Don’t Confuse Joint Tenancy with Tenancy-By-Entirety Ownership – Indiana Court Cautions

Title to real estate is typically held in one of three ways: tenancy in common, joint tenancy and tenancy by the entirety.

The salient characteristic of tenancy in common is that each owner holds a ½ interest in the property and that upon an owner’s death, his/her share passes to his/her heir.

Joint tenancy’s hallmark is its survivorship feature: when a joint tenant dies, his/her share passes to the surviving joint tenant. The deceased’s interest will not pass to an heir.

With tenancy by entirety (“TBE”) ownership, sometimes described as “joint tenancy with marriage,” the property is immune from one spouse’s creditor’s judgment lien. This means the creditor of one spouse cannot foreclose on the TBE property. However, to qualify for TBE protection, the parties must be married and live in the property as a primary residence. If the property owners are married but do not use the home as the marital homestead, TBE won’t shield the property from creditor collection efforts.

In Flatrock River Lodge v. Stout, 130 N.E.2d 96 (Ind. Ct. App. 2019), an Indiana appeals court delved into the joint tenancy vs. TBE dichotomy and how the difference between the two realty title vehicles dramatically impacts a judgment lien’s enforceability.  The trial court denied the creditor’s motion to foreclose a judgment lien because the subject real estate was held in joint tenancy. On appeal, the Court considered whether a judgment creditor could foreclose on joint tenancy property, force its sale, and apply the proceeds against the judgment.

The judgment debtor owned real estate in joint tenancy with his daughter. The debtor died during pendency of the lawsuit and by operation of law, the title to the property vested in the daughter. Before the debtor died, however, the plaintiff/creditor recorded its judgment lien against the property.

The creditor moved to foreclose its judgment lien against the property. The debtor’s daughter argued the property was exempt from execution by Indiana’s tenancy-by-entirety statute (the TBE statute). Indiana Code Section 34-55-10-2(c)(5).  The trial court agreed with debtor’s daughter and denied the creditor’s motion.

Reversing, the Indiana appeals court first rejected the defendants’ argument that since the debtor died, the property escaped plaintiff’s lien. The court noted that the plaintiff’s judgment lien attached from the moment it recorded its judgment against the property – some two years before debtor’s death. As a result, the debtor’s daughter took the property subject to the plaintiff’s lien.

Next, the appeals court rejected the trial court’s finding that the property was immune from the plaintiff’s judgment lien.

In a joint tenancy, each tenant acquires an equal right to share in the enjoyment of the land during their lives. A joint tenant is severed where one joint tenant conveys his/her interest to another and destroys the right to survivorship in the other joint tenant(s). Once a joint tenancy conveys his/her share to another, he/she becomes a tenant in common with the other co-tenant.

Each joint tenant can sell or mortgage his/her interest in property to a third party and most importantly (for this case at least), each joint tenant is subject to a judgment creditor’s execution. [8]

TBE ownership only exists between spouses and is grounded in legal fiction that husband and wife a single unit. A TBE cannot be severed by the unilateral action of one tenant. An attempted transfer of a TBE ownership interest by only one spouse is a legal nullity. The key difference between joint tenancy and TBE is that with the latter, a creditor of only one spouse cannot execute on the jointly owned property

The Court noted that under Indiana Code 34-55-10-2(c)(5), property held in TBE is exempt from execution of a judgment lien. However, this statute applies uniquely to TBE ownership; not to joint tenancy. According to the court, “[h]ad the Indiana legislature intended to exempt from execution real estate owned as joint tenants, it would have done so.” [14]

Take-away:

This case shows in stark relief the perils of conflating joint tenancy and tenants-by-entirety ownership. If a property deed does not specifically state tenancy by the entirety, the property will not be exempt from attachment by only one spouse’s creditor.

Hotel Registration Data Considered Computer-Stored and Computer-Generated Business Records – IL Appeals Court

Super 8 and Motel 6 registration records take center stage in an Illinois appeals court’s discussion of the razor-thin difference between computer-stored and computer-generated business records.

In People v. Schwab, 2019 IL App (4th), a sexual assault defendant argued the trial court erroneously admitted his hotel check-in records during a jury trial that culminated in a guilty verdict and long prison sentence.

The prosecution offered hotel records into evidence at trial to place the defendant at a certain location and at a fixed date and time. Over the defendant’s hearsay objection, the trial court allowed the records into evidence. Defendant appealed his conviction and 25-year sentence.

Affirming, the appeals court first provided a useful gloss on hearsay rules generally and then drilled down to the specific rules governing business records.

Hearsay is an out of court statement offered to prove the truth of the matter asserted and is typically excluded for its inherent lack of reliability.  The business-records exception allows for the admission of a writing or record where (1) the writing or record was made as a memorandum or record of the event, (2) it was made in the regular course of business, and (3) it was the regular course of business to make the record at the time of the transaction or within a reasonable time thereafter.

Anyone familiar with a business can testify as to business records, and the original entrant (i.e. the person inputting the data) doesn’t have to be a witness for the records to get into evidence. [⁋ 37]

Additional foundation is required when a business record is contained on a computer.  Illinois courts recognize the distinction between (a) computer-stored records and (b) computer-generated records.

The foundation for admitting computer-generated records is less stringent than that governing computer-stored ones. Computer-generated records are deemed intrinsically more reliable than their computer-stored counterparts.

Print-outs of computer-stored records are admissible as a hearsay exception where (1) the computer equipment is recognized as standard, (2) the input is entered in the regular course of business reasonably close in time to the happening of the event recorded, and (3) the foundation testimony establishes that the source of information, method and time of preparation indicate its trustworthiness and justifies its admission. [⁋ 38]

For computer-generated records, the admissibility threshold is more relaxed: the proponent only needs to show the recording device was accurate and operating properly when the data was generated.

The Court found that the Super 8 reservation records were computer-generated (and therefore subject to less stringent admissibility rules). The hotel’s front desk clerk’s trial testimony established that the hotel’s reservation record was automatically generated by a hotel computer at the time someone books a reservation.

According to the Court, that data may have originally been input into a third-party website (like Priceline or Expedia) didn’t cast doubt on the records’ reliability.  All that mattered was that the registration record was created automatically and contemporaneously (with the on-line reservation) to qualify as computer-generated records.

The Court agreed with the defendant that two Motel 6 records offered as prosecution trial exhibits were computer-stored. The court found that the computer records created when a guest checked in required the hotel clerk to scan the guest’s identification card and to manually input the guest’s check-in and check-out times and payment information. Since this information was the end result of human data entry, the records were deemed computer-stored.

Even so, the Court found that the State sufficiently laid the foundation for the computer-stored data. The Court credited the Motel 6 hotel clerk’s testimony that the franchise’s check-in procedures were uniform and the hotel’s computer booking system was standard in the hospitality industry.  Taken together, the testimony concerning Motel 6’s integrated check-in processes and its use of industry-standard reservation software was enough to meet the computer-stored evidence admissibility threshold.

Afterwords: Despite Schwab’s disturbing fact-pattern, the case has value for civil and criminal trial practitioners alike for its trenchant discussion of business records exception to the hearsay rule and the admissibility standards for computer-generated and computer-stored records.

Utah Default Judgment Not Subject to Full Faith and Credit in IL: No Long-Arm Jurisdiction Over Illinois Defendant Equals Void Judgment

Snap Advances, LLC v. Macomb Office Supply, Inc., 2019 IL App(1st) 180773-U examines the enforceability of a Utah judgment against an Illinois-based college bookstore operator.

There, a Utah business lender sued a defunct bookstore, its owner and corporate successor in Utah state court for breach of contract. The underlying contract (signed by the plaintiff and dissolved corporate predecessor) had Utah choice-of-law and venue terms. No defendant appeared in the Utah case and the plaintiff won a default judgment.

After the plaintiff registered the Utah default judgment in Illinois, the Illinois  court granted the successor company’s motion to vacate the Utah default judgment and dismissed the post-judgment proceedings. The plaintiff appealed.

Affirming, the appeals court first held that under the full faith and credit clause of the U.S. Constitution, every court must validate a foreign court’s judicial proceedings. The Uniform Enforcement of Judgments Act, 735 ILCS 5/12-650 et seq. also prevents an enforcing court from considering the merits of a foreign judgment.

But two instances where an enforcing court will look into the merits of a foreign judgment are where (1) the rendering court lacked jurisdiction over the defendant/judgment debtor, or (2) there is fraud in the procurement of the judgment.

This is so because a foreign judgment is not entitled to full faith and credit where an underlying defect (such as lack of jurisdiction) voids the judgment.  However, where the rendering court (here, Utah) specifically finds that it does have jurisdiction over a defendant, its ruling is conclusive and cannot be challenged by the enforcing court (Illinois).

But where the rendering court does not specifically rule on the jurisdiction question, the enforcing court can examine the rendering court’s jurisdiction. [⁋⁋ 22-23]

Since the Utah judgment was silent as to whether the Illinois-based successor company was subject to Utah jurisdiction, the Illinois court could look into whether the Utah court had jurisdiction over the successor defendant.  To do this, the Illinois court looked to Utah’s long-arm jurisdiction and Federal due process principles.

A Utah court has long-arm jurisdiction over a foreign defendant where a defendant does business in Utah, contracts to supply goods or services there, causes injury in Utah or owns Utah real estate. Utah Code Ann. s. 78B-3-205 (West 2016). Federal due process requires an out-of-state defendant to have minimum contacts with a foreign jurisdiction such that it should reasonably anticipate being sued there.

Since the record was silent as to any acts the Illinois successor did in Utah that could support either long-arm jurisdiction or Federal due process concerns, there was no basis for Utah jurisdiction over the Illinois successor entity.

The court rejected the plaintiff’s argument that the successor consented to Utah jurisdiction based on the predecessor’s assent to Utah law and venue provisions. Since the successor was not a party to the contract, there was nothing tying it to the contractual Utah choice-of-law and venue terms.

The court also nixed the plaintiff’s claim that since the Illinois defendants were served in Utah, they were subject to Utah jurisdiction. But, as the court astutely remarked, “service does not confer jurisdiction.”

Even if the Illinois defendant was property served in Utah, the Court continued, a defendant did not have to appear in Utah or respond to the Utah lawsuit. Instead, it could wait until the Utah judgment was registered in Illinois and then seek to vacate the Utah judgment.

But the defendant’s conduct didn’t go unnoticed by one of the appellate judges.  In a special concurrence, Judge Pucinski decried the business owner’s “slick” grifter-like financial “shell trick” where the owner plainly engineered the transfer of the defunct book store’s assets to a new buyer – the Illinois successor –  that operated from the same location, with the same inventory and identical personnel as the prior company.

Judge Pucinski worried about the possible chilling effect the majority’s ruling could have on out-of-state companies doing business with Illinois companies: a foreign company could be dissuaded from commerce with Illinois entities if Illinois courts would not hold their companies accountable for successor liability.

In the end though, the concurring judge sided with the majority. She cited a lack of record evidence that the Illinois successor was subject to Utah jurisdiction and a lack of Utah case law that stood for proposition that a corporate successor was bound by a predecessor’s contractual consent to jurisdiction in a sales contract. [⁋ 51]

Afterwords:

The case illustrates the limits of the Full Faith and Credit in the context of interstate jurisdictional disputes.

Snap Advances also demonstrates that where there is no evidence of a corporate successor’s consent to foreign state jurisdiction, a default judgment entered there could have no effect here.

The case also cements proposition that contractual choice-of-law and venue terms consented to by a corporate predecessor won’t bind its successor.