GREATER HAMMOND COMMUNITY SERV., INC. v. Mutka

ATTORNEYS FOR APPELLANT ATTORNEYS FOR APPELLEE

Robert J. Kopka David W. Holub

Lawrence M. Hansen David M. Hamacher

Gregory M. Bokota Hammond, Indiana

Merrillville, Indiana

IN THE

SUPREME COURT OF INDIANA

GREATER HAMMOND COMMUNITY )

SERVICES, Inc., )

)

Appellant (Defendant Below), )

)

v. ) 45S03-9904-CV-224

) in the Supreme Court

LUCILE MUTKA, )

) 45A03-9706-CV-203

Appellee (Plaintiff Below). ) in the Court of Appeals

)

LAKE COUNTY EQUAL OPPORTUNITY )

COUNCIL, NORTHERN INDIANA REGIONAL )

PLANNING COMMISSION, GLEASON B. )

KING and FREDERICK J. LEEP, )

)

Non-Appealing Parties, )

(Defendants Below),

APPEAL FROM THE LAKE SUPERIOR COURT

The Honorable Jeffery J. Dywan, Judge

Cause No. 45D01-9502-CT-203

September 21, 2000

SHEPARD, Chief Justice.

About thirty-five years ago, President Johnson’s war on poverty gave

birth to hundreds of local non-profit corporations that carry out programs

assisting the poor. Our legislature brought some of those entities within

the coverage of the Indiana Tort Claims Act. One such organization,

Greater Hammond Community Services, became a defendant in two tort suits.

In rulings issued on the same day, two panels of the Court of Appeals

reached conflicting conclusions about whether Greater Hammond is covered by

the Act. We hold it is not.

Facts and Case History

On October 19, 1994, Gleason King was driving a bus operated by his

employer Greater Hammond Community Services, Inc. (GHCS). GHCS was

affiliated with the Lake County Equal Opportunity Council (LCEOC). LCEOC

leased the bus from the Northern Indiana Regional Planning Commission

(NIRPC).

When King failed to stop for a red traffic signal, the bus collided

with another vehicle. Lucile Mutka, an 86-year-old widow, was a passenger

on the bus who sustained personal injuries and incurred significant medical

expenses.

On February 16, 1995, Mutka filed a complaint for damages against

King, GHCS, LCEOC, and NIRPC. The defendants moved for partial summary

judgment, seeking a determination that they were governmental entities and

that their aggregate liability for Mutka’s injuries could not exceed

$300,000, pursuant to the Indiana Tort Claims Act. Mutka also moved for

partial summary judgment, claiming that GHCS was not a governmental entity

entitled to the damages limitation. The trial court granted Mutka’s

motion. It eventually entered a final judgment under which GHCS conceded

liability in the amount of $700,000, subject to its ability to appeal the

trial court’s determination that GHCS was an independent, rather than

governmental, entity. The trial court dismissed the remaining defendants

with prejudice.

GHCS appealed, and the Indiana Court of Appeals upheld the trial

court’s determination that GHCS was not a governmental entity. Greater

Hammond Community Serv. v. Mutka, 699 N.E.2d 757 (Ind. Ct. App. 1998). On

the same day, another panel decided LCEOC, Inc. v. Greer, 699 N.E.2d 763

(Ind. Ct. App. 1998) (Greer), holding that GHCS was a governmental entity.

Each losing party sought transfer to this Court under Appellate Rule

11(B)(2)(c) claiming a conflict in decisions by the Court of Appeals. This

point was obviously well taken, so we transferred both cases here.

The Tort Claims Framework

The Indiana Tort Claims Act provides in relevant part, “The combined

aggregate liability of all governmental entities and of all public

employees, acting within the scope of their employment . . . does not

exceed three hundred thousand dollars ($300,000) for injury to or death of

one (1) person.” Ind. Code Ann. § 34-4-16.5-4 (West 1983).[1] Indiana

Code § 34-4-16.5-2(c)[2] defines a “governmental entity” as the state or a

political subdivision of the state.

The Indiana Tort Claims Act says that community action agencies[3]

shall be treated as political subdivisions. Ind. Code Ann. § 34-4-16.5-20

(West Supp. 1994).[4] While the status of LCEOC under the Indiana Tort

Claims Act is at issue in the companion case of Greer, the parties to this

case stipulate that LCEOC is entitled to political subdivision status under

the Indiana Tort Claims Act. (R. at 95.) The only remaining issue is,

therefore, whether GHCS is a political subdivision. See Appellant’s Pet.

for Trans. to the Supreme Court at 2. We approach such questions with the

recognition that the Indiana Tort Claims Act is in derogation of the common

law and must therefore be strictly construed against limitations on the

claimant’s right to bring suit. See, e.g., Hinshaw v. Board of Comm’rs of

Jay County, 611 N.E.2d 637, 639 (Ind. 1993); Indiana State Highway Comm’n

v. Morris, 528 N.E.2d 468, 473 (Ind. 1988).

GHCS as a Political Subdivision

Although the parties agree that GHCS is not a community action agency,

as defined by statute, GHCS claims it should still be considered a

governmental entity on a variety of grounds.

A. Uniquely Governmental Services? GHCS asserts that an entity not

listed in section 34-4-16.5-20 can nevertheless be covered by it, citing

Ayres v. Indian Heights Volunteer Fire Dep’t, 493 N.E.2d 1229 (Ind. 1986).

In that case, our Court set out a test for determining when a group may be

deemed a governmental instrumentality. Borrowing language from the U.S.

Supreme Court, we reasoned that when private groups are “endowed by the

state with powers or functions governmental in nature, they become agencies

or instrumentalities of the state and are subject to the laws and statutes

affecting governmental agencies and corporations.” Id. at 1235 (citing

Evans v. Newton, 382 U.S. 296 (1966)). We held that, because firefighting

is a “uniquely governmental” service, the volunteer fire department of

Indian Heights was “an instrumentality of local government and was

protected by the Indiana Tort Claim[s] Act.” Id. at 1237.

GHCS points to certain facts it believes qualify it for treatment as a

governmental entity under this test. We examine these under the standard

on appeal for summary judgment. The reviewing court analyzes the issues

presented at trial in the same fashion as the trial court, de novo. Carie

v. PSI Energy, Inc., 715 N.E.2d 853, 855 (Ind. 1999). A grant of summary

judgment requires that no genuine issue of material fact exist and that the

movant is entitled to judgment as a matter of law. Ind. Trial Rule 56(C).

The court must also view the pleadings and designated materials in the

light most favorable to the non-movant, in this case, GHCS.

GHCS contracted with LCEOC “to provide certain enumerated services to

the low income, elderly, and handicapped for which LCEOC receives grants

and contracts from various funding sources.” (R. at 82.) LCEOC’s

enumerated services are: employment, education, better use of income,

housing, emergency services, nutrition, food, medicine, disabilities, child

development, transportation, referral for other services, outreach, and in-

home services, such as home-delivered meals and nutrition education.

Providing these types of services to disadvantaged people is not

uniquely governmental. Hundreds of charities in our state also do this

valuable work. We cannot deem GHCS a governmental instrumentality under

the Ayres test.

B. Governmental Control? GHCS also argues that World Prods., Inc. v.

Capital Improvement Bd., 514 N.E.2d 637 (Ind. Ct. App. 1987), supports its

position that it may be deemed governmental without being specifically

classified as a particular political subdivision under the Indiana Tort

Claims Act. (Appellant’s Br. at 10, 15.)

In World Productions, the Court of Appeals was called upon to decide

whether the Capital Improvement Board was a governmental entity immune from

claims for punitive damages. The court did not focus on the governmental

character of the group’s function, but instead used a two-prong test

borrowed from the Seventh Circuit. 514 N.E.2d 634, 637 (Ind. Ct. App.

1987) (citing Brock v. Chicago Zoological Soc’y, 820 F.2d 909, 910 (7th

Cir. 1987)). Brock examined the claim of a nonprofit group that it was a

political subdivision for Occupational Safety and Health Act purposes.

Brock, 820 F.2d at 910. The Brock court largely relied on factors used in

the Secretary of Labor’s regulations concerning claims of exemption: (1)

whether the state created the entity, and (2) whether the state or the

public controls the entity. Id.

We have some doubt about the analytical framework deployed in World

Productions,[5] but we will accept it for the sake of argument and examine

GHCS’s claim on its own terms. The holding in World Productions that the

Capital Improvement Board was a governmental entity was based in large part

on the fact that the statute creating the Board requires an exceptionally

high level of governmental control.

Board members are appointed by the executive of the consolidated city

(Indianapolis) and the Board of Commissioners of the County (Marion),

IC 36-10-9-4(a)[]; a board member may be removed for cause by the

appointing authority, IC 36-10-9-4(d); real property which the Board

acquires is held in the name of the County and may not be sold without

the approval of the executive of the consolidated city (Indianapolis),

IC 36-10-9-7(b)[]; the Board’s funds must be handled and accounted for

in the same manner as other public funds, IC 36-10-9-9(b)[]; the

Board’s annual budget must be approved by the city-county legislative

body, IC 36-10-9-8[]; and the Board is subject to audit and

supervision by the State Board of Accounts, IC 36-10-9-9(f).

World Productions, 514 N.E.2d at 637.

GHCS relies on evidence showing that in furtherance of its charitable

objectives it uses the LCEOC log, publishes documents stating that it is a

division of LCEOC, receives funding through LCEOC, complies with LCEOC

procedures in providing services, maintains financial records pursuant to

LCEOC requirements, and operates pursuant to LCEOC’s directives. LCEOC

also budgets for and audits GHCS. GHCS argues that these factors are

sufficient to support a conclusion that it is an instrumentality of LCEOC,

which is itself a governmental entity covered by the Indiana Tort Claims

Act.

On the contrary, it is apparent that GHCS voluntarily submitted to

this degree of LCEOC control. Our statutes do not require this level of

management; rather the parties arranged it themselves when GHCS contracted

with LCEOC. (R. at 82-87.)[6] “An entity does not become a ‘public

agency,’ thus coming within the purview of the statutes in question, by

contractually agreeing to submit to [control by another governmental

entity]. Rather, an entity is ‘subject to’ those procedures only if

compelled to submit by statute, rule, or regulation.” Perry County Dev.

Corp. v. Kempf, 712 N.E.2d 1020, 1025 (Ind. Ct. App. 1999) (holding Perry

County Development Corporation is not a public agency for purposes of the

Public Records Act in part because it is not “subject to” audit and budget

review by the State Board of Accounts), trans. denied.

A group that is neither specifically named a political subdivision by

statute nor engaged in the provision of uniquely governmental services may

not receive the protection of the Indiana Tort Claims Act by contracting to

be managed by an established governmental entity.[7]

C. Corporate Alter Ego? GHCS claims that it “operates under and

within the structure of . . . LCEOC[] and holds itself out as a division of

LCEOC.” (Appellant’s Br. at 4-5 (citing R. at 67-80, 106-107).) This

argument is akin to the notion that there may be a “piercing of the

corporate veil” when an individual operates as the virtual alter ego of a

corporation. Here, the parties appear to disagree about whether GHCS is a

subsidiary of LCEOC. Compare Appellant’s Br. at 4-5 (citing the ways in

which LCEOC controls GHCS) with Appellee’s Br. at 15-18 (arguing the

corporations’ separateness).

The general rule of corporate law, however, is that a corporation will

not be held liable for the acts of other corporations, including its

subsidiaries. William Meade Fletcher, Fletcher Cyclopedia of the Law of

Private Corporations §§ 41.10, 43, at 568, 711 (1999). Moreover, distinct

corporations, even parent and subsidiary corporations, are presumed

separate. McQuade v. Draw Tite, Inc., 659 N.E.2d 1016, 1020 (Ind. 1995).

To overcome this presumption, a plaintiff must show that one corporation

dominated another to the extent that the subordinate was the mere

instrumentality of the dominant corporation, Fletcher, supra, § 41.10 at

568, that the dominant corporation employed the subordinate to perpetrate a

fraud, Extra Energy Coal Co. v. Diamond Energy and Resources, Inc., 467

N.E.2d 439, 441-42 (Ind. Ct. App. 1984), or that the capital placed in the

subordinate was “illusory or trifling compared to the business to be done

and the risks of loss . . . .” Fletcher, supra, § 41.33 at 650. The

claimant must also demonstrate that the defalcation of the corporations,

for example, fraud, was the proximate cause of the injury sustained. See

id. § 41.10 at 713.

For all that appears, the corporate relationship between GHCS and

LCEOC is not founded on fraud or the desire to escape liability. Rather,

the parties fashioned their relationship “to focus all available resources

toward the goal of providing the opportunity for the disadvantage[d] of all

ages to become self-sufficient, while insuring that the disadvantage[d]

have a voice in the decision making process.” (R. at 176.) Moreover, the

business relationship in no way proximately caused Mutka’s injury.

Finally, the corporate alter ego doctrine is a device by which a

plaintiff tries to show that two corporations are so closely connected that

the plaintiff should be able to sue one for the actions of the other. In

this case, the defendant argues that the corporations are alter egos whose

corporate form should be disregarded so that it can gain the protection of

the Indiana Tort Claims Act.

“The purpose of the alter ego doctrine is to avoid the inequity of one

corporation using another corporation to shield itself from liability.”

Fletcher, supra, § 41.20 at 596. Our case law takes a dim view of its use

by defendants. “While we have expressed willingness to use our equitable

power to disregard the corporate form to prevent fraud or unfairness to

third parties, we perceive little likelihood that equity will ever require

us to pierce the corporate veil to protect the same party that erected it.

It was, after all, defendant that chose to structure itself in its present

multi-corporate form.” McQuade, 659 N.E.2d at 1020 (employee may sue his

employer’s parent corporation); accord In re RCS Engineered Products Co.,

Inc., 102 F.3d 223 (6th Cir. 1996) (corporate form pierced only for benefit

of third parties).

Just as there would be no apparent basis for transferring liability

from GHCS to LCEOC, we see no basis for concluding that GHCS is LCEOC for

Tort Claims Act purposes.

Conclusion

GHCS is not a governmental entity or political subdivision named by

statute; it is not engaged in providing uniquely governmental services; it

is not a division of another governmental entity. It is therefore not a

community action agency protected by the Indiana Tort Claims Act.

GHCS conceded liability for its actions and the parties agreed upon an

amount. We remand this action to the trial court with instructions to

award the agreed final judgment to Mutka.

Dickson, Boehm, and Rucker, JJ., concur.

Sullivan, J., dissents with separate opinion.

Attorneys for Appellant Attorneys for Appellee

Robert J. Kopka David W. Holub

Lawrence M. Hansen David M. Hamacher

Gregory M. Bokota Hammond, Indiana

Merrillville, Indiana

IN THE

INDIANA SUPREME COURT

GREATER HAMMOND COMMUNITY )

SERVICES, INC., )

Appellant (Defendant Below), ) Supreme Court No.

) 45S03-9904-CV-224

v. )

) Court of Appeals No.

LUCILE MUTKA, ) 45A03-9706-CV-203

Appellee (Plaintiff Below), )

)

LAKE COUNTY EQUAL OPPORTUNITY )

COUNCIL, NORTHERN INDIANA )

REGIONAL PLANNING COMMISSION, )

GLEASON B. KING and FREDERICK J. )

LEEP, )

Non-Appealing parties )

(Defendants Below). )

)

APPEAL FROM THE LAKE SUPERIOR COURT

The Honorable Jeffery J. Dywan, Judge

Cause No. 45D01-9502-CT-203

September 21, 2000

SULLIVAN, Justice, dissenting.

I respectfully dissent for the reasons set forth in my opinion today

in LCEOC, Inc., v. Greer, ___ N.E.2d ___ (Ind. 2000).

-----------------------

[1] Currently Ind. Code Ann. § 34-13-3-4 (West Supp. 1999).

[2] Currently Ind. Code Ann. § 34-6-2-49 (West Supp. 1999).

[3] Indiana Code § 12-14-23-2 defines “community action agency.”

[4] Repealed and recodified at Ind. Code Ann. § 34-13-3-22 (West Supp.

1999).

[5] The World Productions court deemed it necessary to consider the

plaintiff’s claim against the Board as a common law claim not governed by

the Indiana Tort Claims Act. 514 N.E.2d at 636. We think it would have

been relatively easy to conclude that the Board is a political subdivision

under the Indiana Tort Claims Act and resolve the case by (1) applying the

provision of the ITCA prohibiting punitive damages against political

subdivisions, Ind. Code § 34-4-16.5-4, and (2) observing that there are no

punitive damages for most contract claims.

[6] This Agreement entered into by and between LCEOC, Inc., . . . and

GREATER HAMMOND COMMUNITY SERVICES, INC., . . . is executed pursuant

to the terms and conditions set forth herein. In consideration of

those mutual undertakings and covenants, the parties agree as follows:

. . . .

[That] [i]f [GHCS] is unable or unwilling to comply with any

provisions of this Agreement, [it] may terminate this Agreement by

providing 30 working days notice to LCEOC of such termination.

(R. at 82, 85.)

[7] GHCS also argues that the joint venture in which GHCS and LCEOC engaged

is entitled to the protection of the ITCA, citing Brunton v. Porter Mem’l

Hosp. Ambulance Serv., 647 N.E.2d 636 (Ind. Ct. App. 1994). Brunton is

distinguishable, however, because it involved two undisputed governmental

entities acting jointly: the Porter Memorial Hospital and the Porter

County Commissioners. Id. at 639.