Weichman v. Lazzaro

Decision Date13 April 2015
Docket NumberNo. 45A03–1403–PL–81.,45A03–1403–PL–81.
Citation31 N.E.3d 1045 (Table)
PartiesJack WEICHMAN; Medical Management and Data Services, Inc.; and Weichman and Associates, P.C., Appellants–Defendants, v. Domenico LAZZARO, M.D.; Joseph Pabon, M.D.; and Associated Pathologists of Munster, Indiana, P.C., Appellees–Plaintiffs.
CourtIndiana Appellate Court

Scott E. Yahne, Yahne Law, P.C., Munster, IN, Attorney for Appellants.

Larry G. Evans, Richard M. Davis, Sean E. Kenyon, Hoeppner Wagner & Evans LLP, Merrillville, IN, Attorneys for Appellees.

MEMORANDUM DECISION

BRADFORD

, Judge.

Case Summary

[1] AppelleesPlaintiffsCounterclaim Defendants Dr. Domenico Lazzaro, M.D., and Dr. Joseph Pabon, M.D. operated AppelleePlaintiff–Counterclaim Defendant Associated Pathologists of Munster, Indiana, P.C. (“the Practice”). Dr. Lazzaro became an individual client of AppellantDefendant Weichman and Associates, P.C. (Weichman & Associates), in 1982, which was operated by AppellantDefendant–Counterclaim Plaintiff Jack Weichman. Dr. Lazzaro and his wife Patricia remained individual clients of Weichman & Associates until 1999, investing in several Weichman-controlled ventures which resulted in losses to the Lazzaros of approximately $800,000.00. The Practice also invested $100,000.00 in a Weichman-controlled venture, which investment was also lost (Weichman-controlled entities collectively known as “Investment Entities”).

[2] At some point, Weichman advised the Lazzaro's to open an account with Blunt Ellis Loewi (“Blunt Ellis”). In 1987, Weichman began unauthorized options trading on the account after forging the Lazzaros' signatures on certain documents, trading activity that resulted in losses of approximately $20,000.00 to $22,000.00. Weichman also opened a Blunt Ellis account for the Practice, which was unknown to the Lazzaros. Ultimately, the Practice lost approximately $1,300,000.00 in the Blunt Ellis Account.

[3] Meanwhile, in 1988, the Practice and AppellantDefendant–Counterclaim Plaintiff Medical Management and Data Services, Inc. (MMDS), Inc., also controlled by Weichman, entered into a billing agreement with the Practice (“the Agreement”). Beginning around 1994, the Practice began experiencing problems related to MMDS's failure to keep accurate records and adequately fulfill reporting requirements. Additionally, as a result of MMDS's use of improper billing codes, the Practice was subjected to Medicare and Medicaid audits, resulting in approximately $41,000.00 in fines, interest, and penalties. In 1999, the Practice terminated the Agreement and switched billing companies. MMDS failed to transfer the Practice's files to the new company in a timely fashion and, in the case of electronically-stored records, never transferred them at all.

[4] In 1999, Drs. Lazzaro and Pabon and the Practice (collectively, Plaintiffs) sued Weichman, Weichman & Associates, and MMDS (collectively, Defendants) under various theories, including breach of contract, breach of fiduciary duty, and conversion. MMDS filed a counterclaim of breach of contract, and Weichman counterclaimed for defamation. Trial on the claims finally began in 2009. At trial, Defendants attempted to introduce documents purporting to undermine evidence that Dr. Lazzaro was ignorant regarding the Blunt Ellis accounts, evidence that the trial court did not allow Defendants to introduce on the basis that it had not been timely discovered to Plaintiffs. At the conclusion of trial, the trial court entered judgment in favor of the Practice for $110,000.00 and Dr. Lazzaro for $340,000.00 and denied MMDS's and Weichman's counterclaims.

[5] Defendants argue on appeal that the trial court erred in (I) not dismissing certain of the Plaintiffs' claims for failure to join indispensable parties, (II) rejecting MMDS's breach of contract claim, (III) entering judgment in favor of Dr. Lazzaro and the Practice on claims regarding the Blunt Ellis accounts, (IV) concluding that the Plaintiffs' claims regarding the Blunt Ellis accounts were not time-barred, (V) awarding treble damages based on MMDS's negligent handling of the Practice's billing, and (VI) excluding the evidence of Blunt Ellis accounts proffered at trial. Because we conclude that the trial court erred in denying MMDS's breach of contract claim against the Practice, we affirm in part, reverse in part, and remand with instructions.

Facts and Procedural History

[6] Dr. Lazzaro and Patricia became clients of Weichman & Associates in 1982. The Lazzaros remained individual clients of Weichman & Associates until 1999, and while they were clients, Weichman & Associates prepared individual tax returns and personal financial statements for them. Weichman & Associates also did the Practice's accounting from approximately 1987 until 1999. Weichman acted as business/management advisor to the Practice, essentially running it. From 1988 until 1999 neither Dr. Lazzaro nor Dr. Pabon ever received bank statements or general ledgers for the Practice. On May 1, 1988, MMDS entered into the Agreement for billing services with the Practice, which was owned by Drs. Lazzaro and Pabon. MMDS provided billing services for the Practice into 1999.

I. Investments Controlled by Weichman

[7] As early as 1984, Weichman began advising the Lazzaros on personal financial matters and encouraged several investments, including Broadmoor; U.S. 30 Building Partnership (“U.S. 30 Building”); U.S. 30 Restaurant, Inc. (“U.S. 30 Restaurant”); Landings, Inc. (“Landings”); and Dunes Hotel Partnership (“Dunes Hotel”). Moreover, the Practice invested pension and retirement account funds totaling $100,000.00 in Broad Ridge Plaza Associates, Ltd. (“Broad Ridge”), another Weichman-controlled entity.

[8] By 1989, the Lazzaros had been investing with Weichman for approximately five years but had yet to receive any sort of reports on their investments. In November of 1989, Weichman, upon request, produced a handwritten summary of the Investment Entities. Weichman's summary listed the values of the investments as follows:

Investment Fair Market Value of the Investment
Broadmoor $2,500,000–3,000,000
Dunes Motel $1,500,000
Broad Ridge $1,200,000
Gathering Building $225,000
U.S. 30 Restaurant1 $500,000

Ex. 4. The 1989 report was the only one received by the Lazzaros.

[9] From 1986 to 1993, The Lazzaros invested in Broadmoor, which operated a golf course. Weichman provided information on Broadmoor to the Lazzaros on a “sporadic” basis and “was evasive most times [they] were trying to get information.” Tr. p. 106. In 1989, the Lazzaros invested in U.S. 30 Building, which was an investment in “land or buildings[,]; U.S. 30 Restaurant, which involved the purchase of a restaurant named Phillipe's, later renamed the Gathering; and Dunes Hotel, which invested in “The Spa in Chesterton,” which apparently involved a restaurant and hotel. Tr. p. 112. At around the same time, the Lazzaros invested in Landings, which operated a bar in Merrillville, Indiana. The Lazzaros invested a total of $505,000.00 in Broadmoor, $97,000.00 in U.S. 30 Building, $57,000.00 in U.S. 30 Restaurant, $98,500.00 in Dunes Hotel, and $35,000.00 in Landings. Ultimately, all of the money the Lazzaros invested in the Investment Entities, a total of approximately $793,000.00, was lost. Additionally, when Broad Ridge was finally sold in 2003, the Practice received no proceeds from the sale.

II. The Blunt Ellis Accounts

[10] At some point, Weichman advised the Lazzaros to open an investment account with Blunt Ellis, in which the Lazzaros initially invested $40,000.00. On or about February 20, 1987, without the Lazzaros' knowledge, Weichman forged their names to an application to allow options trading on the Blunt Ellis account. By the time the Lazzaros' Blunt Ellis account was closed in 1989, the account had lost $20,000.00 to $22,000.00 dollars from options trading.

[11] Also, Weichman unilaterally opened a Blunt Ellis account for the Practice, which the Lazzaros only discovered in 1999. Between January of 1987 and July of 1992, $1,437,000.00 was deposited in the Practice's Blunt Ellis account while $1,387,000.00 was withdrawn, resulting in losses of approximately $1,300,000.00. The vast majority of the money withdrawn from the Practice's Blunt Ellis account was taken out the day it was deposited or the day after. Among the transactions was a 1990 check from the Practice's Blunt Ellis account to Broadmoor for $70,000.00. The payment was authorized by neither Dr. Lazzaro nor Dr. Pabon, and there does not seem to have been a legitimate business reason for the transfer, as the Practice never invested in Broadmoor.

III. MMDS

[12] As previously mentioned, the Practice entered into the Agreement with MMDS, an entity controlled by Weichman, in 1988. The Agreement provided, in part, as follows:

THIS AGREEMENT FOR BILLING SERVICES (“the Agreement”) is entered into as this 1st day of May, 1988, between [MMDS] and [the Practice] (“Client”).
....
Section 2. Services to be Provided by MMDS.
(a) Billing Services. MMDS shall provide those billing services to Client as are provided for on the attached Schedule A, which is expressly made a part of this agreement.
(b) Collection Services. MMDS will provide collection services for accounts unpaid up to 120 days following the billing date by sending one or more appropriate collection letters or follow-up statements with the content and scheduling of letters to be agreed upon by MMDS and Client. At the end of each month, MMDS shall furnish Client with a report showing all accounts on the books which have been unpaid for 120 or more days. Within fourteen (14) business days of the receipt of such report, Client will instruct MMDS with respect to each account, either:
(i) To write off such account; or
(ii) To commence such further collection efforts as shall be agreed upon by MMDS and Client; or
(iii) To refer the unpaid account to a collection agency designated by the Client.
....
Section 4. Fees for Services.
....
(c) Books and Records. MMDS represents
...

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