OPINION
ROBB, Judge.
John Bartle appeals the trial court's grant of partial summary judgment in favor of Health Quest Realty VII ("HQR"). We affirm.
Issue
Bartle raises the following restated issue for our review: Whether the doctrine of offensive collateral estoppel prevents Bartle from relitigating the issue of his personal liability to HQR.
Facts and Procedural History
The facts reveal that HQR is a general partnership organized, existing, and authorized to do business under Indiana law. HQR is the lessor of leases related to four nursing home facilities (the "Facilities") in Indiana: Canterbury Village in Indianapolis; Countryside Place of Knox in Knox; Rosewood Terrace in Elkhart; and Williamsburg Village in Muncie. On July 29, 1982, Beverly Enterprises-Indiana, Inc. ("Beverly") entered into four virtually identical agreements with HQR whereupon it leased the Facilities from HQR.
In 1990, with the consent of HQR, Beverly assigned its leasehold interests in the Facilities to Delmar. Delmar leased the Facilities from HQR pursuant to the following documents: (1) Four Lease Agreements dated July 29, 1982 (collectively the "Lease Agreements"); (2) a Third Amendment to Agreement to Lease dated December 27, 1990 (the Amendment); (3) Four Assignments and Assumptions of Leases with Consent of Lessor dated December 31, 1990 (collectively the Assignments); (4) a Lease Modification dated June 11, 1992; and (5) a Rent Modification Agreement dated May 1, 1995. (The Lease Agreements, as amended and modified by the Amendment, the Assignments, the Lease Modification and Rent Modification, are referred collectively as the "Leases"). Delmar later assigned each lease to a separate Indiana limited partnership.
On June 11, 1992, Bartle entered into an agreement with HQR whereupon he personally guaranteed the rent for the Facilities and for breach of the Leases. The Lease Modification provides in pertinent part that:
Appellee's Appendix at 301. Under Section 24.1A of the Leases, an Event of Default occurs if the tenant fails to pay any payment required under the Leases when due, and such default continues for ten (10) days after written notice of such default.
On October 29, 1998, HQR gave Delmar and Bartle written notice of default under the Leases and demanded payments of the amounts owed. On November 6, 1998, Delmar filed a Voluntary Petition under Chapter 11 of the Bankruptcy Code in the United States Bankruptcy Court for the Southern District of Indiana, Indianapolis Division (the "Bankruptcy Court").
On March 1, 1999, HQR filed with the Hamilton Superior Court a Complaint To Recover On Guaranty seeking judgment against Bartle for the full amount of the debt owed by Delmar to HQR plus the costs of collection, court costs, and attorneys' fees. The Complaint To Recover On Guaranty alleges in pertinent part that:
Appellant's Appendix at 14. On April 16, 1999, Bartle filed with the trial court his Answer and Affirmative Defenses to Plaintiff's Complaint to Recover on Guaranty.
On January 3, 2000, Bartle moved to intervene generally in Delmar's case before the Bankruptcy Court. The Bankruptcy Court conducted a three-day hearing beginning on January 19, 2000, for the purpose of determining the obligations owed to HQR by Delmar under the Leases. Bartle was present during the entirety of the hearing and in fact testified. On February 12, 2000, HQR filed with the Bankruptcy Court a motion requesting
On February 14, 2000, the Bankruptcy Court entered its Findings of Fact, Conclusions of Law and Order with regard to Delmar's liability under the Leases. The Bankruptcy Court determined the obligations owed to HQR by Delmar under the Leases as follows:
Appellant's Appendix at 33-34. On February 24, 2000, Delmar filed with the Bankruptcy Court a Motion to Reconsider and to Open and Amend Judgment. Four days later, Delmar withdrew the motion and neither Delmar nor Bartle appealed the order.
On April 24, 2000, the Bankruptcy Court entered a Stipulation and Order on Application for Attorney Fees and Expenses, in which Delmar stipulated, and the Bankruptcy Court found, that Delmar was liable to HQR for attorney fees and expenses totaling $206,506.09. Thus, the Bankruptcy Court found Delmar liable to HQR for $871,579.08 in net rent, plus $519,525.04 in taxes, plus an additional $42,966.97 in taxes, plus $206,506.09 in attorneys' fees, totaling $1,640,577.18.
On September 27, 2000, HQR filed with the trial court a motion for partial summary judgment. HQR argued that it was entitled to judgment as a matter of law on all issues, other than the amount of attorneys' fees incurred in prosecuting its current claim, pursuant to the doctrine of offensive collateral estoppel. Specifically, HQR maintained that all other factual issues were conclusively resolved in the previous proceeding conducted before the Bankruptcy Court. On January 26, 2001, Bartle filed his response to HQR's motion for partial summary judgment. Following a hearing, the trial court issued an order on May 9, 2001, concluding in part that "the Court finds that the Bankruptcy Court's Order is res judicata as to Delmar's Obligations to HQR under the Leases, and that HQR is entitled to offensively assert collateral estoppel against Bartle to preclude Bartle from relitigating the issues previously determined by the Bankruptcy Court in its Order with respect to Delmar's Obligations to HQR under the Leases." Appellant's Appendix at 11-12. This appeal ensued.
Discussion and Decision
Bartle contends that the trial court erred in granting partial summary judgment in favor of HQR. We disagree.
I. Standard of Review
In reviewing a motion for summary judgment, we apply the same standard as the trial court, and we resolve any question of fact or an inference to be drawn therefrom in favor of the non-moving party. Foster v. Evergreen Healthcare, Inc., 716 N.E.2d 19, 23-24 (Ind.Ct.App.1999), trans. denied. Summary judgment is appropriate only if the designated evidentiary matter shows that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law. Ind. Trial Rule 56(C).
Once the moving party has met this burden with a prima facie showing, the burden shifts to the non-moving party to demonstrate that there is a genuine issue of material fact for trial. Jacques v. Allied Bldg. Servs. of Indiana, 717 N.E.2d 606, 608 (Ind.Ct.App.1999). Any doubt about
II. Collateral Estoppel
Issue preclusion, often referred to as collateral estoppel, bars the subsequent litigation of a fact or issue which was necessarily adjudicated in a former lawsuit if the same fact or issue is presented in the subsequent lawsuit. Shell Oil Co. v. Meyer, 705 N.E.2d 962, 968 (Ind.1998). In that situation, the former adjudication will be conclusive in the subsequent action even if the two actions are on different claims. Sullivan v. American Cas. Co., 605 N.E.2d 134, 137 (Ind.1992). However, the former adjudication will only be conclusive as to those issues which were actually litigated and determined therein. Wedel v. American Elec. Power Serv. Corp., 681 N.E.2d 1122, 1131 (Ind.Ct.App.1997), trans. denied.
Collateral estoppel does not extend to matters which were not expressly adjudicated and can be inferred only by argument. Peterson v. Culver Educ. Found., 402 N.E.2d 448, 461 (Ind.Ct.App. 1980). The primary consideration in the use of collateral estoppel is whether the party against whom the former adjudication is asserted had "a full and fair opportunity to litigate the issue and whether it would be otherwise unfair under the circumstances" to permit the use of issue preclusion in the subsequent action. Sullivan, 605 N.E.2d at 138. Review of a trial court's decision regarding the use of issue preclusion is subject to an abuse of discretion standard. Shell Oil, 705 N.E.2d at 969.
Collateral estoppel has been divided into two categories: "offensive" collateral estoppel and "defensive" collateral estoppel. Tofany v. NBS Imaging Sys., Inc., 616 N.E.2d 1034, 1037 (Ind.1993). Offensive collateral estoppel involves a situation where the "`plaintiff seeks to foreclose the defendant from litigating an issue the defendant had previously litigated unsuccessfully in an action with another party.' " Id. (quoting Parklane Hosiery Co., Inc. v. Shore, 439 U.S. 322, 326 n. 4, 99 S.Ct. 645, 58 L.Ed.2d 552 (1979)). Defensive collateral estoppel involves a situation where a "defendant seeks to prevent a plaintiff from asserting a claim which the plaintiff had previously litigated and lost." Id. The present case involves offensive use of collateral estoppel; HQR is seeking to estop Bartle from relitigating at the trial court the issue of his personal liability under the Leases, an issue HQR alleges Bartle previously litigated and lost against HQR in the action before the Bankruptcy Court.
The offensive use of collateral estoppel has traditionally been viewed as somewhat more problematic than the defensive use of collateral estoppel.
In Tofany, the Indiana Supreme Court discussed the factors to be considered in a court's determination of whether offensive collateral estoppel should be utilized. 616 N.E.2d at 1038. The court stated that:
Id. at 1038-39. Our supreme court added that these factors were not exhaustive; rather they merely provided the framework for a court to utilize in its determinations. Id. at 1038.
III. Bartle's Arguments
Bartle asserts that it was erroneous for the trial court to apply the doctrine of offensive collateral estoppel for the following reasons: (1) privity was not established with the true parties in interest, an absolute requirement of collateral estoppel; (2) he did not have an incentive to litigate his underlying liability under the Leases before the Bankruptcy Court; and (3) he was not afforded an opportunity to assert his defense of impairment of collateral because the issue of the Guaranty was not before the Bankruptcy Court.
A. Privity
The term "privity" describes the relationship between persons who are parties to an action and those who are not parties to an action but whose interests in the action are such that they may nevertheless be bound by the judgment in that action. Small v. Centocor, Inc., 731 N.E.2d 22, 27-28 (Ind.Ct.App.2000), trans. denied. The term includes those who control an action, though not a party to it, and those whose interests are represented by a party to the action. Id. The Restatement of Judgments provides that:
Restatement (Second) of Judgments § 59(3).
Traditionally, Indiana required mutuality of estoppel and identity of parties before collateral estoppel could be invoked. Tobin v. McClellan, 225 Ind. 335, 73 N.E.2d 679, 683 (1947); Town of Flora v. Indiana Serv. Corp., 222 Ind. 253, 53 N.E.2d 161, 163 (1944). "Mutuality of estoppel" refers to the requirement that "one taking advantage of the prior adjudication would have been bound had the prior judgment gone the other way." State v. Speidel, 181 Ind.App. 448, 392 N.E.2d 1172, 1177 (1979). "Identity of parties" refers to the requirement that the party to be bound by a prior adjudication must be the same as or in privity with the party in the prior action. Id. at 1176. Thus, in the past, a stranger to the judgment, one who was neither a party nor in privity with a party to the prior judgment, was not permitted to take advantage of collateral estoppel in the subsequent action. Id.
In Sullivan, the Indiana Supreme Court rejected the requirements of "mutuality of estoppel" and "identity of parties" as prerequisites to the defensive use of collateral estoppel. 605 N.E.2d at 137. Instead, our supreme court held that to determine whether the defensive use of collateral estoppel is appropriate, a court is to consider whether the party against whom the judgment is pled had a full and fair opportunity to litigate the issue and whether it would be otherwise unfair under the circumstances to permit the use of collateral estoppel. Id. at 138. However, the Court in
Bartle argues Delmar is not the true party in interest because Delmar assigned the Leases to limited partnerships prior to the hearing before the Bankruptcy Court. Bartle further argues that privity does not exist with the limited partnerships because he never held a controlling interest in them. Therefore, Bartle asserts that Delmar was not the proper party to contest HQR's Motion for Determination of Lease Obligations and the fact that he attended the hearing before the Bankruptcy Court as a representative of Delmar is insufficient to establish privity with the limited partnerships.
The Assignments entered into between Beverly, Delmar, and HQR provide in pertinent part that:
Appellee's Appendix at 261-62, 273-74, 284-85, 295-96 (footnote added). Therefore, we find that Delmar was the true party in interest, not the limited partnerships, because any assignment to the limited partnerships did not relieve Delmar or Bartle of the obligations arising under the Leases. We must now determine whether Bartle is in privity with Delmar.
The record reveals that Bartle is the ninety-nine percent limited partner of Delmar. Bartle is also the majority, if not sole shareholder
B. Incentive to Litigate
The Indiana Supreme Court has stated that unfairness to a defendant against whom collateral estoppel is asserted may result where the defendant had little incentive to vigorously litigate the first action either because the damages were small or nominal, or because future suits were not foreseeable. Tofany, 616 N.E.2d at 1038 (quoting Parklane Hosiery, 439 U.S. at 330-31, 99 S.Ct. 645). "When considering the defendant's incentive to litigate, the trial court may consider the interest at stake for the defendant as well as how the defendant perceived this interest." Tofany, 616 N.E.2d at 1039.
Bartle asserts that he had "different" incentives to litigate the two proceedings and thus, offensive collateral estoppel should not have been utilized. In support of his argument, Bartle provides that the proceeding before the Bankruptcy Court was to determine the amount of rent liability in order to ascertain if Delmar could feasibly assume and cure the Leases. In contrast, the proceeding before the trial court concerned HQR's request for a personal judgment against him in excess of 1.6 million dollars.
HQR asserts that Bartle was well aware at the hearing before the Bankruptcy Court that HQR was looking to Bartle to personally satisfy Delmar's obligations to HQR. HQR provides that at that time, its action seeking recovery against Bartle on his guarantee of the Leases already had been pending in the trial court for almost one year. Moreover, HQR argues that because Bartle is the ninety-nine percent limited partner of Delmar and the majority, if not sole, shareholder of Burlington, every single dollar that was determined by the Bankruptcy Court to be owed by Delmar to HQR reduced by a dollar the value of Bartle's interest in Delmar.
The record reveals that Bartle intervened generally in the proceeding before the Bankruptcy Court. Moreover, Bartle was present during the hearing before the Bankruptcy Court and in fact testified. In addition, the record reveals that Bartle maintained close contact with the attorney litigating the suit on behalf of Delmar throughout the pendency of the bankruptcy action. In fact, it appears that Bartle was kept up-to-date by Delmar's counsel and made all of the strategic decisions on behalf of the entity. Bartle and Delmar are essentially one entity. Bartle is the ninety-nine percent limited partner of Delmar. Bartle is also the majority, if not sole shareholder of Delmar's other one percent limited partner, Burlington, which is also Delmar's general partner. Thus, we hold that Bartle had an incentive to litigate the issue of liability before the Bankruptcy Court because his liability rests upon liability on the part of Delmar.
C. Defense of Impairment of Collateral
Bartle next argues that the trial court erred in using offensive collateral estoppel because he was not afforded the opportunity
The guarantor of a debt may seek to avoid personal liability in a suit by a creditor by asserting the impairment of collateral defense. Farmers Loan & Trust Co. v. Letsinger, 652 N.E.2d 63, 66 (Ind. 1995). Pursuant to this defense, the guarantor's liability will be discharged if the facts establish that the creditor's conduct unjustifiably impaired the collateral securing the debt. Alani v. Monroe County Bank, 712 N.E.2d 19, 21 (Ind.Ct.App. 1999). In discussing the reason behind this defense, our supreme court has stated:
Letsinger, 652 N.E.2d at 66-67 (citations omitted).
With regard to his defense of impairment of collateral, Bartle directs our attention to the right of first refusal provision contained in the July 29, 1982, lease agreements entered into between Beverly and HQR. This provision provides as follows:
Appellee's Appendix at 58, 118, 180, 242. Because HQR consented to Beverly's assignment of its leasehold interests in the Facilities to Delmar in 1990, Delmar was granted the right of first refusal contained in this contractual provision.
Bartle argues that the November 17, 1992, agreement entered into between HQR and Beverly impaired the value of Delmar's leasehold interests by granting Beverly the option to purchase the Facilities. This agreement, titled Fourth Amendment to Agreement to Lease, provides in pertinent part that "Beverly shall have the right to purchase the Properties as set forth herein." R. 189. Even if we assume this agreement impaired the leasehold interests, it does not affect Bartle's agreement to be personally liable for all rent of the Facilities under the Lease Modification Agreement. See Appellee's Appendix at 301. Moreover, Bartle failed, before the trial court, to demonstrate that there was a genuine issue of material fact for trial regarding his assertion that he was released from the obligations under the Guaranty due to the impairment of collateral.
Accordingly, we hold that the trial court did not err in using the doctrine of offensive collateral estoppel to preclude Bartle from relitigating his underlying liability under the Leases to HQR and since Bartle raised no issue as to a material fact that would support a finding that his guaranty was discharged the trial court properly granted partial summary judgment in favor of HQR against Bartle on this issue.
Conclusion
Based on the foregoing, we hold that the trial court properly granted partial summary judgment in favor of HQR against Bartle.
Affirmed.
KIRSCH, J., and SULLIVAN, J., concur.
FootNotes
When the corporation is closely held, ... interests of the corporation's management and stockholders and the corporation itself are few in number and either themselves constitute the management or have direct personal control over it. In many respects, the enterprise is a proprietorship or partnership conducted in corporate form.... When the form is adequately adhered to, the fact that interests of a closely held corporation and its proprietors are usually identical does not efface the separate legal identity of the corporation for such purposes as taxation, regulation, and the limitation of shareholders' liability to their investment in the corporation. For the purpose of affording opportunity for a day in court on issues contested in litigation, however, there is no good reason why a closely held corporation and its owners should be ordinarily regarded as legally distinct. On the contrary, it may be presumed that their interests coincide and that one opportunity to litigate issues that concern them in common should sufficiently protect both.
The problem then becomes one of fair opportunity to litigate the issue in question. When the corporation is the party to the litigation, a controlling owner who participates in the conduct of the litigation ordinarily has full opportunity and adequate incentive to litigate the issues commonly affecting him and the corporation.
Restatement (Second) of Judgments, § 59 cmt e.
Appellant's Appendix at 219.
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