ATTORNEYS FOR APPELLANT ATTORNEYS FOR APPELLEE
Robert J. Kopka David W. Holub
Lawrence M. Hansen David M. Hamacher
Gregory M. Bokota Hammond, Indiana
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 ),
September 21, 2000
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 Mutkas
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 Mutkas
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
courts 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 courts 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.
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.) LCEOCs 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. (Appellants Br. at 10,
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
groups 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 Socy, 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 Labors 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,
See footnote but
we will accept it for the sake of argument and examine GHCSs 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
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 Boards funds must be handled and accounted for in the same manner as other public funds, IC 36-10-9-9(b); the Boards 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 LCEOCs 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.
See footnote 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.
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. (Appellants 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 Appellants Br. at 4-5 (citing the ways in which LCEOC controls GHCS) with Appellees 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
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 Mutkas 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 employers 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.
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.
INDIANA SUPREME COURT
GREATER HAMMOND COMMUNITY )
SERVICES, INC., )
Appellant (Defendant Below), ) Supreme Court No.
) 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. )
Non-Appealing parties )
(Defendants Below). )
APPEAL FROM THE LAKE SUPERIOR COURT
The Honorable Jeffery J. Dywan, Judge
Cause No. 45D01-9502-CT-203