The Indy Star has an article entitled Judge asked to decide on refunding tax bills discussing the Marion County lawsuit filed by county taxpayers with respect to property taxes. I think it’s a class action suit — though, I’d welcome correction if I’m wrong about that. The main issue in the suit was made moot by the DLGF’s decision to reassess the county and, for the time being, to pay taxes at the 2006 level.

Lawyers for the Plaintiffs requested that the suit be extended to request refunds for those taxpayers who have already paid tax at the 2007 level. Apparently the plan currently is to count over-payments as credits on the second tax installment in the fall.

Just a mercenary lawyer thinking out loud here, but I wonder if the desire for refunds instead of credits has anything to do with the potential fee that could be enjoyed by counsel for the Plaintiffs. Seems like it would be harder to get a cut of property tax credits than it would be to get a piece of a bunch of property tax refunds. But, maybe I’m just showing my ignorance here — I don’t know much at all about fee arrangements in class action suits.

Yesterday, I gave a brief explanation of Proceedings Supplemental. As luck would have it, the Indiana Supreme Court issued an opinion today that expounds greatly upon the Proceeding Supplemental in the case of Rose & Underwood v. Mercantile National Bank. It involved a tortured procedural posture that I don’t feel like describing at the moment.

As I mentioned, the proceeding supplemental is a tool used by judgment creditors to discover and obtain assets of the judgment debtor available to satisfy an existing judgment. Among many other things the Supreme Court in the Rose & Underwood case indicated that the change of venue provision of the trial rules is not available to the parties of the underlying judgment but is available to third parties (e.g. garnishee defendants). Fraudulent transfers may be determined in the course of a proceeding supplemental. A fraudulent transfer remains valid as between grantor and granteeee, but with respect to the judgment creditor, the asset is subject to execution as if it were still in the name of the grantor. Generally jury trials are not available to decide issues raised in a proceeding supplemental, but sometimes they are:

For all that appears, this approach developed over nearly 130 years seems to serve us well. While juries are disfavored in proceedings supplemental for their tendency to prolong matters, where the pleadings form issues of fact that a jury could reasonably decide, the parties may demand a jury trial.

Finally, new claims are not allowed to be raised via Proceedings Supplemental. For example, in this case, Debtor Company, an S Corp, transferred money to its owners in an effort to avoid paying Debtor Company’s judgment. The transfer was deemed fraudulent, and Creditor Company was entitled to go after the money even though it was in the hands of Debtor Company’s owners. However, Creditor Company was not allowed to use the Proceeding Supplemental as a vehicle to allege a new tort claim against Debtor Company’s owners (under which theory creditor could get triple damages and attorney’s fees.)

It seemed to me that, for all of the legal discussion in this opinion, it was a little light on legal citation. This doesn’t surprise me since a lot of what goes on in a Proceeding Supplemental seems to have more to do with custom than with black letter law. The Supreme Court advises that the Proceeding Supplemental is equitable rather than legal in nature, so maybe that explains the relative lack of caselaw. But, reading the opinion, I got the feeling the Supreme Court was sort of making it up as it went along. It seems to have made the right decisions, but I don’t get the feeling they relied a lot on precedent when reaching those decisions. Just a feeling.

Today, an opinion of the Indiana Court of Appeals addresses a distinction that is often misunderstood but which is very important in the collection business. When a debt is referred to my office for collection, the typical path goes something like this: Demand letter > No response > Suit > No response or appearance at court > Default Judgment > Notice of judgment to debtor > No response from debtor > Proceeding Supplemental > Debtor’s Failure to Appear > Rule to Show Cause > Debtor’s Failure to Appear > Body Attachment. (Bold text represents action or inaction on the part of the debtor; plain text represents actions by my office or by the court.)

Some of the terminology there probably needs explanation: “Proceeding Supplemental” is a proceeding at which the debtor can be asked under oath about his or her income and assets available to satisfy some or all of the debt. Frequently the information at the hearing can lead to wage garnishment, attachment of funds in a bank account, or the like. Even more frequently it leads to an agreement by the debtor to make payments toward the judgment at a fixed amount per week or per month. “Rule to Show Cause” is an order by the court for the debtor to “show cause” why he or she should not be held in contempt for failing to appear at the Proceeding Supplemental. As a practical matter, this usually just amounts to a second chance hearing. If the person shows up, the court will usually just want the Proceeding Supplemental to be conducted and won’t spend much time asking the debtor why he or she missed the previous hearing or deliberating on whether to hold the person in contempt. “Body attachment” is an order by the court to the Sheriff to pick up the individual who failed to obey the court’s order to appear at a hearing.

In the case linked above, Sandage v. Keaton, the judgment debtor appeared at a Proceeding Supplemental and agreed to pay $20 per week toward her debt. This agreement was reflected in a court order following the hearing. When she missed a payment, the judgment creditor reported the fact to the court which in turn issued a body attachment against the judgment debtor for failing to abide by the court’s order to pay. The Court of Appeals recognized that this was improper. You don’t lock a person up for not paying. The Indiana Constitution prohibits imprisonment for debt. An exception is made in cases of fraud or child support cases. In this case, potentially the court could have considered contempt proceedings under the theory that the debtor failed to make agreed upon payments as incorporated into a court order — though I’m skeptical of this. But, at the very least, the court would have had to conduct a hearing first since such contempt (failure to pay) would constitute indirect contempt. Indirect contempt requires a certain amount of process not required in cases of direct contempt (e.g. being disruptive in the court room).

Fairly often, when I ask the court for a body attachment and the person is picked up on the writ, the person will complain to me about debtor’s prisons – or some variation on that theme. I am always careful to explain to them that they were not being locked up for owing a debt. They were locked up for failing to appear at a court hearing when ordered to do so by a court.

I guess that’s my way of advising any readers out there to show up for court dates when ordered to do so. I’m not even going to charge for that bit of advice.

In the case of Green Tree Servicing, LLC v. Auditor & Treasurer of Howard County, the Court of Appeals held that Howard County was not negligent in disbursing tax surplus funds to an outfit called Landmark Appraisals on behalf of the former property owner without first giving any sort of notice of the tax surplus to the mortgage holder on the property sold at tax sale.

The court reasoned that the mortgage holder, Green Tree, had been given notice of a pending tax sale prior to the sale. Green Tree had also been given notice that the tax sale purchaser was petitioning the court for a tax deed. There was no requirement that the mortgage holder be given yet another notice that a surplus had resulted from the tax sale prior to distributing it to the original property owner.

Theoretically, Green Tree can demand the surplus money (and more) from the original property owner to whom it lent the money. But, as a practical matter, if the property owner had property sold at tax sale, chances are that the person is not particularly solvent.

Landmark has an interesting business model. As I understand it, they scan public records for surpluses for tax sales. (A surplus results when the property is sold for more than the outstanding tax liability). They then contact the original property owner and offer to obtain the surplus on the property owner’s behalf in exchange for a percentage of the money obtained. At one point I came into contact with them in a similar situation (complicated by a foreclosure that took place somewhere during the tax sale process.) At that time, they didn’t appear to have looked very closely at whether other entities had obviously superior claims to the tax surplus money. And, to be fair, I don’t know that they have a duty to do so. However, if they don’t in fact do such investigation, I think they’re in danger of lawsuits from angry financial institutions who feel (rightly or wrongly) like Landmark is profiting from snatching away money to which the institutions are entitled.

The Indiana Court of Appeals issued an opinion on a topic near and dear to my heart: garnishments. In Indiana Surgical Specialists v. MDS Courier Service, the court decided that a garnishment order was appropriate and enforceable in a case where the judgment debtor worked for a garnishee-defendant even where the judgment defendant was hired as an independent contractor as opposed to an employee. Because the judgment defendant received periodic payments for personal services, the Court reasoned that the garnishment laws applied.

That makes me happy. Frequently, I’ll have an employer try to stay out of the loop by citing the judgment defendant’s independent contractor status. I understand the motivation, but I typically don’t let them off the hook so easily. My response is to then treat the payments due the judgment defendant as accounts receivable instead of wages. Under that interpretation I can get 100% of the money (potentially minus a $300 exemption) instead of the roughly 25% obtainable under the wage garnishment statute. The downside is that I have to file new proceedings for every seizure of money (just as I would to drain a bank account) which is time consuming for me and for the courts. Also, frankly, it’s probably unduly harsh on the judgment debtor. But, if the judgment defendant isn’t making voluntary payments and the garnishee defendant is seeking to avoid involvement, my sympathetic inclinations are easily repressed.

With this new ruling, I think I’ll have an easier time getting an enforceable ongoing order garnishing the periodic payments due a judgment defendant. And, if the garnishee defendant doesn’t abide by the order, I’ll have an easier time going after the (probably more solvent) garnishee defendant’s assets. (Leaving the garnishee defendant to seek reimbursement from the judgment defendant.)

You know, “manure” doesn’t rhyme with “writ” so I was tempted to use a different word. For some reason, I found this entry from the Indiana Lawyer Daily to be interesting:

The Indiana Supreme Court has granted an emergency writ filed by a rural Huntington County dairy farm accused of contaminating local waterways with manure from 1,400 cows.

An order issued Wednesday afternoon bars Huntington Circuit Judge Thomas Hakes from deciding on a preliminary injunction stopping the dairy owner, Johannes DeGroot, from spreading cow manure on nearby fields, until the state’s high court can rule on a request for permanent writ of mandamus and prohibition. However, any previous orders issued by the judge remain in effect and he continues to have jurisdiction in the proceedings.

Additional briefing is needed in the case, according to the Supreme Court order. Any supplemental documents must be filed by Wednesday and, once that happens, the court will take the matter under advisement.During arguments Wednesday in Huntington County, the state said the manure in the water was the latest in a string of 13 violations discovered by the Indiana Department of Environmental Management – which has separately revoked the permit for DeGroot Dairy because of the violations spanning from September 2005 to April 11, 2007.

The Indy Star has an article about DeGroot from last week discussing revocation of DeGroot’s dairy permit for the 13 violations.

In April, IDEM officials responded to reports of manure contamination from the dairy in a tributary of the Salamonie Reservoir, and field tests showed elevated levels of ammonia nitrogen and E. coli bacteria. Other violations cited for the revoked permit include constructing a new silage pad and dry cow barn without a permit and not managing an Oct. 11 manure spill.