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Pursuant to Ind.Appellate Rule 65(D), this Memorandum Decision shall not be regarded as precedent or cited before any court except for the purpose of establishing the defense of res judicata, collateral estoppel, or the law of the case. ATTORNEYS FOR APPELLANT: GEOFFREY M. GRODNER KENDRA G. GJERDINGEN Mallor Clendening Grodner & Bohrer LLP Bloomington, Indiana

FILED
Dec 27 2010, 9:24 am
of the supreme court, court of appeals and tax court

CLERK

ATTORNEYS FOR APPELLEE FIFTH THIRD BANK: MARK R. GALLIHER CRAIG D. DOYLE Doyle Legal Corporation, P.C. Indianapolis, Indiana ANGELA F. PARKER Andrews, Harrell, Mann, Carmin & Parker, P.C. Bloomington, Indiana

IN THE COURT OF APPEALS OF INDIANA
McINTYRE BROTHERS, INC., Appellant, vs. KIM D. HENDERSON, MELINDA J. HENDERSON, SYDNEYCO, LLC, FIFTH THIRD BANK and LAWRENCE COUNTY TREASURER, Appellees. ) ) ) ) ) ) ) ) )

No. 47A01-1004-PL-172

APPEAL FROM THE LAWRENCE SUPERIOR COURT The Honorable William E. Vance, Special Judge Cause No. 47D01-0402-PL-178

December 27, 2010 MEMORANDUM DECISION - NOT FOR PUBLICATION BAILEY, Judge

Case Summary Fifth Third Bank ("Fifth Third") loaned $945,000 to Kim and Michele Henderson ("the Hendersons"), paying off two prior mortgages at closing. Fifth Third failed to discover a mechanics lien held by McIntyre Brothers, Inc. ("McIntyre"). In subsequent foreclosure proceedings, lien priority was disputed, with Fifth Third claiming that the doctrine of equitable subrogation granted priority to the $311,000 paid to satisfy a mortgage held by Stone City Bank ("Stone City") over McIntyres mechanics lien. In partial summary judgment proceedings, the trial court agreed. After a bench trial, the trial court denied McIntyre foreclosure of its mechanics lien, granted McIntyre judgment against the Hendersons, and prioritized the entirety of the $945,000 Fifth Third mortgage lien over McIntyres judgment lien. McIntyre appeals. We affirm in part, reverse in part, and remand. Issues McIntyre presents two issues for review, which we re-order and restate as follows: I. Whether the trial court erroneously granted partial summary judgment to Fifth Third upon finding the doctrine of equitable subrogation applicable to Fifth Thirds payoff of the Stone City mortgage; and Whether the validity of McIntyres mechanics lien was an issue reserved for trial. Facts and Procedural History In 2001, the Hendersons purchased commercial property located in Bedford, Indiana, where a Dollar General Store and Subway Restaurant were operated. In April of 2002, the buildings were destroyed by fire and the Hendersons hired McIntyre to clean up debris. McIntyre eventually constructed a new building on the property. Around the time that 2

II.

construction began, the Hendersons obtained a mortgage on the property from Stone City. The mortgage was recorded on September 23, 2002. The Hendersons transferred ownership of the property to Sydneyco, a limited liability corporation, and McIntyre billed Sydneyco for construction work. McIntyre submitted invoices totaling $1,565,139.59, a portion of which was paid. On August 15, 2003, McIntyre recorded its Notice of Intention to Hold Mechanics Lien for the unpaid balance of the invoices. On August 22, 2003, Fifth Third loaned $945,000 to Sydneyco and $100,000 to another company owned by the Hendersons. At the real estate closing on that date, the Hendersons executed mortgage documents in their individual capacity but deeded the property to Sydneyco. Fifth Third paid off the two liens that had been discovered by their title company, specifically, $311,706.18 to Stone City and $187,275.48 to the Poling Trust. McIntyres lien had not been discovered, and Fifth Third did not disburse funds to McIntyre.1 Fifth Third recorded two mortgages on August 25, 2003. In 2004, Fifth Third prepared a Corrective Mortgage and Security Agreement to reflect the fact that Sydneyco had owned the property as of the date of the August 22, 2003 closing. The corrective mortgage was recorded on September 1, 2004. On February 16, 2004, McIntyre filed a complaint for breach of contract, unjust enrichment, and foreclosure of a mechanics lien, naming as defendants the Hendersons,

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After receiving excess funds at closing, Melinda Henderson delivered a Sydneyco check for $492,000 to McIntyre.

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Sydneyco, LLC, Fifth Third Bank, and the Lawrence County Treasurer. Fifth Third filed a counterclaim, cross-claim, and third-party claim, in part asserting that the Hendersons had committed fraud in the execution of a Mortgagors Affidavit. The proceedings were stayed when, in March of 2006, Sydneyco filed for Chapter 11 bankruptcy protection. McIntyre filed a Proof of Claim indicating that it held a secured claim, a mechanics lien, against Sydneyco. After litigation, the Bankruptcy Court determined that Sydneyco owed McIntyre $560,000 as opposed to the $807,842.27 claimed. The case became active again in the Lawrence Superior Court on November 21, 2008, when Fifth Third filed a Motion for Scheduling Conference. Fifth Third subsequently filed a motion for partial summary judgment. Oral argument was heard on September 2, 2009, at which the Hendersons argued their lack of individual liability because of a novation, and Fifth Third requested a determination that equitable subrogation applied to prioritize its mortgage lien, to the extent that the funds had been used to pay off the Stone City mortgage.2 McIntyre claimed that Fifth Third was not entitled to equitable subrogation, due to its culpable negligence in failing to discover the mechanics lien and in lending to individuals rather than the corporate owner of the subject property. On September 16, 2009, the trial court issued an order finding for Fifth Third and against the Hendersons on the issue of novation. With respect to McIntyre, the trial court entered partial summary judgment in Fifth Thirds favor:
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Fifth Third conceded that factual issues precluded summary judgment as to whether equitable subrogation was applicable to The Poling Trust mortgage it had paid off. According to counsel for Fifth Third, "there is almost no good evidence as to how the proceeds of how that second mortgage, the Pulling [sic] Trust loan were applied. Theyre right about that because its the summary judgment stage we dont have that evidence." (Tr. 15.)

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The Court finds for Fifth Third Bank and against McIntyre Brothers, Inc. on the question of priority as it relates to the funds expended to retire the Stone City Bank mortgage. Specific amounts are to be determined. (App. 22.) The matter proceeded to trial on September 23, 2009. By this time, Fifth Third had obtained dismissal of its fraud claim against the Hendersons but was pursuing a personal judgment against them and also a judgment of foreclosure. As for the equitable subrogation claim, counsel for McIntyre and Fifth Third jointly advised the trial court: "the bank is not proceeding today by agreement on any claim that the Poling Trust mortgage, which some of the documents relate to, has a priority over the McIntyre lien." (Tr. 35.) Fifth Third submitted its Exhibits 13 and 18, detailing interest that would correspond to a principal balance of $311,706.18 (attributable to the Stone City mortgage). On January 21, 2010, the trial court issued a judgment of foreclosure inconsistent with its prior partial summary judgment order that had applied the doctrine of equitable subrogation. The trial court awarded McIntyre judgment against Sydneyco in the amount of $560,000 but determined that McIntyre had not perfected its mechanics lien. Accordingly, Fifth Third was granted foreclosure of a mortgage lien equal to the $916,003.66 principal balance on the current Fifth Third mortgage, plus interest (superior to McIntyres judgment lien). The trial court also decreed that Fifth Thirds claim for repayment of real estate taxes was to be prioritized over McIntyres judgment lien. This appeal ensued.

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Discussion and Decision I. Partial Summary Judgment

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