Staff Source, LLC v. Christine A. Wallace, Milan Kesic, Slobodan Kesic, The Resolve Group, LLC, and Resolve HR, LLC ( 2020 )

FILED
Mar 13 2020, 9:30 am
CLERK
Indiana Supreme Court
Court of Appeals
and Tax Court
ATTORNEY FOR APPELLANT ATTORNEYS FOR APPELLEES
Steven P. Lammers Benjamen W. Murphy
Mandel Horn & Rauch, P.C. Griffith, Indiana
Carmel, Indiana C. Anthony Ashford
Ashford Law Group
Valparaiso, Indiana
IN THE
COURT OF APPEALS OF INDIANA
Staff Source, LLC, March 13, 2020
Appellant-Plaintiff, Court of Appeals Case No.
19A-PL-1569
v. Appeal from the Lake Superior
Court
Christine A. Wallace, Milan The Honorable Calvin D.
Kesic, Slobodan Kesic, The Hawkins, Judge
Resolve Group, LLC, and Trial Court Cause No.
Resolve HR, LLC, 45D02-1804-PL-32
Appellees-Defendants.
Brown, Judge.
Court of Appeals of Indiana | Opinion 19A-PL-1569 | March 13, 2020 Page 1 of 29
[1] Staff Source, LLC (“Staff Source”), appeals the trial court’s order granting the
motion for attorney fees filed by Milan Kesic, Slobodan Kesic, the Resolve
Group, LLC, Resolve HR, LLC, and Christine Wallace (collectively,
“Defendants”), and the order finding that Defendants were entitled to a certain
amount of fees. Defendants request appellate attorney fees. We affirm the
orders of the trial court, grant Defendants’ request for appellate attorney fees,
and remand.
Facts and Procedural History
[2] In a letter dated June 20, 2005, Mirko Marich of Staff Source wrote to Christine
Wallace, referenced Wallace’s vast industry experience and proposed an
“Independent Contractor working relationship whereby [she] essentially will
work without any Supervision from the Staff Source office.” Exhibits Volume
II at 83.
[3] In a memo dated June 2, 2006, Christian Flores of Staff Source wrote Wallace,
thanked her for her hard work, and outlined a compensation package including
a base salary and commission. Wallace worked as an employee for about a
year or less until Staff Source moved an internal person into that role.
[4] On June 19, 2007, Staff Source and Wallace signed a document titled
“Employment Agreement” which provided in part:
1. EMPLOYER hereby employs EMPLOYEE in the capacity of
SALES or such other capacity as EMPLOYER shall direct; and
EMPLOYEE hereby accepts such employment upon the terms
and conditions hereinafter set forth.
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2. The parties jointly acknowledge their relationship as one of
employment-at-will, and that this Agreement does not confer or
infer any rights to continued employment. EMPLOYER or
EMPLOYEE may terminate this relationship at any time with or
without cause.
*****
9. In consideration of the services to be rendered by
EMPLOYEE, EMPLOYER shall pay EMPLOYEE
compensation as set forth in Exhibit A “EMPLOYEE
Compensation” attached hereto and forming a part hereof.[ 1]
This compensation may change or be modified, at the sole
discretion of EMPLOYER, whenever EMPLOYER deems
necessary.
*****
15. The nature of the system and methods in EMPLOYER’s
business is such that EMPLOYEE will be placed in a close
business and personal relationship with the customers of
EMPLOYER and be privy to confidential customer usage and
rate information. Accordingly, during the term of this
Agreement and for a period of one (1) year immediately
following the termination of EMPLOYEE’s employment, for
any cause whatsoever, so long as EMPLOYER continues to
carry on the same business, said EMPLOYEE shall not, for any
reason whatsoever, directly or indirectly, for himself or on behalf
of, or in conjunction with, any other person, persons, company,
partnership, corporation or business entity:
(i) Call upon, divert, influence or solicit or attempt to call
upon, divert, influence or solicit any employee, customer
or customers of EMPLOYER;
1
Wallace testified that Exhibit A was never attached to the Employment Agreement.
Court of Appeals of Indiana | Opinion 19A-PL-1569 | March 13, 2020 Page 3 of 29
(ii) Divulge the names and addresses of any information
concerning any customer of EMPLOYER;
(iii) Disclose any information or knowledge relating to
EMPLOYER, including but not limited to,
EMPLOYER’s system or method of conducting business
to any person, persons, firms, corporations or other entities
unaffiliated with EMPLOYER, for any reason or purpose
whatsoever;
(iv) Own, manage, control, be employed by, participate in
or be connected in any manner with the ownership,
management, operation or control of the same, similar or
related line of business as that carried on by EMPLOYER
within a radius of twenty-five (25) miles from
EMPLOYEE’s home office or within a radius equivalent
to EMPLOYEE’s defined territory, whichever is greater.
The time period covered by the covenants contained herein shall
not include any period(s) of violation of any covenant or any
period(s) of time required for litigation to enforce any covenant.
If the provisions set forth in Paragraph 15 are determined by a
court of competent jurisdiction to be too broad to be enforceable,
then the parties agree the area and/or length of time shall be
reduced to such areas and times as the court shall deem
enforceable.
The covenants as set forth in this Paragraph 15 shall be construed
as an agreement independent of any other provision in this
Agreement and the existence of any potential or alleged claim or
cause of action of EMPLOYEE against EMPLOYER, whether
predicted [sic] on this Agreement or otherwise, shall not
constitute a defense to the enforcement by EMPLOYER of the
covenants contained herein. An alleged or actual breach of the
Agreement by EMPLOYER shall not be a defense to
enforcement of the provisions of Paragraph 15.
Court of Appeals of Indiana | Opinion 19A-PL-1569 | March 13, 2020 Page 4 of 29
Exhibits Volume II at 12-13 (some capitalization omitted).
[5] Staff Source provided Wallace a 1099 Form listing her nonemployee
compensation for years 2014, 2015, 2016, and 2017.
[6] In April 2017, Wallace became the subject of an IRS audit related to 2015 and
2016 and an issue arose regarding her status as an independent contractor of
Staff Source.
[7] At some point, Staff Source and Wallace signed a document titled “Working
Agreement” which provided in part:
In an effort to formally define the terms of our working
relationship, we submit the following:
Position: Independent Sales Contractor
Regardless of the title used to define your association with Staff
Source, your position will be as an independently contracted
Sales Representative. As such, Staff Source will not be
responsible for payroll deductions, unemployment liability,
workman’s compensation insurance, nor contribute to social
security or Medicare.
Commission:
In consideration of any contracts Staff Source secures as a result
of your sales efforts, Staff Source will pay as a commission the
following . . . .
*****
The relationship hereby established is that of an Independent
Sales Representative. The Representative is neither an employee
of Staff Source nor a legal representative and may not assume
Court of Appeals of Indiana | Opinion 19A-PL-1569 | March 13, 2020 Page 5 of 29
any obligation of any kind (without prior approval of Staff
Source), implied or expressed on behalf of Staff Source.
Staff Source will reimburse for pre-approved marketing related
expenses. Also, an auto allowance of $350.00/month and a
$50.00/month mobile phone reimbursement will be paid
monthly for the prior month’s expenses.
Either party may terminate this agreement at any time without
notice.
Id. at 15 (italics omitted). The document listed a handwritten date of June 19,
2007, after the signatures of Kari Marich of Staff Source and Wallace.
According to Wallace, the IRS auditor asked Staff Source to provide
documentation, she signed the document without dating it in 2017 during the
course of the audit, and the dates were subsequently added by Kari. 2
[8] Beginning in December 2016, Wallace began to have issues in her arrangement
with Staff Source under the new ownership of Mirko. In an email from Kari to
Wallace on November 30, 2017, Kari wrote in part: “You’re an independent
contractor and I cannot dictate to you how much time you should spend at the
office.” Id. at 169.
[9] In a letter dated January 5, 2018, Wallace informed Mirko and Kari that day
would be her last as an independent sales contractor for Staff Source. On
2
When Mirko was asked if the testimony that the document was backdated was correct, he answered: “Was
that it was dated, but it was part of the original agreement, but it was dated.” June 6, 2019 Transcript 156.
Court of Appeals of Indiana | Opinion 19A-PL-1569 | March 13, 2020 Page 6 of 29
January 23, 2018, Mirko sent Wallace an email which stated she was in breach
of Paragraph 15. Wallace replied stating “per legal counsel consulted prior to
resignation,” the signed contract containing Paragraph 15 was null and void
because she was an independent contractor and not an employee and she would
“not ‘go after’ accounts of Staff Source.” Id. at 187. Mirko responded and
stated he was “well aware of the Independent Contractor status and well aware
of the terms of the Employment Agreement which specifically states you are
‘referred’ to as an ‘EMPLOYEE’.” Id. at 188. He also stated that “neither
document exudes [sic] the terms of the other, rather they collectively address all
the terms.” Id.
[10] On April 9, 2018, Staff Source filed a Complaint for Preliminary and
Permanent Injunction and Damages against Wallace, Milan, Slobodan, and the
Resolve Group, LLC and alleged: Count I, breach of contract; Count II,
violation of the Indiana Uniform Trade Secrets Act; Count III, tortious
interference with a contract; Count IV, tortious interference with business
relationships; Count V, damages arising from civil conspiracy; Count VI, unjust
enrichment; and Count VII, preliminary and permanent injunction.
[11] A letter dated April 13, 2018, from Staff Source’s counsel to Wallace, Milan,
Slobodan, and the Resolve Group, LLC, referred to the June 19, 2007
document titled “Employment Agreement,” Id. at 11, as the “Non-Compete,
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Non-Solicitation and Confidentiality Agreement.” 3 Id. at 79. The letter stated
in part: “We understand Ms. Wallace will attempt to claim that the Agreement
is unenforceable because she is referred to as ‘employee’ in the Agreement,
however, Ms. Wallace signed the Agreement and agreed to its terms.” Id. It
also asserted that “the fact that Ms. Wallace was an independent sales
contractor for Staff Source does not make the covenants in the Agreement
unenforceable.” Id.
[12] On May 30, 2018, Milan, Slobodan, and the Resolve Group, LLC filed an
answer and requested that Staff Source “be liable for paying said defendants’
attorney fees and costs.” Appellant’s Appendix Volume II at 97. On June 11,
2018, Wallace filed her answer and requested that Staff Source be liable for
paying her attorney fees.
[13] On June 14, 2018, the court granted Staff Source’s motion for leave to file an
amended complaint. On June 15, 2018, Staff Source filed a Motion for
Clarification and to Further Amend Complaint by Interlineation. That same
day, Staff Source filed a Motion to Inspect Wallace’s Laptop Computer and
Smart Phone. On June 19, 2018, the court granted Staff Source’s motion to
further amend the complaint by interlineation. Specifically, the court ordered
that “Plaintiff’s Amended Complaint for Preliminary and Permanent
3
During the direct examination of Wallace, Staff Source’s counsel referred to Paragraph 15 of the
Employment Agreement as the “non-compete, non-solicitation, confidentiality agreement.” July 23, 2018
Transcript at 30.
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Injunctions and Damages filed June 13, 2018 is hereby AMENDED BY
INTERLINEATION such that Count I of the Amended Complaint includes
the allegation that Defendant, Christine A. Wallace, breached the terms of the
subject Non-Compete, Non-Solicitation and Confidentiality Agreement with
Plaintiff due to her actions with the Resolve Group, LLC and/or Resolve HR,
LLC.” Id. at 180. That same day, the court granted Staff Source’s motion to
inspect Wallace’s computer and phone.
[14] On June 27, 2018, Wallace filed a Motion for Emergency Hearing on Plaintiff’s
Request for Preliminary Injunctive Relief and asserted “Staff Source’s baseless
claims are effectively doing what the alleged Employment Agreement cannot
do: restraining [her] ability to earn a livelihood via frivolous litigation based
upon an alleged Employment Agreement governing an admittedly non-existent
employment relationship.” Id. at 183. That same day, the court granted
Wallace’s motion and scheduled a hearing for July 2, 2018. On June 28, 2018,
Staff Source filed an Emergency Motion to Continue July 2, 2018 Hearing and
to Compel Discovery Responses and to Compel Defendant Wallace’s
Cooperation with Inspection and Copying of her Smart Phone and Laptop
Computer. On July 2, 2018, the court entered an order continuing the July 2,
2018 hearing and compelling Wallace’s cooperation with the June 19, 2018
order.
[15] Meanwhile, on June 29, 2018, Milan, Slobodan, and the Resolve Group filed
an answer to Staff Source’s amended complaint. They requested that Staff
Source “be liable for paying said defendants’ attorney fees and costs.” Id. at
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222. On July 10, 2018, Wallace filed an answer to Staff Source’s amended
complaint for preliminary and permanent injunction and damages and
requested that Staff Source be ordered to pay her attorney fees.
[16] On July 11, 2018, the court entered an agreed scheduling order which set a
hearing on Staff Source’s claims for injunctive relief for July 23, 2018. On July
16, 2018, Staff Source filed an Injunction Hearing Brief. That same day, Milan,
Slobodan, the Resolve Group, LLC, and Resolve HR, LLC, filed a Pre-Hearing
Brief Respecting Plaintiff’s Requests for Injunctive Relief.
[17] On July 23, 2018, the court held a hearing. Wallace indicated she had twenty-
five years of experience in the staffing business before becoming an independent
contractor with Staff Source in 2005, she began a partial salaried employment
position with Staff Source in June 2006 that involved managing employees, she
returned to being an independent contractor, and she did not receive additional
compensation with respect to entering into the Employment Agreement. She
stated she began having issues in her contractor arrangement with Staff Source
in 2016. When asked if she took any property from Staff Source from the time
she decided she was leaving until the time she left, she answered, “Absolutely
not.” July 23, 2018 Transcript at 84. When asked about Exhibit EE, a prospect
list, she stated she obtained the information for the prospect list by phone or by
research or possibly by the leads that may have been given to her by the
recruiters. With respect to Exhibit FF, a prospect list, she ensured she had not
received a commission for any of the prospects listed before sending the
prospect email. She testified that when she began working with Resolve HR,
Court of Appeals of Indiana | Opinion 19A-PL-1569 | March 13, 2020 Page 10 of 29
she, Milan, and Dan 4 worked together to ensure she was not “going after actual
clients that [she] worked with Staff Source” as a matter of professional courtesy.
Id. at 86.
[18] The court admitted her non-employee compensation 1099 forms for years 2014
through 2017. Wallace testified that she never received a W-2 as an employee
at any point from 2014 through 2017. With respect to the June 19, 2007
Employment Agreement, Wallace testified that she did not become an
employee following the agreement, she never received an Exhibit A referenced
in the agreement, she was not an employee in 2017, 2016, 2015, or 2014, and
had not been an employee since 2006.
[19] At the end of the hearing, Staff Source’s counsel stated that Staff Source agreed
to dismiss Count VII with prejudice and intended to proceed to a jury trial on
the remaining counts. That same day, the court granted the dismissal of Count
VII of Staff Source’s complaint with prejudice.
[20] On July 30, 2018, the court entered a case management order providing that all
discovery be completed by January 8, 2019, all dispositive motions be filed by
February 8, 2019, and scheduling a jury trial for May 20, 2019 as the primary
date and April 8, 2019 as the secondary date. 5
4
On appeal, Staff Source refers to Slobodan as Dan.
5
The court’s order states: “This matter is set for JURY trial as follows: 2nd – APRIL 8, 2019; PRIMARY –
MAY 20, 2019 at 8:30 a.m.” Appellant’s Appendix Volume III at 48.
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[21] In February 2019, Staff Source’s counsel emailed Defendants’ counsel a
proposed stipulation and order of dismissal. Defendants’ counsel returned the
stipulation after deleting a sentence that stated each party would bear their own
attorney fees.
[22] On March 4, 2019, Staff Source filed a “Trial Rule 41(A) Stipulation to
Voluntary Dismissal of Plaintiffs’ Claims, With Prejudice” asserting that all
parties “stipulate and agree to the Plaintiff’s voluntary DISMISSAL of ALL of
its claims against all Defendants, WITH PREJUDICE.” Appellant’s Appendix
Volume III at 49 (some capitalization omitted). On March 5, 2019, the court
entered an order dismissing Staff Source’s claims against Defendants with
prejudice.
[23] On May 6, 2019, Defendants filed a joint motion for attorney fees pursuant to
Ind. Code § 34-52-1-1. On May 8, 2019, Staff Source filed a response. On May
30, 2019, Defendants filed a reply which was struck as untimely.
[24] On June 6, 2019, the court held a hearing on the motion for attorney fees. After
some discussion, the court stated that “[i]t was obvious that Ms. Wallace was
not an employee.” June 6, 2019 Transcript at 122. The court went on to hear
testimony.
[25] On June 10, 2019, the court entered an order granting the motion for attorney
fees. Specifically, the court stated:
As a preliminary matter, the Court finds that because all of
Plaintiff’s claims were dismissed with prejudice, Defendants were
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the prevailing parties pursuant to I.C. 34-52-1-1(b). See Northlake
Nursing & Rehab. Ctr., L.L.C. v. Ind. Dep’t of Health, 34 N.E.3d 268,
274 (Ind. Ct. App. 2015) (a dismissal with prejudice is a dismissal
and judgment on the merits); See also Ilagan v. McAbee, 634
N.E.2d 827, 829 (Ind. Ct. App. 1994) (a voluntary dismissal with
prejudice operates as a common law retraxit, wherein the plaintiff
openly and voluntarily renounces its suit court; such a dismissal
is “on the merits”, is conclusive of the rights of the parties; and
operates as res judicata to all issues that could have been litigated);
See also D.S.I. v. Natare Corp., 742 N.E.2d 15[] (Ind. Ct. App.
2000) (A party may be construed as prevailing for purposes of
I.C. 34-52-1-1(b), under an agreed entry or stipulation, so long as
it resolved the dispute generally in the favor of the one requesting
attorney fees and altered the litigants’ legal relationship in a way
favorable to the requesting party)[, reh’g denied, trans. denied].
This Court further finds that Defendants’ Joint Motion was
timely made, as a claim for attorney fees under I.C. 34-52-1-1
does not accrue until the party “prevails”, and Indiana Courts
have consistently held that the “standard procedure” for seeking
attorney fees is to petition the court after the case is resolved on
its merits. Storch v. Provision Living, LLC, 47 N.E.3d 1270, 1275
(Ind. Ct. App. 2015[]) Furthermore, the Supreme Court has held
that there is no strict time limit for filing a request for fees after
judgment, although it is “in some sense an equitable petition, and
it might be that an extremely tardy request should fall on deaf
ears due to lack of notice or staleness.” R.L. Turner Corp. v. Town
of Brownsburg, 963 N.E.2d 453 (Ind. 2012). Notably, Plaintiff has
offered no explanation of any prejudice incurred by Defendants’
filing the Joint Motion 60 days after Dismissal opposed to say 45
days after Dismissal.
Plaintiff suggests that perhaps it would not have dismissed its
case at all had it realized Defendants intended to seek attorney
fees following dismissal. However, Defendants’ response to such
suggestion is well-taken. Plaintiff sought to dismiss all of its
claims on the eve of the jury trial setting, with prejudice.
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Assuming that the claims were groundless and/or frivolous,
which is required for an award of attorney fees, should the
Defendants have refused the offer and demanded that the jury
trial over such claims be had? Here, the Defendants were in a
position to mitigate the damages caused by a purported
groundless and/or frivolous lawsuit by stipulating to the
dismissal with prejudice of all claims, while refusing to agree that
the parties would pay their own attorney fees. It is undisputed
that Plaintiff originally requested the stipulation provide that the
parties would pay their own attorney fees, and that Defendants
refused to agree to that provision, and it was removed.
Furthermore, there were no settlement agreements or releases
requested or negotiated prior to dismissal. Moreover, the
suggestion that Plaintiff was prejudiced because it may have
persisted with its purportedly groundless and/or frivolous claims
to trial is equally unavailing. Accordingly, Joint Motion was
timely and properly made.
Defendants’ Entitlement to Attorney Fees Based Upon a
Groundless and Frivolous Complaint
Defendants presented evidence and testimony to support its
claim for attorney fees. By stipulation of the parties, certain
exhibits from the Injunction Hearing were again admitted into
evidence on Defendants’ Joint Motion. The testimony, as well as
documentary evidence established the following facts:
*****
15. Accordingly, all of Plaintiff[’]s claims based upon the
purported breach of the Employment were groundless as “no
facts exist which support the legal claim relied on and presented
by the losing party”, Plaintiff. See Kahn v. Cundiff, 533 N.E.2d
164, 170 (Ind. Ct. App. 1989), summarily aff’d by 543 N.E.2d 627
(Ind. 1989).
16. Furthermore, Plaintiff attempted to breath[e] life into its
groundless claims by making material misrepresentations of fact
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and fabricating an exhibit to the Complaint. Although the
“Working Agreement” was admittingly signed by Wallace in
2017 after an audit, Plaintiff admittingly backdated the document
ten years earlier to June of 2007, for the sole purpose of claiming
that the Employment Agreement and the independent contractor
“Working Agreement” were part of the same contract. Plaintiff’s
counsel continued to argue the same at the Injunction Hearing
and even at the hearing on Defendants’ Joint Motion.
Accordingly, Plaintiff[’]s Complaint was not only groundless, but
also fraudulent.
17. Moreover, Plaintiff’s claims were frivolous as it appears that
they were made “primarily for the purpose of harassing or
maliciously injuring” Wallace, as follows:
a. Plaintiff is in the staffing business, and despite their
attempts to muddy the same, its principals were well-
aware of the difference between an employment and
independent contractor relationship. In fact, their industry
is based upon that difference.
b. Prior to her resignation, the principals of Plaintiff
readily acknowledged Wallace status as independent
contractor.
c. Several [m]onths prior to filing its lawsuit, Wallace
made clear to Plaintiff’s principals that the Employment
Contract was “null and void” because she was an
independent contractor, however, she would avoid
personally “going after” Plaintiff’s customers as a
courtesy.
d. Despite the same, and even after acknowledging his
understanding that Wallace was an independent
contractor, Mirko Marich threatened “severe financial
consequences” if she continued to do business with his
former business partners.
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e. Plaintiff filed a seven-count Complaint against
defendants on April 12, 2018, and thereafter, sent
defendants a “Cease and Desist” letter, essentially
demanding that Wallace immediately be removed from
her position with Resolve Group. However, the “Cease
and Desist Letter” also conspicuously includes a footnote
stating “We understand that Ms. Wallace will attempt to
claim that the Agreement is unenforceable because she is
referred to as an [‘]employee[’] in the Agreement,
however, Ms. Wallace signed the Agreement and agreed
to its terms”.
f. In response to the “Cease and Desist Letter”, counsel for
Defendants advised counsel for Plaintiff, in writing, that
all defendants disputed the enforceability of the terms of
the Employment Agreement, as Wallace had been
removed from her employment position with Plaintiff
prior to 2008, and remained an independent contractor for
Plaintiff for ten years prior to moving on with her career.
g. During the Injunction Hearing, this Court made clear
that Employment Agreement was conditioned upon an
employment relationship, and therefore the Covenants
could not extend more than one year following the end of
the employment relationship between Plaintiff and
Wallace.
h. Accordingly, Plaintiff dismissed the claim for injunctive
relief but refused the request of Wallace’s attorney to
dismiss the claim for breach of contract, and the case was
set for a jury trial.
i. On February 19, 2019, less than two months prior to the
trial setting, Plaintiff’s counsel sent an email finally
offering to dismiss all claims with prejudice.
j. Only after Defendants filed their Joint Motion did
Plaintiff finally identify what it claimed to be “protected
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trade secrets” that were purportedly misappropriated by
Wallace. At [the] hearing, the evidence showed that there
was no factual basis for the misappropriation of trade
secret claim, either, The “Prospect List” was nothing more
than a list of potential customers, compiled and prepared
by Wallace as an independent contractor of Plaintiff on
her home computer and thereafter emailed to Plaintiff in
order to invite those “prospects” to an open house. Not
only was there no basis to the claim that this was a
“protected trade secret”, the document was
unquestionably Wallace’s own work product for which she
was never paid by Plaintiff.
18. In the interim, all Defendants were forced to retain counsel to
defend against a groundless seven-count, seventeen page
Complaint; to cooperate with intrusive discovery that included
turning over and forensically copying the contents of Wallace’s
private laptop and cell phone; and to appear for hearing and
defend against Plaintiff[’]s groundless claims for injunctive relief.
19. Furthermore, this Court has been compelled to waste
valuable judicial time and resources dealing with Plaintiff[’]s
claims, which were clearly groundless and frivolous at their
filing.
20. While this Court is hesitant to award attorney fees pursuant
to 34-52-1-1(b), this is precisely the type of situation that calls for
an award of attorney fees, as Defendants were forced to defend
against a seven-count Complaint that was entirely groundless,
frivolous and even fraudulent at its inception. See Charles Downey
Family Ltd. P’ship v. S & V Liquor, Inc., 880 N.E.2d 322, 328-329
(Ind. Ct. App. 2008)[, trans. denied].
Conclusions of Law and Order
After weighing the evidence presented to this Court at hearing,
Defendants have established their burden of proof that
Plaintiff[’]s Complaint and all of its corresponding claims were
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both groundless and frivolous, and this Court hereby Orders that
Defendants shall be entitled to an award of reasonable attorney
fees. Defendants shall have up to and including July 1, 2019 to
provide this Court with a factual basis for the amount of attorney
fees and costs claimed.
Appellant’s Appendix Volume III at 158-165 (some bold and underlining
omitted).
[26] On August 21, 2019, the court held a hearing. That same day, the court entered
an order finding that Milan, Slobodan, the Resolve Group, LLC, and Resolve
HR, LLC were entitled to an award of attorney fees and costs in the amount of
$51,135, and Wallace was entitled to an award of attorney fees and costs in the
amount of $25,128.38.
Discussion
I.
[27] The first issue is whether the trial court abused its discretion in ordering Staff
Source to pay Defendants’ attorney fees. Ind. Code § 34-52-1-1 provides:
(a) In all civil actions, the party recovering judgment shall
recover costs, except in those cases in which a different provision
is made by law.
(b) In any civil action, the court may award attorney’s fees as part
of the cost to the prevailing party, if the court finds that either
party:
(1) brought the action or defense on a claim or defense that
is frivolous, unreasonable, or groundless;
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(2) continued to litigate the action or defense after the
party’s claim or defense clearly became frivolous,
unreasonable, or groundless; or
(3) litigated the action in bad faith.
(c) The award of fees under subsection (b) does not prevent a
prevailing party from bringing an action against another party for
abuse of process arising in any part on the same facts. However,
the prevailing party may not recover the same attorney’s fees
twice.
[28] In discussing a prior version of the statute, the Indiana Supreme Court stated
that the statute “strikes a balance between respect for an attorney’s duty of
zealous advocacy and ‘the important policy of discouraging unnecessary and
unwarranted litigation.’” 6 Mitchell v. Mitchell, 695 N.E.2d 920, 924 (Ind. 1998)
(quoting Kahn v. Cundiff, 533 N.E.2d 164, 170 (Ind. Ct. App. 1989), adopted by
543 N.E.2d 627, 629 (Ind. 1989)). “Subsections (b)(1) and (b)(2) of the statute
focus on the legal and factual basis of the claim or defense and the arguments
supporting the claim or defense.” Id. “In contrast, subsection (b)(3) – ‘litigated
the action in bad faith’ – by its terms requires scrutiny of the motive or purpose
of the non-prevailing party.” Id. The Indiana Supreme Court held:
6
The Court was examining Ind. Code § 34-1-32-1, which similarly provided:
(b) In any civil action, the court may award attorney’s fees as part of the cost to the
prevailing party, if it finds that either party:
(1) brought the action or defense on a claim or defense that is frivolous,
unreasonable, or groundless;
(2) continued to litigate the action or defense after the party’s claim or
defense clearly became frivolous, unreasonable, or groundless; or
(3) litigated the action in bad faith.
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More precisely,
bad faith is not simply bad judgment or negligence.
Rather, it implies the conscious doing of a wrong because
of dishonest purpose or moral obliquity. It is different
from the negative idea of negligence in that it contemplates
a state of mind affirmatively operating with furtive design
or ill will.
Id. (quoting Watson v. Thibodeau, 559 N.E.2d 1205, 1211 (Ind. Ct. App. 1990)
(quoting Young v. Williamson, 497 N.E.2d 612, 617 (Ind. Ct. App. 1986), reh’g
denied, trans. denied)). The Court also explained:
This Court has observed in related contexts that the legal process
“must invite, not inhibit, the presentation of new and creative
argument” to enable the law to grow and evolve. Orr v. Turco
Mfg. Co., 512 N.E.2d 151, 153 (Ind. 1987) (setting forth standard
for punitive sanctions for frivolous appellate claims). To be sure,
application of the statutory authorization for recovery of
attorney’s fees . . . must leave breathing room for zealous
advocacy and access to the courts to vindicate rights. Kahn, 533
N.E.2d at 170. Courts must be sensitive to these considerations
and view claims of “frivolous, unreasonable, or groundless”
claims or defenses with suspicion.
Id. at 925.
[29] Ind. Code § 34-52-1-1(b) “places an obligation on litigants to investigate the
legal and factual basis of the claim when filing and to continuously evaluate the
merits of claims and defenses asserted throughout litigation.” Landmark Legacy,
LP v. Runkle, 81 N.E.3d 1107, 1116-1117 (Ind. Ct. App. 2017) (quoting Gen.
Collections, Inc. v. Decker, 545 N.E.2d 18, 20 (Ind. Ct. App. 1989)). “A claim is
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‘frivolous’ if it is made primarily to harass or maliciously injure another; if
counsel is unable to make a good faith and rational argument on the merits of
the action; or if counsel is unable to support the action by a good faith and
rational argument for extension, modification, or reversal of existing law.”
Kitchell v. Franklin, 26 N.E.3d 1050, 1057 (Ind. Ct. App. 2015) (citing Wagler v.
W. Boggs Sewer Dist., Inc., 980 N.E.2d 363, 383 (Ind. Ct. App. 2012), reh’g denied,
trans. denied, cert. denied, 571 U.S. 1131, 134 S. Ct. 952 (2014)), trans. denied. “A
claim is ‘unreasonable’ if, based on the totality of the circumstances, including
the law and facts known at the time, no reasonable attorney would consider the
claim justified or worthy of litigation.” Id. “A claim is groundless if no facts
exist which support the legal claim relied on and presented by the losing party.”
Purcell v. Old Nat. Bank, 972 N.E.2d 835, 843 (Ind. 2012). “However, the law is
settled that a claim is neither groundless nor frivolous merely because a party
loses on the merits.” Kitchell, 26 N.E.3d at 1057. “Bad faith is demonstrated
where the party presenting the claim is affirmatively operating with furtive
design or ill will.” Id.
[30] “The trial court’s decision to award attorney’s fees under § 34-52-1-1 is subject
to a multi-level review: the trial court’s findings of facts are reviewed under the
clearly erroneous standard and legal conclusions regarding whether the
litigant’s claim was frivolous, unreasonable, or groundless are reviewed de
novo.” Purcell, 972 N.E.2d at 843 (citing R.L. Turner Corp. v. Town of
Brownsburg, 963 N.E.2d 453, 457 (Ind. 2012)). “[T]he trial court’s decision to
award attorney’s fees and any amount thereof is reviewed for an abuse of
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discretion.” Id. “A trial court abuses its discretion if its decision clearly
contravenes the logic and effect of the facts and circumstances or if the trial
court has misinterpreted the law.” Id. “Covenants not to compete are in
restraint of trade and are not favored by the law.” Harvest Ins. Agency, Inc. v.
Inter-Ocean Ins. Co., 492 N.E.2d 686, 688 (Ind. 1986). “They are strictly
construed against the covenantee and enforced only if reasonable.” Id.
[31] To the extent Staff Source argues that the court adopted Defendants’ proposed
findings and conclusions wholesale, we observe that “[w]hen a trial court
accepts verbatim a party’s proposed findings of fact and conclusions thereon,
that practice ‘weakens our confidence as an appellate court that the findings are
the result of considered judgment by the trial court.’” Cty. of Lake v. Pahl, 28
N.E.3d 1092, 1100 (Ind. Ct. App. 2015) (quoting In re Marriage of Nickels, 834
N.E.2d 1091, 1096 (Ind. Ct. App. 2005) (quoting Cook v. Whitsell-Sherman, 796
N.E.2d 271, 273 n.1 (Ind. 2003))), reh’g denied, trans. denied. It is not
uncommon or per se improper for a trial court to enter findings that are
verbatim reproductions of submissions by the prevailing party. Id. Although
we by no means encourage the wholesale adoption of a party’s proposed
findings and conclusions, the critical inquiry is whether such findings, as
adopted by the court, are clearly erroneous. Id. We also note, while Staff
Source asserts that the trial court entered its August 21, 2019 order verbatim
from Defendants’ counsel, the two documents are not identical. The proposed
order in the Appellant’s Appendix differs from the court’s order in some
respects including that the proposed order requested fees of $52,560 and
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$27,103.38 and the court’s order awarded fees in the amount of $51,135 and
$25,128.38. See Appellant’s Appendix Volume III at 204-208.
[32] Staff Source argues that: (A) Defendants were not prevailing parties; (B) it was
unfairly prejudiced by Defendants’ motion for attorney fees filed sixty-two days
after dismissal; (C) its claims were not frivolous, unreasonable, or groundless;
and (D) Defendants presented insufficient evidence regarding their fees. 7
A. Prevailing Parties
[33] In D.S.I. v. Natare Corp., 742 N.E.2d 15, 24 (Ind. Ct. App. 2000), reh’g denied,
trans. denied, the Court held that “a party is a ‘prevailing party’ within the
meaning of IC § 34-52-1-1, if that party successfully prosecutes its claim or
asserts its defense,” “the requisite successful litigation must culminate in a
judgment,” and “the judgment . . . may take the form of an agreed entry or
stipulation, so long as it resolved the dispute generally in the favor of the one
requesting attorney fees and altered the litigants’ legal relationship in a way
favorable to the requesting party.”
[34] The record reveals the parties’ attorneys filed a stipulation to dismiss Staff
Source’s claims with prejudice, and the court entered an order approving the
dismissal and dismissing the claims with prejudice. “We have held that ‘a
7
Staff Source argues that the trial court improperly considered caselaw cited in Defendants’ May 30, 2019
Reply that was struck by the court for being untimely. Staff Source cites McGill v. Ling, 801 N.E.2d 678, 683
(Ind. Ct. App. 2004), reh’g denied, trans. denied, which stated that “practitioners of the law know the effect of a
trial court’s decision to grant [a motion to strike]: any materials stricken, whether arguments or evidence, will
not be considered by either the trial court or this court on appeal.” We cannot say McGill precludes a trial
court from considering caselaw merely because it was included in a brief which was struck by the court.
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dismissal with prejudice constitutes a dismissal on the merits and is therefore
conclusive of the rights of the parties and res judicata as to the questions that
might have been litigated.’” Northlake Nursing & Rehab. Ctr., L.L.C. v. State Dep’t
of Health, 34 N.E.3d 268, 274 (Ind. Ct. App. 2015) (quoting Baker & Daniels, LLP
v. Coachmen Indus., Inc., 924 N.E.2d 130, 135 n.5 (Ind. Ct. App. 2010), trans.
denied; and citing Ilagan v. McAbee, 634 N.E.2d 827, 829 (Ind. Ct. App. 1994)).
The dismissal with prejudice in this case was a judgment on the merits and
resolved the dispute generally in favor of Defendants and altered the litigants’
legal relationship in a way favorable to Defendants. We conclude under the
circumstances of this case that Defendants are prevailing parties. 8 See id.
(“Consequently, the dismissal with prejudice was a judgment rendered on the
merits.”); Kahn v. Cundiff, 543 N.E.2d 627, 629 (Ind. 1989) (affirming the grant
of attorney fees under Ind. Code § 34-1-32-1 after the plaintiff moved to dismiss
the case).
B. Prejudice
[35] Staff Source argues it was unfairly prejudiced by Defendants’ petition for
attorney fees filed sixty-two days after dismissal because there was not sufficient
notice by Defendants to seek fees.
8
To the extent Staff Source cites Reuille v. E.E. Brandenberger Const., Inc., 888 N.E.2d 770 (Ind. 2008), we note
that Reuille did not address Ind. Code § 34-52-1-1, but addressed an issue of contract interpretation.
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[36] “[T]rial courts must use their discretion to prevent unfairness to parties facing
petitions for fees.” R.L. Turner Corp., 963 N.E.2d at 460. “A request for
attorneys’ fees almost by definition is not ripe for consideration until after the
main event reaches an end.” Id. “Entertaining such petitions post-judgment is
virtually the norm.” Id. “To be sure, a request for fees is in some sense an
equitable petition, and it might be that an extremely tardy request should fall on
deaf ears due to lack of notice or staleness.” Id.
[37] In their May 30, 2018 answer and June 29, 2018 answer to the amended
complaint, Milan, Slobodan, and the Resolve Group requested that Staff Source
be liable for paying their attorney fees. In Wallace’s June 11, 2018 answer, she
requested that Staff Source be liable for paying her attorney fees. In her July 10,
2018 answer to the amended complaint, Wallace again requested that Staff
Source be ordered to pay her attorney fees. In Wallace’s June 27, 2018 motion
for emergency hearing, she asserted “Staff Source’s baseless claims are
effectively doing what the alleged Employment Agreement cannot do:
restraining [her] ability to earn a livelihood via frivolous litigation based upon
an alleged Employment Agreement governing an admittedly non-existent
employment relationship.” Appellant’s Appendix Volume II at 183. Staff
Source states Defendants’ counsel returned the stipulation dismissing the case
and deleted a sentence stating that each party would bear the party’s own
attorneys’ fees. Under these circumstances, we cannot say Defendants’ petition
for attorney fees came as a shock to Staff Source. See R.L. Turner Corp., 963
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N.E.2d at 460 (holding that, in light of the record, “the Town’s renewed
petition for attorneys’ fees could hardly have come as a shock to Turner”).
C. Claims Frivolous, Unreasonable, or Groundless
[38] Staff Source asserts its claims were not frivolous or groundless. Without
citation to the record, it asserts there was a factual dispute of whether Wallace
was an employee when she signed the applicable agreement and whether her
compensation as an independent contractor was attached to the applicable
agreement. Defendants argue all of Staff Source’s claims except for Count II,
violation of the Indiana Uniform Trade Secrets Act, were based upon a
purported breach of the Employment Agreement.
[39] Even assuming that the “Employment Agreement” was effective in 2007,
Paragraph 15 limited the time of the agreement by providing that “during the
term of this Agreement and for a period of one (1) year immediately following
the termination of EMPLOYEE’s employment . . . .” Exhibits Volume II at 12.
Wallace testified that her employment relationship with Staff Source ended
many years prior to 2018. The record contains 1099 forms for 2014, 2015,
2016, and 2017, which indicate Staff Source listed her compensation as
nonemployee. Wallace testified she was exclusively a 1099 independent
contractor for at least nine tax years prior to leaving Staff Source as an
independent contractor. She also testified that the Working Agreement she
signed in 2017 had nothing to do with the Employment Agreement she signed
in 2007. Mirko testified that he could not find the Working Agreement in Staff
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Source’s records and that Wallace asked somebody from Staff Source to sign it
during her IRS audit, which indicates that the Working Agreement was
backdated by Staff Source.
[40] The record and the court’s findings support that the Employment Agreement
had expired years prior to Wallace’s termination of her relationship with Staff
Source and that Staff Source backdated the Working Agreement. We conclude
that Staff Source’s claims regarding breach of the Employment Agreement and
tortious interference by Milan, Slobodan, and the Resolve Group with Staff
Source’s contractual relationship and business relationship with Wallace were
frivolous, unreasonable, or groundless. The trial court did not abuse its
discretion by ordering Staff Source to pay Defendants’ attorney fees.
D. Sufficient Evidence of Fees
[41] Staff Source argues that Defendants did not submit the required evidence of the
nature of legal services and reasonableness of the fee. It asserts the Defendants
provided no third-party objective evidence of the nature of legal services and the
reasonableness of the fee requested. It also asserts the court erred in awarding
fees incurred after the March 5, 2019 dismissal.
[42] In support of their claim for attorney fees, Defendants submitted the Attorney
Fee Request for Milan, Slobodan, the Resolve Group, LLC, and Resolve HR,
LLC, which contained the affidavits of two attorneys including the amounts of
billable time and a description of the work, and the Attorney Fee Request for
Wallace containing the affidavits of two attorneys and billing sheets. This
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evidence was sufficient to support the trial court’s determination of the amount
of the attorney fees award. We note that the awarded fees are equal to the
amounts requested in the Attorney Fee Request for Defendants Milan,
Slobodan, the Resolve Group, LLC, and Resolve HR, LLC, and the Attorney
Fee Request for Wallace, and do not include the supplemental fees mentioned
in the supplemental affidavits of Defendants’ counsel. We cannot say the court
abused its discretion.
II.
[43] With respect to Defendants’ request for appellate attorney fees, Ind. Appellate
Rule 66(E) provides that this Court “may assess damages if an appeal, petition,
or motion, or response, is frivolous or in bad faith. Damages shall be in the
Court’s discretion and may include attorneys’ fees.” Our discretion to award
attorney fees under Ind. Appellate Rule 66(E) is limited to instances when “an
appeal is permeated with meritlessness, bad faith, frivolity, harassment,
vexatiousness, or purpose of delay.” Thacker v. Wentzel, 797 N.E.2d 342, 346
(Ind. Ct. App. 2003). To prevail on a substantive bad faith claim, a party must
show that the appellant’s contentions and arguments are utterly devoid of all
plausibility. Id. Procedural bad faith occurs when a party flagrantly disregards
the form and content requirements of the rules of appellate procedure, omits
and misstates relevant facts appearing in the record, and files briefs written in a
manner calculated to require the maximum expenditure of time both by the
opposing party and the reviewing court. Id. at 346-347. In light of Staff
Source’s appellate briefs and arguments, we conclude that Defendants are
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entitled to appellate attorney fees, and we remand to the trial court to determine
the proper amount of the attorney fees.
[44] For the foregoing reasons, we affirm the trial court’s orders, grant Defendants’
request for appellate attorney fees, and remand for a determination of their
reasonable appellate attorney fees.
[45] Affirmed and remanded.
Baker, J., and Riley, J., concur.
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