SOUTHEAST FINANCIAL CREDIT UNION v. THE COLLEGE NETWORK, INC. et al
ORDER GRANTING 135 Defendant Gary Fair's Motion for Partial SummaryJudgment. (See Order.) Signed by Judge Larry J. McKinney on 2/27/2017. (LDH)
UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF INDIANA
SOUTHEAST FINANCIAL CREDIT
THE COLLEGE NETWORK, INC.,
MARK IVORY, GARY L. EYLER,
ETEST OUT LEARNING SYSTEMS, LLC,
CAREER LEARNING & ACADEMIC
SUPPORT SERVICES, LLC, and
ORDER ON DEFENDANT GARY FAIR’S
MOTION FOR PARTIAL SUMMARY JUDGMENT
This matter comes before the Court on Defendant Gary Fair’s (“Fair’s”) Motion for
Partial Summary Judgment. Dkt. No. 135. Fair requests that the Court dismiss Count I
of Plaintiff Southeast Financial Credit Union’s (“SFCU’s”) Complaint, alleging breach of
contract, as it relates to him individually. Dkt. No. 136 at 1. SFCU, however, opposes
Fair’s Motion for Partial Summary Judgment, arguing that (1) the corporate veil of The
College Network, Inc. (“TCN”), should be pierced to render Fair, a former Vice President
of TCN, personally liable for TCN’s breaches of contracts formed between TCN and
SFCU; and (2) Fair participated in a civil conspiracy to facilitate TCN’s breaches of
contract. See generally, Dkt. No. 175.
For the reasons stated herein, the Court GRANTS Fair’s Motion for Partial
TCN was formed in 1995 by Gary L. Eyler (“Eyler”). Dkt. No. 137, Ex. 1 (“Fair
Aff.”), Ex. A. TCN’s main business was selling online study materials to college students
to help them test out of particular classes required for their degrees. Dkt. No. 175, Ex. 2
(“Fair CLASS Dep.”), 65:20-23.
To purchase TCN’s products, most TCN customers obtained financing from
external financial sources. Id. at 46:19-47:5. TCN entered into two agreements with
SFCU, dated July 21, 2003, and May 30, 2014, respectively, through which SFCU agreed
to provide financing to TCN’s customers to help them purchase TCN’s educational
products (the “Agreements”). Dkt. No. 1, Ex. A & B. Under the Agreements, SFCU
deposited the full amounts it financed to TCN customers into accounts TCN maintained
with SFCU. Id. at ¶ 3. If a TCN customer canceled or defaulted on its loan from SFCU,
the Agreements required TCN to pay SFCU the amount owed on that loan through its
SFCU reserve account (“Chargebacks”). Id. at ¶ 3d.
Fair was hired by Eyler in 2006, as TCN’s Vice President, Western Regional
Fair CLASS Aff., 41:24-42:9.
Fair was responsible for managing TCN’s
operations in Las Vegas, Nevada, including TCN’s financial services and customer
support operations. Id. In 2011, Fair’s job title changed to Vice President of Call Center
Operations, which required him to manage all of TCN’s customer support services. Id. at
48:5-13. Fair was listed as an officer of TCN with the Nevada Secretary of State for a
period of time between March 2006 and May 13, 2016. Dkt. No. 175, Ex. 7 at 3.
As Vice President of Call Center Operations for TCN, Fair was not involved in
TCN’s relationships with its finance partners and was not privy to TCN’s contracts with its
finance partners. Fair CLASS Dep., 47:16-18; 53:21-23. Fair was not a party to the
Agreements and did not personally guaranty the Agreements. Fair Aff., ¶¶ 9-10. Fair
was also not involved in negotiating the Agreements with SFCU and had no knowledge
of their specific terms prior to the start of this litigation. Id. at ¶ 11. Furthermore, Fair had
no access to TCN’s reserve accounts and had no authority to make payments from TCN’s
accounts with SFCU or to make decisions regarding TCN’s deficits in its SFCU reserve
account. Id. at ¶¶ 14, 19-20.
In January 2014, TCN began experiencing financial difficulties, and failed to pay
SFCU Chargebacks, which constituted a breach of the Agreements. Dkt. No. 1, ¶¶ 2733; Dkt. No. 120, ¶¶ 29-35. On November 14, 2014, SFCU held a teleconference with
TCN representatives, including Fair, and sent TCN a “Cease and Desist” letter in order to
address TCN’s negative balance and to demand that TCN stop making loan
arrangements with SFCU’s borrowers. Fair Aff., ¶ 21.
On January 8, 2015, Eyler sent an email to various TCN managers, including Fair,
regarding TCN’s poor financial condition and announced the formation of the “Rapid
Rebuild Committee,” which was tasked with forming a plan to stop TCN’s financial
decline. Fair Aff., Ex. B. The Rapid Rebuild Committee was comprised of outside
consultant Ken Knapik, Eyler, and eight TCN executives, including Fair. Fair Aff., Ex. D.
While Fair claims to not understand all of the factors that caused TCN’s financial issues,
it became apparent to Fair by the summer of 2015 that TCN could not survive. Fair
CLASS Dep., 63:22-64:6.
The Rapid Rebuild Committee created a business plan, which included the sale of
TCN’s main asset, the online portal used for its educational products (the “Portal”). Dkt.
No. 175, Ex. 1 (“Fair eTest Out Dep.”), 176:17-177:15. TCN planned to sell the Portal to
eTest Out Learning Systems LLC (“eTest Out”). Id. at 178:10-170:2. eTest Out is a
Nevada limited liability corporation that was formed on June 8, 2015, with the intention of
selling study materials to individuals in the nursing industry to help them earn college
credit. Id. at 51:9-15; Fair Aff., Ex. J. Eyler owns 70% of eTest Out and acts as eTest
Out’s Chief Executive Officer. Dkt. 175, Ex. 4 (“Eyler eTest Out Dep.”), 96:20-97:1; Fair
eTest Out Dep., 216:18-218:25. Fair was appointed Chief Operating Officer of eTest Out
in late 2015 and has a small ownership interest in that company. Fair eTest Out Dep.,
55:22-23; Eyler eTest Out Dep., 80:4-15. eTest Out intended to purchase the Portal from
TCN for $1,246,000.00 through a promissory note funded by eTest Out’s expected sales
revenue. Fair eTest Out Dep., 188:20-24.
The Rapid Rebuild Committee’s business plan also included the creation of a
support mechanism to handle TCN’s customer service operations. Fair CLASS Dep.,
63:22-64:8. Career Learning & Academic Support Services, LLC (“CLASS”), was created
as a Nevada limited liability corporation on July 29, 2015. Dkt. No. 139, Ex. 2. CLASS
was meant to provide TCN’s customers with customer support services after TCN could
no longer provide such services. Fair eTest Out Dep., 125:18-20. Eyler is the sole
grantor, trustee, and beneficiary of the CLASS Management Trust, which is the Manager
and sole member of CLASS. Fair CLASS Dep., 94:5-16. Eyler is also the Chief Executive
Officer of CLASS. Id. at 89:3-90:11. Fair was named the successor trustee of the CLASS
Management Trust and acted as the initial Chief Operating Officer of CLASS until
November 2015. Id. at 12:2-6; 95:3-6. Fair is currently the Senior Vice President for
CLASS. Id. at 90:12-13. Additionally, CLASS is wholly owned by eTest Out. Fair Aff.,
When formulating its business plan, the Rapid Rebuild Committee assumed that
each of the finance companies providing loans to TCN’s customers would be willing to
enter into a Customer Services Agreement with CLASS in order to provide their borrowers
with continued access to the Portal. Id. Under the Customer Services Agreement, each
finance company would be required to pay CLASS a service fee of $7.00 per month for
each active loan account it has with TCN, in exchange for CLASS’s support services for
the Portal. Id.; Fair CLASS Dep., 139:4-25. Fair presented SFCU with the business plan
developed by the Rapid Rebuild Committee and the proposed Customer Services
Agreements on September 9, 2015. Fair Aff., Ex. E. Fair was also present when Eyler
explained to SFCU that TCN was going out of business due to its financial problems and
could no longer provide customer support services to SFCU’s borrowers. Fair Aff., ¶ 23.
TCN ceased its operations in October 2015. Fair CLASS Dep., 52:3-20.
SFCU filed this action on September 25, 2015, seeking actual and punitive
damages, as well as injunctive relief to prevent the Defendants from restricting SFCU’s
customer’s access to the Portal1. Dkt. No. 1. SFCU alleged, among other things, that
On April 21, 2016, We Florida Financial, another financing company that had contracted
with TCN to provide loans to TCN’s customers, agreed to purchase the Portal from TCN
and CLASS for $1,175,000.00. Dkt. No. 100, ¶ 8. We Florida Financial also agreed to
provide TCN’s customers receiving loans from SFCU access to the Portal, pending the
Court’s approval of the sale, in an Access Agreement with SFCU dated March 30, 2016.
Id. at ¶ 9. The Court approved the sale of the Portal to We Florida Financial on April 29,
2016. See generally, Id. Based on this sale and We Florida Financial’s agreement to
provide SFCU’s customers with access to the Portal, SFCU’s prior Motion for a
Temporary Restraining Order and Preliminary Injunction, Dkt. No. 9, was rendered moot.
Dkt. No. 100.
TCN breached its contracts with SFCU. Id. On December 21, 2015, in response to
SFCU’s Motion for Judgment on the Pleadings, TCN admitted that it was liable to SFCU
for breaching the Agreements, and this Court ordered that TCN was liable for SFCU for
breach of contract, pending a determination of damages. Dkt. No. 64; Dkt. No. 88. In
addition to seeking liability against TCN for breach of contract, SFCU also seeks to hold
Fair liable for TCN’s breaches by employing piercing the corporate veil and civil
conspiracy theories. Dkt. No. 1.
II. SUMMARY JUDGMENT STANDARD
As stated by the Supreme Court, summary judgment is not a disfavored procedural
shortcut, but rather is an integral part of the federal rules as a whole, which are designed
to secure the just, speedy, and inexpensive determination of every action. See Celotex
Corp. v. Catrett, 477 U.S. 317, 327 (1986); see also United Ass’n of Black Landscapers
v. City of Milwaukee, 916 F.2d 1261, 1267-68 (7th Cir. 1990). Motions for summary
judgment are governed by Rule 56 of the Federal Rules of Civil Procedure, which provides
in relevant part: “The Court shall grant summary judgment if the movant shows that there
is no genuine dispute as to any material fact and the movant is entitled to judgment as a
matter of law.” Fed. R. Civ. P. 56(a).
Once a party has made a properly-supported motion for summary judgment, the
opposing party may not simply rest upon the pleadings but must instead submit
evidentiary materials showing that a fact either is or cannot be genuinely disputed. Fed.
R. Civ. P. 56(c)(1). A genuine issue of material fact exists whenever “there is sufficient
evidence favoring the nonmoving party for a jury to return a verdict for that
party.” Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 249, (1986). The nonmoving party
bears the burden of demonstrating that such a genuine issue of material fact
exists. See Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 586–87
(1986); Oliver v. Oshkosh Truck Corp., 96 F.3d 992, 997 (7th Cir. 1996). It is not the duty
of the Court to scour the record in search of evidence to defeat a motion for summary
judgment; rather, the nonmoving party bears the responsibility of identifying applicable
evidence. See Bombard v. Ft. Wayne Newspapers, Inc., 92 F.3d 560, 562 (7th Cir.
In evaluating a motion for summary judgment, the Court should draw all
reasonable inferences from undisputed facts in favor of the nonmoving party and should
view the disputed evidence in the light most favorable to the nonmoving party. See Estate
of Cole v. Fromm, 94 F.3d 254, 257 (7th Cir. 1996). The mere existence of a factual
dispute, by itself, is not sufficient to bar summary judgment. Only factual disputes that
might affect the outcome of the suit in light of the substantive law will preclude summary
judgment. See Anderson, 477 U.S. at 248; JPM Inc. v. John Deere Indus. Equip. Co., 94
F.3d 270, 273 (7th Cir. 1996). Irrelevant or unnecessary facts do not deter summary
judgment, even when in dispute. See Clifton v. Schafer, 969 F.2d 278, 281 (7th Cir.
1992). If the moving party does not have the ultimate burden of proof on a claim, it is
sufficient for the moving party to direct the Court to the lack of evidence as to an element
of that claim. See Green v. Whiteco Indus., Inc., 17 F.3d 199, 201 & n. 3 (7th Cir. 1994).
“If the nonmoving party fails to establish the existence of an element essential to his case,
one on which he would bear the burden of proof at trial, summary judgment must be
granted to the moving party.” Ortiz v. John O. Butler Co., 94 F.3d 1121, 1124 (7th Cir.
A. FAIR’S PERSONAL LIABILITY FOR BREACH OF CONTRACT
Even though Fair was employed as a Vice President of TCN when the Agreements
were formed, Fair was not involved in the formation of the Agreements individually or as
an agent of TCN. Fair Aff., ¶ 11. Fair was not a party to the Agreements, and was not
involved in the negotiation, signing, or implementation of the Agreements; the only parties
to the Agreements are SFCU and TCN. See generally, Agreements. Because Fair was
not a party to the Agreements and is not individually bound by them, he cannot be directly,
personally liable for any breach of the Agreements. See Winkler v. V.G. Reed & Sons,
Inc., 638 N.E.2d 1228, 1231 (Ind. 1994) (“Corporate officers and shareholders are
generally not personally liable for the contractual obligations of the corporation.”).
Therefore, the only way that SFCU could impose personal liability on Fair for breach of
the Agreements is by piercing TCN’s corporate veil.
SFCU argues that Fair’s conduct justifies piercing TCN’s corporate veil to hold Fair
individually liable for TCN’s breach of the Agreements because “Fair was an
indispensable part of Eyler’s scheme to manipulate TCN’s corporate form so as to render
it judgment proof.” Dkt. No. 175 at 12-14. Fair, however, asserts that piercing TCN’s
corporate veil is improper because there is no causal nexus between Fair’s alleged
misuse of the corporate form and TCN’s breaches of the Agreements. Dkt. No. 136 at
Indiana courts are generally “reluctant to disregard corporate identity” by piercing
the corporate veil and will do so “ʻonly where it is clear that the corporation is merely a
shell for conducting the defendant’s own business and where the misuse of the corporate
form constitutes a fraud or promotes injustice.’” LDT Keller Farms, LLC v. Brigitte Holmes
Livestock Co., Inc., 722 F. Supp. 2d 1015, 1031 (N.D. Ind. 2010) (quoting Comm’r, Dep’t.
of Envtl. Mgmt. v. RLG, Inc., 744 N.E.2d 556, 563 (Ind. 2001)). A party seeking to pierce
the corporate veil under Indiana law has the “severe” burden of “prov[ing] by a
preponderance of the evidence ‘that the corporate form  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.’” Escobedo v. BHM
Health Assoc., Inc., 818 N.E.2d 930, 933-35 (Ind. 2004) (quoting Aronson v. Price, 644
N.E2d 864, 867 (Ind. 1994)). In determining whether a party seeking to pierce the
corporate veil has met its burden, the Court generally considers “whether the corporate
form has been adhered to, whether corporate assets are treated as such or as personal
assets, and whether there has been an attempt to deceive third parties.” Winkler, 638
N.E.2d at 1232 (citations omitted). A party seeking to pierce the corporate veil must also
demonstrate a causal connection between the alleged misuse of the corporate form and
the harm suffered as a result of the misuse. See JMB Mfg., Inc. v. Child Craft, LLC, 939
F. Supp. 2d 909, 919 (S.D. Ind. 2013); see also, CBR Event Decorators, Inc. v. Gates,
962 N.E.2d 1276, 1282-83 (Ind. Ct. App. 2012) (“the fraud or injustice alleged by a party
seeking to pierce the corporate veil must be caused by, or result from, misuse of the
While SFCU argues that its financial losses and inability to recover from TCN,
rather than TCN’s breach of the Agreements, are harms sufficient to pierce TCN’s
corporate veil, Dkt. No. 175 at 17, a mere “[l]ack of other recourse simply is not a proper
basis for piercing the corporate veil.” Country Contractors, Inc. v. A Westside Storage of
Indianapolis, Inc., 4 N.E.3d 677, 691 (Ind. Ct. App. 2014). Without a causal connection
between Fair’s alleged misuse of TCN’s corporate form and the harm SFCU sustained as
a result of TCN’s breaches of the Agreements, SFCU cannot pierce TCN’s corporate veil
to hold Fair individually liable for TCN’s breaches. See Gates, 962 N.E.2d at 1282-83.
SFCU has failed to provide evidence demonstrating a causal nexus between Fair’s
conduct and the harm SFCU sustained from TCN’s breaches of the Agreements. SFCU
points to the facts that, starting in January 2015, Fair helped formulate Rapid Rebuild
Committee’s business plan, which included the sale of the Portal to eTest Out and the
creation of CLASS as a new support mechanism, and that he helped form eTest Out and
CLASS entities. Dkt. No. 175 at 4-6. However, TCN began breaching the Agreements
in January 2014, a year before the Rapid Rebuild Committee was formed and more than
eighteen months before either eTest Out or CLASS was created. Dkt. No. 1, ¶ 31; Fair
Aff., Exs. B, J; Dkt. No. 139, Ex. 2. Furthermore, SFCU fails to demonstrate that Fair was
otherwise involved in the negotiation or implementation of the Agreements in any way or
that Fair induced any breach of the Agreements prior to January 2015.
SFCU also argues that Fair and Eyler operated several distinct businesses,
including eTest Out, CLASS and TCN, as a single enterprise and that Fair’s role in the
operation of this single enterprise supports piercing TCN’s corporate veil. Dkt. No. 175
at 16. While an Indiana court may disregard the separate nature of affiliated corporate
entities when they are managed as a single entity, see Reed v. Reid, 980 N.E.2d 277,
302 (Ind. 2012), this does not justify piercing TCN’s corporate veil in this instance. Neither
eTest Out nor CLASS existed at the time TCN allegedly began breaching the
Agreements, and SFCU has not shown how Fair’s connections with eTest Out and
CLASS relate to TCN’s breaches of contract. Therefore, there is no evidence that TCN,
eTest Out, and CLASS acted as a single entity to breach the Agreements.
Moreover, citing Fairfield Development, Inc. v. Georgetown Woods Senior
Apartments L.P., SFCU asserts that Fair had sufficient authority over TCN and its
affiliated companies to justify piercing TCN’s corporate veil. 768 N.E.2d 463 (Ind. Ct.
App. 2002); Dkt. No. 175 at 13-14, 17. The court in Fairfield held that a particular
company’s corporate veil could be pierced to reach the company’s former president, who
no longer acted as an officer, director, or shareholder of the company but nevertheless
acted as its principal figure, because the company served as the former president’s alter
ego. Fairfield, 768 N.E.2d at 473. The court in Fairfield also allowed the plaintiff to pierce
the company’s corporate veil to reach the former president’s wife, who was a director of
the company, had personally guaranteed the company’s loans, and possessed a small
ownership interest in the company. Id. at 466, 473.
SFCU’s reliance on Fairfield is misplaced because the facts as to Fair do not
compare to either the former president or his wife. Despite having greater control over
eTest Out and CLASS, Fair never had a level of control over TCN to which he could
reasonably be viewed as TCN’s principal figure and had no control of TCN in relation to
the Agreements. Fair also never guaranteed TCN’s contracts nor had an ownership
interest in TCN. Therefore, TCN cannot be considered Fair’s alter ego, and SFCU cannot
pierce TCN’s corporate veil to reach him individually on its breach of contract claim.
B. CIVIL CONSPIRACY
SFCU also seeks to impose liability on Fair by claiming that Fair participated in a
civil conspiracy to cause TCN’s breaches of the Agreements. Dkt. No. 1, ¶ 62, 74; Dkt.
No. 175 at 18-21. A civil conspiracy under Indiana law is defined as “a combination of
two or more persons who engage in a concerted actions to accomplish an unlawful
purpose or to accomplish some lawful purpose by unlawful means.” Birge v. Town of
Linden, 57 N.E.3d 839, 845 (Ind. 2016) (internal quotations omitted). While no separate
cause of action for civil conspiracy is recognized in Indiana, a plaintiff may seek an action
for damages resulting from a civil conspiracy. Best Chair Inc. v. Factory Direct Wholesale,
LLC, 121 F. Supp. 3d 828, 839 (S.D. Ind. 2015). Because there is no independent cause
of action in Indiana for civil conspiracy, a claim of civil conspiracy is generally alleged
along with an underlying tort. Birge, 57 N.E.3d at 846 (citing Crystal Valley Sales, Inc. v.
Anderson, 22 N.E.3d 646, 653 (Ind. Ct. App. 2014)). However, “the law in Indiana is not
clear-cut” as to whether a breach of contract claim can support a claim of civil conspiracy.
Carter v. State Farm Fire & Cas. Co., 850 F. Supp. 2d 946, 953 (S.D. Ind. 2012).
The Court need not determine whether a civil conspiracy claim can be alleged with
an underlying claim for breach of contract at this time because, even if such a claim was
recognizable under Indiana law, SFCU has not provided sufficient facts to support it.
SFCU has not alleged any specific facts or provided any evidence demonstrating that Fair
used any unlawful means to achieve TCN’s breaches of the Agreements, as is required
to meet the definition of a civil conspiracy. See Birge, 57 N.E.3d at 845. Even if SFCU
could provide evidence to prove that Fair encouraged TCN to breach the Agreements,
Fair, as a Vice President of TCN, could “not [be] liable for inducing [TCN’s] breach of its
contract if [he] act[ed] within the scope of his official duties on behalf of [TCN] and not as
an individual for his own advantage.” Winkler, 638 N.E.2d at n. 7. Because SFCU has
failed to provide any evidence that Fair acted illegally or outside the scope of his official
duties to effectuate TCN’s breaches of the Agreements, Fair cannot be held liable to
SFCU for civil conspiracy.
For the foregoing reasons, the Court GRANTS Fair’s Motion for Partial Summary
IT IS SO ORDERED this 27th day of February, 2017.
LARRY J. McKINNEY, JUDGE
United States District Court
Southern District of Indiana
Alexander Pape Orlowski
BARNES & THORNBURG LLP
Karoline E. Jackson
BARNES & THORNBURG LLP
Michael K. McCrory
BARNES & THORNBURG LLP
Christopher Charles Hagenow
BLACKWELL, BURKE & RAMSEY, P.C.
Jason R. Burke
BLACKWELL, BURKE & RAMSEY, P.C.
Jonathan Andrew Knoll
COHEN & MALAD LLP
Michael Wesley McBride
COHEN & MALAD LLP
Richard M. Malad
COHEN & MALAD LLP
Donald F. Foley
FOLEY & ABBOTT, P.A.
Harley K Means
KROGER GARDIS & REGAS LLP
James A. Knauer
KROGER GARDIS & REGAS, LLP
Amanda D. Stafford
NEXTGEAR CAPITAL INC.
Stephen B. Gillman
SHUTTS & BOWEN LLP
Trent L. Richards
THE BOURASSA LAW GROUP, LLC
Andrew A. Warth
WALLER LANSDEN DORTCH & DAVIS,
Chanelle R. Acheson
WALLER LANSDEN DORTCH & DAVIS,
Jeremy A. Oliver
WALLER LANSDEN DORTCH & DAVIS,
John E. Haubenreich
WALLER LANSDEN DORTCH & DAVIS,
Tony H. Abbott
FOLEY & ABBOTT, P.A.
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