The Indiana Supreme Court recently clarified the standard for when defendants in mortgage foreclosure actions are entitled to have a jury, rather than a judge, consider their defenses and counterclaims. Lucas v. U.S. Bank, N.A., 953 N.E.2d 457 (Ind. 2011). Plaintiff bank filed an action against two borrowers to enforce the terms of a promissory note and to foreclose the mortgage that secured the note. The borrowers asserted various statutory and common law defenses and counterclaims and filed a third-party complaint against the loan servicer, asserting similar common law and statutory claims. The borrowers also filed a demand for a jury trial “on all issues deemed so triable.”
The bank moved to strike the borrowers’ jury demand on the ground that a foreclosure action is essentially equitable in nature. The trial court granted the bank’s motion, holding that any legal claims or defenses the borrowers asserted were drawn into the equitable action. The court of appeals granted the borrowers leave to seek discretionary interlocutory review and reversed the trial court’s decision.
The statutory claims and defenses included alleged violations of the Truth in Lending Act, the Real Estate Settlement and Procedures Act, and the Fair Debt Collection Practices Act. The common law claims and defenses included alleged breach of contract, breach of the covenant of good faith and fair dealing, promissory estoppels, civil conversion, and civil deception. The court of appeals noted that the statutory and common law defenses and claims asserted by the borrowers were legal, rather than equitable causes of action. Further, the borrowers were seeking money damages, which is a legal remedy. The court also stated that the borrowers’ causes of action were distinct from the bank’s foreclosure action because they involved consumer protection statutes that seek not only to protect individual consumers, but also to protect the public at large and deter certain practices. Based on those factors, the court concluded that the borrowers’ legal claims and defenses were sufficiently distinct from the foreclosure action to be tried to a jury.
The Indiana Supreme Court granted transfer and reversed the court of appeals’ decision. The supreme court conducted a detailed review of the constitutional and statutory provisions that protect the right to trial by jury. Article 1, Section 20 of the Indiana Constitution provides that “[i]n all civil cases, the right of trial by jury shall remain inviolate.” The Indiana Supreme Court had previously interpreted that provision to preserve the right to a jury trial only as it existed at common law. Songer v. Civitas Bank, 771 N.E.2d 61, 63 (Ind. 2002). Accordingly, a party has no right to a jury trial on equitable claims. Id.
The constitutional protection to a jury trial is codified in Indiana Trial Rule 38(A), which provides:
Issues of law and issues of fact in causes that prior to the eighteenth day of June, 1852, were of exclusive equitable jurisdiction shall be tried by the court; issues of fact in all other causes shall be triable as the same are now triable. In case of the joinder of causes of action or defenses which, prior to said date, were of exclusive equitable jurisdiction with causes of action or defenses which, prior to said date, were designated as actions at law and triable by jury—the former shall be triable by the court, and the latter by a jury, unless waived; the trial of both may be at the same time or at different times, as the court may direct.
To determine whether a court should sever separate counts of a complaint or counterclaim, with some tried to the court and some to a jury, the supreme court had previously held that a trial court should look to the “essential features of a suit.” Songer, 771 N.E.2d at 68. If the lawsuit as a whole is equitable, and the legal causes of action are not “distinct or severable,” then there is no right to a jury trial because the entire case is drawn into the court’s equity jurisdiction. Id. The court referred to this process of equity subsuming a legal claim as the “equitable clean-up doctrine.”
The court reaffirmed its holding in Songer and concluded that the borrowers’ defenses and counterclaim in Lucas were all essentially equitable in nature. The court explained that “the heart of all of the legal claims in this case rest on whether the Lucases are, in fact, in default and, if so, what the amount of their debt is.” Lucas, 953 N.E.2d at 467. The court, therefore, concluded that “the equitable clean-up doctrine is properly invoked, and the legal claims are subsumed into equity to obtain more final and effectual relief for the parties.” Id.