A.I. Crеdit Corporation is a premium finance company that lends its clients money to pay commercial insurance premiums. When one of its clients, Monon Corporation, was placed into involuntary bankruptcy without repaying more than $2 million in insurance financing debts, A.I. Credit brought this fraud suit alleging primarily that the individuals who negotiated two Monon loans in 1996 conspired to defraud A.I. Credit by misrepresenting the status of the collateral and the intended use of the loan proceeds. 1 The district court entered summary judgment against two of the defendants (Monon’s insurance broker, Peterson, and his wholly-owned corporation) after they failed to respond to A.I. Credit’s motion, but granted summary judgment in favor of Monon’s chief financial officer, Franklin, as well as its insurers’ representative, McPherson, and two insurance companies and a marketing company with which McPherson is affiliated. A.I. Credit appeals from the judgment for these defendants. Because we conclude that genuine issues of material fact exist, we vacate and remand.
I.
We recount the evidence before the court in the light most favorable to A.I. Credit, the non-moving party. A.I. Credit had financed Monon’s workers’ compensation insurance premiums in 1994 and 1995. Although the financed policies were underwritten by Legion Insurance Company and Mutual Indemnity, Ltd., the рolicy information necessary to make the loans was obtained by A.I. Credit from William McPherson, a producer at Commonwealth Risk Services, Inc. (Commonwealth is the marketing branch of the parent company of Legion and Mutual; we’ll refer to all three companies as “the insurers.”) McPherson was responsible for generating business for Legion and Mutual and was compensated accordingly; Monon was among his five most profitable accounts.
In 1996, unknown to A.I. Credit, Monon financed its workers’ compensation insurance through a different company — Anthem Premium Finance. Monon’s chief financial officer, John Franklin, entered a loan agreement with Anthem in March 1996. The agreement granted Anthem a security interest in any “return premiums” arising out of the policy — refunds payable
According to Monon’s controller, Miles Holsworth, Monon was in serious financial trouble around this time: a “huge order” from a single customer, Consolidated Freightways, Inc. (CFI), was “keeping th[e] company alive.” Monon owed money to CFI, and CFI threatened to cancel its order if Monоn failed to pay promptly. (Holsworth Dep. at 146-47.) According to A.I. Credit’s theory, Monon, desperate for cash, arranged a conference call to negotiate another loan from A. I. Credit under the pretense of financing the workers’ compensation premiums that Anthem already had financed. Holsworth testified in his deposition that he, along with Monon’s Franklin, the insurers’ McPherson, and Monon’s insurance broker, Michael Petersоn, participated in one or more conference calls with an A.I. Credit representative sometime in April 1996. Id. at 46-49, 133-36, 150, 225-29, 244-45, 292-93. According to Holsworth, when the A.I. Credit representative expressed concern regarding collateral, Franklin “offered up the Mutual Indemnity workers’ comp, balance” — the same funds already pledged to Anthem. Holsworth further testified that, during the call, Peterson, the broker, confirmed to the A.I. Credit representativе that “those monies could be used to secure” the loan, and the insurers’ McPherson “supported” the proposal. Id. at 48, 228-29. Holsworth could not recall with certainty the name of the A.I. Credit representative involved in the conference call, id. at 46, 225, but John Rago, A.I. Credit’s vice president of credit, averred that he participated in an April 1996 conference call involving at least two of the participants Monon’s Holswоrth identified: Franklin and Peterson. When asked if Rago was the A.I. Credit representative on the call, Holsworth testified that he recognized Rago’s name and confirmed that Rago “could” have been the A.I. Credit representative. Id. at 226, 46.
Shortly after the conference call, on April 22, 1996, A.I. Credit entered a written agreement to finance the premiums on Monon’s Legion and Mutual policies, secured by the return premiums and the right to cancel thе policies if Monon defaulted on its payments. Had the loan in fact been secured by the policies, this provision would have provided A.I. Credit with an effective collection mechanism: Indiana law requires companies like Mo-non to carry workers’ compensation insurance, see Ind.Code § 22-3-2-5(a); cancellation of the necessary policy could force Monon to cease operations. A.I. Credit wired the money — $2,695,262.62—to the broker, Peterson, on April 23. Peterson then faxed Monon’s Holsworth a letter informing him that he had used the bulk of the proceeds — $2,675,000—to pay CFI. None of the money was sent to Legion or Mutual.
A.I. Credit entered a second written loan agreement with Monon in May 1996, purportedly to finance an “audit” premium — an additional premium due based on an audit that revealed Monon’s actual payroll for the 1995-96 policy period exceeded the estimates on which the original premium was based. This agreement, too, purportedly permitted A.I. Credit to cancel the policy for nonpayment. A.I. Credit again wired the proceeds — $954,098—to Monon’s broker, Peterson, and Peterson again wrote Monon’s controller, Hols-worth, this time explaining that, although A.I. Credit was “treating]” the loan as financing for “an additional premium to the Workers Compensation policy,” hе had
Two A.I. Credit employees who participated in the loan approval process offered evidence that thеy relied on Franklin’s and McPherson’s representations. A.I. Credit vice president Rago attested that A.I. Credit would not have made either loan without his recommendation, that he recommended the April loan based on representations made to him during the conference call to the effect that the money was needed to pay Monon’s 1996-97 premiums, and that he would not have approved the loan had he known Monon had obtained other financing. Cindy Carroll, the manager of A.I. Credit’s Boston branch, testified by deposition that McPherson “[c]on-firm[ed]” the amount of the fictitious audit premium on which the May loan was based (Carroll Dep. at 164), and later attested in a supplemental affidavit that she would have withheld her approval had she known no such premium was due (Carroll Aff. para. 9). Carroll also attested that, had she discovered the Anthem financing after A.I. Credit entered the May loan agreement, she would immediately have taken steps to collect the debt and realize the collateral. Id.
Anthem and A.I. Credit both notified Legion that they had entered premium finance contracts with Monon for the same policy, and a Legion employee eventually brought the matter to the attention of the insurers’ McPherson in early June. McPherson never consulted A.I. Credit, however, and Monon wаs placed into involuntary bankruptcy on September 25, 1996 — still owing $2,657,144.42 to A.I. Credit. Monon’s internal accounting records show it had over $3 million in available cash as late as the end of June.
A.I. Credit’s second amended complaint alleges that Monon’s Franklin, the insurers’ McPherson, and the broker, Peterson, conspired to defraud A.I. Credit. A.I. Credit also charges Franklin and McPherson with fraud (both actual and constructive) and McPherson with professional negligence. The complaint further alleges that Commonwealth, Legion, and Mutual are liable for McPherson’s torts because he acted as their agent.
II.
A.I. Credit’s conspiracy claim is based on the theory that the broker, Peterson, Monon’s Franklin, and the insurers’ McPherson acted in concert to defraud A.I. Credit by convincing it to provide financing that was essentially unsecured. We think a jury could conclude that such a conspiracy existed: McPherson made crucial misrepresentations to A.I. Credit, A.I. Credit forwarded the loan proceeds to Mo-non’s broker, Peterson, and Peterson applied the proceeds to Monon’s debts rather than its insurance premiums. The fact that Peterson used the loan proceeds to pay Monon’s debts rather than embezzling the funds or using them to pay premiums as intended by A.I. Credit makes patent that someone at Monon was invоlved in the fraud; Franklin’s misrepresentations to A.I. Credit suggest that Franklin was that insider. This sequence of coordinated acts is precisely the sort of evidence upon which a reason able jury could base a finding of conspiracy,
see, e.g., Moore v. Fletcher,
Here, a reasonable jury might find actual fraud by concluding that A.I. Credit’s Rago relied on two separate misrepresentations made during the conference call: the implicit misrepresentation that Monon was in need of premium financing, and the explicit misrepresentation that the loan Monon sought could be secured with an interest in the “Mutual Indemnity workers’ comp, balance.” Indeed, a jury might view the very fact that A.I. Credit lent Monon more than $2 million as evidence that some misrepresentation regarding the purpose of the loan was made, reasоning that only the security provided by the right to cancel a necessary insurance policy would induce A.I. Credit to lend such an amount. A jury might conclude that A.I. Credit’s Rago relied on Franklin’s proposal to collateralize the loan and his concomitant implication that the proposed collateral was unencumbered. Given the evidence that Franklin previously had signed a loan agreement granting this very same security interеst to Anthem, a jury could further conclude Franklin knew this implicit assertion was false and made it in an effort to induce A.I. Credit to make the loan. Similarly, McPherson’s “confirmation” to A.I. Credit’s Carroll of the amount of the fictitious audit premium, given Carroll’s testimony that she would have blocked or can-celled the second loan had she known no premium was due, permits a finding that McPherson engaged in actual fraud as well.
Franklin’s only objection to this theory is that A.I. Credit’s Rago had no right to rely on anything he might have told him. But Indiana law permits as much reliance as is reasonable,
see Wright v. Pennamped,
A.I. Credit’s constructive fraud clаim is premised on Franklin’s and McPherson’s failures to disclose the Anthem financing. Constructive fraud arises by operation of law when one party violates a duty existing by virtue of his relationship with another party and gains an unconscionable advantage as a result.
See, e.g., Wells v. Stone City Bank,
In the alternative, A.I. Credit asserts that McPherson acted negligently, if not fraudulently, in failing to disclose the Anthem financing to Rago and Carroll and in “confirming” to Carroll the amount of the fictitious audit premium. The district court disposed of this claim by relying on the economic loss rule, which limits the recovery of “economic loss” — profits lost due to a product’s failure to perform as expected — to cases where a product failure causes personal injury or damage to other property.
See Bamberger & Feibleman v. Indianapolis Power & Light Co.,
McPherson insists he cannot be liable for negligence because A.I. Credit was not a party to Monon’s insurance contract with the MRM companies, and thus he owed no duty to A.I. Credit. But this observation is not conclusive, -because under Indiana law the duty of a professional (like McPherson) runs to third parties (like A.I. Credit) the professional
knows
will rely on the information he provides.
See Webb v. Jarvis,
Finally, A.I. Credit alleges that Commonwealth, Legion, and Mutual are liable for McPherson’s torts because he acted as their agent. Agency may be proved by the principal’s consent and control of the agent and the agent’s acquiescence,
see, e.g., Woodworth v. Estate of Yunker,
The remainder of McPherson’s arguments, which primarily concern the admissibility of the evidence on which A.I. Credit relied in opposing his motion for summary judgment, do not undermine our conclusions. McPherson notes that John Rago of A.I. Credit testified in his deposition that he never spoke with McPherson, and suggests in a footnote that A.I. Credit may not rely on Holsworth’s testimony that McPherson participated in the April conference call “because Rago was A.I.’s Rule 30(b)(6) witness.” One sentence of the Rule provides, “The persons so designated shall testify as to matters known or reasonably available to the organization.” In the light of that sentenсe, McPherson apparently construes the Rule as absolutely binding a corporate party to its desig-nee’s recollection unless the corporation shows that contrary information was not known to it or was inaccessible. Nothing in the advisory committee notes indicates that the Rule goes so far. McPherson cites
Rainey v. American Forest & Paper Ass’n, Inc.,
McPherson alsо suggests that Holsworth’s testimony about the conference call is inadmissible because Hols-worth did not testify to a “foundation,” which McPherson insists entails specific testimony regarding the names of the participants and the date of the conversation. But no rule of evidence requires a “foundation”; “foundation” is simply a loose term for preliminary questions designed to establish that evidence is admissible.
See
Black’s Law Dictionary 666 (7th ed.1999).
McPherson next argues that Cindy Carroll’s affidavit is inadmissible because it contradicts her earlier deposition testimony, but the “inconsistency” to which McPherson points is nonexistent. Carroll stated in her affidavit that when she spoke with McPherson, he told her “nothing that significantly deviated” from her understanding of Monon’s insurance program; McPherson insists this statement is inconsistent with Carroll’s deposition testimony that she could not recall “specific sеntences that were discussed” during the call. These two statements are plainly not inconsistent, and provide no basis for excluding Carroll’s affidavit. We need not address McPherson’s objections to other evidence on which A.I. Credit relies in its brief because the evidence discussed above is sufficient for A.I. Credit to withstand summary judgment.
Finally, McPherson asserts that A.I. Credit’s failure to allege his participation in the conference call in its comрlaint violates Federal Rule of Civil Procedure 9(b)’s requirement that fraud be alleged with particularity. Because both A.I. Credit and McPherson squarely addressed this fraud theory at the hearing on McPherson’s motion for summary judgment, however, we conclude that A.I. Credit’s second amended complaint was constructively amended to include this theory.
See Whitaker v. T.J. Snow Co.,
For the foregoing reasons, the judgment of the district court is Reveksed and the case Remanded for further proceedings.
Notes
. Jurisdiction is founded on diversity. The parties agree that Indiana law controls all substantive issues.