Darko Ventures LLC S Series 101 v. Crystal Varela (mem. dec.)

MEMORANDUM DECISION Pursuant to Ind. Appellate Rule 65(D), this Memorandum Decision shall not be FILED regarded as precedent or cited before any Oct 05 2020, 8:59 am

court except for the purpose of establishing CLERK Indiana Supreme Court the defense of res judicata, collateral Court of Appeals and Tax Court estoppel, or the law of the case.

ATTORNEY FOR APPELLANT ATTORNEYS FOR APPELLEES Andrew A. Ault Ryan J. Vershay Ault Law Office, LLC Derek G. Raymond Indianapolis, Indiana Lewis Wagner, LLP Indianapolis, Indiana

IN THE COURT OF APPEALS OF INDIANA

Darko Ventures LLC S Series October 5, 2020 101, Court of Appeals Case No. Appellant-Plaintiff, 20A-PL-921 Appeal from the Marion Superior v. Court The Honorable John M.T. Chavis II, Crystal Varela, et al., Judge Appellees-Defendants. Trial Court Cause No. 49D05-1810-PL-42164

Bailey, Judge. Court of Appeals of Indiana | Memorandum Decision 20A-PL-921 | October 5, 2020 Page 1 of 13

Case Summary [1] This litigation concerns competing interests in a parcel of real estate (the

“Property”). In the action, Darko Ventures LLC S Series 101 (“Darko”) sought

an order authorizing a clerk’s deed conveying the Property to Darko. The trial

court issued the requested order without conducting a trial and without a

motion for summary judgment before it. Defendants Crystal Varela (“Crystal”)

and Gustavo Martinez (collectively, “C&G”) moved to correct error, seeking to

vacate the order authorizing the clerk’s deed. The trial court later granted

C&G’s motion to correct error, thereby vacating the order and setting the case

for further proceedings on the competing interests. Darko then filed a motion

to correct error, which was deemed denied. Darko now appeals, seeking to

reinstate the order authorizing a clerk’s deed. Herein, we conclude that the

order authorizing a clerk’s deed was premature—stemming from irregular

procedures—and so we discern no abuse of discretion in granting C&G’s

motion to correct error and denying Darko’s motion to correct error. We

therefore affirm those rulings and remand for further proceedings below.

Facts and Procedural History [2] In 2018, Darko filed the instant action against Jaime A. Varela (“Jaime”).1

Darko later amended its complaint, adding C&G as defendants. In the five-

1 Jaime does not actively participate on appeal.

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count complaint, Darko alleged that, on or before October 3, 2018, Jaime

owned the Property. Darko alleged that it agreed to purchase the Property from

Jaime for $20,000 through a contract dated October 3, 2018 (the “Contract”). [3] Counts I, II, and V were directed toward Jaime. In Count I, Darko alleged that

Jaime breached the Contract because he “failed and refused to close” the

transaction. Appellant’s App. Vol. 2 at 33. In Count II, Darko alleged that

Jaime committed fraud because his “true intention” was nonperformance. Id.

at 34. Darko sought damages in connection with those counts. As to Count V,

Darko alleged that it had “no adequate remedy at law to enforce the provisions

of [the Contract] other than specific enforcement and performance.” Id. at 37.

Darko sought an order compelling Jaime to convey the Property to Darko. [4] Pertinent to Counts III and IV were allegations that, on October 4, 2018—the

day after Darko and Jaime entered into the Contract—Jaime executed a

quitclaim deed conveying the Property to C&G. In Count III, Darko alleged

that C&G tortiously interfered with the Contract. In Count IV, Darko alleged

that the quitclaim deed to C&G was a fraudulent conveyance. Darko alleged

that Crystal is a relative of Jaime, that C&G paid no consideration for the

quitclaim deed, and that C&G “were not bona fide purchasers.” Id. at 36.

Darko alleged that it was “a bona fide purchaser.” Id. As to Count IV, Darko

sought an order (1) “decreeing that [Jaime] fraudulently conveyed [the

Property] to [C&G]” and (2) declaring “that such conveyance is . . . void[.]” Id.

at 37. Darko also sought an order compelling Jaime “to convey title” to it. Id.

Court of Appeals of Indiana | Memorandum Decision 20A-PL-921 | October 5, 2020 Page 3 of 13 [5] C&G filed an answer in which they denied the allegations that there was no

consideration for the deed and that C&G were not bona fide purchasers.

Meanwhile, Darko sought a default judgment against Jaime, alleging that

Jaime had failed to participate in the action. In February 2019, the trial court

granted Darko’s motion for a default judgment. In granting the motion, the

trial court ordered Jaime “to sell and transfer [the Property] to [Darko] pursuant

to” the Contract. Id. at 43. The order provided that, if Jaime was “unable to

pass title to the [P]roperty as ordered,” Jaime was to pay Darko $44,000 in

monetary damages. Id. The order stated that Jaime’s “subsequent sale . . . to

third parties other than [Darko] is VOID.” Id. In the next sentence, the order

specified that C&G’s “alleged purchase of the [P]roperty is unaffected” by the

default judgment. Id. The order further stated that “[t]he determination of

whether an arm’s length transaction exists is yet to be determined[.]” Id. [6] Darko later filed a Trial Rule 70 motion alleging that Jaime “continue[d] to

refuse to sell and transfer” the Property. Id. at 46. Darko did not seek the

monetary damages authorized by the order, instead asking the trial court to

“[d]irect[] the Clerk of the Court to sign and effectuate any and all closing

documents and execution of a deed transferring title” to Darko. Id. at 48. [7] C&G objected to Darko’s motion. C&G pointed out that they had “asserted in

their answer that they were the bona fide purchasers of the [P]roperty[.]” Id. at

50. C&G directed the court to the order on default judgment, alleging that the

order (1) had not affected C&G’s purported acquisition of the Property and (2)

had reserved the issue of whether C&G acquired the Property at arm’s length.

Court of Appeals of Indiana | Memorandum Decision 20A-PL-921 | October 5, 2020 Page 4 of 13 [8] The trial court held a hearing on Darko’s motion. At the hearing, the parties

argued about the effect of the quitclaim deed to C&G and whether C&G could

be considered bona fide purchasers of the Property. Darko asserted that it was

entitled to a clerk’s deed and that the quitclaim deed to C&G was void. Darko

directed the trial court to the quitclaim deed attached to the complaint, asserting

that the deed itself contained a statement that no consideration was paid. C&G

asserted that, despite what the quitclaim deed stated, they acquired the Property

for in-kind consideration of about $47,000 and without notice of the Contract. [9] On September 26, 2019, the trial court entered a written order granting Darko’s

motion for a clerk’s deed. Through the order, the court effectively quieted title

to the Property by (1) finding that C&G were not bona fide purchasers and (2)

directing the Marion County Clerk to “sign and effectuate . . . execution of a

deed transferring title of [the Property] to [Darko].” Id. at 67. Thereafter, the

clerk executed a quitclaim deed. The deed stated that the deed to C&G had

been declared void and that the clerk was “appointed to act in stead of [Jaime]

to effectuate the sale of [the Property] to [Darko.]” Id. at 69. The deed granted

Darko “all rights, title and interest” held or claimed by Jaime and C&G. Id. [10] The deed was recorded on October 11, 2019. Darko then moved to dismiss the

tort claim in Count III, and the trial court granted the motion. Meanwhile, the

day the deed was recorded, C&G filed a consolidated Trial Rule 59 motion to

correct error and Trial Rule 60(B) motion for relief from judgment. C&G asked

the trial court to vacate the order authorizing a deed and “proceed to a

determination of the outstanding claims and defenses as between [Darko] and

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[C&G] including but not limited to the issue of . . . ownership of [the Property],

and the issue of whether [C&G] purchased [the Property] through an arm’s

length transaction.” Id. at 73. Following a hearing, the court granted C&G’s

motion—vacating the prior order and setting the case for further proceedings.

Darko subsequently filed a motion to correct error, which was deemed denied. [11] Darko now appeals.2

Discussion [12] Darko argues that the trial court abused its discretion by granting C&G’s

motion to correct error, thereby vacating the September 2019 order authorizing

the clerk’s deed. We review a ruling on a motion to correct error for an abuse

2 In its Notice of Appeal, Darko asserts that it is pursuing an Interlocutory Appeal as of Right pursuant to Indiana Appellate Rule 14(A). Notably, the instant appeal stems from the September 2019 order authorizing a clerk’s deed. That order was interlocutory when it was entered because, at that time, Darko’s tort claim remained pending against C&G. Subsequently, however, the trial court granted Darko’s motion to dismiss the tort claim. The effect of that dismissal was to dispose of all claims as to all parties, giving rise to a final judgment in this matter. See App. R. 2(H)(1) (specifying that a judgment is final if “it disposes of all claims as to all parties”). C&G timely filed a motion to correct error and the trial court granted the motion, thereby vacating the order authorizing a clerk’s deed. See Ind. Trial Rule 59(F). Darko then timely filed a motion to correct error, which was deemed denied. See T.R. 59(C). Thus, despite Darko’s assertion that it is pursuing an Interlocutory Appeal as of Right pursuant to Appellate Rule 14(A), we conclude that this Court instead has jurisdiction because the appeal arises from a ruling on a motion to correct error. See App. R. 5 & 2(H)(4). We note that, had this appeal involved an interlocutory order, we discern no basis for jurisdiction through Appellate Rule 14(A). In invoking this rule, Darko did not identify an applicable subsection. Looking to Rule 14(A) and its nine subsections, the closest fit appears to be subsection 14(A)(4), which permits an appeal of an interlocutory order “[f]or the sale or delivery of the possession of real property[.]” Here, however, the pertinent order vacated an order involving the sale of real property, so it is not an order for the sale of real property. See, e.g., Moser v. Moser, 838 N.E.2d 532, 535 (Ind. Ct. App. 2005) (determining that 14(A)(4) “does not apply when the order is one denying a party’s prayer for the delivery of immediate possession of real property”), trans. denied. Ultimately, although we are satisfied that this Court has jurisdiction, we write to emphasize the importance of carefully considering jurisdiction in each appeal. To that end, we encourage the practice of citing to a specific subsection that affords jurisdiction—especially when relying on Rule 14(A).

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of discretion. Sims v. Pappas, 73 N.E.3d 700, 705 (Ind. 2017). “An abuse of

discretion occurs when the decision misinterprets the law or clearly contravenes

the logic and effect of the facts and circumstances[.]” Smith v. Franklin Twp.

Cmty. Sch. Corp., No. 20S-CT-98, 2020 WL 5014919, at *2 (Ind. Aug. 25, 2020).

Waiver [13] As an initial matter, Darko argues that C&G waived any challenge to the

issuance of a clerk’s deed. “Waiver is a form of procedural default or a

forfeiture of rights.” Batchelor v. State, 119 N.E.3d 550, 557 n.4 (Ind. 2019). [14] Darko points out that its motion for a clerk’s deed sought to enforce the default

judgment entered against Jaime. Darko refers to the order as a “judgment of

specific performance” requiring Jaime to convey the Property to Darko. Br. of

Appellant at 21. Darko suggests that the order would inevitably result in a deed

conveying the Property to Darko, so C&G should have challenged the order on

default judgment instead of the ensuing motion for a clerk’s deed. According to

Darko, C&G’s failure to challenge the earlier order resulted in waiver. [15] Darko oversimplifies the trial court’s order on default judgment. Although the

order was not a model of clarity, the order did not purport to deprive C&G of

all interest in the Property. Instead, the order expressly reserved the issue of

C&G’s alleged interest. Moreover, we disagree that a deed was the inevitable

outcome of the order. Rather, the order provided for damages if Jaime could

not convey the Property to Darko. Thus, if Jaime lacked title due to the

quitclaim deed to C&G, it follows that Jaime would be unable to convey the

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Property and would therefore be obligated to pay damages to Darko. The

payment of those damages would not affect C&G’s recorded interest. We are

therefore not persuaded by the argument that C&G waived any challenge. Nor

are we persuaded that, as Darko suggests, C&G’s failure to challenge the

default judgment against Jaime amounted to a waiver of due process rights.3

Conflicting Interests [16] Darko contends that C&G failed to place at issue any interest in the Property.

According to Darko, C&G was involved only as to Count III, the claim of

tortious interference. Darko contends that it never sought to quiet title to the

Property and that C&G should have filed a counterclaim asserting an interest.

Darko argues that, without a counterclaim, the court should not have allowed

C&G to challenge the motion for a clerk’s deed. Darko also notes that the

clerk’s deed stemmed from a default judgment against Jaime, not C&G. Darko

argues that the court “abused its discretion by vacating its finding, as to Jaime,”

that C&G are not bona fide purchasers “because as to Jaime [this fact] was fully

established by the default judgment and the public records.” Reply Br. at 7. [17] An action to quiet title is an action to resolve conflicting interests in real

property. See generally Ind. Code §§ 32-30-2-1 & -2-4; see also Action, Black’s

3 Darko also argues that C&G “lacked standing to object to the enforcement of the [default] judgment,” Br. of Appellant at 34, characterizing C&G as nonparties “seeking to intervene in a case already decided in Darko’s favor,” id. at 35-36. Darko further asserts that C&G argue “without cogency as to standing” in their brief. Reply Br. at 10. However, as we later discuss herein, C&G’s alleged interest was at issue in this action. We are therefore not persuaded that C&G lacked standing to object to a deed regarding the Property.

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Law Dictionary (11th ed. 2019) (defining this type of action as “[a] proceeding

to establish a plaintiff’s title to land by compelling the adverse claimant to

establish a claim or be forever estopped from asserting it”). The outcome of the

action may turn on whether a party is a bona fide purchaser. See, e.g., Denham

v. Degymas, 147 N.E.2d 214, 218 (Ind. 1958). Whether a party is a bona fide

purchaser is generally a question of fact. See generally Crown Coin Meter Co. v.

Park P, LLC, 934 N.E.2d 142, 148 (Ind. Ct. App. 2010) (discussing notice). [18] In the complaint, Darko alleged that it had an interest in the Property arising

from the Contract. Although Darko now attempts to focus on Count III—the

claim of tortious interference against C&G—in Count IV, Darko alleged that

the quitclaim deed conveying the Property to C&G was fraudulent. Darko

further alleged that, while Darko was “a bona fide purchaser,” C&G “were not

bona fide purchasers.” Appellant’s App. Vol. 2 at 36. Darko asked the court to

“enter an order decreeing that [Jaime] fraudulently conveyed [the Property] to

[C&G]” and that “such conveyance is therefore declared void[.]” Id. Darko

also requested an order compelling Jaime to convey the Property to Darko. [19] Darko suggests that Count IV was limited to the dealings between Darko and

Jaime. Yet, in Count IV, Darko asked the trial court to declare the conveyance

to C&G void. Declaring as much would divest C&G of their title to the

Property, altering the respective positions of the parties. Ultimately, regardless

of whether any count in the instant complaint contains the phrase “quiet title,”

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Darko plainly sought to resolve conflicting interests in the Property. We

therefore conclude that C&G were defendants in an action to quiet title.4 [20] Turning to whether C&G’s interest was properly at issue, Indiana Code Section

32-30-2-5 provides that, in an action to quiet title, the defendant’s answer “may

contain a denial of each material statement or allegation in the plaintiff’s

complaint.” The statute provides that, “[w]ith each denial, the defendant may

give in evidence every legal or equitable defense to the action that the defendant

may have.” I.C. § 32-30-2-5. Furthermore, Trial Rule 64(C) provides that, in

an action to quiet title, “the defendant in his answer may deny the plaintiff’s

claim of title and thereby place in issue the defendant’s title or interest[.]” [21] Darko argues that C&G should have filed a compulsory counterclaim against

Darko. Yet, in their answer, C&G denied Darko’s allegation that C&G were

not bona fide purchasers. Thus, even if Darko’s allegations in Count IV did not

put C&G’s interest in the Property at issue in this action, C&G’s interest was

4 Having concluded that Darko initiated an action to quiet title through the allegations in Count IV, we disagree with its suggestion that C&G were no longer parties to the lawsuit due to the dismissal of Count III.

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properly placed at issue by operation of both Indiana Code Section 32-30-2-5

and Trial Rule 64(C).5 There was no need for C&G to file a counterclaim. 6 [22] Ultimately, although Darko asserts that the allegations involving C&G were

limited to tortious interference, we disagree. Because C&G’s interest was at

issue in this action, we discern no error in allowing C&G to object to Darko’s

motion for a clerk’s deed and to subsequently pursue a motion to correct error.

Procedural Irregularities [23] Generally, litigation is resolved through a trial or proceedings on a motion for

summary judgment. See generally T.R. 39(A) (providing that factual issues will

be tried to a fact-finder); T.R. 56 (setting forth summary-judgment procedures

for purely legal issues). Here, without conducting a trial and without a motion

for summary judgment before it, the court found that C&G were not bona fide

purchasers and that Darko was entitled to a clerk’s deed “transferring title of

[the Property]” to Darko. Appellant’s App. Vol. 2 at 67. Moreover, although

Darko suggests that the deed merely secured Jaime’s specific performance, the

ensuing deed divested C&G of their interest in the Property. At bottom, then,

the proceedings below allowed Darko to use a default judgment against one

5 Darko asserts that C&G refer to Trial Rule 64(C) for the first time on appeal. To the extent Darko is arguing waiver, we disagree that C&G have waived the legal effect of their pleading. Moreover, having concluded that C&G’s interest was at issue due to the pleading, we disagree with Darko’s contention that C&G’s now-pending filing—a motion for leave to file counterclaims, crossclaims, and a third-party complaint, filed after the September 2019 order was vacated—indicates that their interest was never at issue. 6 Darko acknowledges as much. Indeed, although Darko disputes the nature of the action, it acknowledges that “[i]f this were a quiet title suit, [the] denial would in fact operate as a form of claim[.]” Reply Br. at 9.

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defendant to bypass formal proceedings regarding another defendant’s interest.

We conclude that it was procedurally improper to resolve the action this way. [24] Due to the irregular procedures leading to the clerk’s deed, we cannot say it was

an abuse of discretion to vacate the September 2019 order and set the case for

further proceedings.7 Thus, the court did not abuse its discretion by granting

C&G’s motion to correct error and denying Darko’s motion to correct error.

We therefore affirm those rulings and remand the case for further proceedings. 8

Appellate Damages [25] Indiana Appellate Rule 66(E) authorizes this Court to “assess damages if an

appeal . . . is frivolous or in bad faith.” Pursuant to the rule, “[d]amages shall

be in the Court’s discretion and may include attorneys’ fees.” App. R. 66(E).

Importantly, although we have “authority to award damages on appeal, we

must use extreme restraint when exercising this power because of the potential

chilling effect upon the exercise of the right to appeal.” Picket Fence Prop. Co. v.

Davis, 109 N.E.3d 1021, 1033 (Ind. Ct. App. 2018), trans. denied.

7 Having determined that the irregular procedures supported the decision to vacate the order, we need not address the parties’ arguments as to whether those irregularities amounted to a constitutional violation. 8 On appeal, Darko invites us to address the merits of C&G’s alleged interest, arguing about the adequacy of consideration and the effect of a quitclaim deed, inter alia. Critically, however, the trial court has not yet resolved this action to quiet title through full and fair procedures. For this reason, we decline to address the merits of the parties’ competing interests. For the same reason, we disagree with Darko’s assertion that C&G are somehow collaterally estopped from litigating the merits due to the court’s premature findings below. See, e.g., Nat’l Wine & Spirits, Inc. v. Ernst & Young, LLP, 976 N.E.2d 699, 704 (Ind. 2012) (explaining that the doctrine of collateral estoppel—also known as issue preclusion—(1) bars a party from relitigating a fully adjudicated issue and (2) applies only where the party had a full and fair opportunity to litigate that issue).

Court of Appeals of Indiana | Memorandum Decision 20A-PL-921 | October 5, 2020 Page 12 of 13 [26] C&G argue that the appeal is frivolous and pursued in bad faith. Asserting

several grounds for damages, C&G allege that—among other things—Darko

misrepresented the record and should have included additional documents in its

appendix. Having reviewed all of C&G’s contentions, we ultimately elect to

exercise restraint and therefore decline to award appellate damages to C&G.

Moreover, to the extent Darko suggests that alleged deficiencies in the Brief of

Appellee warrant appellate damages, we decline to award damages to Darko. [27] Affirmed and remanded for further proceedings.

Vaidik, J., and Weissmann, J., concur.

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