Opinion
No. 49A02-1012-CT-1419
10-19-2011
REMY INC., Appellant-Plaintiff, v. ICE MILLER LLP and KATHY S. KIEFER, Appellees-Defendants.
ATTORNEY FOR APPELLANT : JON R. PACTOR Indianapolis, Indiana ATTORNEYS FOR APPELLEES : DANIEL D. TRACHTMAN TRAVIS R. SMITH Wooden & McLaughlin LLP Indianapolis, Indiana
Pursuant to Ind. Appellate Rule 65(D), this Memorandum Decision shall not be regarded as precedent or cited before any court except for the purpose of establishing the defense of res judicata, collateral estoppel, or the law of the case.
ATTORNEY FOR APPELLANT:
JON R. PACTOR
Indianapolis, Indiana
ATTORNEYS FOR APPELLEES:
DANIEL D. TRACHTMAN
TRAVIS R. SMITH
Wooden & McLaughlin LLP
Indianapolis, Indiana
APPEAL FROM THE MARION SUPERIOR COURT
The Honorable Thomas J. Carroll, Judge
Cause No. 49D06-0903-CT-14058
MEMORANDUM DECISION - NOT FOR PUBLICATION
CRONE , Judge
Case Summary
To improve its cash flow, General Motors ("GM") supplier Remy Inc. arranged for an entity known as Hennessey to purchase most of Remy's GM accounts receivables at a discount. Remy asked Kathy S. Kiefer, an "of counsel" attorney with Ice Miller LLP, to get Remy's lenders to approve the Hennessey deal and to take a "quick look" at the "already-negotiated" agreement. Appellant's App. at 99. GM insisted on wiring all its payments to Remy to a single account, and Hennessey insisted that those payments be deposited in its account at LaSalle Bank in Michigan. Remy knew that Hennessey had a lender, known as Lancelot, but Hennessey refused to let Remy see the lending documents. Remy's top financial officers knew that it was risky for all GM funds to be wired to a single account over which Remy had no control, and Kiefer was also aware of this risk. Remy explored the possibility of segregating the purchased and the nonpurchased receivables in Hennessey's account but determined that this would be too time-consuming and expensive.
Hennessey stopped purchasing Remy's receivables and defaulted on a payment to Lancelot. Shortly thereafter, two of Lancelot's employees swept $6.6 million from Hennessey's account, over $5.5 million of which was for nonpurchased receivables belonging to Remy. Remy sued Hennessey, Lancelot, and the two Lancelot employees in Michigan, and the court determined that Lancelot "had no legitimate basis for sweeping funds which belonged to Remy." Id. at 189. The Michigan lawsuit was ultimately settled for $3.5 million.
Remy then sued Ice Miller and Kiefer for legal malpractice, alleging that, but for their negligence, Remy "would not have suffered damages in the form of the diverted money and the legal expenses incurred to try to collect it." Id. at 6. Ice Miller and Kiefer filed a motion for summary judgment, asserting that they did not breach a duty to Remy, that they did not proximately cause Remy's damages, and that Remy had released its claims against them in a bankruptcy proceeding. The trial court summarily granted the summary judgment motion, and Remy now appeals. We conclude as a matter of law that Ice Miller and Kiefer did not proximately cause Remy's damages and therefore affirm the trial court.
Facts and Procedural History
The relevant facts are largely undisputed. In 2005, GM was Remy's largest customer, and both companies were "experiencing financial difficulties." Id at 131. To accelerate Remy's cash flow, Remy's treasurer, Craig Hart, asked assistant treasurer Kimberly Davis to negotiate an accounts receivable purchasing agreement ("ARPA") with Hennessey, an accounts receivable factoring company. Pursuant to the ARPA, Remy would assign and sell up to $8 million of GM receivables each month to Hennessey, which would purchase them at a discount. GM insisted on wiring payments to a single account, and Hennessey insisted that GM's payments be deposited in a single account at LaSalle Bank in Michigan owned by Hennessey. Most of the money that GM wired to the account would be for receivables that Hennessey had already purchased from Remy. Hennessey would then remit the funds for the nonpurchased receivables to Remy.
According to Davis, "the primary problem perceived with such an arrangement was that Remy would have preferred to avoid having any money belonging to Remy under the control of another entity." Id. at 132. In Davis's opinion, "[h]aving all GM funds wired to a single account not controlled by Remy represented a bad business practice ... and involved elements of risk." Id. When asked why he preferred that nonpurchased receivables be deposited in an account controlled by Remy, Hart replied, "I'll be frank with you, to ensure that we got our money." Id. at 78. Both Hart and Davis were aware that Hennessey had lenders. When Davis asked to see the lending documents, Hennessey told her that they were "proprietary" and would not be furnished to her. Id. at 133. Those documents would have disclosed the existence of both a security interest in as well as a lockbox and control agreement regarding Hennessey's bank account in favor of a group of entities collectively known as Lancelot.
Ice Miller was Remy's outside counsel. Kathy Kiefer, an "of counsel" attorney for Ice Miller, was asked to obtain releases from Remy's lender to allow Remy to enter into the ARPA. Also, Davis asked Kiefer to take a "quick look" at the "already-negotiated" ARPA. Id. at 99. Davis told Kiefer that Remy "had negotiated the transaction with [Hennessey], the board had approved the transaction, they needed [Kiefer's] help to get the consent of the lender to allow them to do it, and [Kiefer] could take a quick look at the agreement, but that [Remy] needed the money right away and they needed to close right away." Id. at 105-06.
According to Davis, Kiefer suggested that "combining Purchased and Non-Purchased Receivables in a single account over which Remy would have no control presented risks to Remy." Id. at 133. Davis investigated the possibility of segregating the receivables; she "became convinced that while this possibly could have been done, it would be an expensive and time consuming process." Id. According to Kiefer, Davis
understood why it was a bad idea to have non-purchased receivables go into the account .... They [Remy] did not want to mark the receivables of being purchased versus not purchased, that that was very time-consuming, costly, and that the amount of non-purchased receivables would be very, very small and that she understood the risk. But they had structured the transaction in this way, and they understood it and they were comfortable with how it was structured.Id. at 110-11. Kiefer also suggested to Davis "that Non-Purchased Receivables be remitted to Remy on the same day they were wired by GM to the Hennessey account." Id. at 132-33. The ARPA ultimately provided that the nonpurchased receivables would be remitted to Remy on the first business day following the date on which they were wired to the account.
In late November 2005, Hennessey "indicated" to Davis "that there was a question about continuing a program that involved GM receivables." Id. at 161. In December 2005, Hennessey notified Davis that it would stop purchasing GM receivables at some point. According to Davis, she learned "on or about December 27, 2005 that Hennessey would not be purchasing any more receivables. From that point onward, most receivables would be Non-Purchased rather than Purchased Receivables." Id. at 133. Remy did not cancel its agreement with Hennessey, nor did it ask Hennessey to instruct GM not to deposit future payments in Hennessey's account.
Also in December 2005, Hennessey defaulted on a loan from Lancelot. Two high-level Lancelot employees learned that on January 5, 2006, GM would be wiring approximately $6.6 million to Hennessey's account at LaSalle Bank, over $5.5 million of which was for nonpurchased receivables belonging to Remy. Within sixty seconds of learning that GM's payment had posted, the Lancelot employees had the entire $6.6 million swept from the account. Later that day, Hennessey notified Davis that the funds had been swept from the account.
On January 17, 2006, Remy filed suit against Hennessey, Lancelot, and the two Lancelot employees in Oakland Circuit Court in Michigan. In October 2007, Remy initiated a Chapter 11 bankruptcy proceeding in Delaware. On November 28, 2007, the Michigan court granted Remy's motion for summary judgment on its claims for common law conversion and tortious interference with a business relationship. The Michigan court determined that Remy owned the nonpurchased receivables funds, and therefore Hennessey had no authority to grant and Lancelot had no right to a security interest in those funds. Consequently, the Michigan court ruled that Lancelot "had no legitimate basis for sweeping funds which belonged to Remy." Id. at 189. In February 2008, Lancelot and its two employees stipulated to entry of judgment against them in the amount of over $5.5 million in connection with their unlawful taking of Remy's funds. The Michigan lawsuit was ultimately settled for $3.5 million.
In January 2010, Remy sued its insurance carrier for denying its claim under the policy's crime coverage provisions for the unlawful taking of its funds. Remy asserted that Lancelot's agreements with Hennessey did not grant Lancelot "a security interest over Remy's asserts on deposit at LaSalle Bank" and that the two Lancelot employees knew that they were not entitled to Remy's nonpurchased receivables in Hennessey's account and "executed a plan to steal Remy's money." Id. at 193, 194. Remy noted that one of the Lancelot employees had pled guilty to wire fraud "in an unrelated plot to defraud investors in connection with a well-publicized Ponzi scheme." Id. at 195.
On March 25, 2009, Remy sued Ice Miller and Kiefer ("Appellees") for legal malpractice, alleging that, but for their negligence, Remy "would not have suffered damages in the form of the diverted money and the legal expenses incurred to try to collect it." Id. at 6. Appellees filed a motion for summary judgment and a supporting brief in which they argued that they did not breach a duty to Remy, that they did not proximately cause Remy's alleged damages, and that Remy had released its claims against them in the Chapter 11 bankruptcy proceeding. Remy filed a response to Appellees' summary judgment motion. The trial court held a hearing, took the matter under advisement, and on November 22, 2010, entered an order summarily granting Appellees' motion. This appeal ensued.
Discussion and Decision
Remy contends that the trial court erred in granting Appellees' motion for summary judgment. Summary judgment is appropriate only where the designated evidence shows that there is no genuine issue of material fact and the moving party is entitled to judgment as a matter of law. Ind. Trial Rule 56(C). We review a summary judgment order de novo, construing all factual inferences in favor of the nonmoving party and resolving all doubts as to the existence of a material issue against the moving party. Akey v. Parkview Hosp., Inc., 941 N.E.2d 540, 546 (Ind. Ct. App. 2011), trans. denied.
Remy's counsel inserted a statement of the applicable standard of review between the statement of case and statement of facts instead of in the argument section of the appellant's brief as required by Indiana Appellate Rule 46. See Ind. Appellate Rule 46(A) ("The appellant's brief shall contain the following sections under separate headings and in the following order") (emphasis added); Ind. Appellate Rule 46(A)(8)(b) ("The argument must include for each issue a concise statement of the applicable standard of review").
The party appealing from the grant of summary judgment has the burden of persuading the court that the grant of summary judgment was erroneous. Upon review, we examine only those materials designated to the trial court on the motion for summary judgment. We may affirm the trial court's grant of summary judgment upon any basis supported by the record.Boushehry v. City of Indianapolis, 931 N.E.2d 892, 895 (Ind. Ct. App. 2010) (citations omitted).
Remy sued Appellees for legal malpractice. "To prove a legal malpractice claim, a plaintiff-client must show: (1) employment of an attorney (duty); (2) failure by the attorney to exercise ordinary skill and knowledge (breach); (3) proximate cause (causation); and (4) loss to the plaintiff (damages)." Oxley v. Lenn, 819 N.E.2d 851, 855 (Ind. Ct. App. 2004). It is appropriate for a trial court to grant a defendant summary judgment on a legal malpractice claim if the designated evidence negates at least one of these elements. Flatow v. Ingalls, 932 N.E.2d 726, 729 (Ind. Ct. App. 2010), trans. denied (2011). Here, it is undisputed that Remy employed Appellees and suffered damages. Consequently, the parties' arguments focus on breach and proximate cause. We find the latter dispositive.
Our supreme court has explained that proximate cause "has two components: causation-in-fact and scope of liability." Kovach v. Caligor Midwest, 913 N.E.2d 193, 197 (Ind. 2009).
To establish factual causation, the plaintiff must show that but for the defendant's allegedly tortious act or omission, the injury at issue would not have occurred. The scope of liability doctrine asks whether the injury was a natural and probable consequence of the defendant's conduct, which in the light of the circumstances, should have been foreseen or anticipated. Liability is not imposed on the defendant if the ultimate injury was not reasonably foreseeable as a consequence of the act or omission. Causation-in-fact is ordinarily a factual question reserved for determination by the jury. However, where reasonable minds cannot disagree as to causation-in-fact, the issue may become a question of law for the court.Id. at 197-98 (citations omitted).
In response to Appellees' summary judgment motion, Remy designated the affidavit of attorney Carol Adinamis, who opined in pertinent part as follows:
Although it appears that Ice Miller and Ms. Kiefer advised Remy Inc. of the risk that the owner of the bank account might mishandle the funds, I have seen no record that shows that Ms. Kiefer advised Remy Inc. of reasonable alternatives to that risk.Appellant's App. at 443-44.
Moreover, Ice Miller and Ms. Kiefer failed to advise Remy Inc. of the more serious risk that the bank account might be subject to the claims of creditors. This was a foreseeable risk which an attorney should have caught and advised the client because the bank account was like an escrow agreement without any protection for an escrow. This was the risk that did materialize.
Ms. Kiefer apparently did not consider this risk and thus did not inquire as to any security interests applicable in the account. If she had considered that risk, she would have learned about it. She could have done a UCC search or made other inquiries. It is not difficult, expensive, or time-consuming to obtain a UCC search. If she had advised Remy Inc. [it] would have known of the serious risk that did eventually materialize. She could have suggested language in the Accounts Receivable Purchase Agreement and/or language in the documents from Hennessey or Lancelot, which would disavow their
interest in the non-purchased receivables. She did not advocate for, let alone require, that the non-purchased accounts receivable be put into a special trust, escrow account, or otherwise restricted account. She failed to advise Remy Inc. of the risks sufficiently so that it could make informed decisions about them.
Assuming solely for argument's sake that Appellees breached their duty of care to Remy, and that Adinamis correctly defined that duty, we conclude that the designated evidence establishes as a matter of law that Appellees were not the cause-in-fact of Remy's damages. It is undisputed that Hennessey insisted that GM's payments to Remy "flow through" Hennessey's account at LaSalle Bank. Id. at 8 (Hart deposition). It is also undisputed, as Appellees observe, that
Remy asserts that Hennessey "would have had no objection" to GM's payments being placed in a "restricted account," such as an escrow account or a trust account, but cites no designated evidence to support this assertion. Appellant's Br. at 20.
Lancelot was not a creditor. Instead, as alleged by Remy in its complaint against its insurance carrier, Lancelot was an organization run by criminals, which engaged in common thievery with respect to Remy's Nonpurchased Receivables. Remy assumes, without one shred of evidence, that Lancelot would somehow have complied with a request that it subordinate its non-existent interest in Nonpurchased Receivables. The undisputed evidence is that Kiefer recommended that Nonpurchased Receivables not be sent to the Hennessey account and that Kiefer and Davis discussed means by which that goal might be accomplished. Those means were rejected by Remy, not Ice Miller, for business reasons.Appellees' Br. at 22. In sum, the designated evidence establishes as a matter of law that Appellees' allegedly tortious acts or omissions were not the cause-in-fact of Remy's damages. Therefore, we affirm the trial court's grant of summary judgment in favor of Appellees.
That said, we reject Appellees' contention that they are entitled to summary judgment on the basis that Remy released its claims against them during its Chapter 11 bankruptcy proceeding. In its reorganization plan, Remy agreed to release "all claims" against certain entities, including so-called "Chapter 11 parties," which included "all Persons engaged or retained by the Debtors in connection with the Chapter 11 Cases (including in connection with the preparation of, and analyses relating to, the Solicitation and Disclosure Statement, the Plan, the DIP Credit Agreement and the Exit Facility Documents)," as well as "any and all affiliates, members, managers, shareholders, partners, representatives, employees, attorneys, advisors and agents" of the Chapter 11 parties. Appellant's App. at 208-09 (emphasis added). Appellees note that the bankruptcy court entered an order authorizing Remy to retain Ice Miller as an "ordinary course professional" during the bankruptcy proceeding for legal assistance with employment matters. Appellees fail to mention, however, that Remy's motion requesting such an order states that ordinary course professionals "provide services to the Debtors in a variety of discrete matters unrelated to these chapter 11 cases, including, but not limited to, general corporate, accounting, auditing, tax and litigation matters." Id. at 303 (emphasis added). In an affidavit submitted to the bankruptcy court in support of its employment as an ordinary course professional, Ice Miller stated its intention to "invoice the Debtors directly for compensation for professional services rendered in connection with these Chapter 11 cases." Id. at 348 (emphasis added). The designated evidence, however, is silent regarding whether Ice Miller actually performed such services. At the very least, then, a genuine issue of material fact exists regarding whether Remy released its claims against Appellees.
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Affirmed. BAILEY, J., and MATHIAS, J., concur.