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Indiana Court of Appeals Decides Propriety of Rule 12(C) Motion on Class Action Allegations & Explores Contract and Agency Law

by | Nov 29, 2013 | Firm News

On Wednesday, November 27, 2013, the Indiana Court of Appeals handed down its decision in the case Bell v. The Bryant Company, Inc. The case addressed three issues of legal significance: (1) the interpretation of contracts; (2) the duties of an agent to its principal; and (3) the propriety of addressing class action allegations in a Rule 12(C) motion for judgment on the pleadings. On all counts, the court of appeals agreed with Mrs. Bell. In so doing, the court of appeals reversed the trial court’s decision and sent the case back to progress to ultimately be decided by a jury.

The case stems from a relationship between Mrs. Bell and the company that she hired to manage the rental of her condominium. After a couple years of utilizing The Bryant Company’s services, Mrs. Bell discovered that The Bryant Company had been retaining $50 late fee payments from the tenant without remitting those payments to Mrs. Bell – the landlord. Mrs. Bell contended that the retention of these funds violated the contract between her and The Bryant Company. Further, since the contract is an apparent form contract and The Bryant Company asserted that the contract allowed it to retain the fees, Mrs. Bell filed a class action case to force The Bryant Company to refund the alleged impermissibly retained fees to the property owners.

After the case was filed, The Bryant Company answered the complaint and filed a counterclaim targeted at Mrs. Bell individually. Mrs. Bell filed a motion to dismiss the counterclaim under Trial Rule 12(B)(6). As a prefatory note, Indiana’s Rule 12 mirrors the Federal Rule 12. The Bryant Company responded by filing a motion to dismiss Mrs. Bell’s complaint, also under Rule 12(B)(6) and a peculiar Rule 12(C) motion in favor of its counterclaim. The peculiarity of The Bryant Company’s motions stems from the timing of each. A 12(B)(6) motion seeks to dismiss a case on the face of the complaint. It argues that even if everything alleged in the complaint is true, the law does not provide a remedy for the plaintiff. This motion is to be filed directly in response to the complaint instead of filing an answer to the complaint. An answer to a complaint is a line-by-line admission or denial of the allegations.

A Rule 12(C) motion, on the other hand, is to be filed after the answer is filed – that is, when the “pleadings” are closed. In order to file a Rule 12(C) motion offensively, as The Bryant Company had tried, the defendant of a claim would have to file an answer in which he or she sufficiently admitted liability that the claim has been established. A good example would be a lawsuit for a breach of contract in which a contractor builds a fence on a person’s property. If the contractor alleges that he had built the fence, not been paid, and attached the contract and the property owner answers the complaint by saying that all of that had happened but that he didn’t have the money to pay the contractor, the court could decide the case on a 12(C) motion looking at the pleadings alone.

Here, the timing of The Bryant Company’s motions was off-kilter. The 12(B)(6) motion was filed too late and the 12(C) motion too early. As is, the 12(C) motion was in the posture of asking the court to read the complaint, say that The Bryant Company was right – without Mrs. Bell getting to admit or deny any of the allegations – and to impose a judgment against her. The motions were heard by the trial court which granted both Mrs. Bell’s motion to dismiss the counterclaim and granted The Bryant Company’s 12(B)(6) motion. On appeal, the court of appeals recognized that the 12(B)(6) motion was necessarily a 12(C) motion and addressed it as such.

Mrs. Bell appealed the dismissal of her claims. The trial court’s order dismissing her case was what is called a summary disposition: it only said that the case was dismissed but did not recite the reasons why. Thus, on appeal the court of appeals has to assume the basis for dismissal could have been any of the arguments made by the defendant. The Bryant Company made three arguments to the trial court in support of its motion:

(1) [Mrs.] Bell did not adhere to the termination-notice date set out in the Agreement and consequently may not pursue a claim for breach of contract; (2) because the collection of late fees is “not customarily a part of the usual leasing services performed by a property manager” within the meaning of the Agreement, Bryant was entitled to receive additional compensation therefor, including the entire amount of late fees paid by the renter; and (3) the statement on the Lease to the effect that “Lessee will pay to agent … [a] late charge of Fifty Dollars ($50.00) if payment is more than six (6) days past due” indicates that Bryant was to retain the fee.

The first argument, regarding the termination-notice date was the basis for The Bryant Company’s counterclaim. Having personal knowledge of the counterclaim and The Bryant Company’s argument on interpreting the termination notice date, I can say that I thought the argument very weak and an indefensible interpretation of the contract. That said, the trial court dismissed the counterclaim and The Bryant Company never cross-appealed its counterclaim. Thus, the counterclaim is dead and buried. Further, as far as the argument mattered to Mrs. Bell’s claims, the court of appeals hit the nail on the head stating, “The gist and relevance of this argument is not apparent to us.” The Bryant Company also abandoned the argument on appeal, so the court never had to make a decision on it.

The second argument stems from a portion of the contract that outlined to what compensation The Bryant Company was entitled for its services. In relevant part, the contract reads:

4. The Owner [Mrs. Bell] further agrees:

* * * * *

C) To pay Agent [The Bryant Company] for the services to be performed, a sum equal to .     ten     percent (   10   %) of gross rents collected by said Agent, which sum shall be deducted by the Agent from gross rents collected, plus a fee equal to one month’s rent for first year of any lease.  The Agent’s fee shall have priority over the payment of any other expense or distribution.

* * * * *

6. If Agent is called upon to perform any services not customarily a part of the usual leasing services performed by a property manager, it is agreed that Agent shall receive additional compensation therefore in reasonable amounts. The expense of long distance telephone calls, postage due to special handling and other miscellaneous expenses are for the account of [Mrs. Bell].

Thus, The Bryant Company’s argument was “that the collection of late fees was not customarily a part of typical leasing services, and therefore it was entitled to receive additional compensation for performing that task, which in this case included retaining the entire amount of late fees paid[.]” The court agreed with Mrs. Bell that there is nothing in the contract or the lease signed by the tenant, which was incorporated into the contract by reference. The court, relying on its own common sense, agreed with Mrs. Bell that the collection of late fees is part of the usual leasing services. Thus, The Bryant Company “was not entitled to retain the entirety of late payment fees on the basis that it was compensation for services not customarily performed by a property manager.”

The third argument was that the lease, not the contract between Mrs. Bell and The Bryant Company, but the lease with the tenant, allocated the late-fee payments entirely to The Bryant Company. The argument stems from the vastly out of context provision that states, “Lessee will pay to agent [The Bryant Company] . . . [a] late charge of Fifty Dollars ($50.00) if payment is more than six (6) days past due.” The court put this provision back in context, which reads in full part:

Lessee will pay to Agent, at [a post office box in Indianapolis], as rent for said premises, the sum of $1800.00 per month payable in advance on the 25th day of each month, by check or money order (cash cannot be accepted), and a late charge of Fifty Dollars ($50.00) if payment is more than six (6) days past due; and in addition, a late charge of Fifty Dollars ($50.00) for each additional month during which such installment remains unpaid. The imposition of each late charge, however, shall not be constituted as a waiver of such default nor prevent Agent from exercising any of the other rights and remedies granted hereunder. Lessee shall pay to Agent a Thirty-Five Dollar ($35.00) fee for each returned unpaid check. If a late payment results in a service charge being levied against the property by mortgagee or vendor, Lessee assumes the cost of said penalty.

The court recognized that the lease stands in pari materia with the property management contract. Thus, in theory it could have provided for what happens to the late fees. However, to extract the direction of payment by the tenant of late fees to The Bryant Company and interpret that to mean a right to retain those fees is to disregard the totality of the entire lease. First, the lease directs payment of all fees and rent to The Bryant Company. Clearly, The Bryant Company was not in a position to assert that it got to keep the rent as well, yet that same direction language applies equally to the rent.

Second, and most importantly, the very first thing the lease says is:

“THIS LEASE, made this 21st day of June, 2010, between The Bryant Co., Inc., and/or its assigns, Agent for Owner, party of the first part, hereinafter called Agent, and Wendy L. Winkle, party of the second part, hereinafter called lessee [.]”

Thus, the lease identifies the role of The Bryant Company in the lease: it was the agent of Mrs. Bell. Consequently, The Bryant Company was obligated to act as the agent and thus was expressly collecting fees on behalf of Mrs. Bell and not on its own behalf. As the court recognized, “The basic theory of the agency device is to enable a person, through the services of another, to broaden the scope of his activities and receive the product of another’s efforts, paying such other for what he does but retaining for himself any net benefit resulting from the work performed.”

The last bit of argument that needed to be addressed was whether Mrs. Bell’s class action allegations could be dismissed prior to seeking class certification. Before the trial court, The Bryant Company argued, “a class action cannot lie in a case involving parole [sic] evidence necessary to resolve individualized questions of law and fact as between numerous contracting parties [.]” This argument came without explanation or citation to authority. On appeal, The Bryant Company attempted to abandon this argument. This created a problem for the court. Any argument abandoned on appeal is simply that, abandoned. However, The Bryant Company did not directly abandon it. Rather, it contended that “because the trial court never certified [Mrs.] Bell’s Class Action, Bryant’s arguments related to dismissal of class action claims based on contractual ambiguity grounds are inapplicable.”

The court considered the abandonment to pose a dilemma. Chiefly, the court found that resolving the issue on waiver grounds would be appropriate. But, if the court did so and it turns out that the trial court did agree with The Bryant Company’s prior argument, “nothing would prevent the trial court from doing so again.” Thus, the court opted to weigh-in on the propriety of a Rule 12(C) motion for determining class allegations. The court determined that because “it is apparent . . . that in order to determine whether certification of the class here is appropriate under [Rule] 23, the trial court will be required to consider matters beyond the pleadings. Accordingly, this could not provide a valid basis for granting a [Rule] 12(C) judgment on the pleadings[.]”

To summarize, the court determined that the collection of late fees in a property management relationship is a “usual leasing service”; that a property manager, when acting explicitly as the agent of property owner, does not collect rents and fees on its own behalf; and that class action allegations cannot be decided under Rule 12(C). It is a case with an awful lot packed in.

Join us again next time for further discussion of developments in the law.



*Disclaimer: The author is licensed to practice in the state of Indiana. The information contained above is provided for informational purposes only and should not be construed as legal advice on any subject matter. Laws vary by state and region. Furthermore, the law is constantly changing. Thus, the information above may no longer be accurate at this time.No reader of this content, clients or otherwise, should act or refrain from acting on the basis of any content included herein without seeking the appropriate legal or other professional advice on the particular facts and circumstances at issue.