Kapoor v. Dybwad
49 N.E.3d 108
| Ind. Ct. App. | 2015Background
- Employers (Kapoor Plaintiffs and Judson Plaintiffs) participated in Cronin-designed plans (Cronin ISP and later Cronin GTLP) that funded employee benefits with cash-value life insurance; they made annual premium payments and claimed tax deductions.
- Promoters and service providers included Cronin/Cronin Insurance Services (CIS), third-party administrator Fox & Fox, trustees Washington Trust Bank (WTB) and ASBE, insurer Western Reserve Life (WRL), and advisors Dybwad (to Kapoors) and Light (to Judsons); Greenwalt provided tax advice to the Judsons.
- IRS Notices and Revenue Rulings (2007) signaled that such arrangements were not tax-deductible; the Kapoors and Judsons later received IRS deficiency notices and substantial assessments for back taxes, penalties, and interest.
- Plaintiffs sued defendants for actual fraud, constructive fraud, negligent misrepresentation, negligence, unjust enrichment, money had and received, and related claims; defendants moved to dismiss under Ind. Trial Rules 12(B)(6) and 9(B).
- The trial court granted dismissal; on appeal the court reviewed whether plaintiffs pleaded (with Rule 9(B) particularity) actionable misrepresentations, whether defendants owed duties (fiduciary or buyer-seller), applicability of the economic loss doctrine, and statute-of-limitations defenses.
- The appellate court affirmed dismissal in part, reversed in part, and remanded: it reinstated several actual-fraud, constructive-fraud, and negligence claims (notably against advisors Dybwad and Light, CIS, Fox & Fox, WRL, and Greenwalt in limited respects) and affirmed dismissal of numerous other claims.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether predictions about future IRS treatment are actionable fraud | Plaintiffs: many statements were assertions of existing plan features (e.g., "IRS-approved", "tax-deductible"), not mere predictions | CIS/ASBE (and authority Berry): predictions about future tax treatment are inherently unreasonable and nonactionable | Court: adopt Scott approach — statements asserting present facts are actionable; Berry not persuasive here; some statements supported fraud claims |
| Sufficiency under TR. 9(B) for fraud/constructive fraud | Plaintiffs: alleged who, what, when, where, and reliance sufficiently given time lapse and information asymmetry | Defs: allegations lack particularity (who said what when) | Court: claims against advisors (Dybwad, Light) and constructive-fraud claims against CIS, Fox & Fox, WRL pleaded with sufficient specificity; other actual-fraud claims against entities without direct misrepresentations were dismissed |
| Duty to disclose (fiduciary or buyer-seller) for constructive fraud | Plaintiffs: advisors held fiduciary relationships; CIS/Fox & Fox/WRL held out expertise creating duty to disclose | Defs (WTB/ASBE/others): no duty (contract limits for WTB; no confidential relationship for ASBE); choice-of-law and contract disclaimers absolve trustee duties | Court: fiduciary/buyer-seller duties plausibly alleged as to Dybwad and Light; CIS, Fox & Fox, WRL plausibly held out expertise — constructive fraud claims survive; WTB and ASBE claims dismissed (WTB protected by trust documents/choice-of-law; ASBE lacked duty) |
| Applicability of economic loss doctrine to negligence claims vs. Fox & Fox | Plaintiffs: economic loss rule inapplicable because damages are taxes/penalties (economic harms from misrepresentations), not product failure | Fox & Fox: economic loss doctrine bars negligence recovery for purely economic harms | Court: economic loss doctrine does not bar negligence claim against Fox & Fox (distinguishable from product/service damage cases per Douglas) |
Key Cases Cited
- Rice v. Strunk, 670 N.E.2d 1280 (Ind. 1996) (elements of actual fraud)
- Scott v. Bodor, Inc., 571 N.E.2d 313 (Ind. Ct. App. 1991) (statements about present features of insurance-funded plans can support fraud)
- Berry v. Indianapolis Life Ins. Co., 600 F. Supp. 2d 805 (N.D. Tex. 2009) (predictions about future IRS treatment held unactionable; discussed and distinguished)
- American United Life Ins. Co. v. Douglas, 808 N.E.2d 690 (Ind. Ct. App. 2004) (seller/expert holding out knowledge can owe duty to disclose; economic loss doctrine inapplicable to misrepresentation-based losses)
- Caesars Riverboat Casino, LLC v. Kephart, 934 N.E.2d 1120 (Ind. 2010) (de novo review standard for TR. 12(B)(6))
- KPMG Peat Marwick, LLP v. Carmel Fin. Corp., 784 N.E.2d 1057 (Ind. Ct. App. 2003) (discussion of discovery rule for professional negligence claims)