INDIANA APPELLATE COURT AWARDS ADDITONAL INTEREST TO BANK FINDING INDIANA SUPREME COURT COULD NOT HAVE INTENDED TO MODIFY SUBSTANTIVE LAWS REQUIRING STATUTORY INTEREST

Last month the Indiana Court of Appeals reversed a judgment wherein PNC Bank was denied a portion of accrued pre-judgment interest on a line of credit issued to borrower Paul Page (“Page”) and secured by a mortgage owned by PNC Bank. PNC Bank, Nat’l Ass’n v. Page, No. 21A-MF-1974, 2022 WL 964467, at *6 (Ind. Ct. App. Mar. 31, 2022). The trial court awarded everything that PNC requested in its foreclosure complaint except for the pre-judgment interest which accrued from 3/16/20 to 8/14/20[i] (“six-month period”).

The court’s refusal to award pre-judgment interest for that six-month period stemmed from an emergency order which Governor Eric Holcomb issued on March 6, 2020 that “declared a public health emergency in Indiana related to COVID-19.” The order prohibited evictions and foreclosures on residential real estate until the state of emergency ended. Notably, the order clarified that it did not relieve “an individual of their obligations to pay rent, to make mortgage payments, or to comply with any other obligations that an individual may have under a tenancy or mortgage.” On five separate occasions, between March 25, 2020 and July 31, 2020, the Indiana Supreme Court’s Office of Judicial Administration distributed a memorandum to its judges and clerks reiterating the continuing obligation of individuals to make mortgage payments and comply with other contractual obligations despite the state of emergency.[ii]

A week after Governor Holcomb issued the emergency order multiple courts in Marion County filed a petition with the Indiana Supreme Court which sought relief from “laws, rules and procedures” which set time limits in civil and criminal matters.[iii] The Indiana Supreme Court granted the relief requested in the petition tolling all time limits and ordering that “no interest shall be due or charged” during the tolled period[iv].

On June 8, 2021, PNC filed a Motion for Agreed and Default Judgment and Decree of Foreclosure in PNC Bank, Nat’l Ass’n v. Page.  The lower court granted PNC Bank’s request for judgment but declined to award the pre-judgment interest that had accrued during the six-month period. The lower court relied upon the provision in the Indiana Supreme Court Order stating that “no interest shall be due or charged” as the basis for denying about six months of interest owed to PNC.[v]

PNC moved to correct the error based on (1) the Indiana Supreme Court’s limited rule making authority, (2) due process violations, (3) violations of the Supremacy Clause in the U.S. Constitution, and (4) the fact the order was silent as to how it was to be implemented when it directly conflicted with Governor Holcomb’s order which specifically required individuals to comply with their mortgage obligations. The trial court denied PNC’s motion to correct error and the PNC appealed.

In a recent Indiana Court of Appeals decision, Denman v. St. Vincent Med. Grp., Inc., 176 N.E.3d 480, (Ind. Ct. App. 2021), the Indiana Court of Appeals held that the “no interest shall be due or charged” provision of the Indiana Supreme Court Order did not apply to post-judgment interest.  In making its ruling in Deman, the Indiana Appeals Court stated the Indiana Supreme Court could not use its “rulemaking authority” to “change a rule of substantive law…” as it would violate the separation of powers between the judicial, executive, and legislative branches of the government.[vi]  Further, the Indiana Court of Appeals held in Deman, that excluding post-judgment interest did not affect the emergency purpose of the Indiana Supreme Court Order.

In making its ruling in PNC Bank, Nat’l Ass’n v. Page, the Indiana Court of Appeals found that the same reasoning used in Deman applies to pre-judgment interest as well, and the Indiana Court of Appeals held that “because our Supreme Court could not, by rule, change substantive law, the Emergency Orders’ instruction – that interest would not “be charged or due during the tolled period” – cannot be construed to suspend the automatic accrual of non-discretionary interest provided by the terms of a private loan instrument and as permitted by statute”. [vii]

The Court reversed the trial court’s order and remanded the matter so a new judgment, which included the pre-judgment interest from Page’s default to judgment, could be entered in favor of PNC. Although the Page opinion was only recently released, our firm has already relied upon the ruling to obtain a judgment that included the pre-judgment interest in a pending mortgage foreclosure case in Cass County Indiana.  In that matter, the Cass County Superior Court had originally denied the request for judgment, solely on the basis that the proposed judgment included pre-judgment interest for the tolling period.  The Cass County court staff advised that there are hundreds of cases that will be affected by this ruling.  Stay tuned for developments.

[i] Page, at *1. All future citations and quotations are to this citation until indicated otherwise.

[ii] Page, at *3.

[iii] Page, at *2. All future citations and quotations are to this citation until indicated otherwise.

[iv] Originally, the tolled period was from March 16, 2020, to April 6, 2020, but that was eventually extended through August 14, 2020 for both the emergency order and the Indiana Supreme Court order. Page, at *6 n4.

[v] Page, at *3. All future citations and quotations are to this citation until indicated otherwise.

[vi] Page, at *4. (internal citations omitted).

[vii] Page, at *6. (internal citations omitted).