Dennerline v. Atterholt
| Decision Date | 16 May 2008 |
| Docket Number | No. 49A04-0610-CV-557.,49A04-0610-CV-557. |
| Citation | 886 N.E.2d 582 |
| Parties | Frederick W. DENNERLINE, III, and Fillenwarth, Dennerline, Groth & Towe, Appellants-Defendants, v. Jim ATTERHOLT, Insurance Commissioner of the State of Indiana as Liquidator of Indiana Construction Industry Trust (ICIT), Appellee-Plaintiff. |
| Court | Indiana Appellate Court |
David C. Jensen, David J. Beach, Eichhorn & Eichhorn, Hammond, IN, Attorneys for Appellants.
Irwin B. Levin, Richard E. Shevitz, Arend J. Abel, Cohen & Malad, LLP, Indianapolis, IN, Attorneys for Appellee.
Frederick W. Dennerline, III, and his law firm, Fillenwarth, Dennerline, Groth & Towe ("Dennerline"),1 appeal from a general jury verdict and judgment in favor of Jim Atterholt, Insurance Commissioner of the State of Indiana ("the Commissioner"), on the Commissioner's complaint against Dennerline for legal malpractice that resulted in the liquidation of the Indiana Construction Industry Trust ("ICIT") and $17,991,043 in unpaid healthcare bills for ICIT's beneficiaries. We affirm.
We reorder and restate the issues as follows:
I. Whether Dennerline has preserved any error regarding the testimony of the Commissioner's legal malpractice expert, Pete Schroeder;
II. Whether the trial court abused its discretion in ruling on Dennerline's discovery motions regarding liquidator Fred Greve;
III. Whether Dennerline is entitled to reversal based on the trial court's remarks and admission of evidence regarding the amount of ICIT's unpaid healthcare claims;
IV. Whether Dennerline is entitled to reversal based on the denial of his motion for judgment on the evidence on one of four theories of legal malpractice liability;
V. Whether Dennerline has preserved any error regarding his entitlement to setoffs for settlements the Commissioner recovered from nonparties; and
VI. Whether the trial court abused its discretion in denying Dennerline's motion to correct error as to the jury's finding that he was 100% at fault for ICIT's unpaid healthcare claims.
ICIT was a Multiple Employer Welfare Arrangement ("MEWA") formed in the late 1960s by a group of construction industry trade associations to provide healthcare benefits to their non-union employees. Representatives of those associations composed the Subscribing Employers Committee, which functioned as ICIT's board of trustees. ICIT provided healthcare benefits insured by Anthem Insurance Company or its predecessors until December 31, 1999, at which point ICIT terminated its relationship with Anthem and became a self-insured MEWA.
ICIT was regulated by state and federal law, including ERISA. In 1992, the Indiana General Assembly enacted legislation providing that a self-insured MEWA must annually obtain a certificate of registration from the Indiana Department of Insurance ("IDOI") under rules to be adopted by the Commissioner. Ind.Code § 27-1-34-2(a). Those rules would govern, among other things, "(1) certificate of registration requirements; (2) reinsurance requirements; (3) reserve levels; (4) deposits; (5) financial reporting; (6) fidelity bonds; and (7) the operations; of multiple employer welfare arrangements." Ind. Code § 27-1-34-9. Indiana Code Section 27-1-34-2(b) provides that a MEWA that does not obtain a certificate of registration is subject to Indiana Code Article 27-4, which authorizes the Commissioner to fine, punish with infractions, or otherwise penalize entities that engage in activities such as unfair competition, deceptive practices, or the unauthorized transaction of business. The Commissioner did not adopt rules pursuant to Indiana Code Section 27-1-34-2(a) until 2003, after ICIT was placed in liquidation. One of those rules provides that a "MEWA may continue to conduct business until the certificate of registration is granted or denied by the commissioner." 760 IAC 1-68-2(f). Neither ICIT nor any other MEWAs were penalized by the Commissioner for operating without a certificate of registration prior to his adoption of the rules.
Also in 1992, the General Assembly enacted legislation that provides,
If any domestic multiple employer welfare arrangement is insolvent or in imminent danger of insolvency, or fails or suspends operation between periods of examination authorized, it is a class A misdemeanor for the highest officer then actively in charge of such multiple employer welfare arrangement to knowingly fail to notify the department immediately of such condition, failure, or suspension.
Dennerline has been licensed to practice law in Indiana since 1974 and is a partner in the Indianapolis law firm of Fillenwarth, Dennerline, Groth & Towe, a general partnership. Dennerline began providing legal advice to ICIT in 1995 and became its outside counsel in 1998. Dennerline did not have expertise with MEWAs and did not consult with anyone or conduct research regarding the laws applicable to MEWAs when he undertook representation of ICIT. Dennerline determined that there was no risk in ICIT's continued operation without the certificate of registration required by Indiana Code Section 27-1-34-2(a) because there were no rules outlining the procedure for obtaining it. It "never crossed [Dennerline's] mind" to advise the trustees to initiate a mandate action to compel the Commissioner to adopt such rules. Tr. at 597.3
Dennerline drafted several versions of ICIT's trust agreement. Article 14.01 of the trust agreement provides that the trust "shall cease and terminate ... [i]n the event the Trust Fund or Funds shall be inadequate to carry out the intent and purposes of [the] Trust, or to meet the payments due or to become due under this Trust." Plaintiff's Exh. 10 at 46. ICIT generated an unaudited balance sheet dated September 30, 2001, which showed that its liabilities exceeded its assets by $695,989.88. Plaintiff's Exh. 1. Dennerline reviewed the September 2001 balance sheet but did not discuss it with the trustees. Notwithstanding the negative balance, Dennerline did not "even think about" the mandatory termination provision of Article 14.01 of the trust agreement. Tr. at 643. According to Dennerline, the September 2001 balance sheet "wasn't the first one to show a loss of claims against assets, but it was perhaps the first one to show that [ICIT's] assets did not meet the desired claim reserve." Id.
By December 2001, Dennerline was aware that claims were not being paid to ICIT's beneficiaries. Id. at 945. ICIT generated an unaudited balance sheet dated December 31, 2001, which Dennerline first obtained from ICIT chief operating officer Russell Roth in March 2002 in conjunction with an April 2002 board meeting. The December 2001 balance sheet listed "Precious Stones" as an asset valued at $2,932,811.00. Plaintiff's Exh. 2. The December 2001 balance sheet stated ICIT's total assets as $7,239,057.18 and its total liabilities as $7,096,309.02. Dennerline determined that the precious stones were leased and not owned and therefore were not a legitimate asset; thus, ICIT's liabilities exceeded its assets by over $2.7 million.
At the April 2002 board meeting, Dennerline did not see any balance sheets or hear any discussion about them. Dennerline did not inform the trustees about the December 2001 balance sheet or the precious stones. Also, Dennerline did not advise the trustees regarding the mandatory termination provision of Article 14.01 of the trust agreement or about the statutory duty to report a MEWA's actual or imminent insolvency to the IDOI.
In July 2002, the Commissioner initiated rehabilitation proceedings against ICIT in the trial court pursuant to Indiana Code Section 27-9-3-1. The trial court ultimately found ICIT to be insolvent, and the Commissioner initiated liquidation proceedings in August 2002.4 In October 2002, the Commissioner filed suit against numerous defendants to satisfy the unpaid healthcare claims of ICIT's beneficiaries.5
In March 2003, the Commissioner filed an amended complaint asserting a legal malpractice count against Dennerline. In a motion for summary judgment, which the trial court denied, the Commissioner succinctly alleged four theories of liability, the following two of which are most relevant to this appeal. Specifically, the Commissioner alleged that Dennerline
• Failed to advise ICIT and its trustees of the legal ramifications of operating without a Certificate of Registration from the Indiana Department of Insurance.
[and]
• Failed to advise ICIT and its trustees of the legal implications of its insolvent status, particularly its obligation to cease operating altogether, after Dennerline learned that leased "Precious Stones" were listed as an asset on ICIT's financial statement and that ICIT was insolvent.
In February 2005, the trial court entered an order approving the liquidator's accounting, which showed unpaid claims totaling $17,991,043.41, approximately $12,700,000 of which were incurred after March 31, 2002. The Commissioner eventually settled with all defendants except Dennerline. Dennerline asserted a nonparty defense and named the settling defendants as nonparties. In March 2006, Dennerline's counsel withdrew and was replaced by current counsel.
A jury trial began on August 21, 2006. On August 28, 2006, the jury returned a general verdict finding Dennerline 100% at fault for the claimed damages, which the jury found to be $17,991,043. On August 29, 2006, the trial court entered judgment on the jury's verdict. Dennerline filed a motion for judgment on the evidence and to correct error, as well as a motion for remittitur, which the trial court denied. This appeal ensued. Additional facts will be provided as necessary.
The elements of a legal malpractice claim are "(1) employment of an attorney, which creates a duty to the client; (2) failure of the attorney to exercise ordinary skill and knowledge (breach of the duty); and...
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