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The Indiana Tort Claims Act (I.C. 34-13-3 et seq.) requires that notice must be filed before a plaintiff may bring a tort claim against any state agency or political subdivision. The timing of this notice is critical, as failing to file a tort claim notice within the applicable time limit will most likely bar an individual from seeking any remedy available under tort law. If an individual’s tort claim involves the State or any state agency, notice must be served upon the attorney general or the relevant state agency within 270 days of the incident occurring. I.C. 34-13-3-6(a). Where a tort claim is against a political subdivision, notice must be given to the governing body of such political subdivision, as well as with Indiana Political Subdivision Risk Management Fund, within 180 days of the event occurring. The definition of a political subdivision can be found at IC 34-13-3-22. In a case where an individual’s injury, or other circumstance, causes them to become incapacitated, or in the case where the injured party is a minor, the time limit tolls. I.C. 34-13-3-9. In such a case, the tort claims notice must be filed within 180 days after the incapacity ends, or in the case of a minor, 180 days after his/her 18th birthday.

It is important to note that whether a party is a state agency or a political subdivision is not always apparent. The Court of Appeals has held in one case that a state university is not an agent of the State, but rather a political subdivision subject to the 180 day tort claim notice deadline. Therefore, it is advisable that all tort claim notices be filed as soon as possible, ideally within 180 days.

James A. L. Buddenbaum has practiced law for more than 25 years with Parr Richey representing municipalities and businesses in utility, healthcare and general business sectors in both regulatory and transactional matters. Jim also has extensive experience in representing businesses in making large property damage and similar insurance claims.

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In an opinion issued on December 31, 2018, the Indiana Court of Appeals upheld Charlestown’s sale of its water utility to the Indiana-American Water Company. See Now!, Inc. v. Indiana-American Water Company, Inc., Case No. 18A-EX-844 (Ind. Ct. App. Dec. 31, 2018). The City of Charlestown owned and operated its water utility for over fifty years. Id. at 3. At the time of the sale, the water utility system served 2,898 metered accounts. Id. Due to the City’s failure to maintain its water distribution system properly, minerals began to build up in the system, causing some customers to see “brown water” flow from their taps. Id. at 4. The estimated cost to remedy Charlestown’s water system was $7.2 million. Id. Concluding that this repair cost was too burdensome for the City to take on, City officials met with Indiana-American in the Spring of 2016 to discuss the sale of Charlestown’s water utility. Id. Appraisers valued the utility’s assets at just under $13.5 million. Id. at 5. Charlestown and Indiana American agreed on a sale price of $13,403,711. Id. This price reflected the appraised value of the water utility minus the value of a few wells/well pumps which Charlestown would retain and lease to Indiana-American. Id. The City held a public meeting to discuss the sale on May 11, 2017. Id. On July 6, 2017, the City adopted an ordinance to sell the utility. Id. A day later, NOW filed a complaint with the IURC asking it to reject the sale. Id. at 6. NOW eventually filed a motion for summary judgment, and the IURC held a three-day evidentiary hearing on the motion. Id. After the hearing, the IURC denied NOW’s motion and approved the sale. Id. at 7.

On appeal, the Court addressed three issues: (i) whether the sales price was reasonable as required by statute, (ii) whether information relating to the sale was properly made available to the public, and (iii) whether the statute requiring a public hearing on the sale was satisfied. Id. at 3. The “reasonableness” of a municipal utility’s sale price is defined by two statutes: Ind. Code § 8-1.5-2-6.1 (applying to the sale of “non-surplus utility property”) and IC §8-1-30.3-5 (applying to the sale of property by “distressed utilities”). Id. at 12. NOW argued that these two statutes present two distinct reasonableness standards and that the IURC applied the wrong standard in its order approving the sale. Id. The Court of Appeals rejected this argument; finding that the two statutes govern similar situations must be read harmoniously. Id. at 20. It determined that, since Charlestown sold its water utility to Indiana-American for its appraised value, the sales price was reasonable under both statutes. Id. at 21.

As to the second issue, NOW argued that Charlestown failed to comply with IC § 8-1.5-2-4 which requires that certain information about the sale be made available to the public “in a written document.” Id. at 21-22. Charlestown made the required information available, but failed to compile it into a single document. Id. at 22. Acknowledging this failure, the Court nonetheless held that Charlestown made the required information available in substantial compliance with § 8-1.5-2-4. Id. at 23. Finally, the Court of Appeals held that the timing of Charlestown’ public hearing to discuss the sale was proper. Id. at 26.

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On January 11, 2019, the Indiana Court of Appeals held that the trial court properly denied appellant RCM Phoenix Partners LLC’s (“Phoenix”) slander of title claim, even though the appellee 2007 East Meadows, LP (“Meadows”) failed to raise a claim of absolute privilege at the trial court level and raised it for the first time on appeal.

Due to complications surrounding an assignment of a purchase agreement and assumption of an existing mortgage of an apartment community (“Property”) to Meadows, the parties were unable to close on the Property. Meadows sued Phoenix in Texas, alleging that Phoenix breached the purchase agreement and committed fraud. Meadows filed a lis pendens notice against the property of the pending Texas lawsuit. The trial court in Texas dismissed the lawsuit for lack of personal jurisdiction, but a second suit in Indiana, where Phoenix countersued and added a slander of title claim to its complaint continued. In Meadows’ answer, it did not assert that the lis pendens notice was privileged. Meadows first raised the claim of absolute privilege upon Phoenix’s appeal of a trial court decision that found in favor of Phoenix’s claim for retention of the earnest money but found in favor of Meadows for the slander of title claim.

The Court of Appeals noted that while the general rule is that an argument or issue raised for the first time on appeal is waived and thus ineligible for appellate review, the trend in recent Indiana Supreme Court cases is to allow an appellee seeking affirmance of a trial court’s judgment to defend the trial court’s ruling on any basis, including with arguments not raised at trial. Here, because Meadows was the appellee and sought an affirmance of the trial court’s decision to deny the slander of title claim, the Court of Appeals held that Meadows had not waived the right to argue that it had absolute privilege from a slander of title claim.

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Both the IRS excess benefit statute and the private inurement doctrine DO NOT apply to tax-exempt cooperatives. 26 U.S.C. § 4958(c) defines an excess benefit transaction as “any transaction in which an economic benefit is provided by an applicable tax-exempt organization directly or indirectly to or for the use of any disqualified person.” For the purposes of this statute, an applicable tax-exempt corporation includes “any organization which…would be described in 501(3),(4), or (29)…” See 26 U.S.C. § 4958(e). As far as private inurement goes, the general rule is that no one private individual may benefit (i.e. receive earnings) from a charitable organization. (See Treas. Reg. Section 1.501(c)(3)-1(c)(2)). Allowing such inurement would run contrary to notion that many charitable organizations are set up for the benefit of the public, not individuals. However, coops are the exception to this doctrine. Indeed, tax-exempt organizations under 501(c)(12) do not share the same purpose as 501(c)(3)-(4) corporations. Unlike charitable corporations est. via 501(c)(3), coops organized under 501(c)(12) are set up precisely to benefit their members, who are almost always private individuals. Thus, application of the private inurement doctrine to tax-exempt cooperatives does not seem consistent with their established purpose.

 

James A. L. Buddenbaum has practiced law for more than 25 years with Parr Richey representing municipalities and businesses in utility, healthcare and general business sectors in both regulatory and transactional matters. Jim also has extensive experience in representing businesses in making large property damage and similar insurance claims.

The statements contained here are matters of opinion for general information purposes only and should not be considered by anyone as forming an attorney client relationship or advice for any particular legal matter of the reader. All readers should obtain legal advice for any specific legal matters.

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A group of four former cooperative members filed a breach of contract claim against Flathead Electric Cooperative. Wolfe v. Flathead Elec. Coop., Inc., 393 Mont. 312, 314 (Mont. 2018).Plaintiffs were members of the coop during various times, the latest of which was in 2007. Plaintiffs alleged that Flathead violated Montana law when it allocated patronage capital to their accounts, but did not actually refund any capital to the members on an annual basis. The Federal District Court of Montana mentioned that plaintiff’s claim would not likely prevail, as the statute governing capital refunds only requires that refunds be distributed “whenever the revenue exceeds the amount necessary to fund operations.” Id. However, the district court did not ultimately reach this question. Instead, it ruled that Plaintiffs did not file their claim within the applicable 8-year statute of limitations. Id. at 315.

On appeal, the Supreme Court of Montana affirmed. Id. at 313. When bringing a claim under a written contract, the statute of limitations runs from the moment a plaintiff’s claim accrues. Id. at 315. The Court held that Plaintiffs’ claim had accrued in February, 2008, as this was the date of the last board meeting that took place while Plaintiffs were still members of the cooperative. Id. at 315-16. Their complaint was filed in September, 2016 – 8-and-a-half years after their claim had accrued. Thus, the statute of limitations for Plaintiff’s breach of contract claim had expired. Id. at 316.

The court rejected plaintiff’s argument of fraudulent concealment, which would have tolled the statute of limitations until the time of discovery. Id. Flathead had a defined policy regarding patronage capital in their bylaws, and the Court did not find that it took any affirmative action to deceive Plaintiffs. Id. at 317. The Court also rejected the Plaintiff’s assertion that the breach is ongoing, holding that the latest any Plaintiff was a member was up to the board meeting of 2008, and that Plaintiffs had knowledge of the breach from that point onward. Id. at 316.

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On September 13, 2018, the Seventh Circuit Court of Appeals upheld an Illinois law, 20 ILSC 3855/1-75(d-5), who provides subsidies to some of the state’s struggling nuclear generation facilities, against a challenge by the Electric Power Supply Association (EPSA), an advocacy group for the electric power industry.

Under the Federal Power Act, the Federal Energy Regulatory Commission (FERC) is authorized to regulate the sale of electricity in interstate commerce while states regulate local distribution of electricity, as well as the facilities used to generate it. In this case, EPSA argued that the Illinois law was preempted by the Federal Power Act because the subsidies indirectly regulated the price of power, which only FERC has the authority to regulate.

The Seventh Circuit explained that the states’ and FERC’s powers under the Federal Power Act often overlap; it would be impossible for states to regulate the local distribution of electricity without at least affecting the price of power within its borders. If a state were to offer subsidies that depended on selling power in interstate auction, then the legislation would be preempted. However, the Illinois law in this case only regulates local generation of power. Thus, the court found no preemption and the law was upheld.

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On Thursday, Oct. 24, the Indiana Supreme Court answered a vital question surrounding online fantasy sports sites: Does a fantasy sports  site need permission before it uses a player’s name and statistics in its online fantasy game? The Indiana Supreme Court answered no to this question, falling in line with the national trend of decisions favoring sports betting.

Former collegiate athletes Akeem Daniels, Cameron Stingily, and Nicholas Stoner brought a class-action suit against FanDuel, Inc. and DraftKings, Inc., claiming that the use of their names and likenesses in the defendants’ online fantasy sports game violated plaintiffs’ right to publicity under Ind. Code § 32-36-1-8(a). Daniels, No. 18S-CQ-00134 at 3. Indiana’s right of publicity statute generally prohibits the use of a person’s name or likeness for commercial gain without the consent. Id. at 4. Defendants removed the case to federal court, and then filed a motion to dismiss, asserting that their use of plaintiffs’ names and likeness fall within one of the statutes various exceptions. Id. at 3. Specifically, Defendant’s asserted that plaintiffs’ permission was not required because the information used on their site fell within the “political or newsworthy” exception, as well as the “public interest” exception to the statute. Id. at 5. The Southern District of Indiana dismissed plaintiffs’ suit, finding that both of these exceptions applied. Id. at 3. Plaintiffs appealed to the 7th Circuit. Id. Because case law applying Indiana’s right to publicity statute was sparse, the 7th Circuit certified the question to the Indiana Supreme Court, asking if an athlete’s permission is required in this circumstance. Id.

The Indiana Supreme Court’s opinion addresses only one of the two exceptions asserted by the defendant: the “political or newsworthy” exception. Id. at 5. This exception provides that the right of publicity does not require plaintiffs’ permission if their names and likenesses are used in “material that has political or newsworthy value.” Id. (citing I.C. §32-36-1-1(c)(1)(B)). The Supreme Court determined that the term “newsworthy” should not be limited solely to current events, but should be interpreted broadly to include “all types of factual, educational, and historical data…concerning interesting phases of human activity.” Id. at 8. The court determined that defendants’ use of plaintiffs’ information fell within this broad exception. Id. It analogized the defendants’ service to the publication of player names and stats in newspapers and websites across the nation, and reasoned that defendants’ service should not be treated differently simply because they created a new, innovative way to profit off of such publication. Id. at 9.

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On June 20, 2018, the Indiana Supreme Court upheld a narrow interpretation of the Transmission, Distribution and Storage System Improvement Charge (“TDSIC”) statute in NIPSCO Industrial Group v. Northern Indiana Public Service Co., 100 N.E.3d 234 (Ind. 2018). A summary of that case can be found here: https://www.indianabusinesslawyerblog.com/nipsco-industrial-group-v-northern-indiana-public-service-co-100-n-e-3d-234-ind-2018/.

On September 25, 2018, the Indiana Supreme Court reissued their opinion in response to a rehearing on the issue. The modified opinion is largely identical to the opinion issued in June. The TDSIC statute allows for periodic rate increases to cover 80 percent of the approved cost estimates for an improvement project without going through the traditional ratemaking process. The remaining 20 percent of improvement costs are recovered through the next general rate case filed by the utility with the Indiana Utility Regulatory Commission (“Commission”). The Supreme Court modified the June opinion to add a clause clarifying that any cost overruns incurred during a TDSIC improvement project that are “specifically justified by the utility and specifically approved by the Commission” are also recoverable during the next general rate case filed with the Commission in addition to the remaining 20 percent of improvement costs. 100 N.E. 3d at 244.

Jeremy Fetty is a partner in the law firm of Parr Richey with offices in Indianapolis and Lebanon. Mr. Fetty is current Chair of the Firm Utility and Business Section and often advises businesses and utilities (for profit, non-profit and cooperative) on regulatory, compliance, and transactional matters.

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The success of litigation depends not only on the facts of a case, but also how a case is pleaded. A seemingly meritorious claim can be dismissed where the claim is not carefully and deliberately plead to the court. This is especially true where a plaintiff’s claim involves an element of intent or fraud. The 7th Circuit reinforced the importance of meeting Federal pleading standards when it dismissed a recent Illinois case for failure to properly allege intent and fraud.

Jefferies LLC is a securities and investment banking firm that was looking to get into the trading of precious metals futures. Webb v. Frawley, No. 18-1607 (7th Cir. 2018) at 2.  In 2010, Defendant Frawley left his job as a precious metal trader at Newedge USA, LLC, to become the global head of metals trading at Jefferies. Id. Frawley convinced two other Newedge employees, Beversdorf and Webb, to leave and join him at Jefferies. Id. After they did so, Newedge sued Jefferies for poaching its employees. Id. at 3. Soon after receiving notice of the suit, Jefferies issued a policy stating that no precious metal futures would be traded while Newedge’s lawsuit was pending. Id. Frawley knew of this policy, but nevertheless he instructed Webb and Beversdorf to continue trading iron ore futures without informing them that Jefferies would not fulfill their trades under to its new policy. Id. at 4. Webb and Beversdorf eventually found out that none of their trades for iron ore futures were being fulfilled by Jefferies. Id. But it was too late, and both Beversdorf and Webb were fired due to their “poor performance and lack of production.” Id. at 5.

Both Beversdorf and Webb brought claims for tortious interference with contract and common-law fraud claims against Frawley. Frawley removed both suits from Illinois state court to the Northern District of Illinois. Id. at 6. The court eventually dismissed Beversdorf’s claim, finding that he had signed a form which compelled arbitration. Id. at 7. However, Webb did not sign an equivalent form, and thus his claim was allowed to proceed. Id. Frawley then moved to dismiss Webb’s claims. Id. The district court granted Frawley’s motion to dismiss, finding that Webb failed to state a claim for tortious interference with contract under Rule 12(b)(6), and that Webb’s common-law-fraud claims did not meet the heightened pleading standards for fraud under Rule 9(b). Id. Plaintiff appealed on both claims.

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On August 16, 2018, the U.S. Court of Appeals for the Seventh Circuit issued an opinion holding that the use of digital “smart meters” by a public utility constitutes a reasonable search under the Fourth Amendment of the U.S. Constitution as well as the Illinois Constitution.

After receiving a grant from the U.S. Department of Energy to modernize its electrical grid, the City of Naperville replaced analog residential energy meters with digital “smart meters.” Unlike analog meters, which typically provide a single lump figure of electricity usage once per month, smart meters record consumption information much more frequently, so the data shows the amount of electricity used in a home at the time it is used. A group of concerned citizens sued, arguing that the smart meters reveal intimate personal details of customers, such as when the customers are home, their sleeping routines, and so on, and that the city’s collection of such data constitutes an unreasonable search under the Fourth Amendment and the Illinois Constitution. The district court denied two of the group’s complaints, and the group requested leave to file a third complaint, but the district court denied the request because it found that the complaint would be futile because it could not plausibly allege a violation of either the Fourth Amendment or the Illinois Constitution. The Seventh Circuit Court of Appeals affirmed the district court’s denial of the leave to file a third complaint, holding that while the use of smart meters by Naperville constitutes a search, the search is reasonable and therefore permitted under the Fourth Amendment.

Upon appeal, the Court applied the Kyllo test, which dictates that when the government uses technology not in general public use to explore details of the home that would have been otherwise unknowable, that surveillance constitutes a search. The Court found that the use of smart meters constitutes a search under the Kyllo test because the smart meters yield sufficient data to draw inferences about the activities taking place within the home. Furthermore, the Court said that smart meters are only used by part of a highly specialized industry, and such technology is neither widely available nor routinely used by the public.

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