April 23, 2017

No Constructive Fraud Without Concealment

Category: Indianapolis Law Club, Legal Malpractice | Author: | Share:

Central Indiana Podiatry, P.C. v. Barnes & Thornburg involves the client-attorney relationship and the release of claims at the end of that relationship. And, as an added bonus, this opinion was issued after the Court granted a petition for rehearing, which is always an unusual occurrence.

Vogel filed an action against a group of defendants called the Miller Parties. The Miller Parties hired Barnes & Thornburg to defend them. The case eventually settled.

During those settlement discussions, The Miller Parties spoke with B&T regarding outstanding fees they owed B&T. An oral agreement was reached, and when B&T included a release for past and future malpractice when reducing it to writing. B&T advised the Miller Parties to consult independent counsel before signing this agreement, and the Miller Parties did so. They eventually signed the release in order to settle the fee dispute.

Later, the Miller Parties sued B&T for legal malpractice. B&T argued that the claims were barred by the release, and moved for summary judgment. The trial court granted that motion, and the Miller Parties appealed.

The Miller Parties argued that the release was obtained by fraud. In its initial opinion, the Court dealt with this by holding sua sponte that the Miller Parties were precluded from advancing fraud-related arguments because they did not do so as part of a pleading. On rehearing, the Court acknowledged that this was a mistake, because a plaintiff is not required to anticipate and plead around an affirmative defense in the complaint. The Court then turned to whether there was a genuine issue of fact with regard to whether the release was procured by fraud. It found that they were not.

While the Miller Parties argued that the release was procured in the wake of B&T’s fraudulent inducement, fraudulent concealment, and constructive fraud, the Court found that these claims were inconsistent with the evidence.

While one B&T attorney testified during a deposition he worked to change the terms of the Vogel Agreement, specifically the change in corporation type, these changes were not concealed from Miller. In fact, B&T documented and testified they communicated at length with Miller regarding the change of FASC from an S-Corp to an LLC and what that would mean. B&T testified the change in corporation type was necessary to protect Miller’s tax interests.

Miller claims if he had known about the deficiencies with the Settlement Agreement, he would have not signed the Fee Release. B&T required Miller to retain outside counsel to review the Fee Release prior to Miller signing it. B&T had a conversation with Jim Knauer, who was Miller’s attorney at the time and is Miller’s attorney on appeal. As Miller’s attorney, it was Knauer’s responsibility to inquire regarding the status of the settlement of Federal claims filed by Vogel against the Miller Parties, as that was the litigation that spawned the fees to be released by the Fee Release Agreement. The Miller Parties have not demonstrated Knauer raised any questions about the status of the settlement or B&T responded deceptively to any questions Knauer or Miller may have asked. Knauer advised Miller to sign the Fee Release. The designated evidence does reveal Miller was in frequent contact with his entire litigation team at B&T and was permitted to review documents as they were prepared; none of the evidence Miller cites suggests B&T engaged in the web of concealment that Miller weaves in his argument.

Without evidence of concealment, there was no fraud, and B&T was entitled to summary judgment.

Judge Crone wrote separately both in the original opinion and in this one to lament lawyers’ ability to prospectively limit liability to clients for future acts of malpractice. He feels that this practice “subverts the very nature of the attorney-client relationship,” and discourages its use.

Lessons:

  1. A prospective release of malpractice liability for future acts may be enforceable.
  2. A fully-informed client who seeks the advice of independent counsel cannot claim constructive fraud without some evidence of concealment.

Read the full March 2017 Law Club Handout or listen to the recording here.