Alright, the file that I needed to edit was:
list.phtml
In list.phtml there are two sections. One that says //List Mode// and one that says //Grid Mode//. Under both sections you need to add
keepFrame(false)
just before the resize code. I found it in my version on line 47 (list mode) and line 91 (grid mode).
I have included the code from line 91 below to show my small change of adding keepFrame(false)
here it is:
<a href="<?php echo $_product->getProductUrl() ?>" title="<?php echo $this->htmlEscape($this->getImageLabel($_product, 'small_image')) ?>" class="product-image"><img src="<?php echo $this->helper('catalog/image')->init($_product, 'small_image')->keepFrame(false)->resize(135); ?>" alt="<?php echo $this->htmlEscape($this->getImageLabel($_product, 'small_image')) ?>" /></a>
Remember to remove
width="135" height="135"
attributes from the img tag