Evelyn Messmer v. KDK Financial Services, Inc.

FILED
Sep 14 2017, 6:05 am
CLERK
Indiana Supreme Court
Court of Appeals
and Tax Court
ATTORNEYS FOR APPELLANT ATTORNEYS FOR APPELLEES
Robert Madison Oakley Anthony L. Holton
Daniel Kyle Dilley Reminger Co., LPA
Carmel, Indiana Indianapolis, Indiana
IN THE
COURT OF APPEALS OF INDIANA
Evelyn Messmer, September 14, 2017
Appellant-Plaintiff, Court of Appeals Case No.
53A01-1701-PL-139
v. Appeal from the Monroe Circuit
Court
KDK Financial Services, Inc., et The Honorable E. Michael Hoff,
al., Judge
Appellees-Defendants. Trial Court Cause No.
53C01-1508-PL-1598
Riley, Judge.
Court of Appeals of Indiana | Opinion 53A01-1701-PL-139 | September 14, 2017 Page 1 of 15
STATEMENT OF THE CASE
[1] Appellant-Plaintiff, Evelyn Messmer (Messmer), appeals the trial court’s
summary judgment in favor of Appellees-Defendants, KDK Financial Services,
Inc. (KDK Financial) and Fred Kern (Kern), Individually (collectively,
Appellees). 1
[2] We affirm.
ISSUES
[3] Messmer raises two issues for our review, which we restate as:
(1) Whether the continuing representation doctrine tolled the statute of
limitations on Messmer’s fraud allegations; and
(2) Whether a genuine issue of material fact exists establishing that
Appellees fraudulently misrepresented the surrender of an insurance
annuity.
FACTS AND PROCEDURAL HISTORY
[4] At the time of the trial court proceedings, Messmer was eighty-eight years old
and resided in an assisted living community. She began using the services of
KDK Financial in 2002, shortly after her husband died. KDK Financial is in
1
A third defendant, Dwight Wade, did not file a motion for summary judgment before the trial court or join
in the proceedings.
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the business of selling fixed annuities, 2 an insurance product which is not
considered a security under Indiana law. Throughout the entire time Messmer
used KDK Financial’s services, Messmer primarily interacted with Dwight
Wade (Wade), and occasionally spoke with Kern. By 2007, Messmer had
purchased six fixed annuities through KDK Financial: five of the annuities
were issued by Allianz Insurance (Allianz), with the remaining annuity issued
by Washington National Insurance Company (Washington National).
[5] As of January 10, 2007, the policy details for the Allianz annuities included
both the account value, as well as the value of the accounts upon surrender.
Between December 28, 2007, and April 15, 2008, Messmer surrendered her
Allianz annuities and purchased five new fixed annuities issued by Athene. On
November 19, 2008, Messmer mailed a signed grievance to Allianz, requesting
a reduction in the surrender charges incurred due to the early surrender of her
five Allianz annuities. Mesmer’s letter to Allianz stated, in pertinent part, as
follows:
The manner in which I was notified by Allianz as to the amount
of surrender charges which I would incur was deceiving. For
example, regarding policy number 70456119; I received a letter
stating the amount of money being sent to the new company was
$33,070.76. It did not state nor specify that I was losing
2
An annuity is defined by the Securities and Exchange Commission as “a contract between you and an
insurance company that is designed to meet retirement and other long-range goals, under which you make a
lump-sum payment or series of payments. In return, the insurer agrees to make periodic payments to you
beginning immediately or at some future date.” https://www.sec.gov/answers/annuity.htm (last visited
Aug. 15, 2017).
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$15,621.30. The same procedure was used for the other four
policies. I was not told that I was losing the bonus nor was I told
what the surrender charge actually was.
I believe you should have been straight forward with our
transactions and advised me in clear and comprehensible terms
which I could understand. If I had known what the actual
surrender charges were, I would not have proceeded with the
new deal. The manner in which Allianz sends notification of
surrender charges is devious, confusing and wrong. I expected a
reasonable charge. My hope is after reviewing my complaint
Allianz will refund some of my surrender charges. A 10%
surrender charge is reasonable.
(Appellees’ App. p. 244).
[6] On January 14, 2007, Messmer purchased, through KDK Financial, a
Washington National fixed annuity. The policy was sent to Messmer on
January 25, 2007, and included a “Table of Surrender Charge Percentages,”
setting forth the applicable surrender charges to be incurred upon early
surrender. (Appellees’ App. p. 215). On November 7, 2011, Messmer executed
a Washington National Surrender/Withdrawal Form to surrender her
Washington National annuity. Immediately preceding Messmer’s signature,
the form contained the following acknowledgments:
• I understand there may be contractual surrender charges
associated with this transaction.
....
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• [Washington National] and its representatives do not give legal
or tax advice. This information simply reflects our
understanding of the tax rules and regulations in effect at the
time of publication. Please consult your personal tax advisor
regarding annuity taxation as it applies to you.
(Appellees’ App. p. 241). Prior to effecting the surrender, Washington National
mailed Messmer a Confirmation Request, advising her of the surrender charges
and potential tax consequences as follows:
Because an annuity is intended as a long-term financial vehicle,
policyholders who surrender or transfer their annuity in the
beginning years may incur losses that could take years to recoup.
If your annuity were surrendered today, $191,635.22 would be
paid, which includes a surrender charge of $30,441.92, in
addition to other penalties and/or adjustments. Also, please
remember that your annuity grows tax-deferred until you access
your values, unlike back CDs, money markets and most bonds.
....
If, once you have had an opportunity to consider this
information, you still want to surrender your contract, please sign
and return the Surrender/Transfer Confirmation Request below
to our administrative office. Once received, we will complete
your request.
(Appellees’ App. p. 242). On November 23, 2011, Messmer executed an
application for an Aviva annuity as a gift to her son, Ronald Messmer (Ronald).
Thereafter, on March 20, 2014, the policy purchased in Ronald’s name, was
transferred to Messmer, effectively replacing the Washington National annuity
with the Aviva annuity.
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[7] In addition to providing financial services, Appellees also aided Messmer with
her estate planning, including the creation of a trust. While Messmer
complains that she never met an attorney during the process, she also admits
that she has no knowledge about who actually drafted the documents. The
creation of the trust disqualified Messmer to receive Veteran Affairs’ (VA)
benefits.
[8] On August 24, 2015, Messmer filed her Complaint against KDK Financial,
Kern, and Wade for the unauthorized practice of law and two Counts of fraud.
Messmer’s allegation of unauthorized practice of law was dismissed by the trial
court on November 17, 2015, because no private right of action exists with
respect to this charge. On August 5, 2016, KDK Financial and Kern filed a
motion for summary judgment, to which Messmer responded on September 12,
2016. On November 30, 2016, the trial court conducted a hearing on the
motion for summary judgment. Thereafter, on December 19, 2016, the trial
court entered summary judgment in favor of KDK Financial and Kern. In its
summary judgment, the trial court concluded that “the six year statute of
limitation has passed with respect to the five Allianz transactions.”
(Appellant’s App. p. 7). With respect to the Washington National policy, the
trial court found that “the evidence establishe[d] without a dispute that
[Messmer] was informed of the surrender charges she would incur before she
chose to surrender the Washington National [p]olicy, and [Appellees] are not
therefore liable for fraud or misrepresentation.” (Appellant’s App. p. 7).
[9] Messmer now appeals. Additional facts will be provided as necessary.
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DISCUSSION AND DECISION
I. Standard of Review
[10] Summary judgment is appropriate only when there are no genuine issues of
material fact and the moving party is entitled to a judgment as a matter of law.
Ind. Trial Rule 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 facts
support conflicting reasonable inferences.” Williams v. Tharp, 914 N.E.2d 756,
761 (Ind. 2009).
[11] In reviewing a trial court’s ruling on summary judgment, this court stands in the
shoes of the trial court, applying the same standards in deciding whether to
affirm or reverse summary judgment. First Farmers Bank & Trust Co. v. Whorley,
891 N.E.2d 604, 607 (Ind. Ct. App. 2008), trans. denied. Thus, on appeal, we
must determine whether there is a genuine issue of material fact and whether
the trial court has correctly applied the law. Id. at 607-08. In doing so, we
consider all of the designated evidence in the light most favorable to the non-
moving party. Id. at 608. The party appealing the grant of summary judgment
has the burden of persuading this court that the trial court’s ruling was
improper. Id. When the defendant is the moving party, the defendant must
show that the undisputed facts negate at least one element of the plaintiff’s
cause of action or that the defendant has a factually unchallenged affirmative
defense that bars the plaintiff’s claim. Id. Accordingly, the grant of summary
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judgment must be reversed if the record discloses an incorrect application of the
law to the facts. Id.[12] We observe that, in the present case, the trial court entered findings of fact and
conclusions of law in support of its judgment. Special findings are not required
in summary judgment proceedings and are not binding on appeal.
AutoXchange.com. Inc. v. Dreyer and Reinbold, Inc., 816 N.E.2d 40, 48 (Ind. Ct.
App. 2004). However, such findings offer this court valuable insight into the
trial court’s rationale for its review and facilitate appellate review. Id.II. Continuing Representation Doctrine
[13] Not disputing the application of the six-year statute of limitations on fraud
allegations, Messmer nevertheless contends that its application was tolled by
the continuing representation doctrine. Although Indiana has not yet applied
the doctrine to the financial services realm or allegations sounding in fraud,
Messmer advocates for the extension of the theory to KDK Financial and Kern,
“who while acting in a fiduciary capacity” “provided advise [sic] and direction
to [Messmer] with respect to her investments which resulted in tax liability and
losses to [Messmer] while resulting in economic gain to [KDK Financial and
Kern].” (Appellant’s Br. p. 11).
[14] Actions for relief against fraud “must be commenced within six years after the
cause of action accrues.” Ind. Code § 34-11-2-7. Under Indiana’s discovery
rule, a cause of action accrues, and the statute of limitations begins to run,
when the plaintiff knew or, in the exercise of ordinary diligence, could have
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discovered that an injury has been sustained as a result of the tortious act of
another. Doe v. United Methodist Church, 673 N.E.2d 839, 842 (Ind. Ct. App.
1996), trans. denied. For a cause of action to accrue, it is not necessary that the
full extent of the damage be known or even ascertainable but only that some
ascertainable damage has occurred. Id. It is undisputed that Messmer was
aware of the surrender charges on the Allianz policies on November 2008, as
evidenced by her letter to the insurance company. As such, she was required to
file her fraud allegations by November 2014; instead, she filed her Complaint
on August 24, 2015, and therefore, any fraud claim with regard to the Allianz
policies is barred. However, the statute of limitations did not bar a fraud
allegation with respect to Messmer’s surrender of the Washington National
policy on November 7, 2011, which was filed within four years of the
discovery.
[15] Messmer now attempts to circumvent the statute of limitations on the Allianz
policies by contending that its application was tolled by the continuous
representation theory. Originally developed in the realm of legal malpractice
and negligence, the continuous representation doctrine provides that the
applicable statute of limitations does not commence until the end of an
attorney’s representation of a client in the same matter in which the alleged
malpractice occurred. Biomet, Inc. v. Barnes & Thornburg, 791 N.E.2d 760, 765
(Ind. Ct. App. 2003), trans. denied. In Bambi’s Roofing Inc. v. Moriarty, 859
N.E.2d 347, 357 (Ind. Ct. App. 2006), we expanded the continuous
representation rule to the accounting profession, limiting its application to the
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accountant’s representation in the same, specific matter. The purpose of the
rule is to give accountants an opportunity to remedy their errors, establish that
there was no error, or attempt to mitigate the damage caused by their errors,
while still allowing the aggrieved client the right to later bring a malpractice
action, and not to circumvent the statute altogether by continuously
representing the client. Id. at 358. Without citing to any precedents, Messmer
now advocates to expand the doctrine to the financial services sector in general
and to allegations based in fraud.
[16] This court received a similar expansion request in our very recent case of
Landmark Legacy, L.P. et al. v. Runkle, et al., 2017 WL 3429076 (Ind. Ct. App.
Aug. 10, 2017), in which we declined to extend the continuous representation
doctrine to a negligence claim against financial advisors. In fact, we noted that:
Most importantly, Runkle [the financial planner] is neither an
attorney nor a certified public accountant. Appellants cannot
point to any precedents that would suggest the continuous
representation doctrine applies to the provision of financial
services, nor can they proffer a rational argument for extending
the continuous representation theory to include financial
advisors.
Id.[17] Similarly here, Messmer fails to cite any case law persuading us to expand the
continuous representation doctrine not only to brokers of financial services and
fixed annuities, but also, most importantly, to the realm of fraud allegations. In
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the more than fifty years of the doctrine’s existence, 3 no single state has
extended the doctrine as Messmer advocates. The rationale of the application
of the continuous representation doctrine in negligence claims—where a client
allows an attorney or accountant to correct a good faith mistake without losing
the client’s confidence—is simply incompatible with fraud allegations.
“Certainly, once the client discovers the attorney’s fraud, it is not reasonable to
expect the client to continue to maintain confidence in the professional’s good
faith and the client should be, as are all other victims of fraud, required to
investigate and access the facts.” Endervelt v. Slade, 618 N.Y.S.2d 520, 525
(N.Y. Sup. Ct. 1994). Under the circumstances of this case, we decline
Messmer’s request to expand the continuous representation doctrine.
III. Washington National Annuity
[18] With respect to the Washington National annuity, Messmer contends for the
first time on appeal that KDK Financial and Kern breached their fiduciary duty
to her and are thus liable for constructive fraud with regard to Messmer’s
surrender of the Washington National policy. In her Complaint and response
to the motion for summary judgment, Messmer claimed actual fraud due to
perceived false statements, not constructive fraud based on a breach of fiduciary
duty. 4 Indiana Trial Rule 9(B) expressly requires that “all averments of fraud”
3
New York pioneered the continuous representation doctrine in Borgia v. New York, 187 N.E.2d 777 (N.Y.
Ct. App. 1962).
4
Actual fraud and constructive fraud are two separate and distinctive causes of action, each requiring a
showing of different elements. See Heyser v. Noble Roman’s Inc., 933 N.E.2d 16, 19-20 (Ind. Ct. App. 2010),
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be specifically pled. At no point during the proceedings before the trial court
did Messmer claim constructive fraud or even make a start to raise constructive
fraud allegations; rather, all her allegations were based on misrepresentations
and fraudulent inducement. “Issues not raised before the trial court on
summary judgment cannot be argued for the first time on appeal[.]” Dunaway
v. Allstate Ins. Co., 813 N.E.2d 376, 388(Ind. Ct. App. 2004). Accordingly,
Messmer waived her claim on appeal. See id.[19] Waiver notwithstanding, we will address Messmer’s claim on its merits. A
claim for constructive fraud succeeds if the following five elements are
established: 1) a duty owed by the party to be charged to the complaining party
due to their relationship; 2) violation of that duty by the making of deceptive
material misrepresentations of past or existing facts or remaining silent when a
duty to speak exists; 3) reliance thereon by the complaining party; 4) injury to
the complaining party as a proximate result thereof; and 5) the gaining of an
advantage by the party to be charged at the expense of the complaining party.
Heyser v. Noble Roman’s Inc., 933 N.E.2d 16, 19-20 (Ind. Ct. App. 2010), trans.
denied. Constructive fraud requires the misrepresentation of a past or existing
fact; statements of opinion and representations as to the future are not
(outlining the different elements between the two causes), trans. denied. Actual fraud is an intentional tort,
requiring knowledge or reckless disregard of falsity, whereas constructive fraud is an unintentional tort,
which arises by operation of law from a course of conduct that, if sanctioned by law, would secure an
unconscionable advantage. See id.Court of Appeals of Indiana | Opinion 53A01-1701-PL-139 | September 14, 2017 Page 12 of 15
actionable. Shriner v. Sheehan, 773 N.E.2d 833, 849 (Ind. Ct. App. 2002), trans.
denied.
[20] Messmer argues that she “had been instructed that she could temporarily add
her son’s name to her policy due to her age, trusted the individuals giving her
said advise [sic], and signed the documents which were presented to her.”
(Appellant’s Br. p. 12). Specifically, Messmer contends to have “lacked
understanding of the effect of the surrender at the time it was made.”
(Appellant’s Br. p. 12). The designated evidence reflects that during her
deposition, Messmer was unable to articulate details concerning the
transaction, including what she was told, by whom, and when, which would
have established the groundwork for a fraud contention. Furthermore, the
evidence establishes that Messmer had actual knowledge about the surrender
charges of the Washington National policy and its tax consequences. Prior to
effecting the surrender, Washington National mailed Messmer a Confirmation
Request, advising her of the surrender charges and potential tax consequences.
Then, on November 7, 2011, Messmer executed a Washington National
Surrender/Withdrawal Form to surrender her Washington National annuity.
Immediately preceding Messmer’s signature, the form contained the
acknowledgement that she understood “there may be contractual surrender
charges associated with this transaction.” (Appellees’ App. p. 241). Moreover,
representations of prospective tax liability are representations of future
consequences which cannot predicate a constructive fraud claim. See id.Court of Appeals of Indiana | Opinion 53A01-1701-PL-139 | September 14, 2017 Page 13 of 15
[21] In addition, Messmer asserts that she did not complete substantive portions of
the documents which established the Aviva annuity in Ronald’s name, but that
these documents were completed for her by Kern. The designated evidence
indicates that Messmer simply could not “remember anything” about Kern’s
involvement in purchasing the Aviva annuity. (Appellant’s App. p. 104).
Accordingly, we affirm the trial court’s summary judgment in favor of
Appellees. 5
CONCLUSION
[22] Based on the foregoing, we conclude that the continuing representation
doctrine is not applicable to financial advisors or fraud allegations; and no
genuine issue of material fact exists establishing that Appellees fraudulently
misrepresented the surrender of an insurance annuity.
5
Messmer also argues, in addition to the fraudulent purchase and sale of fixed annuities, that Appellees
fraudulently advised her with her estate planning. She asserts that Appellees prepared estate planning
documents without the aid of an attorney, which resulted in a failure to properly shelter her assets in a trust,
causing her to lose VA benefits due to her asset level. Our review of the trial court’s summary judgment
discloses that the Order did not address this claim. Rather, it appears the trial court included this argument
within Messmer’s overarching claim of “unauthorized practice of law by preparing a trust and other legal
documents,” which the court had “previously ordered dismissed.” (Appellant’s App. p. 6). In addition, the
trial court concluded that it “decline[d] to extend the continuing representation doctrine to financial advisors
such as Defendants even if they engaged in the unauthorized practice of law.” (Appellant’s App. p. 7). Even
if we were to address Messmer’s fraud claim in the preparation of estate planning documents, she would not
be successful. Actionable fraud requires a showing that Appellees were compensated or gained some other
advantage. See Heyser, 933 N.E.2d at 19. In this regard, the designated evidence indicates that during her
deposition, Messmer could not recall that Appellees “told [her] that they personally drafted the estate
planning documents” and she could not remember paying Appellees “any money relating to the preparation
of estate planning documents.” (Appellant’s App. pp. 261, 262). Accordingly, Messmer cannot point to any
issue of material fact indicating that Appellees committed constructive fraud during the preparation of estate
planning documents. Her claim fails.
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[23] Affirmed.
[24] Robb, J. and Pyle, J. concur
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