AE - Mart v. Natare Corp. (12/29/2000)

[Riser Adkisson LLP]

Mart v. Natare Corp.,
742 N.E.2d 15 (Ind.App. 12/29/2000)

Indiana Court of Appeals

No. 49A02-0001-CV-50

742 N.E.2d 15, 742 N.E.2d 15, 2000.IN.0042831

December 29, 2000

D.S.I., STEWART J. "JASON" MART AND AQUATIC RENOVATION SYSTEMS, INC.,

APPELLANTS,

V.

NATARE CORPORATION,

APPELLEE.

APPEAL FROM THE MARION SUPERIOR COURT The Honorable Kenneth Johnson, Judge Cause
No. 49D02-9704-CP-459

Attorney For Appellants: Michael L. Einterz Indianapolis, Indiana Attorneys For Appellee: David
E. Wright Jeffrey L. Carmichael Leagre Chandler & Millard, Llp Indianapolis, Indiana

The opinion of the court was delivered by: Friedlander, Judge

FOR PUBLICATION

OPINION - FOR PUBLICATION

Stewart J. Mart, Duraplastic Systems, Inc. (D.S.I.), and Aquatic Renovation Systems, Inc.
(A.R.S.) (hereinafter collectively referred to as "D.S.I." unless otherwise indicated) appeal
from an award of attorney fees in favor of Natare Corporation. The appellants present the
following consolidated, restated issues for review:

1. Was Natare a "prevailing party" within the meaning of Ind. Code Ann. § 34-52-1-1 (West 1999),
such that Natare was eligible for an award of attorney fees under that statute?

2. Did the trial court err in determining that D.S.I.'s action was frivolous, baseless,
unreasonable, or brought in bad faith?

3 Did the trial court err in piercing the corporate veil and making Mart personally liable for
paying the assessment of attorney fees?

4. Did the trial court err in awarding Natare $75,000 in attorney fees?

5. Is Natare entitled to appellate attorney fees?

We affirm.

The underlying facts revolve around a series of disputes that began more than ten years ago
between Mart and Michael Walsh, the owner of Natare. A review of the history of the course of
litigation is useful in understanding the controversy at hand.

During the 1980s, Walsh and J. Kenneth McNeely were each 50% owners of Recreonics Corporation,
which was engaged in the business of selling swimming pools and aquatics-related equipment. There
were two major facets of the corporation-a mail-order catalogue sales division and a commercial-
construction and swimming-pool-liner division. Mart was an employee of Recreonics sometime in the
1980s, but his association with that corporation had been severed by 1989. In 1989, Recreonics
filed a lawsuit against Mart alleging that he had made false and disparaging statements about
Recreonics, its products, and its business practices. As a result of this action, Recreonics
sought and received a preliminary injunction against Mart in October 1991. Generally, Mart was
enjoined from undertaking tortious and defamatory conduct against Recreonics.

In April 1991, Recreonics informed its creditors that it was unable to pay approximately
$1,400,000 of its obligations, and it proposed to pay its creditors pro rata from existing cash
flow. Also about this time, Walsh and McNeeley began to experience serious disputes between
themselves about the manner in which the company should be directed. As a result, McNeely and
Walsh entered into an Agreement and Plan of Reorganization, whereby Recreonics was effectively
split into two entities. McNeely retained the mail-order and catalog-sales divisions, as well as
the name "Recreonics Corporation." Walsh received the commercial and liner divisions, which would
operate as a new entity named "Natare Corporation."

On April 22, 1992, shortly after the reorganization was implemented, McNeeley and Recreonics
filed suit against Walsh and Natare, alleging that Walsh and Natare had improperly used the
name "Recreonics" in Natare's business, in contravention of the terms of the reorganization
agreement. As a result of this lawsuit, Natare was enjoined from using the Recreonics name in
Natare's business.

By April 1993, McNeeley and Recreonics had filed for bankruptcy under Chapter 7 of the United
States Bankruptcy Code. Merrill Moores was appointed to act as Trustee over Recreonics's
bankruptcy estate. Moores decided not to pursue the action against Walsh and Natare because of
the anticipated expense involved. On November 29, 1994, the bankruptcy court approved Moores's
recommendation that Recreonics Corporation be sold to Frank Jones, Jr. and the newly formed
corporation, Recreonics, Inc. In addition to the other resources of Recreonics Corporation,
Recreonics Inc. also purchased its rights in the lawsuit against Walsh and Natare.

Meanwhile, Mart had formed D.S.I. and A.R.S., corporations engaged in the same general business
as Recreonics Inc. and Natare. In October 1996, D.S.I. sent a letter to numerous creditors of
Recreonics Corporation requesting assignment to D.S.I. of the claims any of those creditors might
have against Recreonics Corporation. Roughly twenty- three creditors assigned their claims to
D.S.I. Armed with these assignments of rights, on December 10, 1996, D.S.I. filed a complaint for
damages against Natare alleging that Natare "removed and transferred assets of Recreonics
Corporation that rendered Recreonics insolvent or greatly reduced its ability to continue and
maintain its business or to pay its creditors." Record at 1-2. A Return of Summons Served was
tendered to the Marion Superior Court, Room 6, indicating that the complaint had been served on
December 12 by a Deputy "Ron Elliot." Record at 5. Natare did not file its answer within the
requisite twenty-three days and, on January 7, 1997, D.S.I. filed a motion for default judgment,
which was granted on January 9, 1997. D.S.I. immediately commenced garnishment proceedings
against Natare, which culminated in the freezing of Natare's bank accounts.

On January 22, 1997, Natare was informed by its bank that its accounts had been frozen. It is
undisputed that this information was in fact the means whereby Natare first became aware of the
lawsuit filed by D.S.I. and the January 9 default judgment. On January 23, Natare appeared in
court and filed a motion asking the court to set aside the default judgment on the ground that it
had never been served with the summons. It was subsequently learned that the return of service
reflecting that the complaint was served upon Natare had been forged. *fn1 The court granted the
motion on the same day and dissolved the garnishment order. In a pleading dated January 23, 1997,
D.S.I.'s attorney petitioned the court to reconsider its ruling granting the motion to set aside
the default judgment.

In a release dated January 23, 1997, and distributed on that day and the following day by mail,
fax, and hand delivery, D.S.I. sent a series of "press releases" to several businesses and trade
publications in the swimming pool industry. The release notified the recipients of the January 9
default judgment D.S.I. had obtained against Natare. The document stated as follows:

DSI Corporation of Indianapolis, Indiana was recently awarded a judgment of $337,818.00 against
Natare Corp., also in Indianapolis, in the Marion County Superior Court #6. The judgment was for
funds due the creditors of the now bankrupt Recreonics Corp., which DSI had alleged were owed by
Natare as a result of Natare's holding itself out as the continuing legal entity once known as
Recreonics Corp., and for treble damages for civil fraud committed by Natare against the
creditors of Recreonics Corp.

Stewart J. Mart, the President of DSI commented, "We are very pleased with the judgment and want
all the creditors of the old Recreonics Corp. to know that their concerns about the pre-
bankruptcy assets transferred [sic] to Natare and partially resulting in Recreonics Corp.'s
eventual bankruptcy were indeed well founded. The owner of Natare has lived by the sword of
litigation for so many years that this result is particularly fitting."

DSI has garnished Natare's checking accounts and will be garnishing the receivables of Natare
Corp [sic] up to the judgment amount.

For further information contact DSI at:

Natare Litigation Manager DSI P.O. Box 55074 Indianapolis, IN 46205 Record at 61.

On January 25, D.S.I. sent the following letter to Natare's customers and other entities in the
swimming pool business:

By now you are undoubtedly aware of the judgment entered in Marion County Superior Court #6
against Natare Corp. in the amount of over $337,000. If this judgment and it's [sic] possible
ramifications upon your current and potential business gives you pause as you contemplate your
professional dealings with Natare Corp. in 1997 and beyond, know that there is a competitive and
responsible supplier that stands ready to meet your PVC material needs.

All of us at RenoSys want to make certain that you are aware of our keen desire to expand and
further develop our installing contractor relationships. As most of you are aware, RenoSys Corp
[sic] offers a full range of PVC oriented product systems for the pool industry including the
RenoSys PVC Pool Shell, RecDeck and CushionDeck Flooring and Decking products, DuraGrate PVC
Grating products and DuraTech PVC and stainless gutter systems.... Record at Exhibit 3, page 93.
*fn2

The remainder of the letter is comprised of further descriptions of the products and services
offered by D.S.I. Both the press release and the January 25 letters were prepared by Mart.

Mart claimed that he did not learn that the default judgment had been set aside until January 29.
On February 4, D.S.I. sent out another press release. The following excerpt reflects the general
tone of D.S.I.'s February 4 press release:

On January 23, 1997, we wrote you to advise you that DSI had recently obtained a $337,818.00
judgment against Natare Corporation. That fact was true when we reported it to you, and it
remains true. In the meantime, though, Natare has been able to forestall DSI's collection on its
claims against Natare by convincing the court that it did not receive a copy of the lawsuit, and
that the judgment should be set aside pending a trial of the case.

If it gives him pleasure, Walsh is free to vehemently vent his indignation from the highest
diving platform in the land. His venting will not change either the nature or substance of his
past conduct or the fact that the bright lights of a courtroom will determine the final outcome
in this matter and not Mr. Walsh's distortions, volume or opinion. DSI, on behalf of the more
than 23 creditors of Recreonics Corp [sic], intends to fully pursue this matter to it's [sic]
final inevitable conclusion.

When all is said and done, and after DSI's case goes to trial or Natare files bankruptcy, we'll
likely be reporting to you again that DSI, for the benefit of Recreonics's creditors, has
obtained a judgment against Natare. Record at 1110-11 (emphasis in original).

On January 31, 1997, Natare filed a motion to dismiss pursuant to Indiana Trial Rule 12(B)(6). On
February 14, 1997, Natare filed a motion to dismiss for lack of subject matter jurisdiction. On
February 19, 1997, D.S.I. filed an amended complaint. On February 24, 1997, Natare filed a
counterclaim and third-party complaint, naming Mart and A.R.S. as defendants. On February 26,
1997, Natare filed an application with the trial court seeking a preliminary injunction. The
court granted the petition and issued an order enjoining D.S.I., A.R.S., and Mart from
communicating with any other persons or entities on the subjects of (1) Walsh and Natare, (2)
Walsh and Natare's business and business practices, and (3) any litigation, including
Recreonics's bankruptcy action, involving Walsh and Natare. On March 6, 1997, the court dismissed
D.S.I.'s complaint for lack of subject matter jurisdiction, ruling that the bankruptcy court had
exclusive jurisdiction over the action.

On March 6, 1997, D.S.I. filed a motion for change of judge. On March 20, 1997, D.S.I. filed a
second amended complaint that was substantially similar to the previous complaint. *fn3 On March
31, 1997, Judge Johnson assumed jurisdiction over the case, replacing Judge Cutter. On July 9,
1997, Judge Johnson vacated all entries made by Judge Cutter between March 6 and July 9,
including the entry of a preliminary injunction against D.S.I., A.R.S., and Mart.

On March 24, 1998, the parties entered into a settlement agreement. Two days later, the parties
filed a joint request for an order approving the settlement agreement, as well as a stipulation
of partial dismissal. According to the stipulation of partial dismissal, the parties stipulated
to

the partial dismissal, with prejudice, of all claims and counterclaims they have against each
other in the above- entitled cause of action, for the reason that this matter has been partially
settled between the parties to this action; except that the claims of Natare Corporation pursuant
to Ind. Code 34-1-32-1, shall not be dismissed.

Record at 592 (emphasis in original). The court approved the settlement agreement and entered an
order of partial dismissal. The effect of the order was to dismiss all claims between the parties
except for Walsh and Natare's claim for attorney fees under Ind. Code Ann. § 34-1-32-1, the
predecessor to Indiana's current attorney fees statute, which is Ind. Code Ann. § 34-52-1-1 (West
1999). On March 2, 1998, the court entered a permanent injunction against Mart, D.S.I., and
A.R.S., pursuant to the settlement agreement. The order enjoined Mart, D.S.I., and A.R.S. from:

A disseminating information to former, existing or prospective customers of Natare Corporation
designed to disparage Natare Corporation or its products;

B. making any statements which relate in any way to third parties the results of status of Cause
No. 49D03-8901-CT- 0073, Cause No. 49D06-9612-CP[-]1695 (now 49D02-9704-CP- 0459) or the Chapter
7 proceeding, In Re Recreonics Corporation, U.S. Bankruptcy Court, Southern District of Indiana,
Indianapolis Division, Cause No. 93-0158-RLB-7;

C. making any contact with or disseminating any information to suppliers of Natare Corporation
for the purpose of impugning or disparaging Natare's reputation or goodwill;

D. making any statement to prospective customers, distributors, or competitors of Natare which
purports to disparage or impugn the business practices of Michael T. Walsh. Record at 1067-68.

On December 28, 1999, the court granted Natare and Walsh's request for attorney fees under IC §
34-52-1-1, upon the court's finding that the allegations in the appellants' complaint
were "frivolous, unreasonable, and groundless within the meaning of Indiana Code § 34-52- 1-1.
D.S.I., A.R.S., and Mart appeal the award of attorney fees.

1. D.S.I. contends that Natare Corporation is not eligible for attorney fees under IC § 34-52-1-
1.

When reviewing an award of attorney fees under IC § 34-52-1-1, we apply a multi-step review.
Emergency Physicians of Indianapolis v. Pettit, 718 N.E.2d 753 (Ind. 1999) (reversing the
decision of the court of appeals in this case with respect to a different issue, but affirming
and incorporating by reference this aspect of the opinion of the court of appeals, see Emergency
Physicians of Indianapolis v. Pettit, 714 N.E.2d 1111 (Ind. Ct. App. 1999)). We first review the
trial court's findings of fact under the clearly erroneous standard. Next, we review de novo the
trial court's legal conclusions. Finally, we review the decision to award attorney fees and the
amount thereof under an abuse of discretion standard. Id.

The trial court awarded attorney fees to Natare pursuant to IC § 34-52-1-1(b)(1), which
provides: "In any civil action, the court may award attorney's fees as part of the cost to the
prevailing party, if the court finds that either party: brought the action or defense on a claim
or defense that is frivolous, unreasonable, or groundless[.]" This statute specifies that, as a
threshold requirement, attorney fees may only be recovered by a "prevailing party."

The court's conclusion that Natare is a prevailing party and thus entitled to attorney fees is
based upon Finding of Fact No. 21, which states: "While this cause was disposed by a Settlement
Agreement, Natare obtained an enforceable injunction against DSI and others for future actions.
Natare had sought that injunction from the first day counsel for Natare appeared in the case."
Record at 918. We need not review this finding for clear error because D.S.I. does not dispute
its accuracy. Therefore, we proceed to the second part of our analysis, which consists of a de
novo review of the legal conclusion that a party who obtains an injunction under such
circumstances is a "prevailing party" within the meaning of IC § 34-52-1-1(b).

We find no Indiana case that addresses the application of IC § 34- 52-1-1 in this particular
circumstance, nor do the parties bring one to our attention. We start, then, by examining the law
our courts have generally applied when determining the meaning of "prevailing party" in the
context of attorney fees. We note at the outset that because the attorney fees statute is in
derogation of the American Rule observed under the common law, we strictly construe its language.
*fn4 O'Neill v. Goar, 622 N.E.2d 562 (Ind. Ct. App. 1993).

This court has repeatedly stated that "prevailing party" in the context of the attorney fees
statute denotes a party who successfully prosecutes his claim or asserts his defense. See Salcedo
v. Toepp, 696 N.E.2d 426, (Ind. Ct. App. 1998). This provision has been interpreted several
times, two of which we find instructive in the instant case. In the first of those cases, Indiana
State Bd. of Public Welfare v. Tioga Pines Living Center, Inc., 622 N.E.2d 935 (Ind. 1993), cert.
denied, 510 U.S. 1195 (1994), approximately 785 Medicaid-certified, skilled nursing facilities
and intermediate care facilities in Indiana filed an action against the Indiana State Board of
Public Welfare. The class sought a declaration that Indiana's Medicaid reimbursement rules
violated the federal Boren Amendment, 42 U.S.C. § 1396a(a)(13)(A), and its state counterpart,
Ind. Code Ann. § 12-1-7-17.6(b), repealed by P.L.2-1992, § 897 (current version codified at Ind.
Code Ann. § 12-15-14-2 (West Supp. 2000)). The plaintiffs were awarded judgment and attorney fees
by the trial court. The defendants ultimately prevailed on the merits in a decision rendered by
our supreme court.

On the question of attorney fees, the supreme court noted that the trial court had awarded
attorney fees under 42 U.S.C. § 1988, which provides that a court may award reasonable attorney
fees to the "prevailing party" in an action to enforce a provision of 42 U.S.C. § 1983. The court
stated, "plaintiffs may be considered prevailing parties without obtaining a favorable final
judgment following a full trial on the merits. Plaintiffs may prevail, for example, by consent
decree or settlement which grants them the relief sought in bringing suit." Indiana State Bd. of
Pub. Welfare v. Tioga Pines Living Ctr., Inc., 622 N.E.2d at 946. It appears, then, that attorney
fees would be available in a § 1988 action where the matter was resolved through a settlement
agreement, so long as the requesting party "prevailed," or received what they sought in the
underlying litigation.

The second case was a voting rights case that arose in the Federal District Court for the
Southern District of Indiana. In Dickinson v. Indiana State Election Board, 817 F.Supp. 737 (S.D.
Ind. 1992), a group of voters filed a lawsuit in which they alleged that the alignment of Indiana
House Districts 49 and 51 violated Section 2 of the Voting Rights Act, 42 U.S.C. § 1973. The
Seventh Circuit Court of Appeals rendered a decision in which it determined that the district
court must decide if there had been a violation of section 2, and remanded it to the lower court
for that purpose. Before the district court made that decision, however, the Indiana General
Assembly passed a redistricting plan that cured the defects of which the plaintiffs' lawsuit had
complained. Thereafter, the parties entered into a stipulation stating that (1) the plaintiffs'
suit was a "significant catalytic factor" in the decision to reapportion voting districts,
Dickinson v. Indiana State Election Bd., 817 F. Supp. at 746, and (2) plaintiffs could seek
attorney fees under § 1988 in the event that the parties could not agree on same.

The district court noted that the threshold issue in deciding whether to award attorney fees
under § 1988 was whether the plaintiffs were a "prevailing party." The court framed the standard
as follows: "A prevailing party is one who succeeded `on any significant issue in the litigation
which achieve[d] some of the benefit the part[y] sought in bringing suit,' . . . and achieved
some change in the parties' relationship as a result of the suit." Dickinson v. Indiana State
Election Bd., 817 F. Supp. at 745 (quoting Hensley v. Eckerhart, 461 U.S. 424, 433 (1983)).
Applying the above standard, the court concluded that the plaintiffs "easily" qualified as
prevailing parties. Id. at 746. The court explained its conclusion in terms relevant to the
instant case:

The stipulation resolved the dispute, altered the plaintiffs' legal relationship with the
defendants, and demonstrated that the action had been a "significant catalytic factor" (and a
causative link) in the General Assembly's decision to reapportion. It does not matter that the
stipulation resulted from settlement, contained no outright admission of wrongdoing, or gave the
plaintiffs less than all they requested. Id. (citations and accompanying parenthetical
information omitted).

We are aware that both Tioga Pines Living Center, Inc. and Dickinson addressed the meaning
of "prevailing party" in the context of § 1988, not IC § 34-52-1-1. Nevertheless, the two
provisions focus upon the same subject matter, albeit in different contexts-the former authorizes
attorney fees in actions brought under 42 U.S.C. § 1983, while the latter is Indiana's general
attorney fees statute. We perceive no meaningful distinction between the two contextual
frameworks for purposes of determining the meaning of the term common to both, i.e., "prevailing
party". In short, we conclude that "prevailing party" means the same in either setting, and
therefore Tioga Pines Living Center, Inc. and Dickinson are useful in determining the meaning
of "prevailing party" as that term is used in IC § 34-52-1-1. Moreover, as we will explain, the
term's meaning as set out in Tioga Pines Living Center, Inc. and Dickinson is consistent with its
meaning in IC § 34-52- 1-1, as it has developed thus far under Indiana law.

D.S.I. contends that State Wide Aluminum, Inc. v. Postle Distributors Inc., 626 N.E.2d 511 (Ind.
Ct. App. 1993), trans. denied, and State ex rel. Prosser v. Indiana Waste Systems, Inc., 603
N.E.2d 181 (Ind. Ct. App. 1992), compel the result that Natare is not a "prevailing party" within
the meaning of IC § 34-52-1-1. In State Wide Aluminum, Inc., this court noted that any ambiguity
in subsection (b) concerning the meaning of "prevailing party" is resolved by subsection (a) of
IC § 34-52-1-1. That subsection provides, "In all civil actions, the party recovering judgment
shall recover costs ...." Therefore, as we clarified in State ex rel. Prosser v. Indiana Waste
Systems, Inc., 603 N.E.2d 181, a prevailing party is one that recovers a judgment. In both State
Wide Aluminum, Inc. and Prosser, this court determined that the party seeking attorney fees was
not a "prevailing party" within the meaning of IC § 34-52-1-1. In State Wide Aluminum, the
requesting party claimed that it had received a judgment when its opponent failed to pursue a
motion to appoint a receiver. In Prosser, the requesting party claimed that it received a
judgment when it successfully opposed the opponent's motion for recusal of the judge. This court
determined in both cases that the party requesting attorney fees lacked the same criterion; it
had not obtained a judgment. In so holding, we determined that a ruling on a motion is not
a "judgment" within the meaning of IC § 34-52-1-1(a).

We do not perceive a conflict between the holdings in Tioga Pines Living Center, Inc. and
Dickenson, on one hand, and State Wide Aluminum and Prosser on the other. In fact, we are
satisfied that these holdings and principles are not only compatible, but also complementary.
Consistent with Tioga Pines Living Center, Inc. and Dickenson, a party is a "prevailing party"
within the meaning of IC § 34-52-1-1, if that party successfully prosecutes its claim or asserts
its defense. According to State Wide Aluminum and Prosser, the requisite successful litigation
must culminate in a judgment. According to Tioga Pines Living Center, Inc. and Dickenson, the
judgment alluded to in State Wide Aluminum and Prosser may take the form of an agreed entry or
stipulation, so long as it resolved the dispute generally in the favor of the one requesting
attorney fees and altered the litigants' legal relationship in a way favorable to the requesting
party. In conducting the latter inquiry, we are to focus upon the requisite judgment in the
specific context of the substance, issues, and nature of that particular litigation.

Applying these principles, Recreonics originally filed an unrelated lawsuit against Mart
individually to enjoin him from making disparaging and defamatory remarks about Recreonics. In
1996, Mart's company, D.S.I., actively solicited from bankruptcy creditors of Recreonics the
assignment of their claims against Recreonics. After it obtained such rights from more than
twenty-three creditors, D.S.I. filed a complaint against Natare seeking to recover assets that
D.S.I. asserted had been misappropriated from Recreonics by Natare prior to the time that
Recreonics filed for bankruptcy. Thereafter, D.S.I. engaged in a letter-writing campaign, the
primary effect of which was to impugn Natare's legal and financial status, viability, and
business practices among Natare's customers. Natare counterclaimed and filed for a preliminary
injunction against Mart, D.S.I., and A.R.S., which the trial court granted, and then later
vacated. The litigation between the parties culminated in a February 24, 1998 settlement
agreement. Pursuant to the agreement, D.S.I. agreed to withdraw the lawsuit against Natare, and
also agreed to the entry of a permanent injunction along the lines of the preliminary injunction
that had been vacated earlier.

Viewed in the context of the entire litigation, pursuant to the result of the terms of the
settlement agreement, Natare ultimately succeeded in defending against D.S.I.'s original lawsuit,
and succeeded in obtaining a permanent injunction that prevented Mart from engaging in the
behavior that had been the subject of the 1991 and 1997 preliminary injunctions. In other words,
the litigation culminated successfully for Natare in a judicial order that altered the litigants'
legal relationship in a way favorable to Natare.

We are satisfied that, under synthesized analyses of Tioga Pines Living Center, Inc., Dickenson,
State Wide Aluminum, and Prosser, Natare was a "prevailing party" within the meaning of IC § 34-
52-1-1, and therefore satisfied that criterion of eligibility for attorney fees.

2. D.S.I. contends that the trial court erred in determining that D.S.I.'s lawsuit was
groundless, frivolous, unreasonable, or brought in bad faith. We review de novo a trial court's
legal conclusion that a party litigated in bad faith or pursued a frivolous, groundless or
unreasonable claim or defense. Brant v. Hester, 569 N.E.2d 748 (Ind. Ct. App. 1991).

As set out previously, IC § 34-52-1-1(b) provides that, as a prerequisite to a recovery of
attorney fees, the prevailing party must show that its opponent (1) brought the action or defense
on a claim or defense that is frivolous, unreasonable, or groundless; (2) continued to litigate
the action or defense after the party's claim or defense clearly became frivolous, unreasonable,
or groundless; or (3) litigated the action in bad faith. In setting out its findings and
conclusions in the instant case, the trial court did not specify which of the three grounds set
out in subsection (b) supported the award of attorney fees. However, because the statute lists
the grounds in the disjunctive, a litigant is required to demonstrate the existence of only one
in order to justify an award of attorney fees. Accordingly, based upon our conclusion that the
evidence supports the conclusion that D.S.I.'s lawsuit was frivolous, our analysis will focus
upon that question.

A claim is "frivolous," for purposes of the attorney fee statute, if it is made primarily to
harass or maliciously injure another, if counsel is unable to make a good faith and rational
argument on the merits of the claim, or if counsel is unable to support the action by a good
faith and rational argument for extension, modification, or reversal of existing law. Fisher v.
Estate of Haley, 695 N.E.2d 1022 (Ind. Ct. App. 1998). Again, because the elements are listed in
the disjunctive, proof of one will suffice to support a conclusion that a claim was frivolous.

We need not repeat in detail facts that have been thoroughly discussed previously in this
opinion. A brief review of the relevant facts reveals that Mart was enjoined by Recreonics, of
which Walsh was a part owner at the time, from undertaking tortious and defamatory conduct
against Recreonics. Thereafter, Walsh split from Recreonics and his former partner, McNeeley, and
formed Natare. McNeeley and Recreonics thereafter filed suit against Walsh and Natare, claiming
that Walsh had misappropriated the Recreonics name. Shortly thereafter, Recreonics filed for
bankruptcy, and the trustee decided not to pursue the litigation against Natare. The court
eventually approved the trustees' recommendation that all of the assets of Recreonics, including
its lawsuit against Natare, should be sold to Jones. Mart thereafter actively solicited
Recreonics's creditors, asking them to assign to D.S.I. any rights they might have against
Recreonics. Having attained such an assignment from at least twenty-three creditors, D.S.I. filed
the instant action against Natare.

It is undisputed that Mart, D.S.I., and A.R.S. are in business of providing aquatics equipment
and supplies, and not collections. In fact, the collection effort against Natare was the only
foray into that arena taken by Mart or either of his companies. In the course of litigation that
followed, Mart drafted all of the communications that were disseminated to third parties
concerning the litigation, yet he deliberately concealed his role in the proceedings from others
whom he contacted. Instead, all communications purportedly emanated from D.S.I. The
communications were directed to Natare's customers, and not to the parties who purportedly had a
stake in the outcome of the lawsuit, i.e., the creditors that had assigned their rights against
Recreonics to Mart and D.S.I. The tone of the communications, which admittedly were drafted by
Mart, was harsh and highly critical of both Walsh and Natare, as well as their business
practices.

After D.S.I. obtained a questionable, and ultimately invalid, default judgment against Natare,
Mart immediately drafted a "press release" and sent it to Natare's customers, informing them of
the judgment and advising them that D.S.I. stood ready to meet their aquatic needs. Mart sent out
a second release advising of the judgment two days later, which was two days after D.S.I.'s
attorney appeared in court to challenge the setting aside of default judgment against Natare. It
was not until twelve days after the trial court set aside the default judgment that Mart sent a
letter to Natare's customers informing them of that fact. Moreover, that letter was highly
critical of Walsh personally and predicted sure defeat for Walsh and Natare in defending against
D.S.I.'s lawsuit. Meanwhile, Mart made no effort to contact the true parties-in-interest, i.e.,
the assignors of rights upon which the lawsuit was based, of the default judgment and the setting
aside thereof.

These facts support the conclusion that D.S.I.'s actions in pursuing this lawsuit were undertaken
primarily for the purpose of harassing or maliciously injuring Walsh and Natare. As such, the
lawsuit was "frivolous" within the meaning of IC § 34-52-1-1(b)(1) and (2). Therefore, the trial
court did not err in awarding attorney fees on that basis.

3. The court concluded that Mart was personally liable to pay the attorney fees assessment. The
finding of fact related to that ruling states:

The Court further finds that the activities of Mart, DSI, ARS, and their counsel Messrs. Einterz
and Deckard, were coordinated and organized for a common purpose to benefit Mart and his
companies at the expense of Natare. DSI and ARS share office space and other business facilities.
Mart was unable to recall which company paid for the distribution of DSI's press release and thus
was unable to demonstrate that he had segregated the two companies' business operations. In
performing these activities, Mart shared business information of DSI and ARS and used such
information for the exclusive benefit of ARS, even when it appeared to be against the business
interests of DSI to do so. Additionally, the Court finds that Mart, as the president and sole
shareholder of both DSI and ARS, was acting as the representative and agent of both DSI and ARS.
Accordingly, the Court concludes that the respective corporate existences of DSI and ARS should
be disregarded for the purposes of assessing attorney fees under Indiana Code § 34-52-1-1. Record
at 918. Mart contends that the trial court erred in making him personally liable for paying the
attorney fees award.

Although we are generally reluctant to disregard a corporate entity, we will do so to prevent
fraud or unfairness to third parties. The burden is on the party seeking to pierce the corporate
veil to establish "that the corporation was so ignored, controlled or manipulated that it was
merely the instrumentality of another, and that the misuse of the corporate form would constitute
a fraud or promote injustice." Commissioner, Indiana Dep't of Envtl. Mgmt. v. RLG, Inc., 735
N.E.2d 290, 294 (Ind. Ct. App. 2000) (quoting Gurnik v. Lee, 587 N.E.2d 706, 710 (Ind. Ct. App.
1992)). In determining whether a party has met this burden, our inquiry is fact sensitive. In so
doing, we will examine several factors, including the following:

(1) [U]ndercapitalization; (2) absence of corporate records; (3) fraudulent representations by
corporate shareholders or directors; (4) use of the corporation to promote fraud, injustice or
illegal activities; (5) payment by the corporation of individual obligations; (6) commingling of
assets and affairs; (7) failure to observe required corporate formalities; or (8) other
shareholder acts or conduct ignoring, controlling, or manipulating the corporate form. Hart v.
Steel Prod., Inc., 666 N.E.2d 1270, 1277 (Ind. Ct. App. 1996), trans. denied. All factors need
not be present in order to support a decision to pierce the corporate veil. See Aronson v. Price,
644 N.E.2d 864 (Ind. Ct. App. 1994).

The facts set out previously in this opinion support the trial court's decision to pierce the
corporate veil with respect to Mart. Mart was the president and sole stockholder of both D.S.I.
and A.R.S. In connection with the litigation against Natare, Mart clearly was the one who decided
what actions to undertake. Moreover, except for the fact that his attorneys represented him in
all legal matters before the court, Mart was solely responsible for implementing those decisions.
In so doing, Mart prepared and disseminated deliberately inaccurate and highly
defamatory "information" about the litigation to third parties. We have previously affirmed the
trial court's conclusion that the lawsuit was frivolous and Mart pursued the litigation primarily
in order to harass or maliciously injure Walsh and Natare. We conclude that, in view of these
facts, injustice would result if Mart escaped responsibility for his actions by shielding himself
from personal liability and placing the responsibility for those actions on his corporations. The
trial court did not err in making Mart personally liable for the assessment of attorney fees.

4. D.S.I. contends that the trial court erred in awarding Natare $75,000 in attorney fees.

The amount of an attorney fees award is left to the sound discretion of the trial court, and we
will reverse such an award only upon a showing of abuse of discretion. Castlewood Prop. Owners
Ass'n v. Trepton, 720 N.E.2d 10 (Ind. Ct. App. 1999). An abuse of discretion occurs only when the
trial court's decision is clearly against the logic and effect of the facts and circumstances
before the court. Id. Finally, there must be evidence supporting the trial court's award. Id.

In support of its claim for attorney fees, Natare submitted detailed billing records reflecting
services rendered by its counsel, and the cost thereof. Natare also presented expert testimony
from attorney Wayne Turner, who did not represent Natare at any time in the instant litigation.
Turner examined the nature of the litigation and the fees charged by Natare's counsel, and
expressed his opinion that Natare's legal fees were reasonable. This evidence was sufficient to
support the trial court's conclusion with respect to the amount of the attorney fees award.

The trial court did not abuse its discretion in order the appellants to pay $75,000 in attorney
fees to Natare. *fn5

5. Natare asks this court to order the appellants to pay Natare's attorney fees.

Under certain circumstances, this court has the discretion, pursuant to Indiana Appellate Rule 15
(G), to award damages in addition to those awarded by the trial court. Specifically, Rule 15(G)
provides: "If the court on appeal affirms the judgment, damages may be assessed in favor of the
appellee not exceeding ten percent (10%) upon the judgment, in money judgments, and in other
cases in the discretion of the court; and the court shall remand such cause for execution."
Accordingly, a discretionary award of damages may be proper when an appeal is permeated with
meritlessness, bad faith, frivolity, harassment, vexatiousness, or purpose of delay. Garage Doors
of Indianapolis, Inc. v. Morton, 682 N.E.2d 1296 (Ind. Ct. App. 1997), trans. denied. We must use
extreme restraint when exercising our discretionary power to award damages on appeal, however,
because of the potential chilling effect upon the exercise of the right to appeal. Thus, we will
not impose such sanctions to punish lack of merit unless the appellant's contentions and argument
are utterly devoid of all plausibility. Moreover, we have the authority to award attorney fees
pursuant to IC § 34-52-1-1 when a party continues to litigate a claim after it becomes frivolous,
unreasonable or groundless. See Garage Doors of Indianapolis, Inc. v. Morton, 682 N.E.2d 1296.

For purposes of appellate attorney fees, we are mindful that the issues presented in this appeal,
although related, are distinct from those that were litigated in the underlying action. We have
found that D.S.I.'s actions in pursuing the underlying action were initiated and pursued with bad
motives. The attorney fees question, however, represents a separate and distinct phase of the
litigation. We cannot say that the appellants' contentions on the issues presented in this appeal
rise to the level of implausibility that would warrant an award of attorney fees under Appellate
Rule 15(G). See Greasel v. Troy, 690 N.E.2d 298 (Ind. Ct. App. 1997).

Judgment affirmed and request for appellate attorney fees denied.

DARDEN, J., and BARNES, J., concur.

Opinion Footnotes

*fn1 Deputy Ron Elliott submitted an affidavit stating that he did not serve the complaint upon
Natare. Moreover, he noted that whoever signed the return had misspelled his name.

*fn2 Exhibit 3 of the Record of Proceedings consists of two separately bound volumes that contain
325 pages that are numbered 1 through 325. The page numbering in Exhibit 3 is separate from the
sequential numbering in the other six volumes of the record.

*fn3 The second amended complaint differed from the first complaint only with respect to two
additional allegations set forth in the former. Those allegation were that (1) D.S.I.'s action
was limited to claims for which the bankruptcy court did not then retain jurisdiction, and (2)
the Indiana court had jurisdiction over the matter under Articles 7 & 8 of the Indiana
Constitution and Ind. Code Ann. § 32- 2- 7 because it alleged fraud and fraudulent transfer.

*fn4 Under the American Rule, parties in most instances pay their own attorney fees absent a
statute, rule, or agreement to the contrary. Depeyster v. Town of Santa Claus, 729 N.E.2d 183
(Ind. Ct. App. 2000).

*fn5 In so holding, we reject two other contentions advanced by the appellants in arguing that
the award was erroneous. First, D.S.I. contends that the award must be reversed because the trial
court did not explicitly state that the amount was reasonable. Under the circumstances, the trial
court clearly implied that the award was reasonable. Cf. Emergency Physicians of Indianapolis v.
Pettit, 714 N.E.2d 1111 (the appellate court may view an order of attorney fees based upon
frivolous, unreasonable, and groundless defenses as an implicit conclusion that the defenses in
question were improper in those respects). Second, the appellants assert that the award of
attorney fees was improper because Natare failed to link the fees reflected on the billing
records with particular actions undertaken by counsel to defend against the actions that the
trial court found were frivolous and unreasonable. To the contrary, the billing records
adequately reflect that Natare's legal costs were incurred as a result of legal actions
undertaken by D.S.I., A.R.S, and Mart that were ultimately determined to be frivolous because
they were motivated by bad faith.