Inlow v. Ernst & Young, LLP

• Decision Date: 18 July 2002
• Docket Number: No. 49A05-0105-CV-225.,49A05-0105-CV-225.
• Citation: 771 N.E.2d 1174
• Parties: Jason L. INLOW, Heather N. Inlow Johnson, Jeremy H. Inlow, and Sarah C. Inlow, Appellants-Plaintiffs, v. ERNST & YOUNG, LLP and Geoffrey Gooch, Appellees-Defendants.
• Court: Indiana Appellate Court

771 N.E.2d 1174

Jason L. INLOW, Heather N. Inlow Johnson, Jeremy H. Inlow, and Sarah C. Inlow, Appellants-Plaintiffs, v. ERNST & YOUNG, LLP and Geoffrey Gooch, Appellees-Defendants.

No. 49A05-0105-CV-225.

Court of Appeals of Indiana.

July 18, 2002.

Stephen B. Caplin, Caplin Park Tousley & McCoy, Marvin J. Frank, Esq., Robert M. Hamlett, Esq., Frank & Kraft, P.C., Indianapolis, IN, for Appellants.

Brian W. Welch, Kelley Bertoux Creveling, Bingham McHale, LLP, Indianapolis, IN, Stanley J. Parzen, James C. Schroeder, Mayer, Brown & Platt, Chicago, IL, for Appellees.

OPINION

DARDEN, Judge.

STATEMENT OF THE CASE

Jason L. Inlow, Heather N. Inlow-Johnson, Jeremy H. Inlow, and Sarah C. Inlow (collectively "the Inlows") appeal the trial court's granting of Ernst & Young, LLP and Geoffrey P. Gooch's (collectively "the accountants") motion to dismiss the Inlows' amended complaint.

We affirm, but remand with instructions for further proceedings.

ISSUES

1. Whether the trial court erroneously granted the accountants' Indiana Trial Rule 12(B)(6) motion to dismiss.

2. Whether the trial court erroneously denied the Inlows' Motion For Leave To File Second Amended Complaint.

FACTS

On May 21, 1997, Lawrence W. Inlow died as a result of a helicopter mishap. He died intestate, leaving a gross estate of approximately 180 to 185 million dollars, and was survived by a former wife and four children from his first marriage, as well as a wife and child from his second marriage. The estate is being supervised in the Hamilton Superior Court No. 2, Probate Division. The four children of Lawrence W. Inlow's first marriage are the appellants in this case.

On June 4, 1997, Karl W. Kindig ("Kindig") was appointed as the successor personal representative for the estate of Lawrence W. Inlow. On August 24, 1999, the four Inlow children of the decedent's first marriage filed their complaint in Marion Superior Court. The Inlows alleged that Kindig hired Ernst & Young "to provide accounting services" for the estate; that Gooch, one of Ernst & Young's employees, was not a licensed certified public accountant "at the relevant times;" and that the accountants were negligent in that they did not "follow accepted accounting principles." (Inlow App. 9-10). Pursuant to T.R. 12(B)(6), the accountants filed their motion to dismiss for failing to state a claim upon which relief could be granted. The accountants argued that the suit should have been dismissed because the Inlows lacked standing, were not in privity with Kindig and the accountants, and did not rely on any statements made by the accountants.

In an attempt to schedule the depositions of Gooch and Lorelei Tolson, an Ernst & Young employee, the Inlows filed their motion to compel discovery on December 20, 1999. The trial court set the matter for hearing on January 20, 2000. In their response filed on January 12, 2000, the accountants again argued that the Inlows did not have standing to bring suit, and that state and federal confidentiality laws prevented Gooch and Tolson from revealing the substantive nature of their work for the estate. On January 18, 2000, Kindig filed Personal Representative's Motion For Intervention And For Protective Order. In his motion, Kindig also argued that his work for the estate was privileged unless the Inlows could "articulate areas of questioning that would not be covered by privilege." (Accountants' App. 18). The trial court held a hearing on January 20, 2000, took the matter under advisement, and the next day it denied the Inlows' motion to compel and Kindig's motion to intervene.

On March 3, 2000, the trial court issued an order granting the accountants' motion to dismiss. However, the Inlows filed an amended complaint on March 9, 2000. In their amended complaint, the Inlows alleged malpractice, negligence, misapplication of entrusted property, conversion, and gross negligence. The Inlows asserted that the accountants "failed to timely inform Mr. Kindig of the federal income tax obligations of the Inlow Property for the fiscal year ending January 31, 1999, that and as a direct and proximate result, the Inlow Property paid more than [$250,000] in interest." (Inlow App. 51). The Inlows claimed the estate was subject to significant tax penalties, had been encumbered with liens, had lost value, and would continue to lose value in the future.

On March 22, 2000, the accountants filed their motion to dismiss the Inlows' amended complaint pursuit to T.R. 12(B)(6). Again, the accountants argued that the Inlows did not have standing to bring suit on behalf of the estate; and, that they were not in privity with the accountants and Kindig.

On April 6, 2000, the Inlows requested a hearing on the accountants' motion to dismiss; the trial court set the matter for hearing on May 15, 2000. At the hearing, the accountants' counsel argued that only the personal representative is authorized to bring suit on the estate's behalf; to allow potential beneficiaries to bring suit would interfere with the efficient administration of the estate. In addition, the accountants' counsel argued that Indiana's probate code grants Kindig, and not the Inlows, present title to all personal property while administering the estate. Finally, counsel argued that unless a close relationship is pled, a cause of action cannot be brought by a third party against a professional hired by the personal representative "attempting to close out an estate...." (Accountants' App. 74).

In response, the Inlows' counsel argued that on a motion to dismiss pursuant to T.R. 12(B)(6), the trial court must accept their pleading as true, and that the accountants had not met their burden of proving that there was no set of facts under which the Inlows could prevail. In addition, the Inlows' counsel argued that the Inlows are entitled to bring suit to recover for damages done to their property because they had received a present possessory interest to both real and personal property when Lawrence W. Inlow died.

After hearing the parties' arguments, the trial court took the matter under advisement. On June 8, 2000, the trial court issued an order granting the accountants' motion to dismiss the Inlows' amended complaint, but it did not enter final judgment. On June 28, 2000, the Inlows filed their notice of appeal. On September 19, 2000, the trial court ordered the parties to enter into mediation.

While their appeal was pending, the Inlows and Kindig executed a mediated agreement on November 15, 2000. Under the agreement, (1) Kindig agreed to resign as personal representative; (2) the Inlows agreed not to sue Kindig; (3) the parties agreed to choose a successor personal representative; (4) Kindig and the successor personal representative would serve as co-administrators for a short period of time; (5) the successor personal representative would pay Kindig $200,000 for his past services rendered to the estate; and (6) Kindig and the successor personal representative would execute an assignment of rights, claims, and causes of action he may have had against the accountants in favor of the Inlows. The relevant portion of the assignment assigns certain rights to the Inlows as follows:

all of the right, title and interest of the Estate, and of the Personal Representatives thereof, in and to all claims, choses in action or rights of action against any person, firm, corporation or other entity which the Estate and/or Kindig has or may have ....

(Inlow App. 137).

On November 17, 2000, the Inlows filed a petition seeking the probate court's approval of the mediated agreement. The probate court heard argument on November 20, 2000. The probate court found that the agreement was in the best interest of the Estate and the heirs, approved the mediated agreement, and appointed Fifth Third Bank of Indiana to serve as successor personal representative "upon its acceptance and qualification for such service, ...." (Inlow App. 135).

"On or about January 16, 2001," the Inlows came into possession of an unsigned letter of understanding on Ernst & Young letterhead sent from Gooch to Kindig. (Inlow App. 104). The relevant portion of the letter stated:

Ernst & Young will provide tax and consulting services as requested by you or legal counsel employed by the Estate. Such services will include general and specific tax consulting services, as well as compliance services relating to the preparation of the federal estate tax return (Form 706), federal and Indiana fiduciary income tax returns, and the preparation of the Indiana inheritance tax return ....

(Inlow App. 120).

On February 2, 2001, the probate court issued a second, more detailed order approving the court ordered mediated agreement and appointment of Fifth Third Bank as successor personal representative. However, the probate court stated that it was "not making any ruling and expresses no opinion on the existence or validity of any claims or the effectiveness or validity of any assignment on any grounds." (Accountants' App. 100).

A few days before the Inlows were to file their reply brief in their appeal, the Inlows filed a Motion For Leave To File Trial Rule 60(B) Motion with the trial court on the basis of newly discovered evidence. The accountants filed their response alleging that the Inlows' newly discovered evidence "[did] not provide a basis for ruling under Trial Rule 60(B)(2) and the events occurring since the order of dismissal were not relevant to this appeal." (Inlow App. 100).

On April 20, 2001, this court issued an order dismissing the Inlows' appeal without prejudice because the trial court did not enter a final judgment. We found that the granting of the motion to dismiss was merely an "interlocutory order, not appealable by right." (Inlow App. 101).

On April 24, 2001, the Inlows filed their Motion For Leave To File Second Amended Complaint. The Inlows asserted that the trial court should grant their motion because they "have recently discovered...