INSIDE: CONFERENCE BROCHURE IRS REPORTING REQUIREMENTS FOR CROSS-BORDER ACTIVITIES MORAL DISSONANCE IN THE PRACTICE OF LAW PROPERTY OF THE BANKRUPTCY ESTATE
Vol. 56, No. 7
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The Journal of the Indiana State Bar Association
RES GESTÆ March 2013
10 IRS REPORTING
PRESIDENT’S PERSPECTIVE Daniel B. Vinovich, Highland, 2012-2013
BANKRUPTCY & CREDITORS’ RIGHTS
RECENT DECISIONS 12/12
CRIMINAL JUSTICE NOTES 12/12
FAIR COMMENT CLASSIC
Donald R. Lundberg, Indianapolis
Mark S. Zuckerberg and Amanda K. Quick, Indianapolis
Jon Laramore and Daniel E. Pulliam, Indianapolis
Daniel P. McInerny, Indianapolis
Prof. Joel M. Schumm, Indianapolis
Rabb Emison, Vincennes
F E AT U R E S
Susan J. Ferrer firstname.lastname@example.org
GRAPHIC DESIGNER Vincent Morretino email@example.com
ADVERTISING Kim Latimore firstname.lastname@example.org
WRITTEN PUBLICATIONS COMMITTEE CO-CHAIRS Tina M. Cooper Prof. Joel M. Schumm email@example.com
Vol. 56, No. 7
LDA KICKS OFF WITH OPENING RETREAT By Bill Brooks, Indianapolis
IRS REPORTING REQUIREMENTS FOR CROSS-BORDER ACTIVITIES CONTINUE TO GROW By Todd C. Lady and Tiffany D. Presley, Indianapolis
17 JUDICIAL RECEPTION
24 GOLF SCRAMBLE
Res Gestae (USPS–462-500) is published monthly, except for January/February and July/August, by the Indiana State Bar Association, One Indiana Square, Suite 530, Indianapolis, IN 46204. Periodicals postage paid at Indianapolis, Ind. POSTMASTER: Send address changes to Res Gestae, c/o ISBA, One Indiana Square, Suite 530, Indianapolis, IN 46204. Subscriptions to members only, $5 annually from dues. All prior issues available exclusively from William S. Hein & Co., 1285 Main St., Buffalo, NY 14209. ISBA members are encouraged to submit manuscripts to the editor for possible publication in Res Gestae. Article guidelines can be obtained by calling 800/266-2581 or visiting www.inbar.org. Res Gestae’s printer, Print Directions, Inc., is an Indiana-certified Woman Business Enterprise. ©2013 by the Indiana State Bar Association. All rights reserved. Reproduction by any method in whole or in part without permission is prohibited. Opinions expressed by bylined articles are those of the authors and not necessarily those of the ISBA or its members. Publication of advertisements is not an implied or direct endorsement of any product or service offered.
RES GESTÆ • MARCH 2013
Communicating with you – a top priority
INDIANA STATE BAR ASSOCIATION
OFFICERS President President-Elect Vice President Secretary Treasurer Counsel to the President
Daniel B. Vinovich, Highland James Dimos, Indianapolis Jeff R. Hawkins, Sullivan Todd J. Meyer, Lebanon Holly M. Harvey, Bloomington Hon. Michael N. Pagano, Crown Point
BOARD OF GOVERNORS 1st District 2nd District 3rd District 4th District 5th District 6th District 7th District 8th District 9th District 10th District 11th District 11th District 11th District Past President House of Delegates House of Delegates Young Lawyers Section
Shelice R. Tolbert, Crown Point Todd A. Etzler, Valparaiso James M. “Jay” Lewis, South Bend Hon. Thomas J. Felts, Fort Wayne Elizabeth B. Searle, Lafayette John A. Conlon, Noblesville Seth M. Lahn, Bloomington Angela L. Freel, Evansville J. Todd Spurgeon, New Albany Kimberly S. Dowling, Muncie Julia L. Orzeske, Indianapolis Chasity Q. Thompson, Indianapolis Clayton C. Miller, Indianapolis C. Erik Chickedantz, Fort Wayne Mitchell R. Heppenheimer, South Bend, Chair Jessie A. Cook, Terre Haute, Chair-Elect Reynold T. “Ren” Berry, Indianapolis, Chair
STAFF Executive Director Thomas A. Pyrz • firstname.lastname@example.org Administrative Assistant Barbara Whaley • email@example.com Associate Executive Director Susan Jacobs • firstname.lastname@example.org Administrative Assistant Julie Gott • email@example.com Director of Communications Susan J. Ferrer • firstname.lastname@example.org Director of Public Relations & Social Media Carissa D. Long • email@example.com Graphic Designer & Photographer Vincent Morretino • firstname.lastname@example.org Legislative Counsel Paje E. Felts • email@example.com Director of Section Services Maryann O. Williams • firstname.lastname@example.org Administrative Assistant Barbara Mann • email@example.com Local & Specialty Bar Liaison Catheryne E. Pully • firstname.lastname@example.org Administrative Assistant Kim Latimore • email@example.com CLE & Special Projects Coordinator Cheri A. Harris • firstname.lastname@example.org Administrative Assistant Christina L. Fisher • email@example.com Director of Meetings & Events Ashley Higgins • firstname.lastname@example.org Bookkeeper & Convention Registrar Sherry Allan • email@example.com Membership Records Coordinator Kevin Mohl • firstname.lastname@example.org Receptionist Chauncey Lipscomb • email@example.com
1. Social media. Want to find out about current happenings at the ISBA? Like us on Facebook (facebook.com/indianastatebar), follow us on Twitter (twitter.com/ indianastatebar) or connect with us on LinkedIn (linkedin.com/companies/ indiana-state-bar-association). With great frequency, we post events, news and other information of concern to Indiana lawyers. 2. Website. Our website at www.inbar.org received a recent mobile face-lift. The homepage provides legal news and upcoming events in a simplified format and has easy-to-use, drop-down bars with links to a variety of subjects, including member benefits, local bars, the Indiana Law Blog, a photo gallery and other law related links. Now when opening our website on your smartphone or tablet, you’ll find it fits, enabling you to see the entire page and surf with ease.
Addendum The official e-newsletter of the Indiana State Bar Association
3. Addendum. Our redesigned biweekly e-newsletter hit your email inbox in late January and is a dramatic upgrade. It provides current news & events, honors, position announcements, memorials and job postings on one clean page with easily identified links to each topic.
A STA T
One Indiana Square, Suite 530 Indianapolis, IN 46204 317/639-5465 • 800/266-2581 317/266-2588 fax • firstname.lastname@example.org http://www.inbar.org
4. Res Gestae. Our flagship publication now comes in a fully searchable, online version. You can even pull it up on your mobile phone or tablet, and it looks exactly like the magazine.
f you try any cases, advise clients in marketing or branding, or are even the slightest casual observer of politics, then you’ve heard of “focus groups.” Last year, our Membership & Membership Benefits Committee conducted focus groups of ISBA members and nonmembers throughout the state with the main subject being how can the ISBA better serve Indiana lawyers. Facilitators of these focus groups culled the data and found that many lawyers suggested benefits and services we already had but were simply unknown of them. The obvious conclusion: We were apparently not marketing effectively. Armed with these findings, the committee asked our Board of Governors to update our communications. The board promptly adopted the committee’s recommendations, and our ISBA staff set out to implement the new directive. It’s been only a few months since this charge, but I am pleased to report remarkable progress on many fronts.
5. CLE calendar. Members are now receiving by email a calendar of upcoming CLE events. You can click on any event of interest for further information and even register in a snap. 6. ISBA app. In January the Board of Governors approved the creation of an ISBA app, which is currently under construction. The app for your mobile phone and iPad or Android tablet is expected to connect you to the ISBA with one touch. We also hope to provide seminar and meeting documents within the app. 7. e-discussion groups. If you want to take your practice to the next level, join an ISBA section’s e-discussion group and become e-partners with hundreds of lawyers throughout the state. Exchange motions, briefs and advice with lawyers in particular specialties within minutes. Just one motion or piece of advice is worth the price of membership.
8. YouTube. Coming soon we anticipate posting YouTube videos on our website and various social media channels. These one-totwo-minute videos will provide informative “how to” demonstrations on utilizing various ISBA benefits. Many thanks to the wonderful and innovative ISBA staff who work so very hard to make our practices better and lives less stressful.
PRESIDENT’S PERSPECTIVE Daniel B. Vinovich 2012-2013 RES GESTÆ • MARCH 2013
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ISBA e-discussion lists new & improved
ABA TECHSHOW April 4-6 echnology has introduced a “new normal” for legal professionals by helping them practice more effectively, efficiently and deliver better client service. Lawyers are attracting new clients on social media, managing more documents in the cloud, and meeting new client expectations by using the education provided by ABA TECHSHOW.®
Learn and network with legal technology experts from across the country April 4-6 at the Hilton Chicago. Visit www.techshow.com for up-to-date information on ABA TECHSHOW 2013, the best event for bringing lawyers and technology together.
Nominations sought for ISBA board positions ny lawyer member of the Indiana State Bar Association who desires to be considered for nomination to a vacancy on the Board of Governors should convey that interest to the chair of the Association’s Nominating Committee, Sherrill Wm. Colvin of Fort Wayne.
Members who are nominated will face an election at the annual meeting of the Association Assembly to be held in French Lick, Ind., in October, after which a two-year term will commence. District vacancies for the term October 2013 through October 2015 are as follows: District 1, representing Lake County; District 4, representing Allen County;
District 5, representing the counties of Benton, Boone, Carroll, Cass, Clinton, Fountain, Howard, Jasper, Montgomery, Newton, Tippecanoe, Warren and White; District 10, representing the counties of Adams, Blackford, Delaware, Grant, Henry, Huntington, Jay, Madison, Miami, Randolph, Tipton, Wabash, Wayne and Wells; and District 11, representing Marion County, two positions. Letters of interest and résumés, not longer than two pages (with information as to leadership positions or other activity within the State Bar as well as other affiliations) should be sent to Sherrill Wm. Colvin, chair, ISBA Nominating Committee, Indiana State Bar Association, One Indiana Square, Suite 530, Indianapolis, IN 46204. The deadline for receipt is April 5.
BENCH & BAR NEWS
he Indiana State Bar has rolled out its new and improved e-discussion lists through Net Atlantic, an advanced email marketing service. If you were previously subscribed to an ISBA e-discussion list and have not been receiving those emails, or if such emails are getting caught in your junk mail folder, you need to set up a “rule” or “filter” designating that any message sent to an e-discussion list posting address (e.g., email@example.com) should never be sent to spam. Please note: Simply marking as not spam each individual email/sender in your junk mail folder will not stop future messages from being sent there. Also, specific instructions on how to set up a “rule” or “filter” vary based on your email provider (e.g., Gmail). For more information, please feel free to contact Kevin Mohl at the ISBA at 800/2662581 or firstname.lastname@example.org.
Promoter Discount Code, EP 1319, to receive the rate.
NED P. MASBAUM, M.D. Board Certified Forensic Psychiatrist Web site: www.FORNPSYCH.com
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CONSULTATION EVALUATION EXPERT WITNESS TESTIMONY RECORD REVIEW CIVIL CRIMINAL WORLDWIDE AVAILABILITY
24-hour voicemail and paging (317) 846-7727 • Toll free (888) 203-7746
As a member of the Indiana State Bar Association, we want to make you aware of ABA TECHSHOW and the substantial discount we can provide you on registration. Standard registration costs $1,050, but since the ISBA is an “event promoter,” standard registration for State Bar members is $895. When you register, remember to include your unique Event RES GESTÆ • MARCH 2013
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By Bill Brooks
LDA kicks off with opening retreat
Photo by Vince Morretino
LEADERSHIP DEVELOPMENT ACADEMY
oles were played, tests taken, information exchanged, personalities probed, nametags read, Legos stacked, intuitions tested and trust built. And a chief justice appreciated. Appreciated by the 25 members of the second State Bar Leadership Development Academy who converged upon Fort Harrison State Park in early January, the first of the academy’s five gatherings under the theme, “21st Century Leaders: Engage, Equip and Empower.” Chief Justice of Indiana Brent E. Dickson had been asked to talk to the young lawyers and describe his own journey through the profession as groundwork for the lessons in leadership in which they would soon be immersed. He did exactly that, describing his circuitous route to both the bar and the bench before offering this: “Being a lawyer is an opportunity to serve, not an opportunity to prosper. But if you serve, then prosperity will come.” Dickson said priority No. 1 should always be “to honor the legal profession because the way our citizens think of lawyers is critical.” Maintaining the community’s respect is more difficult than ever, he said, because of the way lawyers are portrayed in mass media, often as manipulating hired guns. “That’s not who we are – or what Indiana lawyers are,” the chief justice observed. But because of those media images, clients have come to expect aggressive behavior from their attorneys. “Lawyers can counter that with one-on-one contact with their clients. Be compassionate and humble, not boastful and prideful.” Chief Justice Media consultant and freelance writer Dickson’s morning Indianapolis, Ind. comments were
RES GESTÆ • MARCH 2013
Chief Justice Brent E. Dickson at LDA opening retreat followed by a day of mental exercises designed by consultants Pat Heiny and Mary Jo Clark to help define the idea of “servant leadership.” The day was broken into three segments on what 21st century leaders do – “Facilitate Trusting Relationships”; “Serve the Common Good”; and “Foster Trust and Enhance Others’ Capabilities.” The work, Heiny said, was geared to help the lawyers understand the ideas of civility and collaboration. “Twenty years ago,” she said, the system was “all about Robert’s Rules of Order, about keeping people in their place. Now, it’s about what the chief justice was talking about.” The first challenge the academy students faced had come the night before, when they were clustered in five-person teams to find creative ways to introduce themselves to the larger group Saturday morning. That Friday night session included a reception and dinner in the home of retired Supreme Court Justice
Frank Sullivan Jr. and opening remarks by ISBA President Daniel B. Vinovich of Highland. In giving the group that first challenge, Heiny said there were high expectations for creativity. The morning performances did not disappoint. Group one had each of its members appearing before St. Peter, explaining why they deserved to get through the gates. “I married an engineer,” one said. “I rescued a pit bull,” said another. One group portrayed a meeting of Workaholics Anonymous. “Yesterday, I went 30 minutes without checking my email,” said one. Countered another, “This is our group’s last session because these meetings are taking away too much of my billable hours.” Another group designed a similar scenario, an Attorneys Anonymous meeting. “I’m so addicted to my job I married an attorney so we can talk about the law in our spare time.” As the morning wore on, the academy students were asked to
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talk about a person who had a significant impact on their lives. “The best way to get to know people is to hear their stories,” Heiny said. Most responses involved relatives – moms, husbands, grandmothers. And then Heiny asked, “What are the characteristics of these people?” Answers were innumerable – humility, patience, tenacity, generosity, integrity. Said Mary Jo Clark, “Think about using those qualities in servant leadership, and observe those qualities in each other.” Heiny added, “What we are doing is building a sense of trust.” The session evolved into a lesson on how to build a group, whether it be a committee at work or in the community or even an elected board. Heiny and Clark asked, “How is a group created? How does it become functional? What size should it be?” The facilitators continued, “People tell their own stories easier in small groups.” And reading nametags is easier around small tables. The students were asked to think about their own roles within such groups and to consider what is nearly always the major issue – communication. “Communication is at the heart of work,” Heiny said, “and at the root of most ineffective work. You start by learning about yourself.” The productive day peaked with a lesson on learning styles. Some folks learn best through concrete experience, others through active experimentation, still others through reflective observation. Heiny pointed out that in first marriages, 87 percent of the couples are opposites in terms of how they learn. “It’s not about intellect,” she said, “but the way you approach information. That determines how
you communicate, how you deal with learning, with making decisions. Heiny and Clark said that when they are called upon to troubleshoot a group, most generally the problem boils down to differences in learning styles. “When you know how people work,” Heiny said, “you deal with them better.”
The final lesson was this: Part of the job of leadership is knowing enough to help the other person maximize what they do. “Make them be the best they can be,” Heiny said. “That’s the art of being a servant leader.”
At the end of the day...
Who’s Really Watching Your Firm’s 401(k)? And, what is it costing you?
Does your firm’s 401(k) feature no out-of-pocket fees? Does your firm’s 401(k) include professional investment fiduciary services? Is your firm’s 401(k) subject to quarterly reviews by an independent board of directors? If you answered no to any of these questions, contact the ABA Retirement Funds Program by phone (866) 812-1510, on the web at www.abaretirement.com or by email email@example.com to learn how we keep a close watch over your 401(k).
Who’s Watching Your Firm’s 401(k)? The American Bar Association Members/Northern Trust Collective Trust (the “Collective Trust”) has filed a registration statement (including the prospectus therein (the “Prospectus”)) with the Securities and Exchange Commission for the offering of Units representing pro rata beneficial interests in the collective investment funds established under the Collective Trust. The Collective Trust is a retirement program sponsored by the ABA Retirement Funds in which lawyers and law firms who are members or associates of the American Bar Association, most state and local bar associations and their employees and employees of certain organizations related to the practice of law are eligible to participate. Copies of the Prospectus may be obtained by calling (866) 812-1510, by visiting the website of the ABA Retirement Funds Program at www.abaretirement.com or by writing to ABA Retirement Funds, P.O. Box 5142, Boston, MA 02206-5142. This communication shall not constitute an offer to sell or the solicitation of an offer to buy, or a request of the recipient to indicate an interest in, Units of the Collective Trust, and is not a recommendation with respect to any of the collective investment funds established under the Collective Trust. Nor shall there be any sale of the Units of the Collective Trust in any state or other jurisdiction in which such offer, solicitation or sale would be unlawful prior to the registration or qualification under the securities laws of any such state or other jurisdiction. The Program is available through Indiana State Bar Association as a member benefit. However, this does not constitute an offer to purchase, and is in no way a recommendation with respect to, any security that is available through the Program. C12-0201-010 (2/12)
RES GESTÆ • MARCH 2013
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By Todd C. Lady and Tiffany D. Presley
IRS reporting requirements for cross-border activities continue to grow
he past two decades have seen dramatic growth in the amount of cross-border business activity undertaken by U.S. persons. In addition to large multinational companies, small and medium-sized businesses have increasingly sought new markets for the procurement of materials and the sale of their goods and services. Further, technological advancements allow businesses and individuals to maintain and deploy capital throughout the world without regard to historic geographical barriers. This proliferation of crossborder business activity has not gone unnoticed by Congress or the Internal Revenue Service (“IRS”).1 Collectively they have initiated – and in one instance, revitalized – several international tax-reporting rules aimed at ensuring transparency with respect to the foreign activities of U.S. persons. These rules include: (i) the reporting of foreign financial accounts under the Bank Secrecy Act of 1970; (ii) the reporting Todd C. Lady of foreign financial Taft Stettinius & Hollister LLP assets under section Indianapolis, Ind. 6038D; (iii) the firstname.lastname@example.org recently expanded reporting by owners of certain foreign corporate entities under section 1298(f); and (iv) the new combined reporting and withholding regimes under sections 1471-1474. Of course, increased “reporting obligations” are somewhat Tiffany D. Presley meaningless unless Taft Stettinius & Hollister LLP accompanied by Indianapolis, Ind. significant penalties email@example.com for noncompliance. 10
RES GESTÆ • MARCH 2013
As demonstrated below, Congress and the IRS did not shirk their duties in this regard. These reporting regimes are aimed at a basic common goal: providing U.S. tax authorities with information about the offshore activities of U.S. taxpayers. Unfortunately, many of the new reporting requirements are designed with a one-size-fits-all approach, often imposing burdensome compliance obligations without regard to the sophistication of the underlying taxpayer or he likelihood that the additional reporting will lead to the discovery of unreported U.S. taxable income. Further, the harsh penalties for failing to meet many of these obligations may be imposed on unsuspecting persons regardless of whether any underlying U.S. tax is at stake. Given the breadth of the reporting that is now required and the costs associated with non-compliance – measured in penalties and professional fees – U.S. businesses (and their advisors) cannot afford to engage in international commerce without being mindful of the associated U.S. tax reporting obligations.
I. The general U.S. framework for taxing foreign earnings A review of two fundamental concepts with respect to the way the United States taxes its citizens and residents will aid in an understanding of the new reporting regimes. First, it is helpful to keep in mind that the U.S. tax system is structured as a so-called self-assessment system.2 That is, annually persons subject to the United States income tax are responsible for reporting their self-determined tax liability to the IRS. Second, the United States taxes its citizens and residents on their worldwide income, regardless
of the country or location in which the income is earned. In the words of the Code, gross income includes “all income from whatever source derived.”3 As relevant here, this essentially means that income earned by a U.S. person in any geographical location throughout the world is subject to U.S. taxation. The IRS has multiple tools to “incentivize” proper reporting of income under the self-assessment system, including fear of an IRS audit, the imposition of penalties for the underpayment of tax, and various withholding tax regimes that collect taxes owed before they ever get in the hands of the taxpayer-recipient. However, these conventional collection tools are less effective at ferreting out income derived from foreign sources as opposed to income earned in the United States, primarily due to the difficulties of tracking foreignearned income. For example, a U.S. person that has money on deposit in an interest-bearing Swiss bank account is subject to U.S. tax on the interest income in the same manner as interest earned from a deposit with a U.S. bank. As one might expect, foreign banks generally do not transmit a report to the IRS each year detailing the interest earned by its U.S. depositors in the same manner domestic banks must (e.g., one purpose of IRS Form 1099). This is one of the main reasons the U.S. government believes foreign brokerage and deposit accounts provide the potential for ignorant – and perhaps unscrupulous – U.S. taxpayers to underreport their U.S. tax obligations. Historically, Congress and the IRS have been somewhat willing to let U.S. taxpayers proceed on the honor system with respect to the self-reporting of their worldwide income. However, as the provisions
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discussed below indicate, this level of “trust” has waned. These new reporting rules generally come with stiff penalties for noncompliance, which may be imposed regardless of whether any underlying tax is actually due.
II. Foreign financial account reporting – the ‘FBAR’ The first reporting regime directed at offshore activity requires the annual disclosure of foreign financial accounts owned or controlled by a U.S. person. This regime technically is not new. Congress first imposed disclosure requirements with respect to foreign bank and financial accounts as early as 1970.4 In its present form, the rules require a U.S. person with a financial interest in, or signature authority over, a foreign financial account to file an annual information return if the aggregate value of all such person’s foreign financial accounts exceeds $10,000 at any time during the calendar year.5 The reporting requirement is separate from the income tax return filing obligation and is completed by filing a Treasury Department Form TD F 90-22.1 (the so-called “FBAR”).6 The FBAR is due for each calendar year on or before June 30 of the following year without an opportunity for extension.7
(ii) securities accounts; (iii) life insurance and annuity policies with a cash value; (iv) mutual funds or similar pooled funds if shares are available to the general public that have a regular net asset value determination or regular redemption; and (v) certain accounts with foreign commodity broker/dealers.9 Notably, the Final FBAR
Regulations presently do not include interests held in hedge funds or private equity funds that are not typically available to the general public as “reportable accounts.”10 As noted above, the FBAR reporting obligation is not limited merely to the financial owner of the (continued on page 12)
On Feb. 24, 2011, FinCEN published final regulations (the “Final FBAR Regulations”), amending and clarifying the FBAR rules.8 The Final FBAR Regulations became effective March 28, 2011, and apply to FBARs required to be filed with respect to foreign financial accounts maintained in calendar year 2010 and all subsequent calendar years. The regulations outline the types of “financial accounts” that are subject to reporting to include the following if maintained in a foreign country: (i) conventional bank accounts; RES GESTÆ • MARCH 2013
REPORTING REQUIREMENTS continued from page 11 account, but also is required with respect to persons that have signature authority with respect to the account. Signature authority is clarified in the Final FBAR Regulations as the ability to control the disposition of funds with respect to an account by direct communication to the person with whom the financial account is maintained.11 Further, a “financial interest” is not limited to direct ownership of an account, but also includes an interest in an account held by a legal entity, such as a corporation, in which the U.S. person owns a greater than 50-percent interest (measured by vote or value).12 Since 2004, both willful and non-willful noncompliance with the FBAR filing requirements may result in substantial penalties pursuant to the penalty regime enacted under the American Jobs Creation Act of 2004 (the “Jobs Act”).13
Under current law, non-willful violations of the FBAR filing requirements can result in penalties of up to $10,000, and willful violations carry a much steeper penalty equal to the greater of $100,000 or 50 percent of the unreported account’s balance.14 Willful noncompliance also may subject the taxpayer to criminal penalties.15 FBAR reporting has received vast amounts of attention during the last several years as businesses, attorneys and accountants generally have become aware of these filing requirements. To “ease” taxpayers toward an understanding of this filing obligation, the Treasury Department has offered a series of voluntary disclosure programs designed to provide delinquent filers with relief from criminal penalties and reduced civil penalties.16 Given the amount of attention the IRS has given the FBAR
in the last eight years, taxpayers with the means to engage tax counsel or professional accountants with international expertise generally are mindful of the FBAR reporting obligations. By contrast, however, many small and medium-sized U.S. businesses just starting to enter foreign markets and individuals with foreign interests are unaware of these obligations, which frequently arise in perfectly innocuous fact patterns. For example, a foreign bank account opened by a U.S. manufacturer in a foreign jurisdiction to provide for local currency customer payments gives rise to a reporting requirement if the account balance exceeds the $10,000 threshold at any time during the calendar year. The obligation exists even if the account does not earn interest and thus does not give rise to the potential for the underreporting of U.S. taxable income. Similarly, the obligation exists even if the account bears interest and such interest is fully reported on the U.S. manufacturer’s income tax return. Another common fact pattern that causes unintended noncompliance for U.S. business owners concerns the reporting obligations of persons with an indirect financial interest in a foreign bank account, but no direct financial interest. For example, assume a U.S. person owns 80 percent of a domestic corporation with a foreign bank account in Canada. Assume further, that the U.S. person is not identified on the signature card associated with the foreign bank account as having signature authority. Because the corporation uses a competent accountant to meet its U.S. tax reporting obligations, the corporation knows that it must annually complete the FBAR and disclose the Canadian account. Though duplicative, the U.S. (continued on page 14)
RES GESTÆ • MARCH 2013
REPORTING REQUIREMENTS continued from page 12 shareholder, as a majority owner, is also deemed to have a financial interest in the account of the domestic corporation and therefore has a separate and independent filing requirement.17 But without the advice of a competent professional, this shareholder is unlikely to satisfy his or her requirement.
with the 2011 return for calendaryear taxpayers), and unlike the FBAR, it must be attached to the filer’s federal income tax return.21 Though highly duplicative of the FBAR requirement, section 6038D may require the reporting of assets not subject to FBAR filings. The FBAR’s reach generally is limited to bank accounts and certain investment accounts with similar elements of liquidity. Financial asset reporting under section 6038D is much broader and also covers stocks, securities, financial instruments or contracts issued by a foreign entity and any other interest in a foreign entity.22 Thus, the new Form 8938 filing requirement does not replace or otherwise affect a taxpayer’s obligation to file Form TD F 90-22.1, and individuals often will find it necessary to file each form even if the reported information is redundant.23
III. Reporting under Section 6038D for individuals A new regime was added to the international tax reporting landscape with the 2010 enactment of section 6038D.18 This new regime requires certain U.S. individuals19 with a threshold amount of “foreign financial assets” to disclose their ownership of such assets to the IRS on Form 8938. Frequently referred to as the “shadow FBAR,” section 6038D reporting generally applies to individuals with greater than $50,000 of foreign financial assets on the last day of the taxable year ($100,000 for married couples filing a joint return).20 The Form 8938 must be filed by U.S. individuals for taxable years beginning after March 18, 2010 (e.g., starting
The section 6038D temporary regulations, however, do offer some relief from duplicative reporting required by other IRS forms. Specifically, assets that are other-
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wise reportable on Form 8938 may be excluded to the extent they have been reported for the same taxable year on Forms 3520 (Annual Return to Report Transactions With Foreign Trusts and Receipt of Certain Foreign Gifts), 5471 (Information Return of U.S. Persons With Respect to Certain Foreign Corporations), and 8621 (Return by a Shareholder of a Passive Foreign Investment Company or Qualified Electing Fund).24 Similar to the penalties imposed for the failure to file an FBAR, a failure to file a complete and correct Form 8938 can result in a $10,000 penalty per occurrence.25 This failure-to-file penalty may increase if the failure is not timely cured after IRS notice.26 In the event the assets that are not reported result in an “attributable” underpayment of tax, the traditional section 6662 penalty of 20 percent of the tax due is doubled to 40 percent.27
IV. Enhanced PFIC reporting obligations New section 1298(f), also passed as part of the 2010 Hire Act, imposes increased tax-reporting obligations on U.S. owners of passive foreign investment companies (“PFICs”). A PFIC generally is a foreign corporation with mostly passive income or predominately passive assets.28 Under the prior PFIC reporting rules, a U.S. person who was a direct or indirect shareholder of a PFIC was only required to file Form 8621 upon: (i) recognition of gain on a direct or indirect disposition of PFIC stock; (ii) receipt of certain direct or indirect distributions from the PFIC; or (iii) the need to make an election on the Form with respect to the PFIC.29 However, new section 1298(f) requires annual PFIC reporting regardless of the presence
of any of the conditions articulated above. As before, PFIC reporting is still done on Form 8621, which must be attached to the shareholder’s tax return. A separate Form 8621 must be filed for each PFIC in which stock is held. This filing requirement is currently suspended pending the release of a revised Form 8621.30
the imposition of a withholding tax even when no underlying tax is otherwise owed under the Code.33 For example, a foreign entity generally is not subject to U.S. income tax on capital gains associated with the sale of stock in a U.S. corporation. However, a payment originating from a U.S. person nevertheless would be subject to a 30-percent
withholding tax if the foreign entity failed to meet the FATCA documentation requirements. Though a detailed discussion of the FATCA provisions is beyond the intended scope of this article, U.S. persons engaging in crossborder transactions should be aware of certain fundamental (continued on page 16)
V. The new ‘core’ FATCA reporting and withholding regime As part of the 2010 Hire Act, Congress enacted a new tax-withholding regime applicable to socalled “withholdable payments” made by U.S. persons to foreign entities. These rules are commonly referred to as the Foreign Account Tax Compliance Act (“FATCA”) provisions and generally apply to payments made by U.S. persons after Dec. 31, 2012.31 Understanding the purpose of the new FATCA provisions aids in an understanding of how the rules will affect U.S. businesses. Unlike the income tax withholding obligations imposed on “U.S. source income” paid to foreign persons under sections 1441-1446, the FATCA provisions are not targeted at the collection of tax owed by the payee. Instead, the FATCA provisions use the threat of withholding to compel foreign entities to identify if they have U.S. account holders or owners that may be using the foreign entity to avoid U.S. taxes.32 Thus, the provisions seek to impose a 30-percent withholding tax on payments made to foreign entities that fail to provide information to the payee (and in some instances directly to the IRS) concerning their U.S. owners or account holders. Because these provisions are intended to have a punitive effect, and therefore compel disclosure of U.S. ownership, they may result in RES GESTÆ • MARCH 2013
REPORTING REQUIREMENTS continued from page 15 aspects of the new law. First, much of the popular press concerning the enactment of FATCA has dealt with the implications of the new rules with respect to “financial institutions.”34 This is because the FATCA rules provide significant burdens on foreign financial institutions before their payments can be exempted from the new withholding requirements. Although rarely mentioned in the popular press, the new rules also apply to foreign entities that are not financial institutions, i.e., non-financial foreign entities (“NFFEs”).35 Thus, a U.S. person making a payment to any foreign entity may have a withholding requirement regardless of whether the recipient is a “financial institution.”36 Second, as noted above, FATCA withholding is broader than traditional withholding applicable to U.S. source fixed or determinable, annual or periodic (“FDAP”) income and includes amounts of gross proceeds from the sale of property that could give rise to dividend or interest income from U.S. sources.37 For example, gain
from the disposition of stock of a U.S. company held by a foreign person is not subject to withholding or tax under the Code; nevertheless, such income may be subject to a 30-percent withholding tax under the FATCA rules. So what do the FATCA provisions mean for a U.S. business that may make payments to foreign entities? Primarily, it means any U.S. person that makes a payment with some indicia of “foreignness” must determine if the FATCA withholding regime applies. In the event the FATCA rules do apply, the U.S. payee generally must convince the foreign recipient to complete documentation necessary to claim the exception to withholding or meet its withholding obligation. The IRS has provided draft revisions to Form W-8BEN that will allow FATCA exemption claims to be made on the same form presently used to claim certain tax treaty benefits and statutory reductions to existing U.S. withholding taxes. In the event a U.S. person makes a payment that should have been subject to withholding under the
FATCA rules but fails to do so, the U.S. person generally will be personally liable for the tax that should have been withheld.38
VI. Conclusion The regimes described above impose reporting obligations on U.S. persons for purposes of information gathering by the IRS. In each instance, material amounts of reporting may be required regardless of whether any income tax is owed. In addition, failure to meet certain of the reporting obligations may result in substantial penalties regardless of whether the failure to comply results in the loss of U.S. tax revenues. Those charged with the U.S. tax reporting function for U.S. businesses must be mindful of these increased obligations and the potentially steep penalties that may be imposed in the event of noncompliance. 1. Unless otherwise stated, all “section” references herein are to the Internal Revenue Code of 1986, as amended (the “Code”), and all “Treas. Reg. §”, “Temp. Reg. §” and “Prop. Reg. §” references are to the final, temporary and proposed regulations promulgated thereunder. 2. Section 6012 requires persons that owe tax to make a return to the IRS and thereby “report” their income. The “assessment” of tax refers to the recordation of a liability of tax on IRS books and records. Thus, it likely is more accurate to describe the U.S. tax system as a “selfreporting” system as opposed to a “self-assessment” system, despite the common use of the phrase. See Bryan T. Camp, “The Failure of the Adversarial Process in the Administrative State,” 84 Ind. L.J. 57, 60 (2009). 3. Section 61.
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RES GESTÆ • MARCH 2013
4. See Currency and Foreign Transactions Reporting Act, Title II of Pub. L. No. 91-508, 84 Stat. 1118. The grant of authority to promulgate regulations with respect to foreign financial account reporting resides in 31 U.S.C. 5314(a). The Financial Crimes Enforcement Network, or “FinCEN,” was initially charged with enforcing the reporting requirements; however, in 2003, with the hope of increasing compliance, FinCEN granted responsibility over enforcement to the IRS. See IRS News Release I.R. 2003-48 (Apr. 10, 2003). The substantive rules are now contained in regulations at 31 C.F.R. §1010.350. 5. 31 C.F.R. §§ 1010.350(a) and (b). 6. 31 C.F.R. §1010.350(a).
(continued on page 18)
The Young Lawyers Section invites you to attend the annual
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REPORTING REQUIREMENTS continued from page 16 7. See Instructions for Form TD F 90-22.1 (2012). Note, the general section 7502(a)(1) mailbox rule does not apply because the FBAR is not a return under the Code; thus, U.S. persons are charged with ensuring receipt of the filing by the June 30 deadline. 8. 76 Fed. Reg. 10,234-01 (Feb. 24, 2011) (codified at 31 C.F.R. §1010 (2011)). 9. 31 C.F.R. §1010.350(c). 10. See the Preamble to the Final FBAR Regulations (76 Fed. Reg. 10,234-01). 11. 31 C.F.R. §1010.350(f). 12. 31 C.F.R. §1010.350(e). This rule also applies where a U.S. person owns a greater than 50percent interest in a partnership. Similar rules apply with respect to interests held by trusts. See 31 C.F.R. §§ 1010.350(e)(iii) and (iv). 13. Pub. L. No. 108-357, §821, 118 Stat. 1418 (2004) (amending 31 U.S.C. §5321). 14. 31 U.S.C. §§ 5321(a)(5)(B)(i) and (a)(5)(C)(i), as amended by the Jobs Act. An exception to the non-willful penalty may be available if the U.S. person’s failure to file the form can be demonstrated to be based on reasonable cause. 15. 31 U.S.C. §5322. 16. Presently, there is an offshore voluntary disclosure program in place (the “2012 OVDP”) that provides some relief from civil penalties for persons that come forward and participate in the program. The 2012 OVDP does not have a fixed termination date.
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17. See 31 C.F.R. §1010.350(e). 18. Section 6038D was enacted as part of the Hiring Incentives to Restore Employment Act (the “Hire Act”), Pub. L. No. 111-147, §511, 124 Stat. 71 (2010). Temporary regulations were issued shortly thereafter. See T.D. 9567, 76 Fed. Reg. 78553-01 (Dec. 19, 2011). 19. Though facially applicable only to individuals, the statute contains a provision that requires reporting by domestic entities if such entity is determined, under regulations, to be formed or availed of for the purpose of circumventing the reporting requirement. See section 6038D(f). Under recently proposed regulations, the breadth of this anti-abuse rule appears to be quite broad. See Prop. Reg. §1.6038D-6(b), 76 Fed. Reg. 78594-01 (Dec. 19, 2011). 20. Temp. Reg. §§ 1.6038D-2T(a)(1) and (2). A special rule increases the threshold to $200,000 ($400,000 for married persons filing a joint return) if the individual is a qualified individual under the rules applicable to the foreign earned income exclusion of section 911(d)(1). Further, to prevent year-end manipulation of the amount of assets held, each limitation amount set forth in the Temporary Regulations contains a slightly higher threshold that, if breached any time during the year, requires reporting regardless of the year-end amount. 21. Temp. Reg. §1.6038D-2T(a)(1). 22. See Temp. Reg. §§ 1.6038D-3T(a) and (b).
23. The Preamble to section 6038D temporary regulations provides that “reporting of Form 8938 and the FBAR is not duplicative and both forms must be filed, if required.” 76 Fed. Reg. 78553-01, 78559 (Dec. 19, 2011). 24. Temp. Reg. §1.6038D-7T(a)(1)(i). 25. Section 6038D(d)(1). There is a reasonable cause exception that may apply. See section 6038D(g). 26. Temp. Reg. §1.6038D-8T(c). 27. Section 6662(j). By including a new penalty category, Congress has made the new 40-percent understatement penalty applicable regardless of the amount of the understatement or the determination of taxpayer negligence. Cf. sections 6662(b)(1) and (2). The section 6664(c) reasonable cause exception may be available. Additionally, a failure to meet the section 6038D reporting requirement (as well as the section 1298(f) reporting requirement described below) may result in the taxpayer’s entire tax return remaining open to assessment. See section 6501(c)(8). 28. Section 1297(a). The statute provides a mechanical test for determining whether a foreign corporation has an impermissible threshold of passive gross income or passive assets in a particular year. Given the manner in which the test may be applied in years of relatively modest gross income, some U.S. shareholders are surprised to realize that they own an interest in a PFIC, the main consequence of which is increased taxation of dividends and gains
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upon disposition of the PFIC stock. We note that relief from the increased taxes under the PFIC rules may be available for: (i) persons that elect to tax the PFIC’s earnings on a passthrough basis pursuant to a qualifying electing fund (“QEF”) election under section 1295; and (ii) persons that qualify as section 951(b) “U.S. Shareholders” with respect to a PFIC that also qualifies as a controlled foreign corporation within the meaning of section 957(a). 29. Annual reporting was (and remains) required in the event a shareholder had made a section 1295 QEF election. 30. Notice 2011-55, 2011-29 I.R.B. 53, suspended the section 1298(f) reporting requirement for tax years beginning after March 18, 2010, for PFIC shareholders that are not otherwise required to file Form 8621 under the old rules. The suspension of the section 1298(f) reporting requirement will remain in effect pending the release of a revised Form 8621, modified to reflect the requirements of section 1298(f), as set forth in guidance to be included in future regulations. Once the suspension is lifted, the Notice provides that any Form 8621 for a previously filed 2011 return will need to be included with the taxpayer’s 2012 federal income tax return. 31. Technically, the enactments of sections 6038D and 1298(f) are both part of the Foreign Account Tax Compliance Act provisions contained within the Hire Act. Colloquially, however, “FATCA” has come to stand for the portion of the Hire Act dealing with the new withholding regime enacted as sections 1471 through 1474.
37. Section 1473(1); see also Prop. Reg. §1.14731(a), 77 Fed. Reg. 9022 (Feb. 15, 2012). On July 14, 2011, the IRS issued Notice 2011-53, 2011-32 IRB 124, which provides a timeline for foreign financial institutions and U.S. withholding agents to implement the various provisions of FATCA and generally delays withholding obligations with respect to FDAP income until taxable years beginning on or after Jan. 1, 2014 and with respect to other withholdable payments until taxable years beginning after Jan. 1, 2015.
Todd C. Lady is a partner in the Indianapolis office of Taft Stettinius & Hollister LLP and heads the firm’s international tax group. Tiffany D. Presley is an associate in the Indianapolis office of Taft Stettinius & Hollister and concentrates her practice on international taxation.
38. Section 1474(a); see also Prop. Reg. §1.1474-1 (a)(2), 77 Fed. Reg. 9022 (Feb. 15, 2012).
HE BANK OF CHOICE
32. 156 Cong. Rec. S1745 (Mar. 18, 2010). 33. In certain instances, a refund of the withheld amounts may be available. See Prop. Reg. §1.1473-1(a), 77 Fed. Reg. 9022 (Feb. 15, 2012). 34. Withholding on payments to foreign financial institutions generally will be imposed under section 1471 unless the foreign financial institution meets the reporting requirements imposed under section 1471(b). A “foreign financial institution” generally is defined as a foreign entity engaged in a banking business, holds financial assets on account of others, or is engaged primarily in the business of investing, reinvesting or trading in securities, partnership interests, or commodities. See section 1471(d)(5). 35. Section 1472 imposes a withholding tax obligation on U.S. persons that make reportable payments to non-financial foreign entities if the foreign entity fails to meet the certification requirements of section 1472(b) or is not otherwise exempt from withholding under section 1472(c) (e.g., based on its status as a foreign government or publicly traded corporation). 36. There is scant public discourse concerning the application of the FATCA rules with respect to payments made to non-financial foreign entities despite the breadth of the law’s applicability to such entities. In practice, the authors have found that the focus of the popular and scholarly press on the implications of the FATCA rules to financial institutions has operated to create a belief among U.S. taxpayers that the FATCA rules apply only to financial businesses. Nothing could be further from the truth.
©2013 The National Bank of Indianapolis
RES GESTÆ • MARCH 2013
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Affiliate Membership Hon. Edward W. Najam Jr. email@example.com American Citizenship Philip J. Ripani, Indianapolis firstname.lastname@example.org Timothy W. Woods, South Bend email@example.com Articles & Bylaws Marisol Sanchez, Greenwood Marisol.Sanchez@us.endress.com Attorney Fee Dispute Resolution Stephen R. Place, Merrillville firstname.lastname@example.org Attorney Specialization Brian K. Carroll, Evansville email@example.com Audit James M. Gutting, Indianapolis firstname.lastname@example.org Aviation Law Kelvin L. Roots, Terre Haute email@example.com Budget & Finance Amy K. Noe, Richmond firstname.lastname@example.org Casemaker Improvement Prof. Sara Anne Hook, Indianapolis email@example.com Civil Rights of Children Hon. Deborah J. Shook, Indianapolis firstname.lastname@example.org CLE John R. Maley, Indianapolis email@example.com Clients’ Financial Assistance Fund Dustin R. DeNeal, Indianapolis dustin.deneal@Faegrebd.com Courthouse Art Douglas D. Church, Fishers firstname.lastname@example.org Diversity Sharon F. Murphy, Indianapolis email@example.com Federal Judiciary Hon. Tanya Walton Pratt, Indianapolis firstname.lastname@example.org 20
RES GESTÆ • MARCH 2013
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RES GESTÆ • MARCH 2013
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By Donald R. Lundberg
Moral dissonance in the practice of law Prologue
was flattered to be asked to speak to the participants in the I.U. McKinney School of Law’s National Professional Responsibility Moot Court Competition on March 15. It is in its second year and is the only national moot court competition with a focus on professional responsibility. There are any number of technical topics that could be the theme of such a speech. I chose, instead, to talk about lawyers. After all, the entire field of legal ethics is about how lawyers balance and reconcile competing demands on them from clients, courts, opposing parties, third parties and others. Think of this column as a rough draft of the speech that will have been presented in final form by the time it appears in print. I have written about similar topics before and apologize to readers who have grown tired of the subject.
Introduction One common conception of the role of the lawyer is that of an amoral client agent. That is, a lawyer acts in service of the client’s needs and interests and subverts his own worldview as a moral actor to the client’s. Lord Brougham is famously quoted as saying: [A]n advocate, in the discharge of his duty, knows but one person in all the world, and that person is his client. To save that client by all means and expedients, and at all hazard and costs to other persons, and, amongst them, to himself, is his first and only duty; and in performing this duty he must not regard the alarm, the torments, the destruction which he Donald R. Lundberg may bring upon others. Barnes & Thornburg LLP 2 Trial of Queen Indianapolis, Ind. Caroline 8 (London, donald.lundberg@BTLaw.com
RES GESTÆ • MARCH 2013
J. Robins & Co., Albion Press, 1820-21). As a modern construct, this overstates the case, of course. We are directed by the Rules of Professional Conduct in many instances to curb our zeal for clients in favor of duties to others. That may be easy to say, but any lawyer who has been faced with a difficult ethical dilemma will admit that de-prioritizing client interests in favor of others is daunting work. As regards our own interests as independent moral actors, fortunately those interests usually align with our client’s. Occasionally, they conflict, which is distressing. That is the topic of this column.
Moral dissonance No lawyer can credibly say he has never had a fundamental disagreement with a client over the basic morality of the client’s cause. I call this friction between lawyer and client perspectives “moral dissonance.” Moral dissonance is not something to be taken lightly. We can tolerate a certain amount of it in our professional lives, but too much of a disconnect between our personal values and the values we promote as client advocates leads to profound unhappiness or cynicism. Part of the hard work of lawyering is to develop mechanisms to cope with the moral dissonance we inevitably experience. We do so by turning down clients or withdrawing from certain legal representations. We find other ways to bridge the gap between our own values and those of our clients by, for example, seizing on other important, but more abstract, reasons why our work is worthwhile – such as, perhaps, in the case of criminal defense lawyers, it protects individuals from the dangers of unchecked power of the State.
Differing values as a conflict of interest Sometimes moral dissonance has implications for our duties under the Rules of Professional Conduct. Rule 1.7 tells us that we must decline to represent clients if there is a significant risk that our own interests will materially limit our representation of clients. Does this mean that lawyers are faced with a binary choice to represent clients in complete disregard of our own moral sensibilities or to not represent them at all? In certain cases, yes, but the Rules of Professional Conduct leave room for lawyers to bring their own moral values into play in representing clients – a topic I would like to discuss. Lawyers do not have to be moral eunuchs.
Lawyer as ethical provocateur A rarely considered Rule of Professional Conduct is Rule 2.1, which describes the role of the lawyer as client advisor. It states: In representing a client, a lawyer shall exercise independent professional judgment and render candid advice. In rendering advice, a lawyer may refer not only to law but to other considerations such as moral, economic, social and political factors, that may be relevant to the client’s situation.
Lawyers are not permitted to use their own moral sensibilities to trump client instructions that are legal and do not violate the Rules of Professional Conduct. That would be a conflict of interest. But lawyers are encouraged by the rules to engage in moral dialogue with clients to assist them in thinking through the choices to be made during a legal representation. That said, this is something that lawyers must approach with great humility. Lawyers who arrogantly believe they have a corner on the morality market are more dangerous to clients than lawyers who
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shy away from bringing moral and other non-legal considerations into play in counseling their clients.
in making the many decisions presented during the course of a legal representation.
Moral repugnance and terminating representation
Receiving an inadvertently sent document
There are other points at which the Rules of Professional Conduct explicitly give lawyers room to exercise moral decision-making. One of them is whether to continue representing a client. Rule of Professional Conduct 1.16 discusses when a lawyer must or may terminate a client representation. If the client’s instructions are ones that the lawyer cannot carry out for moral (but not legal or rule-based) reasons, the lawyer has a materiallimitation conflict of interest under Rule 1.7(a)(2) and must terminate the representation.
I am referring to Rule 4.4(b), which discusses a lawyer’s receipt of an inadvertently sent document. The rule states that upon receipt the lawyer “shall promptly notify the sender.” It doesn’t say what else the receiving lawyer is to do or refrain from doing because those duties are governed by other law (if at all), not the Rules of Professional Conduct. Prominently, one unaddressed question is whether the receiving lawyer should destroy or return the inadvertently sent document unread. Comment  to Rule 4.4 states: “Some lawyers may
Even if a lawyer is not required to terminate the representation, he is permitted to do so, even if doing so has a material adverse effect on the client’s interests, if the “client insists upon taking action that the lawyer considers repugnant or with which the lawyer has a fundamental disagreement.” Rule 1.16(b)(4). And if terminating the representation will not have an adverse effect on the client’s interests, the lawyer may terminate a client representation for any reason, including moral concerns that fall short of repugnance. Rule 1.6(b)(1). The lawyer who chooses to continue representing a client willingly accepts the role as the client’s champion, in the words of Lord Brougham, “at all hazard and costs to … himself” – mostly. I say “mostly” because there is a seeming exception in a comment to a Rule of Professional Conduct that appears at first blush to allow the lawyer’s own sense of right and wrong to trump the client’s. This exception is worth exploring in some detail because it highlights the lawyer’s versus the client’s role
choose to return a document unread. … Where a lawyer is not required by applicable law to do so, the decision to voluntarily return such a document is a matter of professional judgment ordinarily reserved to the lawyer. See Rules 1.2 and 1.4.” The citations to Rules 1.2 and 1.4 are a bit puzzling. Rule 1.2 – primarily subpart (a) – deals with the allocation of authority between lawyer and client. Rule 1.2(a) allocates to the lawyer the authority to decide, in consultation with the client, the means by which the client’s objectives are to be pursued. It cites Rule 1.4, which similarly requires in subpart (a)(2) that the lawyer consult with the client about (continued on page 25)
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Indiana State Bar Association Young Lawyers Section
Golf Scramble Saturday, May 18, 2013 Shotgun start at Noon
Ironwood Golf Club
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Golf Registration $85 - ISBA Member (or $75 for YLS members admitted to practice less than 3 years) | $90 - Non-ISBA Member Cost includes green fee, cart, driving range, lunch & dinner.
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Return completed registration form to: Fax 317-266-2588, Attn: Sherry Allan, or email, firstname.lastname@example.org. For more information, please call the ISBA at 317-639-5465.
RG 03.13_RG 09.05 3/6/13 9:58 AM Page 26
ETHICS CURBSTONE continued from page 25 the client’s objectives. It is merely that Comment  to Rule 4.4 invites a careful examination of the allocation of authority over the means and objectives of client representations. Consultation with the client on any means-related matter always creates a risk that the lawyer and the client will be at odds. Part of a well-managed lawyer-client relationship is for the lawyer to be an effective communicator and educator, including appropriate use of moral suasion, to get the client to accept the lawyer’s approach. Sometimes, notwithstanding the lawyer’s best efforts, the lawyer and the client cannot see eye-to-eye on how the client’s matter is to be handled. It is untenable for the lawyer to defy the client’s expectations. The lawyer is left to choose between acquiescing in the client’s preferred approach or terminating the representation.
Room for moral choice As mentioned, a lawyer’s personal moral values can be brought to bear in engaging in a moral dialogue with a client, but they cannot be allowed to trump client decision-making. Lawyers are not thereby left without room to engage in moral decision-making in the practice of law. For example, every time a lawyer agrees to represent a client he makes a choice to do something he is not required to do. American lawyers, unlike their British barrister counterparts who provide legal services under the cab rank rule (next person in line gets the lawyer), are broadly free to accept or reject clients for almost any reason. (Although we cannot do so for reasons exhibiting bias or prejudice based upon certain factors specified in Rule of Professional Conduct 8.4(g)). It is inescapable then that we are morally accountable to ourselves
for all choices we are free to make, including whom to serve as our clients. But there are other choices that have a moral dimension and that come into play long before we get to the question of client choice. For example, in what setting will we practice law? What kind of law will we practice, what type of clients will we represent, and what other lawyers will we join with to practice law? Let me reemphasize that there is no objectively right or wrong choice to be made in this regard. This is about the dissonance between personal moral values and the practice of law. A law practice setting that is an existential nightmare for one lawyer might be perfectly acceptable to another.
Core professional values There is, in fact, a moral choice presented in the very decision to become a lawyer – although I suspect that few law students are attuned to it even after their course in professional responsibility. To become a lawyer is to agree to follow the law and the Rules of Professional Conduct. Most of us would give little thought to the significance of that agreement. But the Rules of Professional Conduct impose a hierarchy of moral and ethical values that not all lawyers would readily reach on their own. Take the not-so-simple example of client confidentiality. As lawyers we are duty bound to protect client confidences, in the words of Indiana’s oath of attorneys, “at every peril to myself.” Rule of Professional Conduct 1.6(b) creates certain exceptions for keeping client information confidential, but they arise only in unusual situations. For the most part, our clients’ information must go to the grave with us. Such a profound commitment to client confidentiality could
RES GESTÆ • MARCH 2013
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easily run counter to what we think is important in life in certain circumstances. The general rule on keeping client information confidential governs us as lawyers. We do not have the freedom to pick and choose when it doesn’t because it conflicts with our personal moral sensibilities. This is just one example of how the Rules of Professional Conduct are laden with moral content. When we sign on to be lawyers, we accept those moral values as governing our professional lives. If we’re not up to the task, it might be better to find another line of work.
Conclusion Becoming a lawyer is itself a choice that has moral content – just as becoming a physician or engineer is an acceptance of the core values of those professions. We often don’t think about it at the time, but the possibility for dissonance between who we are as persons and what we are called upon to be as professionals quickly becomes apparent. By choosing to become lawyers, we accept a role that is largely, but not exclusively, that of an amoral agent for our clients. We can respond by embracing that amoral role and learning to switch off our personal values when we enter our real or virtual law offices. I believe that a total disconnect between who we are and what we do will eventually emerge in unhealthy ways. It is far better to be thoughtful about the interplay between our authentic selves and our professional obligations and to look for the many opportunities to integrate the two.
Courthouse Art Project ith the addition of a painting of the Boone County Courthouse, the Courthouse Art Project has reached 32 paintings, according to Douglas D. Church, past ISBA president and the originator of the project. “Thanks to the efforts of Justice Steven David, the Boone County Bar Association has contributed a marvelous watercolor depicting one of Indiana’s most beautiful courthouses painted by Indiana artist Jeff Ashcraft.” The donation occurred at the offices of the ISBA, and the painting was quickly hung for display. As a part of the recent remodeling of the ISBA office, a hanging system has been installed so that the entire courthouse art collection can be displayed. “Any visitor to the ISBA offices should take a few minutes to examine this very eclectic collection,” said Church. “It is truly unique, and the variety of styles and media is what makes it so interesting.” The collection can be viewed online at www.facebook.com/ indianastatebar. Church has continued to encourage county bar associations to join the collection. “There are lots of ways that a local bar can join this project, and I am happy to discuss the possibilities,” said Church. He can be reached at DChurch@cchalaw.com.
RES GESTÆ • MARCH 2013
By Mark S. Zuckerberg and Amanda K. Quick
Property of the bankruptcy estate
he filing of a bankruptcy case creates an estate made up of the debtor’s property. Virtually all of the property of the debtor at that time becomes property of the estate. While this fundamental concept of bankruptcy law seems straightforward, property of the estate is not always easily defined. There are also significant differences as to what constitutes property of the estate in Chapter 7 and Chapter 13 bankruptcy.
Property of the estate in Chapter 7 Bankruptcy Code §541 defines property of the estate as all legal or equitable interests of a debtor in property as of the date a bankruptcy is filed. The Seventh Circuit has adopted an expansive definition of property of the estate. The term “property” has been generously construed, and an interest in property is not outside the estate’s reach because it is novel or contingent.1 Every conceivable interest of the debtor falls within this definition, including future, nonpossessory, continMark S. Zuckerberg gent, speculative and Bankruptcy Law Office of derivative interests.2 Mark S. Zuckerberg, P.C. Illustrative of the Indianapolis, Ind. broad definition of Debtnomo@aol.com property of the estate is the 2009 decision by the Bankruptcy Court for the Southern District of Indiana in the case, In re Petitt.3 Prior to filing his bankruptcy petition, the debtor’s former employer, Visteon Systems, LLC, entered Amanda Koziura Quick into a plant closure Quick Bankruptcy, P.C. agreement with its Indianapolis, Ind. senior employees to email@example.com pay a separation bonus 28
RES GESTÆ • MARCH 2013
if they signed a waiver and release. The debtor filed his Chapter 7 bankruptcy petition, and thereafter Visteon closed its plant in Connersville. Shortly after its closure, the debtor executed a waiver and release in accordance with the agreement and received a bonus of $12,843. The Chapter 7 trustee filed a motion to recover the bonus as nonexempt property of the debtor’s bankruptcy estate. The debtor objected, arguing the bonus was not property of the estate or alternatively that it was protected by 11 U.S.C. §522(b) and Indiana’s wage garnishment statute. The court disagreed with the debtor’s arguments and found the bonus was in fact property of the estate. The court conceded that payment of the bonus under the agreement was contingent on the debtor’s employment at the plant until its closure and the execution of the waiver and release. However, it found those contingencies did not preclude the bonus from being included in property of the estate. In support of its decision, the court cited the Seventh Circuit case Matter of Yonikus, 996 F.2d 866 (7th Cir. 1993), in which the expansive definition of property of the estate is discussed in detail. The court also held that the bonus was not exempt and ordered the debtor to turn it over to his Chapter 7 trustee. The definition of property of the estate also includes a Chapter 7 debtor’s right to file a claim or lawsuit and recover damages. This includes medical malpractice lawsuits, personal injury claims, breach of contract actions and employment discrimination claims. In this situation, the Chapter 7 debtor’s lawsuit or right to file a claim becomes property of the bankruptcy estate. This is an issue that must be addressed prior to filing, as in
many cases a debtor’s potential loss of the right to proceed with a lawsuit may make Chapter 13 more advisable. Property of the estate is not always limited to assets of the Chapter 7 debtor as of the date the case is filed. The Bankruptcy Code provides several exceptions in which property of the estate includes property acquired by the debtor or in which the debtor becomes entitled to acquire within 180 days of the filing of a bankruptcy case.4 This includes any inheritance, bequest or devise. It also includes property settlements resulting from a divorce and life insurance proceeds. As evidenced by the Southern District of Indiana bankruptcy case In re Klipsch,5 it is not always clear whether certain inherited items are actually included in the bankruptcy estate. In Klipsch, the debtor inherited an IRA from his father prior to filing his Chapter 7 case. His distributive share of the IRA totaled $56,137, which the debtor claimed as fully exempt under the Indiana Code as a retirement account. The panel trustee appointed to the case objected to the exemption, arguing the inherited IRA was part of the bankruptcy estate and not exempt. The bankruptcy court determined the account constituted an inherited IRA under the Internal Revenue Code. The rollover of an inherited IRA destroys the account’s status as a traditional IRA and its characterization as a retirement plan under both the Internal Revenue Code and the Indiana Code. Inherited IRAs cannot be rolled over, and they are to be treated as income without regard to retirement needs. For these reasons, the bankruptcy court sustained the trustee’s objection to the debtor’s claim of (continued on page 30)
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BANKRUPTCY continued from page 28 exemption in the inherited IRA. An inherited IRA is a non-exempt asset of a debtor’s bankruptcy estate under Indiana law. The court opined the public policy considerations that support protection of a debtor’s retirement accounts do not extend to inheritances. Despite the broad definition of property of the estate, in reality most Chapter 7 debtors are able to keep most or all of their property. Some of the debtor’s property is excluded from property of the estate by virtue of the Bankruptcy Code. For example, certain contributions to I.R.C. §529 college savings plan are excluded from property of the bankruptcy estate, as well as spendthrift trusts.6 Debtors are also able to protect much of their property in Chapter 7 bankruptcy by claiming proper exemptions.
Property of the estate in Chapter 13 Unlike a Chapter 7 liquidation bankruptcy, Chapter 13 is the financial reorganization chapter of the Bankruptcy Code. Since
Chapter 13 cases span a time period of three to five years, Congress enacted an additional provision in the Bankruptcy Code to govern property of the estate in Chapter 13 bankruptcies. Property of the estate in Chapter 13 includes everything listed in Bankruptcy Code §541 as well as Bankruptcy Code §1306. Section 1306 provides that all property and earnings from services acquired after the filing of the case are included in the definition of property of the estate until the case is closed, dismissed or converted.7 Under the Bankruptcy Code, a Chapter 13 debtor retains possession of property of the estate.8 This grants a Chapter 13 debtorin-possession concurrent standing with the bankruptcy trustee to pursue items such as claims and lawsuits on behalf of the estate.9 A debtor in Chapter 13 cannot bring a claim for his or her personal benefit. A claim must be brought on behalf of and for the benefit of the bankruptcy estate.10
the operation of Bankruptcy Code §1306 and the ongoing obligation of debtors to report additional assets of the estate while a Chapter 13 case is pending. The debtor in Cowling v. Rolls Royce Corp., (S.D. Ind. Oct. 5, 2012), filed an employment discrimination lawsuit against his employer, Rolls Royce, while his Chapter 13 bankruptcy was pending. Despite several amendments to the debtor’s schedules and Chapter 13 plan over the years, he did not make an amendment to report the potential lawsuit. Rolls Royce filed a motion to dismiss the lawsuit.
A recent decision by Judge Magnus-Stinson in the Southern District of Indiana sheds light on
The court found the debtor failed to satisfy his ongoing duty to disclose potential or actual legal claims while his Chapter 13 case was pending. Since he did not disclose the employment discrimination lawsuit in his bankruptcy case, he lacked standing to file the lawsuit against Rolls Royce. As such, Judge Magnus-Stinson granted Rolls Royce’s motion to dismiss.
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RES GESTÆ • MARCH 2013
At the outset, the court determined the debtor’s claim was property of his bankruptcy estate. Bankruptcy Code §1306(a)(1) includes causes of action that the debtor acquires while the bankruptcy is pending. The court also found the debtor had a continuing duty to update his bankruptcy petition and related documents to list accurate information regarding property of the estate.11
The issue in Cowling is relatively common among Chapter 13 debtors, as debtors often do not realize their ongoing obligation to report newly acquired property of the estate to the bankruptcy court. A similar issue was presented in the case Tucker v. Closure Syst. Int’l, No. 10-cv-1476 (S.D. Ind. Sept. 27, 2011). Tucker also involved a Chapter 13 debtor who filed an employment discrimination lawsuit against her former employer. It was undisputed that the cause of action
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existed at the time her bankruptcy was filed, making it an asset of her estate. The debtor failed to list it on her bankruptcy schedules, however, and the defendant sought to dismiss the suit for a lack of standing. Unlike the debtor in Cowling, the debtor in this case filed amended bankruptcy schedules to add the lawsuit. The bankruptcy court also appointed her counsel to pursue the suit on behalf of her bankruptcy estate. For these reasons, the court found that the debtor was no longer pursuing the action for her own personal benefit, but instead on behalf of the bankruptcy estate. Accordingly, the defendant’s motion to dismiss was denied. These cases demonstrate that property of a bankruptcy estate can be a complex concept in a variety of situations. The expansive definition includes virtually all of a debtor’s property the date a case is filed, and often includes property acquired after the filing of a case. Debtors also have an ongoing obligation to disclose assets of the bankruptcy estate to the court. A failure to disclose property of the estate can affect issues such as standing to bring a lawsuit – but more importantly, it may place a debtor’s discharge in jeopardy.
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1. Matter of Yonikus, 996 F.2d 866 (7th Cir. 1993) (citing Segal v. Rochelle, 382 U.S. 375, 379 (1966) (bankruptcy estate includes right to refund)). 2. Id. at 869 (citation omitted). 3. In re Petitt, No. 07-07569 (Bankr. S.D. Ind. Apr. 14, 2009) (Coachys, J.). 4. See 11 U.S.C. §541(a)(5) (West 2013). 5. In re Klipsch, No. 09-71922, (Bankr. S.D. Ind. June 7, 2010) (Lorch, J.). 6. 11 U.S.C. §§ 541(b)(6), (c)(2) (West 2013). 7. 11 U.S.C. §1306(a) (West 2013). 8. 11 U.S.C. §1306(b) (West 2013). 9. Calvin v. Potter, 2009 U.S. Dist. LEXIS 73862, *7 (N.D. Ill. Apr. 25, 2007). 10. See Cable v. Ivy Tech State College, 200 F.3d 467, 473-74 (7th Cir. 1999). 11. See Rainey v. UPS, 2012 U.S. App. LEXIS 5003, *4 (7th Cir. 2012) (“Debtors have a continuing duty to schedule newly acquired assets while the bankruptcy case is open”).
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By Jon Laramore and Daniel E. Pulliam
Appellate civil case law update
RECENT DECISIONS 12/12
he Indiana Supreme Court in December issued opinions in six civil cases, all of which are summarized below, and one criminal matter. The Supreme Court also granted transfer in one civil matter. The Indiana Court of Appeals issued a total of 81 opinions in civil matters, including 53 unpublished opinions. Some of the Court of Appeals’ published opinions are summarized below. Full text of all Indiana appellate court decisions rendered during December, including those issued not-for-publication, are available via Casemaker at www.inbar.org or on the Indiana Courts website, www.in.gov/judiciary/opinions.
INDIANA SUPREME COURT In four cases, Supreme Court clarifies prejudgment interest statute
Jon Laramore Faegre Baker Daniels LLP Indianapolis, Ind. jon.laramore@FaegreBD.com
Daniel E. Pulliam Faegre Baker Daniels LLP Indianapolis, Ind. daniel.pulliam@FaegreBD.com
The Indiana Supreme Court issued four unanimous opinions at the end of 2012, addressing Indiana’s Tort Prejudgment Interest Statute (“TPIS”). These cases illustrate that decisions on how and when to offer to settle a case, even before the filing of a complaint, may have significant financial consequences at the end of litigation. TPIS deems a plaintiff eligible to receive prejudgment interest on a judgment if the plaintiff, within one year of filing a tort suit, makes a written offer to settle for an amount less than one and one-third times the judgment
RES GESTÆ • MARCH 2013
ultimately awarded. Another provision empowers a defendant to avoid paying prejudgment interest by making, within nine months of the claim’s filing, a written offer to settle for an amount at least twothirds of the judgment award. The following quartet of cases addresses issues arising out of this statutory framework. In Inman v. State Farm Mutual Automobile Insurance Co., 981 N.E.2d 1202 (Dec. 12) (Dickson, C.J.), the Court held that TPIS applies to underinsured motorist coverage disputes because they are appropriately deemed “civil actions arising out of tortious conduct” under TPIS’s applicability provision. The Court disagreed with State Farm’s contention that TPIS does not apply to underinsured motorist actions because they derive from contracts between insurers and insureds; TPIS declares that it “applies to any civil action arising out of tortious conduct.” This broad classification, the Court reasoned, describes the scope of the statute rather than limiting the statute’s scope to specific causes of action. The phrase “arising out of tortious conduct” indicated an intent to reach a wider array of civil actions involving tortious conduct. And an underinsured motorist action is a “prototypical example” of such actions arising out of tortious conduct: a refusal to pay damages resulting from an automobile collision. The Court disapproved of three Indiana Court of Appeals opinions to the extent the decisions held otherwise. The Court also held that prejudgment interest qualifies as a collateral litigation expense that courts may award in excess of an underinsured motorist policy’s limits. The Court previously held that interest and costs are “collateral financial obligations associated with litigation generally” and thus outside
the limits imposed by the Medical Malpractice Act. The Court rejected State Farm’s contention that medical malpractice liability limits are different because a statute imposes the medical liability caps while a contract imposes the policy limits. The Court reasoned that prejudgment interest is a collateral litigation expense because the trial court imposes it “as a penalty for the defendant’s failure to conduct litigation consistent with the legislatively ordained policy of expediency” and TPIS’s primary goal of achieving amicable settlement and conserving resources by encouraging prompt dispute resolution via negotiation. The Court also rejected the argument that an insurer’s obligation to deal in good faith adequately serves the goals of TPIS because of the difficulty of proving bad faith claims. Instead, the legislature preferred TPIS’s bright-line approach in seeking to accomplish these policy objectives. Inman argued that because she undisputedly made a settlement offer in compliance with TPIS, she was entitled to prejudgment interest. But the Court emphasized that TPIS does not require trial courts to award prejudgment interest. Instead, the statute’s plain language commits such awards “solely to the discretion of the trial court once the statutory prerequisites are satisfied.” Although the trial court did not articulate a rationale for denying prejudgment interest, the Court found that there was no basis to conclude that the trial court abused its discretion. Absent an indication that the trial court predicated its denial on a belief that TPIS did not apply to underinsured motorist claims or that prejudgment interest could not be awarded in excess of the policy limits, the Court assumed the trial court properly exercised its discretion.
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In Kosarko v. Padula, 979 N.E.2d 144 (Dec. 12) (Dickson, C.J.), the Court held that TPIS, where it applies, abrogates and supplants common law prejudgment interest rules. Before the enactment of TPIS, prejudgment interest’s availability and methods of computation in Indiana evolved into the “Roper standard,” under which a trial court could award prejudgment interest only where damages are complete and ascertainable at a particular time and manner. When, for instance, damages are the peculiar province of the jury, damages are not readily determinable before the jury’s verdict. The Indiana General Assembly’s adoption of TPIS in 1988, the Court held, abrogated this common law rule even though the statute’s plain language did not reference it. Instead, the statute’s comprehensive nature and its codification of two other common law rules (authorizing trial courts to award prejudgment interest as part of the judgment and exempting punitive damages from prejudgment interest) convinced the Court that the General Assembly intended TPIS “to be the exclusive source governing the award of prejudgment interest in cases falling within its ambit.” The Court also referenced the statute’s establishment of preconditions for a prejudgment interest award, its specification of the types of actions to which the statute applies and its limitation on the time and rate of an award as unmistakably implying a legislative intent to replace the common law. Given that courts could implement TPIS without reference to the common law, the Court rejected the argument that TPIS was merely supplemental. Because the trial court based its rejection of the plaintiff’s request for prejudgment interest on the abrogated common law
standard, the Court reversed and remanded the case for the trial court to exercise its discretion under the statute. Regarding the timing of settlement offers, in Wisner v. Laney, __ N.E.2d __, 2012 WL 6189048 (Dec. 12) (David, J.), the Court held that a written offer of settlement made before the filing of a complaint is timely to trigger operation of TPIS. The statute applies to plaintiffs who make a written offer of settlement within one year after filing the claim. The Court reasoned that TPIS did not provide a starting line; rather, the statute simply provides a deadline – within one year after filing a suit – for making the settlement offer. The Court noted that interpreting the statute otherwise would discourage settlements before a lawsuit’s filing. Other sections of the law supported this interpretation. One, addressing when prejudgment interest begins to accrue, see Ind. Code §34-51-4-8(a), allows prejudgment interest to accrue after formation of a medical review panel regardless of the date of the complaint’s filing.
The Court also examined the letter’s contents to determine whether it included the mandated 60-day payment period to accept the offer. The letter’s offer to “resolve this matter at this time” complied with a prior case’s recognition that offers to settle “now” satisfied the requirement to offer settlement within 60 days. Crucial to the finding was the offer’s inclusion of time-limiting language, but the Court emphasized that a lawyer’s better practice involves expressly invoking the statute and citing the 60-day settlement window and the potential for prejudgment interest. But the Court then found that even though the settlement letter came within 60 days of the lawsuit’s filing, it was still untimely because it came several years after the filing of an initial lawsuit that was dismissed without prejudice. Even though the plaintiff filed “virtually the same complaint” against the same defendants, the Court held that plaintiff’s counsel should have sent a new settlement letter after (continued on page 34)
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RECENT DECISIONS 12/12 continued from page 33 the first lawsuit’s dismissal either before the second lawsuit’s filing or within a year after filing the second lawsuit. In the same vein of Wisner, the Court held in Alsheik v. Guerrero, 979 N.E.2d 151 (Dec. 12) (David, J.), that a letter from Guerrero’s counsel to Alsheik’s counsel advising of a settlement offer, with timelimiting language, satisfied TPIS’s requirements. The settlement letter’s time-limiting language, “You are hereby advised that said offer shall remain open for 15 days from the date of this letter and thereafter, will be withdrawn and not reinstated ...,” met the statute’s minimum requirements. The Court emphasized, as it did in Wisner, that although not necessary, the better practice involves explicitly invoking the statute. The Court also found that counsel sent the settlement letter in a timely manner. Similar to Wisner,
Guerrero filed an initial lawsuit that was voluntarily dismissed. After the lawsuit’s dismissal, Guerrero sent the settlement letter. Because the settlement letter was sent after the dismissal of the first lawsuit, but before Guerrero filed the second lawsuit, and thus within one year of filing the first lawsuit under the principles enunciated in Wisner, the Court held that Guerrero’s offer was made within one year of the claim’s filing.
Attorney misconduct receives Court’s disapproval Wisner also addressed whether a trial judge erred in denying defendants’ motion for a new trial based on the cumulative effect of unprofessional conduct by plaintiff’s counsel during a jury trial that returned a $1.75 million verdict for the plaintiff. The Court described the trial as “hotly contested” due to the disputed facts and number of objections. The trial judge found plaintiff’s counsel in contempt of court, and defendants maintained this action was insufficient to remedy the prejudice caused by the conduct. Plaintiff’s counsel asked several objectionable questions on multiple days of the trial and pursued objectionable lines of questioning even after the trial judge found the testimony irrelevant in a sidebar conference. The trial judge instructed in yet another sidebar that the prohibited area of questioning should never again be addressed, but plaintiff’s counsel once again pursued the prohibited testimony. The trial judge ultimately threatened to fine plaintiff’s counsel $500. Yet the trial judge admonished counsel for both sides at least five times, and there were at least 10 instances of questionable behavior by each attorney. Near the trial’s end, the trial judge directed plaintiff’s counsel to apologize to the jury for his personal
RES GESTÆ • MARCH 2013
comments about the defendants’ counsel. The Court remarked that a “jury trial is not a free-for-all. It is a civil forum in which advocates represent their clients before a panel of citizens, in front of a judicial officer who is responsible for enforcing the rules of procedure and rules of evidence and assuring the proper behavior of everyone in the courtroom.” The Court noted that although plaintiff’s counsel may have committed “more fouls,” the defendants’ counsel also committed fouls. The Court declined to find that the trial judge abused her discretion but expressed its displeasure with both counsels’ conduct.
Environmental claims – summary judgment – piercing the corporate veil Reed v. Reid, 980 N.E.2d 277 (Dec. 19) (Rucker, J.), analyzed liability under the Environmental Legal Action (ELA) statute and other claims for environmental damage. Reed sought “clean fill” for land he owned, and North Vernon Drop Forge, Inc. (“Forge”) offered to provide some. During the dumping, however, Reed noticed problems with what was being dumped and stopped the operation. Later the Indiana Department of Environmental Management (“IDEM”) notified Forge that its dumping may have violated environmental laws, and Forge and IDEM entered into an agreed order in which Forge admitted disposing of solid waste in a manner threatening human health; the agreed order contained no financial penalty. IDEM also notified Reed that he violated environmental laws for having the fill on his property, and IDEM proposed an agreed order, requiring an expensive cleanup by Reed as well as a civil penalty. Reed cleaned up his property, then sued Forge, three of its employees, its
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environmental consultant, owner Edward Reid and three related companies. The complaint sought damages under the ELA statute and also for illegal dumping, nuisance and other common law claims. The trial court granted summary judgment for the defendants on several of the claims, leaving some claims for trial, and this appeal ensued. On the ELA claim, the Court ruled that the purpose of the statute is to shift the financial burden of environmental remediation to the parties responsible for the contamination, and the defendants bear the burden to demonstrate as a matter of law that the hazardous substances originated from a source other than the defendants. The Court rejected defendants’ argument that the evidence did not show that the material dumped was hazardous, ruling that the ELA does not impose any particular standard for hazardousness. The Court also rejected defendants’ argument that Reed’s cleanup costs were unreasonable, again declining to read into the ELA statute any other standards (from other environmental laws) regarding cleanup costs. The Court concluded that there was no genuine dispute of material fact that Forge at least contributed to the release of hazardous materials on Reed’s property, which was sufficient to reverse summary judgment on the ELA claim. The Court also found a disputed question of material fact on Reed’s illegal dumping claim. The Court ruled that whether Reed consented to the dumping was a disputed issue of fact that precluded summary judgment under the dumping statute, I.C. 13-30-313(d). The Court also reversed summary judgment on Reed’s claim for fraud, which was based on Forge’s claim that it could deliver “clean fill” to his property. According to
Reed, Forge represented that the material dumped had “no environmental problems.” The Court ruled that the phrase “no environmental problems” was a material representation of existing fact sufficient to sustain an allegation of fraud, and it found there was conflicting evidence on exactly what representations were made that precluded summary judgment. It also reversed summary judgment on the nuisance claim, ruling that there were material disputes of fact regarding whether the defendants’ actions caused conditions on Reed’s property that were injurious to health, indecent, offensive to the senses, or an obstruction to the free use of the property. The Court rejected defendants’ claim that a nuisance claim would lie only if the nuisance arose from defendants’ use of adjacent property rather than, as here, from materials placed on the plaintiff’s own property. The Court also reversed summary judgment on several trespass claims, finding genuine issues of material fact regarding both entry and consent.
The Court affirmed summary judgment on Reed’s claim of unjust enrichment. It found no legal basis for the claim because Reed did not claim that he rendered any benefit to the defendants at their request. The Court found that Reed’s claim for breach of contract was waived on appeal because neither side adequately developed arguments as to what constituted the contract that Reed claimed to have been breached. It also rejected Reed’s claim for reckless endangerment, finding that Reed had not explained how the facts of this case stated a claim for that tort. The Court then addressed Reed’s claims for individual liability of the three individual defendants and related corporations, all controlled by Edward Reid. The Court ruled that Reid could have personal liability under the responsible corporate officer doctrine as the sole or controlling shareholder of Forge because he was responsible for hiring key employees, he was regularly apprised of Forge’s operations, he was involved in the decision to take (continued on page 36)
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RECENT DECISIONS 12/12 continued from page 35 the fill to Reed’s business, and he took responsibility with IDEM for the environmental violations. On individual liability, the Court reversed summary judgment in Reid’s favor and directed entry of summary judgment for Reed, with instructions that Reid would be equally culpable with Forge for any violations. The Court affirmed summary judgment for two other individual defendants. The Court also found that another corporation, Jennings Manufacturing Company, could have successor liability to Forge. It was created shortly after Forge ceased operating, and it did business at the same address. It had the same ownership, and witnesses were confused about who were the officers of the two corporations. It used the same telephone number
and fax line as Forge. The property on which Jennings operates remains titled to Forge, and there is no lease to Jennings. The Court concluded that there were genuine issues of material fact as to Jennings’ successor liability. The Court then addressed whether the facts supported piercing the corporate veil as to other businesses owned and controlled by Reid. The Court found evidence that Forge’s assets were commingled with Reid’s personal assets and assets of sister corporations, that Reid made undocumented loans to some of his businesses and paid the costs of others from his personal funds, that all of the companies shared the same employees, and that the entities failed to observe corporate formalities. The Court termed the evidence provided by defendants on this issue “scant,” but did not direct entry of summary judgment. Noting that “[p]iercing the corporate veil involves a highly fact-sensitive inquiry that is not typically appropriate for summary disposition,” the Court stated, “It is for the fact-finder to determine whether the separate corporate identities of [Reid]’s companies may be disregarded so that liability may be placed on [Reid] personally.”
Hospital contract provision deemed definite as to price1 In Allen v. Clarian Health Partners, Inc., 980 N.E.2d 306 (Dec. 19) (Rucker, J.), the Court held that a provision in a hospital contract, where the patient guaranteed “payment of the account,” was not silent as to price because precision on price in the health care market is nearly impossible. If the contract was uncertain or indefinite as to price, the Court agreed that Indiana courts could impute a reasonable price. But the Court found that the contract’s promise to pay “the 36
RES GESTÆ • MARCH 2013
account” referred to the hospital’s chargemaster rates and was thus sufficiently definite. The Court drew support from five other jurisdictions that had held that imprecise price terms in hospital contracts are sufficiently definite to justify a court-imposed “reasonable” price. The Court distinguished its holding in Stanley v. Walker, 906 N.E.2d 852 (Ind. 2009), where it held that evidence of the discounted rate off the chargemaster could be introduced as an exception to the collateral source rule. The Court in Allen declined to extend Stanley’s evidentiary ruling to actions for breach of contract.
TRANSFER GRANTED Santelli as administrator of Estate of Santelli v. Rahmatulluh, 966 N.E.2d 261 (Ind. Ct. App. March 29, 2012) (Friedlander, J.) (action by estate of murder victim against hotel where he was murdered, raising issues of appealability of belatedly granted motion to correct error; application of the “very duty” doctrine to the negligence alleged by the estate; and application of comparative fault).
INDIANA COURT OF APPEALS Reserving right to deny coverage blocks intervention An insurer’s reservation of the right to deny coverage bars it from maintaining the necessary cognizable interest required for intervention as of right under Indiana Trial Rule 24(A)(2). In Granite State Insurance Co. v. Lodholtz, 981 N.E.2d 563 (Dec. 14) (Bradford, J.), an insurer’s claims administrator advised the insured that the policy did not appear to cover the loss but only after the trial court granted default judgment against the insured. The claims administrator urged the
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insured to act quickly in defending itself. The insured settled but on terms that left the default in place and gave the plaintiff the right to proceed against the insurer and the claims administrator. The trial court entered a damages judgment of nearly $3.9 million. The insurer then sought to intervene as of right but reserved the right to deny coverage. The Court of Appeals held that the insurer lacked an interest in the tort suit sufficient to support intervention because its reservation of its right to deny coverage was contingent. Judge Baker dissented on the basis that the agreement between the plaintiff and the insured made the insurer responsible for the judgment – thus creating an interest warranting intervention. As a policy matter, Judge Baker asserted that the case should be decided on its merits.
Motion to dismiss subrogation claim improperly granted In LBM Realty, LLC v. Mannia, 981 N.E.2d 569 (Dec. 19) (Pyle, J.), the Court of Appeals held that the trial court erred by precluding a subrogation claim at the motionto-dismiss stage in an insurer’s suit (in the landlord’s name) against a tenant for negligence. Given that Indiana law allows subrogation claims against tenants and the insurer’s complaint alleged facts under which it would be entitled to relief, the appeals court found that the trial court improperly granted the motion to dismiss.
to be John Resnover, and he obtained a driver’s license, Social Security card and other identification in that name. When his driver’s license expired in 2008 and he had to obtain a birth certificate to renew the license, he learned that his birth name was John Cheatham. He petitioned to change his name to Resnover, but the petition was denied because he did not have a valid driver’s license or identification card. In a second case, John Herron used that name throughout the 72 years of his life, but his birth certificate contained the name Payne. His request for name change also was denied because he lacked a driver’s license or state identification card. Under common law, a person may lawfully change his name without resort to any legal process so long as it is not for fraudulent purposes. But the informal name change need not be recognized by the state. A state agency is required to recognize a name change only when done according to court process. In 2010, Indiana statutory law on name changes was amended
to help reduce identity theft, and the change included the requirement that a person seeking a name change provide a valid driver’s license number or state identification card number. In this case, the court interpreted the statute literally and allowed Resnover to provide the number from the driver’s license he previously had, although it had expired. The number on that license is unique and therefore satisfies the purpose of the statute. As to Herron, who had never had a license or state ID, the court focused its decision on the statutory language stating that the identifying information required in the statute had to be included in the namechange petition “if applicable.” Because Herron never had either a driver’s license or state identification card, the court ruled that those items were not “applicable” and therefore were not required for him to seek a formal name change. Judge Crone dissented as to Herron, positing that the correct course would be for Herron to (continued on page 38)
Driver’s license not always necessary for judicial name change In In re Resnover, 979 N.E.2d 668 (Dec. 5) (Riley, J.), the Court of Appeals reversed two trial court decisions not to allow a name change. Throughout his 76 years, John Resnover believed his name RES GESTÆ • MARCH 2013
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RECENT DECISIONS 12/12 continued from page 37 obtain a driver’s license in the name Payne, using his birth certificate, then petition for a name change using the driver’s license.
No appellate jurisdiction over discovery order The Indianapolis Star appealed a discovery order, but the Court of Appeals ruled that it had no right to appeal. In re Indiana Newspapers, Inc., 980 N.E.2d 852 (Dec. 7) (Robb, C.J.). The order under appeal required The Star to disclose the identity of an anonymous commenter on the newspaper’s website. The Star argued that its appeal was final as to The Star, establishing appellate jurisdiction. The Court of Appeals rejected that approach, stating that it attempted to revive the “distinct and separate branch” doctrine of appellate jurisdiction that was rejected in Berry v. Hoffman, 643 N.E.2d 327 (Ind. 1994), and in the current appellate rules, which generally allow an appeal as of right only when all issues are decided as to all parties. The court agreed with The Star that the Indiana Constitution guarantees the right to one appeal, but that appeal may be at the end of the litigation and not interlocutory, as The Star sought. Judge Pyle dissented, arguing that the rule restricting appeals to final judgments (with certain exceptions not applicable here) is limited to parties, and The Indianapolis Star is a non-party and therefore not governed by the rule. Later in the month, the Indiana Supreme Court declined to address the case, issuing an unpublished order denying relief.
Insurance Dept. order penalizing title company affirmed The Court of Appeals affirmed the Department of Insurance’s decision penalizing a title company for excessive and discriminatory charges. Robertson v. Ticor Title Ins. 38
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Co., 982 N.E.2d 9 (Dec. 19) (Mathias, J.). The Department performed an examination of Ticor in 2008, concluding that Ticor did not have adequate oversight of its agents in Indiana, that the agents charged premium rates higher than Ticor’s contractual rates, that Ticor lacked adequate internal controls and audit standards, and that Ticor violated the law by charging inconsistent premium rates. After a hearing, the Department ordered Ticor to make certain refunds and to pay a penalty. On appeal, Ticor convinced a trial court that the Department misapplied the law, and the trial court set aside the administrative order. On appeal, the court ruled that the Department’s interpretation of its own statute – prohibiting unfair discrimination between persons involving essentially the same hazards – was reasonable and therefore should receive deference. The court therefore reversed the trial court’s decision and reinstated the Department’s sanctions against Ticor. The court also held that Ticor had both actual and apparent authority over its agents for the purposes of charging title insurance premium rates, although not for other closing and escrow services that the agents performed. It concluded that the Department had adduced adequate evidence to show that some Ticor agents charged excessive rates and that Ticor lacked procedures to assure that excessive rates were not charged.
Injunction against habitual traffic offender license suspension ordered The Court of Appeals ruled that laches barred the Bureau of Motor Vehicles from suspending a driver’s license in Orndorff v. Bur. of Motor Vehicles, 982 N.E.2d 312 (Dec. 26) (Crone, J.). Orndorff qualified as a habitual traffic
offender in 2004 because of 17 convictions in a two-year period, but the BMV did not attempt to suspend her license until 2012. In 2008, BMV renewed her driver’s license. She argued that her unique circumstances met the high standard for applying laches to a government agency, which requires a showing of “extreme unfairness.” The Court accepted Orndorff’s arguments and enjoined BMV from suspending her license. By the time BMV got around to suspending her license, she had eight years of a clean driving record, showing that she was not a threat to public safety. She also was the sole support for two children, and she needed to drive to get to her job, to get to the classes she attended at Ivy Tech, to take her children to medical appointments, and to participate in a program designed to foster her economic independence. The court concluded that if her license was suspended, her family would end up without income, and this fact met the “extreme unfairness” criterion required to apply laches. 1. One of the authors of this article was counsel in this appeal.
Jon Laramore is co-leader of Faegre Baker Daniels LLP’s appellate practice, a member of the American Academy of Appellate Lawyers, and former chief counsel to Indiana Governors Frank O’Bannon and Joe Kernan. Contact Jon at 317/237-8248 or jon.laramore @faegrebd.com. Daniel E. Pulliam is an associate in Faegre Baker Daniels’ business litigation group. Previously he was a law clerk to the Hon. John Daniel Tinder of the U.S. Court of Appeals for the Seventh Circuit. He is a graduate of Indiana University Robert H. McKinney School of Law where he served as editor-in-chief of the Indiana Law Review. Contact Daniel at 317/237-1171 or daniel.pulliam @faegrebd.com.
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By Daniel P. McInerny
The ELA statute of limitations: Has the issue really been resolved?
In Pflanz v. Foster, 888 N.E.2d 756 (Ind. 2008), the Pflanz’s claim for contribution under the Underground Storage Tank Act (USTA), I.C. §13-23-13-8, was dismissed by the trial court on a statute-of-limitations argument, and that decision was upheld by the Court of Appeals. The Indiana Supreme Court granted transfer and reversed. It held that the 10year “catch all” statute of limitations found at I.C. §34-11-1-2(a) applied to the Pflanz’s contribution claim under the USTA, and that the claim did not accrue until the Pflanz’s were ordered to clean up the property by IDEM. Based upon the limitations period and accrual trigger established by the Supreme Court, it held the Pflanz’s claim was not barred by the applicable statute of limitations.
In Peniel Group, Inc. v. Bannon, 973 N.E.2d 575 (Ind. Ct. App. 2012), the plaintiffs filed suit under the ELA to recover environmental costs incurred as a result of contamination identified at a property, Churchman Plaza, owned by Beech Grove Holdings, LLC. The defendants were a group of individuals alleged to have been involved in prior dry cleaning operations at the property. The trial court granted summary judgment as to all defendants based upon the statute of limitations and also on the basis that the defendants did not cause or contribute to the contamination at issue. The plaintiffs appealed, arguing that under a Pflanz analysis, their claim was one for contribution, the appropriate statute of limitations was 10 years, and the accrual date was when the plaintiffs first expended money to address the contamination. The Court of Appeals disagreed, holding that the ELA claim was not one for contribution, but rather for injury to real property, and must be commenced within six years after the cause of action accrues, pursuant to I.C. §34-11-2-7. The court ruled that the cause of action accrued when the plaintiffs knew of or reasonably could have discovered the damage. In addition, the court found that the plaintiffs were held accountable for the time which had run against their predecessors in interest. Based upon the 6-year statute of limitations, and the accrual theories of discovery and tacking, summary judgment as to each of the defendants was upheld. The Indiana Supreme Court denied transfer in Peniel on Dec. 14, 2012. Bernstein was handed down by the Seventh Circuit Court of Appeals on Dec. 19, 2012. The Bernstein plaintiffs, trustees of a CERCLA site, sought remediation costs from former owners of the site and their insurers under several
theories, including an ELA claim. The district court dismissed all of the trustees’ claims on summary judgment, denying the ELA claim based on the statute of limitations. In its discussion, the Seventh Circuit cited to Pflanz as controlling with respect to application of the 10-year statute of limitations and Peniel with respect to the 6-year statute of limitations, and interpreted both holdings in detail. The court cited to Peniel for the proposition that it is the underlying nature of the claim that determines the appropriate statute of limitations. The court found that whether the claim is brought under the ELA or the USTA, or is identified as one for contribution or cost recovery, is irrelevant. What matters is the nature of substance of the claim itself. If the claim is one for property damage, the 6-year limitation applies. If not, the 10-year limitation period applies. Because the trustees had no property interest in the CERCLA site, the court held their claim was not one for property damage and applied the 10-year statute of limitations. Citing Pflanz, the court utilized the dates of various EPA cleanup orders as the triggers for the limitations period and held that while one order was time barred, two others were not, and thus reversed the district court on the ELA claims. As previously stated, the Bernstein court noted that its analysis of the appropriate statute of limitations would have been unnecessary if the trustees’ claim was filed subsequent to the effective date of I.C. §34-11-2-11.5. Lodged in a chapter entitled “Specific Statutes of Limitation,” I.C. §34-11Daniel P. McInerny 2-11.5 states as follows:
he recent decision in Bernstein, et al. v. Bankert, et al., 702 F.3rd 964 (7th Cir. 2012), may be viewed by some as the last word on the issue of the statute of limitations for claims under the Environmental Legal Action (ELA) statute, Ind. Code §13-30-9, prior to the enactment of I.C. §34-11-2-11.5, eff. May 10, 2011. The Bernstein court states that “... any future ELA actions will be governed by the independent limitations period legislatively added to the ELA,” and “[i]f §3411-2-11.5 governed this litigation, the resolution of the ELA issue would be a simple affair.” But what if I.C. §34-11-2-11.5, despite its location in the Indiana Code, does not establish a limitations period for commencing ELA actions, but rather merely a limitation upon the time period for recovery of costs under an ELA action? Before opining on the new law, let’s review the holdings of Bernstein and the two main cases upon which it relies, Pflanz v. Foster and Peniel Group v. Bannon.
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(continued on page 40) Indianapolis, Ind. email@example.com
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ENVIRONMENTAL LAW continued from page 39 34-11-2-11.5 Recovery of costs for removal, remedial, or corrective action Sec. 11.5 (a) As used in this chapter, “person” has the meaning set forth in IC 34-6-2-103(b). (b) Subject to subsections (c), (d), and (e), a person may seek to recover the following in an action brought on or after the effective date of this section under IC 13-30-9-2 or IC 13-23-138(b) to recover costs incurred for a removal action, a remedial action, or a corrective action: (1) The costs incurred not more than ten (10) years before the date the action is brought, even if the person or any other person also incurred costs more than ten (10) years before the date the action is brought. (2) The costs incurred on or after the date the action is brought. (c) Costs are eligible for recovery under subsection (b) regardless of whether
any part of the costs is incurred before the effective date of this section. (d) This section does not permit a person to revive or raise new claims in an action brought under IC 13-30-9-2 or IC 13-23-13-8(b) that was fully adjudicated or settled before the effective date of this section. (e) Any person that brought an action under IC 13-30-9-2 or IC 13-23-138(b) that was not fully adjudicated or settled prior to the effective date of this section may not amend that action, or bring a new action, under this section.
Fundamental to the structure of a statute of limitation is a limitation upon the time period within which an action may be commenced. A cursory review of other sections within Chapter 2 reveals a rather consistent formula for establishing a limitations period. (I.C. §34-11-2-1 – “An action ... must be brought within two (2) years of the
date of the act or omission complained of”; I.C. §34-11-2-3 – “An action ... may not be brought ... unless the action is filed within two (2) years from the date of the act ... complained of”; I.C. §34-11-2-5 – “An action ... must be commenced within five (5) years after the sale is confirmed.”) The language of I.C. §34-11-2-11.5 contains no such formula. Rather than establish a limitation period for commencing an ELA or USTA claim, I.C. §34-112-11.5(b) establishes what costs a person may seek to recover in an action brought under the ELA or the USTA. It limits a recovery to costs incurred not more than 10 years before the date the action is brought, even if the person (or another person) also incurred costs more than 10 years before the action is brought. It also provides
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for the recovery of costs incurred after the date the action is brought. Missing from this provision is any limitation upon when the action itself must be commenced. Missing also is a trigger for the running of a limitations period. Rather than establishing an accrual date and looking forward to a period within which an action must be brought, this law starts at the point the action is brought and looks back in time to provide a limitation on the time period during which costs may be recovered. In the absence of an accrual date/trigger and a limitation period to file, this provision would appear to leave a person vulnerable to a statute-of-limitations challenge under either Pflanz or Peniel. Under a Pflanz analysis, let us assume IDEM issues a cleanup order against Plaintiff Jones on Jan. 1, 2000 regarding property he does not own, and he begins to incur costs immediately thereafter. Jones files his ELA claim against other site operators on Jan. 1, 2013. Under I.C. §34-11-2-11.5, the only limitation placed upon Jones is that his recovery is limited to costs incurred subsequent to Jan. 1, 2003. But the defendants, citing Pflanz, could argue that Jones’ complaint is time barred because it was required to be filed within 10 years after the clean up order was issued or Jan. 1, 2010. Under a Peniel analysis, Plaintiff Smith identifies contamination on property he owns on Jan. 1, 2005 and incurs costs to address it. On Jan. 1, 2013, he files an ELA claim against former tenants of his property, who he alleges caused the contamination. Under I.C. §34-112-11.5, Smith would expect to be able to recover all costs incurred since Jan. 1, 2005, well within the 10-year window of recovery. But the tenant defendants could argue
that Smith’s claim, which is in the nature of a claim for damage to his property, is time barred because it was not brought within six years after he discovered the contamination. There is no language in I.C. §34-11-2-11.5 that trumps the arguments of either the Jones or Smith defendants. In summary, while I.C. §3411-2-11.5 provides a limitation on recoverable costs in an ELA or USTA action, it does not establish a limitation upon the period within which the action must be commenced subsequent to a triggering event. Therefore, it does nothing to negate or alter the limitations periods, or the methods for calculating those periods, established under Pflanz, Peniel and Bernstein. The Bernstein court may have spoken too soon in relying on the new law to govern the issue of the statute of limitations in ELA actions going forward. Editor’s Note: The author assisted Alex C. Intermill and Bryan H. Babb of Bose McKinney & Evans LLP in representing Betty Benefiel, one of the defendants in the Peniel litigation. Daniel P. McInerny is a partner at Bose McKinney & Evans LLP in Indianapolis and a member of the firm’s environmental law and agribusiness groups. He concentrates his practice in the areas of environmental, natural resources and agricultural law, and also has an extensive background in Indiana administrative law. A graduate of Northwestern School of Law of Lewis & Clark College, Dan received his J.D. and a Certificate in Environmental & Natural Resources Law from that institution.
AG’s food drive marches on this month ndiana Attorney General Greg Zoeller, in partnership with the Indiana State Bar Association and Feeding Indiana’s Hungry (FIsH), is conducting the 5th Annual March Against Hunger through the end of this month.
March Against Hunger is a friendly, statewide competition between law firms and practitioners to raise the most donations – either of nonperishable foods or direct monetary contributions – for Indiana’s 11 regional food banks. In 2012, 51 law firms with 58 offices competed in five categories. The Attorney General’s Cup will be presented to the firms collecting the most donations in their division (large, medium and small firm, sole proprietor and public/nonprofit). It’s easy to join the March anytime this month – visit in.gov/attorneygeneral/ 2773.htm to register your firm in the 2013 March Against Hunger competition to raise much-needed resources for regional food banks in Indiana. Firms can sign up anytime during the collection period.
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By Prof. Joel M. Schumm
Inappropriateness claim, juvenile waiver, other holdings
CRIMINAL JUSTICE NOTES 12/12
uring December the Indiana Supreme Court issued one opinion in a criminal case, while the Court of Appeals issued several opinions on a variety of topics, including speedy trial rights, juvenile waiver hearings, jury instructions and the sufficiency of evidence for crimes such as criminal recklessness, fleeing and invasion of privacy as an accomplice.
Trial court’s sentence upheld: Inappropriateness claim must be raised to succeed
Although appeals are often seen as a no-risk venture for criminal defendants, a request for appellate review of a sentence under Article 7, Sections 4 or 6 of the Indiana Constitution and Appellate Rule 7(B) allows the court to “affirm, reduce, or increase the sentence.” McCullough v. State, 900 N.E.2d 745, 750 (Ind. 2009). In the years since McCullough, the Court of Appeals has increased only one sentence, and that increase was quickly vacated by the Indiana Supreme Court. See Akard v. State, 937 N.E.2d 811 (Ind. 2010). Although the Indiana Supreme Court has not increased a sentence above the one imposed by the trial court, it has in recent months scaled back or completely vacated a reduction ordered by the Court of Appeals. See Kucholick v. State, 977 N.E.2d 351 (Ind. 2012) (revising sentence to four years imprisonment after trial court imposed a seven-year sentence with four of the years executed, which the Court of Joel M. Schumm Appeals had reduced Clinical Professor of Law to two years in a comIU Robert H. McKinney munity corrections School of Law program and two Indianapolis, Ind. years probation); firstname.lastname@example.org Bushhorn v. State,
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971 N.E.2d 80 (Ind. 2012) (reinstating a 47-year sentence with 44 of the years executed after the Court of Appeals had reduced the sentence to 35 years). In Kimbrough v. State, 979 N.E.2d 625 (Ind. 2012), the Indiana Supreme Court applied basic and well-settled legal principles in reinstating a trial court’s sentence. The defendant did not raise a claim that his sentence was inappropriate under Appellate Rule 7(B) but instead argued the trial court abused its discretion in finding two aggravating factors and requested a lesser sentence because “his mitigating circumstances outweighed aggravating ones.” Id. at 628 (quoting Br. of Appellant at 14). By agreeing and reducing the sentence from 40 to 20 years, the Court of Appeals contravened the basic principles of Anglemyer v. State, 868 N.E.2d 482, 491 (Ind. 2007), which include a requirement that judges give reasons for felony sentences, although “a trial court can not now be said to have abused its discretion in failing to ‘properly weigh’ such factors.” More importantly, by failing to cite or rely on Appellate Rule 7(B) and saying nothing of the nature of the offense or character of the offender, the defendant cannot secure a sentence reduction under that rule.
Pro se motions and Criminal Rule 4 As a general proposition, a criminal defendant speaks through counsel once counsel is appointed. Schepers v. State, 980 N.E.2d 883, 886 (Ind. Ct. App. 2012). But sometimes defendants are unhappy with appointed counsel and may file pro se motions or seek to discharge counsel. In Schepers, a defendant represented by appointed counsel filed a pro se appearance, motion to remove his appointed counsel, and request for
a speedy trial. Because appointed counsel “was still representing Schepers when the pro se motions were filed,” the Court of Appeals held the subsequently filed motion to dismiss was properly denied. Id. at 887. The issue is a potential thicket, though, as highlighted by some of the opinions discussed in Schepers. For example, in Fletcher v. State, 959 N.E.2d 922, 929 (Ind. Ct. App. 2012), trans. denied, the Court of Appeals distinguished an earlier case where the trial court had refused a pro se motion because the defendant was represented by counsel, disagreeing “that the appointment of counsel and not the appearance of counsel is the relevant time.”
High-profile, juvenile-waiver case reversed: Four days is not enough time to prepare In Gingerich v. State, 979 N.E.2d 694 (Ind. Ct. App. 2012), a 12-year-old boy was charged with murder and waived to adult court at a hearing for which his lawyer had only four business days to prepare. Although the boy later pleaded guilty in adult court, the Court of Appeals addressed his challenge on direct appeal by reiterating “one may challenge a waiver into adult court at any time, as it involves a question of subject matter jurisdiction.” Id. at 705 (quoting Roberson v. State, 903 N.E.2d 1009, 1009 (Ind. Ct. App. 2009)). The Court of Appeals found the juvenile court abused its discretion in denying repeated requests for a continuance of the waiver hearing, pointing to prejudice from the inability to investigate competence or to prepare to refute the testimony of a probation officer who testified he was unaware of a juvenile facility that would accept Gingerich. Id. at 713.
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Defendant entitled to selfdefense and resistance-ofunlawful-force instructions based on dash camera DVD Defendants in criminal cases are generally entitled to a jury instruction on any theory of defense with “some foundation in the evidence.” Burton v. State, 978 N.E.2d 520, 525 (Ind. Ct. App. 2012). In Burton, a dash camera captured a disturbing episode where a sleeping driver was awakened and “could have been confused and/or scared for his life when Officer Gray threatened to shoot him, Officer Witt broke into the car, and both officers pulled him out of the car and threw him to the ground.” Id. at 526. Although the officers “testified to different versions of what occurred,” the Court of Appeals found a strong evidentiary basis for jury instructions on self-defense and excessive force by police. Id.1 The case was reversed and remanded for a new trial because the failure to give the instructions was not harmless error.
A protected person cannot be convicted as an accomplice for violation of a no-contact order
“Protection orders are about the behavior of the respondent and nothing else. How or why a respondent finds himself at the petitioner’s doorstep is irrelevant. To find appellant guilty of complicity would be to criminalize an irrelevancy.” Id. at 1069 (quoting State v. Lucas, 795 N.E.2d 642, 648 (Ohio 2003)).
Unexplained addresses insufficient to support HTV conviction A conviction for driving as a habitual traffic violator (HTV) requires defendants know their privileges are suspended, which is often established through a statutory presumption when notice is mailed “to the person at the last address shown for the person in the bureau’s records.” Ind. Code §9-30-10-16(b). In Cruz v. State, 980 N.E.2d 915 (Ind. Ct. App. 2012), the defendant had never applied for an Indiana license, and therefore the Bureau of Motor Vehicles (BMV) could not rely on the address self-reported by the driver. Id. at 919 (citing Ind. Code
§9-24-13-4). Although the court found the BMV’s “practice of using court records is generally acceptable,” all the records submitted showed different addresses than the one to which the BMV had sent the HTV notice. Although a BMV employee speculated the address used came from a traffic violation several years earlier, the records admitted were replete with more recent addresses. Finding a “total lack of evidence” to explain how the notice address was determined, the Court of Appeals reversed Cruz’s conviction because the State failed to prove notice was mailed to the “last address shown.” Id.
Refusing to exit home is not fleeing In Vanzyll v. State, 978 N.E.2d 511 (Ind. Ct. App. 2012), police officers were stationed at the front and back door of a residence and wanted a suspect to exit. The State conceded the suspect was not required to open the door when police knocked but argued he committed resisting law enforcement (continued on page 44)
The violation of a no-contact order issued as a condition of pretrial release is the Class A misdemeanor offense of invasion of privacy. Ind. Code §35-46-1-15.1(5). A separate statute makes clear that an invitation by the protected person “does not waive or nullify an order for protection.” Id. §3426-5-1. In Patterson v. State, 979 N.E.2d 1066 (Ind. Ct. App. 2012), the Court of Appeals decided as an issue of first impression that a protected person could not be charged as an accomplice for invasion of privacy by inviting the respondent to make contact. Relying heavily on an Ohio Supreme Court case, the Court of Appeals concluded, RES GESTÆ • MARCH 2013
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CRIMINAL JUSTICE NOTES continued from page 43 (fleeing) when he ran back inside the house. Distinguishing Wellman v. State, 703 N.E.2d 1061 (Ind. Ct. App. 1998), where a suspect fled by disobeying an officer’s command to remain outside, the Court of Appeals reversed Vanzyll’s conviction for fleeing because officers never ordered him to stop before or after he opened the back door and then ran inside the residence. Id. at 516.
Temporarily empty home is an ‘inhabited’ dwelling under criminal recklessness statute Criminal recklessness is a Class C felony when a person shoots “a firearm into an inhabited dwelling or other building or place where people are likely to gather.” As a matter of first impression, the Court of Appeals held in Tipton v. State, 981 N.E.2d 103 (Ind. Ct. App. 2012), that a “residence may be ‘inhabited’ for criminal recklessness purposes if someone is likely to be inside.” Id. at 110. The court reasoned that the temporary absence of occupants “does not lessen the risk of danger to others or the recklessness of [the defendant’s] behavior and that shooting at a structure currently used as a dwelling poses a great risk or ‘high probability’ of death.” Id. 1. Although not discussed in the opinion, the United States Supreme Court has similarly recognized that video of an incident should trump a witness’ account. See Scott v. Harris, 550 U.S. 372, 380-81 (2007) (“Respondent’s version of events is so utterly discredited by the record that no reasonable jury could have believed him. The Court of Appeals should not have relied on such visible fiction; it should have viewed the facts in the light depicted in the videotape.”).
RES GESTÆ • MARCH 2013
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RES GESTÆ • MARCH 2013
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By ISBA Past President Rabb Emison
How will they know we’re lawyers? Editor’s Note: The following column first appeared in March of 2005. A treasured and longtime contributor to Res Gestae, Rabb Emison of Vincennes, Ind., passed away on Sept. 1, 2010.
FAIR COMMENT CLASSIC
his was the question asked in a discussion in a meeting of our little county bar association decades ago. In those simpler days lawyers agreed to keep the same office hours and use legal size papers for court documents. Legal size meant lawyer work. We had just knocked off the office hours of Saturday morning. The people in the courthouse were relieved. That place was open when we were. The next proposal was to use letter size for everything, including (gasp) court documents. This decision could simplify life. Opposition to the decision was based upon the desire to make certain the public (“they,” that is) knew our work was recognizable lawyer work. The opposition argument did not rely upon the words that might be on the paper. It argued the size was important as no one else used legal size. Letter size won the decision of the county bar association. Bravo! Our county bar association took no action on the strange lawyer words. Now that’s too much to ask. It was a lot of effort to close on Saturday morning and reduce the paper size – so why take up the words. Everyone everywhere uses the funny lawyer words. We have to be dignified and use formal lawyer words. That shows we are lawyers. Besides that, there are occasions when we are asked to explain the words. Where did they, the funny words, come from? This question causes a history lesson. Ready? After the Norman invasion of Great Britain in 1066, the
RES GESTÆ • MARCH 2013
new governing group was French. The native British could use their language, but the new bosses wanted their language. In places the language was different. Outdoors the British workers said beef. Indoors the French people served said filet or cuisine. The law was served by using both languages at once.* No one gets to defend by saying, “You didn’t use my language.” That reason doesn’t exist today, but we keep up the Norman Conquest practice. You want samples? Here we go. Cease and desist How many of you use the word desist in ordinary conversation in place of the word stop? How many of you have seen a desist street sign? If the court would issue a stop order instead of a cease and desist order, could everyone more quickly understand it? My nonlawyer friend favors use of the phrase cease and desist. She says it is musical. Null and void Everyone understands what this means, but what does null add? Do you use that word in ordinary conversation? Do you say something is null? Tell us how you used it. Last will and testament Maybe last is helpful to avoid an argument, but what about testament? Is that something added? Would you show me where that is in addition to the will? Finally, a tricky question: Do you select words just to impress a client for the same reason that a person chooses to use legal size paper? * Bryson, The Mother Tongue, Perennial, reissue ed., 1991; and Jespersen, Growth and Structure of the English Language, Doubleday, 1955, ninth publication.
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