Douglas C. Holland v. Indiana Farm Bureau Insurance , 110 N.E.3d 369 ( 2018 )

FILED
Aug 28 2018, 8:48 am
CLERK
Indiana Supreme Court
Court of Appeals
and Tax Court
APPELLANT PRO SE ATTORNEY FOR APPELLEE
Douglas C. Holland Michelle A. Cobourn-Baurley
Lawrenceburg, Indiana Shelbyville, Indiana
IN THE
COURT OF APPEALS OF INDIANA
Douglas C. Holland, August 28, 2018
Appellant-Defendant, Court of Appeals Case No.
18A-PL-792
v. Appeal from the Dearborn
Superior Court
Indiana Farm Bureau Insurance, The Honorable Jonathan N.
Appellee-Plaintiff Cleary, Judge
Trial Court Cause No.
15D01-1709-PL-43
Baker, Judge.
Court of Appeals of Indiana | Opinion 18A-PL-792 | August 28, 2018 Page 1 of 12
[1] Indiana Farm Bureau Insurance (Farm Bureau) sued attorney Douglas Holland
to recover money owed to it from a subrogation claim that arose from
Holland’s representation of a woman (Client) who was injured in a vehicle
collision. Farm Bureau and Holland filed competing motions for summary
judgment on Farm Bureau’s ability to recover its money from Holland, rather
than Client. The trial court found in favor of Farm Bureau, and Holland now
appeals. Finding that the statute of limitations expired before Farm Bureau
filed its complaint, we reverse and remand.
Facts 1
[2] On September 19, 2012, Client was injured in a vehicle collision, after which
Client retained Holland as her attorney in her personal injury lawsuit against
the tortfeasor. On November 20, 2012, Farm Bureau, which insured Client,
paid $5,000 toward Client’s medical bills. In December 2014, the personal
injury lawsuit settled in Client’s favor and on December 22, 2014, Holland filed
a motion to dismiss it, which the trial court granted. Holland requested Client
to allow him to retain $3,500 of her settlement to cover any subrogation claims
that Farm Bureau might have for one year beginning on December 22, 2014.
[3] Meanwhile, on August 28, 2014, Farm Bureau submitted a notice of its lien
rights to Holland. On September 4, 2014, Holland acknowledged the lien in
1
We heard oral argument in Indianapolis on August 7, 2018. We thank counsel for their informative oral
advocacy.
Court of Appeals of Indiana | Opinion 18A-PL-792 | August 28, 2018 Page 2 of 12
writing. On October 31, 2014, Holland called Farm Bureau’s counsel’s office
and requested that Farm Bureau waive its subrogation claim. Holland and
Farm Bureau then unsuccessfully tried to negotiate the subrogation amount.
On June 9, 2015, Farm Bureau asked that Holland request a damages hearing
so that the trial court presiding over Client’s lawsuit against the tortfeasor could
determine the amount of the subrogation claim. Holland stated that the lawsuit
had been dismissed and that Farm Bureau would have to file a small claim to
determine what amount, if any, Client owed it. This exchange was apparently
the last one between the parties for the remainder of 2015. On December 29,
2015, Client asked Holland to return to her the balance of the settlement;
Holland complied.
[4] Then, on July 13, 2017, Farm Bureau made a formal demand for payment of its
subrogation claim. On September 14, 2017, Farm Bureau filed a complaint
against Holland for its subrogation claim for $3,333, alleging that Holland
breached the fiduciary duty he owed to Farm Bureau and that he breached the
constructive trust imposed on the money at issue. On September 27, 2017,
Holland filed his answer, alleging that he had no legal authority to pay Farm
Bureau without Client’s consent. That same day, he filed a motion for
summary judgment, arguing that the statute of limitations had run and that he
had no legal requirement to withhold subrogation funds from Client’s
settlement.
[5] On October 27, 2017, Farm Bureau filed its own motion for summary
judgment, arguing that it had a medical payments lien, that Holland had a
Court of Appeals of Indiana | Opinion 18A-PL-792 | August 28, 2018 Page 3 of 12
fiduciary duty to Farm Bureau, that a constructive trust was created when
Holland received funds in which Farm Bureau had an interest, and that the
applicable statute of limitations is six years and had not yet run.
[6] On January 18, 2018, a hearing on the motions for summary judgment took
place. Following the hearing, the trial court granted Farm Bureau’s motion for
summary judgment and motion to strike, ordering Holland to pay Farm Bureau
$3,333, and denied Holland’s motion for summary judgment. The trial court
did not issue findings of fact or conclusions of law. On February 13, 2018,
Holland filed a motion to correct error, arguing that the trial court erred by
granting Farm Bureau’s motion for summary judgment. That same day, he
filed two more motions for summary judgment: one arguing that there is no
subject matter jurisdiction in this case because Farm Bureau’s claim is a
contractual one and Farm Bureau has not presented any legal theory of liability
against Holland; and one arguing that as an agent, he was not liable to Farm
Bureau. The trial court denied all three post-judgment motions. Holland now
appeals.
Court of Appeals of Indiana | Opinion 18A-PL-792 | August 28, 2018 Page 4 of 12
Discussion and Decision
[7] Holland raises three issues on appeal, one of which we find dispositive:
whether the trial court erred by granting Farm Bureau’s motion for summary
judgment and by denying Holland’s motion for summary judgment.2
[8] Our standard of review on summary judgment is well established:
We review summary judgment de novo, applying the same
standard as the trial court: “Drawing all reasonable inferences in
favor of . . . the non-moving parties, summary judgment is
appropriate ‘if the designated evidentiary matter shows that there
is no genuine issue as to any material fact and that the moving
party is entitled to judgment as a matter of law.’” Williams v.
Tharp, 914 N.E.2d 756, 761 (Ind. 2009) (quoting T.R. 56(C)). “A
fact is ‘material’ if its resolution would affect the outcome of the
case, and an issue is ‘genuine’ if a trier of fact is required to
resolve the parties' differing accounts of the truth, or if the
undisputed material facts support conflicting reasonable
inferences.” Id. (internal citations omitted).
Hughley v. State, 15 N.E.3d 1000, 1003 (Ind. 2014).
[9] The law regarding subrogation is also well settled:
2
At the trial court level, Farm Bureau moved to strike a certain paragraph from an affidavit that Holland
submitted; the trial court granted that motion. On appeal, Holland argues that the trial court erred by
granting this motion. Because of the disposition of this case, we find it unnecessary to address this issue.
Then, during the appeal, Farm Bureau moved to strike a section of Holland’s brief, arguing that because
Holland had not raised a particular issue to the trial court, he could not raise it on appeal. Because of the
disposition of this case, we find that the issue raised in this motion to strike has become moot. Therefore, by
separate order, we deny the motion to strike as moot.
Court of Appeals of Indiana | Opinion 18A-PL-792 | August 28, 2018 Page 5 of 12
Subrogation is a doctrine of equity long recognized in Indiana. It
applies whenever a party, not acting as a volunteer, pays the debt
of another that, in good conscience, should have been paid by the
one primarily liable. When a claim based on subrogation is
recognized, “a court substitutes another person in the place of a
creditor, so that the person in whose favor it is exercised succeeds
to the right of the creditor in relation to the debt.” Matter of Estate
of Devine, 628 N.E.2d 1227, 1230 n.4 (Ind. Ct. App. 1994). It is
settled that “[s]ubrogation confers no greater right than the
subrogor had at the time the surety or indemnitor became
subrogated. The subrogator [sic] insurer stands in the same
position as the subrogor, for one cannot acquire by subrogation
what another, whose rights he claims, did not have.” American
States Ins. Co. v. Williams, 151 Ind. App. 99, 106, 278 N.E.2d 295,
300 (1972) (internal quotation marks and citation omitted). The
ultimate purpose of the doctrine, as with other equitable
principles such as contribution, is to prevent unjust enrichment.
Erie Ins. Co. v. George, 681 N.E.2d 183, 186 (Ind. 1997) (some citations omitted).
[10] Indiana Code chapter 34-53-1 governs subrogation, but does not address
subrogation claims on funds that are or were held by an attorney on behalf of
the attorney’s client. Another statute, however, suggests that a subrogation
claim should be considered a lien. A lien is a claim that one person holds on
another’s property as a security for an indebtedness or charge. Beam v. Wausau
Ins. Co., 765 N.E.2d 524, 532 (Ind. 2002). Indiana Code section 34-51-2-19
provides
If a subrogation claim or other lien or claim that arose out of the
payment of medical expenses or other benefits exists in respect to
a claim for personal injuries or death and the claimant’s recovery
is diminished:
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(1) by comparative fault; or
(2) by reason of the uncollectibility of the full value of the
claim for personal injuries or death resulting from limited
liability insurance or from any other cause;
the lien or claim shall be diminished in the same proportion as
the claimant's recovery is diminished. The party holding the lien
or claim shall bear a pro rata share of the claimant’s attorney’s
fees and litigation expenses.
(Emphasis added.)
[11] Indiana Rule of Professional Conduct 1.15 provides that
(d) Upon receiving funds or other property in which the client or
third person has an interest, a lawyer shall promptly notify the
client or third person. Except as stated in this rule or otherwise
permitted by law or by agreement with the client, a lawyer shall
promptly deliver to the client or third person any funds or other
property that the client or third person is entitled to receive and,
upon request by the client or third person, shall promptly render
a full accounting regarding such property.
(e) When in the course of representation a lawyer is in possession
of property in which two or more persons (one of whom may be
the lawyer) claim interests, the property shall be kept separate by
the lawyer until the dispute is resolved. The lawyer shall
promptly distribute all portions of the property as to which the
interests are not in dispute.
Comment 4 to the Rule provides that
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Paragraph (e) also recognizes that third parties may have lawful
claims against specific funds or other property in a lawyer’s
custody, such as a client’s creditor who has a lien on funds
recovered in a personal injury action. A lawyer may have a duty
under applicable law to protect such third-party claims against wrongful
interference by the client. In such cases, when the third-party claim is not
frivolous under applicable law, the lawyer must refuse to surrender the
property to the client until the claims are resolved. A lawyer should
not unilaterally assume to arbitrate a dispute between the client
and the third party, but, when there are substantial grounds for
dispute as to the person entitled to the funds, the lawyer may file
an action to have a court resolve the dispute.
(Emphasis added.)
[12] The facts of this case are not in dispute. Both parties agree that a subrogation
claim needed to be paid to Farm Bureau, that they reached an impasse on June
9, 2015, regarding the amount of the claim that should be paid, and that
following this date, neither party acted to resolve the issue until Farm Bureau
filed its complaint against Holland on September 14, 2017. Yet the statute and
the Rules of Professional Conduct indicate a professional duty for Holland to
have retained the funds at issue until the claim was resolved because Farm
Bureau had a lien on the funds. Indeed, our Supreme Court has stated that
[a]ttorneys who, during the course of a representation, receive
settlements funds in which a third party has an undisputed legal
interest are obligated promptly to deliver those funds to the third
party. If entitlement to settlement funds is disputed, an attorney
must hold the disputed funds in a separate account until the
dispute is resolved.
Court of Appeals of Indiana | Opinion 18A-PL-792 | August 28, 2018 Page 8 of 12
In re Allen, 802 N.E.2d 922, 924 (Ind. 2004). In that case, our Supreme Court
found that an attorney violated Rule 1.15 when he did not retain settlement
funds to pay a chiropractor who had treated the attorney’s client when the
chiropractor had an undisputed claim to a portion of the settlement proceeds
that was memorialized in an agreement with the attorney. Id. at 924-25. Our
Supreme Court then found that another attorney violated Rule 1.15 when, at
the attorney’s client’s instruction, the attorney paid a chiropractor less than the
amount owed because the client thought she had been overcharged. The
attorney sent the client the rest of the settlement proceeds. The Court held that
the attorney was obligated to hold the funds in trust until the parties resolved
the amount that the chiropractor was owed. Id. at 925.
[13] During oral argument, Holland explained that, in December 2015, when he had
not heard from Farm Bureau for more than six months, he thought Farm
Bureau had decided to waive its subrogation claim. Considering that, after
negotiating the subrogation claim for months, Farm Bureau inexplicably ceased
communication about the issue for more than two years, we understand
Holland’s assumption.
[14] Nonetheless, we are reminded of the old adage that what is good for the goose
is good for the gander. If, for example, an attorney represents a client against
an insurance company, the attorney is likely to file an attorney’s lien with the
insurance company and to expect the insurance company to comply with the
lien. In this scenario, if the insurance company gives any proceeds directly to
the client instead of the attorney in violation of the attorney’s lien, then the
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attorney is likely to sue the insurance company. Likewise, if the insurance
company files a medical lien with an attorney, and the attorney gives money to
his client (who is the insured) that should be retained for the lien, then the
insurance company can sue the attorney. Thus, we find that Holland had a
duty to retain the funds until the parties resolved their dispute over the amount
of the subrogation claim. That duty, however, is not interminable—the
attorney need not hold the money forever.
[15] The outcome of this case, then, turns on determining the appropriate statute of
limitations for Farm Bureau’s attempt to collect its money. In other words, we
must decide whether Farm Bureau waited too long. Holland argues that the
appropriate statute of limitations is the two-year limit for tort claims.3 He offers
two starting points for the time limit: November 20, 2012, which is when Farm
Bureau issued medical payments, or June 9, 2015, which is when the parties
reached their impasse and communication ceased between them. Farm Bureau
counters that a six-year statute of limitations is appropriate, reasoning that a
constructive trust was formed when Holland retained Client’s money and that
constructive trusts are subject to the six-year statute of limitations for fraud.4
Farm Bureau contends that the statute of limitations should begin on June 9,
3
Ind. Code § 34-11-2-4(a).
4
I.C. § 34-11-2-7(4).
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2015, which was when it first became aware of Holland’s refusal to repay the
lien, and runs through June 9, 2021.
[16] We agree with Holland that a two-year statute of limitations is appropriate
because breach of fiduciary duty is a tort claim for injury to personal property,
and an action for injury to personal property must be commenced within two
years after the cause of action accrues. I.C. § 34-11-2-4(a). Moreover, we are
unpersuaded that a six-year statute of limitations should apply to this case.
Although Farm Bureau argues this time period is appropriate because a
constructive trust was imposed, a constructive trust can be imposed only
through fraud. Kalwitz v. Estate of Kalwitz, 822 N.E.2d 274, 280 (Ind. Ct. App.
2005). For fraud to exist, there must be a material misrepresentation of past or
existing fact. Kesling v. Hubler Nissan, Inc., 997 N.E.2d 327, 335 (Ind. 2013). In
its briefs and during oral argument, Farm Bureau was simply unable to identify
any material misrepresentation made by Holland.
[17] We therefore apply a two-year statute of limitations. A cause of action in a tort
claim accrues and the statute of limitations begins to run when the plaintiff
knew or, in the exercise of ordinary diligence, could have discovered that an
injury had been sustained as a result of the tortious act of another. First Farmers
Bank & Tr. Co. v. Whorley, 891 N.E.2d 604, 610 (Ind. Ct. App. 2008). Farm
Bureau acknowledges that it first became aware of Holland’s refusal to repay
the lien on June 9, 2015. Accordingly, we find that the statute of limitations
began to run on June 9, 2015, and expired on June 9, 2017. Farm Bureau filed
its complaint against Holland on September 14, 2017—more than three months
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too late. The trial court erred by granting summary judgment for Farm Bureau
and by denying Holland’s motion for summary judgment when Farm Bureau’s
claim was time-barred.
[18] The judgment of the trial court is reversed and remanded with instructions to
enter judgment in favor of Holland.
Vaidik, C.J., and Brown, J., concur.
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