News and practical information from our attorneys.
Judges Are People Too
We recently encountered another situation where we were reminded that regardless of what the law may be; a contract may say; or what the court orders may have been to that point in the case, ultimately the decision on how to enforce those things comes from a judge who has his or her own human emotions. Before a recent hearing, we were having a discussion with our witness about the fact that there are really two aspects to the law: the legal side and the human side. Interestingly, the witness thought that the human side is supposed to be left “out there on the sidewalk”. For those of us who have tried a number of cases through a jury trial or to a judge, we know that is not at all the case. Cases can be won or lost based upon the strength or likeability (or lack thereof) of a particular witness. Cases also can be lost because even though the law allows for a certain remedy, the judge is just not willing to enforce that under particular circumstances.
In our recent circumstances, there was a widow who had been represented by an elderly lawyer, and the lawyer had fallen ill. The judge therefore had some concern about how much she had been advised about what had been going on. Therefore, even though by the various court orders that had been entered, and even though all of the i’s had been dotted and t’s crossed, the judge was reluctant to enter the order that we were requesting until she felt comfortable the widow had retained new counsel and that new counsel had an opportunity to get up to speed on the case.
What does this all mean? What it means is that there are no guarantees when you go to court. You can have the best written contract in the history of contracts, or previous court orders that give you the right to do exactly what it is you are asking the court to do at this time, but as soon as you get to court, and there is a human being who is being asked to enter the judgment or make a particular ruling, there are simply no guarantees. This is a big reason why many cases do settle because by settling the parties retain control over what happens. As soon as you relinquish that control and allow a judge or jury to make a final determination, it may not matter what the law is or what the contracts say; there is simply no guarantee of an outcome.
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Indiana Judgment Liens against Real Estate
In Indiana, when a judgment for monetary damages is entered in favor of a plaintiff, that judgment automatically becomes a lien for the judgment amount upon any and all real estate owned by the judgment defendant in the county where the judgment was entered. See, Ind. Code § 34-55-9-2. If the plaintiff knows or has reason to suspect that the judgment defendant owns real estate in any other Indiana county, the plaintiff can have the judgment indexed in such other county by delivering or mailing a certified copy of the judgment to the clerk of such county. See, Ind. Code § 33-32-3-2(d). Indexing the judgment in another Indiana county only costs $3 per county. To obtain a judgment lien against non-Indiana real estate, the plaintiff will need to consult the laws of the applicable State because each State has its own procedure for domesticating foreign judgments.
The judgment lien against real estate becomes effective automatically upon indexing of the judgment and remains effective for 10 years. See, Ind. Code § 34-55-9-2. A judgment lien takes priority as of the time of its indexing in the same manner that any other lien takes priority. Therefore, liens already existing when the judgment is indexed will have priority over the judgment lien, while the judgment lien will have priority over any subsequently recorded liens against the property, including any subsequently recorded mortgage liens.
Even if the plaintiff takes no action to enforce the judgment lien during the 10 years that it is effective, the lien can still benefit the plaintiff. If the judgment defendant attempts to sell the property while the lien is in place, the judgment defendant will need a release of the judgment lien in order to pass clean title to the buyer. This is true even if there is no equity in the property for the judgment lien (i.e. the amount of senior liens exceed the value of the property). If the plaintiff agrees to release the judgment lien to facilitate a sale (presumably after receiving payment from the judgment defendant to do so), the plaintiff should record a partial release of the judgment lien that only releases the judgment lien as to the property sold so that the plaintiff’s judgment lien remains effective as against any other real estate owned by the debtor in that county.
While the foregoing scenario can lead to the plaintiff recovering at least a portion of the judgment amount, it is more likely that a judgment creditor will recover on a judgment lien by having real estate subject to the judgment lien sold. Indiana Trial Rule 69 provides two different procedures for having property subject to a judgment lien sold.
Under Indiana Trial Rule 69(A), the court that entered the judgment can enter a writ of execution to have the property sold. The writ of execution is an order that directs the sheriff to sell the real estate. The real estate would be sold through an execution sale subject to any other senior liens against the property (i.e. if there is a mortgage against the property when the judgment lien attached to the real estate, the buyer will take the property subject to the mortgage). An execution sale against real estate may not be held sooner than 6 months after the date that the judgment became a lien against the property.
Alternatively, Indiana Trial Rule 69(C) provides that a plaintiff can foreclose a judgment lien pursuant to the procedure created by Indiana law for foreclosing a mortgage. This requires the plaintiff to file a separate foreclosure action that names the judgment defendant and any lien holders as parties to the action. The plaintiff will not need to prove for a second time that the judgment defendant is indebted to the plaintiff. Instead, the foreclosure action is only seeking an in rem judgment against the real estate owned by the judgment defendant and a determination of the relative priority of the liens against the real estate.
Whether it is best to proceed under Rule 69(A) or Rule 69(C) will depend on the amount of the plaintiff’s judgment, the value of the property, and the relative lien position of the judgment lien vis a vis any mortgage holders and/or other lien holders. One important distinction between Rule 69(A) and Rule 69(C) is that the property must be appraised and sold for at least 2/3rd of the appraised value in a Rule 69(A) execution sale, while Rule 69(C) specifically provides that the sale of property in a judgment lien foreclosure action can be “without valuation or appraisement” even though Ind. Code § 34-55-4-1 requires valuation and appraisement in mortgage foreclosure actions.
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Ten Years to Fight Over a Contract?!
We are constantly emphasizing to our clients the importance of reading and understanding all of their contracts before signing them. We also continually counsel our clients about the incredibly slow pace of litigation and how resolving business disputes through the courts can take many years. A recent decision by the 7th Circuit Court of Appeals (which would hear federal cases under Indiana law) serves as a good illustration of these points:
In that, the 7th Circuit reversed a jury’s award of $1,500,000.00 in favor of a sales representative, and found that the plain language of that representative’s contract showed that he was only entitled to $54,000.00 in commissions. The reason for the reversal was that his contract very clearly stated that in order for the sales person to receive commission credit under the employer’s previous compensation plan, any sale must close on or before December 25, 2005. The sale at issue did not close until March, 2006. During the original trial, the trial court allowed evidence to be introduced concerning what was intended by the parties, as opposed to simply enforcing the plain terms of the contract. With the introduction of that extra evidence, the jury awarded $1,500,000.00. The Court of Appeals reversed that ruling and directed that the employee was only entitled to $54,000.00.
A few interesting points that came out of this recent decision include the fact that this dispute has been ongoing for ten years. For some perspective, the sale at issue closed about 18 months before the introduction of the iPhone and the decision was entered on July 1, 2015! One can only imagine the amount of resources that have been spent fighting over the interpretation and enforcement of this contract, which on its face seemed to be relatively straight forward.
It also serves as a reminder that there are no guarantees when parties go to court. Clients will often ask what a court is going to do, and anyone who has ever tried a case knows there is no such thing as a sure thing when you go to court.
Again, from the employer’s perspective in this case, it would have seemed clear that the court should not have allowed the outside evidence concerning the interpretation of the contract. However, obviously the trial court allowed that to occur, and although that decision was reversed, it certainly cost substantial amounts of time and money to get to that ultimate result.
Read your contracts and understand the true cost and incredibly slow pace of litigation when deciding what decision needs to be made with respect to a business dispute. We always educate and counsel our clients on these costs and the reality of the differences between the legal system and the business world, and clients are well advised to consider all of this when deciding what positions to take and whether or not a compromise is appropriate under the circumstances.