CRIT Corp. v. Wilkinson
CRIT Corp. v. Wilkinson
Opinion of the Court
[1] CRIT Corp. and Peoplelink, LLC (together, "Peoplelink") appeal the trial court's orders dismissing their complaint against attorney Peter G. Trybula and his employer Barnes & Thornburg LLP (together, "B & T") for breach of fiduciary duty and for legal malpractice. Peoplelink raises the following restated issues for our review:
I. Whether the trial court erred in dismissing Peoplelink's initial complaint, which alleged breach of fiduciary duty arising from an alleged conflict of interest; and
II. Whether the trial court erred in dismissing Peoplelink's second amended complaint, which alleged legal malpractice, fraud, and constructive fraud arising from the same alleged conflict of interest.
[2] We affirm.
Facts and Procedural History
[3] Peoplelink is a nationwide staffing solutions business based in South Bend, Indiana that matches temporary employees with companies in need of short-term labor. CRIT Corp. is a holding company that wholly owns Peoplelink. From 2001 to 2011, Peoplelink was privately owned by the Wilkinson family. In 2011, the Wilkinson family sold a controlling interest to CRIT, but William Wilkinson ("Wilkinson") continued to serve as Peoplelink's President and Chief Executive Officer until December 31, 2015. Peter G. Trybula ("Trybula") is an attorney with the law firm of B & T. When Wilkinson decided to part ways with Peoplelink, Trybula and B & T represented Wilkinson and acted on his behalf in connection with the written agreements, including the non-compete between Wilkinson and Peoplelink, whereby Wilkinson separated from the company and transferred his interest in Peoplelink to CRIT. Peoplelink and CRIT were represented by their own legal counsel (not by B & T) in this "highly negotiated transaction that involved sophisticated parties and counsel." Appellants' App. Vol. II at 172.
[4] After Wilkinson's departure, Peoplelink agreed to continue using B & T and Trybula as one of its key company counsel. Id. at 178. B & T "continued to be actively involved in Peoplelink's legal affairs, advising Peoplelink on a variety of significant matters, including a possible M & A transaction, a dispute regarding a prior M & A transaction, the renewal of an existing *665banking facility, and other ordinary course matters." Id. B & T simultaneously represented Wilkinson in connection with his "proposed acquisition" of Ohio-based companies, Just in Time and HR Business (together, "JIT"). Id. at 181. Upon Wilkinson's request, B & T acted "on behalf of Wilkinson" and as his attorney in connection with his effort to acquire JIT. Id. at 173, 182.
[5] On July 1, 2016, the President and Chief Operating Officer of Peoplelink, Jay Mattern ("Mattern"), received an e-mail from Trybula. The e-mail was intended to be sent to Wilkinson and concerned the acquisition of an Ohio-based staffing solutions company located just 250 miles from Peoplelink's headquarters in South Bend. Trybula immediately attempted to recall the email he had unintentionally sent to Mattern. Attached to the e-mail that Trybula inadvertently sent to Mattern were draft copies of the transaction documents for the acquisition of JIT by an investment vehicle owned and controlled by Wilkinson. The transaction documents reflected that JIT-like Peoplelink itself-provided temporary staffing solutions. Id. at 65, 78-144. Trybula's e-mail was sent less than seven months after Wilkinson-while represented by B & T-agreed to refrain from engaging in the staffing services industry.
[6] On July 13, 2016, Peoplelink filed a complaint against Wilkinson for anticipatory breach of contract, alleging that Wilkinson breached his non-compete agreements by pursuing a proposed acquisition of JIT.
[7] After the dismissal of its fiduciary duty claim based on an alleged conflict of interest, Peoplelink filed a second amended complaint in which it alleged B & T had a conflict of interest and breached a fiduciary duty and, therefore, was liable for legal malpractice, fraud, and constructive fraud. The complaint alleged B & T violated "fiduciary and ethical obligations" and breached a "fiduciary duty," which "misconduct also violated Rule 1.7 of the Indiana Rules of Professional Conduct." Appellants' App. Vol. II at 187-88, 191. The second amended complaint was based on "the same operative facts" as the initial complaint. Hrg. Tr. Vol. II at 47, 64, 74.
[8] B & T moved to dismiss the second amended complaint pursuant to *666Indiana Trial Rules 9(B), 12(B)(1), and 12(B)(6). A hearing was held, and on March 22, 2017, the trial court entered an order dismissing the second amended complaint and stating in part: "After a great deal of consideration and review of the materials filed and case law and other authority cited, the Court now Grants the Motion to Dismiss filed by [B & T]." Appellants' App. Vol. II at 20. On April 4, 2017, the trial court entered Final Judgment for B & T pursuant to Trial Rule 54(B). Peoplelink now appeals.
Discussion and Decision
[9] A motion to dismiss for failure to state a claim tests the legal sufficiency of the claim, not the facts supporting it.
I. Initial Complaint
[10] Peoplelink argues that its initial complaint stated a viable claim for breach of fiduciary duty against B & T, and the trial court erred when it dismissed the initial complaint. Peoplelink claims that B & T had a conflict of interest in representing Peoplelink and, at the same time, providing legal advice to Wilkinson on a matter that was adverse to Peoplelink's interests. Peoplelink asserts that, in dismissing the initial complaint, the trial court misapplied our Supreme Court's case of Sanders v. Townsend ,
[11] In Sanders v. Townsend , an attorney was sued by his clients, who alleged that he "breached his fiduciary duties to them by coercing them into a settlement they considered inadequate," in violation of the Indiana Rules of Professional Conduct. Id. at 358-59. On appeal after summary judgment was granted in favor of the attorney, our Supreme Court affirmed the trial court, holding "that to subject attorneys to suit for constructive fraud based on a violation of the fiduciary duties that are regulated under the Rules of Professional Conduct ... would create unreasonable, unwarranted, and cumulative exposure to civil liability." Id. at 359. In reaching its decision, the Supreme Court relied in part on the preamble to the Rules of Professional Conduct and stated that the preamble makes it "clear that [the Rules] provisions do not purport to create or describe any civil liability" and they "are not designed to be a basis for civil liability." Id. The Supreme Court also asserted its exclusive jurisdiction to investigate, process, and apply "its Rules through its Disciplinary Commission." Id.
*667[12] Liggett v. Young , involved a contract dispute arising from Liggett's construction of a private residence for his attorney, defendant Young and, therefore, concerned "the common law prohibition against attorney-client transactions," involving transactions between a lawyer and client "in which the lawyer does not render legal services." Id. at 179, 184. Our Supreme Court reaffirmed Sanders and held that liability against an attorney "may not be predicated on a claimed violation of a specific professional conduct rule relating to fiduciary duties." Id. at 183. It further held that Indiana law allows a client to "seek damages if the attorney's conduct constitutes a breach of fiduciary duty at common law," but only when there exists an "independent common law basis" that is "apart from" a violation of the Rules of Professional Conduct. Id. The Liggett court then noted that, apart from the Rules of Professional Conduct, Indiana common law has long recognized that such "separate attorney-client transactions" that are "entered into during the existence of a fiduciary relationship are presumptively invalid as the product of undue influence." Id. at 183-84. The Supreme Court acknowledged a long line of Indiana cases supporting this presumption and additionally cited to a section of the Restatement of The Law Governing Lawyers, all of which addressed the precise behavior alleged to be a breach of fiduciary duty in Liggett , and which constituted an independent common law basis apart from the violation of the Rules of Professional Conduct. Id. at 184.
[13] Here, in its initial complaint, Peoplelink raised one claim against B & T, alleging that B & T "breached [its] fiduciary duties by, among other things, concurrently representing Peoplelink and Wilkinson in matters in which Trybula and B & T [had] a conflict of interest" and in doing so "elevated the interests of Wilkinson above the interest of Peoplelink to the detriment of Peoplelink." Appellants' App. Vol. II at 73. An Indiana attorney's duty to not represent a client if the representation involves a concurrent conflict of interest is found in Rules 1.7 and 1.8 of the Indiana Rules of Professional Conduct. Peoplelink's allegation of breach of fiduciary duty, therefore, was based on a violation of the fiduciary duties regulated by the Rules of Professional Conduct, which both Sanders and Liggett preclude.
[14] While Peoplelink urges that its allegation has an independent common law basis apart from the violation of Rules 1.7 and 1.8, as Liggett requires, we find that Peoplelink's initial complaint did not establish an independent common law basis for its claim against B & T. In support of its position, Peoplelink relies on Blasche v. Himelick ,
[15] Additionally, Peoplelink cites to several cases from other jurisdictions as support for an independent common law basis for its claim. The first is Maritrans GP, Inc. v. Pepper, Hamilton & Scheetz ,
[16] In support of its argument, Peoplelink also points to the language in the Preamble of the Rules of Professional Conduct that states, "[A] lawyer's violation of a Rule may be evidence of breach of the applicable standard of conduct." Peoplelink asserts that the trial court ignored this language in its dismissal of its initial complaint. However, although this language does appear in the Preamble, the text also states that "[v]iolation of a Rule should not itself give rise to a cause of action against a lawyer" and "[the Rules] are not designed to be a basis for civil liability." Ind. Professional Conduct Rule Preamble 20. Even though the Preamble states that a violation of a Rule may be used as evidence *669of breach of standard of conduct, pursuant to Liggett , an independent common law basis separate from the rule violation must be shown.
[17] In this case, Peoplelink's allegation of breach of fiduciary duty was only based on a violation of the Rules of Professional Conduct, and no independent common law basis apart from the rule violation was shown to exist for Peoplelink's allegation. We, therefore, conclude that the trial court did not err when it dismissed Peoplelink's initial complaint alleging breach of fiduciary duty.
II. Second Amended Complaint
[18] Peoplelink next asserts that, in its second amended complaint, it stated a viable claim for legal malpractice on the basis that B & T's professional competency fell below the standard of care possessed by members of the legal profession by rendering legal services when they were precluded from doing so due to a conflict of interest and that the trial court erred when it dismissed its second amended complaint for failure to state a claim. Peoplelink asserts that claims for legal malpractice may be premised on circumstances where a lawyer breaches his duty of loyalty to a client by representing an interest adverse to his client. It further contends that it adequately alleged causation and damages for its legal malpractice claim. Peoplelink also argues that the trial court erred in dismissing Peoplelink's claims of fraud and constructive fraud because they were pled with sufficient particularity. We disagree.
[19] Peoplelink's second amended complaint alleged B & T had a conflict of interest and breached a fiduciary duty and, therefore, was liable for legal malpractice, fraud, and constructive fraud. The complaint alleged B & T violated "fiduciary and ethical obligations" and breached a "fiduciary duty," which "misconduct also violated Rule 1.7 of the Indiana Rules of Professional Conduct." Appellants' App. Vol. II at 187-88, 191. The second amended complaint was based on "the same operative facts" as the initial complaint. Hrg. Tr. Vol. II at 47, 64, 74. B & T moved to dismiss this second complaint, and the trial court granted the dismissal.
[20] As to the legal malpractice allegation, Peoplelink claimed that B & T was (1) "obligated to exercise the degree of knowledge, skill, and competence ordinarily possessed by members of the legal profession, including with respect to the exercise of [its] duties of loyalty and independent judgment," (2) and by failing to disclose the conflict of interest regarding Wilkerson's negotiations with JIT, and by continuing to represent Wilkinson in such efforts, B & T fell short of those obligations and, thus, breached its fiduciary duty of loyalty to Peoplelink. Appellants' App. Vol. II at 187-88. Peoplelink claimed this failure by B & T caused Peoplelink to continue its attorney-client relationship with B & T, when Peoplelink would have otherwise terminated the relationship and to continue to pay for the services of a conflicted and disloyal lawyer. As such, Peoplelink contends it should have been entitled to disgorgement of all fees it paid to B & T during B & T's representation of Wilkinson in his efforts to acquire JIT. Id. at 188.
[21] To prove a legal malpractice claim, the plaintiff-client must show: (1) employment of the attorney (the duty); (2) failure of the attorney to exercise ordinary skill and knowledge (the breach); (3) proximate cause (causation); and (4) loss to the plaintiff (damages). Beal v. Blinn ,
[22] Indiana's notice pleading provision requires only "a short and plain statement of the claim showing that the pleader is entitled to relief." Indiana Trial Rule 8(A). The plaintiff need not set out in precise detail the facts upon which the claim is based, but he must plead the operative facts necessary to set forth an actionable claim. Bd. of Comm'rs of Union Cnty. v. McGuinness ,
[23] As to the claim of actual fraud, Peoplelink alleged that, "Trybula and B & T concealed or failed to disclose one or more material facts within their knowledge by failing to inform Peoplelink about: (a) Wilkinson's efforts to acquire [JIT], and (b) Trybula and B & T's representation of Wilkinson in connection with Wilkinson's efforts to acquire [JIT]." Appellants' App. Vol. II at 189. "The elements of actual fraud are: (i) material misrepresentation of past or existing facts by the party to be charged (ii) which was false (iii) which was made with knowledge or reckless ignorance of the falseness (iv) was relied upon by the complaining party and (v) proximately caused the complaining party injury." Kapoor v. Dybwad ,
[24] As to constructive fraud, Peoplelink alleged that "Trybula and B & T concealed or failed to disclose one or more material facts within their knowledge by failing to inform Peoplelink about: (a) Wilkinson's efforts to acquire [JIT]; and (b) Trybula and B & T['s] representation of Wilkinson in connection with Wilkinson's efforts to acquire [JIT][,]" and that Trybula and B & T had a duty to disclose these material facts to Peoplelink as a result of [their] fiduciary relationship with Peoplelink." Appellants' App. Vol. II at 191. Peoplelink's constructive fraud claim was pled "in the alternative" to the actual fraud claim and was based on the same alleged "duty to disclose."
[25] Based on this, we conclude that the trial court did not err in granting B & T's motion to dismiss Peoplelink's second amended complaint. We, therefore, affirm the trial court's dismissal of both the initial complaint and the second amended complaint.
[26] Affirmed.
Najam, J., and Brown, J., concur.
The trial court dismissed CRIT Corp. and Peoplelink, LLC's ("Peoplelink") declaratory judgment claims against Wilkinson and Hoosier Investments, LLC and granted summary judgment for Hoosier Investments, LLC on the remaining contract claims against it. Appellees' App. Vol. II at 105. After Wilkinson filed a motion to dismiss the remaining claims against him for anticipatory breach of contract, Peoplelink settled with Wilkinson, and the claims against him were dismissed. Id. at 106-11.
We note that the trial court dismissed Peoplelink's complaint pursuant to Indiana Trial Rules 12(B)(1) and 12(B)(6). However, in its Appellants' Brief, Peoplelink only discusses the standard of review for a dismissal under Trial Rule 12(B)(6). We, therefore, also only refer to the standard of review for that rule.
Peoplelink also requested punitive damages in its second amended complaint. However, "Indiana courts have long held that punitive damages are not freestanding and that an award of actual damages is a prerequisite to an award of punitive damages." Best Formed Plastics, LLC v. Shoun ,
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