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June 01, 2007

INDIANA CASE REVIEW: Interlocutory Appeals; Waiver; Liquidated Damages and Rule Changes

Indiana Case Review

Interlocutory Appeals; Waiver; Liquidated Damages and Rule Changes

Stephen E. Arthur

Reconsideration of Interlocutory Appeal

Reconsideration of motions to accept or oppose discretionary interlocutory appeals may be appropriate in rare instances.

The Indiana Court of Appeals in Bridgestone Americas Holding, Inc. v. Mayberry, 2006 WL 2506499 (Ind. Ct. App. 2006) recently discussed this issue. In Bridgestone, a woman was killed when her car lost control. Mayberry brought suit against Bridgestone claiming that a defect in its tires caused the accident. Mayberry requested that Bridgestone produce certain documents during discovery. Specifically, Mayberry sought Bridgestone’s highly proprietary skim stock formula which Bridgestone claimed to be a trade secret. Bridgestone filed for a protective order over the formula and the trial court denied its motion. The trial court ordered Bridgestone to produce the documents and certified the issue for interlocutory appeal.

On appeal, the Court of Appeals’ motions panel denied the interlocutory appeal and Bridgestone sought rehearing by a second motions panel. Mayberry responded by citing Appellate Rule 54(A) which, in part, states: “A party may not seek rehearing of an order denying transfer.” Nevertheless, the second motions panel accepted the appeal, stating that it had inherent authority to reconsider any decision while an appeal remains in fieri.

The Indiana Court of Appeals affirmed the second motions panel’s decision to accept jurisdiction over the appeal. Specifically, Bridgestone satisfied the only prerequisite for acceptance of interlocutory appeal by obtaining certification by the trial court. From that point, the Court of Appeals found, the determination of whether or not to accept an interlocutory appeal is entirely discretionary.

Additionally, the Court of Appeals found its decision to be consistent with Appellate Rule 54(A). While that Rule prohibits a motion for rehearing, it allows a petition for rehearing for an order dismissing an appeal. It characterized the first motions panel’s denial of jurisdiction as an order dismissing an appeal. “That is, [the Court’s] refusal to accept jurisdiction has the same practical effect on litigants as an order dismissing an appeal.”

The Court of Appeals stated that it would not entertain routine repetitive motions to accept or oppose discretionary interlocutory appeals and that those motion are disfavored. In rare instances, however, reconsideration of those motions may be appropriate. Because Bridgestone’s appeal addressed operation of protective orders as applied to trade secrets, an area the Indiana courts have not addressed, the court found that Bridgestone had established good cause.

Waiver

An objection based on a petitioner’s failure to comply with the statutory requirement that a petition to the Tax Court be filed within thirty days after the agency determination is waived if not raised in the first response to the petition. The Indiana Supreme Court in Packard v. Shoopman, 852 N.E.2d 927 (Ind. 2006) recently confronted this issue.

In Packard, Shoopman appealed an assessment of his real property to the State Board of Tax Commissioners. The Board held a hearing but never resolved the matter and on January 1, 2002, all pending property tax appeals were transferred to the Indiana Board of Tax Review. The IBTR denied Shoopman’s appeal on August 7, 2002 and Shoopman filed an untimely petition with the Tax Court for review. More than two years later, the Clay Township Assessor moved to dismiss Shoopman’s appeal claiming the untimely filing deprived the Tax Court of subject matter jurisdiction. The Tax Court disagreed and determined that the Assessor had waived this objection.

On transfer, the Indiana Supreme Court restated portions of Indiana Code which govern judicial review by the Tax Court. Specifically, Indiana Code 33-26-6-2 (2004) provides that “if a taxpayer fails to comply with any statutory requirement for the initiation of an original tax appeal, the tax court does not have jurisdiction to hear the appeal.” Additionally, one “statutory requirement” is that the petitioner file a petition for review in the Tax Court within forty-five days from the receipt of the IBTR decision.

The Supreme Court noted the difference between subject matter jurisdiction and jurisdiction over the particular case. “Jurisdiction over the case” refers to a failure to meet procedural requirements but does not constitute a limitation on subject matter jurisdiction in the sense that the court cannot hear cases of the same general class. The procedural prerequisites in Packard, the Court found, can be waived or procedurally defaulted if not timely raised.

The Court went on to note that under the Indiana Constitution, appellate jurisdiction is established by rules, not statute, and the judiciary is the source of the rules governing appellate jurisdiction. The statutory requirement of timely filing in the Tax Court is not jurisdictional in the sense that it cannot be waived. By failing to challenge the timeliness of the appeal in a timely first response, the Assessor had waived its objection and the Tax Court properly asserted jurisdiction.

Liquidated Damages

A party seeking to enforce a liquidated damages clause need not prove actual damages but may be required to show a correlation between the liquidated damages and actual damages. This assures that the sum charged is fairly attributable to the breach. This rule was recently stated by the Indiana Court of Appeals in Harbours Condominium Ass’n, Inc. v. Hudson, 852 N.E.2d 985 (Ind. Ct. App. 2006).

In Harbours, Hudson purchased a condominium in The Harbours at Riverpoint. All owners within the Harbours were subject to the terms of a horizontal property regime which provided that owners within the community were to pay specified assessments and monthly dues. A late fee formula for delinquent payments was set forth in the property regime.

The plaintiff Association claimed it was entitled to $74,154.24 in late fees. The trial court, however, determined the Association’s actual damages to be $7117.29. It further determined the late fees to be a penalty and not valid liquidated damages. The Association appealed claiming, among other things, the late fees provision of the agreement to be a proper liquidated damages provision. The Court of Appeals affirmed.

The Court of Appeals noted a contradiction within the rules defining the distinction between liquidated damages and a penalty. To establish that a sum stipulated in an agreement as liquidated damages is not “grossly disproportionate” to the loss, the party seeking to enforce the liquidated damages provision must demonstrate some proportionality between the loss and the sum established as liquidated damages. A typical liquidated damages provision, however, provides for the forfeiture of a stated sum of money without proof of actual damages. The Court resolved the matter by looking to the purpose of the liquidated damages provision. Specifically, a party seeking to enforce a liquidated damages provision does not have to show actual damages but may be required to show a correlation between the liquidated damages and actual damages to demonstrate that the liquidated damages are fairly attributed to the breach.

Applying these principles, the court concluded that the Association’s claim for liquidated damages at ten fold its actual damages was grossly disproportionate.

Rule Changes

On August 15, 2006, the Indiana Supreme Court ordered changes to the following Indiana Rules of Court: Rules of Admission and Discipline 2, 3, 12, 23, 29, 31 and the Program Guidelines for Indiana Judges and Lawyers Assistance Program; Administrative Rules 5, 7, 9 and 16; Rules for Appellate Procedure 22, 35 and 43; Rules of Criminal Procedure 5 and 10; Rules of Trial Procedure 12, 53.1, 63, 76 and 81; Indiana Jury Rules 5, 6, 14, 18 and 27; and Rule of Professional Conduct 1.15. The ordered changes are available on the Indiana Supreme Court’s website at www.in.gov/judiciary/orders/rule-amendments and will become effective on January 1, 2007.

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Stephen Arthur (sarthur@h-mlaw.com) is a partner with Harrison & Moberly, LLP, in Indianapolis, concentrating his practice in federal and state complex commercial litigation. Mr. Arthur is the author of books on Indiana Civil Trial Practice and Indiana Procedural Forms, and co-author of Professor Harvey’s volumes in West Publishing’s Indiana Practice Series. The author wishes to thank Paul Carroll for his assistance in the preparation of this case review. The opinions and analysis expressed in this column are those of the author.

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