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Cause #: 03-061F
Caption: Schneider v. Grosnickle and Cincinnati Ins. Co.
Administrative Law Judge: Lucas
Attorneys: Gates; Lavender; Martin
Date: July 7, 2004
FINAL ADMINISTRATIVE JUDGMENT
1. The stumpage value is $912 for the trees taken unlawfully from real estate owned by Robert F. Schneider and Marcia Schneider in Whitley County, Indiana. The Schneiders are entitled to three times stumpage value, less their mitigation in the amount of $912, from Walter Gail Grosnickle.
2. Accordingly, the Schneiders have an administrative judgment against Grosnickle in the total amount of $1,824.
3. This administrative judgment addresses all issues of damage and responsibility, and, after completion of the opportunity for judicial review under IC 4-21.5, may be enforced in a civil proceeding as a judgment.
I. FINDINGS OF FACT WITH CONCLUSIONS OF LAW
A. Statement of the Case
1. Robert F. Schneider and Marcia Schneider (the "Schneiders") initiated the proceeding when they filed correspondence with the Natural Resources Commission (the "Commission") on March 13, 2003 outlining a claim against "Gail Grosnickle", whose full name is "Walter Gail Grosnickle" ("Grosnickle").
2. The Schneiders' claim is governed procedurally by IC 4-21.5 (sometimes referred to as the "Administrative Orders and Procedures Act" or "AOPA") and rules adopted by the Commission at 312 IAC 3-1 to assist with its implementation of AOPA.
3. At issue in Schneider's claim is a contention they are entitled to relief against Grosnickle, and against his surety, Cincinnati Insurance Company, for timber cut and harvested in violation of IC 25-36.5-1. This statutory chapter provides for the regulation of timber buyers and other persons associated with the enterprise of timber harvesting (the "Timber Buyers Act").
4. The Commission is the "ultimate authority" for this proceeding under AOPA. IC 14-10-2-3.
5. The trees were harvested in late summer 2002 on eight acres owned by the Schneiders, as joint tenants, in Whitley County, Indiana (the "subject property").
6. The Schneiders are collectively a "timber grower" as the term is used under the Timber Buyers Act. IC 25-36.5-1-1 and IC 25-36.5-1-3.2(c).
7. Grosnickle is registered as a "timber buyer" under the Timber Buyers Act. IC 25-36.5-1-2.
8. Every person registered as a timber buyer is required by IC 25-36.5-1-3 to
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post a bond or other appropriate surety to provide compensation to a timber grower if the timber buyer:
(a) fails to pay when due any amount due a timber grower for timber purchased;
(b) fails to pay legally determined damages for timber wrongfully cut by a timber buyer or his agent; or,
(c) commits any violation of the Timber Buyers Act.
9. Under the Timber Buyers Act, the Cincinnati Insurance Company is the surety for Grosnickle.
10. Personal service was made upon Grosnickle and upon the Cincinnati Insurance Company. The Commission has jurisdiction over the subject matter and jurisdiction over the person of the parties.
11. In 2002, David Schilling owned farm real estate adjacent to the subject property ("Schilling's realty"). In September 2002, he entered a written contract with Ted McClure for the harvest of timber from Schilling's realty.
12. This proceeding arose when cutters, seeking to perform the harvest anticipated by the written contract on Shilling's realty, erroneously entered upon the subject property and cut timber there.
B. Grosnickle as Timber Buyer on Schilling Contract and Subject Property
13. On direct examination, David Schilling testified he understood Ted McClure to be an agent for Grosnickle. On cross-examination, he testified that McClure had told him McClure was purchasing the timber on behalf of Grosnickle. McClure did not, however, show Schilling a card or other evidence he was working for Grosnickle. On redirect, Schilling testified he was paid for the timber with a check signed by Grosnickle. Later in testimony, Grosnickle confirmed that he provided the check in payment for Schilling's timber.
14. Eric J. Bolt, a Conservation Officer with the Department of Natural Resources, testified he spoke with the Schneiders, Schilling, McClure, and Grosnickle. These conversations pertained to investigations regarding sales in Whitley County that Bolt believed might have violated the Timber Buyers Act. Although much of Bolt's investigation is irrelevant to this proceeding, some aspects have probative value.
15. Bolt testified he investigated McClure because he might be acting as an "agent" (as defined in IC 25-36.5-1-1) without an agent's license as required under IC 25-36.5-1-15. McClure admitted to him that he knew he was required, under the Timber Buyers Act, to have an agent's license to purchase timber. In addition, McClure admitted he had purchased timber, without a license, and that he did so as Grosnickle's agent. Bolt testified McClure told him that Grosnickle would give McClure a 5%-to-10% commission for contracting with landowners for timber sales.
16. Bolt also met with Grosnickle in October 2002. Bolt testified that Schilling and the Schneiders told him they did not know who the cutters were. Bolt asked Grosnickle who they were, and Grosnickle said Craig Pugh was his cutter. Bolt testified Grosnickle never denied that the logs McClure purchased were purchased for Grosnickle.
17. Grosnickle indicated on direct examination that the
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persons who cut timber from the subject property were "independent contractors"[FOOTNOTE (a)] who were unrelated to his business enterprise. He testified, "I have no employees whatsoever." When asked whether he ever had an agent on the subject property, Grosnickle testified, "I have no agents."
18. On cross-examination, Grosnickle said McClure had been his agent years ago but the relationship was long since terminated. He testified he paid Schilling because "I bought the logs." When asked why Grosnickle paid for the logs when McClure had previously purchased them, Grosnickle responded, "No, he [McClure] bought the contract." Grosnickle was then asked who paid McClure. Grosnickle answered, "I don't know." Later, Grosnickle conceded he paid McClure a "very little" commission. Grosnickle also implicitly acknowledged that he compensated Pugh as the cutter.
19. Grosnickle was an unpersuasive witness and was sometimes evasive. In particular, his testimony as to business practices strained credulity. He denied any recent professional relationship with McClure, who contracted to buy Schilling's timber, or to Pugh, who cut Schilling's timber. Grosnickle feigned ignorance even as to how these persons received compensation. Only when pressed on cross-examination did Grosnickle concede that he paid McClure a commission. Grosnickle never fully responded concerning how Pugh was compensated, but having the opportunity, Grosnickle did not deny that he also paid Pugh.
20. The preponderance of the evidence is that McClure held himself out to be the agent of Grosnickle, that Pugh and the other cutters served on behalf of Grosnickle, and that Grosnickle entered a business enterprise with McClure and the other cutters where Grosnickle functioned as a principle and timber buyer. In addition, although not a prerequisite to responsibility under the Timber Buyers Act, Grosnickle profited from these relationships. The relationships were ongoing and in place for the harvest from the Schilling realty.
21. But for the harvest at the Schilling realty, the unauthorized harvest on the subject property would not have taken place. Grosnickle and his surety, Cincinnati Insurance Company, are liable under the Timber Buyer's Act for malfeasance directed to the subject property.
C. Timber Harvest and Unauthorized Timber Cutting on the Subject Property
22. David Schilling testified he showed McClure the entryway to be used in the timber harvest.
23. The cutters for McClure did not inform Schilling when they began operations. After they had started, they came to his home and informed him they were possibly "in the wrong woods". Schilling stopped what he was doing and went with the cutters to determine where their operations were taking place. He discovered they had used the wrong entryway and were apparently cutting timber from the subject property rather than Schilling's realty. He observed timber from the subject property had been moved to Schilling's realty. Schilling instructed the cutters to leave the timber where it was and to resolve matters with the Schneiders. He then advised the Schneiders of what had occurred.
24. The day after learning from Schilling that timber had been harvested from the subject property, Robert
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Schneider approached the cutters. He testified that the "logs were laid out there". Two of the cutters were present on Schilling's realty. The cutters informed Robert Schneider the harvest would be completed "in a day or two", and they said Grosnickle would meet with him. About a week later, the logs were returned to the subject property.
25. After meeting with Robert Schneider, the cutters completed the timber harvest.
D. Valuation of the Timber
26. Marcia Schneider testified McClure's cutters harvested 19 logs from throughout the subject property. Seventeen of the logs were sold, and two were left at the site.[FOOTNOTE (b)]
27. Her first contact with Grosnickle was on October 8, 2002. Grosnickle was a passenger in a truck when the truck approached the Schneiders' residence. On this occasion, Grosnickle said he would pay the Schneiders $436, the same amount he had paid David Schilling for his timber. Marcia Schneider said the amount was unacceptable. She testified that after rejecting Grosnickle's offer, he became upset and said he was going to charge the Schillings for the cost of hauling the timber from the subject property.
28. Marcia Schneider testified that Grosnickle's attorney later wrote and offered settlement in the amount of $500, but she never had another conversation directly with Grosnickle.
29. On October 21, 2002, Marcia Schneider viewed the harvested logs with representatives of the Department of Natural Resources. There were six walnut trees, four sugar maple trees, one sycamore tree, two white ash trees, one basswood tree, two hickory trees, and one red elm tree. Marcia Schneider Testimony and Affidavit of Gary U. Gretter (Claimants' Exhibit B).
30. She invited bids from ten companies in order to seek a purchaser for the timber. She testified four bids were received. The low bid came from Grosnickle. Gary Gretter estimated the value of the timber at $673.36.[FOOTNOTE (c)] The high bid came from Quality Hardwood in North Manchester, Indiana with an offer of $912. On cross-examination, she testified the Schneiders had no prior association with any of the principles of Quality Hardwood.
31. The Schneiders sold the 17 logs to Quality Hardwood for $912.
32. Under Indiana common law, standing timber was considered realty rather than as goods or personalty. "Growing trees are regarded as part of the land to which they are attached .... Trees cannot be levied upon and sold as personal property." Once severed from the realty, timber was considered personalty. Owens v. Lewis, 46 Ind. 488, 508 and 509, 15 Am. Rep. 295 (Ind. 1874).
33. The common law has been changed in Indiana and other states by their enactment of the Uniform Commercial Code, at least as the law pertains to timber sales. "Timber contracts are contracts for the sale of goods and governed by the Uniform Commercial Code" pursuant to UCC Sec. 2-107. Williams v. J.W. Black Lumber Co., 628 S.W.2d 13, 16 (Ark. 1982). To the same effect is Mills v. New River Wood Corp., 77 N.C.Ap. 576, 335 S.E.2d 759 (N.C. Ap. 1985).
34. The Indiana version of the Uniform Commercial Code is set forth at IC 26-1. More particularly, the statutory chapter that governs the sale of goods under the Uniform Commercial Code is IC 26-1-2.
35. As
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applicable to this proceeding, "goods" includes "growing crops and other identified things attached to realty as described in the section on goods to be severed from realty (IC 26-1-2-107)." IC 26-1-2-105(l).
36. As provided in IC 26-1-2107(2), "A contract for the sale apart from the land of timber to be cut is a contract for the sale of goods within IC 26-1-2 whether the ... [(timber)] is to be severed by the buyer or seller even though it forms part of the realty at the time of contracting, and the parties can by identification effect a present sale before severance." Maloney v. Grant and Southern Indiana Timber, Inc. and DNR, 6 Caddnar 83 (1992).
37. Reference may properly be made to IC 26-1-2 and the Uniform Commercial Code in determining the treatment and sale of timber harvested from the subject property.
38. In determining the compensation to which a timber grower may be entitled, analogy may be made to standards for the proof of market price under IC 26-1-2-723. In marketing wrongfully felled timber, a timber grower who sells timber to mitigate damages will sometimes be forced to accept diminished compensation resulting from a distressed sale. The compensation received for timber sold in mitigation may be less than its fair market price.
39. In the instant proceeding, the sale price received by the Schneiders from Quality Hardwood was the highest price offered or appraised. The evidence is that this bid was an arms-length transaction. There is nothing to suggest that Quality Hardwood is other than a legitimate, reputable company. Under the facts in the instant proceeding, the most-reliable estimate of the market value for the logs is the price actually paid by Quality Hardwood.
40. The preponderance of the evidence is that the market price of the 17 logs was $912.
E. Consideration of Damage to the Subject Property
41. Marcia Schneider took photographs of the subject property following the timber harvest and described the site as being in "pretty bad shape". There was skidding damage, and new growth was knocked down. The line fence was damaged. She believed the value of the subject property was significantly reduced by the timber harvest.
42. Testimony by Robert Schneider was generally supportive of his wife's testimony. He indicated they had not been approached to sell timber from the subject property and had not pursued the possibility. He did not believe the timber had achieved sufficient maturity for harvest. Although no harvests had taken place since he and his wife purchased the subject property, Robert Schneider did not contest that the presence of old stumps suggested there were harvests under prior ownership.
43. Rex D. Schrader provided bona fide sales of land in southern Whitley County where a single wooded tract sold twice, once before and once after a timber harvest. The tract sold for 59% less after the timber was removed from the tract. The appraisal does not identify in a meaningful, quantifiable manner, the quality of woods on the property before the first sale or after the timber harvest. Schrader also indicated he had "no knowledge of the quality and value of the timber" on the subject property. The record is inadequate to support a finding the other tract in southern Whitley County is
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comparable to the subject property, either before or after the timber harvests from the two parcels. The information contained in Claimants Exhibit A is insufficient to offer probative evidence to this proceeding.[FOOTNOTE (d)]
44. Marvin Mikesell is a retired timber cutter and part-time consulting forester. He has never purchased timber, but during a 40-year period before retiring in about 2001, Mikesell participated in cutting and hauling out timber on more than 100 projects. He cut "several hundred thousand board feet of timber" during his career.
45. Mikesell said he entered the Schilling realty with Grosnickle. From this vantage, Mikesell could also view the subject property.
46. Mikesell testified the "fence was down that was supposed to be the line fence", and he "looked over" the subject property. He said no deep skidder ruts were visible from his vantage. He observed four or five stumps where trees had been recently cut. Mikesell testified any marketable timber was 30 to 40 years from maturity. The dominant tree was a species of elm that has little marketable value. He said timber stand improvement would be needed to maximize effective timber production.
47. Kenny Miller is an Indiana timber buyer who has worked in that capacity for about 14 years. He testified he observed the subject property and saw no significant damage. He noted that in felling trees, the cutters had been careful to cause tops to fall on sassafras trees or elm trees with little or no commercial value. Miller testified he was able to identify the skid path, "but there was no damage." Although he said he has observed timber cuts where significant property damage occurs, his testimony was that the timber harvest on the subject property was properly managed.
48. The preponderance of the evidence does not support a finding there were damages to the subject property that are discernable and for which compensation can properly be provided. Erosion has not been identified. Timber harvests have apparently taken place on the subject property in previous years, and there is an apparent absence of deep skidder ruts that would cause a long-term diminution in real estate values. Trees were felled so as to minimize damage to small trees. The line fence may have been damaged, but there is no proper evidence by which to assign a monetary amount to the damage.
49. No damages can be properly awarded under IC 25-36.5-1-3.2(f)(1) for harm to the subject property.
F. Financial Responsibility of the Surety, Cincinnati Insurance Company
50. But for their successful mitigation of damages, the Schneiders would be entitled to an administrative judgment against the Cincinnati Insurance Company.
51. Any judgment against the Cincinnati Insurance Company is limited by IC 25-36.5-1-3.2(g) to the value of timber wrongfully cut or appropriated. Since the Schneiders have secured $912 from Quality Hardwood, and the preponderance of the evidence is that $912 is the value of the timber, the Cincinnati Insurance Company is not liable to the Schneiders.
G. Financial Responsibility of the Timber Buyer, Walter Gail Grosnickle
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52. The Schneiders seek relief under IC 25-36.5-1-3.2(f)(2) for "Damages equal to three (3) times the stumpage value of any timber that is wrongfully cut or appropriated without payment." This remedy is sometimes referred to as the "treble damages clause."
53. Before 1993, the treble-damages clause provided a timber buyer who cuts "any timber which he has not previously purchased shall, in lieu of the normal penalties" pay the timber grower "three (3) times the stumpage value of the timber."
54. The purpose of the treble-damages clause is "to insure that timber buyers will exercise care in cutting of timber and to protect landowners from careless felling of their timber." Wright v. Reuss, 434 N.E.2d 925, 22 (Ind. App. 1982).
55. The treble-damages clause does not allow a timber buyer the defense of mistake of fact as to ownership of real estate where timber is located. Neither is a timber grower required to show the person who wrongfully cut timber acted with malicious intent. Beeman v. Marling, 646 N.E.2d 382 (Ind. App. 1995).
56. Amendments to the Timber Buyers Act in 1993 made a number of fundamental changes. Among these was to replace the mandatory structure for treble stumpage damage with a new arrangement, by which a timber grower may seek treble damages, through an adjudicative proceeding before the Commission.
57. Since 1993, the Commission has found it has discretion to demand less than the full impact of the treble-damages clause where the imposition of treble damages would work an injustice. Commission discretion may most appropriately be applied where the timber buyer or timber cutter acts with due diligence, but because of misdirection or connivance by another, is caused to err. Gallien v. Sloan Logging, Pendley & Zurich N. Am., 9 Caddnar 40 (2002) and Pollock v. Coats, 8 Caddnar 124 (1999).
58. Here neither Schilling nor the Schneiders played a role in the wrongful cutting of timber on the subject property. David Schilling provided instructions to Ted McClure and the cutters as to where entry to his property should be made, but there is no evidence they ever complied with those instructions.
59. The cutters crossed a line fence from the Schilling realty and entered the subject property where they felled 17 marketable trees. The cutters' intent was not shown to be malicious, but a showing of bad intent is not an element for application of the treble-damages clause. Gallien v. Sloan Logging, Pendley & Zurich N. Am., 9 Caddnar 40 (2002).
60. McClure was Grosnickle's agent. Grosnickle is responsible as a timber buyer for the wrongful actions of McClure and the cutters.
61. The Schneiders are entitled to recover from Grosnickle, under IC 25-36.5-1-3.2(f)(2), three times the stumpage value of $912. From the treble-damages clause, the mitigation must properly be deducted. Their entitlement under the treble-damages clause is $2,736, less a mitigation of $912, or the net amount $1,824.
62. Schneiders' should receive an administrative judgment against Grosnickle in the amount $1,824.
FOOTNOTES
(a) The testimony of witnesses is shown here and sometimes elsewhere in this document as a quotation. This occurs where the Administrative Law Judge understood the language quoted to be exactly as written, but the
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quotations are not taken from an official transcript of the hearing. If a transcript later reflects different wording, the transcript should be considered the true and accurate recitation of testimony, and the matters in quotation as a paraphrasing of the testimony.
(b) There was no evidence upon which a reasoned valuation can be made of the two logs left at the site. For this reason, they will not be further considered.
(c) Marcia Schneider apparently characterizes the Gretter calculation as a bid. Since Gretter was not offering to purchase the timber, but was instead attempting to estimate a fair market price, his calculations are more accurately characterized as an appraisal.
(d) Rex Schrader did not appear to testify at hearing on May 6, 2004. Over timely objections by the Respondents, the Schraders sought at hearing to introduce the exhibit through Schrader's Executive Assistant, Carla Weikert. Introduction of the exhibit was taken under advisement. On June 10, 2004, the Administrative Law Judge entered a "Ruling on Admissibility of Claimants' Exhibit A". It was determined Weikert could properly identify the exhibit under Rule of Evidence 901. The exhibit was hearsay, however, and a proper foundation was not laid to establish Schrader was "unavailable as a witness" so as to warrant an exception to hearsay exclusion under Rule 804. The exhibit was admitted under IC 4-21.5-3-26(a) with the limitation that no element of the final order would be based solely upon it. Even had Claimants' Exhibit A been found to have probative value, the lack of corroboration would have prevented a factual finding based on the exhibit.