The
majority also acknowledged that Ray-Hayes failed to comply with Rule 4(B)'s contemporaneous
filing requirement. Id. However, the trial court had explicitly dismissed the case pursuant to the
holding in Wilburn and the court of appeals' failure to tender the summonses within the limitations
period was technically not a per se violation of Rules 3 and 4(B). See id.

153. 622 N.E.2d 175 (Ind. 1993).

1 54. 723 N.E.2d at 968 (emphasis and omission by court) (quoting Boostrom, 622 N.E.2d at
177 n.2).

155. See id.

156. See Ray-Hayes,lAZ^.E.2d 2X119.

157. Mat 779-80.

158. Id. at 781 (Sullivan, J., dissenting).

159. Id

2002] PRODUCT LIABILITY 1 449

Judge Sullivan wrote:

Nevertheless, our Supreme Court clearly and unmistakably used
terminology applicable to commencement of a suit under the Rules of
Trial Procedure. In doing so, it left no doubt that in normal civil
litigation the 'documents necessary to the commencement of a suit: the
complaint, the summons, and the fee' must all be filed. '^°

Judge Sullivan concluded that the plaintiff simply failed to commence suit
without the tender of a summons to the court for issuance and that the statute of
limitations barred plaintiffs' claim because it expired before they "commenced"
suit.'^'

On January 2, 2002, the court granted transfer of the Ray-Hayes case. The
court of appeals' decision in Ray-Hayes was vacated, the trial court's dismissal
affirmed, and the supreme court reversed itself on rehearing. '^^

B. Repose Issues

Indiana Code section 34-20-3-1 provides, in relevant part, that "a product
liability action must be commenced: (1) within two (2) years after the cause of
action accrues; or (2) within ten ( 1 0) years after the delivery of the product to the
initial user or consumer."'^^ Practitioners generally refer to the latter of those
clauses as the product liability statute of repose. In last year's decision in
Mcintosh V. Melroe Co. ,'^ the Indiana Supreme Court held that application of the
statute of repose does not violate the Indiana Constitution.*" In the wake of that
landmark pronouncement, several court of appeals opinions addressed statute of
repose issues during the survey period. All of those opinions involved product
liability cases alleging injury as the result of exposure to asbestos products. In
January 2002, the Indiana Supreme Court heard oral argument in the case of

160. Id. (quoting Boostrom v. Bach, 622 N.E.2d 175, 177 n.2 (Ind. 1993)) (emphasis by
court).

161. /fif. at 782 (Sullivan, J., dissenting).

1 62. See 760 N.E.2d 1 72 (Ind.), rev 'd on reh 'g, 768 N.E.2d 899 (Ind. 2002).

163. Ind. Code § 34-20-3- 1(b) (1998). The same section also provides that "if the cause of
action accrues at least eight (8) years but less than ten ( 1 0) years after that initial delivery, the action
may be commenced at any time within two (2) years after the cause of action accrues." Id. § 34-20-
3-1 . As the statute makes clear, a claimant must bring a product liability action in Indiana within
two years after it accrues, but in any event, not longer than ten years after the product is first
delivered to the initial user or consumer. Such is true unless the action accrues in the ninth or tenth
year after delivery, in which case the ftill two-year period is preserved, commencing on the date of
accrual. Accordingly, the longest possible time period in which a claimant may have to file a
product liability claim in Indiana is twelve years after delivery to the initial user or consumer,
assuming accrual at some point in the twelve months immediately before the tenth anniversary of
delivery.

164. 729 N.E.2d 972 (Ind. 2000).

165. Mat 973.

1450 INDIANA LAW REVIEW [Vol. 35:1427

Allied Signal Inc. v. Ott. Practitioners anticipate that the Ott decision will help
resolve the repose issue once and for all. This survey reviews those court of
appeals decisions handed down during the survey period. Next year's survey
period promises some more definitive answers in this area.

Product liability cases involving asbestos products are unique in several
ways, not the least of which is the manner in which the legislature chose to
address the applicable repose period. Indiana Code section 34-20-3-2 provides
that "[a] product liability action that is based on: (1) property damage resulting
from asbestos; or (2) personal injury, disability, disease, or death resulting from
exposure to asbestos; must be commenced within two (2) years after the cause
of action accrues."'^^ That exception applies, however, "only to product liability
actions against: (1) persons who mined and sold commercial asbestos; and (2)
funds that have, as a result of bankruptcy proceedings or to avoid bankruptcy
proceedings, been created for the payment of asbestos related disease claims or
asbestos related property damage claims."^^^

The crux of the continuing controversy is the phrase "persons who mined and
sold commercial asbestos." Plaintiffs argue that the "and" should be read as an
"or," while defendants contend that the statute creates an exception to the
limitations and repose periods only for claims against those entities that both
mined and so\d commercial asbestos.'^* There is also a debate about the intended
meaning of the term "commercial asbestos."

In the statute of repose context, courts have answered nearly all of the
questions raised in favor of the plaintiffs. Black v. ACandS, Inc.^^^^ Poirier v.
A.P. Green Services, Inc.,^^^ Fulkv. Allied Signal, Inc.,^^ Parks v. A. P. Green

166. IND. Code § 34-20-3-2(a) (1998). The statute further provides that an action "accrues
on the date when the injured person knows that the person has an asbestos related disease or injury"
and that the "subsequent development of an additional asbestos related disease or injury ... is a
separate cause of action." M §34-20-3-2(a)(2)-(b).

167. Id. § 34-20-3-2(d).

168. Three years ago, in Sears Roebuck & Co. v. Noppert, 705 N.E.2d 1065 (Ind. Ct. App.
1999), the court of appeals addressed the applicability of the ten-year product liability statute of
repose in the context of a claim for alleged exposure to asbestos. The Noppert court did so as part
of a larger discussion about the timeliness of a motion to correct errors pursuant to Rule 60(B) of
the Indiana Rules of Trial Procedure. Part of the Noppert court's analysis concluded that, "as a
matter of law, the Nopperts [did] not have a meritorious defense" because the exception to the ten-
year product liability statute of repose contained in Indiana Code section 34-20-3-2 applies only
to claims against persons who mined and sold commercial asbestos and against funds described in
that section. Id. at 1067-68 & n.6. With respect to the first category of defendants (miners and
sellers), the court made it clear that the entities to which the statute applies are entities that both
mined and sold commercial asbestos, stating that "while courts in Indiana have on occasion
construed an 'and' in a statute to be an 'or,' we find that there is no ambiguity in this statute
requiring such an interpretation." Id. at 1068.

169. 752 N.E.2d 148 (Ind. Ct. App. 2001).

170. 754 N.E.2d 1007 (Ind. Ct. App. 2001).

171. 755N.E.2dll98(Ind.Ct. App. 2001).

2002] PRODUCT LIABILITY 1 45 1

Industries, Inc.}^^ and Allied Signal, Inc. v. Herring^^^ all involve workers or
their estates who claimed injury or death as the result of working with or around
asbestos-containing products. Those claimants sued sellers of asbestos-
containing products, alleging damages caused by inhalation of asbestos dust. In
each case, a majority of the judges held that the exception to the IPLA repose
period, created by section 34-20-3-2, applies to entities that mine commercial
asbestos, even if they do not sell it, and to entities that sell commercial asbestos,
even if they do not mine it. The following language from the majority opinion
in Black provides the underpinning for the rulings:

Clearly, the intent of the legislature in enacting § 34-20-3-2 was at
least in part to acknowledge the long latency period of asbestos-related
injuries. Without the § 34-20-3-2 exception, the statute of limitations
and statute of repose would be meaningless for the vast majority of
people harmed by exposure to asbestos. Asbestos-related injuries would
truly be a wrong without a remedy. Equally clear is that the legislature
thus could not have intended by enacting § 34-20-3-2 to so severely limit
the means of recovery. '^^

Judge Mathias authored a lengthy dissenting opinion in Black, concluding
that the statute of repose on its face is unambiguous and clearly applies only to
those companies who both mined and sold commercial asbestos, not all sellers
of asbestos-containing products. '^^ In doing so. Judge Mathias found two recent

172. 754 N.E.2d 1052 (Ind. Ct. App. 2001).

173. 757 N.E.2d 1030 (Ind. Ct. App. 2001).

1 74. 752 N.E.2d at 1 54. While the court of appeals was considering the Black case, groups
interested in the issues raised in that and other related cases sought to address it in the General
Assembly. House Bill 1757, first introduced in the Indiana House of Representatives on January
1 7, 2001 , was designed to change the asbestos statute of repose in Indiana Code section 34-20-3-2.
The proposed modifications sought to expand the potential pool of asbestos defendants by allowing
claims against mere sellers of asbestos containing products as opposed to "persons who mined and
sold commercial asbestos." The bill went to House committee where it passed unopposed and then
passed the House of Representatives on March 6, 2001 . When members of the defense bar learned
about the bill, they opposed it in the Senate. The proposed legislation failed in Senate committee.

175. Id at 158 (Mathias, J., dissenting). Judge Mathias wrote:

The two verbs "mined" and "sold" are conjoined by the coordinating conjunction
"and." The use of "and" alone is enough to, and does, conjoin the verbs "mined" and
"sold" into a single verb element within the statute's complex noun phrase. The
conjoined verbs "mined and sold" modify "persons" through the relative pronoun
"who," which specifies the action related to, and thereby helps to define, the "persons"
that are the subject of the complex noun phrase. In light of its language and
grammatical structure, I conclude that section two is unambiguous.

In contrast, the majority alters the statutory language at issue by inserting the
phrase "persons who" before the statute's existing language, "sold commercial
asbestos." Only when words are considered to have been palpably omitted should the
court add those words into the statute. I cannot reach that conclusion here. The

1452 INDIANA LAW REVIEW [Vol. 35:1427

court of appeals' opinions "instructive,"'^^ distinguished an opinion written by
the Indiana Supreme Court, '^^ and asserted that it was not the court's prerogative
to adjudicate legislative policy determinations.'^* In addition, Judg^ Mathias
concluded that Indiana Code section 34-20-3-2 does not violate either article I,
section 12 or article I, section 23 of the Indiana Constitution. '^^

Judge Mathias also dissented from the majority's opinions in Poirier and in
Fulk for the same reasons stated in his dissent in Black}^^

The opinion in Jurich v. Garlock, Inc}^^ ultimately determines that the
statute of repose is inapplicable but gets there in a peculiar way. Although the

majority's grammatical interpretation is not the product of divination of "clearly
contrary legislative intent" so as to properly fall within the extremely limited sanction
of Dague v. Piper Aircraft Corp., 275 Ind. 520, 526, 418 N.E.2d 207, 21 1 (1981).
/^. at 158-59 (citations omitted).

1 76. Id. at 1 59. The two cases that Judge Mathias found "instructive'* were Novicki v. Rapid-
American Corp., 1()1 N.E.2d 322 (Ind. Ct. App. 1999), and Sears Roebuck & Co. v. NopperU 705
N.E.2d 1065 (Ind. Ct. App. 1999). The Noppert court determined that defendant "Sears was not
a miner of asbestos" and that "the statutory exception to the statute of repose for asbestos-related
claims applies only when the defendants are 'miners and stWexs of commercial asbestos.'" Black,
752 N.E.2d at 159 (Mathias, J., dissenting) {(\\xoX\ng Noppert, 705 N.E.2d at 1068) (emphasis by
court). Similarly, the Novicki court determined that the asbestos statute of repose applies "'only
to cases in which the defendant both mined and sold commercial asbestos.'" Id. (quoting Novicki,
707 N.E.2d at 324). Judge Mathias disagreed with the majority's characterization of the
determinations as "dicta." Id.

1 77. Judge Mathias distinguished Covalt v. Carey Canada. Inc. , 543 N.E.2d 382 (Ind. 1 989),
because iND. Code § 33-1-1 .5-5.5 (1993) (the predecessor of IhfD. CODE § 34-20-3-2 (1998)) went
into effect after the facts giving rise to the decision arose and because it was limited by its own
terms "'to the precise factual pattern presented,' i.e., an action against an asbestos mining company
filed prior to the enactment of [iND. CODE § 34-20-3-2]." Black, 752 N.E.2d at 160 (Mathias, J.,
dissenting).

178. Id. On this point, Judge Mathias wrote:

Neither the majority nor I can rightfully claim to fully know what the General Assembly
"clearly" intended when it drafted, considered and enacted the statutory language at
issue. However, I must reiterate that when a statute is unambiguous, "we may not
ignore the clear language of a statute, regardless of our view as to its wisdom." The
legislature has wide latitude in determining public policy, and we may not substitute our
own policy judgment for that of the legislature. "To the contrary, it is the duty of the
courts to interpret a statute as they find it, without reference to whether its provisions
are wise or unwise, necessary or unnecessary, appropriate or inappropriate, or well or
ill conceived."
/<af. at 160-61 (citations omitted).

179. /flf. at 161-62.

180. See Fulk v. Allied Signal, Inc., 755 N.E.2d 1 198, 1207 (Ind. Ct. App. 2001) (Mathias,
J., dissenting); Poirier v. A.P. Green Servs., Inc., 754 N.E.2d 1007, 1013 (Ind. Ct. App. 2001)
(Mathias, J., dissenting).

181. 759 N.E.2d 1066 (Ind. Ct. App. 2001).

2002] PRODUCT LIABILITY 1453

court recognized as "reasonable" the Black majority's conclusion, it disagreed
that the defendants sold "commercial asbestos."'*^ The Jurich court determined
that the defendants sold asbestos-containing products, not "commercial
asbestos," which, in its view, "refers to either 'raw' or processed asbestos that is
incorporated into other products."'^^ Accordingly, the Jurich court concluded
that the General Assembly did not intend the exception to the IPLA's statute of
repose to apply to defendants that merely sold asbestos-containing products.'^'*
The Jurich court nevertheless concluded that the defendants could not use
the IPLA's statute of repose to bar the claim because it violates article 1 , section
12 of the Indiana Constitution as applied.'^^ The salient constitutional question
was whether the Jurichs had a vested right in their claim J*^ The Jurich court
determined that they did, although it recognized what it called the "axiomatic
principle" that there is no vested or property right in any common law rule and
that "the General Assembly can make substantial changes to the existing law
without infringing on citizen rights."'*^ The "key distinction," according to the
Jurich court, was that the Jurichs had a vested right, but "not in a rule of common
law in the abstract."'** Rather, the claim was vested because Nicholas Jurich had
been injured by the defendant's products "at a time when Indiana courts
recognized common law product liability actions without an equivalent to the
later-enacted [IJPLA's statute of repose and thus without reference to the length
of time a product had been in the stream of commerce.'"*^ The court further
explained:

Mr. Jurich allegedly inhaled and was injured by asbestos dust from
defendants' products for at least twenty-five years before the [I]PLA's
effective date, from 1953 to 1978. During this period of protracted
exposure to asbestos, there was no equivalent to the [IJPLA's statute of
repose, which places a strict time limitation on bringing product liability
claims based on a product's age that did not exist at common law. To
the extent his twenty-five years of asbestos exposure before the [I]PLA's
effective date contributed to Mr. Jurich's later development of
mesothelioma, the statute of repose cannot constitutionally be used to
bar claims stemming from that exposure. Otherwise, the Jurichs' valid
claims under common law, which could not be known for many years,
would be effectively retroactively barred by the [I]PLA and their vested
right to a complete tort remedy would be taken away by the legislature.
. . . Such a time limitation is an unreasonable legislative impediment

182. /^. at 1069-71.

183. Id. 1071.

184. Id.

185. /i/. at 1077.

186. 5ee/^. at 1074-75.

187. Id at 1075-76 (quoting Mcintosh v. Melroe Co., 729 N.E.2d 972, 978 (Ind. 2000)).

188. /^. at 1076.

189. Id

1454 INDIANA LAW REVIEW [Vol. 35:1427

on the bringing of an otherwise valid claim, due to the very long latency
period of the development of asbestos-related diseases and the
impossibility of the plaintiffs knowing whether such a disease is slowly
progressing in his or her body. This represents a denial of justice that is
inconsistent with Article I, Section 12 of the Indiana Constitution, as
intQrpretQd by Martin V. Richey.^^

As of this writing, these issues are either before the Indiana Supreme Court
or are pending a decision on transfer in Blacky Jurich, and Herring}^^ As noted
earlier, on November 20, 2001, the Indiana Supreme Court in the case o^ Allied
Signal, Inc. v. O//'^^ accepted jurisdiction of an Allen Superior Court
interlocutory order denying motions for summary judgment after finding, like
Jurich, that Indiana Code section 34-20-3-2 violates article I, sections 1 2 and 23,
"as applied to asbestos cases only.'"^^ In light of the reasoning and implications
of these decisions, as well as the discord among court of appeals judges,
highlighted by Judge Mathias's dissents in Black, Poirier, and Fulk, the Indiana
Supreme Court has agreed to consider the constitutionality of the asbestos statute
of repose. For those same reasons, it seems likely that the Indiana Supreme
Court will consider and resolve the statutory construction issue as well.

Two unpublished federal decisions also may be helpful to Indiana
practitioners who have cases that involve repose issues. In the first case. Miller
V. Honeywell International Inc., ^'^^ a Bell UH-1 helicopter crashed on March 1,
1 997, while on an Indiana National Guard training mission. The plaintiffs are the
crew members aboard the helicopter as well as the estate of the pilot killed in the
crash. Plaintiffs alleged that "the failure of the forward reduction gear assembly

190. Wat 1076-77.

191. In Blacky the court of appeals denied appellees joint petition for rehearing on December
10, 2001, and on January 15, 2002, the case was transmitted on transfer to the Indiana Supreme
Court. In Jurich, the petition to transfer was filed on November 1 9, 2001 . The court of appeals in
Herring denied appellants' petition for rehearing on January 14, 2002, and thereafter appellants
filed a petition to transfer on February 13, 2002. The same issues are pending transfer in yet
another case, Harris v. A.C. & S., Inc., 766 N.E.28 383 (Ind. Ct. App. 2002), a case decided after
the survey period.

1 92. Supreme Court Cause Number 02S04-0 1 1 0-CV-599; Court of Appeals Cause Number
02A04-0110-CV-462.

193. Order at 1 (Nov. 20, 2001). The trial judge entered his order on July 20, 2001. Id
Pursuant to Appellate Rule 14(B)(1), the trial court on September 26, 2001, certified its July 20
order for interlocutory appeal. Id. In accordance with Appellate Rules 5(B) and 14(B)(2), Allied
Signal filed a motion asking the court of appeals to accept the interlocutory appeal and a petition
to have the Indiana Supreme Court assume immediate jurisdiction over the matter pursuant to
Appellate Rule 56(A). Id. In the supreme court's order accepting jurisdiction, the court noted that
had the order "been entered as a final judgment," there would have been jurisdiction pursuant to
Appellate Rule 4(A)(1)(b). Id

194. IP 98-1 742 C-M/S, 2001 U.S. Dist. LEXIS 5574, Prod. Liab. Rep. iCCH)% 16,095 (S.D.
Ind. Mar. 7,2001).

2002] PRODUCT LIABILITY 1455

component of the helicopter's engine" caused the accident. '^^ That component
contained "three planetary gears, ... all mounted in a carrier assembly unit."'^^
One of the planetary gears allegedly failed, "breaking into several pieces and
causing the crash."'^^

Honeywell Corporation is the successor-in-interest to the company that
originally built the engine in 1971 and sold it to the U.S. Army.'^* In 1977, the
Army inspected the carrier assembly involved in the crash before placing it in
inventory until 1990, when the Army installed it in the helicopter that crashed
during a rebuild of the engine.'^ The Missouri National Guard overhauled the
engine again in 1996, installing "new planetary gears and roller bearings."^^°

Honeywell argued first that it could not be held liable for alleged design or
manufacturing defects involving engine components that it manufactured before
1987 because the IPLA precludes causes of action that accrue "more than ten
years after a product is sold."^°' Honeywell also argued that it could not be held
liable for "alleged defects in the planetary gears that were used as replacement
parts within the ten year" repose period "because it neither manufactured nor
sold those replacement gears to the Army."^°^ Plaintiffs countered that the IPLA
does not bar their cause of action against the original manufacturer because the
engine involved was rebuilt within ten years of the accident.^^' Plaintiffs also
argued that "even if Honeywell was not the primary manufacturer of the
replacement planetary gears, [it] was still responsible for providing, and then
revising, the design specifications that were used in making them.''^^"*

The Miller court agreed with Honeywell's first argument, holding that the
IPLA bars all of plaintiffs' claims "that are based solely on alleged pre-sale
defects in the engine or carrier assembly."^^^ The court disagreed with
Honeywell's second argument, however, denying its motion for summary
judgment regarding defects "in the replacement planetary gears or any alleged
duty to warn regarding potential dangers to plaintiffs who use the replacement
gears in the expected manner."^^^

The Miller decision is helpful to practitioners because it effectively
delineates the difference between the repose and limitations periods. It also
recognizes the two situations in which a manufacturer can be liable even beyond
the ten years after delivery to the initial user or consumer: (1) when the

195.

Id. at *4.

196.

Id. at *4-*5.

197.

Id. at *5.

198.

199.

Id at *6.

200.

Id at ♦6-*7.

201.

Id at *2.

202.

Id at *2-*3.

203.

Id at *3.

204.

205.

M at*3-*4.

206.

Id at *4.

1456 INDIANA LAW REVIEW [Vol. 35:1427

manufacturer supplies replacement parts for the product and the replacement
parts are the cause of the plaintiffs injury;^°^ and (2) when the manufacturer
rebuilds the product, to the point of significantly extending the life of the product
and rendering it in like-new condition.^^*

In the case before the court, Honeywell sold the engine in question to the
Army in 1971, which is when the statute of repose began to run. The facts did
not establish that Honeywell rebuilt the engine and then reinjected it into the
steam of commerce or that Honeywell exercised any significant control over the
rebuilding process.^^^ Indeed, the Army rebuilt the engine and continued to use
it for its own purposes. As such, the court rejected plaintiffs' argument that the
original manufacturer should be held liable for defects in the rebuilt product and
therefore "the statute of repose clock should begin to run again from the time the
rebuilt product is delivered to its initial consumer."^'® Even if the service
performed on the carrier assembly in 1977 constituted a rebuild and that
Honeywell's predecessor "exercised significant control over the rebuilding
process," the statute of repose would have expired by 1987.^" Thus, Honeywell
could not be liable for pre-sale alleged defects in the engine or carrier assembly
notwithstanding the 1990 and 1996 rebuilds.

The planetary gears, however, were a different story because they were
replacement parts.^'^ Because a replacement part is a manufactured product in
its own right, Honeywell and its co-defendants could be held liable "to the extent
that [they were] a manufacturer of the replacement planetary gears and the
planetary gears themselves were defective."^^^ Because issues of fact remained
concerning supply, exercise of control, inspection, and design specifications of
the planetary gears, Judge McKinney denied summary judgment to the
defendants on the statute of repose issue with respect to the planetary gears.^"*

Judge McKinney was, nevertheless, "troubled by the possibility implicit in
[its] discussion that a designer of a product could find itself faced with unending
liability for its original design, contrary to the Indiana legislature's apparent
intent."^'^ Judge McKinney continued:

207. In such a situation, the ten-year statute of repose begins to run from the time the
manufacturer supplied the parts. See Richardson v. Gallo Equip. Co., 990 F.2d 330, 331 (7th Cir.
1993); Black v. Henry Pratt Co., 778 F.2d 1278, 1284 (7th Cir. 1985).

208. In this situation, the statute of repose begins to run from the time the rebuilt product is
delivered into the stream of commerce. Miller, 2001 U.S. Dist. LEXIS 5574 at *19 (citing
Whitaker v. T.J. Snow Co., 953 F. Supp. 1034 (N.D. Ind. 1997), aJTcl, 151 F.3d 661 (7th Cir.
1998); Denu v. W. Gear Corp., 581 F. Supp. 7 (S.D. Ind. 1983)).

209. SeeiddLt*2U*22.

210. Id. at *2\'*23.

211. /^. at*24.

212. Seeidai*21.

213. Id

214. Id 2it*3\'*35.

215. Id at ♦30.

2002] PRODUCT LIABILITY 1 457

If, for example, a third party manufacturer bought the design rights, and
then the original designer had nothing more to do with the manufacturing
of the product from that day on, it would seem to defeat the whole point
of the statute of repose for the original designer to continue to be held
responsible indefinitely for actions by the third party over which it had
no further control ....

However, this case does not present the proper set of facts with
which to test the issue under Indiana law. Although the precise
contractual relations and obi igations between the Army, Precision Gear,
and [Honeywell] are unclear to the Court, it is evident from the record
that all three parties continued to cooperate in manufacturing and testing
the safety of the planetary gears that Precision was producing. It is
simply not the case that [Honeywell] provided the Revision AK
blueprints in 1986 and then had nothing more to do with manufacturing
the planetary gears.^'^

One final point unrelated to the repose issues should be made. According to
the court, Honeywell's motion "encompasses liability for defects in design and
manufacture, as well as liability for the duties to warn or to instruct about the
proper use of these products."^'^ In discussing the elements of and requirements
for a cause of action under the IPLA, the court recognized that a plaintiff
maintains a "strict liability" action against a product manufacturer if the product
contains a defective^'* condition unreasonably dangerous to the user or

216. Id. at *30-*32. Judge McKinney added a few words about the interaction between the
IPLA's statute of repose and the post-sale duty to warn. Although plaintiffs did not state it
explicitly, according to Judge McKinney, plaintiffs seemed to be suggesting that the law should
impose upon Honeywell a post-sale duty "to warn the Army of the problem" with the planetary
gears and that "the statute of repose should begin to run from the moment" that Honeywell's
predecessor "discovered what the problem was." Id. at *35. Judge McKinney wrote that the IPLA
statute of repose "cannot be circumvented by asserting that the manufacturer continued to be
negligent (indefinitely) for failing in its duty to warn of known dangers after the product was
delivered to its initial user." Id. at *35-*36 (citing Dague v. Piper Aircraft Corp., 418 N.E.2d 207
(Ind. 1981)). He continued:

Therefore, the statute of repose for those defects began to run from the time that the
defective product was delivered to the initial user. It follows that an inquiry into when
[Honeywell] discovered the defect can have no relevance with regard to whether [its]
exposure to liability for failure to warn has expired. All that matters is: when was the
product, to which the duty to warn attached, first placed into the stream of commerce?
Id at *36.

217. /^. at*2.

218. A product is considered defective under the IPLA if it contains physical flaws but also
if the seller "fails to . . . give reasonable warnings of danger about the product; or give reasonably
complete instructions on [its] proper use . . . ." Ind. Code § 34-20-4-2 (1998); accord Miller, 2001
U.S. Dist. LEXIS 5574 at *15-*16.

1458 INDIANA LAW REVIEW [Vol. 35:1427

consumer.^'^ The court likewise recognized that before a manufacturer may be
held "strictly liable," the user must have been "in the foreseeable class of persons
who might be harmed, ... the product must have reached the user without
substantial alteration," and "the defective condition must have been present in the
product at the time it was conveyed to the initial user or consumer."^^^ Because
the court's explanation is intended to address those situations in which a
manufacturer may be "strictly liable" and because the case before it involved
alleged defects in manufacturing, design, and by virtue of inadequate warnings,
the court's summary of Indiana law needs to be augmented. As noted in previous
sections, the IPLA provides that claimants may pursue a "strict liability" theory
only in cases in which the theory of liability is a manufacturing defect.^^' Thus,
the court's discussion nicely sets out the elements of proof in a product liability
case, but practitioners should not interpret those elements as applying only in
"strict liability" (i.e., manufacturing defect) cases.

In the other federal case. Land v. Yamaha Motor Corp.^^^ the estate of a man
who was killed in an explosion while trying to start a WaveRunner sued the
manufacturer. The WaveRunner involved "was first sold or delivered to a
consumer on July 28, 1987, more than ten years before the explosion," which
occurred on June 25, 1998.^^^ After determining that Indiana law applied, the
court held that the IPLA's ten-year statute of repose barred the claim. ^^"^ In doing
so, the court rejected plaintiffs' attempt to circumvent the statute of repose by
arguing that defendants breached duties to warn users of dangerous defects in the
WaveRunner long after the original sale.^^^ Citing Mcintosh v. Melroe Co.^^^
Judge Hamilton also rejected plaintiffs' argument that the statute of repose
violates article I, section 23 of the Indiana Constitution. ^^^

III. Toxic Exposure Summary Judgment Standard

Indiana appellate courts handed down five important decisions addressing the
summary judgment standard in cases in which product liability defendants argued
that they were entitled to summary judgment because of a lack of evidence of
exposure to their product. As was true with statute of repose issues, cases
involving exposure to asbestos products are in the vanguard.

219. /fif. at*14-*15.

220. /f/. at*15.

22 1 . See IhfD. CoDE § 34-20-2-2 ( 1 998).

222. No. IP 00-220-C H/G, 2001 U.S. Dist. LEXIS 2732, Prod. Liab. Rep. (CCH) \ 16,045
(S.D. Ind. Mar. 8, 2001), affd. 111 F.3d 514 (7th Cir. 2001).

223. Mat*l.

224. Id. at *2.

225. Id. at*8-*10.

226. 729 N.E.2d 972 (Ind. 2000).

227. Land, 2001 U.S. Dist. LEXIS 2732 at ♦ 10-* 11. The Seventh Circuit affirmed Judge
Hamilton in Land v. Yamaha Motor Corp., Ill F.3d 514 (7th Cir. 2001), which was decided
beyond the survey period.

2002] PRODUCT LIABILITY 1459

In the asbestos context, claimants must properly identify the products to
which they claim exposure in order to satisfy both the legal and factual causation
requirements necessary for sustenance of their cases. Most practitioners refer to
that threshold evidentiary process as "product identification." In this regard,
resolution of a product identification summary judgment motion requires the
court to determine whether there is, as a matter of law, sufficient product
identification evidence for the trier of fact to sustain a finding of causation
against a given defendant.

On September 10, 2001, the Indiana Supreme Court addressed the product
identification issue in Owens Corning Fiberglass Corp. v. Cobb}^^ Cobb, a
former pipe fitter, sued more than thirty manufacturers or distributors of
asbestos-containing products. As the case progressed toward trial, Cobb settled
with some defendants and other defendants were otherwise dismissed.^^^ Cobb
and Owens Coming Fiberglass Corp. ("OCF") filed cross-motions for summary
judgment. Cobb's motion for summary judgment argued that OCF had not
presented sufficient evidence to support its affirmative defenses, including its
non-party defense.^^^ OCF's motion for summary judgment argued that "Cobb
had failed 'to provide any evidence that he was exposed to asbestos-containing
products manufactured or distributed' by [OCF]."^^' The trial court "denied
without comment" OCF's motion for summary judgment.^^^

After suffering an adverse judgment at trial, OCF appealed the trial court's
denial of summary judgment with respect to its product identification motion and
the trial court's partial denial of its nonparty affirmative defense. The Indiana
Court of Appeals reversed, remanding the case to the trial court with instructions
to vacate the damage awards and to enter summary judgment in favor of OCF.^"
On transfer, the Indiana Supreme Court affirmed the trial court's denial of OCF's
motion for summary judgment.^^"*

OCF argued that Cobb did not provide any evidence to prove that he had
been exposed to asbestos-containing products that OCF manufactured or
distributed. According to OCF, the record showed that "'Cobb could not identify
a single occasion at [sic] which he had been exposed to [OCF's] product. '"^^^
Cobb testified in his deposition that he had been on several job sites where Kaylo
(the brand name of a line of OCF's insulation products) was used while he

228. 754 N.E.2cl 905 (Ind. 2001).

229. Mat 907, 914.

230. See id. at 907-08.

231. /^. at 908.

232. Id.

233. See Owens Coming Fiberglass Corp. v. Cobb, 714 N.E.2d 295, 303-04 (Ind. Ct. App.
1999), trans, granted, 735 N.E.2d 219 (Ind. 2000), and vacated by 754 N.E.2d 905 (Ind. 2001).
The court of appeals' ruling rendered moot the nonparty defense issue.

234. 754 N.E.2d at 916. On the nonparty issue, the court reversed the trial court's grant of
Cobb's motion for summary judgment with respect to co-defendant Sid Harvey, Inc., and it reversed
the trial court's judgment in favor of Cobb. Id.

235. /c^. at 909.

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worked for Indianapolis Public Schools.^^^ He recalled seeing the boxes of Kaylo
at some of the sites, but he never personally installed the products and he could
not recall at which job sites he saw the boxes or the Kaylo being installed.^^^
Although Cobb did not install asbestos products, he testified that "he worked
near others who did."^^^ Cobb also testified that he occasionally removed and
repaired pipe covering previously installed by other crews, but he did not know
what company manufactured the pipe covering he removed and repaired.^^^

According to the Cobb court, such evidence was sufficient to establish a
genuine issue of material fact with respect to whether OCF's asbestos caused
Cobb's injuries:

Cobb's testimony established that Cobb worked at multiple sites where
asbestos products were used; Cobb worked near people installing pipe
insulation containing asbestos; and boxes of Kaylo pipe insulation
products were present on the work sites. We find it to be a reasonable
inference, not conjecture or speculation, that the insulation from the
Kaylo boxes was being installed at the worksites where it was present
and not simply being stored there.^'*^

Before the Indiana Supreme Court decided Cobb in September, the court of
appeals already had issued two "product identification" opinions and handed
down a third one just days after the release of the opinion in Cobb. Those cases

236. /fi^. at 909-10.

237. Id.

238. /t/. at 909.

239. /^. at910&n.3.

240. Id. at 910. Because the court determined that Cobb presented sufficient evidence to
establish a genuine issue of material fact "as to exposure," the court did not address whether OCF
demonstrated "the absence of any genuine issue of fact as to a determinative issue." Id. at 909.
(citing Jarboe v. Landmark Cmty. Newspapers of Ind., Inc., 644 N.E.2d 1 1 8, 1 23 (Ind. 1 994)). The
Jarboe citation is a significant occurrence because it will be interesting to see whether the Indiana
Supreme Court is willing to modify the Jarboe standard in a toxic exposure case. Celotex Corp.
V. Catrett, 477 U.S. 3 17 (1986), the case out of which the now-famous federal summary judgment
standard arose, was an asbestos case. As many product liability practitioners well know, such cases
nearly always hinge on a claimant's ability to properly identify or recall the allegedly-offending
product or products that caused or contributed to his or her injuries. The Celotex standard is helpful
in achieving some judicial control over that type of litigation. Indiana's disavowal of Celotex
occurred in a more "traditional" setting. Indeed, Jarboe was a wrongful discharge case. Thus, in
cases in which product identification is an essential, threshold issue, Indiana courts may need to
examine the propriety and utility of continuing to adhere to 2i Jarboe summary judgment standard.
Clearly, the Cobb court did not need to address the issue in light of its ultimate conclusion.
Practitioners should, however, be attuned to the fact that the justices are cognizant that the threshold
evidence necessary to shift the movant's initial burden is a question separate and apart from the
sufficiency of the non-movant's evidence to prove legal and factual causation.

2002] PRODUCT LIABILITY 1461

are Black v. ACandS, Inc.,^^^ Poirier v. A. P. Green Services, Inc.^^^ and Parks v.
A.P. Green Industries, Inc?^^ In all three instances, the courts did not have the
benefit of the Cobb analysis. In all three instances, the court of appeals affirmed
lower court decisions to grant summary judgment to defendants in cases
presenting facts that are in some instances similar to Cobb and in some instances
dissimilar.

The court in Black affirmed summary judgment with respect to four
defendants that had filed product identification summary judgment motions.^*"*
In doing so, the court of appeals articulated the following standard: "To avoid
summary judgment, a plaintiff must produce evidence sufficient to support an
inference that he inhaled asbestos dust from the defendant's product."^"*^ That
standard is consistent with the Seventh Circuit's standard found in Peerman v.
Georgia-Pacific Corp}^^ The panels in both Poirier and Parks used the same
standard in determining, like Black, that the evidence against each defendant was
speculative and insufficient to support the inference that the workers involved
inhaled dust from any of the defendants' products.^'*^

In the only case decided after Cobb during the survey period, Fulk v. Allied
Signal, Inc.^^^ nothing appears to have changed. On the product identification
issue, the Fulk court cited the Peerman summary judgment standard in exactly
the same manner as did the other panels in Black, Poirier, and Parks: the Fulk
court required the plaintiff to "produce evidence sufficient to support an
inference that he inhaled asbestos dust from the defendant's product."^"*^ The

241. 752 N.E.2d 148 (Ind.Ct.App. 2001).

242. 754 N.E.2d 1007 (Ind. Ct. App. 2001).

243. 754 N.E.2d 1052 (Ind. Ct. App. 2001).

244. See 752 N.E.2d at 1 55, 1 57. The four defendants were Rapid-American Corp., Universal
Refractories, ACandS, Inc., and Brand Insulations, Inc. The trial court's summary judgment was
affirmed with respect to Rapid- American because the plaintiffs failed to timely respond to its
motion. Id. at 155 n.8. For a more detailed explanation of the product identification evidence
before the Black court with respect to the other three defendants, see id. at 1 55-56.

245. /rf. atl55.

246. 35 F.3d 284, 287 (7th Cir. 1994) (applying Indiana law).

247. See Poirier, 754 N.E.2d at 1 010-1 1 ; Parks, 754 N.E.2d at 1 056-57. Just as in Black, the
trial courts in Poirier and Parks granted summary judgment in favor of four separate defendants
in each case on product identification grounds. The four defendants in Poirier were North
American Refractories, ACandS, Inc., Kaiser Aluminum & Chemical, and Plibrico Sales &
Services. 754 N.E.2d at 1013. For a more detailed explanation of the product identification
evidence before the Poirier court with respect to each defendant, see id. at 1010-12. The four
defendants in Parks were B.M.W. Constructors, Inc., Chicago Firebrick Co., Hunter Corp., and
Morrison Constr. Co. 754 N.E.2d at 1061. For a more detailed explanation of the product
identification evidence before the Parks court with respect to each defendant, see id. at 1 056-58.

248. 755 N.E.2d 1198 (Ind. Ct. App. 2001). The court ofappeals decided Fw/it on September
1 4, 2001 , only four days after the Indiana Supreme Court rendered its decision in Cobb. It is clear
from the Fulk opinion that the panel was unaware of the Cobb decision.

249. Id at 1203.

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Fulk court took it one step further, however, by further explaining the inference
necessary to establish causation: "This inference can be made only if it is shown
the product, as it was used during the plaintiffs tenure at the job site, could
possibly have produced a significant amount of asbestos dust and that the
plaintiff might have inhaled the dust."^^° The Fulk court ultimately affirmed the
trial court's grant of summary judgment to all nine of the defendants against
whom the issue was raised on appeal.^^' As was true in Black, Poirier, and
Parks, plaintiffs product identification was "at best conjectural and insufficient
to support the inference that the decedent inhaled dust from any of the
defendants' products."^"

The Cobb court seems conspicuously to have refused to articulate a specific
summary judgment standard for asbestos toxic exposure cases. Whether the
Peerman standard is close to what the Cobb court ultimately did probably is
debatable. Regardless, the Cobb court appears to have missed an opportunity to
provide a bit more stability for courts and practitioners who are handling toxic
exposure cases. Although Cobb did not articulate a standard, the Cobb decision
does not seem to dictate results different from those reached in the four cases
decided by the court of appeals in Black, Poirier, Parks, and Fulk. Thus,
practitioners and courts in the aftermath of Cobb simply will have to compare the
facts of their individual cases to the facts in each of the five relevant cases, Cobb,
Black, Poirier, Parks, and Fulk, and then either distinguish or favorably compare
those facts to the ones at issue.

IV. Expert Witness Evidentiary Issues

The significance of opinion witnesses in product liability cases is manifest.
Opinion witnesses routinely testify about liability and medical causation issues
in product liability litigation. As a result, product liability practitioners are quite
interested in cases that address the evidentiary exclusion or admission of opinion
witnesses. Arguably the leading Indiana case during the survey period that
addressed opinion witness evidentiary issues is Sears Roebuck & Co. v.
ManuilovP^ Three other cases decided during the survey period that are

250. Id.

251. Seeid.d\.\2^Ml.

252. Id. at 1203. The nine defendants in Fulk were Allied Signal, Inc., Armstrong World
Industries, A.O. Smith Corp., Bondex International, Combustion Engineering, Inc., Harbison-
Walker Refractories, W.R. Grace & Co.-Conn., W.A. Pope & Co., and U.S. Gypsum. Id. at 1 206-
07. For a more detailed explanation of the product identification evidence before the Fulk court
with respect to each defendant, see id. at 1203-06.

253. 742 N.E.2d 453 (Ind. 2001). In Manuilov, a jury awarded a high-wire performer $1.4
million after he was injured in a fall at a Sears store. The court held that admission of testimony
from two medical professionals on post-concussion syndrome, brain damage, causation, and
vocational impairment issues was not an abuse of the trial court's discretion. Id. at 455, 457-59,
461-62. Importantly, the Indiana Supreme Court did not fully endorse a Daubert analysis,
preferring to require only that the trial judge be satisfied that the testimony will assist the jury and

2002] PRODUCT LIABILITY 1 463

instructive on opinion Witness issues are Lennon v. Norfolk & Western
Railway, ^^^ Ollis v. Knecht,^^^ and Court View Centre, LLC v. Witt}^^ Because
those cases do not involve substantive product liability issues, this survey does
not address them in detail here. Nevertheless, practitioners in Indiana who have
product liability cases that turn on opinion witness issues should be aware of
Manuilov, Lennon, Ollis, and WittP"^

Product liability practitioners who wrestle with opinion witness issues should
pay special attention to the court of appeals' opinion in R.R. Donnelley & Sons
Co. V. North Texas Steel Co?^^ In addition to the "sale of a product" issue

that the witness's general methodology is based on reliable scientific principles. Id. at 46 1 . Beyond
that, the accuracy, consistency, and credibility of an expert opinion is left for lawyers to eirgue and
the jury to weigh. Id. With respect to the opinion witness issues, it is important to note that only
two justices concurred in the plurality that ended up being the majority opinion. Id. at 463. Justice
Sullivan concurred in result only. Id.

ISA. 123 F. Supp. 2d 1143 (N.D. Ind. 2000). In Lennon, the court excluded an opinion
witness's testimony that trauma was not related to onset or exacerbation of multiple sclerosis (MS)
because he did not conduct research or studies on MS, nor did he research the association between
trauma and MS.

255. 751 N.E.2d 825 (Ind. Ct. App. 2001), trans, denied, 2002 Ind. LEXIS 431 (Feb. 22,
2002). In Ollis, a jury awarded $2.8 million to a plaintiff in a wrongful death action in which the
defendant admitted liability. Id. at 827. The trial court excluded an economist offered by the
defendant who was set to offer an opinion about loss of income using the "mirror image" approach.
Id. at 830. The defendant argued on appeal that the economist's testimony was improperly
excluded because it met the requirements of Rule 702(b), case law established that the discount
rates were appropriate, his methodology had been published, and it was generally accepted by
economists. Id. at 828-29. Although the court agreed that Rule 702(b) could apply to social
sciences that follow the scientific method, the court did not believe that the defendant presented
sufficient evidence supporting the economist's approach. See id. at 828-3 1 .

256. 753 N.E.2d 75 (Ind. Ct. App. 2001). Witt is important because, although it is not a
product liability case, it limits the long-standing rule that an owner of property is competent to give
an opinion about the value of the property owned. There, the owner of a building destroyed in a
fire sued the building's insurer, contending that the building's actual cash value exceeded $1.5
million and that the insurer was liable for damages in excess of the $750,000 paid. Id. at 78. The
court of appeals held that the owner can testify about the value of property, but "there must be a
basis for that valuation." Id. at 82. The court of appeals also held that the trial court properly
excluded an expert's testimony as to value because he admitted on cross-examination that he lacked
specific data on which to form an opinion about the actual cash value of the building, and because
he had never been inside the building, nor had he examined the building's foundation, framing, or
excavation report. See id. at 85-86. He admitted that his value was an approximation based on
photos of the building, the comments of others, and guesswork. Id.

257. Although it is not published and has very limited precedential value, Judge Young's
decision in Eve v. Sandoz Pharmaceutical Corp., No. IP 98-1429-C-Y/S, 2001 U.S. Dist. LEXIS
4531 (S.D. Ind. Mar. 7, 2001), contains a quality discussion about Daubert issues and medical
causation that practitioners may find useful. See id. at ^40-* 76.

258. 752 N.E.2d 1 12 (Ind. Ct. App. 2001), trans, denied, 2002 Ind. LEXIS 433 (Feb. 22,

1464 INDIANA LAW REVIEW [Vol. 35: 1427

discussed supra. Part I.C, the court addressed several other important questions,
including three that involve opinion vy^itnesses. Recall that the R.R, Donnelley
case involved the collapse of large metal storage racks at the R.R. Donnelley &
Sons Co. ("RRD") facility in Warsaw, Indiana.^^^ RRD purchased the racks from
Associated Material Handling Industries, Inc. ("Associated"), who had in turn
purchased them from Frazier Industrial Co. ("Frazier"). Frazier designed the
racks and contracted with North Texas Steel Co. ("NTS") "to manufacture the
component parts."^^ Frazier provided NTS with

written instructions on how to manufacture these parts. NTS received
raw steel from the steel mill, and then cut, punched, welded, and painted
the steel. Frazier instructed NTS to ship the component parts of the
storage racks from its Texas plant to RRD's plant in Warsaw, Indiana,
where the racks were to be erected. Associated supervised the
installation of the racks . . . }^^

RRD sued NTS, Associated, and Frazier, claiming more than $12 million in
economic loss as a result of the collapsed racks and asserting product liability,
breach of contract, and negligence claims.^^^ Associated and Frazier settled
before trial. The trial court granted summary judgment to NTS on the breach of
contract and negligence claims, leaving the parties to try only the product
liability claim against NTS. ^" At trial, RRD argued that NTS defectively welded
the rack's component parts.^^ "NTS countered that the welds were sufficient to
hold the load" and that the racks collapsed because "Frazier defectively designed
the . . . system."^"

The first opinion witness issue on appeal involved the testimony of an NTS
witness named Raymond Tide.^^^ "Tide testified that the welds were not a
primary cause of the rack collapse."^^^ Associated originally hired Tide as an
expert but "did not designate him as a witness for trial" because it settled the case
"before filing a witness list."^^^ "Before Associated settled, it gave a copy of
Tide's preliminary report to counsel for NTS, RRD, and Frazier."^^^ Associated
hired Tide as a consultant to review file materials and the collapse site, and to

2002).

259. Id. at 1 20. RRD used the racks to store catalogs. Most of the racks collapsed on June 1 4,
1994, during a shift change. Id. Because the accident occurred before June 30, 1995, the 1995
amendments to the I PL A do not apply.

260. Id

261. Id

262. Id

263. Id

264. Id

265. Id

266. See id. at 130.

267. Id

268. 5eg/^. at 130-31.

269. /f/. at 131.

2002] PRODUCT LIABILITY 1 465

evaluate RRD's potential claims against it.^^^ Tide's preliminary report
"contained his analysis and conclusions regarding the cause of the rack
collapse."^^' Associated distributed the report to further settlement
negotiations.^^^ After a hearing on the discoverability of Tide's opinion, the trial
court "concluded that NTS had full discovery rights regarding Tide."^^^ RRD
filed a motion in limine and objected to NTS using Tide as a w^itness.^^"* The trial
court allowed Tide to testify. ^^^

The court of appeals disagreed with the trial court's decision, determining
that the trial court should have excluded Tide's testimony because it was based
on a preliminary report he prepared for settlement negotiation^ and because its
admission violated Rule 26(B)(4) of the Indiana Rules of Trial Procedure.^^^
With respect to its first conclusion, the court cited favorably the Fifth Circuit
Court of Appeals' opinion in Ramada Development Co. v. Rauch?^^ There, the
court "upheld the district court's exclusion of a report that represented a
collection of statements made in the course of compromise" negotiations.^^^
Although the court does not specifically refer to Rule 408 of the Indiana Rules
of Evidence^^' in the portion of the opinion discussing Tide's testimony, it is
clear that the rule is one of the two bases for the court of appeals' conclusion that
Tide's testimony was inadmissible.

The other basis for the court's decision is Indiana Trial Rule 26(B)(4). For
"consulting experts" under Rule 26(B)(4)(b), the court wrote that "no discovery
is permitted without 'a showing of exceptional circumstances under which it is
impracticable for the party seeking discovery to obtain facts or opinions on the
same subject by other means. "'^*^ RRD argued that the "policy" behind Rule
26(B)(4)(b) "encourages parties to consult experts, discard experts should they
choose to, and place those discarded experts beyond the reach of an opposing
party ."^*' After a review of Reeves v. Boyd & Sons, Inc}^^ and Professor

270. Id. Associated's counsel executed an affidavit explaining the purpose of Tide's
engagement. Id. RRD submitted that affidavit in support of its motion in limine to exclude Tide's
testimony. Id. Associated's counsel distributed Tide's preliminary report to counsel for RRD,
Frazier, and NTS before RRD ever filed suit. Id.

271. Id

272. See id. Associated's counsel stated in his affidavit that he took Tide to the mediation with
him and distributed Tide's report to assist in the technical issues of the case and "in presenting
arguments on behalf of Associated . . . during settlement negotiations." Id. (omission by court).

273. Id

274. Id

275. Id

276. Id

111. 644 F.2d 1 097 (5th Cir. 1 98 1 ).

278. R.R. Donnelley, 152 N.E.2d at 131.

279. IND. Evidence Rule 408.

280. /?./?. Z)o«/ie//e>', 752 N.E.2d at 131.

281. /J. at 131-32.

282. 654 N.E.2d 864 (Ind. Ct. App. 1995), tram, denied

1466 INDIANA LAW REVIEW [Vol. 35: 1427

Harvey's well-known treatise on Indiana practice,^" the R.R Donnelley court
agreed that Indiana requires a showing of exceptional circumstances before
judges may allow discovery aimed at an expert who is not expected to be called
as a witness at trial. ^^'^ In doing so, the court recognized that the purpose of Rule
26 was "largely developed around the doctrine of unfairness — -designed to
prevent a party from building his own case by means of his opponent's financial
resources, superior diligence and more aggressive preparation."^^^ The court
concluded that Tide was an advisory witness under Rule 26(B)(4)(b) because he
"was retained by Associated in anticipation of litigation, but was never added to
Associated's witness list because Associated settled" before filing one.^^^ In
order to use Tide at trial, the court held that NTS had to show "exceptional
circumstances," which NTS did not do.^^^

The second of the three opinion witness issues on appeal involved the trial
court's exclusion of rebuttal testimony the plaintiff sought to offer through a
witness named Daniel Clapp. Plaintiffs offered Clapp to rebut NTS's theory
offered by one of NTS's witnesses that "the collapse was the result of a design
defect" (the lack of tower bracing) and not poor welds.^*^ The trial court
excluded Clapp's testimony because RRD failed to disclose timely that it would
use Clapp, and rebuttal testimony "would violate the trial court's summary jury
trial orders limiting the parties to theories presented at the summary jury trial. "^^^

RRD first argued that it designated Clapp as an expert witness over a year
before the parties engaged in a summary jury trial. NTS deposed Clapp before
the summary jury trial. RRD claimed that it did not know about NTS's design
expert until one week before the summary jury trial. Thereafter, RRD
supplemented its expert interrogatory response, identifying Clapp as a rebuttal
witness, after which NTS deposed Clapp a second time.^^° RRD also argued that
it did not violate the trial court's summary jury trial order because using Clapp
to rebut NTS's theory (which it advanced for the first time at the summary jury
trial) did not constitute the presentation of a new theory.^'' Rather, RRD argued
that it could not have formulated its rebuttal any earlier than the summary jury
trial because that is when it first became aware of NTS's design theory.^^^
Finally, RRD argued that exclusion of evidence was too harsh a sanction because
it did not engage in "deliberate or other reprehensible conduct" that prevented
NTS from receiving a fair trial.^^^

283. See WILLIAM F. HARVEY, INDIANA Practice § 26. 1 4 (3d ed. 2000).

284. 752N.E.2datl32.

285. Id. (quoting Reeves, 654 N.E.3d at 875).

286. Id.

287. Id

288. Id

289. Id

290. /^. at 132-33.

291. /^. at 133.

292. Id

293. Id

2002] PRODUCT LIABILITY 1467

Because plaintiff proffered Clapp for rebuttal testimony, and not to espouse
a new theory, the court of appeals disagreed with the trial court's characterization
of RRD's disclosure of the content of Clapp' s testimony as untimely, "especially
in light of the fact that Indiana Trial Rule 26(E) only requires a duty to
'seasonably' supplement discovery responses, rather than requiring immediate
supplementation."^^'' The court pointed out that Clapp could not formulate his
rebuttal testimony until after he was aware of NTS' s design theory, of which he
first became aware at the summary jury trial. ^^^ The court also noted that RRD
identified Clapp as a rebuttal witness within three weeks of discovering the
substance of NTS' s expert's testimony and that NTS deposed Clapp thereafter.^^^
Under those circumstances, the court of appeals believed that exclusion of
Clapp' s testimony was too harsh a sanction because RRD did not commit any
"deliberate or other reprehensible conduct . . . that prevented NTS from receiving
a fair trial. '""'

The third opinion witness issue addressed by the court in R.R. Donnelley
involved the trial court's failure to exempt opinion witnesses from its separation
order. The trial court granted NTS's motion for a separation of witnesses and
"denied RRD's request to have experts in the courtroom in order to assist
counsel."^^* The critical issue was whether the trial court erred in not finding
RRD's opinion witnesses to be "essential to the presentation of [its] cause" under
Indiana Rule of Evidence 61 5(3).^^ "Given the complexities of [the] case," the
court of appeals wrote, "it appears that the use of experts was essential. "^°° The
court also concluded that it would be necessary for the plaintiffs opinion
witnesses "to be present in the courtroom to witness the testimony or be provided
with daily transcripts" in order to rebut any theory the defense proffered.^^'
Because the trial court denied RRD that opportunity, the court of appeals held
that "the trial court abused its discretion by failing to exempt experts from the
Separation Order."^^^

294. Id.

295. Id

296. Id

297. Id

298. Id

299. Id. at 1 34. Rule 61 5(3) of the Indiana Rules of Evidence provides that witnesses whose
presence is shown to be "essential to the presentation of the party's cause" are exempt. Id. To be
exempted from separation orders, the witness must possess "such specialized expertise or intimate
knowledge of the facts of the case that a party's attorney could not effectively function without the
presence and aid of the witness." Id. (quoting Hernandez v. State, 716 N.E.2d 948 (Ind. 1999)).

300. Id

301. Mat 134-35.

302. Id. at 135. The R.R. Donnelley opinion also addresses the admissibility of settlement
information, a demonstration used to clarify a scientific principle, and the appropriateness of
instructing the jury on proximate cause. For additional analysis of the case by one of the lawyers
who argued the case, see Nelson Nettles, Important Expert and Mediations Issues Addressed in
Recent Product Liability Case, iND. LAW., Sept. 26, 2001, at 25.

1468 INDIANA LAW REVIEW [Vol. 35:1427

V. Preemption

Three published decisions from Indiana courts examined the federal
preemption doctrine as it relates to various types of product liability claims.^^^
On August 23, 2001, the Indiana Supreme Court issued an important unanimous
preemption decision in Dow Chemical Co. v. Ebling?^ The Ebling decision
addresses preemption pursuant to the Federal Insecticide, Fungicide and
Rodenticide Act ("FIFRA"). In Ebling, plaintiffs alleged physical symptoms
after application of an EPA-accepted pesticide known as "Dursban 2E"'°^ in their
apartment. The plaintiffs sued, inter alia, Dow Chemical Co.,^^ the pesticide
manufacturer, Affordable Pest Control, Inc., the pesticide applicator, and
Louisville Chemical Company, the distributor of another pesticide that was used
in the apartment.^"^ Among other claims, plaintiffs contended that the pesticide

303. In addition to the three cases treated in this survey, practitioners should be aware of last
year's court of appeals' opinion in Rogers ex rel. Rogers v. Cosco, Inc., 137 N.E.2d 1 158 (Ind. Ct.
App. 2000) (addressing preemption issues involving the National Traffic Motor Vehicle Safety Act
and Federal Motor Vehicle Safety Standard 213), trans, denied, 761 N.E.2d 419 (Ind. 2001).

304. 753 N.E.2d 633 (Ind. 2001).

305. "Dursban" is a trademark of Dow AgroSciences LLC.

306. The proper defendant in this lawsuit was not the Dow Chemical Company, but rather
Dow AgroSciences, LLC, which was formerly known as DowElanco, Inc. This survey Article will
simply refer to the manufacturer as "Dow."

307. Justice Boehm's opinion refers to the court of appeals' opinion for a more detailed
recitation of the facts. The court of appeals' opinion is Dow Chemical Co. v. Ebling, 723 N.E.2d
88 1 (Ind. Ct. App. 2000), aJTd in part and vacated in part by 753 N.E.2d 633 (Ind. 200 1 ). A
review of the facts set forth in the court of appeals' opinion in Ebling reveals that Christina and
Alex Ebling began experiencing seizures shortly after they and their parents moved into an
apartment at the Prestwick Square Apartments. In April 1993, Prestwick Square "entered into a
pest control service agreement" with Affordable Pest Control ("Affordable"), which obligated
Affordable to "provide regular pest control for roaches, ants, silverfish, mice and rats." Id. at 889-
909. Affordable applied Dursban "on a preventive basis." Id. at 890. The Eblings moved into their
apartment in February 1994. "In April of 1994, Prestwick Square canceled its service agreement
with Affordable and began using its own maintenance personnel to apply Creal-O, a ready-to-use
pesticide" formulated by Louisville Chemical. Id.

DowElanco, now known as Dow AgroSciences, manufactured and distributed Dursban
pesticide products pursuant to registrations with the United States Environmental Protection
Agency (EPA). See id. at 889. As part of the registration process, the EPA provided Dow with
stamped and accepted labels for its Dursban pesticide products, which the EPA authorized "for use
in and around residential structures," including apartments and apartment complexes. Id. As part
of the registration process for Creal-O, the EPA permitted Louisville Chemical to "adopt and
incorporate the safety and toxicological data submitted by the manufacturers of Creal-0's active
and inert ingredients. The EPA registered Creal-O and authorized its use in and around residential
structures, including apartments and apartment complexes." Id.

Affordable did not provide the Eblings or Prestwick Square with any of Dursban's EPA-

2002] PRODUCT LIABILITY 1469

applicator breached a duty to provide the plaintiffs with the pesticide's EPA-
accepted warnings and labeling information.^"*

The court of appeals held in part that the manufacturer, applicator, and
distributor all were entitled to summary judgment with respect to plaintiffs'
failure to warn claims.^"^ Plaintiffs sought transfer, challenging the court of
appeals' decision only on the FIFRA preemption issue.^'" On transfer, the
Indiana Supreme Court summarily affirmed the court of appeals' decision that
FIFRA expressly preempts state common law tort claims against pesticide
manufacturers such as Dow and Louisville Chemical.^" The Ebling court
disagreed, however, with the court of appeals concerning Affordable, the
pesticide applicator, holding that FIFRA does not preempt state common law
failure to warn claims against Affordable.^ *^ In doing so, the Ebling court
rejected, in part, the court of appeals' 1996 decision in Hottinger v. Truegreen
Corp.'''

The plaintiffs argued that FIFRA did not preempt their state common law
claim, "asserting that Affordable's duty of reasonable care included an obligation

approved warnings and labeling information. Id at 890. Although Louisville Chemical "provided
Prestwick Square with the EPA-approved labeling for Creal-O," it did not provide the Eblings with
the label until after their exposure to it. Id.

308. Id at 898.

309. See id. at 910. The plaintiffs alleged various theories of recovery, including "failure to
warn, strict liability, negligence, and willful/wanton misconduct." Ebling, 753 N.E.2d at 636. The
trial court granted motions for summary judgment filed by Dow and Louisville Chemical. The trial
court denied Affordable's motion. Id. All three defendants filed interlocutory appeals. See Ebling,
123 N.E.2d at 888. The court of appeals held that FIFRA expressly preempts all of the plaintiffs'
claims against Dow and Louisville Chemical that relate to the product's labeling, id. at 910, which
was everything except design defect claims. The court of appeals also held that FIFRA precluded
plaintiffs' claim that it had an obligation to warn plaintiffs about the potential adverse effects of
Dursban. Id. The court of appeals further held that "Affordable was entitled to summary judgment
on the plaintiffs' claims for strict liability under both the IPLA and common law strict liability for
ultra-hazardous activity" because the transaction was predominately for the sale of a service rather
than a product. Ebling, 753 N.E.2d at 636. With respect to Affordable's negligence claim,
however, the court of appeals held that summary judgment was properly denied because genuine
issues of material fact existed regarding whether Affordable breached its duty of reasonable care
by applying an excessive amount or concentration, by failing to properly ventilate the plaintiffs
apartment, and by spraying Dursban in an area near the children's clothes and toys." Id. In
addition, the court of appeals affirmed the denial of summary judgment concerning "the plaintiffs'
request for punitive damages against Affordable." Id. On transfer, plaintiffs challenged only the
FIFRA preemption issue. For further discussion about the court of appeals' decision, see Alberts
& Henn, supra note 16, at 91 1-17.

310. £:6/mg,753N.E.2dat636.

311. See id ^t 635-26.

312. Id Hi 636.

313. 665 N.E.2d 593 (Ind. Ct. App. 1996), overruled by Dow Chem. Co. v. Ebling, 753
N.E.2d 633 (Ind. 2001).

1470 INDIANA LAW REVIEW [Vol. 35:1427

to provide them with the information contained in the EPA-accepted Dursban
label. "^''* Relying upon Hottinger, Affordable countered that the principles of
preemption for failure to warn claims apply to pest control applicators "just as
they do to manufacturers.""''^ According to Justice Boehm's opinion, the court
of appeals in Hottinger "summarily concluded" that FIFRA preempts state
common law strict liability and negligence claims that are based upon alleged
inadequacy of warnings on products that FIFRA regulates.^'^ The Ebling court
overruled that determination insofar as pesticide applicators are concerned.^ '^

As part of an analysis dating to McCulloch v. Maryland^^^ the Ebling court
recognized that there are three distinct types of federal preemption:

A federal statute may now preempt state law [1] by express language in
a congressional enactment^^'^^ ["express preemption"] ... [2] by
implication from the depth and breadth of a congressional scheme that
occupies the legislative field^^^°^ ["field preemption"] ... or [3] by
implication because of a conflict with a congressional enactment^^^'^
["implied conflict preemption"]. ^^^

With respect to the third type, "implied conflict preemption," the Ebling court
aptly noted that the "reach of federal preemption was increased" with the U.S.
Supreme Court's decision in Geier v. American Honda Motor Co}^^

314. £/)/mg, 753 N.E.2d at 636.

315. Id.

3 1 6. Justice Boehm's opinion makes a point of stating that the supreme court never reviewed
that conclusion when it denied Trugreen's petition to transfer in that case:

Although finding FIFRA preemption applicable to some of Hottinger's claims, the court
held that erroneous exclusion of expert opinion evidence required reversal of the
summary judgment as to the remaining claims. Transfer to this Court was sought only
by appellee Trugreen, whose petition to transfer was denied. To the extent that
Hottinger v. Trugreen Corp. is inconsistent with our opinion herein, it is overruled.
Id. at 636 n.3.

317. Id

318. 17 U.S. (4 Wheat.) 316, 427 (1819).

319. See, e.g, Cipollone v. Liggett Group, Inc., 505 U.S. 504, 517 (1992).

320. See, eg. Fid. Fed. Sav. & Loan Ass'n v. de laCuesta, 458 U.S. 141, 153 (1982).

321. See. e.g., Lorillard Tobacco Co. v. Reilly, 533 U.S. 525 (2001); Geier v. Am. Honda
Motor Co., 529 U.S. 861, 869-74 (2000).

322. 753N.E.2dat637.

323. 529 U.S. 861 (2000). "Before Geier;' the Ebling court wrote, "if a federal law had an
express preemption clause, the reach of the preemption was limited to the domain expressly
preempted." 753 N.E.2d at 637 (citing Medtronic, Inc. v. Lohr, 518 U.S. 470, 485 (1996)). After
Geier, the Ebling court recognized that "even though a state law is not within the domain expressly
preempted, the state law may yet be preempted if it frustrates the purpose of the federal law or
makes compliance with both impossible." Id. The Ebling court's recognition of implied conflict
preemption and its quality analysis of how it is different from the other two types of federal
preemption are not insignificant because courts often confuse the principles and the underlying

2002] PRODUCT LIABILITY 1 47 1

After identifying the three types of federal preemption generally, the Ebling
court turned its attention to FIFRA, discussing some of the structure and purpose
of FIFRA as well as some of the pre-Geier U.S. Supreme Court decisions that
addressed FIFRA preemption.^^"* In an attempt to ensure uniformity, Congress
included within FIFRA an express preemption provision that prevents a state
from "impos[ing] or continu[ing] in effect any requirements for labeling or
packaging in addition to or different from those required under [FIFRA]. "^^^
Indeed, the Ebling court noted "agreement among a majority of jurisdictions"
that the phrase "any requirements" in FIFRA's express preemption provision "is
sufficiently expansive to include both positive enactments of state law-making
bodies and common law duties enforced in actions for damages."^^^ Accordingly,
the Ebling court pointed out that "[t]he law is fairly settled that when a pesticide
manufacturer 'places EPA-approved warnings on the label and packaging of its
products, its duty to warn is satisfied, and the adequate warning issue ends.'"^^^
That conclusion compelled an affirmance of the court of appeals' decision with
respect to Dow and Louisville Chemical because claims against those two
entities were expressly preempted.

The remainder of the court's decision addresses why the law mandates a
different result with respect to Affordable, the pesticide applicator. First, with
respect to express preemption, the court pointed out that there is no "affirmative
FIFRA labeling requirement for applicators "^^^ As such, according to the
Ebling court, "the alleged state tort law duty imposed upon applicators to convey
the information in the EPA-approved warnings to persons placed at risk does not
constitute a requirement additional to or different from those imposed by
FIFRA.'"''

Second, with respect to field preemption, the Ebling court concluded that
FIFRA does not preclude the state-law imposition of a duty to warn on

bases therefor. In this area, of law, practitioners should be aware of Buckman Co. v. Plaintiffs '
Legal Committee, 531 U.S. 341 (2001) (Food, Drug & Cosmetic Act and Medical Device
Amendments) (holding that state law fraud on the FDA claims were preempted); see also Nathan
Kimmel, Inc. v. DowElanco, 275 F.3d 1 199 (9th Cir. 2002) (FIFRA) (holding that state law fraud
on the EPA claims were preempted); Raymond M. Williams & Anita Jain, Preemption of State
"Fraud-on-the-FDA " Claims, FOR Def., June 2001 , at 23.

324. See Wis. Pub. Intervenor v. Mortier, 501 U.S. 597 (1991).

325. Ebling, 753 N.E.2d at 638 (quoting 7 U.S.C. § 136v(b) (2000)).

326. Id. A lengthy footnote contains an impressive string citation to the state and federal
courts that have found "any requirements" to include common law actions. See id. at 638 n.4.

327. Id at 639 (quoting Papas v. Upjohn Co., 985 F.2d 516, 519 (1 1th Cir. 1993)).

328. Id. (emphasis in original).

329. Id. Although the Ebling court acknowledged that the Hottinger court as well as courts
in other jurisdictions have concluded that FIFRA expressly preempts duty to warn claims against
applicators, their findings were not persuasive to the claims against Affordable because they failed
to "consider the distinctions between pesticide manufacturers and applicators." Id. The opinion
does not provide further explanation about the specifics of those distinctions.

1472 INDIANA LAW REVIEW [Vol. 35:1427

applicators."^ In doing so, the court relied on the U.S. Supreme Court's decision
in Wisconsin Public Intervenor v. Mortier^^^ which "declined to extend FIFRA
preemption to preclude local regulations requiring a pesticide applicator to give
notice of pesticide use and of label information prescribing a safe reentry time
and imposing fines in the event of violations.""^ From Mortier, the Ebling court
discerned that, "like a state or local regulatory scheme that requires permits and
notice to the non-user consumer/bystander and imposes penalties, the imposition
of a duty to warn on applicators is not preempted by FIFRA.""^

The court also used Mortier as the basis for its decision that implied conflict
preemption does not preclude plaintiffs' claims. In the Ebling court's view,
"Affordable 's alleged failure to communicate label information to persons placed
at risk" does not frustrate the purposes of FIFRA nor does it render "compliance
with both state and federal law impossible."""* According to the court.

The plaintiffs' claim that Affordable should have communicated the
label information is entirely consistent with the objectives of FIFRA.
The use of state tort law to further the dissemination of label information
to persons at risk clearly facilitates rather than frustrates the objectives
of FIFRA and does not burden Affordable's compliance with FIFRA."^

A published federal trial court order by Judge Barker is also an important one
for Indiana practitioners in the preemption area. The order stems from the
Firestone/Ford Explorer "rollover" cases that are consolidated before Judge
Barker in Indianapolis. The reported preemption order is styled In re
Bridgestone/Firestone, Inc., ATX, ATX II, & Wilderness Tires Products Liability
Litigation. ^^^ The specific issue that the preemption order covers involves that
part of the plaintiffs' master complaint requesting the court to recall, buy back,
and/or replace the allegedly defective tires. The defendants moved to dismiss
pursuant to Federal Rule of Civil Procedure 12(b)(6), arguing that plaintiffs'
request for a recall is preempted by the Motor Vehicle Safety Act ("MVSA")."^
Judge Barker agreed that the recall requests were preempted and dismissed

330. Id. at 639-40.

331. 501 U.S. 597(1991).

332. £i7/mg, 753 N.E.2d at 640.

333. Id.

334. Id

335. Id

336. 153F. Supp.2d935(S.D. Ind.2001).

337. The MVSA is found at 49 U.S.C.A. §§ 30101-30170 (West 1997 & Supp. 2001). As
Judge Barker noted in a later footnote, the discussion of preemption "presupposes that there is a
state law providing for the claim at the heart of the lawsuit." 153 F. Supp. 2d at 940 n.6. On that
point. Judge Barker wrote that it was not clear that the plaintiffs had met that prerequisite. Id. Only
one case, Howard v. Ford Motor Co., No. 7683785-2 (Cal. Super. Ct. Oct. 1 1, 2000), has ever
granted a plaintiffs request for a recall of a motor vehicle safety defect, and "that case is not
persuasive in establishing that California law authorizes a nationwide recall." Id.

2002] PRODUCT LIABILITY 1473

them."* She then, sua sponte, certified the issue for interlocutory appeal."^

After first determining that a ruling on the issue was not premature,^'*^ Judge
Barker's overview of preemption recognized, just as did the Indiana Supreme
Court in Ebling, that there are at least three distinct types of federal preemption:
express preemption,^'*' implied field preemption,^'*^ and implied conflict
preemption.^*^ Because of what she determined to be a "significant history of
activity" in the area of vehicle safety recalls, Judge Barker concluded that no
presumption against preemption should be applied.^'^ She also aptly recognized
that neither express preemption nor field preemption was at issue.^"^^

338. Judge Barker's order disposed of the request for a recall of the tires in plaintiffs'
preliminary injunction filing. Id. at 938. The ruling also rendered moot plaintiffs' request for
preliminary injunctive relief against Ford to the extent that it sought "an immediate safety recall,
replacement, or refund" of all model year 1991-2001 Ford Explorers. Id
339.
[B]ecause this decision turns on a difficult and controlling question of law as to which
there is substantial ground for difference of opinion and because a final resolution of
this question may materially advance the ultimate completion of this litigation, the Court
sua sponte certifies its order for interlocutory appeal, pursuant to 28 U.S.C. § 1292(b).
153F.Supp.2dat938.

340. The plaintiffs argued that a dismissal on the basis of preemption was premature because
the court lacked **the benefits of full briefing and an evidentiary hearing on the preliminary
injunction motion.*' Id. at 939. Judge Barker disagreed, writing that "a resolution of the
preemption issue is entirely feasible and, indeed, appropriate at this stage. Whether federal law
preempts state law-based judicial authority to order a tire or motor vehicle recall is a legal issue,
not a factual one." Id. at 940 (citing Moran v. Rush Prudential HMO, Inc., 230 F.3d 959, 966 (7th
Cir. 2000), qlfd, 2002 WL 1337696 (U.S. June 20, 2002)).

34 1 . "^Congress occasionally preempts the operation of state law in the express language of a
statute. See, e.g., Cipollone v. Liggett Group, Inc., 505 U.S. 504, 508 (1 992) (noting that statutory
language 'no statement relating to smoking and health shall be required in the advertising of . . .
cigarettes' expressly prohibited states from mandating particular cautionary statements in cigarette
advertisements)." 153 F. Supp. 2d at 940.

342. "When federal law so thoroughly occupies a legislative field "as to make reasonable the
inference that Congress left no room for the States to supplement it," it is referred to as 'field
preemption.'" 153 F. Supp. 2d at 940 (quoting Cipollone, 505 U.S. at 516).

343. "A third form of preemption, 'conflict preemption,' occurs when requirements of state
law and federal law make it impossible for a party to comply with both laws or when state law
'prevent[s] or frustrate[s] the accomplishment of a federal objective.'" 153 F. Supp. 2d at 940
(quoting Geier v. Am. Honda Motor Co., 529 U.S. 861, 873-74 (2000)) (alterations by court).

344. 53 F. Supp. 2d at 942-43.

345. Express preemption was not an issue because no provision of the MVSA explicitly
supersedes state-law-based injunctive relief and because the MVSA's express preemption did not
apply. The MVSA's express preemption provision states that "'when a motor vehicle safety
standard is in effect . . . , a State . . . may prescribe or continue in effect a standard applicable to the
same aspect of performance of a motor vehicle or motor vehicle equipment only if the standard is
identical to the standard prescribed under this [Act].'" 1 53 F. Supp. 2d at 943 (quoting 49 U.S.C.

1474 INDIANA LAW REVIEW [Vol. 35:1427

Turning her attention to conflict preemption, Judge Barker noted that it exists
when "it is impossible for a private party to comply with both state and federal
law and where under the circumstances of a particular case, the challenged state
law stands as an obstacle to the accomplishment and execution of the full
purposes and objectives of Congress. "^"^ The defendants argued that a "parallel,
competing system of court-ordered and supervised recalls would undermine and
frustrate the [MVSA's] objectives of prospectively protecting the public interest
through a scheme of administratively enforced remedies."^'*^ On that issue, Judge
Barker found two U.S. Supreme Court cases instructive, International Paper Co.
V. Ouellette^^^ and Chicago & Northwestern Transportation Co. v. Kalo Brick &
Tile Co.^^'^ In both of those cases, the Supreme Court considered a number of
factors establishing the comprehensive nature of the federal administrative
scheme at issue. In International Paper , an important consideration was the fact
that the Clean Water Act mandated detailed procedures for obtaining a permit to
emit possible pollution.^^° The MVSA likewise sets forth a "comprehensive
scheme for prospective relief from dangerous features in vehicles," which
incorporates a detailed notification procedure when the Secretary of
Transportation determines that a vehicle model or its equipment "contains a
defect or does not comply with other safety standards."^^' According to Judge
Barker, "The detail contained in the [MVSA] suggests a clear congressional
intent to limit encroachment on the agency's work."^^^

Citing Kalo Brick, Judge Barker recognized that another statutory feature
indicating congressional intent to preempt state- law-based intrusions into an
agency's work is the grating of discretion to the agency in its decision-making.^^^
On that issue. Judge Barker wrote that the MVSA "affords the Secretary [of
Transportation] much discretion to determine the need for notification or remedy

§ 30103(b)(1) (1994 & Supp. V 1999)). "Though the Department of Transportation has
promulgated a number of Federal Motor Vehicle Safety Standards (FMVSS), there is no standard
that prescribes performance requirements for tires or sets a rollover standard for vehicles." Id.

On the field preemption issue. Judge Barker wrote that it was "clear" that "Congress in the
[MVSA] plainly did not intend to occupy the field of motor vehicle safety." Id. (quoting Harris v.
Great Dane Trailers, Inc., 234 F.3d 398, 400 (8th Cir. 2000)). It was less clear whether Congress
ever intended to occupy the field in connection with the issues before the court. "Whether Congress
intended to occupy the field with regard to recalls (as opposed to motor vehicle safety standards
generally) remains an open question — one we need not address today because the parties focus their
arguments on conflict preemption, which the Court finds dispositive." Id.

346. 1 53 F. Supp. 2d at 943-44 (quoting Crosby v. Nat'l Foreign Trade Council, 530 U.S. 363,
372-73 (2000)).

347. Id at 944 (citation omitted).

348. 479 U.S. 481(1987).

349. 450 U.S. 311,326(1981).

350. 479 U.S. at 492.

351. 1 53 F. Supp. 2d at 944-45.

352. Mat 945.

353. Id

2002] PRODUCT LIABILITY 1475

of a defect or failure to comply with safety regulations."^^"* The National
Highway Traffic Safety Administration's "broad discretion," coupled with "the
specificity of the sections of the [MVSA] dealing with notification and remedies"
caused Judge Barker to conclude that "Congress intended to establish
comprehensive administrative regulation of recalls to promote motor vehicle
safety."^^^ As such. Judge Barker determined that "the comprehensiveness of the
[MVSA] with regard to recalls demonstrates convincingly that any state law
providing for a motor vehicle safety recall would frustrate the purposes of the
[MVSA]."'^'

Finally, although it is not reported in the federal reporter system and of very
limited precedential value, practitioners may fmd interesting and helpful the
preemption analysis Judge Hamilton conducted in the case captioned In re Mow
Accident Litigation. ^^^ That case involved the accidental death of Lawrence
Inlow, the former general counsel for Conseco, Inc. and related entities. Inlow
was killed when he was hit in the head by a helicopter rotor blade after he
disembarked from the company's helicopter.^^^ As a result, representatives of
Inlow's estate sued "three distinct sets of defendants. "^^^ One defendant was
CIHC, Inc., a subsidiary of Conseco, Inc. alleged to have negligently operated the
helicopter in question. Inlow's representatives also sued CIHC, Inc., "in its role
as sublessor of the helicopter to Conseco, Inc.," for alleged negligence in failing
to warn of a dangerously defective product.^^^

The preemption issue was just one of several Judge Hamilton addressed in
his order, CIHC argued that the Federal Aviation Act shields it from liability in
its role as the lessor of the helicopter because the "limitation of liability" section
of the FAA provides that "an aircraft lessor can be liable for personal injuries
caused by the aircraft only if the lessor is in actual possession or control of the

354. Id. In more fully explaining the level of federal involvement. Judge Barker wrote:
As an example, the Secretary has the authority to decide that notification by first class
mail alone is insufficient and order that "public notices shall be given in the way
required by the Secretary" after the Secretary has consulted with the manufacturer. The
Secretary also has authority to disapprove the date set by the manufacturer as the earliest
date that parts and facilities reasonably can be expected to be available to remedy the
defect or noncompliance. As long as the Secretary permits public input through
established procedures, the Secretary can even "decide [that] a defect or noncompliance
is inconsequential to motor vehicle safety," and exempt the manufacturer from
providing notification or a remedy.

Id. (citations omitted) (alteration by court).

355. Id

356. Id

357. No. IP 99-0830-C H/G, 2001 U.S. Dist. LEXIS 2747, Prod. Liab. Rep. (CCH) ^ 1 6,044
(S.D. Ind. 2001).

358. /^. at*2-*3.

359. M at*3.

360. Id

1476 INDIANA LAW REVIEW [Vol. 35:1427

aircraft."^^' After a close analysis of the applicable law and facts, including a
detailed review of the controlling lease agreement, Judge Hamilton determined
that no genuine issue of material fact existed that could support a conclusion that
CIHC "controlled" the helicopter at the time of the accident.^^^

Conclusion

Indiana courts and practitioners continue to define, re-define, develop, and
refine Indiana product liability law. The survey period has once again proved
that product liability practice in Indiana is as rich in its adversarial tradition as
it is proud of its practitioners and adjudicators. As Mr. Shakespeare so well put
it many years ago, our charge remains simple: "And do as adversaries do in
law — Strive mightily, but eat and drink as friends.*'^^^

361. Id, at *43. The relevant provision of the Federal Aviation Act is 49 U.S.C. § 441 12
(1994).

362. Seeid.?X*5A'*^%.

363. William Shakespeare, The Taming of the Shrew, act I, sc. 2.

Survey of the Law of Professional Responsibility

Charles M. Kidd*

I. Ex Parte Communication with Judicial Officers

The practice of communicating with judges and other judicial officers in the
absence of the opposing party or their representative has long been forbidden in
the practice. The rationale should be obvious. Such communication abrogates
any semblance of fairness in the adjudicative process. In Indiana, the practice is
prohibited by Indiana Professional Conduct Rule 3.5(b).' The whole rule
provides:

A lawyer shall not:

(a) seek to influence a judge, juror, prospective juror or other official by
means prohibited by law;

(b) communicate ex parte with such a person except as permitted by law;
or

When read in its entirety, this rule is intended to prevent lawyers from
committing misconduct in the course of litigation. Viewed from another
perspective, the rule's intent is to force lawyers to assist judges in maintaining
an orderly administration of their courtrooms and the cases pending therein. The
rule's associated comment gives slight guidance on the finer points of the law.

Many forms of improper influence upon a tribunal are proscribed by
criminal law. Others are specified in the ABA Model Code of Judicial
Conduct, with which an advocate should be familiar. A lawyer is
required to avoid contributing to a violation of such provisions.

The advocate's function is to present evidence and argument so that
the cause may be decided according to law. Refraining from abusive or
obstreperous conduct is a corollary of the advocate's right to speak on
behalf of litigants. A lawyer may stand firm against abuse by a judge but
should avoid reciprocation; the judge's default is not justification for
similar dereliction by an advocate. An advocate can present the cause,
protect the record for subsequent review and preserve professional
integrity by patient firmness no less effectively than by belligerence or
theatrics.^

* Staff Attorney, Indiana Supreme Court Disciplinary Commission. J.D., 1987, Indiana
University School of Law— Indianapolis. The opinions expressed herein are solely those of the
author and do not represent a statement of law or policy by the Indiana Supreme Court, its staff or
attendant organizations. The author thanks law clerks Amy S. Ford and Katherine McCanna for
their research assistance in the creation of this work.

1 . IND. Professional Conduct Rule 3.5(b).

2. Id.

3. Id.

1478 INDIANA LAW REVIEW [Vol. 35:1477

A review of the comment highlights two key concepts within the rule. First,
the rule concerns itself with the advocate's exertion of improper influence on a
tribunal. Second (and more dominant) is the drafters' concern with lawyers'
disruption of courtroom proceedings through the use of "belligerence or
theatrics.'"* Looking at these concerns in reverse order as they appear in the rule,
it should be readily apparentthat intentionally disrupting a tribunal is, under most
definitions, behavior that should be discouraged and prevented if possible. Take,
for example, the Indiana case of In re Ortiz.^ In Ortiz, the respondent lawyer had
to be physically restrained by court personnel because of his antics.^ The
lawyer's behavior began as the result of what he perceived to be an incorrect
evidentiary ruling by a trial judge in a criminal case.^ In an attempt to derail the
case, the lawyer also attempted to get the client to fire him and thereby prevent
further proceedings in the case until a new lawyer could be appointed. Although
the criminal defendant attempted to terminate the lawyer's services, the judge
refused to allow the switch late in the proceedings.^ The lawyer was jailed to
assure his appearance for the remainder of the case.^ Ortiz seems to be exactly
the case contemplated by the drafters of Indiana Professional Conduct Rule
3.5(c). The situation is one where the lawyer's histrionics are calculated to
override the judge's control over the proceedings in his or her own courtroom.
Obviously, there are any number of reasons why lawyers (and litigants too, for
that matter) should be prevented from wresting control of the courtroom from the
presiding judge. One of the interesting analytical features of this rule is that it
exists in addition to the trial court's inherent authority to punish those before it
for contempt. As the rule points out, conduct intended to disrupt a tribunal can
subject the offending lawyer to disciplinary action J° In other words, the lawyer
can face serious career consequences in addition to the opprobrium from the trial
court as punishment immediately imposed as its remedy for contempt." This
prohibition exists as sort of super-sanctioned conduct that must be avoided by the
bar.'2

4. Id.

5. 604 N.E.2d 602 (Ind. 1992).

6. Mat 603.

7. Id.

8. Mat 604.

9. Id

10. Prof. COND. R. 3.5(c).

1 1 . This is not a terribly uncommon occurrence. In In re Gemmer, 679 N.E.2d 1313 (Ind.
1 997), the respondent lawyer converted several thousand dollars from a fraternal organization in
which he was treasurer. His law license was suspended for one year after his criminal conviction
for conversion. Note also that the lawyer's misconduct was not the byproduct of an attorney-client
relationship, but in his role as an officer of the fraternal organization.

12. Obviously, not every contempt citation results in disciplinary action against a lawyer.
The conduct in Ortiz involved a physical altercation in the courtroom. Certainly serious misconduct
on that order warrants more than the imposition of only a citation, which the lawyer can purge in

2002] PROFESSIONAL RESPONSIBILITY 1479

The first aspect of the rule proscribes conduct that undermines the
fundamental fairness of the process generally.'^ Subsection (a) prohibits
improper influence by communicating with jurors, prospective jurors, and
judicial officers, presumably because they will be the finders of ultimate fact in
adjudicating the underlying dispute. Subsection (b) prohibits the specific
practice of communicating ex parte with the ultimate fact finder. This
prohibition is based on the potential exertion of undue or improper influence in
the absence of the opposing party or their representative. Although this practice
has long been forbidden under Indiana law,''* it remains a problem for insuring
the fair adjudication of cases in Indiana courts. During the survey period, the
Indiana Supreme Court and its Commission on Judicial Qualifications have had
occasion to reflect on the problems created by lawyers when they give evidence
to Indiana trial courts without the benefit of the opposing view by opposing
counsel. Specifically, the reader would be well advised to examine the case of
In re Warrum}^ Warrum presents a recurring and troubling situation in Indiana
courts. In this case, the respondent lawyer represented a client in a family law
matter. Specifically, the client and her ex-husband were divorced in Utah.'^ The
Utah court also retained jurisdiction over the issues of child support and
visitation. Warrum 's client sought to increase the child support awarded in the
Utah order. '^ She had a petition to modify on file in Utah contesting the Utah
order, but retained the respondent lawyer here in Indiana where she and the child
were living and directed him to initiate proceedings to increase her child support
payments even though the dissolution case had no connection to an Indiana
court.'* Needless to say, the respondent lawyer not only undertook the
representation, but was able to obtain an order for the relief his client sought.
This occurred even though she had initiated similar proceedings before the Utah
court. '^ The lawyer's petition to the Indiana court was utterly inadequate to even
remotely inform the court of the true circumstances of the requested relief and,
in fact, the entire petition is set out in the supreme court's disciplinary action.^°
As a result of the lawyer's efforts, the client did obtain an order increasing the
child support. The ex-husband's tax refunds were intercepted but the resultant
controversy did not bode well for the judge, the system, the client or, in the end,
the lawyer.^' Before the dust settled, the governors' offices of both states were

short order.

13. Prof. COND. R. 3.5.

14. Disciplinary Rule 7-1 10(B) of Indiana's former Code of Professional Responsibility
(1971). In California, meanwhile, the prohibition on ex parte communication was formally made
law in 1928 as former Rule 16 of California Rules of Professional Conduct.

15. 724N.E.2d 1 097 (Ind. 2000).

16. Mat 1098.

17. Id.

18. Id.

19. Id

20. Mat 1098 n.l.

21. Id at 1099.

1480 INDIANA LAW REVIEW [Vol. 35:1477

involved and a mediation session was held in Chicago in an attempt to resolve
the dispute between the states.^^ In sum, the lawyer's efforts on behalf of one
client resulted in a major disruption of an already existing system to provide for
the orderly adjudication of such post-dissolution cases. Had the lawyer given the
Indiana judge adequate facts in order to make an informed decision, it is certainly
possible that the case could have been transferred to Indiana and the client could
have received the relief she had been seeking.^^ In the alternative, the Utah court
would have retained jurisdiction and the petition the ex- wife had filed in the
court would have been adjudicated in due course. Instead, the lawyer's short
cutting of the process resulted in professional disciplinary action against him.^'*
Against this backdrop, it is easier to see why the practice of communicating ex
parte with officials in the adjudicatory process is forbidden unless adequate
notice and an opportunity to be heard is also provided to the opposing parties.^^

The prohibition against ex parte communication is fairly broad in scope as
well. In fact, it might fairly be said to have both a horizontal and vertical
component. Warrum, it could be argued, represents the horizontal component of
the analysis in that it makes clear that the prohibition against ex parte
communication applies to all communications in the traditional litigation
environment. Lawyers owe all the judges in Indiana courts a duty in addition to
the duties that they owe their clients.^^ The duty encompasses good faith, fair
dealing and honesty because the judges must rely on the trustworthiness of the
representations of the lawyers appearing before them.^^

The vertical component of this analysis is represented by the case of /« re
LaCava?^ In LaCava, the respondent lawyer communicated with one of the
members of the medical review panel evaluating his client's medical malpractice
claim. ^^ The communication caused the panel member to change its opinion in
a manner favorable to his client.^" For purposes of this work, however, it is
significant to note that in imposing disciplinary action on the lawyer in LaCava,
the supreme court recognized that the medical review panel, clearly not
traditionally thought of as a tribunal, is certainly regarded as one for purposes of
analyzing the lawyer's conduct under Indiana Professional Conduct Rule 3.5.^'
The "verticality" of the rule implies that the lawyer's obligation not to
communicate ex parte with a judicial officer applies more generally to any

22. Id

23. Mat 1100.

24. Id.

25. See, for example, Rule 65 of the Indiana Rules of Trial Procedure governing the notice
requirements attendant to the issuance of temporary restraining orders without notice. IND. Trial
Rule 65(B).

26. See Smith v. Johnston, 71 1 N.E.2d 1259 (Ind. 1999).

27. Id

28. 615N.E.2d93(Ind. 1993).

29. Mat 94.

30. Id

31. Mat 95.

2002] PROFESSIONAL RESPONSIBILITY 1481

factfinder. Presumably, the rule also applies to adjudications pending before
administrative agencies with equal force to that shown in LaCava. The rule
would presumably apply with equal force to professional neutrals under the
alternative dispute resolution rules.^^ In other words, lawyers must not address
the facts of their causes with the factfinders in their cases without notice and an
opportunity to be heard by the opposing party or their representative.

There are circumstances in which lawyers need to obtain emergency relief,
without notice, in order to preserve their client's interests. For those
circumstances, the provisions of Indiana Trial Rule 65 exist to govern ex parte
proceedings. The Supreme Court's Commission on Judicial Qualifications, in
an effort to advise and assist Indiana judges on the dangers of ex parte
communication issued its opinion #1-01 . A copy of the full text of the opinion
follows this article as Appendix "A." The opinion primarily stresses to sitting
judges the need to stick strictly with the provisions of Indiana Trial Rule 65 in
dealing with requests for relief wherein one of the opposing parties is not before
the tribunal to present their side of the dispute in the quest for relief The
advisory opinion points out that the Commission has reviewed a number of
grievances in which one litigant has advanced their interests through the use of
improper ex parte communication." The problem had reached such a frequency
that they felt compelled to directly express their concern to judges that such
communications must stop, unless the judge carefully considers the process in
light of the provisions of Indiana Trial Rule 65.

II. Privilege AND Confidentiality

One of the key features of the attorney-client relationship is the level of trust
attendant in the lawyer's ability to keep the client's secrets in confidence.
Through the existence of such a "confidential" relationship, the client feels
comfortable giving the lawyer sufficient information in order to best pursue the
client's interests. Violating the client's trust by revealing their secrets is, at least
on an emotional levels one of the most devastating blows to the confidence the
client has in the lawyer. Such was the case of /w re Harshey?^ In that case, the
respondent lawyer was hired on a contingency fee basis by the president of a
closely held corporation to represent its corporate interests in a suit against
another corporation." During the course of the litigation, the president's wife
filed for dissolution of the marriage, but the respondent did not represent the
president in that matter.^^ The dissolution decree awarded the interest in the

32. A list of "neutrals" is included in Rule 7 of Indiana*s Rules for Alternative Dispute
Resolution. IND. Alternative Dispute Resolution Rule 7.

33. In Appendix "A," the "Analysis" section notes that the Commission reviewed several
such grievances and found that insufficient grounds were expressed in those grievances to warrant
a change of custody on the facts provided by the lawyers.

34. 740 N.E.2d 851 (Ind. 2001).

35. /^ at 852.

36. Id.

1482 INDIANA LAW REVIEW [Vol. 35:1477

corporation to the president, but awarded the wife forty- five percent of the net
proceeds of the still-pending corporate litigation.^^ Shortly thereafter, the
defendant in the corporate litigation offered to settle by paying $125,000 and the
respondent advised the corporation, through its president, to accept the offer.
The president refused the offer of settlement.^* Disagreeing with the prudence
of the president's rejection of the offer, the respondent did not notify the
defendant-wife that the settlement offer was rejected, but instead, just prior to the
expiration of the offer, he contacted the divorce judge and informed him of the
settlement offer in the corporate litigation.^^ The divorce judge set an emergency
hearing and notified the attorney for the wife. At the hearing, wife's counsel
subpoenaed the respondent to testify to the terms of the still-not-rejected offer."*^
The president directed the respondent to not appear and testify, but the
respondent insisted that he was required to do so by the subpoena and asserted
to the president that he now represented the court-appointed commissioners in
the divorce case and that only they or the judge could fire him."*^ At a meeting
in chambers with the divorce judge and wife's counsel that took place the day
before the emergency hearing, the respondent asked the judge to authorize him
to accept the still-pending offer subject to a formal entry being made at the
emergency hearing the next day. The divorce judge gave the respondent that
authority."*^ Meanwhile, the president attempted unsuccessfully to get the
emergency hearing continued, and it was held as scheduled without the
president's presence. At the emergency hearing, the respondent testified to the
terms of the settlement offer and opined that it was a reasonable offer ."^^ At that
hearing, the judge ordered the divorce commissioners to accept the settlement
offer. The president also objected in the corporate litigation to the settlement of
the matter by the divorce commissioners, but the judge in the corporate litigation
approved the settlement over the president's objection.*^

These facts supported conclusions that the respondent violated two rules of
professional conduct. First, the respondent violated Indiana Professional
Conduct Rule 1.2(a) when he disregarded his own client's instructions
concerning the objectives of the corporate litigation and caused the case to be
settled over his client's objections."*^ The respondent also violated Indiana
Professional Conduct Rule 1.6 and the confidentiality that cloaked the
information he obtained during the course of his representation in the corporate
litigation when he made disclosures in the divorce case, without his client's
consent and over his client's objections, concerning the pending settlement

37. Id.

38. Id.

39. Id.

40. Id

41. Id

42. /flf. at853.

43. Id

44. Id

45. Id

2002] PROFESSIONAL RESPONSIBILITY 1483

offer/'

The supreme court's discussion (including a dissent over the appropriateness
of the sanction) is quite interesting, in that it addresses the fundamental role and
responsibility of the lawyer as fiduciary. By ignoring "his client's clear wishes"
the respondent "ceased serving as an advocate for his client and instead became
an adversary, one who disclosed confidential information about the
representation in order to achieve his goal of obtaining a quick recovery and its
attendant legal fee.'"*^ A majority of the court reluctantly accepted the proposed
consent sanction of a public reprimand.'*^ A two-justice dissent as to sanction
provided:

Mr. Harshey's stunning treatment of his client is remarkably simple
to describe.

After the client decided to turn down the defendant corporation's
offer of settlement, Harshey decided not to act on the client's decision
and set about finding some way to make the client accept it anyway.

He started off with an ex parte communication to the judge who had
presided in the client's divorce, a venue in which Harshey had no status
at all. In the course of this communication, he violated his duty to
preserve the confidences of his client by revealing the status of the
settlement negotiations.

When the client got wind of what Harshey was up to and asked him
to stop, Harshey lied to the client, claiming he was now representing the
lawyers who had litigated the divorce and could be fired only by them.

Fearful that his client might find a way to stop him, Harshey decided
to meet with the dissolution judge and the dissolution lawyers a day in
advance of the scheduled court hearing — to ask for permission to inform
the defendant corporation that its settlement would be accepted. In
effect, he assured that even if the client showed up at the hearing to stand
on his rights, it would be too late. It was too late.

The client who wanted to go to trial — and whose trial was just a few
weeks off — never got his day in court. He was thwarted by the active
and willful effort of his lawyer, who refused the client's proper
instructions, breached his confidences, lied to him, and exparte'dXhQ
judge.

Our disciplinary system should not treat such behavior as a matter
for mere reprimand.'^

Finally, this case subtly makes another point that is worth highlighting. The
court noted as a mitigating factor that the president had himself revealed the
terms of the proposed settlement in the corporate litigation to third parties before

46. Id.

47. Id. at 853, 854.

48. Id at 854.

49. Id at 854-55.

1484 INDIANA LAW REVIEW [Vol. 35:1477

the respondent revealed the terms to the divorce judge.^° Note, however, that this
was merely a mitigating factor and not a defense to the charge that the respondent
violated Indiana Professional Conduct Rule 1.6(a) by revealing client
confidences without client consent. This illustrated the fact that revelation of
information by the client to a third party may defeat the privileged nature of that
information, but it does not give free reign to the lawyer to breach his obligation
to hold all relevant information related to the representation confidential, even
when the client has chosen to reveal it to others.

III. RULE AMENDMENTS OF Note

The mechanics of actually running the bar of the Indiana Supreme Court are
governed under Indiana's Rules for the Admission to the Bar and the Discipline
of Attorneys. These rules govern, for example, admission of lawyers to the bar
pro hac vice^^ and the procedures by which Indiana's bar examination is given.^^
Additions and amendments to the admission and discipline rules can often have
the effect of making profound changes in the day-to-day practice of law in
Indiana. During the survey period, the supreme court made a number of
amendments to the rule governing the procedures by which disciplinary action
is prosecuted against attorneys." Most of these changes can be fairly described
as cleaning up grammatical and other comparatively cosmetic problems in the
rules which are, by now, more than thirty years old.^"*

One important change this year is that for the first time, the supreme court
is now imposing a fee on lawyers who place their licenses on "inactive" status.^^
Since the practice of pilacing licenses on "inactive" status first started, lawyers
have been able to take advantage of this provision of the rule without charge.
This practice is attractive to lawyers who were, by way of example, engaged in
corporate or government work not requiring them to actually practice law. It is
also attractive to lawyers engaged in careers outside Indiana that do not require
them to actually practice law and for those lawyers both inside and outside
Indiana who were not in active practice. Going "inactive" requires the lawyer to
represent to the supreme court that the lawyer will not engage in the practice of
law during the time their license is on "inactive" status. Lawyers who wish to
avail themselves of the privilege of going "inactive" must be in good standing at
the time they make the election and pay one-half of the amount charged to
lawyers who maintain their licenses in active status. "Inactive" lawyers need not
obtain the requisite continuing legal education during the time their licenses are
on "inactive" status. The holder of an "inactive" license must not, however, do

50. Id at 854.

5 1 . IND. Admission and Discipline Rule 3 .

52. Admis. Disc. R. 17.

53. Admis. Disc. R. 23.

54. Id. The rule was originally adopted in 1967 and has been amended in both substantive
and ministerial aspects on an almost annual basis ever since.

55. Admis. Disc. R. 23, §21(aHi).

2002] PROFESSIONAL RESPONSIBILITY 1485

any act that could be construed as being in the active practice of law. The
supreme court takes this feature of the rule quite seriously and, in the past,
lawyers have faced disciplinary action for continuing to deliver legal services to
clients after declaring that their licenses were on inactive status.^^ Those lawyers
who have placed their licenses on "inactive" status will receive fee notices from
the Clerk of the Supreme Court for one-half of the amount paid by lawyers with
current licenses.

Another important rule change is to the substantive law governing lawyers,
the Indiana Professional Conduct Rules. The supreme court has added a
provision to Indiana Professional Conduct Rule 8.4. The new subsection,
subsection (g), prohibits a lawyer, while acting in his professional capacity from
engaging in conduct disparaging any member of one of the enumerated groups
in the rule. The full text of the rule provides:

Rule 8.4 Misconduct

It is professional misconduct for a lawyer to:

(a) violate or attempt to violate the Rules of Professional Conduct,
knowingly assist or induce another to do so, or do so through the acts of
another;

(b) commit a crim inal act that reflects adversely on the lawyer' s honesty,
trustworthiness or fitness as a lawyer in other respects;

(d) engage in conduct that is prejudicial to the administration of justice;

(e) state or imply an ability to influence improperly a government
agency or official;

(f) knowingly assist a judge or judicial officer in conduct that is a
violation of applicable rules of judicial conduct or other law; or

(g) engage in conduct, in a professional capacity, manifesting, by words
or conduct, bias or prejudice based upon race, gender, religion, national
origin, disability, sexual orientation, age, socioeconomic status, or
similar factors. Legitimate advocacy respecting the foregoing factors
does not violate this subsection.^^

The new section of the rule is the first major addition to the form of this rule in
many years. The preexisting subsections, (a) through (f), have remained
essentially unchanged since they were originally included in the former Code of
Professional Responsibility as Disciplinary Rule 1-102.^^ New provisions with
this kind of regulatory language are showing up, in one form or another, in the
rules governing lawyer conduct all across the nation. For example, the 2001
amendment to Iowa's Disciplinary Rule 1-102 from its Code of Professional
Responsibility provides: "(A) A lawyer shall not: ... (7) Engage in sexual

56. In re Baars, 542 N.E.2d 558 (Ind. 1989). The lawyer continued to practice law despite
having elected to place his license on "inactive" status.

57. Ind. Prof. CohfD. R. 8.4.

58. The rule became effective in 1 972.

1486 INDIANA LAW REVIEW [Vol. 35:1477

harassment or other unlawful discrimination on the basis of sex, race, national
origin, or ethnicity in the practice of law or knowingly permit staff and agents
subject to the lawyer's direction and control to do so."^^ The law in New York
was similarly amended in 2001 to include language of this type. Disciplinary
Rule 1-102 of the New York Code of Professional Responsibility provides:

A. A lawyer or law firm shall not:

(6) Unlawfully discriminate in the practice of law, including in hiring,
promoting or otherwise determining conditions of employment, on the
basis of age, race, creed, color, national origin, sex, disability, marital
status, or sexual orientation. Where there is a tribunal with jurisdiction
to hear a complaint, if timely brought, other than a Departmental
Disciplinary Committee, a complaint based on unlawful discrimination
shall be brought before such tribunal in the first instance. A certified
copy of a determination by such a tribunal, which has become final and
enforceable, and as to which the right to judicial or appellate review has
been exhausted, finding that the lawyer has engaged in an unlawful
discriminatory practice shall constitute prima facie evidence of
professional misconduct in a disciplinary proceeding.^°

Similar such provisions were created in California, the District of Columbia,
Missouri, and Vermont.^' All the provisions prohibit discrimination based on
race, sex, age and sexual orientation. Although they vary slightly in the
prohibited conduct described and in procedural detail, all these provisions are
quite similar. Despite the widespread adoption of these rules, none of the
jurisdictions referred to herein has a reported case putting a gloss on the rule.
The lack of reported decisions could be a byproduct of the relatively recent
creation of these provisions.

Is this development in the law simply an application of the notion of political
correctness? Perhaps there is an argument to be made in support of such a claim.
Examining the trends in lawyer discipline, however, these rules can be viewed
as the next logical step in the progression of a movement towards civility going
back more than a decade.^^ Since the adoption of 1 908 Canons of the American
Bar Association, lawyers have sworn an oath to avoid engaging in offensive
personality as members of the bar.^^ There are many cases using this provision
in the oath of attorneys to impose disciplinary sanctions on lawyers for engaging

59. Iowa Bar Rules of Professional Responsibility Disciplinary Rule 1 - 1 02.

60. N. Y. Code of Professional Responsibility Disciplinary Rule 1 - 1 02.

61. Cal. Rules of Professional Conduct 2-400(B); D.C. Rules of Professional
Conduct 9. 1 ; Mo. Rules of Professional Conduct 4-8.4(g); Vt. Rules of Professional
Conduct 9.1.

62. Standards for Profl Conduct Within the Seventh Federal Judicial Circuit, http://www.
ca7.uscourts.gov, contains the standards for professional conduct expected of members of the bars
of the federal courts within the Seventh Federal Circuit.

63. ABA Canons on Professional Ethics, Oath of Admission ( 1 908).

2002] PROFESSIONAL RESPONSIBILITY 1487

in misconduct.^ Several cases in recent years have sanctioned lawyers for
engaging in unwanted sexually explicit and suggestive language toward their
clients.^^ In addition, lawyers have been exhorted to engage in more civil
behavior in their day-to-day practices. Several years ago, the Seventh Circuit of
Appeals developed a series of guidelines on civility for members of the bar and
the judiciary in the Seventh Federal Judicial Circuit.^ Notions of civility,
however expressed, have tended to relate only to specified relationships within
the litigation process. Lawyers are instructed to treat other lawyers with civility
and respect.^^ Lawyers have long been admonished to treat judges and other
judicial officers with respect and that lawyers can achieve their clients' ends
through patient firmness as much or more effectively than through belligerence
or theatrics.^* Such attempts to regulate or impose civility, however, have tended
to limit their application and exclude the lawyer's relationships with opposing
parties and even witnesses.^^ In a way, the advent of Indiana Professional
Conduct Rule 8.4(g) imposes a blanket minimum standard of conduct on lawyers
in all their interactions with others while serving in their professional capacity.
Although defining notions of what constitutes the professional versus the
personal capacities of lawyers may present some interesting cases in the future,
the rule seems bent on mandating a particular standard of conduct for lawyers
moving through the workday world. In the final analysis, then, the creation and
adoption of Indiana Professional Conduct Rule 8.4(g) may someday become
quite an important part of the regulation of lawyer conduct by the Indiana
Supreme Court.

IV. The Judges and Lawyers Assistance Program

Beginning in 1997, the Indiana Supreme Court established the Judges and
Lawyers Assistance Program (JLAP) with the creation of the Judges and Lawyers
Assistance Committee.^^ With a broad scope, JLAP has the mission of assisting
members of the Indiana bar with a wide range of problems including the
traditional ills of alcoholism and chemical dependency. Moreover, the program

64. The oath of attorneys has been almost universally accepted among the states and has
served as the basis for disciplinary action for more than fifty years. In one early Wisconsin case,
the Wisconsin Supreme Court found that Judge Joseph R. McCarthy did not violate that state's oath
when he refused to resign his judgeship while running for the U.S. Senate. State v. McCarthy, 38
N.W.2d 679 (Wis. 1949).

65. See, e.g.. In re Coons, 751 N.E.2d 678 (Ind. 2001).

66. See supra note 62.

67. See, e.g., ABA Comm. on Profl Ethics and Grievances, Formal Op. 1 (1923)
(admonishing lawyers to speak guardedly when speaking about judges in part because judges are
peculiarly unable to defend themselves).

68. See supra note 3 and accompanying text.

69. There is no provision for treating parties and witnesses civilly contained in the Seventh
Circuit standards. See supra note 62.

70. Admis. Disc. R. 3 1 . Hereinafter the program will be referred to as JLAP.

1488 INDIANA LAW REVIEW [Vol. 35:1477

is aimed at helping lawyers with problems associated with physical or mental
disabilities, health problems, or age that impair their ability to practice the
profession/' During this survey period, significant changes were made to
JLAP's operating rules. For example, under section 9 of the prior rule, the
confidentiality of information provided to JLAP officials was required by rule,
"except as otherwise provided by these rules, or by order of (or as otherwise
authorized by) the Supreme Court of Indiana."^^ In the recently amended rule,
the autonomy of the JLAP program functions is restated in a somewhat more
formal fashion and a "distancing" of the lawyer assistance function from the
supreme court's disciplinary function is stated more clearly. ^^ Pertinent portions
of the augmented rule are attached to this article as Appendix "B."

Conclusion

Important developments in the law of professional responsibility occurred
this year on a variety of fronts. Enhanced enforcement and attention to the
dangers associated with ex parte communication were of significant concern to
the supreme court and its disciplinary authorities. Lawyers would also be well
advised to maintain inviolate their clients' confidences as the relevant case law
is described herein. As always, rule amendments governing the operation of
Indiana's bar are significant because they have both a powerful and subtle impact
on the long range course taken by the courts and lawyers in this state.

71. Id. §2.

72. Id. § 9.

73. Id. (amended 2002).

2002] PROFESSIONAL RESPONSIBILITY 1489

APPENDIX "A"

ADVISORY OPINION

Code of Judicial Conduct #1-01

Canon 3

Ex Parte Custody Orders

The Indiana Commission on Judicial Qualifications issues the following advisory
opinion concerning the Code of Judicial Conduct. The views of the Commission
are not necessarily those of a majority of the Indiana Supreme Court, the ultimate
arbiter of judicial disciplinary issues. Compliance with an opinion of the
Commission will be considered by it to be a good faith effort to comply with the
Code of Judicial Conduct. The Commission may withdraw any opinion.

ISSUE

The issue in this Advisory Opinion is the appropriate judicial response to an ex
parte child custody request in which a party seeks a temporary custody order
without prior notice or an opportunity for a hearing afforded any other party with
a legal interest. It focuses on the application of Trial Rule 65(B), governing
temporary restraining orders, and its pertinence in the contexts of legal
separations, dissolutions, post-dissolutions, guardianships, or adoptions, when
a party requests a custody order without notice or a hearing.' The Commission
concludes that a judge must follow T.R. 65(B) when petitioned for an ex parte
temporary custody order; otherwise, the judge violates Canon 3B(8) of the Code
of Judicial Conduct prohibiting improper ex parte contacts, as well as Canons 1
and 2 of the Code, which require judges to uphold the integrity and independence
of the judiciary, to respect and comply with the law, and to act at all times in a
manner which promotes the public's confidence in the integrity of the court.
Lawyers seeking this relief without adherence to the rules may violate Rule
3.5(b) of the Rules of Professional Conduct, which prohibits improper ex parte
communications by lawyers. See Matter of Anonymous, 729 E.2d 566 (Ind.
2000).

ANALYSIS

This opinion does not represent a change or evolution in the Commission's views
or in its interpretation of the relevant sections of the Code of Judicial Conduct.

1. This opinion does not directly apply to proceedings which may involve custody issues
but which properly are ex parte, such as protective order cases, or other matters which operate
pursuant to their own statutory provisions, such as juvenile detention or CHINS placement
proceedings. Generally, it does apply to any petition for a temporary restraining order under T.R.
65(B), whether or not custody issues are involved. See Matter of Jacobi, 715 N.E.2d 873 (Ind.
1999).

1490 INDIANA LAW REVIEW [Vol. 35:1477

Rather, the opinion is generated by a substantial number of ethics complaints
reviewed by the Commission in which judges have granted ex parte temporary
child custody petitions which may state insufficient grounds for extraordinary
relief or, in any case, where the judge does not adequately ensure the fairness of
the proceedings, which is accomplished by careful adherence to T.R. 65(B).^ Id.

2. Black's Law Dictionary describes a temporary restraining order as "an emergency remedy
of short duration which may issue only in exceptional circumstances and only until the trial court
can hear arguments or evidence, as the circumstances require ... A temporary restraining order may
be granted without written or oral notice to the adverse party or attorney only if ... it clearly
appears from specific facts shown by affidavit or by the verified complaint that immediate and
irreparable injury, loss, or damage will result to the applicant before the adverse party or his
attorney can be heard in opposition."

Trial Rule 65(B),(C), (D), and (E) provide as follows:

(B) Temporary restrainingorder-Notice-Hearing-Duration. A temporary restraining order
may be granted without written or oral notice to the adverse party or his attorney only if:

( 1 ) it clearly appears from specific facts shown by affidavit or by the verified complaint
that immediate and irreparable injury, loss, or damage will result to the applicant before
the adverse party or his attorney can be heard in opposition; and

(2) the applicant's attorney certifies to the court in writing the efforts, if any, which have
been made to give notice and the reasons supporting his claim that notice should not be
required.

Every temporary restraining order granted without notice shall be indorsed with the date and hour
of issuance; shall be filed forthwith in the clerk's office and entered of record; shall define the
injury and state why it is irreparable and why the order was granted without notice; and shall expire
by its terms within such time after entry, not to exceed ten [10] days, as the court fixes, unless
within the time so fixed the order, for good cause shown, is extended for a like period or unless the
whereabouts of the party against whom the order is granted is unknown and cannot be determined
by reasonable diligence or unless the party against whom the order is directed consents that it may
be extended for a longer period. The reasons for the extension shall be entered of record. In case
a temporary restraining order is granted without notice, the motion for a preliminary injunction shall
be set down for hearing at the earliest possible time and takes precedence of all matters except older
matters of the same character; and when the motion comes on for hearing the party who obtained
the temporary restraining order shall proceed with the application for a preliminary injunction and,
if he does not do so, the court shall dissolve the temporary restraining order. On two (2) days'
notice to the party who obtained the temporary restraining order without notice or on such shorter
notice to that party as the court may prescribe, the adverse party may appear and move its
dissolution or modification and in that event the court shall proceed to hear and determine such
motion as expeditiously as the ends of justice require.

2002] PROFESSIONAL RESPONSIBILITY 1 49 1

security by the applicant, in such sum as the court deems proper, for the payment of such costs and
damages as may be incurred or suffered by any party who is found to have been wrongfully
enjoined or restrained. No such security shall be required of a governmental organization, but such
governmental organization shall be responsible for costs and damages as may be incurred or
suffered by any party who is found to have been wrongfully enjoined or restrained.

The provisions of Rule 65.1 apply to a surety upon a bond or undertaking under this rule.

(D) Form and scope of injunction or restraining order. Every order granting temporary
injunction and every restraining order shall include or be accompanied by findings as required by
Rule 52; shall be specific in terms; shall describe in reasonable detail, and not by reference to the
complaint or other document, the act or acts sought to be restrained; and is binding only upon the
parties to the action, their officers, agents, servants, employees, and attorneys, and upon those
persons in active concert or participation with them who receive actual notice of the order by
personal service or otherwise.

(E) Temporary Restraining Orders - Domestic Relations Cases. Subject to the provision set
forth in this paragraph, in an action for dissolution of marriage, separation, or child support, the
court may issue a Temporary Restraining Order, without hearing or security, if ether party files a
verified petition alleging an injury would result to the moving party if no immediate order were
issued.

( 1 ) Joint Order. If the court finds that an order shall be entered under this paragraph,
the court may enjoin both parties from:

(a) transferring, encumbering, concealing, selling or otherwise disposing of
any joint property of the parties or asset of the marriage except in the usual
course of business or for the necessities of life, without the written consent of
the parties or the permission of the court; and/or

(b) removing any child of the parties then residing in the State of Indiana
from the State with the intent to deprive the court of jurisdiction over such
child without the prior written consent of all parties or the permission of the
court.

(2) Separate Order Required. In the event a party seeks to enjoin the non-moving party
from abusing, harassing, disturbing the peace, or committing a battery on the petitioning
party or any child or step-child of the parties, or exclude the non-moving party from the
family dwelling, the dwelling of the non-moving party, or any other place, and the court
determines that an order shall be issued, such order shall be addressed to one person.
A joint or mutual restraining or protective order shall not be issued. If both parties
allege injury, they shall do so by separate petitions. The trial court shall review each
petition separately and grant or deny each petition on its individual merits. In the event
the trial court finds cause to grant both petitions, it shall do so by separate orders.

(3) Effect of Order. An order entered under this paragraph is automatically effective

1492 INDIANA LAW REVIEW [Vol. 35: 1477

Trial Rule 65(B) protects against abuses by requiring the petitioner to state by
affidavit specific facts showing that immediate and irreparable injury, loss, or
damage will result before an adverse party may be heard in opposition, and by
requiring the petitioner to certify in writing any efforts made to give notice and
the reasons supporting the claim that notice should not be required. It calls for
security in a sum deemed appropriate by the court for the payment of costs and
damages which may be incurred by a party wrongfully enjoined or restrained.
It requires the judge to define the injury in the order, and to state why it is
irreparable and why the order was granted without notice. When a temporary
restraining order is granted without notice, the court must set it for a hearing at
the earliest possible time, giving precedence to it above all other matters.

The cases the Commission has scrutinized indicate a lack of mindfulness that ex
parte requests and resultant orders affecting custodial rights are extraordinary,
and that the relief depends upon the existence of exigent circumstances —
irreparable injury, loss, or damage without immediate relief. A request for
emergency relief should not supplant what in reality constitutes a standard
invocation of the court's powers through the trial rules, which rules generally are
premised on the notion that a fair proceeding involves the commencement of a
proceeding, reasonable notice, and a chance to be heard on the merits by any
party with a legal interest before judicial action occurs. Judges and lawyers
should proceed with meticulous attention to T.R. 65(B) whenever emergency
custody is requested, whether upon the commencement of an adoption
proceeding, a guardianship of a child, a legal separation or divorce, or a post-
dissolution modification. Inattention to the extraordinary nature of the relief, and
to the procedural demands the rules impose, undermines judicial fairness and
integrity, and the public's trust.

The circumstances leading to the ethics inquiries reviewed by the Commission
sometimes involve a noncustodial parent who, instead of returning a child after
a visitation period, determines he or she wants custody — a modification — and
files for, and obtains, immediate custody. The custodial parent, perhaps out-of-
state, discovers only after the fact that an Indiana court has suspended the
parent's custodial rights to their children. The parent then is compelled to make
arrangements to obtain counsel, travel to Indiana for an immediate hearing, if the

upon service. Such orders are enforceable by all remedies provided by law including
contempt. Once issued, such orders remain in effect until the entry of a decree or final
order or until modified or dissolved by the court.
(F) Statutory Provision Unaffected by this Rule. Nothing in this rule shall affect provisions of
statutes extending or limiting the power of a court to grant injunctions. By way of example and not
by way of limitation, this rule shall not affect the provisions of 1967 Indiana Acts, ch. 357, § § 1-8,
IC 34-4-17-1 to 34-4-17-8, relating to public lawsuits, and Indiana Acts, ch. 7, § § 1-15, IC 34-4-
18-1 to 34-4-18-13 (repealed), providing for removal of injunctive and mandamus actions to the
Court of Appeals of Indiana, and Indiana Acts, ch. 12 (1933), IC 22-6-1-1 to 22-6-1-12.

2002] PROFESSIONAL RESPONSIBILITY 1493

judge has expedited the case as required, and, if not, or if a continuance is needed
for preparation, the custodial rights are suspended even longer. Of course, many
are without the resources to defend the action at all.

Sometimes all the parties are local residents, and, perhaps, both have attorneys.
The proceeding may be a new dissolution, or a guardianship or adoption. What
is wrong is when an ex parte custody decision is made absent truly emergency
circumstances and without regard to the details of T.R. 65(B). When this occurs,
the perception is that custodial rights have been affected based only upon
whether the petitioner has won a "race to the courthouse.'

The Commission's intention is not to curtail the proper exercise of broad judicial
discretion, nor do the members intend to substitute their judgments for that of a
judge who finds on some rational basis that circumstances warrant emergency
relief. The Commission members hope to improve and promote the integrity of
our judiciary, and to help promote the public's confidence in the judiciary, by
alerting judges, and lawyers, to the stringent and imposing ethical duties judicial
officers undertake when considering whether to affect custodial rights ex parte.
In considering a request for emergency custody of a child, or any other request
under T.R. 65(B), a judge should be as cautious with the rights of the opposing
party as with scrutinizing the merits of the petition.

A petitioner for a temporary restraining order under T.R. 65(B) must establish
not only the potential for irreparable harm, but that the harm will occur before an
adverse party may be heard; the petitioner must certify also what efforts at notice
have been made and why notice is not required. A judge should carefully
determine whether these elements are established. While the Commission
hesitates to suggest a list of circumstances which the members would not favor,
some examples may be helpful.

Many times, of course, these petitions present compelling reasons for an eventual
custody order; yet, if the pleading really is a request for custodial rights, whether
or not captioned as an emergency, it should not be treated as an emergency. An
ex parte custody order is not properly a means to initiate a modification
proceeding or to obtain an advantage in a subsequent petition on the merits of
modification or other custody issue. Again, the custody request may be in the
context of an adoption or guardianship, and not necessarily a dispute between
two parents. Those proceedings, like modifications, presumably are not
adjudicated without first providing any interested party the right to be heard,
including on an interim custody issue. In those cases, too, petitioners for ex parte
relief must set out a verified claim that irreparable injury will result without the
emergency relief.

A claim that the custodial parent has violated an existing order, perhaps
concerning visitation, should not alone justify emergency custodial relief. Those
issues are addressed through the contempt process, or by injunction pursuant to
I.e. 31-14-5-1. Similarly, a claim that the custodial parent has decided to move

1494 INDIANA LAW REVIEW [Vol. 35:1477

out of state, or that the child has expressed a desire to reside with the petitioner,
does not justify emergency relief. These are issues for a modification hearing
and for the application of the appropriate standard supporting a modification
order.

Also, for example, the desire to enroll a child in school, if it requires custodial
rights, does not in the Commission's view, in itself, justify a temporary
modification of custody before the parent who currently has the custodial rights
to make those arrangements has been heard. The petitioner may allege that harm
will result if he or she cannot enroll the child, but the requisite potential harm
cannot be only a personal or strategic disadvantage or the fact that existing orders
keep the party from his or her objectives. Again, the standard is irreparable
harm or injury. Some real emergency must exist which changes the complexion
of the case from one which simply involves a parent who desires a modification
and custodial rights, to one possibly warranting emergency action in the
petitioner's favor. Even then, T.R. 65(B) must guide the process, providing the
safeguards of the affidavit, detailed findings, and an immediate hearing.

Concerning the absence of notice and a hearing in these proceedings, the rule
similarly provides safeguards against abuse. The rule requires a showing that
irreparable harm will occur before notice may be given or before an adverse party
may be heard. It can mean only that, where those representations indicate that
notice and a hearing could be accomplished without harm, they should occur. A
judge should insist on notice and a hearing if it is feasible and would not result
in the alleged irreparable harm. In other words, there may be no good reason,
even under the petitioner's claim, why notice should not be given and a hearing
held before a ruling. A simple telephone call to opposing counsel, or to the other
parent, and an offer to schedule a hearing before ruling, only promotes the
integrity of the process.

In assessing both the sworn statements of the alleged irreparable harm which
could result without the order, and the written certifications about notice or
reasons for not providing it, if the judge does not insist on an abundance of facts
in the pleadings, the judge should be prepared to actively question the petitioner
or the petitioner's attorney about these claims. The key inquiries pertain to why
the petition is submitted ex parte. Where is the other party? What notice has
been accomplished? Why should this matter be heard without the opposing
party's participation? What exactly is the irreparable harm which would result
if the case simply is set for a hearing after notice is made? No such potential
harm was indicated in the instances investigated by the Commission.

Some judges insist that counsel bring in the petitioner to discuss these aspects of
the petition. Other judges have expressed concern that these recommended
discussions themselves constitute improper ex parte contacts. These concerns
are misplaced. Aflter all, the judge properly has entered into an ex parte
proceeding if T.R. 65(B) is followed. To gather information which helps the
judge determine whether the extraordinary relief is warranted only bolsters the

2002] PROFESSIONAL RESPONSIBILITY 1495

fairness of the ex parte process which is underway. Nonetheless, the judge
should not entertain discussions which go beyond what he or she believes is
necessary to adequately entertain the petition. Ideally, the conversation will be
recorded.

Surely, many petitions for emergency custody raise issues which appear to
require immediate action. Judges often are faced with real emergencies, and they
may deem a situation an emergency where other reasonable people would differ.
But even in those cases, consideration of the opposing party's rights is required.
Again, T.R. 65(B) provides this underpinning of fairness. Of course, judges
should be able to trust in the veracity of a sworn petition alleging that harm will
result without an ex parte order. In reality, some are less than truthful, for which
the judge is not accountable. However, T.R. 65(B) imposes important burdens
on the petitioner, which likely will reduce the instances of false or unfounded
petitions.

The Commission calls on the profession to eliminate the seemingly wide-spread
practice in Indiana where lawyers seek, and judges provide, ex parte emergency
custody where no irreparable harm or injury reasonably is foreseen without
notice and a hearing - the fundamentals of our adversarial process. T.R. 65(B)
provides the framework for fairness; judges and lawyers must make genuine
assessments about whether the circumstances really invoke the rule at all. When
this occurs, the Commission expects to review fewer citizen complaints about a
lax and unfair procedure which adversely affects their most precious rights.^

CONCLUSION

Ex parte emergency custody orders in dissolution, post-dissolution, guardianship,
and adoption proceedings must be considered the rare exceptions to the general
premise that a fair proceeding includes reasonable notice and an opportunity to
be heard. When the circumstances do warrant emergency ex parte relief,
petitioners and judges must follow T.R. 65(B).

3 . The Commission, clearly, cannot contemplate all the potential circumstances which may
arise. Judges may find themselves faced with truly unusual or unexpected sets of facts, and they
must be able to proceed within their sound discretion. Nonetheless, these are not the circumstances
which inspired this opinion.

1496 INDIANA LAW REVIEW [Vol. 35:1477

APPENDIX "B"

PROGRAM GUIDELINES

Judges and Lawyers Assistance Program

Section 2. Purpose of JLAP

Pursuant to Admis.Disc.R. 31 §2, JLAP was established to assist impaired
members in recovery; to educate the bench and bar; and to reduce the potential
harm caused by impairment to the individual, the public, the profession, and the
legal system.

These guidelines have been adopted with these purposes in mind. The work of
JLAP is designed to be educational, confidential, and responsive to the special
situations faced by impaired members of the legal profession.

The JLAP committee and the executive director may take any other action
required to fulfill, yet remains consistent with, the stated purpose.

Section 3. Organization

JLAP was established pursuant to Admis.Disc.R. 31. The Committee consists
of fifteen (15) members appointed by the Court; seven (7) practicing attorneys,
five (5) judges, one (1) law student, and two (2) judge(s), lawyer(s), or law
student(s). The director operates under the direction of the committee. The
clinical director, staff and volunteers operate under the direction of the director.

Section 4. Policies

(a) JLAP designs and delivers programs to raise the awareness of the legal
community about potential types of impairment and the identification,
prevention and available resources for treatment and/or support.

(b) JLAP works toward increasing the likelihood of recovery by encouraging
early identification, referral and treatment.

(c) Any person may report to the director, clinical director, or any member of the
committee that a particular member of the bar needs the assistance of JLAP.

(d) JLAP encourages contact by any means; responses will be prioritized as
follows: walk-in, telephone call, e-mail, and written communication.

(e) Neither JLAP, nor any representative, in their role as a volunteer, engages in
the practice of law while fulfilling their JLAP responsibilities. Upon
admission to inpatient or residential treatment, or with a physical disability
case, JLAP may:

1 ) work with the participant to find friends and/or colleagues to assist with
the law practice,

2) work with the relevant local and state bar association committees to

2002] PROFESSIONAL RESPONSIBILITY 1497

assist with the practice;
3) should no other arrangements be possible, attemptto facilitate movement
of a participant's case files to the respective clients upon receipt of
written permission from the participant.

Section 5. Referral Procedures

(a) General Procedures

The state will be divided into geographical areas and a committee member
or other designated representative shall serve as the primary contact for each
area.

(b) Self- Referrals and Other Referrals

1) When the participant is a self referral, the following procedures apply:
i. JLAP may conduct an initial consultation to determine the nature of

the participant's impairment;
ii. where appropriate, JLAP may make a referral to a qualified medical

and/or clinical resource for further evaluation, assessment, and/or

treatment;
iii. if appropriate, JLAP may assist in the development of a treatment

plan, which may include participation in JLAP;
iv. with the participant's permission, a volunteer will be appointed to

provide ongoing support.

2) When the member is referred by a third party the following procedures
apply.

i. JLAP will obtain detailed information from the referral source
regarding the nature of the impairment, the referral source's
relationship to the member, and the circumstances giving rise to the
referral. The identity of the referral source shall remain confidential
unless the referral source instructs otherwise.

ii. JLAP may conduct further investigations to verify the circumstances
that led to the referral by contacting independent sources to
determine whether the member may be impaired.

iii. Any independent sources shall be approached in a manner to
preserve, as far as possible, the privacy of the member.

iv. If it is determined the member may be impaired, JLAP will
determine how the member will be approached with special attention
given to involving local volunteers and/or local members of the bar
who may already be involved in the case.

V. If the referred member is a judge, every effort shall be made to
include at least one judge as a volunteer in the case.

3) If the impaired member agrees to treatment, or other levels of
participation in JLAP, further assistance may include;

i . consultation with the participant, in-house assessment/evaluation, or

referral for appropriate assessment/evaluation;
ii. assistance in locating treatment resources; and
iii. assistance in development of continuing care including support and

referral to JLAP.

4) The director may terminate JLAP's involvement in any case at any time
should it be determined that the member does not comply or refuses to
participate and will not likely benefit from JLAP services at that time.

1498 INDIANA LAW REVIEW [Vol. 35:1477

1 ) Upon receipt of an official referral for assessment/evaluation, JLAP will:
i . Determine if all appropriate releases and/or authorizations have been

signed and obtained,
ii . Determine whether the requested assessment/evaluation will be done

in house, referred out or a combination,
iii. Contact the official referral source for background information and

direction, if necessary,
iv. Coordinate the assessment process with selected provider,

participating as deemed appropriate on a case-by-case basis.
V. Release information and/or the final assessment/evaluation as

allowed by written release.

2) Upon receipt of an official referral for a monitoring agreement JLAP
will:

i. Determine ifall appropriate signed releases/authorizations have been

obtained,
ii. Review existing assessment(s) and/or determine whether initial or

additional assessment(s) are necessary,
iii. Develop a monitoring agreement,
iv. Select and provide a monitor.
V. Meet with the participant, his/her attorney if appropriate, and the

monitor prior to execution of the agreement to explain JLAP's role

and the agreement terms and conditions,
vi. Report to the official referral source according to the terms of the

referral and the monitoring agreement.

Section 6. Services

(a) Any member is eligible for assistance and participating in JLAP. JLAP
services will be provided without charge for initial consultation, in house
assessment, referral, peer support, and monitoring services.

(b) Referrals for medical and/or clinical evaluations, treatment, therapy and
aftercare services will be provided; engagement of, and payment for, such
services is solely the responsibility of the participant.

Section 7. Treatment — ^Medical Assistance

(a) JLAP endeavors to provide a network of therapeutic resources that includes
a broad range of health care providers, therapists, and "self-help" support
groups. JLAP will maintain a statewide list of available providers.

(b) With the written consent of the participant, JLAP may maintain contact with,
and receive information from the treatment provider. JLAP may remain
involved in support during treatment, and shall endeavor to provide peer
support and aftercare assistance in early recovery.

(c) In cases where it is determined the participant is not in need of inpatient or
residential treatment, JLAP may provide referrals to outpatient counseling
resources and self-help groups such as 1 2-step programs.

■W

2002] PROFESSIONAL RESPONSIBILITY 1499

Section 8. Confidentiality

(a) JLAP and its representatives will observe anonymity and confidentiality at
all times. JLAP is an autonomous program, independent from the
administrative offices of the Court or any other board or disciplinary
organization, agency or authority.

(b) No disclosure of confidential information will be made by any representative
except for permitted disclosures and those identified in Ind. Professional
Conduct Rule 8.3.

Fulfilling the Deterrent and Restitutionary

Goals of the Security Deposits Statute and

Other Developments in Indiana Property Law

Lloyd T. Wilson, Jr.*

It has been said of human beings that "[w]e cannot escape the appeal of
order."' In the physical sciences, even though we know that matter tends from
order to entropy, we still look for "meaningful or nonrandom arrangement of
parts within a structure."^ The appeal of order likewise impacts the law. Roscoe
Pound identified twelve functions accomplished by law, but common to each of
them and to all theories of law is "a system of ordering human conduct and
adjusting human relations."^

Legal order adjusts human relations in at least two respects. First, on a social
scale, it resolves disputes in a way that expresses society's conclusions about
fairness and justice. Second, on an individual scale, it informs people of the
likely ramifications of their conduct, which in turn permits people to interact with
others reasonably confident that legitimate expectations will be supported by the
courts and improper conduct will be redressed.

Establishing legal order requires appellate courts to create order by
establishing fair and just rules in the first instance. Appellate courts must also
maintain order by implementing legal principles consistent with prior experience.
Finally, appellate courts should not introduce disorder into the legal system by
way of inconsistent applications of legal principles. If an inconsistency is
introduced, a higher appellate court should be especially vigilant to correct it and
to reinstate order.

The appellate court opinions discussed in this Article display the courts'
efforts to create and sustain a meaningful arrangement of legal principles within
the structure of property law. In the lead case,"* the court's opinion contributed
to a developing split between two irreconcilable analytical approaches to the
Indiana Security Deposits statute. This divergence leaves an uncomfortable sense
of disorder. In another case,^ the court of appeals was confronted with a case of

* Associate Professor of Law, Indiana University School of Law—Indianapolis; Adjunct
Professor of Business Law, Kelley School of Business, Indiana University— Bloomington. The
author wishes to acknowledge the valuable contributions made to this Article by four alumni of his
Real Estate Transfer, Finance, and Development class: Caryn M. Beougher, Cortney J. Givens,
Gregory S. Loyd, and Lauren R. Toppen. These students volunteered many hours of research to
locate, among the hundreds of opinions issued by the judges and justices of the appellate courts of
this state, those cases that contribute to the ongoing development of property law in Indiana. The
dedication, energy, and good character of these students deserves special recognition. The author
also wishes to acknowledge the able assistance Ms. Toppen provided as the author's research
assistant on a wide variety of projects during the academic year as well as her editorial
contributions to this Article.

1 . Ian MARSHALL & DANA ZOHAR, WHO'S AFRAID OF SCHRODINGER'S CAT? 13(1 997).

2. Id.

3 . RoscoE Pound, An Introduction to the Philosophy of the Law 31(1 922).

4. Turley v. Hyten, 751 N.E.2d 249 (Ind. Ct. App. 2001). See infra Part I.

5. Howell V. Hawk, 750 N.E.2d 452 (Ind. Ct. App. 200 1 ) (In deciding whether a restrictive

1502 INDIANA LAW REVIEW [Vol. 35:1501

first impression for Indiana law and established principles that will order and
adjust future relations. In other cases,^ the court advanced the development of
property law in an orderly fashion by bringing cases involving novel fact
situations into the fold of existing legal principles.

The opinions examined in this Article also exhibit the institutional roles of
the Indiana Court of Appeals and the Indiana Supreme Court in establishing and
maintaining order. In one case,^ the supreme court corrected a decision by the
court of appeals that would have undone a century or more of precedent and
would have introduced substantial disorder into the writing requirement in
property law. In another case, involving a mortgagee's duties to other parties at
a loan closing,^ the supreme court denied a petition to transfer and thereby
declined an opportunity to increase order. That denial leaves intact a court of
appeals decision from 2000 in which two judges on the panel expressly sought
a re-examination of current law by the higher court.

This Article consists of three sections, each with its own purpose. The first
section analyzes the development of two mutually exclusive interpretations of the
Security Deposits statute.^ These competing interpretations, between which trial
courts must choose to resolve disputes between landlords and tenants over
retention of security deposits, lead to opposite results. This Article proposes that
a landlord should be able to apply security deposit funds to legitimate and
appropriately itemized damages even if the landlord's notice letter to the tenant
fails to comply with the requirements of the statute with regard to other
individualized items.

The second section describes six opinions issued by the Indiana Court of
Appeals during the survey period. These opinions were selected because they
either created new law, clarified existing legal principles, or demonstrated the
application of a legal principle in a noteworthy fashion. This Article will attempt
to identify the contributions of these opinions by placing them in a substantive
or historical context.

The third section revisits two cases that were reviewed in the 2001 survey

covenant prohibiting "mobile homes" in a subdivision precluded a resident from constructing a
"modular home," the court stated, "We have not found . . . any Indiana case on point to guide our
interpretation of these definitions and regulations . . . ."). See infra Part II.A.2.

6. See infra Part II.

7. Brown v. Branch, 758 N.E.2d 48 (Ind. 2001). See infra Part III.A.

8. Town & Country Homecenter of Crawfordsville, Ind., Inc. v. Woods, 725 N.E.2d 1006
(Ind. Ct. App.) trans, denied, 741 N.E.2d 1249 (Ind. 2000). See infra Part III.B.

9. Ind. Code §§ 32-7-5- 1 to - 1 9 ( 1 998). In the 2002 session, the Indiana General Assembly
recodified statutes affecting property law with the goals of reorganizing the statutes and of
rephrasing them to improve clarity. Although the majority of the affected statutes are in Title 32,
a large number of other titles are also affected. Effective July 1, 2002, many statutes are repealed
and are recodified as new code sections. There are no substantive changes to the Security Deposits
statute, but Indiana Code sections 32-7-5-1 to -19 will be recodified at Indiana Code sections 32-
31-3-1 to -19. Because the former section numbers were in force in the survey period and were
used in all of the cases analyzed, the former section numbers will be used throughout the Article.

2002] PROPERTY LAW 1503

issue on Indiana property lawJ° In Brown v. Branch,^^ the Indiana Supreme
Court granted a petition to transfer and reversed the decision of the court of
appeals. The supreme court's opinion is significant for its determination of the
scope of the Statute of Frauds'^ with regard to transfers of interests in real estate.
In Town & Country Homecenter of Crawfordsville, Indiana, Inc. v. Woods, ^^ the
supreme court denied a petition to transfer, leaving unresolved the problems
identified by the concurring and dissenting opinions and discussed in last year's
Article.'*

I. Landlord — Tenant Relations: Conflicting Approaches
TO Indiana's Security Deposits Statute

In Turley v. Hyten^^ the Indiana Court of Appeals was confronted with an
appeal from an entry of summary judgment in favor of a tenant that disallowed
a landlord's claim for damages because the landlord failed to comply with the
notice provisions of Indiana's Security Deposits statute.'^ The court of appeals'
judgment to affirm the trial court's decision effected an unfair result that
excessively penalized the landlord and unnecessarily enriched the tenant. The
tenant who terminated his lease early and who caused extensive damage to the
rental property escaped all liability for his actions while the landlord was
compelled to return the full amount of the tenant's security deposit and to pay the
tenant's attorney's fees.

The court of appeals reached this result by characterizing the provisions of
the Security Deposits statute as "explicit and mandatory"'^ and by concluding
that the notice requirements of the statute are "strict,"'* meaning that nothing less
than absolute and literal compliance will suffice. The analytical approach of the
Turley court was so inflexible and so categorical in result that it begged closer
examination. That examination disclosed a line of appellate court opinions
issued prior to Turley. The analyses contained in those cases belie the existence
of a single, mandated approach, as presented in Turley^ and present instead two
conflicting views of the correct interpretation of the Security Deposits statute.
These views focus on whether the statute requires "strict compliance," producing
only all-or-nothing results, or whether it permits "substantial compliance,"
allowing partial recognition and partial denial of a landlord's claims.

1 0. See generally Lloyd T. Wilson, Jr., New Bricks for the Wall: Developments in Property
Law in Indiana, 34 IND. L. REV. 955 (2001).

11. 758N.E.2d48(Ind.2001).

12. iND. Code § 32-2-1-1 (1998). Effective July 1, 2002, the Statute of Frauds will be
recodified at Indiana Code section 32-21-1-1.

13. 741 N.E.2d 1249 (Ind. 2000).

1 4. See Wilson, supra note 1 0, at 98 1 -88.

15. 751N.E.2d249(lnd. CtApp. 2001).

16. Mat 251.

17. Id. at 252 (citing Pinnacle Props, v. Saulka, 693 N.E.2d 101, 104 (Ind. Ct. App. 1998)).

18. /^. at 251.

1504 INDIANA LAW REVIEW [Vol. 35:1501

It is the thesis of this Article that the Turley opinion misinterprets the
intended application of the statute and that the substantial compliance approach
better implements the deterrent and restitutionary goals and policies of the
Security Deposits statute. Deficiencies in the landlord's notice letter were so
extensive in the Turley case that the court may have reached the same result
under either approach. The same may not be true, however, of other cases where
the landlords' "failings" are not as extensive as in Turley but still do not reach
the level of absolute compliance. In such cases, the choice of analytical method
would lead to opposite results. The strict compliance approach oi Turley merits
examination and comparison to the substantial compliance approach so that their
analytical differences can be illuminated and a single model can be adopted. The
Security Deposits statute should be interpreted and applied in a way that
promotes its goals while neither imposing undue burdens on, nor dispensing
unmerited windfalls to, either landlord or tenant.

In Turley, the landlord and the tenant entered into a lease agreement for a
house. The lease term was for one year, from May 1 to April 30, at a rent of
$450 per month, payable in advance. The tenant paid to the landlord a security
deposit equal to one month's rent. Near the end of January, the ninth month of
the lease term, the tenant notified the landlord that the tenant intended to
terminate the lease prematurely and would vacate the house at the end of the
month. When the landlord went to the house on January 3 1 , the tenant was still
in possession.

When the landlord returned three days later, the tenant had vacated the
house. In so doing, the tenant left the house unheated and a window open. As
a result of cold February weather, the pipes in the house burst causing extensive
water damage to the carpet and floors. According to the landlord, the house had
to be "totally replumbed." The unrestricted flow of water also resulted in a large
utility charge billed to the landlord. In addition, the landlord stated that the
tenant left trash in the house and was responsible for multiple holes in the walls.

The landlord filed a complaint for damages against the tenant. The tenant
answered and filed a counterclaim seeking return of his security deposit and
payment of attorney's fees pursuant to the Security Deposits statute. The tenant
filed a motion for summary judgment, which the trial court granted. The
judgment denied relief to the landlord, ordered the landlord to return the tenant's
security deposit, and ordered the landlord to pay the tenant's attorney's fees. The
landlord appealed.

The court of appeals identified two issues on appeal. The first issue was
whether the landlord provided sufficient notice of the damages and of his intent
to apply the security deposit toward them. The second issue was whether a
failure to meet statutory notice requirements under the Security Deposits statute
barred the landlord from asserting a claim for other damages.

The Security Deposits statute'^ was enacted in 1989. Subsequent appellate
discussion of the statute centers on three recurring disputes: 1) what action by
a landlord is sufficient to satisfy the itemization of damages component of the

19. iNfD. Code §32-7-5 (1998).

2002] PROPERTY LAW 1 505

notice requirement, 2) what is the result if a landlord's notice letter is sufficiently
itemized for some damage elements but not for others, and 3) what is the scope
of the implied acknowledgment that no damages are due that arises from a
landlord's failure to comply with the notice requirements. These recurring
disputes arise from sections 12, 13, 14, and 15 of the statute.

Section 1 2 contains four important provisions. First, subsection (a) identifies
the expenses and damages toward which a security deposit may be applied. It
states that on termination of a rental agreement a landlord must return all of a
tenant's security deposit, except for any amount that the landlord applies to
"payment of accrued rent," "damages that the landlord has or will reasonably
suffer by reason of the tenant's noncompliance with law or the rental agreement,"
and "unpaid utility or sewer charges that the tenant is obligated to pay under the
rental agreement."^^ Second, subsection (a) also sets forth the landlord's
itemization and notice requirements. It states that any application of a security
deposit to an allowed expense or damage must be "itemized by the landlord in a
written notice delivered to the tenant together with the amount due within forty-
five (45) days after termination of the rental agreement and delivery of
possession."^'

Third, subsection (b) provides remedies to a tenant where the landlord fails
to comply with subsection (a). "If the landlord fails to comply with subsection
(a), the tenant may recover all of the security deposit due the tenant and
reasonable attorney's fees." Fourth, subsection (c) provides that the statute does
not "preclude the landlord or tenant from recovering other damages to which
either is entitled."^^

Section 13(1) supplements section 12(a), by elaborating on the purposes for
which a security deposit may be used. For example, section 13 qualifies the
"damages" component of section 12(a)(2) by adding the requirement that
damages be "actual" and that they not be the result of "ordinary wear and tear
expected in the normal course of habitation of a dwelling."^^ Similarly, section
13(2) elaborates on the "accrued rent" component of section 12(a)(1) by
including both "rent in arrearage" and "rent due for premature termination of the
rental agreement by the tenant."^"*

Section 14 specifies the itemization and notice requirement of section
12(a)(3) by providing:

In case of damage to the rental unit or other obligation against the
security deposit, the landlord shall mail to tenant, within forty-five (45)
days after the termination of occupancy, an itemized list of damages
claimed for which the security deposit may be used as provided in
section 1 3 of this chapter, including the estimated cost of repair for each

20. Id. §32-7-5- 12(a).

21. Id.

22. M§32-7-5-12(c).

23. /^. §32-7-5-13(1).

24. /^. §32-7-5-13(2).

1506 INDIANA LAW REVIEW [Vol. 35:1501

damaged item and the amounts and lease on which the landlord intends
to assess the tenant. The list must be accompanied by a check or money
order for the difference between the damages claimed and the amount of
the security deposit held by the landlord.

Section 15 creates an implied acknowledgment by the landlord that "no
damages are due" if "the landlord [fails] to comply with the notice of damages
requirement within the forty-five (45) days after the termination of occupancy,"
in which case "the landlord must remit to the tenant immediately the full security
deposit."^^ The key terms that courts must interpret and reconcile are
"itemization" from sections 12(a) and 14, "due the tenant" from section 12(b),
"other damages" from section 12(c) and "no damages" from section 15.

In Turley, the landlord mailed a letter to the tenant on February 25, twenty-
two days after the landlord discovered that the tenant had vacated the house. The
landlord's letter contained a narrative description of the expenses and damages
he had incurred as a result of the tenant's premature breach and damage to the
house. The court of appeals acknowledged that the landlord's letter was timely
mailed and that it "rather thoroughly identified various damaged items."^^ The
court concluded, however, that the landlord's letter failed to comply with the
itemization requirement of section 14. The landlord's letter to the tenant stated,
"All though [sic] we don't have a complete estimate yet, the damage is already
more than $1,400.00."^^ The landlord added, "After a complete assessment is
made, we will give you a full itemized statement. It will also include lost rent
due to our inability to lease the house again on a timely basis."^*

The court of appeals determined that landlord's letter was "insufficiently
detailed to comply with IC 32-7-5-1 4" because "it did not provide the estimated
cost for each damaged item."^^ The court reasoned that "[w]ithout identification
of the cost of each repair, tenant was unable to discern whether the individual
charges that comprised the $1,400 were proper or reasonable."^^

The notice letter from the landlord in Turley contained no itemization of any
of the claimed damages, and the court's decision could have been decided simply
by reference to existing precedents. It is the Turley court's emphatic
pronouncement of a strict liability-like approach to compliance with the Security
Deposits statute that raises concerns. For the benefit of cases to come, the Turley
opinion must be recognized as an expression of the less desirable of two
competing visions of the statute.

25. /f/. §32-7-5-15.

26. Turley v. Hyten, 751 N.E.2d 249, 252 (Ind. Ct. App. 2001).

27. Mat 25 1.

28. Id.

29. Id. at 252.

30. Id. The court rejected the landlord's argument that notice was unnecessary because the
amount of unpaid rent exceeded the amount of the security deposit. The court stated, "[rjegardless
of whether unpaid rent equals or exceeds the security deposit, Landlord must give statutory notice
of intent to hold the security deposit." Id.

2002] PROPERTY LAW 1507

Interpretation of the Security Deposits statute begins with the court of
appeals' 1992 decision in Skiver v. Brighton Meadows?^ In Skiver, the landlord
retained a tenant's security deposit of $350 and applied it to $4,230 of accrued
rent that resulted from the tenant's early termination of his lease. The landlord
did not send written notice to the tenant because the unpaid rent exceeded the
security deposit and the landlord did not intend to pursue the tenant for any other
damages done to the rental unit. The court held that notice under section 14 of
the Security Deposits statute was required and that the landlord's failure to send
"a letter itemizing the accrued rent due to [tenant's] premature termination of the
rental agreement" operated as an agreement under section 1 5 that no damages
were due.^^ As a result, the landlord could not collect accrued rent and was
ordered to return the security deposit. Skiver established that a landlord must
provide notice of intended uses for a security deposit even when the use is
arguably within the actual notice of a tenant (as would be the case with accrued
rent following premature termination) and where the damages "obviously"
exceed the amount of the deposit.

Also decided in 1 992 was Duchon v. Ross?^ In that case, the court of appeals
stated, "This is the first time the sufficiency of a notice submitted pursuant to
[the Security Deposits] statutes . . . has been questioned in this state."^"* The
court noted that "[t]hese statutes concern the duties of landlords to return security
deposits to tenants."^^

Duchon contains some facts reminiscent of Turley. Specifically, as in
Turley, the tenant in Duchon vacated the rental premises in February,
disconnected the heat, and left a window open. Additionally, the landlord's letter
to the tenants, like the landlord's letter in Turley, contained a detailed description
of damages but did not itemize the repair costs and instead promised a final
accounting "[o]nce the costs associated with the [described] items are
determined."^^

Duchon, like Skiver, held that a notice of damages unaccompanied by
estimated costs of repair is insufficient as a mater of law.^^ Duchon added that
"[d]isputes over the costs of repair or the assessment of damages do not relieve
the Landlords of the requirement to provide the estimated costs of repair."^^

Duchon also includes the first discussion of the "other damages" component
of section 12(c) and of the relationship of those damages to the implied
agreement component of section 15. The court provided some insight into the
otherwise undefined term, "other damages," by noting that such damages could
include "claims for amounts in excess of the security deposit," and "other types

31.

585 N.E.2d 1345 (Ind. Ct. App. 1992).

32.

Mat 1347.

33.

599 N.E.2d 621 (Ind. Ct. App. 1992).

34.

Id. at 623.

35.

Id.

36.

Id. &t 624.

37.

Id. at 625.

38.

Id. at 624-25.

1508 ^ INDIANA LAW REVIEW [Vol. 35:1501

of damages not specified in Section 12."^^ Although the court concluded that
"the clear intent of Section 15 is that if a landlord fails to provide the requisite
notice within the 45-day period[,] there are no 'other damages' to collect,'"*" this
statement cannot be taken to support the complete release approach of Pinnacle
Properties. First, the court provides no analysis to explain the propriety of its
interpretation or to explore the implications of its statement. Second, to rely on
this quote for that purpose ignores the fact that Duchon's author is Judge
Hoffman, who also wrote the dissent in Pinnacle Properties criticizing the
majority's "all-or-nothing" approach. Unfortunately, the phrase that "there are
no 'other damages' to collect" is often quoted without reference to context.

While the specificity of the notice was not challenged in Miller v. Geels,^^
the court of appeals did address the "other damages" issue. In Miller, the
landlord gave a timely and itemized written notice of the damages toward which
the tenants' security deposit would be applied, including accrued rent and carpet
shampooing. The tenants did not dispute the deduction of all accrued rent from
the deposit, but they did object to the deduction for carpet cleaning. The carpet
was not stained or spoiled by pet odors, two common types of damage to carpet;
it simply displayed "the accumulation of dirt." The tenants argued that the
accumulation of dirt constituted "ordinary wear and tear expected in the normal
course of habitation of a dwelling" and therefore was not a type of damage to
which the security deposit could properly be applied."*^ The landlord argued that
the carpet cleaning was a type of "other damage" that could be recovered
pursuant to the "restoration provision" contained in the lease. By this provision
the tenants agreed that when they vacated the rental premises the "carpet shall be
shampooed" and that "[a]ny necessary cleaning to return the house to the same
condition as when the Lessee moved in will be deducted from the security
deposit."'^

The court then concluded that dirt which a tenant permits to accumulate in
carpet is not "ordinary wear and tear" and qualifies as "other damages.'"''* Thus,
the damage limitations of the Security Deposits statute did not apply to "other
damages" a landlord might be entitled to recover apart from the deposit. "It was
not the legislature's intent to limit the freedom of landlords and tenants to

39. Id. at 625.

40. Id.

41 . 643 N.E.2d 922 (Ind. Ct. App. 1994). In footnote six, the court identified two notable
limitations on the Security Deposits statute. First, for items that are not specified in section 12, "the
statute does not require any notice at all of the amount of 'other damages' the landlord may seek."
Id. at 926 n.6. Second, estimated repair costs are all that are required as "[t]here is no requirement
in the statute that the landlord provide actual receipts with the notice." Id.

42. Id. ai 926-21.

43. Id. Sit 926.

44. Noting definitions of "ordinary wear and tear" in other jurisdictions, the court described
it as "the gradual deterioration of the condition of an object which results from its appropriate use
over time." Id. at 927 (citing Publishers Bldg. Co. v. Miller, 172 P.2d 489, 496 (Wash. 1946);
Cyclops Corp. v. Home Ins. Co. (W.D. Pa. 1973)).

2002] PROPERTY LAW 1509

contractually define 'other damages' .... Thus, we decline to extend the reach
of the statute beyond the security deposit.'"*^ The court stated that even though
"[i]t was the intent of the legislature to provide special protection for security
deposits, which often give rise to landlord-tenant disputes[,] [t]he statute clearly
and unambiguously preserves the right of the landlord or tenant to recover other
damages to which either is entitled.'"^^ The M/7/er case thus established that there
are damages to which the Security Deposits statute applies and other damages
that are outside the scope of the statute.

The court also circumscribed the reach of the statute by stating:

The Security Deposits statute applies only to security deposits. It is a
basic rule of construction that statutes in derogation of the common law
are to be strictly construed. "We will assume that the legislature is
aware of the common law and intends to make no change therein beyond
its declaration either by express terms or unmistakable implication."''^

As discussed below, recognizing that claims not based on the Security Deposits
statute remain unaffected by it has important ramifications for both the "other
damages" provision of 12(c) and for the "no damages" presumption of section
15.^«

The court of appeals further interpreted the provisions of the Security
Deposits statute in Rueth v. Quinn.'^^ In that case, the court of appeals addressed
issues relating to both timeliness and content of the statute's notice provisions.
In Rueth the tenants held over beyond the end of the lease term, even though they
knew the landlord had sold the house to third parties and was obligated to close
on a specific date. When the tenants finally vacated the house, the landlord sent
written notice to them identifying the nature and amount of three types of
damages that she intended to deduct from the tenants' $1,100 security deposit.
These damages were for a per diem rent charge for occupancy during the hold-
over period, a penalty imposed by the purchase agreement that the landlord was
compelled to pay to the purchasers of the house because she could not convey

45. Id.

46. Id.

47. Id. (citation omitted).

48. See infra notes 84-90 and accompanying text.

49. 659N.E.2d684(Ind. Ct. App. 1996). This csise contains a useful discussion of problems
that can arise in determining the date on which the forty-five day notice period begins to run. The
tenants claimed the landlord failed to send the damage notice to them within forty-five days after
the lease terminated as required by sections 13 to 16 of the statute. The court determined that the
lease agreement terminated on January 18, 1993, and not on June 10, 1992, which was the date the
original lease expired, because January 1 8 was when the tenants surrendered the house and that was
when the landlord accepted their surrender. Id. at 689. See also Figg v. Bryan Rental, Inc., 646
N.E.2d 69, 74 (Ind. Ct. App. 1995) (holding that a tenant's abandonment of leased premises did
not trigger the forty-five day period for the landlord's notice letter). For the notice period to begin,
the landlord must take "some decisive, unequivocal act . . . which manifests the lessor's acceptance
or the surrender." Id. at 73.

1510 INDIANA LAW REVIEW [Vol. 35:1501

possession on the scheduled closing date, and late fees the landlord had to pay
to her title company for closing after the scheduled date.

Unfortunately for the landlord, she miscalculated the per diem rent in her
notice to tenants by $366.64. Further, she actually paid $400 in hold-over
penalties to the buyers when under the terms of the purchase agreement she was
only obligated to pay $240. The landlord said she agreed to pay the higher figure
to avoid being sued by the purchasers. The trial court decided that, as a result of
the calculation error and the voluntary overpayment of fees to the buyers, the
landlord's notice failed to comply with the Security Deposits statute. It ordered
her to return the full amount of the tenants' deposit and to pay their attorney's
fees.

The court of appeals affirmed in part and reversed in part. It reversed the
trial court's conclusion that the landlord's overstatement of damages in her notice
letter required her to return the entire deposit.^° The court treated the
components of the notice letter as distinct and severable. The landlord had to
return the overstated amounts but was entitled to keep both the amounts that she
had accurately stated and the correct amounts of the overstated damage items.

The court acknowledged that it was addressing a new question of law. "This
court has not addressed the ramifications when the landlord's deductions from
the [security] deposit are erroneous."^' The court concluded that the inclusion
of erroneous deductions rendered the notice insufficient to comply with the
notice provisions of the statute.^^ Just as importantly, however, the court held
that non-compliance, by itself, did not end the matter or require a landlord to
return the entire deposit. Instead, the court had to determine what amount of the
security deposit the tenants were entitled to recover.

Section 12(b) of the Security Deposits statute states, "If the landlord fails to
comply with subsection (a), the tenant may recover all of the security deposit due
the tenant and reasonable attorney's fees."^^ In Rueth, the tenants were "due"
only the amount of the miscalculation of per diem rent and the excess hold-over
amount paid to the buyers. The tenants were not "due" any further part of their
deposit because the charges, at least as recalculated, were legitimate as either
accrued rent under 12(a)(1) or as "damages that the landlord has . . . suffer[ed]
by reason of the tenant's noncompliance with ... the rental agreement" under
12(a)(2). Under the Rueth analysis, the itemization requirements of the
landlord's written notice are correctable, subject to the "penalty" that

50. /£/. at690.

51. /^. at 689.

52. Id. The court reasoned:

Because a landlord is in a superior position to determine a tenant's damages, we find
that when: 1) a landlord erroneously calculates the tenant's damages, 2) the tenant
resorts to legal action to collect all or part of his deposit, and 3) the tenant was entitled
to a return of all or part of the tenant's deposit, the landlord has not complied with the
notice requirement of the statute.

Id.

53. IND. CODE § 32-7-5-12(b) (1998) (emphasis added).

2002] PROPERTY LAW 1511

noncompliance may require the landlord to pay the tenant's attorney's fees.^'*

The Security Deposits statute was next addressed in Grease I v. Troy.^^
Grease! provides guidance on both the itemization component of the notice letter
and on the nature of "other damages." In that case, the tenant sued his landlord
for return of his security deposit. The landlord filed a counterclaim for damages
to carpet from pet odor. The tenant argued that he was entitled to return of his
deposit because the landlord's notice letter failed to comply with section 14 of
the statute. As a result of this non-compliance, the tenant argued that the
landlord was barred from seeking "other damages."

The landlord's notice letter identified the damage to the carpet and the cost
to repair it. The landlord's letter also listed other items of damage, but she
included no costs of repair for them because she did not intend to assess those
damages against the tenant. At trial, the tenant argued that failure to include
repair costs for all items in the notice letter invalidated it in full. The court
distinguished Duchon, which held that a landlord's notice letter failed to comply
with the statute where the letter identified damages but provided no estimates of
repair for any of them, on the ground that the landlord in Grease! did provide the
cost of repair for the items she intended to assess against the tenant. The
omission of repair costs for damaged items that may have been identified, but for
which no recovery was sought, was inconsequential.^^ This holding stands in
stark contrast to the decision in Tur!ey.

Having determined that the landlord's notice complied with the statute and
thereby preserved her right to seek "other damages," the court of appeals'
opinion addressed that term. The court wrote, "[WJhere the landlord provides
notice in satisfaction of the statute, she may then seek to recover any 'other
damages' beyond tlte security deposit to which she is entitled under the lease
agreement."^^ The parties' lease provided that the tenant was required to repair
at his expense "any damage caused by . . . pets of Tenant."^* Accordingly, the
landlord was entitled to seek recovery beyond the amount of the security deposit
as "other damages" authorized by the lease agreement.

From Skiver and Duchon in 1 992 through Grease! at the very end of 1 997,
several principles about the Security Deposits statute appear established. First,
a landlord fails to comply with the statute when he fails to send any notice
whatsoever to the tenant concerning use of the security deposit, even if the use

54. Rueth, 659 N.E.2d at 689-90. Another problem for the interpretation of the Security
Deposits statute relates to a court's discretion, or lack of it, in awarding attorney's fees to a tenant
where the landlord's notice letter contains both adequately and inadequately stated damages. In
Pinnacle Properties, the court of appeals said that an award of attomey's fees to the tenant is
mandatory. Pinnacle Props, v. Saulka, 693 N.E.2d 101, 105 (Ind. Ct. App. 1998). In Rueth, the
court said that an award of attomey's fees is discretionary. Rueth, 659 N.E.2d at 690.

55. 690 N.E.2d 298 (Ind. Ct. App. 1997).

56. /£/. at302.

57. Id. (emphasis added) (citing Miller v. Geels, 643 N.E.2d 922, 926 (Ind. Ct. App. 1 994)).

58. Id.

1512 INDIANA LAW REVIEW [Vol. 35:1501

is for unpaid accrued rent.^^ Second, a landlord fails to comply with the statute
if he provides notice that identifies the nature of damages he intends to charge
against the security deposit but fails to provide individual costs of repair for any
of those items.^^ Third, where the notice letter is individually itemized as to both
nature of damage and cost of repair, the damages limitations imposed by the
statute do not limit a landlord's ability to seek recovery for "other damages" in
excess of the deposit where permitted under the lease; only estimates of cost of
repair are required, not actual receipts; and neither the nature nor cost of repair
for "other damages" must be stated in the notice letter.^' Fourth, where the notice
letter is individually itemized as to both nature of damage and cost of repair, the
inclusion of erroneously calculated or excessively stated damages does not
invalidate the entire notice; the tenant is entitled to a return of only the amount
of the deposit "due;" the landlord is entitled to retain the correctly calculated
amounts of all legitimate charges.^^ Finally, where the notice letter is
individually itemized as to both nature of damages and cost of repair for the
damages the landlord seeks to charge against the security deposit, the inclusion
of other items of damage without individual repair costs does not invalidate the
notice or preclude the landlord from recovering "other damages" permitted under
the lease; even with errors, the purposes of the notice provision, which are "to
inform the tenant that the landlord is keeping the security deposit and for what
reason" and to "provide[] the tenant an opportunity to challenge the costs for
which the deposit is being used" are met.^^

A difference injudicial approach clearly emerges with the court of appeals'
decision in Pinnacle Properties v. Saulka.^* This divergence is perpetuated by
the court's decisions in Schoknechtv. Hasemeier^^ decided in 2000 and in Turley
in 2001. The approaches used by these courts cannot be reconciled. One
approach must be chosen, and that approach should be the one used in
Schoknecht and expressly or impliedly endorsed in the ptQ-Pinnacle Properties
opinions.

In Pinnacle Properties, the tenants sued their landlord to recover an earnest
money deposit that the landlord had retained for damages to the rental property.
The tenants asserted that the landlord's notice letter did not comply with the
Security Deposits statute. The landlord filed a counterclaim seeking damages in
excess of the amount of the security deposit.

59. Skiver V. Brighton Meadows, 585 N.E.2d 1345 (Ind. Ct. App. 1992).

60. Duchon v. Ross, 599N.E.2d 621 (Ind. Ct. App. 1992).

61. Miller v. Geels, 643 N.E.2d 922 (Ind. Ct. App. 1994).

62. Rueth v. Quinn, 659 N.E.2d 684 (Ind. Ct. App. 1996).

63. Greasel, 690 N.E.2d at 302 (citing Meyers v. Langley, 638 N.E.2d 875, 878-79 (Ind. Ct.
App. 1994)). In Meyers, the court found that the purposes of the notice provision had been served
where the landlord sent the tenant a letter that itemized as damages "material for two doors, material
to fix the bathroom, material for a 'kit room,' labor costs, and court costs and set forth specific
dollar amounts for each" and "$600.00 for two months rent." Meyers, 638 N.E.2d at 878-79.

64. 693 N.E.2d 101 (Ind. Ct. App. 1998).

65. 735 N.E.2d 299 (Ind. Ct. App. 2000). See also Wilson, supra note 10, at 976-78.

2002] PROPERTY LAW 1513

After the tenants vacated the property, the landlord sent a written "Vacate
Report" identifying six types of damages and providing individual repair costs
for each. The report contained commonplace items such as cleaning, carpet
replacement, and painting; it also contained a $670 charge identified only as
"other damages." The court found this damage entry insufficient to satisfy the
itemization requirement of section 14 of the statute. That conclusion would have
been unremarkable as the court had held since Duchon that costs of repair which
are "lumped together" rather than individually itemized do not satisfy the statute.
The analysis in the majority opinion, however, exhibits a marked difference from
the approach used in prior opinions, especially Rueth and Grease!. The court
identified the legitimate ends served by the notice requirement of the statute as
follows:

The notice provision does not impose a difficult burden on the landlord.
The purpose of the provision is to inform the tenant that the landlord is
keeping the security and for what reason, as well as to allow that tenant
an opportunity to challenge the costs for which the deposit is being
used.^^

For the court in Pinnacle Properties, "if the landlord fails to provide the tenant
with an itemized list of damages including the estimated cost of repair for each
damaged item, the purpose for the notice provision has not been served."^^

The court then took an unexpected and unnecessary step and used the
inadequacy of one damages item to invalidate all damages items, even those that
were appropriate in nature and accompanied by cost of repair. Announcing a
strict construction approach, the court stated, "A strict reading of Indiana Code
§§ 32-7-5-13 and -14 does not allow for substantial or partial compliance by the
landlord with the itemization of damages notice requirement."^* The court
concluded that the failure to comply with the notice provision, which arose from
the inadequacy of one entry in the Vacate Report, constituted agreement by the
landlord that "no damages" of any kind were due by virtue of section 15.^^

The Pinnacle Properties court does not explain why it was compelled to
reach a decision contrary to the similar cases of Rueth and Greasel. The majority
opinion did not refer to those cases, let alone distinguish them. The two cases the
majority did cite. Miller and Duchon, do not require the decision the majority
reached. In Miller, the tenant did not dispute either the timeliness or sufficiency
of the detail in landlord's notice, and in Duchon the landlord's letter
acknowledged that none of the repair costs had yet been determined. Further,
other than reciting that the Security Deposits statute "is in derogation of the
common law [and] must be strictly construed,"^^ the majority opinion did not
explain why the policies of the statute could not be achieved by severing the

66. Pinnacle Props., 693 N.E.2d at 104.

67. Id.

68. Id.

69. Id

70. Id. (citing Miller v. Geels, 643 N.E.2d 922, 927 (Ind. Ct. App. 1994)).

1514 INDIANA LAW REVIEW [Vol. 35:1501

offending damage entry and enforcing the other legitimate and properly
documented entries. For those appropriate entries the tenants would have been
provided with notice and an opportunity to challenge. For the inappropriate
entry, the landlord would have suffered the obligation to pay the tenants'
attorney's fees as provided in Rueth.

The overreach of the majority's decision was noted by Judge Hoffman, who
dissented "insofar as the majority finds that [landlord's] partially inadequate
notice entitles the tenants to return of their entire security deposit."^' Judge
Hoffman supported his dissent on both statutory interpretation and policy
grounds. Whereas the majority opinion concluded that the presumptive
agreement of "no damages" in section 15 arises "unless the [landlord's] notice
is in compliance in toto,''^^ Judge Hoffman argued that section 15 "is inapposite
when only a portion of the notice fails"^^ and that the statute "contemplate[s]
return of the full security deposit when the entire notice fails, e.g. untimely
notice, no itemization, or no estimated costs."^'*

Judge Hoffman also provided a telling description of the effect of the
majority's decision. "Certainly the statutes discourage overreaching and
unscrupulous retention of security deposits. They do not, however, compel
landlords to unrefutably itemize damages in a legal roll of the dice where they
may lose all by a misstep."^^ Neither the terms of the Security Deposits statute
nor existing precedent requires that the statutes be an "all or nothing
proposition."^^

The Pinnacle Properties opinion was cited once in the court of appeals' 2000
decision in Schoknecht v. Hasemeier^^ but its all-or-nothing approach was not
followed, or even directly acknowledged. In Schoknecht, the tenant defaulted on
her lease by failing to make rental payments when due. The landlord obtained
a judgment for possession, with a hearing on damages to follow. After obtaining
possession, the landlord discovered damages to the property. The landlord timely
sent written notice to the tenant, in which she itemized the damages and provided
a cost of repair for each.

The tenant later filed suit for return of her security deposit, which suit was
consolidated with landlord's suit for damages in excess of the amount of that
deposit. The tenant argued that the landlord failed to comply with the Security

71 . Id. at 106 (Hoffman, J., dissenting).

72. Id.

73. Id.

74. Id. The majority opinion also fails to address the court*s decision in Figg, where the
landlord's erroneous inclusion of an extra month's unpaid rent in his notice letter did not render
that notice insufficient. Figg v. Bryan Rental, Inc., 646 N.E.2d 69, 70 (Ind. Ct. App. 1995). But
for two footnotes in which the court explained the damage component of the summary judgment
entered in favor of the landlord, the error in the notice letter would have received no attention at
all. Id. at 69 nn. 1-2.

75. Pinnacle Props., 693 N.E.2d at 107.

76. /^. at 106.

77. 735 N.E.2d 299 (Ind. Ct. App. 2000).

2002] PROPERTY LAW 1515

Deposits statute because the landlord's notice letter contained some damage
items that she was not entitled to deduct from the security deposit and because
she failed to substantiate the estimated cost of repair. The landlord responded
that the letter included good faith estimates of repair costs, that she was not
required to substantiate her itemized list of damages, and that her notice letter
was valid even though she did not list damages chargeable to the security deposit
separately from damage items that were not chargeable to it. Once again the
itemization requirement of section 14 and the presumptive acknowledgment of
"no damages" from section 15 had to be examined.

The court observed that section 14 of the statute contains "strict notice
requirements" and that failure to comply with these requirements constitutes an
agreement that no damages are due.^^ Quoting Miller, the court further observed,
however, that "'the Security Deposit statute applies only to security deposits' and
that the statute 'clearly and unambiguously preserves the right of the
landlord ... to recover other damages to which [he or she] is entitled. '"^^
Because the statute permits a landlord to pursue claims that are not deductible
from the security deposit in addition to those claims that are deductible, it is not
an "erroneous calculation" by the landlord to include both types of claims in one
letter. "[W]hile the Security Deposits statute requires Landlord to itemize the
damages for which the security deposit may be used, it does not prohibit her from
also itemizing other damages claimed under the lease."*° The court of appeals
thus reversed the decision of the trial court and remanded with instructions to
calculate the amount of damages landlord was entitled to receive and what
amount should be reimbursed to the tenants.^'

The Schoknecht opinion does not construe the inclusion of non-conforming
damages or damages outside the scope of the statute as prohibited "partial
compliance," as the majority opinion did in Pinnacle Properties. Although not
expressly identified. Judge Hoffman's recognition of the possibility of partial
compliance and the need to compute the amount of deposit "due" is consistent
with the Schoknecht court's instructions on remand.

We now come full-circle to Turley. Because the landlord's notice letter in
that case contained only a lump-sum damage repair cost and failed to provide
itemized costs for any of the damages, that notice was insufficient under Duchon
and all other cases that have interpreted the Security Deposits statute. The notice

78. /^. at 302.

79. Id. at 303 (alteration in original and citations omitted).

80. Id. The court also held that pursuant to the notice requirements of the Security Deposits
statute the landlord does not have to substantiate the damages in the letter but rather needs to supply
only an "estimated cost for each damaged item." Id. The analysis of Schoknecht in last year's
survey on Indiana property law concluded that to fulfill the statutory notice requirements "notice
must be specific enough to set forth an itemized list of damages and an estimated cost of repair for
each, but the substantive rights of the parties under the lease, the factual support ... for claims
asserted, and the substantiation of damage amounts are left for further proceedings." Wilson, supra
note 10, at 978.

81. 5cAo^«ec/zr, 735 N.E.2d at 303.

1516 INDIANA LAW REVIEW [Vol. 35:1501

contained no legitimate and itemized damage items capable of being severed and
preserved.

However, there is reason to infer from the court's treatment of the landlord's
claim for "other damages" that it v^ould not have allowed itemized claims to
survive even if the facts had been different. The landlord in Turley argued that
even if he had failed to comply with the notice requirements of the statute and
was obligated to return the full amount of the security deposit, he would still be
entitled under section 12(c) to recover "other damages" pursuant to a waste
claim. The court rejected landlord's argument, saying that if a landlord fails to
comply with the notice requirements of the statute, "there are no 'other damages'
to collect."*^ Stating that "[ejxisting caselaw concludes any debate on the issue,"
the court quoted Miller for the proposition that "[a] landlord can attempt to
pursue a claim for 'other damages' only if it returns the tenant's security deposit
within 45 days or provides statutory notice."^^

There are two problems with this assertion: first, it is not supported by the
case law; second, it converts section 1 5 from an implied acknowledgment that no
damages are due and chargeable to the security deposit into a general release that
precludes all claims of any type, as opposed to precluding only claims that arise
under section 12. Such an interpretation unnecessarily and inappropriately
expands the reach of subsection 15 far beyond the proper scope of the Security
Deposits statute.

The court in Miller observed that the "Security Deposits statute applies only
to security deposits."^'* The meaning of "other damages" thus depends on
context. If damages are attributable to the lease and are sought to be charged
against the security deposit, they must be itemized and must include individual
costs of repair. Damage items in a notice letter that meet these requirements are
"proper" damages under the statute. Items that are not individually identified
violate the statute and are not recoverable from the security deposit. In this
context of deduction from a security deposit that a landlord has retained, a
presumptive agreement that "no damages" are due and deductible is appropriate.

The meaning of "no damages" should not, however, be extended to preclude
recovery of damages that are not sought to be charged against a security deposit.
Such damages are "other damages" because they are external to the regulation
of security deposits. They may be external because deduction is not the remedy
sought or because liability is based on a theory other than the lease. To hold
otherwise extends the scope of the statute beyond the target of security deposit
funds, and thus contradicts Miller^ and turns the "no damages" clause of section
1 5 into a general release of all claims a landlord might have against the tenant
independent of the regulation of deposits, which even according to Turley is the
reason the statute was enacted.^^

The court in Turley concluded that the landlord's failure to comply with the

82. Turley v. Hyten, 751 N.E.2d 249, 253 (Ind. Ct. App. 2001).

83. Id.

84. Miller v. Geels, 643 N.E.2d 922, 927 (Ind. Ct. App. 1994).

85. rMr/g>;, 751N.E.2dat251.

2002] PROPERTY LAW 1517

Security Deposits statute precluded him from asserting a common law claim for
waste.^^ Based on this reasoning, one would have to conclude that all other
common law claims are similarly "released" by the "no damages" clause. There
is no connection between the Security Deposits statute and damage claims that
do not target the deposit, some of which may be based on causes of action apart
from the lease, that would justify a comprehensive release. Such a release also
violates the narrow construction given to statutes in derogation of the common
law by barring claims without the "express terms or unmistakable implication"
required by Miller. ^^

An interpretation of section 15 that converts it into a general release is also
unsupported by the language of the statute itself. First, section 9 defines
"security deposit" to mean "a deposit paid by a tenant to the landlord ... to
secure performance of any obligation of the tenant under the rental
agr cement. ""^^ There is no indication anywhere in the statute that its effect was
to extend beyond the deposit and the tenant's obligations under the lease
agreement. The illogic of reading section 1 5 as a general release can also be seen
by comparing the security function of rental deposits to other areas of the law
involving secured debts, such as real estate mortgages and security interests in
personal property. In neither of these areas does a creditor's loss of secured
status, as by failure to record a mortgage or file a financing statement, release the
debtor from an obligation to pay.^^ Instead, loss of secured status simply requires
the creditor to pursue an in personam action against the debtor instead of an in
rem action against the security. The same result is appropriate for a landlord who
fails to comply with the notice provisions of the Security Deposits statute. If the
landlord's notice is inadequate, he forfeits the ability to pursue the collateral and
must take his chances on an unsecured claim against the tenant, which claim may
be uncollectable apart from the deposit or subject to a senior claim or judgment.
Finally, conferring on section 1 5 the power to operate as a general release would
render the ability to recover "other damages" moot and would make section 12
internally inconsistent.

"Other damages" that are founded on a legal basis apart from the lease
agreement should not be barred because of a landlord's failure to comply with
a statute that only regulates one lease provision. The landlord in Turley was
willing to return the full amount of the tenant's security deposit for failing to
provide proper notice, but he believed he should then have been able to pursue
other claims unrelated to retention of the tenant's security deposit. He should

86. /^. at 253.

87. M//er, 643N.E.2dat927.

88. IND. Code §32-7-5-9 (1998) (emphasis added).

89. In fact, the Colorado Supreme Court declared unconstitutional that part of the Colorado
security deposits statute which prohibited a landlord from "bring[ing] suit against the tenant for
damages to the premises" where that landlord had failed to provide a written statement listing the
reasons for retaining the tenant's deposit. Tumerv. Lyon, 539 P.2d 1241, 1242 (Colo. 1975). The
court in that case held that the statute violated the Equal Protection Clause of the Fourteenth
Amendment by treating a secured creditor different than an unsecured creditor. Id. at 1243.

1518 INDIANA LAW REVIEW [Vol. 35:1501

have been allowed to do so.

Courts that are called upon in the future to consider claims arising under the
Security Deposits statute should be aware of the conflicting interpretations of the
notice provisions of section 14 and should reject the absolute compliance
analysis oi Pinnacle Properties in favor of the substantial compliance articulated
by Judge Hoffman in his dissent in Pinnacle Properties and as utilized in Rueth,
Gr easel, and Schoknecht. Courts should also be aware of the limitations on the
scope of the statute and should not interpret the "no damages" provision of
section 1 5 as a general release. Instead, that section should be interpreted to act
as a presumptive agreement by the landlord only that there are no damages
chargeable to the security deposit other than for those items itemized in the
notice letter and accompanied by correct or correctable repair costs.

Implementing the Security Deposits statute in this manner will serve the
relevant policies of dissuading landlords from overstating or fabricating damages
in a scheme to unfairly retain a tenant's deposit and of holding tenants
responsible for damage they cause. Tenants will be protected because landlords
must provide notice that specifically identifies the damages to be charged against
the deposit and the amount of repair cost. Armed with this notice, tenants will
be able to decide whether to challenge the landlord's intended use. Landlords
will be dissuaded from improperly inflating damage claims or inventing them
outright by the duty to pay the challenging tenant's attorney's fees if the notice
does not comply with the statute. From the other perspective, landlords will not
see their legitimate and documented damage claims defeated in full by reason of
an error in one item, as well as losing the ability to pursue claims unrelated to
retention of a security deposit. Finally, tenants will not be presented with a
windfall by escaping liability for actual damages that are properly itemized in the
notice letter, plus receiving a general release, a return of the entire amount of the
security deposit, and payment of their attorney's fees simply because the notice
letter also contains one or more unsupported or wrongly calculated items. The
Pinnacle Properties — Turley approach to the Security Deposits statute cannot
accomplish all of these goals.

II. New Holdings FROM THE Indiana Court OF APPEALS: Some
Clarification, Some Extension, Some Reminders

The second section of this Article will address six cases decided by the
Indiana Court of Appeals in 2001 in the areas of restrictive covenants in
neighborhood association documents, statutorily created exceptions to recording
requirements, real covenants, and implied warranties of habitability for single-
family residences. These opinions were chosen because they clarify some aspect
of an existing legal principle or extend a principle into new areas.

A. Restrictive Covenants: Clarity Versus Ambiguity; Reciprocal
Restrictions Versus Free Alienability of Land

One of the many methods available to restrict the future use of land is a
restrictive covenant. Through restrictive covenants landowners can agree to
impose reciprocal benefits and burdens on their parcels that will bind not only

2002] PROPERTY LAW 1519

themselves but will also run with the land and bind subsequent owners. In
Crawley v. Oak Bend Estates Homeowners Ass 'n^^ and Howell v. Hawk,^^ the
court of appeals demonstrated the importance of language to the policy that will
be deemed paramount. When covenants are clearly stated, the enforcement of
private agreement accepted by the lot owners dominates. When covenants are
ambiguous, preference for the free alienability of land will prevail.

1. Crawley v. Oak Bend Estates Homeowners Ass'n. — In Crawley^ the Oak
Bend Homeowners Association and two residents of the Oak Bend subdivision
sued two other subdivision residents, the Crawleys, seeking preliminary and
permanent injunctions to prevent the Crawleys from parking a recreational
vehicle at their home in violation of the neighborhood restrictive covenants.
Section 1 7 of the Oak Bend covenants provided:

No trucks larger than pickup trucks, disabled vehicles, unused vehicles,
campers, trailers, recreational vehicles, boats, motorcycles, or similar
vehicles shall be parked on any road, street, private driveway, or lot in
this subdivision unless it is screened in such a way that it is not visible
to the occupants of the other lots in the subdivision.^^

The Crawleys kept their thirty-seven-foot long and eleven-foot tall motor
home parked in the driveway at their house. The Crawleys did not deny that they
kept the motor home parked in their driveway or that it was not screened.
Instead, they offered explanations for why their conduct was reasonable and why
the restrictive covenant should not be enforced against them. The Crawleys
stated that they kept the motor home stored off-site in the winter months and only
parked it at their residence "temporarily" in the months of April to October.
Such temporary parking was reasonable, the Crawleys asserted, because it made
the motor home convenient for packing for use on weekends and vacations. They
also considered the length of time that they stored the motor home at their
residence to be reasonable because they would take it to an off-site storage
facility if the motor home went unused for fifteen days. Neither the trial court
nor the court of appeals was impressed with the Crawleys' "reasonable use"
defense.

The court of appeals defined a restrictive covenant as "an agreement duly
made to do, or not to do, a particular act" that is "created in conveyances or other
instruments."^^ In addition, the court identified restrictive covenants as a form
of express contract.^"* Because restrictive covenants were viewed as merely
another species of contract, the Crawley court applied traditional contract
interpretation tools to section 1 7. These tools included determining the parties'
intent from the specific language used in the covenant and from the situation of
the parties when the covenant was made, reading specific words and phrases in

90. 753 N.E.2d 740 (Ind. Ct App. 2001).

91. 750 N.E.2d 452 (Ind. Ct. App. 200 1 ).

92. Crawley, 753 N.E.2d at 742.

93. /^. at 744.

94. Id.

1520 INDIANA LAW REVIEW [Vol. 35:1501

conjunction with other provisions of the contract, determining the parties'
intentions from the entirety of the contract, and construing the covenant
provisions "so as to harmonize the agreement."^^

Using these tools, the court of appeals saw no merit in the Crawley s'
argument that the terms of the covenant were ambiguous or in their attempt to
portray their conduct as reasonable and therefore not in violation of the
covenants. The Crawleys were enjoined from parking their motor home on their
property in the subdivision.^^

The message of Crawley is clear. Restrictive covenants are valid, and unless
ambiguous, they are strictly enforceable by another covenantee. That an
expensive motor home would not normally be considered a nuisance or even an
eyesore does not lessen the necessity of compliance. The same is true even
though violation of the covenant is not continuous or is limited in duration.

The strict enforcement given to unambiguous restrictive covenants is
noteworthy because it imposes a duty of inspection on buyers of real estate.
Buyers cannot assume that once they become owners they will be permitted to
engage in activities that contradict the terms of restrictive covenants on the
ground that those activities are "reasonable." Because reciprocal benefits and
burdens are designed to preserve the property values of all covenantees, the
presence of even one objector will be sufficient to enjoin the prohibited activity.
Further, although notice was not an issue in Crawley, buyers must be aware that
they will not be able to assert lack of knowledge as a defense to an obligation
imposed by a restrictive covenant. Provided that a declaration of the
neighborhood covenants has been recorded in the office of the county recorder,
the covenants will run with the land and will bind subsequent purchasers by
virtue of constructive notice.

Standardized real estate purchase agreements provide a limited time for a
buyer to inspect the covenants where membership in a homeowner's association
is mandatory, as it usually is. The purchase agreement form for improved
property prepared by the Indiana Association of Realtors states, "If the Buyer
does not make a written response to the [homeowner's association] documents

within days after receipt, the documents shall be deemed acceptable."^^

Once deemed acceptable in the offer to purchase, the buyer has lost the ability
to object to the covenants' provisions. The buyer's due diligence must therefore
include a careful review of homeowner's association documents.

2. Howell V. Hawk. — Where Crawley promotes a policy favoring
enforcement of clearly stated restrictive covenants, Howell demonstrates an
approach to restrictive covenants that are ambiguous. The Howell court
determined that if a term in a restrictive covenant is ambiguous the policy
favoring free alienability of land compels use of the least restrictive meaning of

95. Id. at 145.

96. Id. at 146.

97. Indiana Ass'n of Realtors, Inc., Purchase Agreement (Improved Property), Form # 02
(2001), para. 17.

2002] PROPERTY LAW 1 52 1

the covenant.^*

The Howell court, much like the Crawley court, began its analysis by
identifying restrictive covenants as a form of contract. "We have held that
restrictive covenants are, in essence, a form of express contract between a grantor
and a grantee in which the latter agrees to refrain from using his property in a
particular manner. "^^ The court also noted that restrictive covenants are created
"to maintain or enhance the value of land by controlling the nature and use of
lands subject to a covenant's provisions."'"^

Also similar to the Crawley court, the court in Howell applied traditional
tools of contract interpretation. "Because covenants are a form of express
contract, we apply the same rules of construction. . . ."'"' Unlike the Crawley
court, which was presented with unambiguous covenants, the Howell court
considered the effect of ambiguity on the enforceability of restrictive covenant
terms. "[WJhere the intent of the parties cannot be determined within the four
comers of the document, a factual determination is necessary to give effect to the
parties' reasonable expectations."^"^ The ambiguity in that case was whether the
prohibition against "mobile homes" in Oak Bend precluded Hawk from
constructing a "manufactured home" in the subdivision.

For the Howell court the presence of ambiguity called into play a proposition
of law that was not mentioned in Crawley and that limits the enforceability of
restrictive covenants. The court stated, "As a general proposition, restrictive
covenants are disfavored in the law, strictly construed by the courts, and all
doubts should be resolved in favor of the free use of property and against
restrictions."'"^ This statement foreshadows the result of the appeal.

For the trial court, the outcome of the case depended on "whether the term
'mobile home' as used in the plain language of the restriction [drafted in] 1972
is broad enough to encompass the house placed on Ms. Hawk's lot in 1999."'"''
To answer this question, the trial judge engaged in an admirably broad
examination of factors that would determine whether a manufactured home could
be categorized as a mobile home. These factors included: 1) tax assessment
procedures used by the county assessor, 2) understanding of realtors from custom
and usage, 3) presence of steel chassis, 4) type of foundation, 5) applicable

98. Howell, 750 N.E.2d at 456 (citing Campbell v. Spade, 617 N.E.2d 580, 584 (Ind. Ct.
App. 1993)).

99. Id. (citing Columbia Club, Inc. v. Am. Fletcher Realty Corp., 720N.E.2d 411, 418 (Ind.
Ct. App. 1999)).

100. Id. (citing Campbell, 617 N.E.2d at 584).

101. Id.

102. Id. (citing Campbell, 617 N.E.2d at 584), In Campbell, the court found the trial court's
grant of summary judgment in favor of a lot owner in a suit filed by the neighborhood association
to be inappropriate. A factual dispute existed regarding the parties' intent of whether the
construction and use of a gravel roadway on the lot without a residence violated the restrictive
covenant that limited use of lots to "residential purposes only." Campbell, 617 N.E.2d at 583-84.

103. Howell, 750 N.E.2d at 456 (citing Campbell, 617 N.E.2d at 584).

104. /^. at 455.

1522 INDIANA LAW REVIEW [Vol. 35:1501

building codes (state and local versus HUD requirements), 6) construction off-
site and delivery in segments or as a whole, 7) nature of seller's business,
8) transportability on attached wheels, 9) number of square feet of living space,
10) similarity in appearance to other homes in the subdivision, and 1 1) Indiana
Administrative Code definitions. '^^ After analyzing these factors and applying
the presumptions against restrictions and in favor of free use of land, the trial
court concluded that Hawk's manufactured home did not violate the covenant
against mobile homes. It therefore denied the residents' request for an
injunction.

On appeal, Howell and the other residents argued that the trial court had
erred in finding the term "mobile home" to be ambiguous and in finding that
Hawk's manufactured home was not encompassed by that term. Addressing the
residents' reliance on various statutory definitions of "mobile home," the court
of appeals emphasized the paramount contract interpretation principle of
"givfing] effect to the actual intent of the parties, as determined from the
language used, the motives of the parties and the purposes they sought to
accompli sh."'°^ The court added that the language of a covenant should be read
in its ordinary or popular sense rather than a legal or technical sense and that the
parties' construction of an ambiguous term is the best evidence of its meaning. '^^
Finally, the court echoed the trial court's emphasis of free use of land over
restrictions on use. "Covenants will be most strongly construed against the
covenantor, at least where the terms used therein are equivocal. "'°^ The court of
appeals affirmed the trial court's decision that Hawk's manufactured house was
not barred by the covenant prohibiting mobile homes. '^^

To determine the parties' intent in their use of the word "mobile home" in the
restrictive covenants, the court of appeals utilized a functional analysis that
focused on the appearance and size of Hawk's house and on the purpose behind
the covenant. The court identified the fundamental intent of the parties in
prohibiting mobile homes in the subdivision as maintaining the covenantees'
property values. "° Guided by this goal, the court of appeals noted that Hawk's
house exceeded the square footage requirements of the covenants and that it
looked like the other houses in the neighborhood.'^' Because "a person could
not tell [Hawk's house] from the others,""^ it did not threaten the neighbors'
property values and thus did not violate the intent of the covenant."^ The court
of appeals' use of a functional approach accommodated the covenantee's desire
to preserve land values and preserved the free use of land against ambiguous

105.

/fi?. at 453-55,

106.

/c/. at 457.

107.

Id.

108.

Id.

109.

Id at 460.

110.

Id. at 456.

111.

Id. at 459.

112.

Id.

113.

/^. at 459-60

2002] PROPERTY LAW 1 523

restrictions.

Perhaps the most important contribution of the Howell opinion is its focus
on the parties' intent for a restrictive covenant as expressed at a particular time.
The court stated that "[i]ntent should be determined as of the time the covenant
was made . . . ."'"^ This temporal component of the analysis fixes the parties'
intent at a point in the past and does not permit the restrictive covenant to be
interpreted to include conditions or products that arise subsequently, unless those
conditions or products are unambiguously encompassed by the original covenant
terms.

In 1972, when the restrictive covenants at issue in the Howell case were
drafted, the court concluded that a mobile home was the only type of housing that
was not "stick-built." Further, a mobile home was understood to be a "house
trailer" that possessed identifiable features, including relatively small size
(single-wide construction), ability to be towed on the highway using its own
tongue and wheels, and absence of a permanent foundation.''^ Housing of this
type was seen as a threat to property values for owners of stick-built homes.

However, between 1972 and 1999, when the College-Hill subdivision
residents sought the injunction against Hawk, housing options had expanded to
include double-wide mobile homes, manufactured homes, and modular homes in
addition to stick-built homes. The distinction between home types was further
blurred as components of stick-built homes may now be constructed off-site and
delivered to the owner's lot for assembly. This evolution in housing options, the
court of appeals said, has resulted in "now-overlapping concepts" in housing
types.' '^

Issues can, and likely will, arise when products evolve but the intent of the
convenantees' language cannot. For the court of appeals, the appropriate
response to changed conditions is to change the language of the covenant. "Had
the [residents] wished to clarify the covenant so as to restrict any structure other
than a so-called 'stick-built' home, they had the means and the terminology at
their disposal to do so.""^

The court of appeals' emphasis on amending the language of restrictive
covenants to keep pace with the times may not be the panacea it is portrayed to
be. Such an amendment may be impossible if the restrictive covenants require
a supermajority vote of homeowners to amend the covenants. A supermajority
would not have been a problem in the Howell case as ninety-one residents of
College-Hill joined in the complaint and in the appeal, but it is easy to conceive
of situations where a sufficient number of lot owners will refuse to amend the
covenants to exclude the newly-evolved product. The non-agreeing lot owners
may be motivated by a desire to use their land in the way the other owners would
like to prohibit or they may simply wish to maximize the marketability of their
land by keeping it free of additional restrictions. The difficulty in amending

1 14. Id. at 457 (emphasis added).

115. /£/. at 458-59.

116. /c/. at 459-60.

117. /£/. at460.

1524 INDIANA LAW REVIEW [Vol. 35:1501

covenants would of course be amplified if unanimity is required.

The most effective approach for preserving the enforceability of restrictive
covenants and for anticipating future developments is to utilize both negative
restrictions and affirmative intent statements. To address existing conditions, the
restrictive covenants should identify the prohibited structures, practices, and
conditions as specifically as possible. To address future developments, the
restrictive covenants should clearly identify the goal of the restriction. An
affirmative goal statement of preserving property values by permitting the
construction of residences using construction methods and building materials
similar to existing homes in a subdivision states the residents' intent in a way that
may lessen the risk of ambiguity due to the evolution of "overlapping concepts"
of housing types.

B. Exclusion of Statutorily Created Interests in Real Estate
from the Public Document Recording System:
Mattingly v. Warrick County Drainage Board' '^

Prospective purchasers of real estate are naturally interested in confirming
the state of title to the land they plan to purchase. Some certification of the state
of title is contained in the words of grant contained in the deed and in the
vendor' s affidavit that generally accompanies a deed, but no reasonable, let alone
careful, buyer would rely solely on the seller's affirmations. That buyer would
seek further confirmation.

Further confirmation will often consist of a search of the documents placed
in the public recording system. The most obvious place to conduct such a search
is in the recorder's office in the county where the land is located. In that office,
the prospective buyer will find deed record books, mortgage record books, and
miscellaneous record books''^ that contain copies of documents affecting title to
real estate. '^° These books are, however, not the only books in the recorder's
office that must be examined. There will also be books that index federal and
state tax liens.

Nor is the recorder's office the only office in the county courthouse that the
prospective buyer must search. He must also check the county clerk's office to
determine if any judgments have been entered against the seller as those
judgments constitute a lien against all of the seller's real estate in that county.'^'
Similarly, the prospective buyer must check the lis pendens record book to
determine whether there are any pending complaints against the seller that would

118. 743 N.E.2d 1 245 <Ind. Ct. App. 200 1 ).

1 1 9. These "books" may be in electronic form in many counties, but the intent and
organization of the documents in them is the same whether the medium is print or electronic.

120. Ahhough the possibility of having one's interest in land defeated, as by a bona fide
purchaser, or subordinated, as by a recorded lien, is powerful incentive to record a document setting
forth one's interest in land, recording is not required. As a result, the availability of public
recording does not mean that every relevant document has been recorded.

121. IND. Code §34-55-9-2(1998).

2002] PROPERTY LAW 1525

affect the real estate. Additionally, the county treasurer's records must be
examined to determine if unpaid real estate taxes have resulted in a lien against
the property.

Nor is the county the only governmental subdivision whose records must be
examined. The federal court clerk's records must be searched for pending
actions, and the federal bankruptcy clerk's records must be searched to determine
whether the seller has filed a bankruptcy petition (or had one filed against him)
that would include the real estate as part of a bankruptcy estate. Additionally, if
the real estate is located in a town or city, the buyer must check the records of
various municipal offices for a variety of charges that could constitute liens, such
as utility assessments.

This list of offices whose records must be consulted is not exhaustive; '^^ it
includes only those records that are most commonly encountered in a real estate
transfer. Because there is no centralized record system for real estate, a person
interested in confirming the state of title for a parcel of land is made to work for
his answer. Even though the public document recording system provides a
generally workable framework for verifying the state of title of real estate, the
system does contain "holes." These holes exist when an interest in real estate
cannot be discovered, no matter how diligent the search of the public records.
The relation-back provisions of mechanic's liens is an obvious example.'^^ A
future advances clause contained in a mortgage raises a similar problem. '^^
Knowing that these holes exist, persons who wish to acquire an interest in real
estate can take steps to protect themselves against the uncertainties about the
state of title. '^^

Occasionally, a case comes along that highlights a further shortcoming in the
public document recording system as a means of title verification. Such a case
in 2001 was Mattingly v. Warrick County Drainage Board. The problem in that
case arose from the fact that statutorily created interests in real estate are
excluded from the recording system. Constructive notice arises merely from the
enactment of the statute or regulation.

Mattingly purchased 3.10 acres of land in Warrick County, on which he
planned to construct eight buildings containing 457 mini-storage units. After
closing of the purchase and during the building permit process, Mattingly learned
that a "regulated drain" abutted one border of his land and that his proposed
construction encroached on the seventy- five foot right-of-way associated with the

1 22. One text identifies seventy-six types of records located in sixteen different public offices
that contain information relevant to the state of title to land. Grant S. Nelson & Dale A.
Whitman, Real Estate Transfer, Finance, and Development 216 (5th ed. 1998) (citing
QuiNTiN Johnstone & Dan Hopson Jr., Lawyers and Their Work 274-75 (1967)).

123. IND. Code §§ 32-8-3-1 to -3-15 (1998 & Supp. 1999). See Lloyd T. Wilson, Jr.,
Reconstructing Property Law in Indiana: Altering Familiar Landscapes, 33 iND. L. Rev. 1405,
1406-10 (2000). Effective July 1, 2002, the mechanic's lien statutes will be recodified at Indiana
Code sections 32-28-3-1 to -18.

124. See Wilson v. Ripley County Bank, 426 N.E.2d 263, 266, 269 (Ind. Ct. App. 1984).

125. See Wilson, supra note 123, at 1411-13.

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INDIANA LAW REVIEW

[Vol. 35:1501

drain. Mattingly asked the Warrick County Drainage Board to decrease the size
of the right-of-way to twenty-five feet, but the board would only agree to a
reduction to fifty feet. The effect of a fifty- foot right-of-way was to reduce the
number of mini-storage units Mattingly could construct by thirty percent, from
457 to 318.

Mattingly sued the drainage board, alleging an unconstitutional taking of his
property. The board and Mattingly filed cross-motions for summary judgment.
In his motion, Mattingly argued that his land was not encumbered by the right-of-
way for the drain because he did not have actual knowledge of its existence and
could not be deemed to have constructive knowledge because there was no public
record to put him on notice that a regulated drain existed on his land. The trial
court denied Mattingly's motion and granted the motion for summary judgment
filed by the board. The court of appeals affirmed the trial court's decision. '^^

Indiana Code section 36-9-27-2^^^ defines a regulated drain as "an open
drain, a tiled drain, or a combination of the two." Once a county declares a drain
to be "regulated," the county becomes responsible for repairing and maintaining
it.'^^ The court of appeals identified a regulated drain as an interest in land in the
nature of a license that includes both a right-of-entry and a right-of-way.'^^

Even if the drain was statutorily created, Mattingly argued that it could not
adversely affect his title because the statutes that authorize and define regulated
drains do not inform him that a drain exists on his land. Mattingly further argued
that no publicly recorded documents existed by which he could have discovered
the drain's existence. The court did not agree.

In addition to interests in land that can be created by private action or
agreement or through judicial proceedings, the court of appeals noted that
interests in land can also be created by statute. For those interests, the public
document recording system is inapposite. Instead, the statute that creates the
interest in land will designate a custodian of the records, and it is only in the
records of the custodian that documents affecting real estate will be found.
"[T]he easement associated with the regulated drain is a creature of statute and
. . . was created by public action rather than by private agreement. Ind. Code §
36-9-27-29 designates the county surveyor as the 'technical authority' [for] . . .
all regulated drains ... in the county."'^° By virtue of his status as technical
authority, the court of appeals determined that "the county surveyor is the
custodian of the records pertaining to regulated drains . . . ."'^' Further, the
county surveyor is required only to possess the records; "[t]he statute does not
require the county surveyor to record regulated drains with the county

126. A/am>zg/y,743N.E.2datl251.

127. iND. Code §36-9-27-2 (1998).

128. Mattingly, 743 N.E.2d at 1247 n.2 (citing Johnson v. Kosciusko County Drainage Bd.,
594 N.E.2d 798, 800 (Ind. Ct. App. 1992)).

1 29. Id. at 1 249 (citing Johnson, 594 N.E.2d at 804).

130. /^. at 1250.

131. M

2002] PROPERTY LAW 1527

recorder."'^^

The Warrick County Surveyor did maintain a list of the drains in the county
and had maps showing their location. Such lists did not, however, show the
location of regulated drains and they were not indexed by name of property
owner. Instead the drains were locatable only by applying known geographic
information to the maps. The court of appeals nonetheless concluded that the list
and the maps were "public records" that "provide[d] constructive notice of the
regulated drain" to Mattingly and the public in general. '^^ Because constructive
notice had been given, the board could enforce its right-of-way. Further the
board's assertion of its pre-existing interest in land, as evidenced by its refusal
to reduce the size of the right-of-way to Mattingly's liking, could not constitute
a "taking" that required compensation.'^''

The court of appeal's decision in Mattingly serves as a sobering reminder of
the limitations of the public recording system as a means of confirming the state
of title to real estate. Mattingly is not unique, however, in this regard. In 1998
the court of appeals decided WorldCom Network Services, Inc. v. Thompson J^^
In that case, owners of land were deemed to have constructive knowledge of a
county highway right-of-way even though there was no record of it in the county
recorder's office. In upholding the enforceability of the right-of-way, the court
of appeals determined that the owners had constructive notice of the existence
of the right-of-way because of a 1913 entry in the county Board of
Commissioner's order book.'^^ The presence of that order book in the office of
the county auditor was a "public record binding on the [owners]. "'^^

As Mattingly and WorldCom demonstrate, the scope of inquiry necessary to
"confirm" the state of title to real estate is broad. In addition to the multiple
public offices where privately or judicially created interests in land are deposited,
one must also take into account statutorily created interests that do not depend
on the public document recording system to impart constructive notice.

C. The Scope and Duration of Real Covenants

Restrictive covenants used by neighborhood associations, as in Crawley and
Howell, are a means by which a group of landowners can use contractual
agreement to impose reciprocal benefits and burdens that affect and run with the
land. When a grantor wishes to impose some restriction or affirmative duty on
a grantee affecting a single parcel of land upon transfer, that restriction or duty
is imposed by way of a real covenant contained in a deed. The court of appeals
considered the scope and duration of such a real covenant in Keene v. Elkhart

132. Id.

133. U at 1250-51.

134. /^. at 1251.

135. 698 N.E.2d. 1233 (Ind. Ct. App. 1998).

136. /£/. atl241.

137. /of. at 1238.

1528 INDIANA LAW REVIEW [Vol. 35:1501

County Park & Recreation BoardP^

The relevant facts of that case begin in 1 924 when the owners, the Darrs,
conveyed by deed a 1 00-foot strip of land on their farm to the Interstate Public
Service Company (IPSCO). This strip of land ran the length of the Darrs' farm
and bisected it. IPSCO intended to use the strip for a hydraulic canal in
conjunction with a hydroelectric generating facility it operated on the Elkhart
River. The canal would prevent the Darrs from accessing the rear part of their
farm.

To address the bisection of the farm, IPSCO agreed, as part of the
consideration for the sale of the strip, to "construct and forever maintain a proper
bridge over the canal . . . , which bridge shall be one constructed and maintained
as to provide safe and secure crossing over said canal for all farming operations

upon [the] land "'^^ IPSCO's obligation was memorialized as a real covenant

in the deed from the Darrs to IPSCO. The deed further provided that "[t]he
conditions herein set forth to be done and performed by said grantee shall be a
burden upon and run with the title of the land hereby conveyed."''^^

IPSCO deeded the strip of land to Northern Indiana Public Service Company
(NIPSCO) in 1932, and in 1970 NIPSCO deeded the land to the Elkhart County
Park and Recreation Board (Board). Although the number of intermediary
owners of the farm is not identified, the Keenes eventually acquired the Darrs
parcels. The bridge was apparently maintained in a manner satisfactory to all
parties until 1996. In that year the Keenes filed suit against the Board, alleging
that it had failed to perform its obligations under the real covenant because it had
failed to make necessary "repairs and alterations." As a result, the Keenes
alleged that the bridge was "no longer suitable for [their] farming needs."^"*'

The Keenes filed a motion for summary judgment, claiming that the real
covenant in the deed obligated the Board to maintain the bridge "such that [it]
could support reasonable modem farming operations."'"*^ The Board filed a
cross-motion for summary judgment, arguing that its maintenance and repair
duties were to be measured by the original 1924 specifications for the bridge.
The trial court agreed with the Board.

The parties did not dispute that the Board, as successor in interest from
IPSCO, was bound by the real covenant IPSCO had accepted, nor did they
dispute that the Keenes were entitled to enforce the covenant as successors in
interest to the Darrs. The parties did disagree, however, about the proper scope
of the duty the covenant imposed. Were the maintenance and repair obligations
assumed in 1924 to be viewed as static or evolving?

After reviewing basic principles applicable to real covenants, the court of
appeals engaged in deed interpretation, "[t]he object [of which] is to identify and
implement the intent of the parties to the transaction as expressed in the plain

138. 740 N.E.2d 893 (Ind. Ct. App. 2000).

139. Mat 895.

140. Id.

141. /^. at 895-96.

142. Mat 896.

2002] PROPERTY LAW 1 529

language of the deed."''*^ Applying "ordinary and popular" meanings to the
words in the covenant, as opposed to "technical or legal"''*'^ meanings, the court
resolved the issue in three steps. First, it said that the obligation to construct and
repair was tied to the characterization of the bridge as a "proper bridge." What
made the bridge "proper" was suitability for some purpose, which the parties had
identified in the real covenant as "[to] provide safe and secure crossing over [the]
canal for all farming operations upon [the] land."'"*^

Second, the court determined the duration of the obligation. It concluded
that the use of the term "forever" in the deed "indicate[d] that this obligation
would run in perpetuity.""*^

The final component of the court's analysis was to determine the scope of the
necessary duties to maintain a bridge that would be "proper" because it provided
"safe and secure crossing ... for all farming operations upon [the] land." The
court focussed on the word "all." From the inclusion of this word, the court
concluded that the original parties to the real covenant did not intend to limit
IPSCO's obligations (and thereby the obligations of IPSCO's successors) "to
farming operations of a particular kind or extent."'"*^ When the court joined the
unlimited extent of the repair and maintenance obligation with the unlimited time
frame, it had the basis for rejecting the Board's contention that its obligations
were fixed at 1924 standards. "[W]hen the phrase 'all farming operations' is
read in conjunction with the perpetual nature of the obligations imposed by the
covenant, it is clear that the parties did not intend that IPSCO's obligations
would be fixed to the type or extent of farming operations in existence at any
particular time."^'*^

Instead, the court permitted the covenant obligation to be an evolving one.
"We accordingly conclude that the Board's maintenance obligation under the
covenant includes the perpetual duty to ensure that the bridge over the canal
remains sufficient to accommodate the farming operations performed on the
Keenes'sland.''''^

The court recognized that a perpetual maintenance obligation would exceed
the useful life of the bridge and someday would require a new bridge to be built.
The court also acknowledged that its ruling might seem inequitable as the Board
did not receive any advantage from the 100 foot-wide strip of land, like IPSCO
might have received, to offset the burden of repairing or replacing the bridge.
Nevertheless, the court concluded that the Board was bound as successor in
interest to the land burdened by a real covenant. The rule that "one who takes
real property subject to covenants running with land set forth in a deed is bound

143. Id. at 897 (citing Windell v. Miller, 687 N.E.2d 585, 589 (Ind. Ct. App. 1997)).

144. Id.

145. Id.

146. Mat 898.

147. Id.

148. Id.

149. /f]^. (emphasis added).

1530 INDIANA LAW REVIEW [Vol. 35:1501

by those covenants as if he were a party to the original transaction"'^^ left no
room for consideration of apparent burdens on successors in interest who may
share little in common with the original grantee.

The Keene opinion does identify one open question that is likely to resurface:
Even if it can be said that the parties intended to impose and to accept a
changeable duty, how are the permissible extent and frequency of changes to be
evaluated when the covenant is silent on those aspects. In other words, how far
can the evolution of a duty progress? The Board argued that a perpetual and
evolving maintenance burden rendered the covenant too uncertain to be
enforceable. Specifically, the Board asserted that:

[I]f [the Board] is required to maintain the bridge so that it will be
suitable for use in connection with whatever farming operations are
being conducted on the Keenes's property at any given time, [it] will be
forced to improve or rebuild the bridge at the whim of the Keenes. . . .'^'

The court did not consider this objection sufficient to void the covenant. The
court acknowledged that the covenant did not provide for "a fixed schedule of
maintenance or decide in advance the exact specifications of future
improvements,"'^^ but, based on the parties' operation under the covenant from
1 924 until the present dispute, the court said it was confident that the covenant
was "sufficiently defined to guide their obligations in the future."'^^

The court's confidence in parties' ability to agree on undefined terms may
be overly optimistic, both for the Keenes and the Board and for parties to other
real covenants. In the absence of specifications, how is a court to determine
whether an owner's demand for maintenance, repair, or reconstruction is
excessive? If a court imposes a reasonableness standard, doesn't the court
become involved in writing terms for the parties that they did not write for
themselves? Further, wouldn't a reasonableness standard perhaps penalize the
Keenes if they used larger equipment than their neighbors, and which permitted
them to farm more efficiently, even if the result is greater and more frequent
repairs to the bridge? Plus, shouldn't the covenant obligation pertain to the
particular owner's use of this particular piece of land, as it was all farming
operations on this land that was protected by the covenant? But on the other
hand, aren't the Keenes being given the power to impose significant costs on the
Board if they do indeed use unusually large and heavy equipment? If courts are
going to be reluctant to invalidate restrictive covenants on vagueness grounds,
covenantees may be dismayed at the ways courts fill gaps that the parties left
behind.

Real covenants are a species of private law, where the parties have the ability
to determine the content and scope of their rights and obligations. Keene
emphasizes the care the original grantor and grantee must use when establishing

1 50. Id. at 899 (citing Midland R. Co. v. Fisher, 24 N.E. 756, 756-58 (Ind. 1 890)).

151. Id.

152. Id.

153. Id.

2002] PROPERTY LAW 1531

their private law rights and duties and the care subsequent guarantees must
exercise before accepting title to real estate. Absent such care a subsequent
grantee can incur unanticipated, and potentially undesirable, duties through real
covenants.

D. The Elements and Scope of the Implied Warranty of Habitability
in Sales of Residential Housing

Indiana law protects homebuyers from losses arising from latent defects in
the property and improvements by implying a warranty of habitability. Through
this warranty the vendor "warrants that the home will be free from defects that
substantially impair the use and enjoyment of the home."'^'* Two cases decided
by the court of appeals address this warranty. Smith v. Miller Builders, Inc.
provides an important clarification of the elements of proof a homeowner must
establish to succeed on a claim for breach of implied warranty. Carroll 's Mobile
Homes, Inc. v. Hedegard^^^ helps define the scope of the implied warranty by
analyzing the classes of persons subject to the duties of the warranty. Smith and
Carroll 's Mobile Homes are thus important for defining the extent of protection
provided to homebuyers who sustain losses arising from conditions unknown to
them prior to closing.

1. Clarifying the Role of Reliance: Smith v. Miller Builders, Inc. — In Smithy
homeowners, the Smiths, sued the developer of their subdivision. Miller, for
negligent design and construction of drainage facilities and for breach of the
implied warranty of habitability. ^^^ The primary issue considered on appeal was
whether the trial court correctly concluded that the Smiths, who purchased the
house from the original purchaser and not from the developer, could not recover
from Miller because they did not rely on Miller's skill or expertise. '^^ Is reliance
a necessary element of an implied warranty of habitability claim asserted by a
remote purchaser?

Miller was a real estate developer who developed a subdivision in St. Joseph
County, In the subdivision approval process. Miller identified storm water
drainage problems at the property, especially with regard to lots platted in the
southwest comer of the subdivision. To address these problems, the County
made approval of Miller's subdivision application subject to certain lot elevation
requirements and to the construction of an urban drain engineered to
accommodate a specified volume of water.

The St. Joseph County Area Plan Commission approved Miller's subdivision
application, including its drainage system, in 1986. In 1988, Miller sold lot 71,
which is located in the southwest comer of the subdivision, to Mrs. Crachy. Mrs.
Crachy and her husband then built a house on the lot. Sometime thereafter, the
basement of the Crachys' house flooded following a heavy rain. The drainage

1 54. Smith v. Miller Builders, Inc., 741 N.E.2d 731, 740 (Ind. Ct. App. 2000).

155. 744 N.E.2d 1049 (Ind. Ct. App. 2001).

1 56. Smith, 741 N.E.2d at 734.

157. /^. at 740-41.

1532 INDIANA LAW REVIEW [Vol. 35:1501

basin area at the rear of the lot also filled with water.

The Smiths purchased the Crachys' house in 1991. Prior to the sale, the
Crachys told the Smiths about the earlier flooding. In 1 993, the basement of the
Smiths' house flooded after a heavy rain. An engineering study revealed that the
retention basins in the subdivision were built to accommodate approximately
twenty percent fewer cubic feet of water than called for in Miller's approved
design, that none of the drywells planned for the drainage plain had been
constructed, and that the Smiths' lot was located in a natural drainage course.

The Sm iths' sued the developer, who planned and developed the subdivision,
including the drainage plan, but who did not construct the house in which they
lived. The court of appeals framed the issue stating, "The question
addressed . . . was [w]hether a professional developer who improves land for the
express purpose of residential homebuilding with knowledge but without
disclosure of a latent defect in the real estate that renders the land unsuitable for
the purpose of residential homebuilding breaches an implied warranty of
habitability."^''

The trial court based its analysis on a factually similar case the court of
appeals had decided in \9%9, Jordan v. Talaga.^^^ In Jordan, homeowners sued
subdivision developers, who improved the land but did not build the house,
alleging breach of implied warranty of habitability when their home and lot were
damaged from periodic flooding. The court of appeals in Jordan held that the
theory of implied warranty of habitability is applicable to professional developers
and that the developers in that case breached the duty.

Because there was no authority in Indiana on the issue raised in Jordan that
court looked to a Colorado case, Rusch v. Lincoln-Devore Testing Laboratory,
Inc. '^® The Jordan court quoted the Rusch opinion for the principle that:

[I]f land is improved and sold for a particular purpose, if vendor has
reason to know that the purchaser is relying upon the skill or expertise
of the vendor in improving the parcel for that particular purpose, and the
purchaser does in fact so rely, there is an implied warranty that the
parcel is suitable for the intended purpose.'^'

The trial court in the Smiths' case characterized the Jordan court as
"essentially adopt[ing]" the Rusch rule, including the element of reliance by the
homeowner. Because a remote homebuyer could not have relied on a developer
with whom that homebuyer had not dealt, the trial court entered judgment in
favor of Miller.

In examining the Smiths' claims on appeal, the court of appeals re-examined
the use that the Jordan court had actually made of the Rusch decision. The court
of appeals concluded that the trial court had misconstrued the Jordan court's use
of Rusch, stating that the court in Jordan "did not adopt" the holding of the

1 58. Id. at 742 (alteration in original).

1 59. 532 N.E.2d 1 1 74 (Ind. Ct. App. 1 989).

160. 698 P.2d 832 (Colo. Ct. App. 1984).

161. Jor^aw, 532 N.E.2d at 1185.

2002] PROPERTY LAW 1533

Colorado court.'" Instead, the court of appeals said that the Jordan court had
found the Rusch decision "worthy of note" because it "illustrate[d] that other
jurisdictions had reached the same conclusion under similar facts; namely that
subdivision developers were liable to the homeowners for breach of the implied
warranty of habitability."'"

The question actually resolved by Jordan, according to the Smith court, was
that for purposes of the implied warranty of habitability the term "vendor" could
include a developer of real estate intended for residential use even if the
developer did not build (and thus was not the "vendor" oO the residence that was
damaged by a defect in the design or engineering of the land on which the
residence sits. To explain the imposition of the warranty of habitability on the
developer, the Smith court relied on the following factors and policy concerns
established in Jordan: that developers are professionals in the real estate
development business, that they may sell land without disclosing known defects,
and that they do more than sell raw land as they construct infrastructure such as
roads and sewers specifically for home construction.'^ Including developers
within the definition of vendor was also guided by the policy concern that
"homeowners would be left without a remedy for latent defects in real estate that
unscrupulous developers failed to disclose."'^^

Having clarified what had been decided in Jordan, and what had not been
decided, the Smith court turned to the issue it said had not been addressed in that
case — ^whether under Indiana law reliance by a homeowner is a required element
of a claim for breach of implied warranty. To answer this question the Smith
court noted the trend inherent in the development of the implied warranty of
habitability in residential construction.

The implied warranty of habitability in home purchases originated in Indiana
in 1972 in Theis v. Heuer}^^ In that case, the Indiana Supreme Court held that
the doctrine of caveat emptor would no longer be applied to claims of a
homeowner involving the purchase of a new residence from the builder-
vendor.'^^

The next significant development occurred in 1976 when the Indiana
Supreme Court decided Barnes v. Mac Brown & Co. '^* The court there held that
the warranty of habitability protects second and subsequent homeowners from
latent defects that are not discoverable on the purchaser's reasonable pre-
purchase inspections and which manifest themselves after the purchase. '^^

The court of appeals in Smith observed that nothing in Barnes required the
second or subsequent homeowner to prove that he had relied on the builder's

162. 5m/Y/i,741N.E.2dat742.

163. Id.

164. Id. {cxWng Jordan, 532N.E.2d at 1 185).

165. Id (citing Jordan, 532 N.E.2d at 1 186).

166. 280 N.E.2d 300 (Ind. 1972).

167. /^. at 306.

168. 342 N.E.2d 619 (Ind. 1976).

169. /^. at 620-21.

1534 INDIANA LAW REVIEW [Vol. 35:1501

skill or expertise. '^° The court of appeals also stated that "such reliance would
be unlikely and hard to prove given the lack of privity between the parties."'^'
Thus, imposition of a reliance element would frustrate the policy objective noted
in Jordan of providing a remedy for homeowners damaged by a developer's
failure to disclose the existence of a known latent defect and would be counter
to the consumer protection interests furthered by Theis and Barnes.

The court of appeals' decision in Smith continues the trend of expanding
consumer protection in home purchases and of imposing liability on developers
who fail to disclose their knowledge of latent defects. Smith does so by making
clear that a "vendor" includes persons in addition to those who construct and sell
houses; the term also includes those persons who construct infrastructure and sell
lots to others, who in turn build houses. Thus, the court expanded the focus of
the warranty of habitability from the residence building itself to all components
of the development process that are necessary prerequisites for that residence.
Imposition of reliance as an element of a claim for breach of implied warranty
of habitability would have permitted some site developers who covered up latent
engineering defects to escape liability. In the absence of a reliance element, such
developers can be held responsible for the effects of their failure to disclose. By
clarifying the meaning of its prior holding in Jordan, the court of appeals
increased the sense of order in the law of implied warranties of habitability. The
consumer protection goals inherent in the implied warranty are freed of an
unnecessary barrier.

2. The ''Builder" Component of ''Vendor": Carroll's Mobile Homes, Inc.
V. Hedegard. — The scope of consumer protection afforded by the implied
warranty of habitability was also considered in Carroll's Mobile Homes, Inc. v.
Hedegard, but in that case the defendant-vendor's lack of participation in
creating the latent defect precluded liability. In Carroll's Mobile Homes, the
buyer of a mobile home sued the vendor of that home alleging structural damages
resulting from the vendor's failure to set up the home according to the
manufacturer's specifications. The buyer also alleged that the vendor failed to
properly construct the foundation on which the home's footers and piers rested.

The buyer purchased the mobile home in 1987 but did not file suit until
twelve years later. Because the statute of limitations barred the buyer's
negligence and breach of contract claims, the buyer based her complaint on a
confusing mix of allegations sounding in fraud and in breach of implied warranty
of habitability. The trial court ultimately ruled in favor of the buyer on the
warranty claim, finding that the vendor "owed Plaintiff a warranty of habitabi 1 ity
that the mobile home, as installed, would be free from defects which would
substantially impair the use and enjoyment of such mobile home."'^^ The court
of appeals reversed.'^^

The court of appeals initially noted that "[t]he implied warranty of

170. Smith, 741 N.E.2d at 743.

171. Id.

1 72. Carroll 's Mobile Homes, 744 N.E.2d at 1 05 1 .

173. /c/. at 1051-52.

2002] PROPERTY LAW 1535

habitability applies only to home builders-vendors" and that it "does not apply
to a mere vendor."'^'* The court cited Choung v. lemma^^^ for several established
principles of warranty of habitability law, including principles that define the
scope of the warranty's protection by identifying what classes of persons are
presumed to have extended the warranty. "[A]n implied warranty of habitability

in the sale of a new house [is] extended from a 'builder- vendor' "'^^ Further,

a "'builder- vendor' is a person in the business of building and selling homes for
profit."'^^ The court of appeals concluded that Carroll's Mobile Homes may
have been a vendor but it was not a "builder- vendor" subject to duties pursuant
to an implied warranty of habitability.'^*

The principle by which Smith and Carroll 's Mobile Homes can be reconciled
is that habitability for breach of the implied warranty requires a causal
connection between the vendor and the defect. With the removal of contractual
privity and actual reliance as elements of a homebuyer's warranty claim, remote
vendors responsible for "building" the defect can be held liable, while immediate
vendors who did not contribute to the defect will not be liable simply by virtue
of their status as a vendor.

III. Second Chances AT ORDERING: Two Rulings on
Petitions TO Transfer

Cases discussed in one volume of this law review can resurface in a
subsequent volume as a result of the supreme court's decision to grant or to deny
a petition to transfer. A grant of transfer and subsequent opinion will usually
merit analysis; a denial of transfer may merit discussion if that denial leaves
standing an opinion that injects uncertainty or disorder into the law. In the
survey period of this volume, the supreme court provided an example of each.

A. The Scope of the Statute of Frauds in Property Law: Brown v. Branch '^^

The 2001 survey issue Article on Indiana property law contains an analysis
of the court of appeals' decision in the Brown case.'*° That analysis criticized
both the result the court of appeals reached and the method it used to reach that
result. Fortunately, the Indiana Supreme Court reversed the court of appeals'
decision. In so doing, the court avoided injecting substantial uncertainty into an
area of law that appeared to have been long-settled and reestablished order to the
adjustment of allegedly competing claims to land.

The critical fact in Brown is an oral promise by Brown, the owner of a house,
to Branch, his girlfriend in a stormy on-again, off-again relationship. Following

174. /£/.atl051.

175. 708 N.E.2d 7 (Ind. Ct. App. 1999).

1 76. Carroll 's Mobile Homes, 744 N.E.2d at 1 05 1 (quoting Choung, 708 N.E.2d at 1 2).

177. Id.

178. /^. at 1051-52.

179. 758N.E.2d48(Ind.2001).

1 80. Wilson, supra note 10, at 994-99.

1536 INDIANA LAW REVIEW [Vol. 35:1501

one of the couple's multiple breakups, Branch moved to Missouri. Shortly after
that move, "Brown telephoned [Branch] and said that if she moved back to
Indiana, Branch would 'always have the . . . house' and that she '[would not] be
stuck on the street. [She] [would] have a roof over [her] head.'"'^' Branch
returned; the couple fought and broke up again; Brown reneged on his oral
promise; Branch sued. To support her claim. Branch argued that the Statute of
Frauds'^^ did not apply to the case because Brown's promise was to "give" her
the house and thus did not involve the "sale" of real estate as provided in the
statute. Alternatively, Branch argued that Brown's promise was taken out of the
Statute of Frauds by promissory estoppel principles. The trial court awarded the
house to Branch. The court of appeals affirmed, accepting both of Branch's
arguments.

The principal criticism of Brown made in last year's survey issue focused on
the court of appeals' use of an unduly restrictive definition of the word "sale"
contained in the Statute of Frauds.'" According to the court of appeals, the
Statute of Frauds applies only to "[a] contract between two parties, called,
respectively, the 'seller' . . . and the 'buyer,' ... by which the former, in
consideration of the payment or promise of payment of a certain price in money,
transfers to the latter the title and possession of property."^*"* The court of
appeals' approach, it was observed, ignored a rich history of appellate decisions
which applied the Statute of Frauds to transactions that did not involve
consideration, did not involve transfers of title, or did not involve a change in
possession.'*^ Further, the court of appeals' opinion failed to analyze the
evidentiary function of the Statute of Frauds, which requires a writing to
substantiate the existence of a promise involving real property and failed to
provide any guidance to prevent the promissory estoppel exception from
swallowing the rule.'*^

The supreme court corrected both of these errors and restored order to Statute
of Frauds analysis. First the court clarified the meaning of the word "sale" in the
statute. Second, it also provided guidance for the analysis of those situations
where promissory estoppel may appropriately be used to take an oral promise
affecting real estate out of the Statute of Frauds.

The supreme court acknowledged that the Statute of Frauds does not define
the word "sale" in the phrase "any contract for the sale of lands" contained in
Indiana Code section 32-2-1-1 .'^^ The court pointed out, however, that "the law
is settled that . . . 'any contract which seeks to convey an interest in land is

181. Brow«, 758 N.E.2d at 50.

182. IND. Code § 32-2-1-1 (1998).

183. Wilson, supra note 10, at 994-99.

1 84. Id. at 995 (alteration in original) (quoting Brown v. Branch, 733 N.E.2d 1 7, 22 (Ind. Ct.
App. 2000), vacated by 758 N.E.2d 48 (Ind. 200 1 )).

185. /^. at 996.

186. Mat 997.

187. Brown, 758 N.E.2d at 50-51. See also iND. CODE § 32-2-1-1 (1998).

2002] PROPERTY LAW 1 537

required to be in writing.'"'** This principle, previously "not often articulat[ed]
... as such"'*^ was clearly articulated by the supreme court in Brown. The
Statute of Frauds applies to promises to convey an interest in real estate, "[a]nd
this is so whether there is actually a *sale' as the term is commonly used."'^^

In addition to bringing the Brown decision in line with long-established
precedent, the supreme court's decision spares the judiciary from the specter of
resolving claims affecting a wide variety of interests in real estate based solely
on "the word of one person . . . against the word of another."'^' This specter
resulted from the court of appeals' decision as "[t]he definition [of "sale"] chosen
by [that] court [would] certainly permit more actions to proceed on the basis of
oral allegations alone than was previously thought possible, and the evidentiary
and fraud prevention functions of the statute of frauds [would] be frustrated. '"^^

The supreme court confirmed the importance of the evidentiary function of
the Statute of Frauds, stating:

Requiring a writing for transactions concerning the conveyance of
real estate, regardless of whether a sale has occurred within the
dictionary definition of the term, is consistent with the underlying
purposes of the Statute of Frauds, namely: to preclude fraudulent claims
that would likely arise when the word of one person is pitted against the
word of another, and to remove the temptation of perjury by preventing
the rights of litigants from resting wholly on the precarious foundation
of memory. '^^

Thus in the first instance, the Statute of Frauds provides an "unambiguous"
and "bright line rule"'^* concerning the necessity of a writing. '^^ Nevertheless,
oral promises to convey an interest in real estate can be enforceable if the facts
of the case are appropriate for the application of the doctrine of promissory
estoppel. Because the court of appeals held that Brown's promise was not
subject to the Statute of Frauds, it did not address the propriety of using
prom issory estoppel. *^^ However, because the supreme court held that the Statute
of Frauds did apply, it was compelled to consider the effect of promissory
estoppel.

1 88. Brown, 758 N.E.2d at 5 1 (quoting Guckenberger v. Shank, 37 N. E.2d 708, 7 1 3 (Ind. App.
1941)).

189. Id.

190. Id. (citing Hensley v. Hilton, 131 N.E. 38, 40 (Ind. 1921); Fuelling v. Fuesse, 87 N.E.
700, 701 (Ind. App. 1909); McCoy v. McCoy, 69 N.E. 193, 195 (Ind. App. 1903)).

191. Id.

1 92. Wilson, supra note 1 0, at 997.

1 93. Brown, 758 N.E.2d at 5 1 (citing Summerlot v. Summerlot, 408 N.E.2d 820, 828 (Ind. Ct.
App. 1980); Ohio Valley Plastics, Inc. v. Nat. City Bank, 687 N.E.2d 260, 263 (Ind. Ct. App.
1997)).

194. Id.

195. Id

196. Brown, 733 N.E.2d at 22, vacated by 758 N.E.2d 48 (Ind. 2001).

538 INDIANA LAW REVIEW [Vol. 35:1501

The supreme court's analysis emphasized that "while it is true that the
doctrine of promissory estoppel may remove an oral agreement from the
operation of the Statute of Frauds, it is also true that the party asserting the
doctrine carries a heavy burden establishing its applicability."'^^ Specifically in
Brown, Branch had the burden of establishing that injustice could be avoided
only by enforcing Brown's promise. '^^

To establish injustice, the party seeking to enforce promissory estoppel "must
show [ ] that the other party's refusal to carry out the terms of the agreement has
resulted not merely in a denial of the rights which the agreement was intended
to confer, but the infliction of an unjust and unconscionable injury and loss."'^^
The supreme court utilized the "degree of consideration given in reliance on an
oral promise"^^ as the measure of the unjustness and unconscionability. It
identified the consideration for Brown's promise as quitting her "modesf job,
dropping out of college at the end of a semester, and moving back to Indiana.
These items of consideration were insufficient to establish unjust and
unconscionable injury and loss because they were either seen as inconveniences
or merely the denial of the benefits of the otherwise unenforceable oral
promise. ^^' The doctrine of promissory estoppel did not, therefore, remove
Brown's oral promise from the writing requirement of the Statute of Frauds.

The doctrine of promissory estoppel is attractive because it provides a safety
valve for those situations where the promisor "us[es] the statute of frauds as a
shield to insulate himself from responsibility for unwritten promises."^^^
However, if applied too liberally, the doctrine will be the exception that
consumes the rule. The Statute of Frauds promotes order; the doctrine of
promissory estoppel introduces a degree of uncertainty in the name of fairness
and justice in extraordinary circumstances. The supreme court struck a balance
between the rule and the exception and provided a tool for identifying the
existence of "extraordinary circumstances" through its analysis of the "degree of
consideration" given by the promisee in reliance on the oral promise.^^^ By
correcting the approach taken by the court of appeals, the supreme court
institutionally restored order to the law of the Statute of Frauds.

B. The Scope of a Mortgagee 's Duty to Protect the Interests of Third Parties:
Town & Country Homecenter of Crawfordsville, Indiana, Inc. v. Woods^^

A second case analyzed in last year's survey on Indiana property law, Town
& Country Homecenter of Crawfordsville, Indiana, Inc. v. Woods is referenced

197. 5row/i, 758 N.E.2d at 52.

198. Mat 53.

1 99. Id. at 52 (alteration in original).

200. /J. at 53.

201. Id.

202. Wilson, supra note 1 0, at 998.

203. firowAi, 758N.E.2dat53.

204. 725 N.E.2d 1006 (Ind. Ct. App. 2000), trans, denied, 741 N.E.2d 1249 (Ind. 2000).

2002] PROPERTY LAW 1539

here because of inaction taken by the supreme court. In Brown the court granted
transfer, corrected an erroneous legal conclusion, and provided guidance for the
application of the doctrine of promissory estoppel to oral promises within the
Statute of Frauds. ^°^ In contrast, in Town & Country Homecenter, the supreme
court denied a material vendor's petition for transfer, leaving intact the court of
appeals' fragmented opinion, despite the express request of panel members for
the supreme court to review unsatisfactory precedent.^^

In one sense the refusal of the supreme court to consider the Town & Country
Homecenter case could be seen as leaving an established order in place. The
problem with such a view is that it does not take into account the extraordinary
dissatisfaction with the existing rule separately expressed by two of the three
members of the court of appeals panel that decided the case. As noted in last
year's Article, the court of appeals' opinion in Town & Country Homecenter is
interesting because:

[I]t contains a majority opinion, a concurring opinion that decries the
result the author feels compelled to follow by virtue of Indiana Supreme
Court precedent, and a dissenting opinion that decries the result [reached
in the majority opinion] and finds a way to interpret existing precedent
to allow a decision contrary to the one reached by the majority. ^°^

Judge Sullivan's plea that "the supreme court . . . reopen the matter" to "avert the
inequities apparent in the present state of the law" went unheeded.^^*

By not providing clear guidance and explanation of the scope of a
mortgagee's duty to protect the interests of third parties at loan closings
conducted by that mortgagee, the supreme court permitted the dissatisfaction
with the rule, and the multiple potential approaches to it, to remain. Order is not
achieved; unnecessary disorder is injected into the law as trial courts will
struggle to decide whether they must follow the majority opinion or whether they
can craft a way around it to avoid unfair results.

The analysis conducted in the 2001 edition of this volume^^ will not be
repeated here; it remains unchanged by the supreme court's denial of transfer.
The two competing views of real estate closings include one that considers each
party to be independent and free of duties, absent contractual or agency bases, to
others, and one that sees duties arising between the parties based on tort
principles. At present, the self-protection model of real estate closings, which
holds each party responsible for protecting his own interests alone absent a
fiduciary, agency, or contractual relationship, remains the rule. However, the
sense of outrage expressed by two judges at the potential for unfairness that can
result from this model should lead to the recognition of duties based on a model

205. See supraV^xiWlA.

206. Town & Country Homecenter of Crawfordsville, Ind., Inc. v. Woods, 741 N.E.2d 1249
(Ind. 2000).

207. Wilson, supra note 1 0, at 98 1 .

208. Town & Country Homecenter, 725 N.E.2d at 1013-14.

209. See Wilson, supra note 1 0, at 98 1-88.

1540 INDIANA LAW REVIEW [Vol. 35:1501

that looks to the foreseeability of harm.

Conclusion

Property interests come in a wide variety of forms. They can be the "full
bundle of sticks" represented by fee simple absolute ownership or they can be
any of the individual sticks that represent the many lesser estates in land.
Property interests involve people in a variety of relationships, such as
lessor/lessee, vendor/vendee, creditor/debtor, and reciprocal covenantees, each
of which confers benefits or duties based on status. Property interests are also
supported by a variety of related systems, including the public document
recording system. Given the pervasiveness of the types of property interests and
the fundamental role of property, it should not be surprising that each year
provides interesting developments in the law of property in Indiana.

Some of the developments in the period surveyed by this Article are likely
to lead to further developments. Two conflicting views of the scope of the
Security Deposits statute became crystallized, and continued attention should be
focused on these views until a clear interpretation of the statute emerges that will
appropriately balance the legitimate interests of both landlords and tenants. The
extent of duties owed by a mortgagee to other parties to a loan closing should
also attract further judicial attention as, at least for two notable voices, the
existing rules do not adequately address the reality of relationships that can arise
in practice.

In other areas of property law, the preceding year saw some useful
clarifications, including clarification of the role of reliance in a claim for breach
of implied warranty of habitability in home construction. Cases decided by the
court of appeals also clarified legal principles by providing contrasting pairs of
cases. One pair of cases provided an example of an enforceable restrictive
covenant and one that was deemed unenforceable. Another pair of cases
provided an example of a defendant who qualified as a vendor for the implied
warranty of habitability, even though the vendor did not construct or sell the
plaintiffs' home, and one who was not a vendor for purposes of that warranty
even though it was the retail seller of the plaintiffs home. Perhaps the most
notable clarification was the supreme court's express statement that the scope of
the Statute of Frauds applies to transfers of interests in real estate and not just to
sales.

The process of refining issues and balancing interests in real property is an
on-going process. The cases analyzed and reviewed in this Article provide the
foundation for future refinements.

Developments in Indiana Taxation

Lawrence A. Jegen, Iir
Peter A. Siddiqui**

The 1 12th Indiana General Assembly, the Indiana Supreme Court, and the
Indiana Tax Court each contributed changes and clarifications to the Indiana tax
laws in 2001 .' This Article will highlight the more interesting developments for
the period of October 1, 2000 through September 30, 2001 .^

I. General Assembly Legislation

Numerous legislative changes in 200 1 affected Indiana taxation. While many
of the changes were made in order to fine-tune existing laws, some policy
changes occurred in each of the following Indiana tax areas: income tax, sales
and use tax, tax credits, inheritance tax, financial institutions tax, gasoline tax,
motor carrier fuel tax, commercial vehicle excise tax, cigarette tax, tax
administration, and innkeeper's tax.

A. Indiana Income Taxes

The General Assembly enacted several laws affecting Indiana income taxes.
For example, the General Assembly amended the general provision that all
references to the Internal Revenue Code in Indiana tax statutes are to refer to the
Internal Revenue Code "as amended and in effect on January 1, 2001."^ This
updating must be done each year if the State of Indiana wishes to continue, for
example, for the Indiana adjusted gross income tax law to be based on the
definition of the federal adjusted gross income tax, because the Indiana adjusted
gross income tax is based on the federal income tax law's adjusted gross income.
The Indiana Constitution prevents the State of Indiana from allowing Indiana
laws to automatically change in response to changes that the federal government
makes to the federal income tax laws.

I. Indiana Income Taxes: The Gross Income Tax. — The General Assembly
enacted laws with respect to the gross income tax. For example, the General

* Thomas F. Sheehan Professor of Tax Law and Policy, Indiana University School of
Law— Indianapolis; B. A., Beloit College; M.B.A., J.D., University of Michigan; LL.M., New York
University.

** B.A., DePauw University; J.D., 2002, Indiana University School of Law—Indianapolis.

1 . Hereinafter, at times, the following abbreviations are used in this Article: the Indiana
General Assembly is referred to as General Assembly; the Governor of Indiana is referred to as
Governor; the Indiana State Board of Tax Commissioners is referred to as ISBTC; the Indiana
Depzirtment of Revenue is referred to as IDR; the Indiana Supreme Court is referred to as the
supreme court; the Indiana Tax Court is referred to as the tax court; and, the terms petitioner,
petitioners, taxpayer, and taxpayers are used interchangeably.

2. For comprehensive information concerning the tax court, the IDR, the ISBTC, and a
variety of other tax items related to Indiana tax laws, visit the official State of Indiana web site,
available at http://www.ai.org.

3. IND. Code §6-3-l-ll(a) (1998 &Supp. 2001).

1542 INDIANA LAW REVIEW [Vol. 35:1541

Assembly enacted a law that exempts from gross income the proceeds of a
specific business transaction/ The new law provides that amounts received from
the sale, lease, or other transfer of an electric generating facility and any auxiliary
equipment are "exempt from gross income tax to the extent of any mortgage,
security interest, or similar encumbrance that exists" with respect to the electric
generating facility at the time of the sale, lease, or transfer.^

The General Assembly passed another exemption from gross income with
respect to electric generating facilities. The new law provides that "[g]ross
income received by a qualified lessee from a qualified investment is exempt from
gross income tax."^ The statute defines a qualified investment as an investment
that is acquired by a qualified lessee for the purpose of paying rent under a
qualified lease and exercising any purchase option in the qualified lease.^ A
qualified lease is defined as "the lease of an interest in an electric generating
facility . . . where the property is subject . . . to (1) or more leases previously
entered into under Section 168(f)(8) of the Internal Revenue Code of 1954."* A
qualified lessee is any person or an affiliate of a person who is the lessee under
a qualified lease.^

2. Indiana Income Taxes: The Adjusted Gross Income Tax. — In 2001, the
General Assembly also amended and added new laws with respect to the adjusted
gross income tax. Now an employee of a "nonprofit entity, the state, a political
subdivision of the state, or the United States govemmenf counts as a qualified
employee with respect to the enterprise zone adjusted gross income deduction. '°
A qualified employee must reside in the enterprise zone in which the employee
works; perform services for the employer, ninety percent of which are related to
the employers' trade or business, or to the nonprofit or governmental entity's
activities; and perform fifty percent of the employee's service for the employer
during the taxable year in the enterprise zone.'^ The enterprise zone deduction
permits the qualified employee to deduct the lesser of one-half of the employee's
adjusted gross income for the taxable year or $7500.'^

4. See id. § 6-2. 1-3- 16(b).

5. Id.

6. Id. §6-2.1-3-16.5(0.

7. Id. §§ 6-2.1-6-16.5(c)(l)(A)-(B). An investment is defined as a loan or deposit made by
a qualified lessee or an investment contract or payment agreement purchased by a qualified lessee.
Id. §6-2.1-3-16.5(b).

8. Id. § 6-2. 1-3-1 6.5(d). The federal income tax provision cited in the Indiana statute refers
to a safe harbor provision that was given continuing effect for certain property by P.L. 99-5 1 4, Sec.
201(a).

9. Id. § 6-2. 1-3- 16.5(e). An affiliate is defined as a "corporation, partnership, limited
liability company, or trust that controls, is controlled by, or is under common control with another
corporation, partnership, limited liability company, or trust." Id. § 6-2. 1-3- 16.5(a). Control is
further defined as ownership of eighty percent of voting stock. Id.

10. Id. §6-3-2-8(a).

11. Id.

12. Id. §6-3-2-8(b).

2002] TAXATION 1543

In another amendment, the General Assembly, by deleting part of a
subsection, now permits individuals over the age of sixty-five to be eligible for
the disability income tax deduction.'^ Another new law regarding the adjusted
gross income tax treatment of distributions from individual accounts established
under the Indiana family college savings account program provides that
"[d]istributions from an individual account used to pay qualified higher
education expenses are exempt from adjusted gross income ... as income of an
account beneficiary or an account owner."'"^

The General Assembly also amended the law regarding independent
contractors' ability to elect exemption from worker's compensation.'^ The law
now mandates that independent contractors must file a statement with the IDR
declaring independent contractor status and obtain a certificate of exemption
from Worker's Compensation.'^ This filing must be done yearly and be
accompanied by a five-dollar filing fee.'^ Within seven days, the IDR must
provide a certificate of exemption after verifying the accuracy of the statement.'^
Within thirty days after receiving the independent contractor's statement, the
IDR "shall provide the independent contractor with an explanation of the
department's tax treatment of independent contractors and the duty of the
independent contractor to remit any taxes owed."'^

3. Indiana Income Taxes: The County Adjusted Gross Income Tax. — The
General Assembly enacted laws regarding the county adjusted gross income tax
in 2001 . For example, county solid waste management districts may not receive
distributions from the county adjusted gross income tax unless a majority of the
county fiscal bodies approve the distribution by passing a resolution.^^ This
resolution may expire on a date specified in the resolution or may remain in
effect until the fiscal body revokes or rescinds the resolution.^'

Also, regarding county adjusted gross income tax revenues, the General
Assembly increased the length of time a county with a certain population has to
impose an additional adjusted gross income tax to eight years instead of four.^^
The purpose for this tax must be the operation and maintenance of a jail and

13. Id. §6-3-2-9(a).

14. M§ 6-3-2-19(6).

15. See id. §6-3-7-5.

16. See id. § 6-3-7-5(c).

17. /^. § 6-3-7-5(eH0.

18. Id. § 6-3-7-5(j). This certificate of exemption then must be filed with the Worker's
Compensation Board of Indiana to be given effect. Id.

19. M § 6-3-7-5(k).

20. /(i.§ 6-3.5-1. l-1.3(b).

21. M §6-3.5-1. 1-1. 3(c). The General Assembly passed a similar law regarding distributions
to county solid waste management districts from the county option income tax. See id. § 6-3.5-6-
1.3.

22. Id. § 6-3.5-1 . 1 -2.5(c). The affected counties must have a population between 37,000 and
37,800, id § 6-3.5-1.1 -2.5(a) (2001), or between 12,600 and 13,000, id § 6-3.5-1. 1-3. 5(a).

1 544 INDIANA LAW REVIEW [Vol. 35: 1 541

juvenile detention center. ^^

A county described as having a population between 68,000 and 73,000^"^ is
now permitted to raise its county adjusted gross income tax rates in order to
"finance, construct, acquire, improve, renovate, or equip" its county jail or repay
bonds issued for the same purpose.^^ The taxes raised may not exceed the
amount necessary to accomplish the above-stated purpose.^^ The law further
provides that any excess revenue from the increased tax imposed will go to the
highway fund for the county. ^^

The General Assembly also passed a new law that prohibits it from amending
or repealing the county adjusted gross income tax in a way that would hinder the
collection of any taxes imposed for as long as obligations against which county
adjusted gross income tax revenues are pledged remain unpaid.^*

4. Indiana Income Taxes: The Municipal Option Income Tax. — ^The General
Assembly created a new tax called the municipal option income tax.^^ The
municipal option income tax is a tax on the adjusted gross income of municipal
taxpayers.^® The rate of tax is one percent on municipal taxpayers who are
county residents and one-half of one percent on municipal taxpayers who are not
county residents.^' The revenue accumulated from this municipal option income
tax will be used for the benefit of the county family and children's fund.^^

5. Indiana Income Taxes: The Indiana Financial Intuitions Tax. — ^The
General Assembly has enacted some minor amendments to the laws regarding the
taxation of financial institutions. The definition of a unitary business has been
amended in that the term "does not include an entity that does not transact
business in Indiana."" Also, the General Assembly has changed the payment
dates for the financial institutions tax to the twentieth day of the fourth, sixth,
ninth, and twelfth months of the financial institution's fiscal year.^"*

B. Indiana Sales and Use Taxes

The General Assembly amended and added tax laws regarding Indiana sales
and use taxes. For example, the General Assembly eliminated quarterly filing of

23. Id. § 6-3.5-1. l-2.5(b).

24. Id. § 6-3.5-1. l-2.7(a).

25. Id § 6-3.5-1. l-2.7(b).

26. /c/.§ 6-3.5-1. l-2.7(d).

27. Id § 6-3.5-1. l-2.7(h).

28. Id §6-3.5-1.1-23.

29. See id §§ 6-3.5-8-1 to -25.

30. Id. § 6-3.5-8-9(a). A municipal taxpayer is defined as resident of the affected county or
a person who maintains his or her principal place of business in the affected county and does not
live in a county were there is another municipal option income tax. Id. § 6-3.5-8-5.

31. Id §6-3.5-8-10.

32. Id §§6-3.5-8-12(dHf)-

33. Id §6-5.5.1-18(a).

34. Id § 6-5.5-6-3(a).

2002] TAXATION 1545

sales tax returns.^^ The provision that allowed retail merchants to report and pay
sales taxes on a quarterly basis if the merchant's tax liability in the previous
calendar year was less than seventy-five dollars was removed.^^ Another deletion
from the sales and use tax section eliminates the provision that allowed a
taxpayer who remitted tax payments by electronic fund transfer to report
quarterly instead of month ly.^^

The General Assembly added a new chapter to the law of sales and use taxes
entitled the "Simplified Sales and Use Tax Administration Act."^^ This Act
permits the IDR to enter into agreements with other states to simplify state rates,
establish uniform standards of sourcing and administration of tax returns, provide
a central electronic registration for the collection and remittance of state taxes
and reduce the burden of complying with local sales and use taxes.^^ The IDR
has the power to act jointly with other agreeing states "to establish standards for
certification of certified service providers and certified automated systems and
to establish performance standards for multistate sellers.'"*^ Certified service
providers are defined as agents of sellers who are liable for sales and use tax due
to each agreeing state on all sales transactions that they process for the seller/'

C. Indiana Tax Credits

The General Assembly amended and added tax laws regarding tax credits.
For example, the General Assembly provides that when a pass through entity
entitled to the prison investment credit "does not have state tax liability against
which the credit may be applied . . . , it is entitled" to the distributive share of the
prison investment credit that is available/^ A pass through entity is defined as
any corporation that is exempt from adjusted gross income tax, a partnership, a
trust, a limited liability company, or a limited liability partnership/^

Another amendment to Indiana tax credits provides that a high technology
business operation is entitled to a five percent enterprise zone investment cost
credit/"^ The General Assembly also decreased the maximum amount of credit
allowed in a fiscal year for the individual development account tax credit from
$500,000 to $200,000/^ Further, the General Assembly extended the expiration

35.

See id. §6-2.5-6-14.

36.

See id.

37.

See id

38.

See id §§ 6-2.5-11-1 to

39.

Id §6-2.5-11-7.

40.

Id §6-2.5-11-5.

41.

Id § 6-2.5-1 l-lO(a).

42.

Id §6-3.1-6-6.

43.

Id §6-3.1-6-1.

10.

44. Id § 6-3.1-10-8(c)(4). See IND. CODE § 4-4-6.1-1.3 (Supp. 1998 & 2001) (defining a
high technology business operation to include such operations as biotechnology and advanced
computing).

45. Id §6-3.1-18-10(a).

1546 INDIANA LAW REVIEW [Vol. 35:1541

date for the earned income tax credit to December 3 1 , 2003/^

The General Assembly created new tax credits as well. For example, the
General Assembly created the capital investment tax credit.'*^ This tax credit is
available only to taxpayers in a county that has a population between 40,000 and
4 1 ,000 people.'** To be eligible for the credit in any year, the taxpayer must make
a qualified investment in that year.'*^ A qualified investment is an amount of not
less than seventy-five million dollars that is used to purchase new manufacturing
equipment or machinery or improve facilities.^" The amount of the credit is equal
to fourteen percent of the qualified investment.^'

Another newly-enacted tax credit is the income tax credit for property taxes
paid on homesteads.^^ A taxpayer is entitled to this credit if the taxpayer's earned
income is less than $18,600 and the taxpayer pays property taxes on a
homestead^^ that the taxpayer owns or is buying.^^ Further, the taxpayer must file
with the IDR information about the amount of property taxes paid on a
homestead.^^ The property upon which the taxpayer pays property tax must be
located in a county with a population between 400,000 and 700,000 people.^^
Any taxpayer who meets the above-described characteristics "is entitled to a
refundable credit against the individual's state income tax liability. . . ."^^ The
amount of the credit for a taxpayer who has earned income of less than $ 1 8,000
is the lesser of $300 or the amount of property taxes actually paid.^* For a
taxpayer with earned income between $18,000 and $18,600, the amount of the
credit is the lesser of the amount of property taxes paid or an amount determined
by subtracting the taxpayer's earned income from $18,600 and multiplying the
difference by 0.50.^^ The IDR must determine the amount of the credits allowed
for a year by July 1 of the next year.^° One-half of this amount will be deducted

46. Id. §6-3.1-2M0.

47. See id. §§ 6-3.1-13.5-1 to -13.

48. Id §6-3.1-13.5-3.

49. Id §6-3.1-13.5-6.

50. Id §6-3.1-13.5-3.

51. Id §6-3.1-13.5-6. This law is retroactive to January 1, 2001. 5^^2001 Ind. Acts 291.

52. See iND. CODE §§ 6-3. 1-20-1 to -7.

53. A homestead is defined as a taxpayer's principle place of residence, including a dwelling
and surrounding real estate of less than one acre. Id. § 6-1 . 1-20.9-1(2).

54. Id. § 6-3.1-20-4(a). Earned income is defined as employee compensation and net
earnings from self-employment for the taxpayer and the taxpayer's spouse if the taxpayer files a
joint tax return. Id. § 6-3.1-20-1.

55. Id §6-3.1-20-6.

56. Id §6-3.1-20-4(a)(2)(B).

57. Id. § 6-3. 1 -20-5(a). This section also states that "[i]f the amount of the credit . . . exceeds
the individual's state tax liability for the taxable year, the excess shall be refunded [by] the [IDR]."
/^. §6-3.1-20-5(d).

58. Id §6-3.1-20-5(b).

59. Id §6-3.1-20-5(c).

60. Id §6-3.1-20-7(a).

2002] TAXATION 1547

from the riverboat admissions tax revenue due to the affected county and paid
into the state general fund.^'

The General Assernbly also enacted the residential historic rehabilitation
credit.^^ A taxpayer can receive a credit of twenty percent of qualified
preservation and rehabilitation expenditures^^ on historic property^ at least fifty
years old^^ that the taxpayer intends to use as the taxpayer's residence.^^ To
qualify for the credit, the expenditures on the property must exceed $10,000.^^
The adjusted basis for the property affected by this credit will be reduced by the
amount of credit claimed by the taxpayer.^* The amount of credit can be carried
forward by the taxpayer for fifteen years;^^ however, the credit cannot be carried
back or refunded to the taxpayer.^°

The General Assembly has also enacted the rerefmed lubrication oil facility
credit.^' A taxpayer is entitled to a credit that is equal to the percentage of
property taxes paid by the taxpayer for real property containing a facility that
processes rerefined lubrication oil and for personal property used in the
processing of rerefined lubrication oil.^^ The percentage of property taxes on
which the credit is determined decreases over five years from 100% in 2001 to
twenty percent in 2005.^^ Rerefined lubrication oil is defined as used oil that is
recycled in a manner that removes physical and chemical impurities so that it can
be reused/"* The taxpayer can carry forward any unused credit for two years.^^
To be eligible for the credit, the Department of Commerce must approve the
taxpayer for the credit/^

The General Assembly enacted a tax credit entitled "the voluntary
remediation tax credit."^^ This credit provides that a taxpayer is entitled to the

61. Id§ 6-3. l-20-7(b)-(c). This credit will be applied retroactively to January 1, 2001 . See
2001 Ind. Acts 151.

62. See iND. CODE §§ 6-3.1-22-1 to -16.

63. Id. §6-3.1-22-8(b).

64. The property must be listed in the register of Indiana historic sites and structures. Id §
6-3.1-22-9(2).

65. M§6-3.1-22-9(l)(A).

66. Id §6-3.1-22-9(6).

67. Id §6-3.1-22-9(7).

68. Id §6-3.1-22-12.

69. Id §6-3.1-22-14(a).

70. Id §6-3.1-22-14(c).

71. 5'ee/^. §§6-3.1-22.2-1 to -10.

72. Id. § 6-3.1-22.2-5. Personal property includes property used for transportation of
rerefined lubrication oil. Id

73. /c/. §6-3.1-22.2-6(b). This credit expires on January 1 , 2006. M § 6-3.1-22.2-10.

74. Id §6-3.1-22.2-2.

75. Id §6-3.1-22.2-8.

76. Id §6-3.1-22.2-9.

77. Id §§6-3.1-23-1 to -17.

1548 INDIANA LAW REVIEW [Vol. 35:1541

lesser of $100,000 or ten percent of a qualified investment^* incurred to conduct
a voluntary remediation of a brownfield.^^ The taxpayer can carry any unused
credit over for five years.*° The credit expires on December 31, 2003.*' A
brownfield is defined as an industrial or commercial parcel of real estate that
cannot be utilized because of the presence of a hazardous substance on or under
the surface soil or in the groundw^ater that poses a risk to human health and the
environment.

A final credit enacted by the General Assembly in 2001 is the credit for
property taxes paid on business personal property." A taxpayer is entitled to a
credit for the net property taxes paid on business personal property up to the
lesser of $37,500 or the assessed value of the taxpayer's business personal
property.*"* Business personal property is defined as tangible property held for
sale in the ordinary course of business or held for the production of income.*^
The taxpayer can carry any unused credit over to the "following taxable years."*^
This credit is available to individuals and entities,*^ including pass through
entities,** but the credit is not available to utility companies.*^

D. Indiana Inheritance Taxes

The General Assembly has modified the Indiana inheritance taxes by moving
the provision that provides that the IDR must prescribe the affidavit form that
may be used to state that no inheritance tax is due to a different chapter.^
Further, personal representatives, trustees, and transferees of property must file
an inheritance tax return with the probate court within nine months, instead of the
previously required twelve months, after the decedents' death.^' Under the newly
enacted laws, inheritance tax is to be paid within twelve months, instead of the

78. Id. §6-3.1-23-6.

79. Id §6-3.1-23-3.

80. Id §6-3.1-23-11.

81 . M § 6-3. 1-23-16. This expiration date does not affect a taxpayer's ability to carry any
unused credit forward. Id.

82. Id § 13-11-2-19.3.

83. See id §§ 6-3.1-23.8-1 to -9.

84. Id. § 6-3.1-23.8-6. Net property taxes means the "amount of property taxes paid by a
taxpayer for a particular calendar year after the application of all property tax deductions and
property tax credits." Id. § 6-3.1-23.8-2.

85. Id §6-3.1-23.8-1.5.

86. Id §6-3.1-23.8-7.

87. See id §6-3.1-23.8-5.

88. Id §6-3.1-23.8-8.

89. Id §6-3.1-23.8-6(c).

90. The provision is now in Indiana Code section 6-4. 1-4-0. 5(b). This provision was
formerly in Indiana Code section 6-4.1-3-12.5 which was repealed by 2001 Ind. Acts 252.

9 1 . iND. Code § 6-4. 1 -4- 1 (a) ( 1 998 & Supp. 200 1 ).

2002] TAXATION 1549

previously required eighteen months.^^ However, if the taxpayer pays the
inheritance tax within nine months of the death of the decedent, then the taxpayer
is entitled to a five-percent reduction in the inheritance tax due.^^

The General Assembly has also shortened the time within which Indiana
estate taxes are to be paid from eighteen months to twelve months after the death
of the decedent. ^"^ Also, the generation-skipping transfer tax is due twelve
months, rather than eighteen months, from the date of death of the "person whose
death resulted in the generation-skipping transfer."^^

E. Indiana Gasoline Tax

The Indiana General Assembly has amended one of the registration and
licensure laws associated with the gasoline tax. The new law no longer requires
a person who transports gasoline in a vehicle with a tank capacity of more than
850 gallons to display a transporter emblem.^

F. Indiana Motor Carrier Fuel Tax

The Indiana General Assembly amended the law regarding the motor carrier
fuel tax to provide that a carrier may obtain an International Fuel Tax Agreement
(IFTA) repair and maintenance permit from the IDR to travel into Indiana to
repair any vehicles owned by the carrier and then return to some other state when
they are fmished.^^ The operator of a motor vehicle with such a permit, which
costs forty dollars, does not need to pay the motor carrier fuel tax.^* A carrier
may also obtain an International Registration Plan repair and maintenance permit,
which is similar in all tax respects to the IFTA permits.^ Further, the
commissioner of the IDR may become a member of the IFTA or other reciprocal
agreements with other states or jurisdictions.^^ Also, entering into the IFTA
provides for the exchange and sharing of information with other states and
jurisdictions.'^'

The General Assembly further specified its own powers and the powers of
the IFTA.'°^ The IFTA is limited to determining the base state for users,
specifying records requirements, specifying audit procedures, providing for the
exchanging of information, defining persons eligible for tax licensing, defining
qualified motor vehicles, determining whether bonding is required, and

92. Id §6-4.1-9-l(a).

93. Id. §6-4.1-9-2.

94. Id §6-4.1-11-3.

95. Id §6-4.1-11.5-9.

96. Id § 6-6-1. l-606.5(g) (2000), repealed by 2001 Ind. Acts § 10.

97. Id §6-6-4. 1-1 3(c).

98. Id

99. 5'ee/^.§ 6-6-4. 1-1. 3(d).

100. /d §6-6-6-4.1-14(a).

101. Id §6-6-4.1-16.

102. See id §6-6-4.1-14.5.

1550 INDIANA LAW REVIEW [Vol. 35:1541

specifying reporting requirements and periods. ^°^ Despite these enumerated
powers, the General Assembly also retains the authority to determine whether to
impose a tax, to prescribe the tax rates, to define tax exemptions and deductions,
and to determine what constitutes a taxable event. '°^ The General Assembly
further replaced all references to the Base State Fuel Tax Agreement with
references to the IFTA.'°^

G. Cigarette Tax

The General Assembly amended the law appropriating the money from the
cigarette tax that is in the mental health centers fund, to the division of mental
health and addiction.'^

K Tax Administration

The General Assembly amended existing laws and added new laws with
respect to tax administration. For example, the General Assembly added the
municipal option income tax to the list of taxes defined as listed taxes. '°^ The
General Assembly also changed the name of the Alcoholic Beverage Commission
to the Alcohol and Tobacco Commission.'^*

The General Assembly amended the powers of the IDR by permitting the
department to enter into the IFTA.'^ If the IDR does enter into the agreement,
then any conflicts between the provisions of the agreement and any Indiana
statute will be resolved in favor of the state statute. "° Any conflicts between the
provisions of the agreement and provisions in the Indiana Administrative Code
will be resolved in favor of the agreement.' ''

The General Assembly amended the law of assessment of taxes by providing
that if the IDR sends out a notice of a proposed tax assessment and the notice is
returned because the taxpayer has moved, and the IDR cannot determine the
taxpayer's new address, the IDR may immediately make an assessment for the
taxes owing and demand immediate payment without issuing a ten-day demand
notice.''^

103. Id §6-6-4. 1-1 4.5(a).

104. Id §6-6-4. 1-1 4.5(b).

105. See id §§ 6-6-4. 1-22 to -26.

1 06. Id. § 6-7-1-32. 1 . The division has changed its name from the Division of Mental Health.
See200\ Ind. Acts 215, § 11.

107. 2001 Ind. Acts 151, § (codified at iND. Code §§ 6-3.5-8-1 to -25 (Supp. 2001)
(describing and enacting the municipal option income tax)).

108. Ind. Code § 6-8.1-7-l(m) (1998 & Supp. 2001).

109. Id §6-8. 1-3-1 4(a).

110. Id §6-8. 1-3- 14(c)(1).

111. Id §6-8. 1-3- 14(c)(2).

1 1 2. Id. § 6-8. 1 -5-3(b). This statute expressly provides that the IDR may ignore the provision
that provides that the taxpayer has ten days to show the IDR why it has not paid the amount of tax
required, fd.; see also id. § 6-8.1-8-2(a)(l).

2002] TAXATION 1551

The General Assembly amended several statutes dealing with the tax
collection so that the word "lien" has been replaced with "judgment.""^

A new law regarding tax collection mandates that "a judgment arising from
a tax warrant is enforceable in the same manner as any judgment issued by a
court of general jurisdiction.""'* Further, the IDR has the power to initiate
proceedings supplementary to the execution of the warrant in any court of
general jurisdiction in the county where the tax warrant is recorded."^

/. Innkeeper 's Tax

The General Assembly amended and added several laws regarding the Vigo
County Innkeeper's Tax. For example, the Vigo County Convention and Visitor
Commission now has the power to issue bonds and enter into leases for the
construction and equipping of a sports and recreational facility."^ This is so
because the General Assembly found that Vigo County "possesses a unique
opportunity to promote and encourage conventions" and special events from
which it could benefit if it had a sports and recreation facility within its
borders."^ The General Assembly covenanted that it would not amend or repeal
this law while there are any outstanding bonds or payments due under any
lease. "^ The commission also has the ability to exercise the power of eminent
domain for the purpose of encouraging conventions and tourism."^ The
commission can now enter into agreements to pledge money deposited in the
convention and visitor promotion fund^^° to pay for the construction and
equipping of a sports and recreation facility.'^' Any sports and recreational
facility constructed pursuant to these new laws must "serve[] a public purpose
and [be] of benefit to the general welfare of the county by encouraging
investment, job creation and retention, and economic growth and diversity." '^^

II. Indiana Tax Court Opinions and Decisions

During the period of October 1, 2000 through September 30, 2001, the
opinions and decisions of the Indiana Tax Court were dominated by cases dealing
with Indiana real property cases. Specifically, the tax court published twenty-six
opinions, sixteen of which concerned real property tax issues. The remaining
cases are divided as follows: one case regarding the Indiana tangible personal

1 13. See 2001 Ind. Acts 129, § 22 (codified at IND. CODE §§ 6-8.1-8-2 to -8 (Supp. 2001)).

114. Ind. CODE §6-8.1-8-8.5(a).

115. M§6-8.1-8-8.5(b).

1 16. Id. § 6-9-1 l-3(a)(8)-(a)(9). See id. § 6-9-1 1-3.7 (establishing parameters and rules for
bond issuance and lease terms).

117. M §6-9-11-9.

118. Id §6-9-11-3.9.

119. Id § 6-9-1 l-3(a)(10).

120. See id. § 6-9-1 1-7 (enabling the Vigo County treasurer to establish such a fund).

121. M §6-9-11-3.5.

122. Id §6-9-11-4.5.

1552 INDIANA LAW REVIEW [Vol. 35:1541

property tax; two cases regarding the Indiana gross income tax; three cases
regarding Indiana sales and use taxes; one case regarding the Indiana controlled
substance excise tax; one case regarding the Indiana financial institutions tax;
and two cases regarding Indiana motor vehicle excise taxes.

A. Property Tax-Real Property

I. B i shop V. State Board of Tax Commissioners.'^^ — The Bishops petitioned
for review of the ISBTC's assessment of their Elkhart County condominium.'^'*
On review, the ISBTC did not adjust its determination of the condominium's
assessed value of $25,400. '^^ The Bishops appealed to the tax court asserting two
issues: whether the ISBTC unconstitutionally applied its assessment regulations
in assessing the Bishops' condominium'^^ and whether the ISBTC erred in
assigning a B grade to the Bishops' condominium.'^^

The tax court held that the Bishops did not sufficiently explain how the
ISBTC method of assessment lacked equality and uniformity, and, therefore, the
Bishops did not demonstrate that the method violated the property taxation clause
of the Indiana Constitution.'^* The Bishops relied on a study performed by an
appraiser. Landmark Appraisals, that analyzed the assessed value of newer homes
as compared to older homes. '^^ The study found that new homes are assessed at
a higher rate than older homes. '^° The Bishops argued that these results
demonstrated a lack of uniformity in the ISBTC's assessments.'^'

The court held that the Bishops did not explain how the study demonstrated
"a lack of equality and uniformity of residential assessments under Indiana's true
tax value system."'^^ The figures used in the study were based on market
information.'^^ However, the ISBTC regulations for assessing improvements do
not allow for the application of market information.'^"* As a result of this
disparity in standards, the Bishops failed to show how the study, which used
market information, showed that the ISBTC's assessments, which did not use
market information, were unconstitutional.'^^ The ISBTC's refusal to adjust the
Bishops' property assessment was not an error. '^^

123.

743 N.E.2d 810 (Ind. T.C. 2001).

124.

Mat 812.

125.

126.

127.

Mat 815.

128.

Id at 814-15. See iND. CONST, art. X, § 1

129.

Bishop, 743 ^.E2d at S\3.

130.

131.

132.

Mat 814.

133.

134.

135.

136.

Mat 815.

2002] TAXATION 1553

With respect to the grading of the Bishops' condominium, the tax court held
that since the Bishops failed to establish "a prima facie case as to grade,"'-'^ the
ISBTC's assessment of a B grade was not an error. '^* To get a grade reduction,
a taxpayer "must offer probative evidence sufficient to establish a prima facie
case concerning the alleged assessment error."'^^ The Bishops offered only a
photograph of their condominium, photos of C grade homes, a sample property
report card, and the ISBTC's grade specification table."*° The court held that this
evidence was not probative as to grade.'"*' The court found this evidence to be
merely conclusory statements by the Bishops that they deserved a grade
reduction."*^ The court was not persuaded and affirmed the denial of their
reduction of grade. '^^

2. Garcia V. State Board of Tax Commissioners.'"^ — TheGarcias challenged
the ISBTC's grade assessment of their home to the tax court, as well as the
ISBTC's failure to assess some enclosed property on the land to the tax court. '"^^
After considerable procedural history,'*^ the ISBTC increased the grade of the
Garcias' home from A+4 to A+6.''*^ Further, the ISBTC did not assess an
enclosure on the Garcias' property.'"**

The tax court held that the A+6 assessment was an error. '"*^ The court stated
that the manner in which the ISBTC discerned the grade of the Garcias' home
was wholly arbitrary and completely unsupportable by the ISBTC's own
regulations. '^° The court further stated that the ISBTC's regulations did not
support, under any circumstances, a grade above A.'^' Therefore, the court held

137. /^. at 816.

138. /^. at 817.

139. /f/. at 815.

140. /c/. at 816.

141. Id.

142. Id.

143. /^. at 817.

144. 743 N.E.2d 817 (Ind. I.e. 2001).

145. /(i. at 818.

146. See id; see also Garcia v. State Bd. of Tax Comm'rs, 694 N.E.2d 794 (Ind. T.C. 1998).

1 47. Garc/fl, 743 N.E.2d at 8 1 8.

148. Id

149. /^. at 821.

150. Id. at 820. The ISBTC*s method of assessment started with determining the actual
construction value of the home only. Then it discounted this price to 1 985 costs in order to comply
with its regulations in place at the time of the construction of the house in 1991 . Then the ISBTC
used its regulations to determine what the cost of the house would be if it were graded as a C house.
Then the court divided that cost by the actual cost of the house. This quotient constituted a
percentage that the ISBTC used to guess the grade above an A at which the Garcia home should be
assessed. See id. at 819-20. The ISBTC's methods were so arbitrary, the court noted, that even
members of the ISBTC admitted at trial that the calculations were unsupportable. See id. at 820.

151. /^. at 820-21.

1554 INDIANA LAW REVIEW [Vol. 35:1541

that the A+6 assessment constituted an abuse of discretion by the ISBTC.'^^
Further, the court directed the ISBTC to assess Garcia's property as grade AJ^^

The court held that the ISBTC's failure to assess the enclosure was also an
error. '^"^ However, the court granted the ISBTC's request that the court remand
the issue so that the ISBTC could "extrapolate the value of the enclosure from
Schedule G.l and then reassess it based on that extrapolation."'^^

3. Canal Realty-Indy Castor v. State Board of Tax Commissioners.'^^ —
Canal appealed to the tax court the assessment by the ISBTC of Canal's real
property. '^^ This appeal focused on certain paving surrounding buildings on
Canal's property.'^* Canal posed three issues: whether the ISBTC erred in not
allowing further obsolescence deductions; whether the ISBTC violated Canal's
due process by assigning value to previously non-assessed property without
giving Canal an opportunity to address the assessment; and whether the ISBTC
incorrectly valued the paving on Canal's property. '^^

The court reversed and remanded the ISBTC's denial of an additional
obsolescence deduction. '^° The ISBTC performed the assessment at issue in
1 995 . '^' In 1 998, the tax court held that it would only hear obsolescence appeals
from an ISBTC hearing in which the taxpayer identified the causes of the
obsolescence and presented probative evidence to support an increase in
obsolescence.'^^ For any assessment performed prior to this decision, the ISBTC
had to support its obsolescence assessment with substantial evidence. '^^ On this
issue, the tax court stated that Canal's offer of proof to support an increased
obsolescence deduction was "woefully inadequate."'^'* However, the court had
to remand the case so that the ISBTC could support its denial of increasing the
obsolescence deduction with substantial evidence because the assessment was
performed before the 1998 decision.'^^

152. /^. at 821.

153. Id.

154. Id.

155. Id. This procedure was mandated by the court in its earlier Garcia opinion. Garcia v.
State Bd. of Tax Comm'rs, 694 N.E.2d 794, 799 (Ind. T.C. 1998). Instead of complying with this
request, however, the ISBTC did nothing. Garcia, 743 N,E.2d at 821.

156. 744 N.E.2d 597 (Ind. T.C. 2001).

157. Mat 599.

158. Id

159. Id

160. /^. at 603-04.

161. Id at 603.

162. Id (referencing Clark v. State Bd. of Tax Comm'rs, 694 N.E.2d 1230, 1241 (Ind. T.C.
1998)).

163. Id

164. Id

1 65. Id. The court, however, did hint to the ISBTC that if Canal offered the same quantum of
evidence as it did in this appeal, the ISBTC could "merely state in its final determination that Canal
takes nothing by its petition." Id. at 604. Then the ISBTC's "quantification of obsolescence stands

2002] TAXATION 1555

The court held that the ISBTC did not violate Canal's due process. '^^ The
court stated that all that due process requires is "an opportunity to review and
rebut the [ISBTC]'s evidence of the paving value."'^^ The hearing officer at
Canal's administrative hearing conducted an ex parte assessment of the paving
on Canal's property because it had never been assessed.'^* The hearing officer
then mailed a letter to Canal's representative asking Canal to "present evidence
responding to the proposed assessment." '^^ The representative did not answer
directly to this request.''^ The hearing officer subsequently sent another letter
asking Canal to respond to the proposed assessment.'^' Again, Canal's
representative did not sufficiently respond to the request. '^^ The court held that
Canal, through its representative, had an opportunity to review and rebut the
assessment of the paving, but it chose not to do so.'^^ The fact that Canal had an
opportunity was enough to satisfy due process.'^'*

Regarding the issue of the value of the paving, the trial court affirmed the
ISBTC's determination.'^^ The court stated that since Canal had the opportunity
to rebut the ISBTC's evidence at the administrative level, it bore the burden
before the tax court of demonstrating that the ISBTC's assessment was invalid. '^^
This burden required that Canal offer "probative evidence as to the paving's
condition, for purposes of challenging the physical depreciation assigned to the
paving."'^^ The court stated that Canal offered no probative evidence. '^^ Further,
in support of the ISBTC's assessment, the court stated the its "photograph of the
subject property, set to scale, shows the paving's size, and the ninety-cent per
square foot base rate applied is taken directly from Schedule G of the
regulations."'^' Therefore, the ISBTC's assessment of the value of the paving
was affirmed.

4. Quality Farm & Fleet v. Board of Tax Commissioners. '^° — Quality Farm
and Fleet ("Quality Farm") appealed to the tax court the ISBTC assessment of its
property.'*' Quality Farm raised five issues: whether the ISBTC "exceeded its

automatically" without the need of substantial evidence to support it. Ic

166.

Id. at 605.

167.

Id.

168.

Mat 599.

169.

Id at 605.

170.

171.

172.

173.

174.

175.

Mat 606.

176.

177.

178.

179.

180.

lAl N.E.2d 88 (Ind. T.C. 200 1 ).

181.

Id at 90.

1556 INDIANA LAW REVIEW [Vol. 35:1541

legislative authority in conducting a hearing in this matter without having issued
a letter of appointment or a prescription of duties to its hearing officer;"'^^
whether the ISBTC erred in denying Quality Farm a negative influence factor;
whether the ISBTC erred in not applying the General Commercial Kit (GCK)
pricing schedule; whether the ISBTC erred in applying a D grade to Quality
Farm's main building; and whether the ISBTC erred in not awarding an
obsolescence adjustment.'*^

The court held that the administrative hearing was lawful even though the
ISBTC did not issue a written order of appointment or a prescription of duties to
the hearing officer.'*"* The hearing was lawful because Quality Farm did not
object to the hearing, and this failure constituted an acceptance of the hearing
officer's authority, and a waiver of the issue. '*^

With respect to the negative influence factor, the court held that the ISBTC
properly denied a negative influence factor to Quality Farm's parcel.'*^ For a
negative influence factor to apply in this case. Quality Farm would have had to
show, via probative evidence, that its main building did not have the same use as
its surrounding buildings and that this inconsistent use negatively impacted the
value of the property.'*^ Quality Farm proved the former; however, it did not
demonstrate how the differing use of the buildings decreased the value of the
property.'** Therefore, the denial of a negative influence factor was proper.'*^

The court further held that the ISBTC did not err when it refused to use the
GCK pricing schedule.'^ The GCK pricing schedule was used for determining
the value of pre-engineered and pre-designed pole buildings used for commercial
or industrial purposes.'^' Quality Farm alleged that it had two qualifying
buildings: an addition and a small shop area.'^^

With respect to the addition. Quality Farm asserted that the ISBTC assessed
it using the GCK price schedule in the past.'^^ The court stated that this evidence
alone was not sufficient to show an error here since "each assessment and each
tax year stands alone."'^"* Further, photographs shown by Quality Farm depicting
the addition were not probative because they failed to explain how the addition
qualifies for the GCK pricing schedule. '^^

182. Id.

183. Id.

184. Id2X9\.

185. Id

186. Idz!i91.

187. id

188. Id

189. Id

190. Id at 93.

191. /af. at 92 (referencing iND. ADMIN. Code tit. 50, r. 2.2-1 0-6. 1(a)(1)(D) (2000)).

192. Id

193. /J. at 93.

194. Id

195. Id

2002] TAXATION 1557

With respect to the small shop area, Quality Farm demonstrated that its
characteristics are similarto other buildings that use the GCK pricing schedule.'^
The court stated that this evidence, while probative, was not sufficient to
"establish a prima facie case that the Small Shop Area should be assessed using
the GCK pricing schedule."^^'

The court further held that Quality Farm did not present sufficient evidence
to establish a prima facie case to invalidate the grade assessment on its main
building.'^^ Quality Farm wanted a decrease in grade from a D to a D-1 on the
main building because it lacked interior finish, exterior windows, and exterior
attractiveness.'^^ The court held that Quality Farm failed to explain why these
deficiencies warranted a downward adjustment in the base value of the
building.^^ Therefore, the ISBTC did not err in granting a grade assessment of

The court finally held that Quality Farm was not entitled to an obsolescence
adjustment.^^^ Obsolescence was defined as a diminishing of a property's
desirability and usefulness because of inadequacies inherent in the property, or
economic factors external to the property .^^^ Quality Farm claimed that the flat
roof of its building and add-on construction create a loss in value of the
property-^^"^ The court held, however, that Quality Farm did not sufficiently
explain how these characteristics qualified as obsolescence.^^^ Quality Farm
relied on conclusory statements that such characteristics reduce the value of the
property.^^^ The court stated that these types of statements do not constitute
probative evidence. ^°^ Therefore, the ISBTC did not err in denying an
obsolescence adjustment. ^^^

5. Fleet Supply, Inc. v. State Board of Tax Commissioners.^^' — Fleet
appealed the assessment of its real property by the ISBTC to the tax court.^'°
Fleet raised four issues: whether the depreciation schedule for its main building
should be based on a thirty-year rather than a forty-year life expectancy; whether
the ISBTC erred in declaring the conditions of improvements to be average;
whether the D grade was improper; and whether the ISBTC erred in refusing to

196. Id

197. Id.

198. /flf. at94.

199. Id

200. Id

201. Id

202. Id ai95.

203. Id. (referencing IND. Admin. Code tit. 50, i

r. 2.2-1-40 (1996)).

204. Id

205. Id

206. Id

207. Id

208. Id

209. 747 N.E.2d 645 (Ind. T.C. 2001).

210. Id at 647.

1558 INDIANA LAW REVIEW [Vol. 35:1541

apply a negative influence factor.^"

With respect to the life expectancy issue, the court held that the forty-year
expectancy table was properly used.^'^ Life expectancy tables were used by the
ISBTC to account for the physical depreciation of the property. ^'^ There are four
different tables used for the depreciation of commercial and industrial
buildings.^''* The thirty-year table is used for light pre-engineered buildings,
while the forty-year table is used for buildings that are fire-resistant but not listed
in other tables.^ '^ To show that the ISBTC should have used the thirty-year table,
the court stated that Fleet "was required to submit to the ISBTC probative
evidence sufficient to establish a prima facie case as to the invalidity of the
application of the forty-year life expectancy table."^^^

This Fleet failed to do.^'^ Fleet offered evidence through its appraiser.
Landmark Appraisals, that the main building should have been depreciated by the
thirty-year table, offered photographs of the main building, and offered testimony
that the building was a light pre-engineered structure.^'* The court held that this
evidence was conclusory and did not explain why the thirty-year table was more
appropriate.^'^ The photographs were without caption and were unexplained, so
the court granted them no probative weight.^^^ The testimony offered no
argument or analysis but, rather, just stated conclusions, and the court refused to
make any arguments for Fleet.^^' Therefore, the court held that the ISBTC did
not err in using the forty-year depreciation table.

As to the issue of the average condition rating, the court held that since Fleet
failed to provide any explanation for its argument that the assignment of an
average condition to the main building was in error, the court affirmed ISBTC's
assessment of the main building's condition as average.^^^ Fleet offered evidence
that the proper condition was less than average because the main building
received little maintenance and that the building had dents and stains.^^^ The
court again disregarded this evidence as conclusory and uninformative as to how
these problems affected the usefulness of the buildings.^^"^

211. Id. at 647-48. Fleet also argued that the ISBTC's assessment violated the Indiana
Constitution. However, the court replied that it would not invalidate an assessment because the
regulations that led to the assessment were unconstitutional. Id. at 647-48 n. 1 .

212. /^. at 650.

213. /f^. at 648.

214. /^. at 648-49.

215. Id 5eelND.ADMIN.CODEtit. 50, r. 2.2-11-7(1996).

216. Fleet Supply, 147 "N.E.lddit 649.

217. Id

218. Id

219. Id 3Li 649-50.

220. Id

221. Id

222. /^. at 651.

223. Mat 650.

224. /J. at 650-51.

2002] TAXATION 1559

As to the issue of grade, the court affirmed the D grade assessed by the
ISBTC.^^^ The court held that the evidence offered by Fleet did not create a
prima facie showing to change the grade.^^^ Fleet's evidence consisted of
conclusory statements similar to those that the court had rejected in its analysis
of Fleet's other complaints,^^^

The court finally held that Fleet was not entitled to a negative influence
factor.^^^ A negative influence factor is a percentage decrease in property's
assessed value representing the effect of factors that influence the value.^^^ Fleet
argued that it was entitled to a negative influence factor because the structures
surrounding the main building were used for purposes different from those of the
main building, which was suited for retail purposes.^^^ The court rejected this
argument because Fleet failed to show that this disparate use of the property
caused a decrease in the value of the property .^^' As a result, the court affirmed
the denial of a negative influence factor.^^^

6. McDonald's Corp. v. Indiana State Board of Tax Commissioners.^^^ —
McDonald's appealed the assessment of its property by the ISBTC to the tax
court.^^"* McDonald's asserted that "its land should have been assessed on a front
foot basis pursuant to the Commercial/Industrial Platted section of the Land
Order rather than on the acreage basis."^^^ The "land order" was the Kosciusko
County Land Valuation Order.^^^ McDonald's wanted its property assessed by
the platted section rather than the acreage section of the land order.^^^

The court held that since McDonald's land was platted and "the subdivision
where McDonald's land [was] located [was] specifically provided for in the
Commercial/Industrial Platted land section of the Land Order,"^^^ the land should
have been assessed on a front foot basis pursuant to the commercial/industrial
platted section. ^^^

225. /(/.at 652.

226. Id.

227. See id. at 651.

228. Mat 653.

229. Mat 652.

230. Id. at 652-53. To be entitled to a negative influence factor, Fleet needed to show two
things: that the main building did not have the same use as the surrounding buildings and that the
"inconsistent usage negatively impacted the subject parcel's value." Id. at 653 (referencing iND.
ADMIN Code tit. 50, r.2.2-4-10-(a)(9)(E) (1996)).

231. Mat 653.

232. Id

233. 747 N.E.2d 654 (Ind.TC. 2001).

234. Mat 655.

235. Mat 656.

236. Id
231. Id

238. Id at 651.

239. Id

1560 INDIANA LAW REVIEW [Vol. 35:1541

7. Damon Corp. v. Indiana State Bd. of Tax Commissioners.^'*^ — Damon
purchased certain property in Elkhart County from Mallard Coach Co. in 1992.^"*'
In 1 993, Damon received a bill for property taxes due for 1 989 through 1992.^"*^
Damon filed a petition for review of the assessment with the ISBTC arguing that
it was a bona fide purchaser and, therefore, not subject to a lien for additional
taxes assessed before Damon purchased the property. ^"^^ The ISBTC did not hold
a hearing or make any determination regarding Damon's petition.^'*'* Damon
subsequently filed another petition with the ISBTC requesting an obsolescence
deduction and kit building adjustment.^"*^ The ISBTC denied these requests, and
Damon appealed to the tax court.^'*^

The tax court initially ruled that it did not have jurisdiction over the bona
fide purchaser issue.^'*^ However, under the jurisdictional laws in 1994, the date
when Damon filed its initial petition, if the ISBTC did not conduct a hearing
within a certain time after the filing of the petition, Damon could file an appeal
with the tax court.^"** Since Damon filed its appeal after the requisite period, the
tax court had jurisdiction over the case.^"*^

With respect to the merits of the bona fide purchaser issue, the tax court held
that the bona fide purchaser exception to liens for additional taxes assessed for
assessment dates prior to Damon's purchase of property did not apply in this
case.^^^ The bona fide purchaser notion relied upon by Damon states: "With
respect to real property which is owned by a bona fide purchaser without
knowledge, no lien attaches for any property taxes which result from an
assessment, or an increase in assessed value, made under this chapter for any
period before his purchase of the property."^^' The court stated that the plain
language of this section provides that bona fide purchasers were exempt from
previous assessments made under chapter nine, which dealt with the assessments
of undervalued or omitted tangible property.^^^ Since the taxes were owed before
Damon even possessed the property, there was no evidence showing why the
previous owner of the property owed these taxes.^" As a result, Damon failed
to make a prima facie showing that it was not subject to the lien for additional

240. 738 N.E.2d 1 102 (Ind. T.C. 2000).

241. Mat 1105.

242. Id.

243. Id.

244. Id.

245. Id

246. Id

247. 5eg/^. atll05n.3.

248. Id. See iND. CODE §6-1.1-1 5-4(e) ( 1 989). The requisite time period was one year in a
nonreassessment year and two years in a reassessment year. Id.

249. Da/wow, 738 N.E.2d at 1105 n.3.

250. /c/. at 1107.

251. Id. at 1 106 (quoting iND. CODE § 6-l.l-9-4(b) (2000)) (emphasis deleted).

252. /i/. at 1107.

253. Id

2002] TAXATION 1561

taxes.^^*

With respect to obsolescence, Damon asserted that it was entitled to an
obsolescence deduction because it paid less than the true tax value for the
property, because the building was vacant before Damon took it over, and
because the building was under construction.^" The court held that the fact that
Damon paid less than the true tax value of the property failed to make a prima
facie case establishing an obsolescence deduction.^^^ The court stated that "the
difference between the true tax value of Damon's property and the price Damon
paid for the property, two unrelated numbers, [did not] demonstrate that there has
been a loss in value of the subject improvement."^" The numbers were so
unrelated, in fact, that a statute expressly states that "true tax value does not
mean fair market value."^^*

The court further held that the vacancy of the building did not constitute a
prima facie case establishing that the property suffered a loss and was entitled to
obsolescence.^^^ The court stated that Damon did not explain why the building
was vacant or whether the building was even for sale during its vacant period. ^^°

The court further found that no case for obsolescence had been shown by
Damon's argument that its main building was under construction and unusable.^^'
The court stated that "for an obsolescence adjustment to be made, there must be
some loss in value."^" Further, "obsolescence cannot be applied to a building
that is under construction because its useful life has not yet begun. "^" Damon
was not entitled to an obsolescence adjustment, because its building had not
started becoming useful yet and therefore had not suffered a loss in value.^^'*

With respect to the kit building adjustment, the court held that Damon had
presented a prima facie case that its building was eligible for a kit building
adjustment.^^^ The ISBTC permits a fifty percent reduction in the base rate of kit
buildings,^^^ which are defined as buildings made of light weight and inexpensive
materials put together in a particular way.^^^ Damon presented evidence to the
tax court tending to show that it was entitled to a kit building adjustment because
its main building was constructed in such a manner as to be a kit building.^^^ The

254. Id.

255. /^. at 1108.

256. Mat 1109.

257. Id.

258. Id. (quoting IND. CODE §6-1.1-31 -6(c) (2000)) (emphasis deleted).

259. Id

260. Id

261. Mat 1110.

262. Id. (emphasis deleted).

263. Id

264. Id

265. Mat nil.

266. Id. (referencing iND. Admin. Code tit. 50, r. 2.1-4-5 (1992)).

267. Id

268. Id

1562 INDIANA LAW REVIEW [Vol. 35:1541

court stated: "Because Damon has presented evidence that its building had
tapered columns and Cee channels (both key factors in identifying kit buildings)
as well as cross bracing, this Court concludes that Damon has established a prima
facie case that its building is eligible for a kit building adjustment. "^^^

Since Damon had presented a prima facie case, the ISBTC had to rebut
Damon's evidence and justify its decision to deny a kit building adjustment with
substantial evidence.^^^ The ISBTC argued that it denied the adjustment because
Damon had put two additions to the main building.^^' The court rejected this
reason as insufficient to rebut Damon's showing. The court stated that the
ISBTC cited no authority supporting its position that additions to an otherwise
qualifying structure disqualified that structure.^^^ As a result, the court held that
the ISBTC acted arbitrarily and capriciously in denying the kit building
adjustment and remanded the case instructing the ISBTC to reassess Damon's
property. ^^^ The court further instructed that if the assessment altered the grade
of Damon's building, the ISBTC must grade it a C or must support with
substantial evidence any grade other than a C.^^^

8. Componx, Inc. v. Indiana State Board of Tax Commissioners.^^^ —
Componx appealed to the tax court the fmal determination of the ISBTC
assessing Componx's property.^^^ Componx's property was subject to a kit
building adjustment.^^^ However, the ISBTC ruled that the interior components
of the building should be subtracted from the base price of the building before
applying the fifty percent reduction^^* for the kit building adjustment and then
fully added back in after the adjustment has been made.^^^ The issue was
whether this procedure constituted an abuse of discretion by the ISBTC.^^^

The tax court ruled that this procedure was not an abuse of discretion or
arbitrary and capricious action by the ISBTC.^*' The court reasoned that the kit
building adjustment statute did not provide for the interior components to be
reduced by fifty percent.^*^ Further, the court stated that the ISBTC developed
the subtraction method through its instructional bulletins.^*^ The court stated that

269. Id.

270. Mat 1112.

271. Id

272. Id

273. Mat 1113.

274. Id

275. 741 N.E.2d 442 (Ind. T.C. 2000).

276. Id at 443.

277. Id

278. Mat 445.

279. Id

280. Id at 444.

281. Mat 446.

282. Id 5eelND.ADMlN.CODEtit. 50, r. 2.1-4-5(1992).

283. Componx, Inc., 741 N.E.2d at 444-45. See iND. ADMIN. CODE tit. 50, r. 4.2-1-5 (1992)
(permitting the ISBTC to issue instructional bulletins to provide instructions to assessors).

2002] TAXATION 1563

"Instructional Bulletins hold a lofty position in property tax law."^*'' The court
held that Instructional Bulletin 92-1, the one describing the subtraction method,
prevails over other previous, less specific, and contradictory instructional
bulletins.^^^ Therefore, this method holds near-statutory status according to the
tax court.

The court further supported its holding by stating that previous instructional
bulletins, such as Instructional Bulletin 91-8,^*^ indicate that the kit building
adjustment was meant to apply only to the shell of the building and not its
interior components.^^^ To conclude, the court held:

Because the [ISBTC]'s interpretation of IND. ADMIN. CODE tit. 50, r.
2.1-4-5 via [Instructional Bulletin] 92-1 is not inconsistent with the
regulation itself, reflects the purpose of the kit building adjustment, and
is the most recent, specific, and objective explanation by the [ISBTC],
this Court holds that the method of calculating the kit building
adjustment therein is not arbitrary or capricious and is not an abuse of
the ISBTC's discretion.^**

9. Clark v. State Board of Tax Commissioners.^*^ — Clark appealed a final
determination by the ISBTC adjusting the grade assigned to Clark's apartment
complex to a C-1 and refusing to issue an obsolescence adjustment.^^^

The tax court held that the ISBTC erred in adjusting the grade on Clark's
property from a C to a C-1.^^^ In its final determination, the ISBTC offered no
explanation as to why it adjusted Clark's grade.^^^ At the trial before the tax
court, however, the hearing officer of Clark's administrative hearing testified that
she based the adjustment on deviations of Clark's apartment building from the
"specifications of the GCR Apartment model."^'^ The court held that the ISBTC
could not support its final determination by "referring to reasons that were not
previously ruled upon, but that [were] offered as post hoc rationalizations."^^"*
Since the hearing officer's trial testimony was the first explanation on the
adjustment, the tax court reversed and remanded the ISBTC's grade

284. Componx, Inc., 741 N.E.2d at 446.

285. Id. at 447.

286. Instructional Bulletin 9 1 -8 was previously used by the ISBTC in assessing the kit building
adjustment. This instructional bulletin provided that the fifty percent reduction applied to the entire
building, including the interior. Id. at 444.

287. Id

288. Id. at 448. On practically the same facts, and on the very same day, the tax court made
a ruling identical to Componx in King Industrial Corp. v. State Board of Tax Commissioners, 74 1
N.E.2d 815 (Ind.T.C. 2000).

289. 742 N.E.2d 46 (Ind.T.C. 2001).

290. Id at 47.

291. Mat 49.

292. Id at 48.

293. Id. at 49. At no point in the opinion did the court define the GCR Apartment model.

294. Id. (quoting Word of His Grace Fellowship, Inc. v. State Bd. of Tax Comm'rs, 711
N.E.2d 875, 878 (Ind. T.C. 1999)).

1564 INDIANA LAW REVIEW [Vol. 35:1541

determination.^^^

With respect to the issue of the obsolescence deduction, the court affirmed
the ISBTC in denying the deduction.^^^ Clark argued that he was entitled to a
deduction because his apartment lessees tend to be Purdue University students.
This characteristic, Clark argued, translated into higher maintenance costs and
a higher turnover rate. Further, Clark argued that he was entitled to obsolescence
because of the low land-to-building parking ratios.^^^ The court held that while
these reasons may in fact permit an entitlement, Clark failed to submit probative
evidence tending to show that he actually suffered higher administrative costs or
that the parking situation led to an actual problem. ^^* Instead, Clark rested on
conclusory statements which, the court commented, "do not qualify as probative
evidence."^^^ As a result, the court affirmed the ISBTC denial of an obsolescence
deduction.^°°

10. Louis D. Realty Corporation v. Indiana State Board of Tax
Commissioners.^^^ — Louis Realty appealed to the tax court a final determination
by the ISBTC.^*^^ Louis Realty raised two issues: whether the ISBTC's
regulations regarding grade, condition, or obsolescence were unconstitutional
because they were arbitrary and capricious and whether the ISBTC's
determinations regarding grade, condition, or obsolescence in Louis Realty's
case were arbitrary and capricious or unsupported by substantial evidence. ^^^

The tax court held that the final determination of the ISBTC would not be
reversed solely because Louis Realty's property was assessed under an
unconstitutional system. ^^'^ The court stated that property must still be assessed,
even though the current system was unconstitutional, until new regulations are
in place.^^^ Therefore, "a taxpayer cannot come into court, point out the
inadequacies of the present system and obtain a reversal of an assessment ....
Instead, the taxpayer must come forward with probative evidence relating to" the
specific issues of the taxpayer's individual case.^°^ As a result, the court refused
to reverse the final determination of the ISBTC solely on constitutional

295. Id. The court hinted to the ISBTC that the preferred way of accounting for Clark's
deviation from the GCR Apartment model is to "use separate schedules that show the costs of
certain components and features present in the model." Id. (referencing Whitley Prods., Inc. v.
State Bd. of Tax Comm'rs,704N.E.2d 1113, 1117 (Ind.T,C. 1998)). This method would be more
objective theui the grade adjustment method and therefore was preferred. Id.

296. Id at 52.

297. /£/. at 50-51.

298. Id. at 51-52. In fact, the evidence suggested that Clark was making money off his
apartments. /<i. at 5 1 .

299. Id

300. Id at 52.

301. 743 N.E.2d 379 (Ind.T.C. 2001).

302. /£/. at381.

303. Id

304. Id at 383.

305. Id

306. Id

2002] TAXATION 1565

grounds.^^^

The court further held that the ISBTC did not err in its assessment of Louis
Realty's property's grade.^^^ The court held that for Louis Realty to show that
the ISBTC acted arbitrarily and capriciously, it must offer probative evidence
demonstrating such action.^^^ Louis Realty failed to offer any evidence
supporting its position that the ISBTC acted arbitrarily and capriciously, so the
tax court affirmed the ISBTC's final determination with respect to grade.^'^

The tax court reversed, however, the ISBTC's final determination with
respect to condition.^' ' The condition of a structure on property was an important
factor in the determination of that property's physical depreciation.^ ^^ Physical
depreciation was important because it affects the property ' s true tax value, which
is the value on which the taxpayer paid property taxes.^'^ To determine
condition, the assessor must perform "an observation of the amount of physical
deterioration relative to the age of that improvement and the degree of
maintenance relative to the age of that improvement."^''' This observation
required the assessor to "determine the average condition of similar structures,
[and] then relate the structure being assessed to that established average."^ '^

The assessor in this case failed to adhere to the assessment regulations.^'^
The assessor compared Louis Realty's property to other similar property without
ever determiningthe average condition of the similar buildings.^'^ The court held
that Louis Realty had presented a prima facie case of error in the ISBTC
assessment of condition.^'* Further, the ISBTC failed to rebut this prima facie
case.^'^ Therefore, the ISBTC's final determination with respect to condition
was reversed and remanded for a hearing in which Louis Realty must
demonstrate, via substantial evidence, its entitled level of condition.^^^

With respect to obsolescence, the tax court held that Louis Realty failed to
establish a prima facie case establishing that it was entitled to economic
obsolescence, but it did establish a prima facie case establishing that it was
entitled to functional obsolescence.^^' The rule regarding obsolescence in place

307. Id.

308. Id. at 384.

309. Id

310. Id

311. Mat 385.

312. Mat 384.

313. Id

314. Id

3 1 5. Id. (quoting IND. ADMIN. CODE tit. 50, r. 2.1-5-1 (1992)).

316. Mat 385.

317. Id

318. Id

319. Id

320. Id

321 . Id. at 386-87. Functional obsolescence was caused by factors internal to the property that
reduced the value of the property, while economic obsolescence was caused by factors external to
the property with the same effect. Id. at 386.

1566

INDIANA LAW REVIEW

[Vol. 35:1541

during the commencement of Louis Realty's case stated that in a case of alleged
error in obsolescence assessments, Louis Realty must identify the causes of the
obsolescence and demonstrate that the quantification of the obsolescence by the
ISBTC was not supported by the evidence.^^^

The court held that the ISBTC erred in its assessment of Louis Realty's
functional obsolescence. ^^^ At trial, the assessor testified that he found twenty
percent functional obsolescence because that was what he always did for
property like Louis Realty's.^^'* The court stated that this finding was supported
by no independent evidence.^" Therefore, Louis Realty had met its burden to
show that the quantification of the obsolescence by the ISBTC was not supported
by the evidence.^^^

The court held that Louis Realty failed to show any probative evidence
establishing an entitlement to economic obsolescence. ^^^ Louis Realty simply
submitted to the assessor its financial statements and the vacancy rates for its
property .^^^ Louis Realty failed to meet its burden because its submissions did
not show a cause of economic obsolescence.^^^ Therefore, the ISBTC's denial
of economic obsolescence was affirmed."^

1 1. Davidson Industries v. State Board of Tax Commissioners."' — Davidson
appealed a final determination by the ISBTC assessing two parcels of land in
Allen County .^^^ Davidson asserted two issues to the tax court: whether the
ISBTC's determination should be reversed because its regulations were
unconstitutional and whether Davidson's property suffered from obsolescence."^

The court held that it would not reverse the final determination of the ISBTC
solely because its regulations were unconstitutional."'* Real property will still
be assessed under the current system until a new set of regulations comes out."^
To have a cognizable claim, Davidson needed to show why the ISBTC erred on
a specific issue in its individual case."^

The court held that the ISBTC did not err in refusing an obsolescence

322. Id. at 386. The current rule required the taxpayer to both identify the causes of the
obsolescence and quantify the amount. Id. at 385-86 (citing Clark v. State Bd. of Tax Comm'rs,
694 N.E.2d 1230, 1241 (Ind. T.C. 1998)).

323. Id at 386.

324. Id

325. Id

326. Id

327. Id at 387.

328. Mat 386-87.

329. Id at 387.

330. Id

331. 744 N.E.2d 1067 (Ind. T.C. 2001).

332. Mat 1068.

333. Id

334. Id at 1069.

335. Id

336. Id

2002] TAXATION 1567

deduction."^ The rule in place at the time of the commencement of Davidson's
case required that Davidson, to make a prima facie showing of an entitlement to
obsolescence, demonstrate the cause of obsolescence."* All Davidson offered as
evidence were conclusory statements without explanations of the cause for
obsolescence."^ The court stated: "Davidson did not even designate what kind
of obsolescence was allegedly demonstrated by its evidence. It is not this Court's
place to sift through Davidson's evidence and make its arguments for . . . it."^"^^
As a result, the tax court affirmed the denial of obsolescence.^'*'

12. Champlin Realty v. State Board of Tax Commissioners.^'*^ — Champlin
appealed to the tax court for the second time from a final determination of the
ISBTC denying an obsolescence adjustment to Champlin 's property. ^'^^
Champlin owned two parcels of land in Elkhart County.^'*'* Champlin initially
filed for review by the ISBTC the denial of an obsolescence adjustment by the
local assessor.^'*^ At that time, the ISBTC agreed with Champlin and assessed an
obsolescence adjustment.^'*^ However, Champlin appealed to the tax court.^"*^ At
that appeal, the tax court reversed the obsolescence adjustment and remanded the
case back to the ISBTC.^'** The court, on the first appeal, stated that the record
was "bereft of any probative evidence which supports either the causes or
quantification of functional obsolescence."^'*^ On remand, the ISBTC denied an
obsolescence adjustment, and Champlin again appealed to the tax court."®

At the trial before the tax court, Champlin presented several exhibits,
photographs, and reviews of its property describing how it was entitled to a
functional obsolescence adjustment."' The court, however, was not persuaded
by it.^^^ To create a prima facie case of entitlement to an obsolescence
adjustment, the court stated: "the taxpayer must explain how the purported
causes of obsolescence cause the subject improvements to suffer losses in
value. ""^ It is not enough for the taxpayer to "merely identify possible causes

337. Mat 1071.

338. Id. at 1070. The current rule requires the taxpayer to both identify the causes of the
obsolescence and quantify the amount. Id. (citing Clark v. State Bd. of Tax Comm'rs, 694 N.E.2d
1230, 1241 (Ind.T.C. 1998)).

339. Mat 1071.

340. Id

341. Id

342. 745 N.E.2d 928 (Ind.T.C. 2001).

343. Mat 929.

344. Mat 930.

345. Id

346. Id

347. Id

348. Mat 930-31.

349. Mat 930.

350. Mat 931.

351. Mat 932-34.

352. Mat 934.

353. Mat 936.

1568 INDIANA LAW REVIEW [Vol. 35:1541

of obsolescence."^^*

Champlin next contended that, since it and the ISBTC agreed in the first
determination that the obsolescence adjustments were appropriate, the only issue
before the court was the quantification of the obsolescence.^^^ The court rejected
this argument.^^^ The court remarked that any agreement between the parties was
negated by the issuance of a remand order.^^^ "The Court's Remand Order wiped
the slate clean with respect to functional obsolescence, due to the lack of any
probative evidence tending to show that the subject improvements suffered from
causes of functional obsolescence."^^^ As a result, there was no agreement for
the court to recognize.^^^ Therefore, the second final determination denying a
functional obsolescence adjustment was affirmed.^^^

13. North Group, Inc. v. State Board of Tax Commissioners.^^' — North
Group appealed a final determination by the ISBTC that assessed North Group's
property as separate lots rather than on an acreage basis.^^^ The property at issue
was previously owned by Tipton.^" Prior to Tipton's sale to North Group, the
land was assessed on an acreage basis.^^ After an agreement to sell, but before
title changed hands, Tipton platted the property into lots.^^^ After North Group
received title to the property, the county assessor reassessed the subject property
on a lot basis, rather than on an acreage basis.^^ North Group objected, but the
ISBTC decided that the property was properly assessed on a lot basis. ^^^

The tax court affirmed.^^* The controlling statute over this dispute stated that
"if land assessed on an acreage basis is subdivided into lots, the lots may not be
reassessed until the next assessment date following a transaction which results
in a change in legal or equitable title to that lot."^^' The court held that this
statute was not ambiguous.^^^ "The facts of this case fit squarely within the
statute," and there was no error in reassessing the land on a lot basis.^^'

354. Id.

355. Id. The court noted that on remand the "local assessing officials . . . opined that the
obsolescence adjustments granted by the [ISBTC] in its original Final Determinations were
adequate." Id.

356. /c/. at 937-38.

357. Id at 937.

358. Id

359. Mat 938.

360. Id

361. 745 N.E.2d 938 (Ind.T.C. 2001).

362. Mat 939.

363. Id

364. Id

365. Id

366. Id

367. Mat 940-41.

368. Mat 941.

369. Id at 940 (quoting IND. CODE § 6-1.1-4-12 (2000)) (emphasis deleted).

370. Mat 941.

371. Id

2002] TAXATION 1569

14. Miller Structures, Inc. v. State Board of Tax Commissioners."^ — Miller
Structures, Inc. ("Miller") owned two parcels of land in Elkhart County,
designated parcel one and parcel two.^^^ Miller filed a Form 133 Petition for
Correction of Error for parcel one, asserting that the assessment of parcel one
was in error because of the failure to consider the metal construction of a
building on parcel one.""* Miller also filed a Form 131 Petition for Review of
Assessment for both parcel one and parcel two asserting that the buildings on
these parcels required kit building adjustment, a grade adjustment, and a
obsolescence adjustment."^ Regarding the 133 petition, the ISBTC concluded
that parcel one was not entitled to a kit building adjustment. Regarding the 131
petitions, the ISBTC concluded that neither parcel one nor parcel two was
entitled to a kit building adjustment, the grade should be C-2, and there should
be no obsolescence adjustment."^ Miller appealed to the tax court all of these
issues and in addition whether the ISBTC exceeded statutory authority in
conducting hearings on these petitions without having the hearing officers
receive written prescriptions of their duties."^

With respect to the issue of the hearing officers, the court held that Miller
had waived the issue."* The ISBTC was required to set a hearing on these
petitions"^ and had to appoint a hearing officer who had received prescriptions
about the duties of a hearing officer.^*° Whether the hearing officers of Miller's
petitions actually received prescriptions of duties or not, the court stated that
"there is no evidence presented by Miller and this Court has found no evidence
that Miller objected to the authority of the hearing officers.^*' This failure
constituted a waiver.^*^ Therefore, the ISBTC had not exceeded its statutory
authority in this case.^*^

With respect to the 133 petition, the court held that the building on parcel
one was not entitled to a kit building adjustment.^*"* The court stated that Miller
needed "to present a prima facie case that its building was entitled to" the kit
adjustment.^*^ All Miller did was simply state that its building was made of
metal and, therefore, the kit adjustment should have been applied. ^*^ The court

372. 748 N.E.2d 943 (Ind.T.C 2001).

373. Mat 946-47.

374. /J. at 947.

375. Id.

376. Id.

317. /f/. at 947-48.

378. Id

379. See IND. CODE § 6-l.l-15-4(a) (1998 & Supp. 2001).

380. Miller Structures, 748 N.E.2d at 948 (referencing iND. CODE §6-1.1 -30- 1 1 (a)-(b) ( 1 998
& Supp. 2001)).

381. Id

382. Id

383. Id

384. Id at 949.

385. Id

386. Id

1570 INDIANA LAW REVIEW [Vol. 35:1541

held that this statement was a bare allegation, which did not constitute a prima
facie case.^*^ Since Miller failed to make a prima facie case, the ISBTC's burden
to rebut this case had not been triggered.^**

With respect to the 131 petitions, the court dealt with the kit adjustment
issue, the grade issue, and the obsolescence issue separately. The court held that
Miller had stated a prima facie case that the light manufacturing structure on
parcel two and all structures on parcel one were entitled to a kit building
adjustment.^^^ Miller met its burden by providing ample evidence that these
buildings contained the elements of kit buildings, such as rigid framing with Cee
channels and tapered columns, and that twenty-six gauge steel was used on the
buildings.^^ Because Miller had met its burden, the burden shifted to the ISBTC
to rebut that the buildings were entitled to a kit building adjustment.^^' The
ISBTC pointed to other characteristics of the buildings that were inconsistent
with kit buildings, such as high tolerance loads for the concrete floors, beams,
and roof.^^^ The court found this rebuttal evidence to be sufficient to support the
ISBTC's "final determination that the buildings in question were not entitled to
a kit building adjustment."^^^ Since Miller did not present further evidence to
rebut the ISBTC's rebuttal evidence, the court affirmed the ruling of the
ISBTC.^""

Miller asked the tax court for a grade adjustment if it denied the kit building
adjustment.^^^ The trial court stated that the evidence Miller presented for a
grade adjustment was the same as the evidence Miller presented for the kit
building adjustment.^^^ The court held that this evidence did not constitute a
prima facie case for a grade adjustment because Miller never explained why
these characteristics better resembled D grade buildings instead of C-2 grade
buildings.^'^ As a result, the tax court affirmed the ISBTC's C-2 grade
assessment.^^*

Miller finally argued that its buildings were entitled to an obsolescence
adjustment.^^^ The court stated that the rule regarding obsolescence in place
during the commencement of Miller's case was that Miller simply needed to
identify the causes of the obsolescence."*^ Miller claimed that its buildings

387.

Id.

388.

389.

Id at 950.

390.

391.

392.

/^. at 951.

393.

394.

Mat 951-52.

395.

Id at 952.

396.

Mat 952-53.

397.

Mat 953.

398.

399.

400.

Id. at 954. The current rule requires the taxpayer to both identify the causes of the

obsolescence and quantify the amount. Id. at 953-54 (citing Clark v. State Bd. of Tax Comm'rs,

2002] TAXATION 1571

suffered from obsolescence because they had add-on construction /°' Miller
argued that the buildings would be more efficient if there were just one building
with everything under one roof rather than having the add-on construction. "^^^
The court held that these statements were conclusory and did not establish how
the property lost value because of these characteristics. "^^^ As a result, the court
affirmed the ISBTC's denial of an obsolescence adjustment because Miller failed
to meet its burden. "^^^

75. Zakutansky v. State Board of Tax Commissioners.'*^^ — The Zakutanskys
owned real residential property in Porter County."*^ The Zakutanskys appealed
to the tax court from a final determination by the ISBTC, which concluded that
the assessment of $350 per front foot was proper and that the correct depth factor
for the Zakutanskys' home was the 150 feet depth table.'*^^

With respect to the front foot value issue, the tax court held that the ISBTC's
use of the $350 per front foot was proper.^"* The Zakutanskys' property was in
the third line of houses from Lake Michigan/^ The Zakutanskys argued that
other homes located in the third row from Lake Michigan were assessed a lower
rate than $350 per front foot.*'° The tax court concluded that this showing
constituted a prima facie case that the property was not assessed in an equal and
uniform manner.'*" However, the ISBTC rebutted the Zakutanskys' evidence by
demonstrating that the houses with which Zakutansky compared its own were in
fact different from the Zakutanskys' home."*'^ The other houses did not enjoy the
hill-top positioning of the Zakutanskys' home and did not share the Zakutanskys'
lake view."*^^ Further, the ISBTC provided evidence that other properties that
were very similar to the Zakutanskys' property were valued at the same or higher
rates.*"* As a result, the tax court held that ISBTC rebutted the Zakutanskys'
prima facie case and affirmed the $350 per front foot valuation."*'^

With respect to the depth-factor issue, the court remanded the issue back to
the administrative level to determine the predominant lot depth in the area under
consideration."*^^ A depth factor was the factor used to adjust the front foot base

694 N.E.2d 1230, 1241 (Ind. T.C 1999)).

401. Id.

402. Id.

403. Id

404. Id

405. 758 N.E.2d 103 (Ind. TC. 2001).

406. /J. at 105.

407. Id at 104.

408. /^. at 107.

409. /^. at 106.

410. Id

411. Id

412. Mat 106-07.

413. Id

414. Id at 107.

415. Id

416. Mat 109.

1572 INDIANA LAW REVIEW [Vol. 35:1541

rate to account for depth variations from the standard.'*'^ Indiana law stated that
"depth charts should be selected by determining the predominant lot depth of the
area under consideration.'"*'* The ISBTC used the entire town of Ogden Dunes
to determine the predominant lot depth."*'^ The Zakutanskys asserted that this
was error and argued that using only one block would be best."*^^ The court,
however, held that the predominant lot depth should be the one that occurs more
often than the others.'*^' As a result of this definition, the court remanded the
case back to the administrative level so that the parties could determine the
predominant lot depth for the area under consideration."*^^

B. Property Tax-Tangible Personal Property

1. Mariah Foods LP v. Indiana State Board of Tax Commissioners."*^^ —
Mariah Foods ("Mariah") purchased certain new equipment."*^* Mariah
petitioned the ISBTC for a deduction in both 1 997 and 1 998 from the assessed
value of this equipment because Mariah operates in an Economic Revitalization
Area."*^^ After both petitions, the ISBTC sent correspondence to Mariah stating
that Mariah had not provided a detailed description of the equipment, the
equipment's cost, and its installation date."*^^ After these correspondences,
Mariah did nothing."*" The ISBTC then sent notice to Mariah that the ISBTC
was not going to allow a deduction and gave Mariah three weeks to object or
present additional information."*^* Mariah again did nothing, so the ISBTC
denied the request for a deduction. "*^^ Mariah appealed to the tax court."*^^

The tax court held that Mariah was not entitled to the deduction."*^' The tax
court will only reverse a decision of the ISBTC if it was unsupported by
substantial evidence, arbitrary or capricious, an abuse of discretion, or exceeded
statutory authority ."*^^

The Indiana legislature permitted a deduction from the assessed value of this
new manufacturing equipment installed by Mariah."*" However, to qualify for

417. /fl^. at 1 08 (referencing IND. ADMIN. CODE tit. 50, r. 2.2-4-8 ( 1 996)).

418. Id.

419. Id.

420. Id

421. Id

All. Id at 109.

423. 749 N.E.2d 646 (Ind. T.C. 2001).

424. Id at 647.

425. Id

426. Id
All. Id

428. Id at 648.

429. Id

430. Id

431. /^. at 650-51.

432. Id at 648.

433. Id 5£e fl/^olND. Code §6-1.1-12.1-4.5 (1998 &Supp. 2001).

.:»'

2002] TAXATION 1573

this deduction, Mariah needed to file an application with the ISBTC that, among
other things, adequately described the equipment installed/^"* Mariah described
the equipment only as "new pork processing equipment.'"'^^ The court held that
the ISBTC could have reasonably concluded that this description "lacked
sufficient detail to properly identify the new equipment.'"*^^ The court was
moved by the numerous opportunities the ISBTC gave Mariah to correct the
non-specific definition of which Mariah failed to take advantage/^^ As a result,
the ISBTC's refusal to grant a deduction was affirmed."*^*

C. Gross Income

1. Allison Engine Co., Inc. v. Indiana Department of State Revenue."*^^ —
Allison Engine Co., Inc. ("Allison") filed two claims for a refund of gross
income tax paid with the IDR.'*^° The IDR denied the first claim.'*^' Allison
subsequently filed the second claim, which the IDR refused to address because
the IDR thought the second claim was the same as the first claim. '^'^^ Allison filed
an appeal with the tax court, and the IDR argued that the tax court lacked
jurisdiction to hear the appeal. '*'*^

The tax court held that it did have jurisdiction over the second claim. '*'*^ The
court commented that the issue of whether more than one claim for a refund can
be filed for the same tax was one of first impression in Indiana.*^^ However,
relying on federal precedent, the court adopted an analysis to consider when
determining whether two claims were identical.*^^ The court considered the
"facts, grounds, and theories in each claim.'"*^^ Allison's first claim was for a
refund of gross income because Allison should have been taxed at a lower rate
as it qualified as a contractor in certain transactions.'*'** In the second claim,
Allison claimed to be entitled to a lower tax rate because Allison was acting as
a retail seller in certain transactions with the government.'*'*^

The court held that while there was some overlap between the claims, "claim

434. A/flWfl/?Foo^j, 749N.E.2dat648.

435. /fi^. at649.

436. Id.

437. See id. at 649-50.

438. Mat 651.

439. 744 N.E.2d 606 (Ind.T.C. 2001).

440. /^. at 607-08.

441. /t/. at 607.

442. Mat 608.

443. Id

444. Mat 611.

445. Id

446. Id. at 610. See also Huettl v. United States, 675 F.2d 239 (9th Cir. 1982); Charlson
Realty Co. v. United States, 384 F.2d 434 (Ct. CI. 1967).

447. Allison Engine, 744 N.E.2d at 6 1 0.

448. Mat 611.

449. Id

1574 INDIANA LAW REVIEW [Vol. 35:1541

one is based upon the theory and facts which support Allison's contention that
it is a contractor while claim two is based upon the theory and facts which
support its assertion that it is selling at retail because of the title passage clauses
in its government contracts.'"'^^ Therefore, the court held that it had jurisdiction
over the appeal of the denial of Allison's second claim "because it was filed less
than three years but more than 180 days after Allison filed [cjlaim [t]wo" with
the ISDR, and the ISDR had not made a decision on claim two/^^

2. May Department Stores Co. v. Indiana Department of State Revenue.'*^^ —
May Department Stores, Inc. ("May") had merged with Associated Dry Goods
Corp. ("Associated")."^^^ Both companies' principle business is department store
retailing.*^'* Prior to and as a result of the planned merger, the City of Pittsburgh,
Pennsylvania sued May and Associated for antitrust violations."*^^ The parties
resolved this dispute by a stipulation that required May to divest all of the assets
of one of the divisions of Associated."^^^ After the sale. May filed an Indiana
adjusted gross income tax and supplemental income tax return.''" May
characterized the gains realized from the sale of Associated 's assets as non-
business income.'*^^ The IDR, after an audit, recharacterized these gains as
business income. *^^ May paid the taxes owed and then filed for a refund. ''^^ The
IDR denied the refund claim, and May appealed to the tax court.'^^'

The issue was whether the gains realized by the sale of Associated' s assets
were business or non-business income."*^^ The distinction was important because
business income is apportioned between Indiana and other states, while non-
business income is allocated either to Indiana or another state.'*" Indiana law
defines business income as "income arising from transactions and activity in the
regular course of the taxpayer's trade or business and includes income from
tangible and intangible property if the acquisition, management, and disposition
of the property constitute integral parts of the taxpayer's regular trade or business
operations.'"*^ To determine whether income is business income, the tax court

450.

Id.

451.

Id.

452.

749 N.E.2d 651 (Ind. T.C. 2001).

453.

/^. at 653.

454.

Id at 654.

455.

456.

457.

Id at 655.

458.

459.

460.

461.

462.

Id at 653.

463. Id. at 656. In other words, if the gains were non-business income then May would only
have to pay taxes on those gains in one state, which would likely not be Indiana. If the gains were
business income, then May would have to pay taxes on those gains to many states, pursuant to some
formula irrelevant to the disposition of this case.

464. Id at 655 (quoting Ind. Code § 6-3-1-20 (1998 & Supp. 2001)).

2002] TAXATION 1575

has adopted two tests: the transactional test and the functional test."*^^ To be
business income under the transactional test, the gains must have been realized
from a transaction that occurred in the regular course of May's business.'*^ To
be business income under the functional test, the gains must have been realized
from acquisition, management, or disposition of property by the taxpayer, and the
process must be integral to the taxpayer's regular trade or business operations.*^^
The court concluded that the gains realized by May were non-business
income under both tests."*^* The gains were realized pursuant to the sale of an
entire division of Assoc iated/^^ Associated was not in the business of selling
entire divisions, but rather department store retail/^^ Further, the disposition of
these assets "was neither a necessary nor an essential part of Associated 's
department store retailing business operations.'"*^' Therefore, the income should
have been characterized as non-business income, and it was error for the IDR to
consider it otherwise/^^

D. Sales and Use Tax

1. Meyer Waste System, Inc. v. Indiana Department of State Revenue."*^^ —
Meyer Waste System, Inc. ("Meyer Waste") was a garbage collector.'*^'* Indiana
law imposes a use tax "on the storage, use, or consumption of tangible personal
property in Indiana if the property was acquired in a retail transaction, regardless
of the location of that transaction or of the retail merchant making the
transaction.'"*^^ Certain transactions are exempt from this use tax. One such
exemption applies to transactions involving tangible personal property acquired
in providing public transportation to the property ."^^^ Meyer Waste claimed that
it was exempt from the use tax because the transportation of trash constituted
public transportation.'*^^ The IDR disagreed and assessed the use tax on Meyer
Waste."*^* Meyer Waste appealed to the tax court.*^^

The tax court held that Meyer Waste was liable for the use tax because it was
not exempt under the public transportation exemption. "^^^ The court stated that

465.

/flf. at 662-63.

466.

/^. at 663.

467.

Id. at 664.

468.

Id. at 665.

469.

Id at 663.

470.

471.

Id at 665.

472.

Id at 666.

473.

741N.E.2dl (Ind. T.C. 2000).

474.

Mat 3.

475.

Id at 4 (quoting iND. CODE § 6-2.5-3-2(a) (1998 & Supp. 2001))

476.

Id (citing iND. CODE § 6-2.5-3-4(a)(2) (1998 & Supp. 2001)).

477.

Id at 3.

478.

479.

480.

Mat 15-16.

1576

INDIANA LAW REVIEW

[Vol. 35:1541

to constitute public transportation, the carrier must be predominantly engaged in
the transportation of the property of another."**' In this case, Meyer Waste owned
the trash it transported because the generator of the trash abandoned it when it
put the trash at the curb."**^

Meyer Waste further challenged the public transportation exemption on equal
protection grounds.^*^ The court, using rational basis review, held that any
disparities caused by the exemption are fairly and substantially related to a
legitimate governmental interest."**"* The interest involved was to reduce the cost
to the carrier that provided transportation services to the public so that the carrier
could pass those savings along to the public."**^

2. Panhandle Eastern Pipeline Co. v. Indiana Department of State
Revenue.^*^ — ^Panhandle Eastern Pipeline Co. ("Panhandle") was a company in
the business of transporting natural gas."**^ Most of the gas Panhandle transported
belonged to other people; however, some of the transported gas belonged to
Panhandle.'*** Indiana law imposes a use tax on persons who acquire property
through a transaction from a retail merchant."**^ A taxpayer is exempt from this
tax if it used or consumed the acquired property while providing public
transportation for the property ."*^° Panhandle asserted that it was entitled to a
100% exemption because it transported tangible property in public
transportation."*^'

The court held that this exemption was "an all-or-nothing exemption. ""*^^ It
further held that when "a taxpayer acquires tangible personal property for
predominate use in providing public transportation for third parties, it is entitled
to the exemption. ""*^^ Panhandle predominantly transported gas for third
parties."*'"* As a result. Panhandle was entitled to a 1 00% exemption from the use
tax.^'^

3. Williams v. Indiana Department of State Revenue."*'^ — Williams
purchased and paid the gross retail tax on a car in Indiana."*'^ Williams then lost

481.

Id. at 5-6.

482.

Id. at 5-9.

483.

Mat 11.

484.

/^. atl5.

485.

Id at 13.

486.

741 N.E.2d 816 (Ind. T.C. 2001).

487.

/c/. at 817.

488.

489.

Id. at 818 (referencing Ind. Code § 6-2.5-2-

1(a) (1998 &

Supp. 2001))

490.

Id. (referencing Ind. Code § 6-2.5-5-27 (1998 & Supp. 2001)).

491.

492.

/c?. at 819.

493.

494.

495.

Mat 819-20.

496.

742 N.E.2d 562 (Ind. T.C. 2001).

497.

Id 562-63

2002] TAXATION 1577

the original title and requested a duplicate title from the dealer."*^* Thereafter,
Williams moved to Michigan."*^^ While in Michigan, Williams received the
duplicate title and then registered the car.^°° As a result of this registration,
Williams paid the Michigan use tax on the car.^°' Williams never registered the
car in Indiana.^^^ Williams filed a petition with the IDR requesting a refund of
the Indiana retail tax paid.^°^ The IDR denied the refund, and Williams appealed
to the tax court.^^

Williams contended that she was entitled to a credit since she paid a tax
equal to or greater than the Indiana tax in another state.^^^ The tax court held that
the credit listed taxes for which the credit applied, and the retail tax was not
listed.^^^ Further, the credit was not applicable for vehicles that were required to
be registered in Indiana.^^^ Since the car Williams purchased was supposed to
be registered in Indiana, regardless of whether it ever was, Williams was not
entitled to the credit.^^*

E. Controlled Substance Excise Tax

L Clifft V. Indiana Department of Revenue.^*^' — This case concerned a
woman who was arrested for possession of marijuana.^ '° The IDR issued an
assessment of the Controlled Substance Excise Tax (CSET).^" The issue was
whether Clifft possessed the marijuana and, as a result, is liable for the CSET.

The court held that Clifft indeed possessed marijuana and that the CSET
assessment was proper.^'^ The court stated that Clifft pled guilty to possession
of marijuana in her criminal case, and thereby admitted that she did indeed
possess marijuana.^'^ Also, the court found that Clifft had the intent and
capability to exercise dominion and control of the marijuana that the police found

498.

Id. at 563.

499.

Id.

500.

501.

502.

503.

504.

505. Id at 564. See IND. CODE § 6-2.5-3-5 (1998 & Supp. 2001).

506. W'////am.s, 742 N.E.2d at 564.

507. Id

508. /^. at 564-65.

509. 748 N.E.2d 449 (Ind. T.C. 2001).

510. /rf. at451.

511. /^. at 450. See iND. CODE §§ 6-7-3-1 to -20 (2001).

5 1 2. CliffU 748 N.E.2d at 454.

513. Id.dX 453. Although the state submitted Clifft to a criminal trial, the CSET did not violate
double jeopardy because the jeopardy in CSET cases attaches at the moment of the assessment,
which occurred before the criminal case here. Id. at 451 . See Clifft v. Ind. Dep't of State Revenue,
660 N.E.2d 3 1 0 (Ind. 1 995). In other words, a double jeopardy issue would only apply against the
subsequent criminal jeopardy and not the initial tax jeopardy.

1578 INDIANA LAW REVIEW [Vol. 35:1541

in Clifft's house.^'"* This evidence was sufficient for the court to affirm the
CSET assessment.^'^

F. Financial Institutions Tax

1. Salin Bancshares, Inc. v. Indiana Department of Revenue. ^'^ — Salin
Bancshares, Inc. ("Salin") is an Indiana corporation that is subject to the
Financial Institutions Tax (FIT).^'^ The FIT is an "excise tax on the exercise of
the corporate privilege of operation as a financial institution in Indiana."^'* The
financial institution subject to this tax must, among other things, submit to the
IDR the amount of federal adjusted gross income tax paid for a particular year,
and then the IDR will calculate the FIT liability for that year.^'^ In 1995, Salin
entered into a closing agreement with the IRS settling a dispute regarding certain
deductions Salin had been taking over the period of time dating back to 1984.^^°
This agreement had the affect of changing Salin's federal income tax liability for
the year 1991 ."' Salin did not file an amended tax return for the year 1991,^^^
nor did it notify the IDR of its agreement or its increased tax liability for 1 99 1 ."^
The IDR audited Salin in 1996 and discovered a deficiency in Salin's FIT for
1991 524 Saijfj overpaid its FIT in 1993, so the IDR applied the subsequent
overpayment."^ Salin requested a refund of its payment of the 1991 deficiency
arguing that the statute of limitations for issuing an assessment for 1991 had
expired.^^^ The IDR denied a refund."^ Salin appealed this denial to the tax
court.

The issues before the tax court were "[w]hether Salin was obligated to notify
the [IDR] of its 1995 closing agreement with the IRS""* and "whether the
[IDR]'s assessment of Salin for deficient FIT payments more than three years

after the due date for the tax was untimely "^^^ Regarding the first issue, the

court held that "Salin was obligated to and failed to notify the [IDR] of its 1995

514. Clifft, 748 N.E.2d at 454.

515. Id.

516. 744 N.E.2d 588 (Ind. T.C. 2000).

517. Id. at 590. See iND. CODE § 6-5.5-1-1 to -9-5 (1998 & Supp. 2001).

5 1 8. Salin, 744 N.E.2d at 59 1 (quoting Ind. Dep't of State Revenue v. Fort Wayne Nat' 1 Corp.,
649N.E.2d 109, 112 (Ind. 1995)).

519. Id

520. /c/. at 590.

521. Id

522. Mat 592.

523. Mat 590

524. Id

525. Id

526. Id

527. Id

528. Id

529. Id

2002] TAXATION 1579

closing agreement with the IRS."^^° The FIT statute provides that each taxpayer
must, within 120 days, notify the IDR of "any alteration or modification of a
federal income tax return . . . including any modification or alteration in the
amount of tax, regardless of whether the modification or assessment results from
an assessment.""' The court held that this broad language required Sal in to
notify the IDR of the changed liability "regardless of whether alterations or
modifications are made on a tax return itself or in a manner that effectively alters
or modifies the tax return."^^^

Regarding the issue of the statute of limitations, the court held that while the
IDR did not issue a timely proposed assessment, Salin was equitably estopped
from asserting this as a defense.^^^ The FIT statute provides a three-year statute
of limitations after the filing of a return for issuing an assessment;""* however,
there is no statute of limitations if the taxpayer fails to file a return.^^^ The court,
hov^ever, concluded that the FIT statute did not actually require the taxpayer to
file an amended return if the federal liability was altered or modified."^ The
express language and intent of the statute allowed, but did not require, an
amended return to be filed to constitute notice for the purpose of the statute of
limitations."^ Therefore, the IDR only had three years to conduct this
assessment, which it failed to do."^

The court, however, held that Salin was equitably estopped from asserting
the statute of limitations as a defense."^ The elements of equitable estoppel are:

( 1 ) a representation or concealment of a material fact; (2) made by a
person with knowledge of the fact and with the intention that the other
party act upon it; (3) to a party ignorant of the fact; (4) which induces the
other party to rely or act upon it to his detriment.^'*^

The court concluded that Salin failed in its statutory duty to notify the IDR of its
closing agreement with the IRS.^"*' The court stated: "the [IDR] had every right
to presume that Salin would notify it of changes in Salin's federal tax liability.
The Court will not allow Salin to disclaim its obligation to notify the [IDR] of the
closing agreement's terms. Salin 's conduct amounted to constructive fraud on
its part."^"*^ As a result, the court granted summary judgment for the IDR, thereby

530. Id. at 593.

531. IND. CODE §6-5.5-6-6(a) (1998 &Supp. 2001).

532. 5a/m, 744N.E.2dat593.

533. /£/. at595.

534. Jd. 5ee IND. Code §6-8.1-5-2(a)(l) (1998 &Supp. 2001).

535. Salin, 744 N.E.2d at 595. See iND. CODE § 6-8.1-5-2(e) (1998 & Supp. 2001).

536. 5a//>7, 744 N.E.2d at 595.

537. Id

538. Id

539. Id

540. Id. (citing Wabash Grain, Inc. v. Smith, 700 N.E.2d 234, 237 (Ind. Ct. App. 1998)).

541. Id 2X596.

542. Id

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INDIANA LAW REVIEW

[Vol. 35:1541

affirming the IDR's denial of a refund to Salin

543

G. Motor Carrier Fuel Tax

7. Jack Gray Transport, Inc. v. Department of State Revenue.^^'^—The
taxpayer^"*^ was a motor carrier in the business of commercial trucking.^"*^ The
General Assembly passed a law that exempted from the motor carrier tax those
vehicles that used power take-off equipment.^*^ The taxpayer applied for this
exemption, but the IDR denied its application.^"*^ The taxpayer appealed to the
tax court asking that the court certify its class and grant it the exemptions.^"*^

The tax court did not certify the class.^^° The court held that the taxpayer did
not meet the numerosity requirement because the taxpayer expressly indicated
that it could join all potential claimants in one lawsuit.^^' Furthermore, the IDR
stated that it was willing to try all 1536 cases if necessary ."^

The tax court did hold, however, that as to the taxpayers directly involved in
this action,^^^ the IDR erred in refusing to give the taxpayers their exemption.^^^
The court held that the statute that provided the exemption was not completely
invalidated by a previous tax court case that declared part of the statute
unconstitutional.^^^ Since the court had previously only struck the
unconstitutional language in the motor carrier fuel statute, the statute still existed
and the taxpayer was entitled to the exemption.^^^

2. Hi- Way Dispatch, Inc. v. Indiana Department of State Revenue.^^^ —
Hi- Way Dispatch, Inc. ("Hi- Way") is a commercial motor vehicle operator with

543. Id.

544. 744 N.E.2d 1071 (Ind. T.C 2001).

545. The taxpayer includes Jack Gray Transport as well as thirty-eight other parties. Id. at
1072. The taxpayer sought to certify a class action consisting of 1536 similarly-situated motor
carriers. Id. at 1073.

546. Id

547. Id ^ee Ind. Code §6-6-4.1 -4(d) (1 998 &Supp. 2001).

548. Jack Gray Transport, 744}^.E.2d at \072'73.

549. Id &t 1073.

550. Id at 1075.

551. Id ^ee I^fD. Trial RULE 23(A).

552. Jack Gray Transport, 744 N.E.2d at 1075.

553. Mat 1077 n.U.

554. /^. at 1077.

555. Id. See Bulkmatic Transp. Co. v. Dep't of State Revenue, 715 N.E.2d 26, 36 (Ind. T.C.
1999);BulkmaticTransp.Co.v.Dep'tofStateRevenue,691N.E.2dl371, 1379 (Ind. T.C. 1998).
The previous version of the motor carrier fuel tax was unconstitutional because in contained
language that "discriminated against interstate commerce and foreclosed tax neutral decisions, a
result which is not allowed under the Commerce Clause." Jack Gray Transport, 744 N.E.2d at
1076.

556. Jack Gray Transport, 744 N.E.2d at 1077.

557. 756 N.E.2d 587 (Ind. T.C. 2001).

2002] TAXATION 1581

a principle place of business in Marion, Indiana.^^^ Between 1992 and 1994,
Hi- Way did not pay its motor carrier fuel taxes for the gas lost during idle time.^^^
Idle time was when a motor vehicle's engine was on, but the vehicle was not
moving.^^^ The IDR issued an assessment against Hi- Way for the amount of
taxes not paid plus interest, and Hi- Way appealed to the tax court.^^'

The issues before the tax court were whether the IDR properly included idle
time gas consumption in the calculation of fuel tax owed, whether Hi- Way had
any affirmative defenses with respect to the IDR's assessment, and whether
Hi- Way was entitled to full credit for the fuel purchased in Indiana but consumed
elsewhere.^^^

The tax court held that the IDR properly concluded that Hi-Way could not
reduce its total fuel consumed figure by fuel lost in idle time.^^^ Indiana was a
member of the International Fuel Tax Agreement (IFTA).^^ The IFTA is an
agreement between member jurisdictions that permits a motor carrier to pay fuel
tax in one jurisdiction, and then that jurisdiction distributes the tax to other
jurisdictions in which the carrier operates.^^^ The IFTA permitted a tax on the
consumption of motor fuels used in the propulsion of certain vehicles.^^^ Hi-Way
argued that idle time gas loss was not used in the propulsion of their vehicles, so
it was exempt from the tax.^^^ Indiana statutes provide, however, a road tax on
the consumption of fuel during operations on the state's highways.^^^ Another
Indiana statute states that if an Indiana law and an IFTA regulation conflict, the
IFTA regulation prevails.^^'

The court held that the Indiana road tax law and the IFTA tax only on the
fuel that was used to propel the carrier were not inconsistent.^^° The court stated
that the IFTA regulation "explains the general use for which fuel must be
consumed under IFTA, not the fuel's specific use at any given time."^^' Since
there was no conflict, the IDR properly did not reduce Hi- Way's tax liability by
the amount of gas used in idle time.^^^

The court held that Hi- Way had a valid affirmative defense of laches against

558. /^. at 591.

559. Id.

560. Id. at 596.

561. Mat 591.

562. Id at 590.

563. Id at 597.

564. Id at 595. See IND. CODE § 6-8.1-3-14 (1998 & Supp. 2001).

565. Hi'Way Dispatch, 756 N.E.2d at 594.

566. Mat 595.

567. Mat 596.

568. Id 5ge iND. CODE § 6-6-4. 1-4(1 998 & Supp. 2001).

569. Hi-Way Dispatch, 756 N.E.2d at 595. See iND. CODE § 6-8. 1-3- 14(d) (1998 & Supp.
2001).

570. Hi'Way Dispatch, 756 N.E.2d at 597.

571. Id

572. Id

1582 INDIANA LAW REVIEW [Vol. 35:1541

the IDR.^^^ The elements of the defense of laches were: "(0 inexcusable delay
in asserting a right; (2) an implied waiver arising from knowing acquiescence in
existing conditions; and (3) circumstances resulting in prejudice to the adverse
party."^^"* The court found a genuine issue of material fact as to laches because
Hi- Way offered evidence that tended to show that its president received the
blessing of the administrator of the IDR's Special Tax Division to exclude idle
time.^^^ Despite this apparent acquiescence, the IDR, after seven years, decided
to enforce its right to collect idle time taxes anyway.^^^ As a result, the tax court
permitted a trial to go forward on the issue of laches.^^^

With respect to the issue of Hi- Way's entitlement to a tax credit, the court
held that the IDR properly denied the credit to Hi- Way .^^* The court held that the
Indiana statute that provided a full tax credit for gasoline purchased in Indiana
but consumed in a non-IFTA state only when a similar ftiel tax was remitted to
that state was not in conflict with the IFTA and did not violate the Commerce
Clause.^^^ As a result, Hi- Way's motion for summary judgment on the issue of
the credit entitlement was denied.^*°

573. Id. at 600. The court concluded that Hi- Way did not have a valid equitable estoppel
defense against the IDR. Id. at 599. The court stated: "Hi-Way must identify an important public
policy reason for disregarding the general rule that government entities cannot be estopped." Id.
The reason for this rule is that "[i]f the government could be estopped, then dishonest, incompetent
or negligent public officials could damage the interests of the public. At the same time, if the
government v/ere bound by its employees' unauthorized representations, then government itself
could be precluded from functioning.*' Id. at 598 (quoting Samplawski v. City of Portage, 512
N.E.2d 456, 459 (Ind. Ct. App. 1 987)).

574. Mat 599-600.

575. Id 2X600.

576. Id

577. /^. at 605.

578. Id

579. Mat 602-03.

580. Mat 605.

Recent Developments in Indiana Tort Law

Timothy C. Caress*
Katherine Amy Lemon**

Introduction

This Article surveys the most significant developments in Indiana tort law
from October 1, 2000 through September 30, 2001. The Article is confined
solely to the review of court decisions, as the General Assembly did not enact
any legislation that significantly affected tort law during the survey period.

I. Tort Claims Act

In Porter v. Fort Wayne Community Schools,^ the court of appeals addressed
the notice requirements under the Indiana Tort Claims Act ("ITCA"). Porter was
injured in a motor vehicle collision involving a Fort Wayne Community Schools
bus. Porter subsequently hired an attorney who wrote a letter regarding the claim
to Fort Wayne Community Schools' insurance carrier.^

While the attorney's letter contained specifics about the collision and his
client's injuries, he did not mention the ITCA nor the amount of damages
sought.^ Thereafter, Fort Wayne Community Schools moved for summary
judgment, which the trial court granted, based on Porter's failure to comply with
the notice requirements of the ITCA.'*

On appeal, the court of appeals initially noted that "[t]he purpose of the
ITCA's notice requirements is to provide the political subdivision the opportunity
to investigate the facts surrounding an accident so that it may determine its
liability and prepare a defense."^ Further, the court noted that "[s]ubstantial
compliance with the notice requirement may be sufficient provided the purpose
of the requirement is satisfied."^ Finally, the court noted that "[w]hen deciding
whether there has been substantial compliance, [the appellate court] reviews
whether the notice given was, in fact, sufficiently definite as to time, place, and
nature of the injury."^

In its analysis of the facts, the court of appeals determined that although the
attorney's letter did not expressly state that Porter intended to file a claim against

* Partner, Cline Farrell Christie Lee & Caress, Indianapolis, Indiana; B.A., 1991, Indiana
University; J.D., summa cum laude, 1994, Indiana University School of Law— Indianapolis.

** Clerk, Cline Farrell Christie Lee & Caress, Indianapolis, Indiana; B.A., 1998, Indiana
University; J.D., 2002, Indiana University School of Law— Indianapolis.

1. 743 N.E.2d 341 (Ind. Ct. App.), trans, denied, 753 N.E.2d 17 (Ind. 2001).

2. /rf. at 342-43.

3. See id. at 343.

4. Id

5. Id at 344 (citing Hasty v. Floyd Mem'l Hosp., 612 N.E.2d 119, 123 (Ind. Ct. App.
1992)).

6. Id.

7. Id

1 584 INDIANA LAW REVIEW [Vol. 35: 1 583

Fort Wayne Community Schools, he did state "his representation of Porter's
'interests' and that additional information would be forwarded 'to support his
claim.'"* Therefore, the court determined that the attorney's letter "adequately
informed Fort Wayne [Community Schools] of Porter's intent to make a claim
and provided sufficient information about the collision to facilitate Fort Wayne's
investigation."^

Further, the court noted that "Fort Wayne considered Porter's letter to be
notice of a tort claim. "'° Specifically, the court found that "Fort Wayne's
insurance company assigned a 'claim number' to Porter's claim and maintained
a file 'reflective of [Porter's] condition.'"" Therefore, the court found that "Fort
Wayne's conduct was inconsistent with its position" that the attorney's letter on
behalf of Porter "did not satisfy ... the purpose of the ITCA notice
requirements."'^ Therefore, the court of appeals concluded that the attorney's
letter on behalf of Porter "was sufficiently definite as to time, place, and nature
of Porter's injuries and, thus, substantially complied with the notice requirements
of the ITCA."''

In Metal Working Lubricants Co. v. Indianapolis Water Co.,''* the court of
appeals addressed whether the Indianapolis Water Company ("IWC") qualified
as a "governmental entity" for purposes of immunity. After Metal Working
Lubricants' plant was ravaged by fire in 1996, it sued the IWC, maintaining that
the fire hydrants in the area provided an inadequate water supply for fire-fighting
purposes. The IWC, "a privately-owned water company providing the City of
Indianapolis with water for domestic purposes pursuant to a franchise contract
between IWC and the City," affirmatively pled immunity pursuant to the ITCA
as an affirmative defense.'^ Ultimately, the IWC moved for and was granted
summary judgment based upon its immunity defense.'^

On appeal, the court of appeals addressed the issue of whether the IWC
qualified as a "governmental entity." In that regard, the court recognized that
IWC is not a "governmental entity" as defined in the ITCA.'^ However, the court
noted that the Indiana Supreme Court "has held that when private groups are
'endowed by the state with powers or functions governmental in nature, they
become agencies or instrumentalities of the state and are subject to the laws and

8. Id. (alteration by court).

9. Id.

10. /flf.at345.

\\. Id. (alteration by court).

12. Id. at 345 (citing Delaware County v. Powell, 393 N.E.2d 190, 192 (Ind. 1979) ("finding
substantial compliance with tort notice requirements despite lack of any writing within 180 days
where defendant's conduct established that purposes of notice statute were satisfied")).

13. /J. at 345.

14. 746 N.E.2d 352 (Ind. Ct. App. 2001).

15. /c/. at 354.

16. Id.

17. Mat 355.

2002] TORT LAW 1585

statutes affecting governmental agencies and corporations.'"'*

The court of appeals held that, "[a]s a matter of law," IWC was "an
instrumentality of the government."'^ Specifically, the court determined that
IWC had "not only been 'endowed . . . with powers or functions governmental
in nature,' but it is, in essence, acting in the government's stead."^° Further, the
court noted that "IWC may technically be a 'private' company, but it enjoys very
few attributes of a truly private company."^' Specifically, the court found that
IWC "operates by the authority and at the will of the City and [that] it is subject
to extensive oversight by the state through the [Indiana Utility Regulatory
Commission]. "^^ Therefore, the court held that IWC could "be considered a
governmental entity."^^ Finally, the court held that failure to provide adequate
fire protection is similar to failure to provide police protection and, as such, it
held that the IWC was entitled to immunity pursuant to the common law.^"*

In PNC Bank, Indiana v. State ^^ the court of appeals addressed the
"discretionary function" immunity of the ITCA. PNC Bank, Indiana ("PNC"),
as guardian of Marcus Speedy, "filed a negligence action against the State . . . ,
alleging that the State negligently caused Speedy 's injuries by failing to provide
a left-turn arrow at the intersection" where Speedy was involved in an
automobile collision.^^ The State filed a motion for summary judgment alleging
that it was immune from liability pursuant to the "discretionary function"
immunity contained in the ITCA.^^ The trial court granted summary judgment
and PNC appealed.^*

On appeal, the State claimed that it was "immune from liability to PNC for
Speedy 's injuries because its alleged act of negligence (failure to install a left-
turn signal) was a discretionary function."^^ Initially, the court of appeals noted
that the ITCA "provides that a governmental entity is not liable for loss resulting
from 'the performance of a discretionary function. '"^^ The court further noted
that the Indiana Supreme Court had "adopted the 'planning-operational test' for
assessing whether a governmental entity is immune under the ITCA for the
performance of a discretionary function."^' This test essentially provides that "a

18. /flf. at 356 (citing Ayres V.Indian Heights Volunteer Fire Dep't, 493 N.E.2d 1229, 1235
(Ind. 1986)).

19. /^. at 357.

20. M(quoting^>/rej, 493 N.E.2d at 1235) (citation omitted).

21. Id.

22. Id.

23. Id.

24. /^. at 359.

25. 750 N.E.2d 444 (Ind. Ct. App.), trans, denied, 761 N.E.2d 421 (Ind. 2001).

26. /^. at 445.

27. Id

28. Id

29. Id

30. Mat 446.

31. Id. (citing Peavler v. Bd. of Commas of Monroe County, 528 N.E.2d 40 (Ind. 1988)).

1586 INDIANA LAW REVIEW [Vol. 35:1583

governmental entity will not be liable for negligence arising from decisions that
are made at a planning level, as opposed to an operational level."^^ Specifically,
the court noted that the State had undertaken a lengthy analysis of the
intersection in question prior to the collision and that it had exercised its official
judgment and discretion, and had weighed alternatives and public policy
choices.^^ The court held that "the State's allegedly negligent failure to install
a left-turn signal prior to Speedy's accident [was] entitled to immunity because
it involved the performance of discretionary function."^"*

In City of Anderson v. Davis^^ the court of appeals addressed the "law
enforcement" immunity provision of the ITCA. In May 1 995, a Madison County
sheriff "observed a teenage male walking along the road."^^ The pedestrian
"matched the description of a teenager who had reportedly walked away from the
Madison County Juvenile Center, where he was being detained upon charges of
auto theft."^^ When the teenager "realized he had been spotted, he retreated into
a nearby wooded area."^^ The sheriff "called his office for assistance," and,
among the officers who responded to the call was Timothy Davis, the
department's chief deputy .^^

"Davis parked his police vehicle near the edge of the wooded area . . . , and
began to search on foot.'"*^ While Davis was searching the area on foot, Officer
Stoops from the Anderson Police Department arrived with his police dog,
Chester, and they began searching the same area. At one point. Officer Stoops,
believing that Chester was alerted to the scent of the suspect, "deploy [ed] Chester
in an off-leash search.'"*' Chester bolted, and "when officer Stoops caught up
with his dog, he saw [Chester] attacking Davis," causing serious injuries to
Davis.^^

Davis filed a complaint against, inter alia, the City of Anderson and Officer
Stoops, alleging that they were negligent in the off- leash deployment of
Chester."*^ The defendants "asserted the affirmative defense of governmental
immunity under the ITCA.'"*'* After a bench trial, judgment was entered in favor
of Davis and the appeal ensued."*^

On appeal, the City claimed "that it was immune from liability for Officer

32. Id. at 446 (citing Lee v. State, 682 N.E.2d 576, 578 (Ind. Ct. App. 1997)).

33. Id. at 446-41.

34. Id. at 441.

35. 743 N.E.2d 359 (Ind. Ct. App.), trans, denied, 761 N.E.2d 412 (Ind. 2001).

36. Id at 361.

37. Id

38. Id

39. Id

40. Id

41. Id

42. Id

43. Id. at 362.

44. Id.

45. Id

2002] TORT LAW 1587

Stoops' alleged negligence pursuant to the Maw enforcement' immunity
provision of the ITCA.'"*^ Davis contended that the City was not immune
because the use of the dog "under the circumstances did not constitute the
'enforcement of law' within the meaning of the Act."^^

The court of appeals decision was based on the recent Indiana Supreme Court
case of Benton v. City of Oakland City, Indiana.*^ Pursuant to the Benton
opinion, the court of appeals determined that it simply needed to decide whether
Stoops was acting within the scope of his employment and whether he was
engaged in the "enforcement of law" at the time of the incident involving the
plaintiff.'*'

There was no allegation or evidence indicating that Stoops was not acting
within the course of his employment with the City of Anderson at the time of the
incident.^^ Therefore, the court's analysis dwelt on whether he was engaged in
the "enforcement of a law" at the time the incident occurred.^'

Davis contended that the "use of Chester did not constitute law enforcement"
because Chester was used despite the knowledge that the dog "had
inappropriately attacked people in the past."" However, the court found no
authority "suggestingthat when a police officer performs his duties in a negligent
matter, the officer is no longer 'enforcing a law.'"^^ Instead, the court
determined that Chester had been deployed "to assist in locating and
apprehending an individual who had escaped from a juvenile detention facility
. . . and who was evading recapture by the police."^"* Further, the court
determined that the "use of Chester under the circumstances plainly constituted
an 'activity in which a government entity or its employees compel or attempt to
compel the obedience of another to laws, rules or regulations, or sanction or
attempt to sanction a violation thereof. . . ."^^ Therefore, the deployment of
Chester "amounted to the 'enforcement of the law' within the meaning of the
ITCA.'"'

II. Medical Malpractice

In Narducci v. Tedrow,^^ the court of appeals addressed the necessity of
expert testimony regarding the requisite standard of medical care in the context

46.

Id.

47.

Id.

48.

721 N.E.2d 224 (Ind. 1999).

49.

Davis, 743 N.E.2d at 364.

50.

Id.

51.

52.

53.

Id. at 364-65.

54.

Mat 365.

55.

Id.

56.

57.

736N.E.2d 1288 (Ind. Ct. App. 2000),

1588 INDIANA LAW REVIEW [Vol. 35:1583

of the doctrine of res ipsa loquitur. Narducci performed colon surgery on
Tedrow and allegedly lacerated his spleen during the procedure.^^ After Tedrow
filed a lawsuit against Narducci, Narducci moved for summary judgment and
submitted an affidavit of an expert witness who testified that a spleen laceration
can occur without negligence on the part of the surgeon. ^^ Tedrow did not
present any expert opinion in opposition to Narducci 's motion for summary
judgment.^^ "[T]he trial court found that the doctrines of 'res ipsa loquitur' and
'common knowledge' applied to Tedrow' s claims against Dr. Narducci and, thus,
Tedrow was not required to present expert testimony regarding the requisite
standard of [medical] care in order to establish negligence on the part of Dr.
Narducci.'"^

On appeal, Narducci contended that the application of res ipsa loquitur was
"improper because the uncontradicted expert testimony stated that a patient's
spleen can accidentally be injured during colon surgery absent any negligence on
the part of the surgeon."^^ Further, Narducci also claimed that "the 'common
knowledge' exception should not apply because the determination of whether Dr.
Narducci complied with the requisite standard of [medical] care during the colon
surgery require[d] the education, training, and experience of a surgeon and is
beyond the common knowledge of a layperson.""

The court of appeals noted that "[g]enerally, the mere fact that an injury
occurred will not give rise to a presumption of negligence."^'' Further, in order
to "establish the applicable standard of [medical] care and to show a breach of
that standard, a plaintiff must generally present expert testimony. "^^ However,
the court recognized that "the doctrine of res ipsa loquitur is a qualified
exception to the general rule that the mere fact of an injury will not create an
inference of negligence."^

The court noted that

[u]nder the doctrine of res ipsa loquitur, negligence may be inferred
where 1) the injuring instrumentality is shown to be under the
management or exclusive control of the defendant, . . . and 2) the
accident is such as in the ordinary course of things does not happen if
those who have management of the injuring instrumentality use proper
care.^^

58. Id,

59. /^. at 1291.

60. Id.

61. Id

62. /cf. at 1292.

63. Id.

64. Id. (citing Baker v. Coca-Cola Bottling Works of Gary, 1 77 N.E.2d 759, 761 (Ind. App.
1961)).

65. Id (citing Slease v. Hughbanks, 684 N.E.2d 496, 499 (Ind. Ct. App. 1997)).

66. Id (citing Baker, 177 N.E.2d at 762).

67. Id. at 1 292-93 (quoting Vogler v. Dominguez, 624 N.E.2d 56, 6 1 (Ind. Ct. App. 1 993)).

2002] TORT LAW 1589

Further, the court noted that "[a] plaintiff relying on res ipsa loquitur may
establish the second prong, and show that the event or occurrence was more
probably the result of negligence, by relying upon common knowledge or expert
testimony."^^ Moreover, "[e]xpert testimony is required only when the issue of
care is beyond the realm of the lay person."^^ Finally, the court noted that the
"common knowledge" exception "will apply where 'the complained-of conduct
is so obviously substandard that one need not possess medical expertise in order
to recognize the breach' of the applicable standard of care."^^

In its analysis of the facts of this case, the court determined that "there [was]
no dispute that the first prong of the res ipsa loquitur doctrine [was] satisfied, as
Tedrow's spleen was perforated in a setting under the exclusive control of Dr.
Narducci . . . ."^' Relative to the second prong of the doctrine, the court noted
that the "undisputed expert testimony" was that Dr. Narducci met the requisite
standard of care in her treatment of Tedrow.^^ Despite this testimony, Tedrow
asserted that the "common knowledge" exception applied "to satisfy the second
prong of the doctrine because it is within the cognitive abilities of a layperson to
conclude that removal of one's spleen is not the natural or usual outcome of
colon surgery."^^ However, the court concluded that "it [was] not apparent that
a fact-finder possesses the knowledge and expertise necessary to render an
informed decision on the issue of negligence."^"* Specifically, the court held that
"the determination of whether Dr. Narducci . . . met the relevant standard of care
in [her] treatment of Tedrow [required] some understanding of the procedures
involved in colon surgery, the location in the body of the various organs at issue,
and the nature of the spleen."^^ The court found this type information was not
within the "common knowledge" of lay people and, thus, expert testimony on this
issue was required.^^ As such, the court reversed the trial court's judgment and
remanded with instructions to enter summary judgment for Narducci. ^^

In Patel v. Barker ^^ the court of appeals addressed the issue of whether each
of two breaches of care of the standard occurring during a single surgery
constitutes separate "occurrences" for purposes of the Indiana Medical
Malpractice Act.

Baker was diagnosed with a malignancy in her colon and referred to
[Dr.] Patel for surgery. Patel performed the surgery, which involved

68. Id. at 1293.

69. /^(citing Stumph v. Foster, 524 N.E.2d 812, 815 (Ind. Ct. App. 1988)).

70. Id. (quoting Malooley v. Mclntyre, 597 N.E.2d 314, 3 19 (Ind. Ct. App. 1992)).

71. Id.

72. Id.

73. Id.

74. Id.

75. Id at 1293-94.

76. See id.

11. /^. at 1294.

78. 742 N.E.2d 28 (Ind. Ct. App.), trans, denied, 761 N.E.2d 416 (2001).

1590 INDIANA LAW REVIEW [Vol. 35:1583

resectioning the colon. During the surgery, Patel used hemoclips to
control bleeding. At some point following the surgery, it was discovered
that Barker's colon was leaking into her abdominal cavity at the point of
reattachment.^^

Further, it was discovered that "a hemoclip had been left on Barker's ureter."^^
Barker filed a medical malpractice suit against Patel and "claimed that Patel
breached the standard of [medical] care in two ways: by suturing the colon in
such a way that it leaked and by leaving a hemoclip on her ureter."*' A jury
awarded Barker $1 .8 million in damages.*^ However, the trial court reduced the
award to $1 .5 million, in accordance "with the Indiana Medical Malpractice Act
limitation of $750,000 . . . per act of malpractice."^^

On appeal, Patel contended that the acts which Barker complained about
"constituted [o]ne 'occurrence' . . . under the Indiana Medical Malpractice Act,"
entitling Barker to only one recovery of $750,000.*^ Barker argued that "Patel
committed two breaches of the standard of [medical] care, and therefore two
'occurrences' by failing to close her colon correctly and by leaving a hemoclip
in place."*^

The court of appeals noted that the Medical Malpractice Act broadly defines
malpractice "as a tort or breach of contract based on health care services that
were provided or that should have been provided to a patient."*^ Further, the
court noted that the Act provided in relevant part:

(a) The total amount recoverable for an injury or death of a patient
may not exceed the following:

(1) Five hundred thousand dollars ($500,000) for an act of
malpractice that occurs before January 1, 1990.

(2) Seven hundred fifty thousand dollars ($750,000) for an act of
malpractice that occurs:

(A) after December 31, 1989; and

(B) before July 1, 1999.

(3) One million two hundred fifty thousand dollars ($ 1 ,250,000) for
an act of malpractice that occurs after June 30, 1 999.

(b) A health care provider qualified under this article (or IC 27-12
before its repeal) is not liable for an amount in excess of two
hundred fifty thousand dollars ($250,000) for an occurrence of

79. Id. at 30 (footnote omitted).

80. Id.

81. Id

82. Id

83. Id. at 3 1 . The limitation of $750,000 in damages per act of malpractice was increased to
$1.25 million effective July 1, 1999. See IND. Code § 34-18-14-3 (1998).

84. Pa/e/, 742 N.E.2d at 30-31.

85. Id

86. Id.

2002] TORT LAW 1591

malpractice.*^

Even though "Barker and Pate! debated the meaning of the term 'occurrence,' the
court noted that this term occurs only in subsection (b), which discusses" the
effect of a claim on the health care provider.** By contrast, the court noted that
"subsection (a) is concerned with the effect of the limitation on recovery to the
patient. This provision addresses the subject in terms of 'injury' and the critical
concept is 'an act' of malpractice."*^

The court noted that Indiana appellate cases have interpreted the Act as
allowing only one recovery when multiple breaches lead to a single injury and
multiple recoveries when multiple breaches during more than one procedure lead
to multiple injuries.^^ However, the court recognized that this was a "unique
case [because] multiple breaches during a single procedure lead to multiple
injuries."^' The court found no reason "why this distinction should require a
different analysis" than that contained in prior case law.^^ Specifically, the court
recognized that "the limitation on recovery applies to 'an injury or death,' not 'an
act of malpractice.'"^^ Further, the court found that it was "undisputed that
Barker had two distinct injuries from two distinct acts of malpractice to two
separate body systems, her digestive and urinary systems."^"* Thus, the court held
that "the Indiana Medical Malpractice Act allows for one recovery for each
distinct act of malpractice that results in a distinct injury, even if the multiple acts
of malpractice occur in the same procedure."^^

In Winona Memorial Hospital, Ltd Partnership v. Kuester^ the court of
appeals addressed an issue of first impression in Indiana: "[w]hether a claim
against a qualified health care provider for the negligent credentialing of a
physician is an action for 'malpractice' subject to the provisions of the Medical
Malpractice Act."^^ On interlocutory appeal, Winona contended that '"negligent
credentialing' is a tort covered under the Medical Malpractice Act . . . and, as
such, an opinion must be obtained from a medical review panel before a
complaint may be filed with the trial court."^* Winona argued that "Kuester's
complaint should have been dismissed because she failed to obtain first an
opinion from a medical review panel."^ However, Kuester asserted that

87.

Id. (quoting IND. CODE § 34-18-14-3 (1998))

88.

Id. at 32.

89.

Id.

90.

Id.

91.

Id at 33.

92.

93.

Id.

94.

Id.

95.

Id.

96.

737 N.E.2d 824 (Ind. Ct. App! 2000).

97.

Id at 825.

98.

99.

1592 INDIANA LAW REVIEW [Vol. 35:1583

"'negligent credentialing' is administrative in nature and is, therefore, not subject
to the requirements of the Act."'^°

The court noted that "[u]nder the Act, 'malpractice' is defined as a tort or
breach of contract based on health care or professional services that were
provided, or that should have been provided, by a health care provider to a
patient."'^' Although the term "'professional services' was not defined in the
Act," Winona contended that "the act of credentialing is such a 'professional
service,' and therefore, the tortious act of 'negligent credentialing' falls within
the meaning of 'malpractice. '"'^^ Conversely, Kuester maintained that "in order
for conduct to fall within the Act, it must occur in the course of a patient's
medical care, treatment, or confinement, and that the Act does not extend to
conduct outside this relatively circumscribed timeframe."'^^

In order "[t]o determine whether credentialing of a physician is subject to the
Act," the court was "guided by other relevant Indiana statutes" concerning
"credentialing of hospital medical staff . . . performed by each hospital's
governing board," as well as the medical staffs statutory responsibility. ^^^ After
reviewing the "statutory responsibilities of the . . . governing board and the
hospital medical staff," the court concluded that "the credentialing process"
involves a blend of both medical and nonmedical personnel and expertise. '°^
Therefore, because credentialing was "neither clearly within the Act nor outside
of it," the court held that the Act was "ambiguous with regard to whether the
physician credentialing process [was] included within its ambit," and, thus, the
court was compelled to "construe the Act ... to give effect to the intention of the
General Assembly.'"^

In construing the Act, the court first noted that Indiana appellate courts "have
historically determined the applicability of the Act by examining whether the
cause of action alleged sounds in medical malpractice or in ordinary
negligence."'®^ Further, the court of appeals has "consistently held" that "the
substance of the claim as pleaded . . . determine[s] the applicability of the
Act."'°* After reviewing Kuester' s complaint, the court noted that she alleged
that two negligent acts proximately caused the injury.'^ Further, for Kuester to
prove the tort of negligent credentialing, she must first establish that a negligent
act by the treating physician "proximately caused her injury before she could
proceed against Winona."' '® As a result, the court found it "inappropriate to look

100. Id

101. Id. ax 826 (citing IND. Code §34-1 8-2- 18(1 998)).

102. Id

103. Id

104. Id at 826-27 (citing iND. Code §§ 16-21-2-5, -7 (1998 & Supp. 2001)).

105. IdatSll.

106. Id.

107. Id.

108. Id.

109. See id at 827-28.

110. /£/. at828.

2002] TORT LAW 1593

only to the credentialing conduct alleged in the complaint to determine whether
it sound[ed] in malpractice or in a[] . . . common law cause of action.""'
Moreover, the court stated that "[t]he credentialing process alleged must have
resulted in a definable act of medical malpractice that proximately caused injury
to . . . Kuester or [she] is without a basis to bring the suit for negligent
credentialing.""^

The court determined that when "both alleged negligent acts required to
recover (i.e., both the credentialing and the malpractice)" are considered, it was
clear that the '^General Assembly intended that all actions the underlying basis
for which is alleged medical malpractice are subject to the fAJct.''^^^
Specifically, because "credentialing and appointing licensed physicians to its
medical staff is a service rendered by the hospital in its role as a health care
provider," the court determined that "inclusion of negligent credentialing under
the Act is consistent with use of the medical review panel to establish the
standard of care owed by Winona in credentialing.""'*

The court stated that "[t]he composition and function of medical review
panels supports the inclusion of negligent credentialing within the purview of the
Act.""^ Further, the court held that "the Act applies to conduct, curative or
salutary in nature, by a health care provider acting in his or her professional
capacity, and is designed to exclude only conduct which is unrelated to the
promotion of a patient's health or the provider's exercise of professional
expertise, skill, or judgment.""^ Therefore, the court held that "credentialing
was directly related to the provision of health care" and thus was not excluded
from the Medical Malpractice Act."^

In Sherrow v. GYN, Ltd.,^^^ the court addressed the permissibility of
including legal argument in an evidentiary submission to a medical review panel.
"Sherrow filed a proposed complaint with the Indiana Department of Insurance
for personal injuries and wrongful death" against, inter alia, GYN, Ltd.
("GYN")."^ "A medical review panel was convened . . . and the parties [gave]
their evidentiary submissions to the panel" pursuant to the Medical Malpractice
Act.'^° The submission given on behalf of GYN, contained a legal argument,
which included the following phrase: "Nor is a physician liable for errors in

111. Id.

112. Id.

1 13. Id. (quoting Lee v. Lafayette Home Hosp., Inc., 410 N.E.2d 1319, 1324 (Ind. Ct. App.
1 980) (emphasis by court)).

114. Id. (citing Methodist Hosp. of Ind., Inc. v. Ray, 551 N.E.2d 463, 468 (Ind. Ct. App.
1 990), adopted on trans. , 558 N.E.2d 829 (Ind. 1 990) (per curiam).

115. Id.

1 1 6. Id (quoting Ray, 55 1 N.E.2d at 466).

117. Id

1 18. 745 N.E.2d 880 (Ind. Ct. App. 2001).

119. Mat 881.

120. Id

1594 INDIANA LAW REVIEW [Vol. 35:1583

judgment or honest mistakes in the treatment of a patient."^^' Taking exception
to the inclusion of legal discussion in the evidentiary submission, Sherrow
requested that all legal citations and argument be redacted. '^^ The panel
chairperson rejected Sherrow's request, leading Sherrow to file "a motion for
preliminary determination of law in the trial court."^^^ While the trial court did
order a slight modification of the submission, it did not require "complete
redaction of all legal discussion."'^"*

On appeal, the court began by noting that "[p]arties are permitted to submit
evidence to the [medical review] panel" and that such evidence "may consist of
'medical charts, x-rays, lab tests, excerpts of treatises, . . . depositions of
witnesses including parties, and any other form of evidence allowable by the
medical review panel.'"'" The court noted that GYN's submission contained
discussion of the applicable legal standards. '^^ Pursuant to statute, the court
concluded that "legal argument is inappropriate in evidentiary submissions
because [it] is not 'evidence. '"'^^ Specifically, the court found that neither of the
applicable statutes authorized parties "to submit their interpretations of guiding
legal precedent to the [medical review] panel."'^^ Moreover, the court
recognized that the medical review panel chairperson, an attorney, "bears the
responsibility for advising the three medical professionals on the panel" relative
to any legal question involved in the review proceeding. '^^ Finally, according to
the court, "if parties want the panel to be advised" on any legal issues that may
arise, "they should submit a request to the . . . chairperson" and not attempt to
include legal arguments in their evidentiary submissions. '^° As a result, the court
of appeals determined that "the trial court erred by not redacting all legal
argument" from GYN's evidentiary submission.'^'

In Blevins v. Clark,^^^ the court of appeals addressed whether an attending
nurse during a patient's labor and delivery is covered by the physician-patient
privilege. After prolonged labor, Blevins was forced to undergo an emergency
Caesarian section performed by Dr. Clark.'" During that procedure. Dr. Clark
discovered that her uterus had ruptured, and the baby had entered her abdomen. '^"^

121. Id.

122. Id.

123. /^. at 881-82.

124. /fl?. at882.

125. Id at 884 (quoting IND. CODE § 34-18-10-17 (1998)).

126. Id at SS5.

127. Id.

128. Id.; see also iND. CODE §§ 34-18-10-17, -21 (1998).

129. 5/ierrow, 745 N.E.2d at 885.

130. Id

131. Id

132. 740 N.E.2d 1235 (Ind. Ct. App. 2000), trans, denied, 753 N.E.2d 16 (Ind. 2001).

133. /^. at 1237.

134. Id

2002] TORT LAW 1595

Unfortunately, the baby died only a few days later. '^^ Blevins filed a complaint
against Dr. Clark alleging that Dr. Clark failed to meet the standard of care. '^^
"During the pre-trial phase, Dr. Clark submitted a witness list, identifying three
nurses who had treated [Blevins] during her labor and delivery."'" When
counsel for Blevins attempted to interview these nurses, they were informed that
"Dr. Clark's counsel . . . had instructed them not to discuss Blevins' treatment
with anyone other than Dr. Clark's counsel."'^* As a result, Blevins' counsel
"[filed a] motion requesting sanctions against Dr. Clark's counsel and exclusion
of the nurses' testimony."'-'^ After the trial court denied the motion, Blevins
appealed. '''^

At trial and on appeal, Blevins contended that "Dr. Clark's counsel
interviewed nurses covered by a physician-patient privilege."''^' Based on Cua
V. Morrison,^^^ Blevins contended that "Dr. Clark's attorney improperly
conducted ex parte interviews with nurses who attended [Blevins] during her
delivery. "^^ The court noted that to decide whether Cua applied, it must first be
determined "whether the nurses who assisted [Blevins] during her pregnancy
were covered by the privilege.""*"^

The court recognized that the Indiana Supreme Court has extended the
physician-patient privilege "to third persons who aid physicians or transmit
information to physicians on behalf of patients."^'*^ Further, the court stated that
in order to "determine whether a nonphysician health care provider is covered by
extension of the privilege," the court "must examine 'the nature and degree of
control exercised' by the physician over the health care provider under the
circumstances . . . ."^^^ The court determined that Blevins failed to show that
"Dr. Clark's degree of control or supervision over the nurses require[d]
application of the privilege."'"*^ Specifically, the court found that "[t]he nurses
exercised a certain degree of independence in assessing and monitoring
[Blevins'] condition, given Dr. Clark's periodic absences throughout the day of
delivery."'''^ Therefore, the court was unwilling to find that "the trial court
abused its discretion in denying [Blevins'] motion to exclude the nurses'

135.

Id.

136.

See id.

137.

138.

139.

Id at 1237-38.

140.

Id at 1238.

141.

Id at 1239.

142.

636N.E.2dl248(Ind. 1994).

143.

Blevins, 740 N.E.2d at 1239.

144.

145.

Id. (citing Springer V. Byram, 36N.E. 361, 363 (1894)).

146.

Id at 1240 (quoting In re C.P., 563 N.E.2d 1275, 1278 (Ind. 1990)).

147.

148.

1596 INDIANA LAW REVIEW [Vol. 35:1583

testimony.""^^

In Harlett v. St. Vincent Hospitals & Health Services,^^^ the court of appeals
addressed the appropriateness of a nurse serving as a member on a medical
review panel. "The Harletts filed their proposed complaint with the Indiana
Department of Insurance, alleging that St. Vincent nurses were negligent in
failing to protect Harlett from developing a bedsore . . . and for failing to treat the
bedsore once it became apparent."'^' Thereafter, the panel chairman provided
two striking panels, one composed of nurses and one composed of physicians.
The parties struck from the striking panels, resulting in the selection of one nurse
and one physician as panel members.'" These panelists "twice selected a
physician as the third panelist, but the Harletts objected."'^^ Then, "the chairman
listed a striking panel of nurses, and the parties alternatively struck, leaving one
panelist. The chairman then certified the panel to the Indiana Department of
Insurance as consisting of two nurses and one physician.'^'*

St. Vincent asked the chairman "to excuse the two nurses and replace them
with physicians."'^^ The chairman denied this request, and St. Vincent filed a
"motion for a preliminary determination of law, requesting that the trial court
order that the medical review panel be comprised of at least two physicians and
that any nurse panelist be limited in the opinions that she might render." '^^ After
the trial court "ordered the chairman to excuse one of the registered nurse
panelists" and submit "a striking panel consisting of three [physicians]," the
Harletts appealed. *^^

The Harletts contended that the trial court erred in removing the nurse from
the panel because the trial court misinterpreted Long v. Methodist Hospital of
Indiana, Inc.,^^^ "which formed the basis for the trial court's decision. "'^^ The
court of appeals noted that under Long, "nurses are not qualified to offer expert
testimony as to the medical cause of injuries or as to increased risk of harm."'^°
The court also noted that no opinion was expressed in Long whether a nurse is
qualified "to serve on a medical review panel."^^'

In its analysis of the case, the court noted that the Medical Malpractice Act
provides that "all health care providers in Indiana . . . who hold a license to
practice in their profession shall be available for selection as members of the

149. Id.

1 50. 748 N.E.2d 921 (Ind. Ct. App.), trans, denied, 761 N.E.2d 422 (Ind. 2001).

151. Mat 923.

152. Id

153. Id

154. Id

155. Id

156. Id

157. Id

158. 699 N.E.2d 1 1 64 (Ind. Ct. App. 1 998).

1 59. Harlett, 748 N.E.2d at 924.

1 60. Id at 925 (citing Long, 699 N.E.2d at 1 1 69-70).

161. Id

2002] TORT LAW 1597

medical review panel."'^^ Further, the court recognized that "the Act includes
'registered or licensed practical nurses' in its definition of the term 'health care
provider.'"'^^ Therefore, the court considered that the Medical Malpractice Act
allows nurses, "as health care providers, ... to serve on a medical review panel"
and thus held that "the trial court erred in expanding the specific holding of Long
to exclude the nurse from the medical revieW panel." '^

III. Premises LIABILITY

In Merchants National Bank v. Simrell *s Sports Bar & Grill, Inc. , '^^ the court
of appeals addressed a tavern owner's duty to protect a patron from the criminal
acts of a third person. Christopher Merchant entered Simrell's Sports Bar and
"remained inside the bar until closing time at approximately 3:30 a.m. . . .
Another group of patrons, including Theodore Brewer, had left the bar several
minutes earlier.'"^^ After Merchant left Simrell's, "an altercation erupted
involving Merchant and Brewer on the sidewalk outside the bar where Brewer
shot and killed Merchant."*^^ The administrator of Merchant's estate filed a
wrongful death suit against Simrell's Sports Bar.'^* Simrell's moved for, and was
granted, summary judgment on the grounds that "it owed no duty to Merchant as
a matter of law."'^^

On appeal, the court of appeals first noted that Indiana has "long recognized
the duty of a tavern owner, engaged in the sale of intoxicating beverages, to
exercise 'reasonable care to protect guests and patrons from injury at the hands
of irresponsible persons whom they knowingly permit to be in and about the
premises. "''^° However, the court also noted that the duty to "anticipate and to
take steps against a criminal act of a third-party arises only when the facts of the
particular case make it reasonably foreseeable that a criminal act is likely to
occur."'^^ Moreover, the court noted that "[p]articular facts, which make it
reasonably foreseeable, include the prior actions of the assailant either on the day
of the act or on a previous occasion."^^^

The court also noted that the Indiana Supreme Court recently held that
Indiana courts, when "confronted with the issue of whether a landowner owes a

162. Id. (quoting IND. CODE § 34-18-10-5 (1998) (omission by court)).

163. Id. (citing iND. CODE § 34-18-2-14 (1998)).

164. Id

165. 741 N.E. 2d 383 (Ind. Ct App. 2000).

166. Mat 386.

167. Id

168. /^. at 385.

169. Id

170. Id. at 386 (quoting Ember v. B.F.D., Inc., 490 N.E.2d 764, 769 (Ind. Ct. App. 1986),
modified on denial ofreh 'g, 521 N.E.2d 981 (Ind. Ct. App. 1988)).

171. M at 386-87 (citing Welch v. R.R. Crossing, Inc., 488 N.E.2d 383, 388 (Ind. Ct. App.
1986)).

172. /^. at 387.

1598 INDIANA LAW REVIEW [Vol. 35:1583

duty to take reasonable care to protect an invitee from the criminal acts of a third
party, should apply the 'totality of the circumstances' test" in determining
whether the crime was foreseeable.'^^ The Indiana Supreme Court in Delta Tau
Delta provided that when considering whether the totality of the circumstances
supports the imposition of a duty, courts should look to "all of the circumstances
surrounding an event, including the nature, condition, and location of the land,
as well as prior similar incidents, to determine whether a criminal act was
foreseeable."'^"* Further, the Delta Tau Delta opinion provided that "[a]
substantial factor in the determination of duty is the number, nature, and location
of prior similar incidents, but the lack of prior similar incidents will not preclude
a claim where the landowner knew or should have known that the criminal act
was foreseeable."'^^

In its analysis of the facts of this case, the court found that there was "no
evidence of any prior or similar shooting incidents outside of the tavern that
would have alerted Simrell's to the likelihood that Brewer would shoot
Merchant."'^^ Further, the only evidence of prior incidents was "testimony by a
tavern employee that fights occurred outside the tavem."'^^ The court found this
evidence "insufficient to demonstrate that Merchant's shooting death was
foreseeable."'^* Moreover, the court found that in the record nothing indicated
that "Simrell's had any knowledge that Brewer had the propensity to commit a
criminal act," and also, nothing revealed that "Merchant and Brewer had any
contact while inside the tavern on the night in question to indicate any hostility"
between them.'^^ Under the totality of the circumstances presented, the court
concluded that "Simrell's did not have a duty to protect Merchanf from
Brewer's unforeseeable criminal act.'*°

IV. Wrongful Death Damages

In Durham v. U-Haul International, ^^^ the Indiana Supreme Court addressed
whether punitive damages are recoverable in a wrongful death action and
whether there is an independent claim for consortium damages in a wrongful
death action. Kathy Wade died as a result of injuries sustained in a vehicle
collision with a U-Haul truck. '^^ Durham, the father of Kathy 's children, and Bill

173. Id. (quoting Delta Tau Delta, Beta Alpha Chapter v. Johnson, 712N.E.2d 968, 973 (Ind.
1999)).

1 74. Delta Tau Delta, 712 N.E.2d at 972.

175. /^. at 973.

176. Merchants Nat 'I Bank, 741 N.E.2d at 387.

177. Id

178. /^. at 387-88.

179. Id at 388.

180. Id.

181. 745 N.E.2d 755 (Ind. 2001).

182. Id a.t 157.

2002] TORT LAW 1599

Wade, her husband, sued as co-executors of Kathy's estate.'*^ Wade asserted a
separate claim for loss of consortium.'^'* The defendants "moved for partial
summary judgment on the issues of punitive damages and Wade's loss of
consortium claim."'^^ The defendants argued that

no punitive damages are recoverable under the wrongful death statute
and that Wade was limited to a wrongful death claim and [could] not
pursue a separate loss of consortium claim for Kathy's death. The trial
court held that . . . Wade's loss of consortium claim could proceed,
including a claim for punitive damages . . . .'^^

The trial court further held that "punitive damages were not recoverable under
the wrongful death statute. The court of appeals affirmed the holding that a
consortium claim could be asserted but reversed the grant of summary judgment
on the issue of punitive damages," holding that "statutory construction, case law,
and policy support[ed] recovery of punitive damages in a wrongful death
claim.'"''

On transfer, a narrow 3-2 majority of the Indiana Supreme Court held that
punitive damages may not be recovered in wrongful death actions in Indiana. '^^
Further, the supreme court also held that while there is no independent claim for
consortium damages in death claims, such damages are a proper element of
wrongful death damages.''^ Finally, the supreme court held that because the
consortium damages are merely an element of wrongful death damages and not
a separate cause of action, punitive damages are not recoverable on consortium
claims.'^'

V. Statute of Limitations

In DeGussa Corp. v. Mullens ^^^^ the Indiana Supreme Court addressed the
application of statute of limitations when the plaintiff had been exposed to
chemicals in the workplace for a prolonged period of time. The plaintiff,
Mullens, began working for Grow Mix on September 4, 1990.'^^ Mullens'
"primary responsibilities included the physical mixing of liquid and dry
ingredients to make animal feeds," a process that "generated a great deal of
dust."'^^ Several months into her job, Mullens began experiencing a persistent

183.

Id.

184.

Id.

185.

186.

Id at 757-58.

187.

188.

Id at 766.

189.

See id.

190.

See id.

191.

744 N.E.2d 407 (Ind. 2001).

192.

Id at 409.

193.

1600 INDIANA LAW REVIEW [Vol. 35:1583

cough and was eventually evaluated by her personal physician, Dr. Watkins, on
March 17, 1992.'^"^ Although she was diagnosed with bronchitis. Dr. Watkins
informed Mullens that her respiratory problems were possibly work-related.'^^
Moreover, Dr. Watkins opined that if Mullens' problems were work-related, he
"was unsure whether her symptoms were caused, or merely aggravated by, the
conditions at work."'^^

On March 26, 1992, Mullens was examined by one of her two pulmonary
specialists and was treated through March 1994, at which point she "received the
first unequivocal statement . . . that her lung disease was caused by exposure to
chemicals consistent with those at Grow Mix."'^^ Mullens filed suit on March
25, 1994, "alleging negligence in the sale of, and her exposure to, products that
caused lung damage."'^* Defendants moved for summary judgment, claiming
that Mullens had not asserted her claims within the two-year statute of limitations
applicable to product liability actions.'^ The trial court denied this motion and
defendants appealed.^"^ "The Court of Appeals concluded that Mullens failed to
file her claims within the statute of limitations period and reversed the
trial court "^^^

On transfer, the supreme court examined the applicable statute of limitations,
which provides in relevant part that "any product liability action in which the
theory of liability is negligence or strict liability in tort . . . must be commenced
within two (2) years after the cause of action accrues."^^^

The court noted that "[t]he statute is silent as to the meaning of 'accrues. "'^°^
The court observed that a discovery rule had been adopted "through case law for
the accrual of claims arising out of injuries allegedly caused by exposure to a
foreign substance-''^^** Pursuant to the discovery rule, the "two-year statute of
limitations begins *to run from the date the plaintiff knew or should have
discovered that she suffered an injury or impingement, and that it was caused by
the product or act of another. '"^^^ DeGussa argued that "the statute of limitations
had started to run when Dr. Watkins examined Mullens on March 1 7, 1992," and
opined that "her exposure to chemicals at work was one of a number of possible

194. Id

195. Id.

196. Id

197. /^. at 409-10.

198. Mat 410.

199. Id

200. Id

201. Id

202. Id. (quoting IND. Code §33-1-1.5-5 (1993)). The court noted that Indiana Code section
33-1-1.5 "has been recodified, without substantive change," at Indiana Code section 34-20-3-1.

203. Mullens, 744 N.E.2d at 410.

204. Id

205. Id. (quoting Barnes v. A.H. Robins Co., 476 N.E.2d 84, 87-88 (Ind. 1985)); see also
Wehling v. Citizens Nat'l Bank, 586 N.E.2d 840, 842-843 (Ind. 1992) (extending Barnes'
discovery analysis to all tort cases).

2002] TORT LAW 1601

causes" of her symptoms.^^ Therefore, given that Mullens' claim was eight days
late when filed on March 25, 1994, Mullens responded by asserting that the
statute of limitations had not begun to run "until sometime after March 25, 1 992,
if not as late as March 1994 when she received the first [unequivocal] diagnosis
from a physician that her lung disease was caused by exposure to chemicals at
work."'"'

In evaluating when Mullens "knew or should have discovered that she
suffered an injury" relative to her products liability claim, the court turned to
case law regarding medical malpractice claims, as such cases are "instructive
because medical and diagnostic issues are common between the two actions, the
statute of limitations for both claims is two years, and discovery is sometimes at
issue in determining whether the respective statutes of limitation have been
triggered. "^^* The court stated that it "is often a question of fact" when the
plaintiff in a medical malpractice action "discovered facts which, in the exercise
of reasonable diligence, should lead to the discovery of the medical malpractice
and resulting injury."^^ However, the court went on to address when a
physician's diagnosis is sufficient to constitute discovery; specifically, "[o]nce
a plaintiffs doctor expressly informs the plaintiff that there is a 'reasonable
possibility, if not a probability' that an injury was caused by an act or product,
then the statute of limitations begins to run and the issue may become a matter
oflaw."2'°

While the Van Dusen opinion provided the court with a background relative
to the discovery of an injury, the court declined to extend its holding to the facts
of the case at hand. Instead, the court held that "[a]lthough 'events short of a
doctor's diagnosis can provide a plaintiff with evidence of a reasonable
possibility that another's' product caused his or her injuries, a plaintiffs mere
suspicion or speculation that another's product caused the injuries is insufficient
to trigger the statute."^" The court reasoned that, because Mullens had not
received a definitive diagnosis relative to the cause of her symptoms until March
1994, any previous assertions by her physicians that her work environment may
have been a cause of her illness only provided her with mere speculation as to the
actual cause of her injuries.^'^ Moreover, the court averred that the ongoing
medical consultation and diagnostic testing further evinced Mullens' confusion
as to the actual cause of her injuries.^'^ Consequently, the court affirmed the trial
court's order denying the defendants' motions for summary judgment on the

206. A/w//e«j,744N.E.2dat410.

207. Id.

208. Id.

209. Id at 410-1 1 (quoting Van Dusen v. Stotts, 712 N.E.2d 491, 499 (Ind. 1999)).

210. IddXAW (quoting Van Dusen, 712 N.E.2d at 499).

211. Id. (quoting Evenson v. Osmose Wood Preserving Co. of Am., 899 F.2d 701, 705 (7th
Cir. 1990) (applying Indiana law)).

212. Id

213. See id.

1602 INDIANA LAW REVIEW [Vol. 35:1583

statute of limitations issue.^^"*

VI. Release

In Estate of Spry v. Greg & Ken, Inc.^^^ the court of appeals addressed
whether a release agreement signed by the plaintiff and one of the defendants
effectively released any claims against another potential tortfeasor. Kelly Spry
was killed in an automobile accident.^^^ Thereafter, Kelly's father, James, who
had been appointed administrator of the estate, settled with the negligent driver's
insurance carrier, GRE Insurance Group ("GRE").^^^ Upon executing that
settlement agreement, a release was signed which provided in relevant part that
"any other person, firm or corporation" charged with "responsibility or liability"
for Kelly's death was thereafter released and forever discharged relative to any
responsibility or liability .^'^

Following the execution of that release agreement, Kelly's widow "was
substituted as Special Administratrix of the estate" and a new attorney was
hired. ^'^ A dramshop suit was then filed on behalf of the estate against Greg &
Ken, Inc., owners of the tavern at which the negligent driver had become
intoxicated prior to causing the collision.^^^ The tavern moved for summary
judgment, claiming that the general release form signed in the settlement with
GRE and the negligent driver "had released the Tavern from any possible claims
of liability."^^' After the motion was granted, the estate appealed.^^^

The only issue on appeal was whether the release agreement executed
between the estate and GRE effectively barred claims against the tavern. The
estate argued that "the intentions of the Estate and GRE were to release only [the
driver] and GRE from future claims and liability arising from the accident that
killed Kelly," while the tavern argued that the release barred the estate's claim
against it.^^^

In evaluating the parties' arguments, the court noted that "[n]early a decade
ago, our supreme court abrogated the common law rule that "the release of one
joint tortfeasor released all of the other joint tortfeasors."^^'* Consequently, the
court held that "the release of [the driver] and GRE did not release the Tavern as
a matter of law"; therefore, the court had to look at the language of the release

214. /fif. at414.

215. 749 N.E.2d 1269 (Ind.Ct.App. 2001).

216. Id. at \27\.

217. Id.

218. /J. at 1271-72.

219. Id at 1212.

220. Id

221. Id.

222. Id

223. Id at 1272-73.

224. Id at 1273 (citing Huffman v. Monroe County Cmty. Sch. Corp., 588 N.E.2d 1264 (Ind.
1992)).

2002] TORT LAW 1603

itself to determine whether or not the tavern was immune from liability. ^^^

The court relied on the Indiana Supreme Court's opinion in Huffman v.
Monroe County School Corp}^^ for the standard employed in reviewing releases.
Specifically, the Huffman opinion held that

a release executed in exchange for proper consideration works to release
only those parties to the agreement unless it is clear from the document
that others are to be released as well. A release, as with any contract,
should be interpreted according to the standard rules of contract law.
Therefore, from this point forward, release documents shall be
interpreted in the same manner as any other contract document, with the
intention of the parties regarding the purpose of the document
governing.^^^

The court further noted that "[o]ne standard rule of contract interpretation is
that if the language of the instrument is unambiguous, the intent of the parties is
to be determined by reviewing the language contained between the four corners
of that instrument."^^^ The court concluded that the release executed between the
plaintiff and GRE was subject to "four corner" analysis.^^' Moreover, the court
noted that language releasing "all" people "is clear unless other terms in the
instrument are contradictory"; thus, the court reasoned that because there was no
other language in the release contradicting "the notion that all possible
defendants [were] to be released, the tavern was not subject to any claims of
liability asserted by the Estate."^^^ Nevertheless, the estate maintained that the
court was obligated to reverse the grant of summary judgment "by applying the
contemporaneous writing rule, by following public policy, or by reforming the
contract."^^'

The court was not swayed by any of the estate's arguments. First, relative
to the contemporaneous writing rule, the court held that the rule did not apply as
neither of the two documents the estate cited to were contemporaneous pursuant
to the requirements of the rule.^^^ Specifically, the court found that the three
documents "were not executed on the same day," and the petition and order were
not a part of the original transaction between GRE and Taylor but were, instead,
a separate transaction between the estate and the trial court.^"

Next, in disposing of the estate's public policy argument and holding that the
plain language of the document should prevail, the court stated that "[i]f judges

225. Id.

226. 588N.E.2d 1 264 (Ind. 1992).

227. Estate of Spry, 749 N.E.2d at 1273 (citing Huffman, 588 N.E.2d at 1267).

228. Id. (citing Dobson v. Citizens Gas & Coke Util., 634 N.E.2d 1343, 1345 (Ind. Ct. App.
1994)).

229. See id

230. Id

231. Id

232. /^. at 1273-75.

233. /^. at 1274-75.

1604 INDIANA LAW REVIEW [Vol. 35:1583

could interpret a release to mean something that is contrary to the plain language
because one party intended for it to mean something else, then parties would be
discouraged from signing releases because they could not have confidence that
a court would enforce the release's plain language. "^^'^

Finally, the court declined to reform the release because the language of the
release was plain and "the Estate's mistake was regarding the effect of the
release, not its terms."^^^ Consequently, the court held that it "may not reform
the release to correct the Estate's mistake of law."^^^

VII. Indemnity

In Hagerman Construction Corp. v. Long Electric Co. ,^^^ the court of appeals
addressed whether a general contractor is liable for injury to a subcontractor's
employee when a contract for indemnification exists between the two. The court
held that under the parties' agreement, while the subcontractor was liable for the
employee's injuries to the general contractor to the extent of the subcontractor's
negligence, it was not liable to the extent of the general contractor's
negligence.^^'

Scott was an employee of a subcontractor. Long Electric Company ("Long"),
on a construction project on the campus of Indiana University-Purdue University
Fort Wayne, when he sustained injury by being "struck on the head by a falling
light pole."^^^ Thereafter, Scott filed suit against the general contractor,
Hagerman Construction Corp. ("Hagerman"). "Hagerman subsequently filed a
third party action against Long based upon an indemnity clause contained in the
form contract between [them]."^"*® Hagerman moved for summary judgment,
arguing that under the parties' contract, "Long was required to indemnify
Hagerman for any losses Hagerman suffered in the Scott litigation."^'*' The trial
court, finding that "Hagerman was not entitled to indemnification" for its own
negligence, denied Hagerman 's motion. ^"^^

In relying on Moore Heating & Plumbing, Inc. v. Huber, Hunt & Nichols^^^
the court noted that "[a]bsent prohibitive legislation, no public policy prevents
parties from contracting as they desire."^"*^ Moreover, the court, in relying on the
Moore Heating holding, asserted that a party is free to "contract to indemnify
another for the other's negligence"; however, this indemnification "may only be

234. Mat 1275.

235. /J. at 1276.

236. Id.

237. 741 N.E.2d 390 (Ind. Ct. App. 2000), trans, denied, 761 N.E.2d 422 (Ind. 2001).

238. Mat 393-94.

239. Mat 391.

240. Id

241. Id

242. Id

243. 583 N.E.2d 142 (Ind. Ct. App. 1991).

244. Hagerman Constr., 741 N.E.2d at 392 (citing Moore Heating, 583 N.E.2d at 145).

2002] TORT LAW 1605

done if the party knowingly and willingly agrees" to it.^'*^ Further, such
indemnification provisions are to be strictly construed "and will not be held to
provide indemnification unless it is so stated in clear and unequivocal terms."^'*^
Finally, the court found that such clauses are disfavored "because we are mindful
that to obligate one party to pay for the negligence of another is a harsh burden
that a party would not lightly accept."^'*^

The court noted that a two-step analysis is necessary in determining "whether
a party has knowingly and willingly accepted" such a burden.^'*' The first step
is that the "indemnification clause must expressly state in clear and unequivocal
terms that negligence is an area of application where the indemnitor (. . . Long)
has agreed to indemnify the indemnitee (. . . Hagerman)."^"*^ Then, "[t]he second
step determines to whom the clause applies"; specifically, the indemnification
clause must state in clear and unequivocal terms that "it applies to
indemnification of the indemnitee (. . . Hagerman) by the indemnitor (. . . Long)
for the indemnitee's own negligence."^^^ The indemnification clause utilized by
the parties provided:

To the fullest extent permitted by law, the Subcontractor shall indemnify
and hold harmless the Owner, Contractor, Architect, Architect's
consultants, and agents and employees of any of them from and against
claims, damages, losses and expenses, including but not limited to
attorney's fees, arising out of or resulting from performance of the
Subcontractor's Work under this Subcontract, provided that such claim,
damage, loss or expense is attributable to bodily injury, sickness, disease
or death, or to injury to or destruction of tangible property (other than
the Work itself) including loss of use resulting therefrom, but only to the
extent caused in whole or in part by negligent acts or omissions of the
Subcontractor, the Subcontractor's Sub-subcontractors, anyone directly
or indirectly employed by them or anyone for whose acts they may be
liable, regardless of whether or not such claim, damage, loss or expense
is caused in part by a party indemnified hereunder. Such obligation shall
not be construed to negate, abridge, or otherwise reduce other rights or
obligations of indemnity which would otherwise exist as to a party or
person described in this paragraph 4.6.^^'

In addressing the first step of its analysis, the court found that the language
of the clause clearly defined negligence "as an area of application in clear and
unequivocal terms"; specifically, the court cited the use of terms such as "claims,

245. Id.

246. Id.

247. Id

248. Id

249. Id

250. Id

251. Mat 392-93.

1606 INDIANA LAW REVIEW [Vol. 35:1583

damages, losses and expenses attributable to bodily injury."^^^ Finally, the court
stated that "[t]hese words, taken in this context, are the language of negligence,
and, as such, clearly and unequivocally demonstrate that the indemnification
clause applies to negligence."^^^

Concluding that the first step of analysis had been met, the court determined
that the clause did not state, in clear and unequivocal terms, that it applied "to
indemnify Hagerman for its own negligence."^^"* In making this determination,
the court looked to a previous case, Hagerman Construction, Inc. v. Copeland^^^
where the court was asked to interpret an indemnification clause identical to the
one in question. In Copeland, the court stated in dicta that the indemnification
provision "appears to provide for indemnification for Hagerman's own
negligence."^^^ However, the Copeland court concluded that "because the jury
found that Crown-Corr was zero percent at fault for the accident, and therefore
Crown-Corr need not indemnify Hagerman" interpretation of the indemnification
clause was unnecessary.^^^ Consequently, the court held that Hagerman's
reliance on the dicta in Copeland v/sls misguided.^^*

Long argued that the phrase "but only to the extent caused in whole or in part
by negligent acts or omissions of the Subcontractor" limited the scope of Long's
liability to only those losses that were "caused by the negligence of the sub-
contractor or its agents."^^' The court agreed.^^ In explaining its reasoning, the
court noted that the inclusion of the phrase "to the fullest extent permitted by
law" was "not necessarily inconsistent" with the inclusion of the phrase "but only
to the extent."^^^ The court held that the phrase "to the fullest extent permitted
by law" was a preservation clause preserving Hagerman's rights under the law
"to the extent that Long and/or its sub-contractors, etc. are negligent."^^^
Therefore, so held the court, Hagerman was entitled to "pursue its rights to the
fullest extent of the law as long as, and to the measure of. Long's negligence."^^^
The court further reasoned that the phrase "regardless of whether or not such
claim, damage, loss or expense is caused in part by a party indemnified
hereunder" contradicted the other language of the indemnification clause limiting
Long's liability to Hagerman.^^"* The court interpreted that phrase to be limited
to Long's inability to "disregard its duty to indemnify Hagerman for Long's

252. /£/. at393.

253. Id

254. Id

255. 697 N.E.2d 948 (Ind. Ct. App. 1 998).

256. Hagerman, 741 N.E.2d at 393 (quoting Copeland, 697 N.E.2d at 962).

257. Id

258. Id

259. Id

260. See id at 394.

261. Id

262. Id

263. Id

264. Id

2002] TORT LAW 1607

negligence merely because Hagerman may [have] also [been] negligent under the
circumstances."^^^ Therefore, the court concluded that "the indemnification
clause does not expressly state, in clear and unequivocal terms, that it applies to
indemnify Hagerman for its own negligence."^^ The clause clearly indemnifies
Hagerman for the acts of Long and its sub-contractors, employees and "anyone
for whom it may be liable, but it does not explicitly state that Long must
indemnify Hagerman for its own negligent acts."^^^

VIIL Intentional TORTS

In Branham v. Celadon Trucking Services, Inc.^^^ the court of appeals
considered whether or not a plaintiffs' claims for invasion of privacy, libel,
intentional infliction of emotional distress, negligent supervision, and loss of
consortium were viable when the incident giving rise to the suit occurred when
the plaintiff was asleep. The court held that all of the claims failed primarily
because the plaintiff was asleep.^^'

The plaintiff, Lawrence Branham, was an employee of the defendant,
Celadon, and was on a break on Celadon's property when he fell asleep. One of
the defendants, Bruce Edwards, and another employee, Adam Deaton, found
Branham sleeping. The two men then procured a camera.^^^ Deaton lowered his
pants, remained in his underwear, stood beside the plaintiff and posed with his
hand held suggestively in front of his genital area. Edwards took a picture of the
scene, which he placed on the table in the break room, where it was seen by
several employees of Celadon. Branham was subsequently teased, which
uhimately caused him to secure employment elsewhere.^^'

The plaintiffs, Branham and his wife, filed suit against the defendants,
alleging "invasion of privacy, libel, intentional infliction of emotional distress,
negligent supervision, and loss of consortium. Celadon filed a motion to
dismiss" the complaint, contending that the trial court did not have jurisdiction
"because the claim was governed by the Indiana Worker's Compensation Act."^^^
The motion was denied."^ Celadon and Edwards subsequently moved for
summary judgment on all of the plaintiffs' claims. The trial court granted
summary judgment relative to the negligent supervision claim against Edwards;
however, the trial court denied the motion as to the rest of the Branham s'
claims.^^"*

265. Id.

266. /^. at 393.

267. Id.

268. 744 N.E.2d 514 (Ind. Ct. App.), tram, denied, 753 N.E.2d 16 (Ind. 2001).

269. See id.

270. Mat 518-19.

271. Id
111. Id

273. Id

274. Mat 5 19.

1608 INDIANA LAW REVIEW [Vol. 35:1583

On appeal, the court briefly discussed Celadon's mistaken reliance on the
Worker's Compensation Act. Specifically, the court held that since the heart of
Branham 's injury was emotional, not physical or disabling in quality, the Act did
not apply .^^^

Next, the court first evaluated the libel claim. ^^^ The court averred that libel
"is a species of defamation under Indiana law."^^^ Moreover, to maintain a
defamation action, a plaintiff must prove that the communication at issue met the
following four elements: (1) "defamatory imputation"; (2) "maliciousness"; (3)
"publication"; and (4) "damages."^^^ Alternatively, a communication is
defamatory per se "if it imputes: (1) "criminal conduct"; (2) "a loathsome
disease"; (3) "misconduct in a person's trade, profession, office, or occupation";
or (4) "sexual misconduct."^^^ Branham asserted that "the picture was
defamatory per se because it showed him engaged in criminal sexual conduct."^^^
The court rejected that argument because the picture merely depicted him
sleeping with Deaton standing nearby.^^' The court concluded that because
Branham was in fact asleep, the picture was "not defamatory as a matter of law,"
as it evinced a truthful representation of Branham 's state at the time of the
incident.^*^

Next, the court discussed the merits of Branham's intentional infliction of
emotional distress claim.^^^ To sustain an action for the intentional infliction of
emotional distress, a plaintiff must show that the defendant engaged in extreme
and outrageous conduct that intentionally or recklessly caused severe emotional
distress.^*'* Furthermore, the issue of whether the conduct in question rises to the
level of an intentional tort, in some cases, is a matter of law.^*^

The court decided that, as a matter of law, the defendants' conduct did not
constitute intentional infliction of emotional distress.^^^ In reaching that

275. Id. at 519-20 (quoting IND. CODE § 22-3-6-1 (Supp. 2001)). "injury' and 'personal
injury' mean only injury by accident arising out of and in the course of the employment and do not
include a disease in any form except as it results from the injury." Id.

276. See id at 522.

277. Id. (citing Ind. Ins. Co. v. N. Vermillion Cmty. Sch. Corp., 665 N.E.2d 630, 635 (Ind. Ct.
App. 1996)).

278. Id (citing Davidson v. Perron, 716 N.E.2d 29, 37 (Ind. Ct. App. 1999); N. Ind. Pub.
Serv. Co. v. Dabagia, 721 N.E.2d 294, 301 (Ind. Ct. App. 1999); Samm v. Great Dane Trailers, 715
N.E.2d 420, 427 (Ind. Ct. App. 1999)).

279. Id (citing Daugherty v. Allen, 729 N.E.2d 228, 237 n.8 (Ind. Ct. App. 2000) (citing
Restatement (Second) OF Torts § 570 (1977)); Levee v. Beeching, 729N.E.2d 215, 220 (Ind.
Ct. App. 2000); Rambo v. Cohen, 587 N.E.2d 140, 145 (Ind. Ct. App. 1992)).

280. Id

281. Id

282. Id

283. See id at 522-24.

284. Id at 523 (citing Bradley v. Hall, 720 N.E.2d 747, 752 (Ind. Ct. App. 1999)).

285. Id (citing Conwell v. Beatty, 667 N.E.2d 768, 775-77 (Ind. Ct. App. 1996)).

286. See id. at 524.

2002] TORT LAW 1609

conclusion, the court relied on the testimony of Edwards and Deaton that there
was no intent to harm Branham.^*^ Both testified that the incident was meant
only as a joke and that everyone viewing the photograph interpreted the incident
as a joke as well.^^^ Further, Branham himself testified that Deaton had joked
with him in the past and that Edwards had sincerely apologized for the incident
and stated it was meant to be a joke.^*^ Due to that testimony, the court
concluded that there was absolutely no evidence presented that the defendants
intended to harm Branham.^^^ Therefore, the court granted summary judgment
on that claim. ^^'

Next, the court addressed Branham 's invasion of privacy claim. ^^^ Generally,
the tort has four variations: "(0 unreasonable intrusion upon the seclusion of
another; (2) publicity that unreasonably places another in a false light before the
public; (3) unreasonable publicity given to another's private life; and (4)
appropriation of another's name or likeness."^'^ Branham claimed that the
invasion of privacy was an intrusion into seclusion and false light publicity. To
establish that claim, Branham would have had to show that there was an intrusion
upon his "physical solitude or seclusion, as by invading his home or other
quarters."^^"* For such an incident to give rise to a valid claim, "the intrusion
must be something which would be offensive or objectionable to a reasonable
person."^^^

Branham 's physical intrusion claim failed because, as the court noted, he had
fallen asleep in a break room utilized by all employees.^^ Thus, his physical
space, as a matter of law, was not invaded.^^^ The court held that Branham 's
emotional privacy intrusion claim failed as well because he was asleep at the
time of the incident; therefore, "he could not have suffered emotional disturbance
from it."^^^ Moreover, any joking alleged to have occurred by other co-workers
could not "be imputed to Deaton and Edwards."^^ Thus, "the defendants were
entitled to summary judgment."^°°

Finally, the court held that Branham's claim for false light publicity failed

287. See id. at 523.

288. Id.

289. Id at 523-24.

290. See id

291. Mat 524.

292. See id at 524-25.

293. Id at 524 (citing Doe v. Methodist Hosp., 690 N.E.2d 681, 684 (Ind. 1997)).

294. Id. (quoting Ledbetter v. Ross, 725 N.E.2d 120, 123 (Ind. Ct. App. 2000) (quoting W.
Page Keeton et al., Prosser and Keeton on the Law of Torts § 1 1 7, at 854 (5th ed. 1 984))).

295. Id. (quoting Ledbetter, 725 N.E.2d at 123).

296. Id.

297. Id

298. Id

299. Id

300. Id.

1610

INDIANA LAW REVIEW

[Vol. 35:1583

as well.^^' Noting that the tort is similar to that of defamation, but differs as to
the nature of the protected interest, the court explained that "[d]efamation
reaches injury to reputation; privacy actions involve injuries to emotions and
mental suffering."^^^ As such, the court concluded that as was the case with the
defamation claim, "there was no false light because the picture [was] not
false."^^^ Branham was asleep and a partially clad co-worker was standing beside
him. "The picture was accurate, not false, and the defendants are entitled to
summary judgment on Branham's false light publicity claim.''^^"^

IX. LEGAL Malpractice

In Douglas v. Monroe,^^^ the court of appeals addressed a plaintiffs claim
against an attorney for malpractice based on advice obtained from the defendant
via a third party. The court concluded that no attorney-client relationship had
ever existed between the plaintiff and the defendant.^^

Carol Douglas brought suit on behalf of herself and as the administratrix of
her son's estate.^°^ Douglas' son drowned at the Indiana University-Purdue
University Indianapolis Natatorium. Several months later, Douglas considered
filing a wrongful death suit.^°* Due to her ongoing grief, Douglas' brother,
Lionel, "looked into the possibility of bringing suit."^°^ While working at his job
as a bank security guard, Lionel happened upon a woman he knew to be an
attorney, Monroe, although she had never represented him.^'° He approached
Monroe and explained the nature of his nephew's death and indicated that the
family was considering filing a lawsuit.^'' Lionel specifically inquired into
whether or not a time limit existed regarding filing suit. While Monroe informed
Lionel that suit needed to be filed within two years, she did not mention the 1 80-
day limit barring the filing of tort claims notices nor did she indicate that Lionel
should rely on this advice.^ '^

The two had a second conversation, again in the bank lobby, at some point
after Monroe told him of the two-year statute of limitations.^'^ Based on these
two conversations, Lionel did not believe that Monroe represented either him or

301. Id at S25.

302. Id. at 824 (citing Near E. Side Comm. Org. v. Hair, 555 N.E.2d 1 324, 1335 (Ind. Ct. App.
1990)).

303. Id ait 525.

304. Id

305. 743N.E.2d 1181 (Ind. Ct. App. 2001).

306. See id.
See id.
/^. at 1183.
Id
Id
Id

307.
308.
309.
310.
311.

312. Id

313. Id

2002] TORT LAW 1611

Douglas. Lionel conveyed the two-year statute of limitations information to
Douglas.^'"* Later that year, after the 180-day time limit expired, Douglas
engaged the services of another attorney who informed Douglas that her claim
expired. Douglas then filed a suit, inter alia, against Monroe, alleging that her
"failure to inform Lionel of the 1 80-day tort claims notice requirement" caused
her wrongful death suit to be barred.^'^ Monroe denied the allegations and
successfully moved for summary judgment on the grounds that no attorney-client
relationship existed between the parties.^ '^

On appeal, Douglas argued that there was a question of fact about the
existence of an attorney-client relationship. Further, Douglas asserted theories
of detrimental reliance and agency. The court noted that, to prevail on a legal
malpractice claim, a plaintiff must show: (1) "employment of an attorney"; (2)
"failure by the attorney to exercise ordinary skill and knowledge"; (3) "proximate
cause"; and (4) "loss to the plaintiff."^ ^^ In discussing the creation of the
attorney-client relationship, the court averred that an important factor is the
client's subjective understanding;^'^ "[h]owever, 'the relationship is consensual,
existing only after both attorney and client have consented to its formation. '"^'^

The court concluded that the requisite attorney-client relationship had never
existed because Douglas had never spoken to Monroe; Douglas never made any
attempt to contact or schedule an appointment with Monroe; and Douglas never
"consented to the formation of an attorney-client relationship" with Monroe.^^^
Moreover, Douglas never "entered into a contract for legal services with
Monroe," never "paid for advice from her," and "never thought Monroe was
representing her in the matter of [her son's] death."^^' When she was contacted
by her current counsel, she said she was not already represented by counsel.^^^
Finally, there was "no evidence indicating that Monroe believed she was in any
way representing [Douglas] or that [she] consented to the formation of an
attorney-client relationship."^^^ To the contrary, "Monroe's brief statement
regarding the statute of limitations appears to have been fostered by sympathy,
not by any desire to provide professional services to a woman she did not
know."'''

In addressing Douglas' detrimental reliance claim,''^ the court noted that

314. Id.

315. Mat 1183-84,

316. Mat 1184.

317. Id. (quoting Bernstein v. Glavin, 725 N.E.2d 455, 462 (Ind. Ct. App. 2000) (quoting
Fricke v. Gray, 705 N.E.2d 1027, 1033 (Ind. Ct. App. 1999))).

3 1 8. Id (citing In re Anonymous, 655 N.E.2d 67, 70 (Ind. 1 995)).

319. Id (citing//! re Kinney, 670N.E.2d 1294, 1297 (Ind. 1996)).

320. Mat 1186.

321. Id
'ill. Id

323. Id

324. Id. (footnote omitted).

325. See id.

1612 INDIANA LAW REVIEW [Vol. 35:1583

only a few cases have held a defendant-attorney liable, and "liability has been
found only when the attorney undertook, gratuitously or otherwise, to complete
an affirmative act for the party who later brought suit."^^^ Further, the plaintiff-
client must offer proof that he had a prior, continuous relationship with the
defendant or that the defendant agreed to represent the plaintiff-client relative to
the transaction.^^^ The court averred that the evidence in this case did not meet
the requirements of detrimental reliance because Lionel, not Douglas, had a brief
conversation at his place of business with a woman he knew to be an attorney. ^^^
Thus, "[ujnder the circumstances, Monroe did not know Carol would rely on
[that] isolated statement, and any reliance Carol placed on the statement was not
reasonable. Thus, we find Carol's detrimental reliance theory unavailing."^^^

Finally, the court addressed Douglas' agency argument.^^^ The court easily
disposed of the argument, given that no evidence was adduced tending to prove
that Douglas instructed her brother to seek an attorney's advice, much less
Monroe's."' Moreover, no evidence was advanced demonstrating that Douglas
told her brother "when or where to speak with Monroe, gave him questions to ask
her, outlined potential terms of employment, or gave him the power to bind her
to an agreement.""^ Specifically, Douglas' own deposition testimony revealed
that she never believed Monroe "was representing her in the matter of [her son's]
death.""^ Thus, her agency theory failed, and summary judgment in favor of
Monroe was affirmed."'*

X. Mistrial

In Stone v. Stakes^^^ the court of appeals addressed whether or not a
reference made by the plaintiff as to the defendant's connection to the liability

In certain cases, an attorney-client relationship may also be created by a client's
detrimental reliance on the attorney's statements or conduct. An attorney has in effect
consented to the establishment of an attorney-client relationship if there is "proof of
detrimental reliance, when the person seeking legal services reasonably relies on the
attorney to provide them and the attorney, aware of such reliance, does nothing to
negate it."

Id. (quoting Hacker v. Holland, 570 N.E.2d 951, 956 (Ind. Ct. App. 1991) (quoting Kurtenbach v.

TeKippe, 260 N.W.2d 53, 56 (Iowa 1977))).

326. Id. (citing Hacker, 570 N.E.2d at 956).

327. Id.

328. Id.

329. Id.

330. Id.

331. Seeid.?X\\%l.

332. Id.

333. Id.

334. Id.

335. 749 N.E.2d 1 277 (Ind. Ct. App.), aff'd on reh 'g, 755 N.E.2d 220 (Ind. Ct. App.), trans,
denied, 2002 Ind. LEXIS 182 (2001).

2002] TORT LAW 1613

insurance carrier during voir dire warranted a mistrial. The court held that it did
not."^

Stone and Stakes were involved in an automobile collision. Stakes
subsequently filed a complaint, which Stone failed to answer. A default
judgment was entered relative to liability, and a trial on the issue of damages was
scheduled."^ Mr. Foos entered his appearance for Stone and filed a motion in
limine for the exclusion of any references to insurance coverage. The motion
was granted, with the exception that references to insurance may be made during
voir dire."^

At the commencement of voir dire, Mr. Lloyd also entered an appearance for
Stone that contained his address, which referenced the insurance company for
which his firm was a captive law firm. During voir dire, Stakes' attorney
questioned the prospective jurors as to their familiarity with defense counsels'
firm, thereby indicating that Stone carried liability insurance."^ Stone moved for
a mistrial, which was denied. An appeal ensued.^'*^

The sole issue on appeal was whether reference to the jury pool of defense
counsel's affiliation with an insurance company was sufficient to reverse the
refusal of the trial court to grant a mistrial. The court declined to hold as such.^'*'

In addressing Stone's contention, the court noted that it has long been held
that evidence of a defendant's insurance coverage is "not allowed in a personal
injury action and that its admission is prejudicial. "^"^^ Rule 41 1 of the Indiana
Rules of Evidence generally excludes references to a defendant's liability
insurance coverage; however, this "does not require the exclusion of evidence .
. . when offered for another purpose, such as . . . ownership, or control, or bias
or prejudice of a witness."^"*^ Therefore, the court concluded that a question
about a juror's relationship to a specific insurance company as it relates to bias
or prejudice, if asked in good faith, is within the exception provided by Rule
411.^'*'^ Moreover, the motion in limine granted to Stone on the matter of
insurance specifically excluded voir dire.^"^^

Finally, Stone argued that the reference to insurance made by Stakes'
attorney "was a deliberate attempt to interject the notion of insurance into the

336. /f^. at 1282.

337. Id. at 1278.

338. Id. at 1278-79.

339. Seeid.dX\219.

340. Id

341. Seeid.2X\2n.

342. Id at 1279 (citing Rauschv. Reinhold, 716N.E.2d993, 1002(Ind. Ct. App. \999))\see
also Pickett v. Kolb, 237 N.E.2d 105, 107 (Ind. 1968); Martin v. Lilly, 121 N.E. 443, 445 (Ind.
1919).

343. See id. at 1281 (omission by court) (quoting iND. Evidence Rule 411 (stating that
"evidence that a person was or was not insured against liability is not admissible upon the issue
whether the person acted negligently or otherwise wrongfully")).

344. Id (citing Rust v. Watson, 215 N.E.2d 42, 52-53 (Ind. Ct. App. 1966)).

345. /^. at 1280.

1614 INDIANA LAW REVIEW [Vol. 35:1583

jurors' minds."^'*^ The court rejected that argument, stating:

[W]e do not believe that Stakes' counsel, reading from an appearance
form handed to him that morning which, for the first time, identified
Stone's counsel as a member of a captive law firm of Warrior Insurance,
was deliberately attempting to inform the jury that Stone was covered by
liability insurance and prejudice the venire in favor of a verdict for his
client.^'^'

Thus, the verdict for Stakes was affirmed.'^'*^

XI. Jury Questions and Instructions

In Rogers v. R.J. Reynolds Tobacco Co.,^"*^ the Indiana Supreme Court
accepted transfer of the case for determination as to whether the trial judge
committed reversible error by communicating ex parte with the jury. ^^° Rogers,
the widow of a now-deceased smoker, along with her husband, brought a product
liability action against cigarette manufacturers and distributors.^^' After the first
trial ended in a mistrial, a second trial resulted in a verdict for several tobacco
companies.^^^ "The Court of Appeals reversed and remanded the case for a new
trial because the trial" court had responded to a jury inquiry "without first
informing counsel."^^^ The supreme court granted transfer to decide whether the
trial court committed reversible error when it responded to a question from the
deliberating jury without first informing counsel.^^"* Rogers argued that a new
trial was necessary because the jury was improperly influenced by ex parte
communication.-'^^

On transfer, the supreme court initially noted that "[c]ontrol and management
of the jury is an area generally committed to the trial court's discretion."^^^
Moreover, regarding judicial communications to a deliberating jury, the court
stated that "[t]he proper procedure is for the judge to notify the parties so that
they may be present in court and informed of the court's proposed response to the
jury before the judge ever communicates with the jury. "^^^ However, the court

346. Mat 1281.

347. Id. at 1282.

348. Id at 1283.

349. 745 N.E.2d 793 (Ind. 2001).

350. Id at 795.

351. /^. at795&n.l.

352. Id 3X795.

353. Id

354. Id

355. Id

356. /^. (citing Norton V. State, 408 N.E.2d 514, 531 (Ind. 1980); Morris V. State, 364N.E.2d
132, 139 (Ind. 1977)).

357. Id (citing Grey v. State, 553 N.E.2d 1196, 1197 (Ind. 1990); Morgan v. State, 544
N.E.2d 143, 149 (Ind. 1989); Moffatt v. State, 542 N.E.2d 971, 975 (Ind. 1989); Martin v. State,

2002] TORT LAW 1615

further noted that the rule is tempered, in that while an ex parte communication
may "create[] a presumption of error," it "does not constitute per se grounds for
reversal."^^^ In making a determination as to whether the presumption of harm
has been rebutted, the court noted that the reviewing court must "evaluate the
nature of the communication to the jury and the effect it might have had upon a
fair determination" of the case.^^^

The question posed by the jury in this case was whether the judge would
allow the jury to hold a press conference after the completion of the trial.^^^ The
bailiff relayed the jury's question to the judge, who did not share the question
with counsel. Rather, the judge responded affirmatively to the jury via the
bailiff. No further information was provided to the jury by the judge or bailiff ^^'

The supreme court looked to the decision in Smith v. Convenience Store
Distributing Co?^^ for guidance on the impact the communication might have had
on the jury. ^^^ In Smith, the Indiana Supreme Court held that "[t]he effect of the
communication may be gauged by the reaction of the jury. A short time interval
between the judge's comments and the verdict tends to support the presumption
of error."^^"* In Smith, the jury had declared itself deadlocked after six hours of
deliberation. However, the jury returned a verdict within ten minutes of the ex
parte communication.^^^ Therefore, the court reasoned that judge's comments
might have influenced the verdict.^^^

In this case, the jury was in its second day of deliberations when it posed its
question to the judge. Following the judge's response, the jury deliberated for
seven more hours before returning a verdict, which the court noted was "hardly
a sudden turn of events."^^^ Therefore, the court concluded that, while "it would
have been better practice" for the judge to have conferred with counsel before
responding to the jury's question, the presumption of error had been rebutted
under these circum stances. ^^^ In addition, the jury's inquiry had related to a
"matter of trial administration," not to any "substantive issues pending for its
determination. "^^^ Consequently, "the ensuing length of deliberations provides
a strong indication that the response did not substantially influence the verdict,
if at all. We fmd no reversible error on this issue."^^°

535 N.E.2d 493, 497 (Ind. 1989)).

358. Id. (citing Bouye v. State, 699N.E.2d 620, 628 (Ind. 1998); Grey, 553 N.E.2d at 1 198)).

359. Id. (citing Smith v. Convenience Store Distrib. Co., 583 N.E.2d 735, 738 (Ind. 1992)).

360. Id

361. Id

362. 583 N.E.2d 735 (Ind. 1992).

363. 5ee /Rogers, 745 N.E.2d at 795.

364. Id (citing Smith, 583 N.E.2d at 738).

365. Id

366. Id at 795-96 (citing Smith, 583 N.E.2d at 738).

367. Id at 796 (citing Nesvigv. Town of Porter, 668 N.E.2d 1276, 1288 (Ind. Ct. App. 1996)).

368. Id

369. Id

370. Id

1616 INDIANA LAW REVIEW [Vol. 35:1583

In Executive Builders, Inc. v. Trisler,^^^ the court of appeals reviewed the trial
court's decision not to provide the jury with copies of its final instructions and
held that the decision did not constitute reversible error.^^^

The suit arose when Executive Builders, Inc. ("Executive"), filed suit against
Trisler, alleging intentional interference with business. Trisler filed a
counterclaim and a complaint against Executive, alleging "defamation, invasion
of privacy, abuse of process and frivolous litigation.""^ The trial court entered
summary judgment for Trisler with respect to Executive's suit; however, that
decision was vacated. The court of appeals reversed and remanded with
instruction that the trial court's summary judgment be reinstated. The trial court
eventually entered full judgment for Trisler on its claims. Executive appealed."'*

Executive appealed on several grounds; specifically, it asserted "that the trial
court erred in refusing its request to amend the pleadings to conform to the
evidence.""^ According to Executive, "the issue of 'probable cause' regarding
the malicious prosecution claim should not have been submitted to the jury. ""^
Furthermore, Executive alleged that "it was denied a fair trial when the judge
refused to provide the jury with a copy of the final twenty-two instructions;""^
and it also complained about erroneous jury instructions relative to the
interference action,^^* that the evidence was insufficient to support the verdict,^^^
that "the award of punitive damages was erroneous,"^^^ and that a new trial was
warranted "because of the existence of poor acoustics and the amount of
'diffused sunlight' that was shining in counsel's face throughout the trial."^^'
The court was not swayed by any of Executive's arguments.^^^ However, this
Article will be limited to reviewing the court's opinion as to the jury instruction
issue.

Executive argued that it was "denied a fair trial" when the trial judge
declined to provide the jury with a copy of its final instructions, which were read
to the jury.^*^ Additionally, Executive claimed that it was entitled "to reversal
because the trial judge erred in not clarifying certain portions of the instructions
during deliberations."^^"* Specifically, when the jury propounded questions to the

371. 741 N.E.2d 351 (Ind. Ct. App. 2000), trans, denied, 761 N.E.2d 412 (Ind. 2001), and
cert, denied, 1 22 S. Ct. 8 1 4 (2002).

372. See id at 357-58.

373. Mat 354-55.

374. Id at 355.

375. Id

376. /f/. at 356.

377. Mat 357.

378. Mat 358.

379. Mat 358-59.

380. Mat 359.

381. Mat 358.

382. See id at 361.

383. See id at 357.

384. Id

2002] TORT LAW 1617

judge, he responded to them with a note indicating that all he could do was re-
read the final instructions.^*^

In evaluating Executive's assertions, the court noted that a trial court's
failure to answer questions propounded by the jury during deliberation is not
error per se.^*^ Rather, "the trial court must exercise discretion in determining
whether certain inquiries of the jury should be answered."^^^ Furthermore, "[i]n
criminal cases, our supreme court has determined that the generally accepted
procedure in answering a jury's question on a matter of law is for the trial court
to re-read all the instructions and not to qualify, modify, or explain its
instructions in any way."^** The court further noted that several "favorable
results had been reached" when a trial court provides the deliberating jury with
written or taped instructions.^*^ However, in Taylor v. Monroe County,^^^ the
court of appeals held that "the practice of providing copies of the jury
instructions to the jury [was] not recommended."^^'

Nonetheless, noting that, the "preferred method" would have been sending
copies of the final instructions to the jury following their questions, the court
declined to "condemn his response to the questions made in accordance with [the
court's] decision in Taylor ''^^^ Therefore, the court concluded that "in light of
our decision today, we find it acceptable for a trial judge to either re-read the
instructions as suggested in Taylor, or to send unmarked copies of them to the
jury room."^'^

XII. Attorney Fees

In Davidson v. Boone County, ^'^^ the court of appeals addressed whether a
trial court is authorized to award sua sponte attorney fees without being
requested to do so by the prevailing party. ^^^ The court held that an award of
attorney fees is within the discretion of the trial judge.^^^

The Davidsons had filed suit against the county, alleging that local building

385. Mat 358.

386. Mat 357.

387. Id. (citing Bituminous Fire & Marine Ins. Co. v. Culligan Fyrprotexion, Inc., 437 N.E.2d
1 360, 1 364 (Ind. Ct. App. 1 982)).

388. Id (citing Riley v. State, 71 1 N.E.2ci 489, 492 (Ind. 1999)).

389. Id. (citing Amer. Bar. ASS'N, Comm'N on Jury Standards, Standards Relating to
Juror Use and Management 148 (rev. ed. 1993) (commenting on Standard 16(c)(ii) that "[sjuch
a practice aids juror comprehension, and the ABA standards specifically call for such a procedure
of making the instructions available to the jury during deliberations").

390. 423 N.E.2d 699 (Ind. Ct. App. 1 98 1 ).

391. Executive Builders, 741 N.E.2d at 357 (citing Taylor, 423 N.E.2d at 701).

392. Mat 358.

393. Id

394. 745N.E.2d895(Ind.Ct. App. 2001).

395. See id at 900.

396. Mat 898.

1618 INDIANA LAW REVIEW [Vol. 35:1583

codes were being applied against them "in an arbitrary and discriminatory
manner."^^^ Specifically, the Davidsons and the county had been engaged in a
dispute because the Davidsons had consistently failed to obtain a building permit
or comply with sewage and electrical codes relative to construction on their
rental property.^^*

Following a bench trial, the trial court entered judgment in favor of the
county on all counts.^^ The trial court "further found that the Davidsons had
filed an unreasonable, groundless, and frivolous action"; therefore, the trial court
ordered that they pay the county's "attorney fees, costs, and expenses incurred
in defending the action.'"*^ The Davidsons appealed the judgment; however, that
appeal was dismissed on procedural grounds because the trial court had not yet
entered "final judgment on the amount of attorney fees.'"*^^ After a hearing, the
trial court awarded the county "$79,085.02 in attorney fees, costs and
expenses."'*^^

On appeal, the Davidsons argued that "the trial court abused its discretion"
when it awarded attorney fees sua sponte to the county; specifically, they
asserted that the county never alleged that the suit was groundless, unreasonable,
or frivolous, nor had the county requested such an award of fees."^^^

The court explained that litigants are generally required to "pay their own
attorney fees."'^^'* However, in Indiana, an award of attorney fees is allowed
pursuant to statute if the litigation is found to be "in bad faith," "frivolous,
unreasonable, or groundless.""*^^ Specifically, Indiana Code section 23-52-1-1
provides in relevant part:

(b) 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.^^^

Moreover, pursuant to the statute, an award of attorney fees is justified "upon a
finding of any one of these elements.'"*^^

The Davidsons contended that the trial court did "not have the power to

397. See id at S96-9^.

398. Mat 898.

399. Id

400. Id

401. Id

402. Id

403. /c/. at 898-99.

404. Id at 899 (citing Kintzele v. Przybylinski, 670 N.E.2d 101 (Ind. Ct. App. 1996)).

405. Id

406. iND. CODE §34-52-1-1(1 998).

407. Dav/V/50«, 745 N.E.2d at 899.

2002] TORT LAW 1619

award attorney fees sua sponte.'^^^ However, the court held that because the
Davidsons had failed to support that contention "with any argument or citation
to authority," it was "waived for failure to present cogent argument.'"*^

Despite the Davidsons' failure to present the court with argument relative to
the trial judge's power to award attorney fees sua sponte, the court went on to
address the issue by interpreting the language of the governing statute, Indiana
Code section 34-52- 1 - 1 , which "provides that the court 'may' award attorney fees
if the court finds that either party has litigated in bad faith or pursued a frivolous,
unreasonable or groundless claim.'"^'^ Moreover, the court noted that "the statute
does not specifically require that the injured party move for an award of attorney
fees under the statute before the trial court can exercise its discretion in this
regard.'"*' ' Therefore, the court held that a trial court has the power to award
attorney fees even in the absence of a prior request from the prevailing party/'^

Finally, the court addressed the Davidsons' argument that the county had
waived any claim to attorney fees by not having requested them/'^ The court
found that argument "unavailing," given that the county was under no obligation
"to file a claim for attorney fees pursuant to [Indiana Code section] 34-52-1-1
prior to final adjudication."^''* Additionally, the court averred that since the trial
court had awarded the attorney fees "in its final adjudication," any claim the
county may have filed thereafter for attorney fees was rendered moot; therefore
the county could not have waived such a claim that "had already been awarded
by the trial court."^'^

XIII. Employer-Employee Relationship

In GKNCo. V. Magness,^^^ the Indiana Supreme Court accepted transfer and
addressed the exclusivity of the Worker's Compensation Act ("Acf ) when the
plaintiff had alleged employment by a non-party.

GKN Company ("GKN"), was the general contractor on a highway
construction project that entered into a written contract with Starnes Trucking,
Inc. ("Starnes"), to "haul various materials to and from a GKN job site.'"*'^
Starnes hired Magness to drive one of the cement trucks from the GKN site "to
various highway construction sites.'"*'^ Magness was injured by a retaining wall,
constructed and maintained by GKN, that collapsed while he was standing on the

408.

Id. at 900.

409.

Id. (citing Choung v.

, lemma, 708 N.E.2d 7 (Ind.

CtApp. 1999)),

410.

411.

412.

413.

See id.

414.

415.

416.

744 N.E.2d 397 (Ind. 2001).

417.

Id at 399-400.

418.

Id at 400.

1620 INDIANA LAW REVIEW [Vol. 35:1583

wall to fuel his truck/'^ Thereafter, Magness received worker's compensation
benefits from Starnes and filed a complaint against GKN, alleging negligence in
maintenance and construction of the wall.'*^^ GKN filed a motion to dismiss for
lack of subject matter jurisdiction, maintaining that Magness was an employee
of GKN; thus, the exclusive remedy was the Act/^' "The trial court denied the
motion without reciting its reasons . . . ."'*^^ However, on interlocutory appeal,
"the Court of Appeals reversed the judgment of the trial court.'"*^^ Magness filed
a petition to transfer, and the supreme court accepted review/^"*

On transfer, the court explained that the Act "provides the exclusive remedy
for recovery of personal injuries arising out of . . . employment; however,
Indiana Code section 22-3-2-13 provides that a person may bring suit "against a
third-party tortfeasor" as long as the "third-party is neither the plaintiffs
employer nor a fellow employee.'"*^^ In this case, Magness never contended that
GKN was his employer; rather, he alleged that Starnes was his employer, thereby
enabi ing him to bring a negligence action against GKN. GKN, on the other hand,
contended that Magness was a "dual employee" of both GKN and Stames."^^^
Moreover, the Act contemplates that a worker may have two employers
simultaneously."*^^

The court held that the Indiana Supreme Court's holding in Hale v. Kemp^^^
was controlling as to the factors considered in the determination of whether an
employment relationship exists."*^' Specifically, those factors are: "(1 ) right to
discharge; (2) mode of payment; (3) supplying of tools or equipment; (4) belief
of the parties in the existence of an employer-employee relationship; (5) control
over the means used in the results reached; (6) length of employment; and, (7)
establishment of the work boundaries.'"*^"

The court went on to hold that the Hale factors should be "weighed against
each other as a part of a balancing test" instead of a "formula where the majority
wins.'"*^' Moreover, the court held that in the application of the balancing test,
a trial court is to "give the greatest weight to the right of the employer to exercise
control over the employee."*^^ The court's reasoning was that control suggests
a certainty relative to "economic interdependency and implicates the employer's

419. Id

420. Id.

421. Id

422. Id

423. Id

424. See id

425. Id at 401-02 (citing Ind. Code § 22-3-2-13 (Supp. 2001)).

426. /^. at 402.

427. Id (citing iND. CODE § 22-3-3-3 1 ( 1 998)).

428. 579N.E.2d63 (Ind. 1991).

429. See GKN, 744 N.E.2d at 402 (citing Hale, 579 N.E.2d at 67).

430. Id (citing Haie, 579 N.E.2d at 67).

431. Id

432. Id

2002] TORT LAW 1621

right to establish work boundaries, set working hours, assign duties, and create
job security.'"*"

Next, the court addressed who bears the burden of proof in such a case/^"*
Generally, the party challenging subject matter jurisdiction bears "the burden of
establishing that jurisdiction does not exist.'"*^^ However, given the "public
policy favoring coverage of employees under the Act," the court noted multiple
decisions holding that "once an employer raises the issue of exclusivity of the
Act, the burden [then] automatically shifts to the employee.'"*^^ However, the
court disagreed with that proposition, maintaining that "public policy is not
advanced" if third-party tortfeasors and their liability insurance carriers are
immunized."*^^ Moreover, the court noted that the Indiana Supreme Court had
"never endorsed the proposition that an employee automatically bears the burden
of proof ' relative to a question of jurisdiction raised in a worker's compensation
claim.^^^

In conclusion, the court held that an employer who challenges the trial
court's jurisdiction will bear "the burden of proving that the employee's claim
falls within the scope of the Act unless the employee's complaint demonstrates
the existence of an employment relationship.'"*^^ However, if the employee's
complaint does demonstrate the existence of an employment relationship, the
burden will shift to the employee to show some ground for taking the case
outside of the Act."*"*" Hence, the court found that Magness' complaint failed to
demonstrate an employment relationship; therefore, the burden remained with
GKN .'*'*' Finally, after balancing all of the Hale factors and "giving considerable
weight" to the control element, the court reasoned that "there was sufficient
evidence before the trial court to show that Magness was not an employee of
GKN" and affirmed the trial court's judgment."*"*^

433. /^. at 403.

434. Id.

435. Id. at 404 (citing Methodist Hosp. of Ind., Inc. v. Ray, 551 N.E.2d 463, 467 (Ind. Ct.
App. 1990), opinion adopted by 558 N.E.2d 829 (Ind. 1990) (per curiam)).

436. Id

437. Id

438. Id

439. Id

440. Id

441. Id

442. /^. at 407.

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