BROWN, Judge.
GEICO General Insurance Company ("GEICO") appeals from the trial court's Findings of Fact and Conclusions of Law
On December 28, 2009, vehicles driven by Laura Coyne and Arlin Yoder were involved in an accident. Cheryl O'Mailia was a passenger in Coyne's vehicle, and she sustained physical injuries from the accident, including fractures of the second cervical vertibra, the seventh cervical vertibra, the sternum, multiple rib fractures, and the mid ulna on her left arm. At the time of the accident, the O'Mailias were insured by GEICO under a policy providing underinsured motorist coverage with a limit of $600,000. Cheryl brought a claim under the policy for damages sustained and James brought a claim under the policy for loss of consortium.
Approximately one week before trial, counsel for GEICO discovered on the Florida Department of Health's public website that James's medical license had come under investigation based on numerous allegations, including that he had forged prescriptions for his wife (the "Florida Information"). The website noted that due to these allegations, the State of Florida arrested James on July 20, 2009, and charged him with thirteen counts of violating Fla. Stat. § 893.13(7)(a), by obtaining controlled substances by fraud. On September 1, 2009, James pled nolo contendere to five felony counts of violating Fla. Stat. § 831.02 by uttering a forged instrument. Also, on September 7, 2010, the Florida Surgeon General asked the Florida Board of Medicine to impose penalties including the revocation or suspension of James's medical license, and in January 2011 James entered into a settlement agreement under the terms of which he agreed to pay a $30,000 fine and reimburse the Department of Health costs of between $21,254.15 and $24,254.15, was prohibited from treating or prescribing medications to family members, and had his medical license placed on probation for three years.
GEICO did not alert the O'Mailias of the Florida Information it had found, and apparently the O'Mailias did not tell their counsel about the same. On October 31, 2012, a jury trial commenced, and on the second day of trial James testified regarding the accident's effect on him and his wife, as well as problems with his medical office. He testified that "had [his wife] not had the accident, I would suspect that this would have been nothing other than just a regular, American family — just trying to do the best we could." Transcript at 187. On cross — examination, the following exchange occurred:
Id. at 188.
The O'Mailias objected, and following a brief bench conference the court sent the jury out of the courtroom. William Ramsey, counsel for GEICO, explained to the court that in Florida a conviction is entered following a plea of nolo contendere, that "fraud is a crime of dishonesty," and that accordingly "it fits squarely within 609(a)." Id. at 194. Benjamin Ice, who was also counsel for GEICO, then explained that "the purpose of the question is that there is this whole issue that's going on, a stressor in this family that affects how they're relating to each other and stress and anxiety that [Cheryl] is experiencing," that "having your husband arrested and charged in a criminal court is a highly stressful ordeal," and that therefore "there is this purpose that's beyond impeaching him as having been convicted of a crime of dishonesty." Id. The court then asked why this information was not disclosed, and Attorney Ice replied as follows:
Id. at 194-195. The O'Mailias' counsel, Edward Chester, responded he "utterly and totally disagree[d] with everything Mr. Ice just said," that "[w]hat they've done is lay in ambush just like the lawyer did in Outback Steakhouse,"
Id. at 201. Attorney Ramsey also noted that although the court did not ask the attorneys to address Ind. Evidence Rule 404(b), it is relevant because that rule
The court denied the O'Mailias' request for a mistrial, but it prohibited GEICO from asking questions about the licensing and criminal proceedings other than establishing the fact of a conviction for impeachment purposes under Ind. Evidence Rule 609(a). The jury ultimately entered judgment in favor of Cheryl on her claim in the amount of $225,000,
On December 5, 2012, the O'Mailias filed a Motion for a New Trial based primarily on GEICO's failure to disclose and use of the Florida Information at trial and also requested attorney fees.
The issue is whether the court erred in awarding attorney fees to the O'Mailias based upon GEICO litigating in bad faith. The court based its award of attorney fees on subsection (b) of Ind.Code § 34-52-1-1, also known as the General Recovery Rule, which provides:
Specifically, the court awarded attorney fees under Ind.Code § 34-52-1-1(b)(3), finding that GEICO litigated the action in bad faith. Bad faith is demonstrated where the party presenting the claim is affirmatively operating with furtive design or ill will. Dunno v. Rasmussen, 980 N.E.2d 846, 851 (Ind.Ct.App.2012); see also Auto-Owners Ins. Co. v. C & J Real Estate, Inc., 996 N.E.2d 803, 805-806 (Ind. Ct.App.2013) ("[P]roving bad faith amounts to showing more than bad judgment or negligence: `it implies the conscious doing of wrong because of dishonest purpose or moral obliquity.... [I]t contemplates a state of mind affirmatively operating with furtive design or ill will.'" (quoting Oxendine v. Pub. Serv. Co., 423 N.E.2d 612, 620 (Ind.Ct.App.1980))).
The trial court's decision to award attorney fees under Ind.Code § 34-52-1-1 is subject to a multi-level review: the findings of fact are reviewed under the clearly erroneous standard and legal conclusions regarding whether a party litigated in bad faith are reviewed de novo. See Dunno, 980 N.E.2d at 851 (citing Purcell v. Old Nat. Bank, 972 N.E.2d 835, 843 (Ind.2012)). Finally, the trial court's decision to award attorney fees and any amount thereof is reviewed for an abuse of 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.
We begin with the relevant portions of the court's March 21, 2013 Order which were not covered in the facts section above as follows:
Appellant's Appendix at 23-24, 29-30, 32-34, 38-40, 48-51 (footnotes omitted).
GEICO begins its argument by observing that it did not have a duty do disclose the Florida Information under the Indiana Rules of Evidence, specifically Ind. Evidence Rules 609 and 404.
GEICO argues that it did not litigate in bad faith, and it points to the fact that it researched whether it had a duty to disclose and decided that there was none. GEICO further states that past cases have found misconduct when an attorney failed to supplement answers to discovery or failed to answer written discovery, but that is not the situation here. GEICO asserts that "parties have an obligation to avoid being ambushed by using discovery to initiate the obligation to disclose information," and, at the very least, past cases and Indiana's Trial Rules and Rules of Evidence provided "a good faith belief that it was not required to disclose that its investigation
The O'Mailias argue all of the cases cited by GEICO "involve a trial court's ruling either granting or denying a new trial or granting or denying some form of sanction for a discovery violation" and that none of them "involves a trial court's finding of misconduct and bad faith despite technical compliance with the rules when the bad faith is based on how counsel employed the rules to breach the duties of common courtesy, professionalism, and avoiding prejudice to the administration of justice." Appellees' Brief at 18. The O'Mailias contend that GEICO's focus on the Indiana Trial Rules and Rules of Evidence is misplaced because the court found that GEICO's counsel's "actions were a breach of professionalism and courtesy and were prejudicial to the administration of justice." Id. at 19. The O'Mailias direct our attention to the case of Smith v. Johnston, 711 N.E.2d 1259, 1263-1264 (Ind. 1999), in which the Indiana Supreme Court set aside a default judgment on a medical malpractice case where plaintiff's counsel did not notify an attorney who had represented the physician before the medical review panel despite the fact that Ind. Trial Rule 5(B) requires only that an attorney serve an opposing party's attorney with notice of a pending default after an attorney has entered an appearance with the trial court. The O'Mailias further assert that the court's findings and conclusion that GEICO's counsel acted in bad faith are supported by the record and accordingly are not clearly erroneous, noting that the phrasing of the question was improper for impeachment purposes because "it was not limited to a conviction," that GEICO's counsel then changed its argument "to assert that the information was being offered as substantive evidence," and that following the asking of the question and discussion with counsel outside the presence of the jury, the court gave the O'Mailias the option to admonish the jury which the O'Mailias declined, "preferring to simply move on and not ring the bell again." Id. at 25. The O'Mailias maintain that the court was in the best position to determine whether counsel acted in bad faith, that the court issued a "very comprehensive and detailed order setting forth the reasons it imposed sanctions on GEICO," and that this court should not set aside such order. Id. at 29.
In its reply brief, GEICO notes that "[t]he O'Mailias concede that GEICO had no obligation to disclose the information it discovered" and argues that "the decision to not disclose was not prejudicial to the administration of justice and did not violate Indiana's Rules of Professional Conduct." Appellant's Reply Brief at 2. GEICO maintains that its "decision to not disclose ... was not merely permitted by Indiana's Trial Rules; the Trial Rules, decisions of this Court, decisions of the Indiana Supreme Court, decisions of courts from other jurisdictions, and Indiana's Rules of Evidence all affirmatively made clear that GEICO had no duty to disclose the information." Id. GEICO quotes the Preamble to the Rules of Professional Conduct and argues that although they "encourage a courteous attitude," the Rules "specifically do not require attorneys to take or forego action that, in an attorney's reasonable professional judgment, protects a client's interest." Id. at 5. GEICO posits that finding the Rules of Professional Conduct create discovery obligations "would create substantial confusion and uncertainty for attorneys and would establish the automatic duty of disclosure that the Supreme Court has held did not exist." Id. at 6 (citing Outback, 856 N.E.2d at 74-75 ("Indiana's Trial Rules, like earlier versions of the federal rules, do not require
Initially, to the extent that the parties argue about how GEICO's question to Dr. O'Mailia was phrased and whether it was offered for substantive reasons, for impeachment purposes, or both, we note that such discussion is immaterial to the question before us. The court in its March 21, 2013 Order specifically concluded that GEICO subjectively believed that the question was admissible which belied ill will on its part as to the presentation of the issue to the jury. The court specifically stated in Conclusion 91: "While perhaps poor judgment, the Court does not find it to be in bad faith." Appellant's Appendix at 49. The court did not base its award of attorney fees on GEICO asking the question, and accordingly we need not determine whether the court abused its discretion in this regard.
Indeed, despite the multitude of issues discussed in its order, the court found bad faith only with regard to GEICO's decision not to disclose the Florida Information. As noted above, the court concluded that this failure to disclose ran afoul of Ind. Professional Conduct Rule 8.4(d), which provides that "[i]t is professional misconduct for a lawyer to ... engage in conduct that is prejudicial to the administration of justice." The court later concluded that this breach of professional conduct constituted misconduct under Ind. Trial Rule 60(B)(3), which provides in relevant part that "[o]n motion and upon such terms as are just the court may relieve a party or his legal representative from a judgment... for the following reasons ... fraud ... misrepresentation, or other misconduct of an adverse party." However, instead of granting the O'Mailias' motion for a new trial based thereon it merely awarded attorney fees "associated with the time and expense associated with Plaintiffs' motion for a new trial, oral argument and proposed findings of fact tendered by Plaintiff under Ind.Code § 34-52-1-1(b)(3). Id. at 50-51.
Also noted, a finding of bad faith requires not mere negligence or bad judgment, but rather the conscious doing of wrong because of dishonest purpose or moral obliquity, or affirmatively operating with furtive design or ill will. Here, GEICO's
Id. at 201.
These statements by GEICO's counsel lead us to conclude that the decision not to disclose the Florida Information was not borne out of ill will, and was not dishonest or immoral, but instead was strategic in nature and believed to be within the bounds of the law. Indeed, the O'Mailias, as well as the court, agree with the results of GEICO's research that neither the Trial Rules nor the Rules of Evidence compelled GEICO to disclose the information, nor has case law been uncovered imposing such a duty. We cannot say that such circumstances are indicative of litigating in bad faith.
Also, we note that the court based its bad faith finding in part on its conclusion that GEICO's intended use of the Florida Information was purely substantive in nature and that it was only after the fact they argued that the evidence was relevant for impeachment purposes. Our review of the record reveals otherwise. As noted, directly following the O'Mailias' objection and brief bench conference, attorney Ramsey stated that in Florida a conviction is entered following a plea of nolo contendere, that "fraud is a crime of dishonesty," and that accordingly "it fits squarely within 609(a)." Id. at 194. Attorney Ice then explained further that "there is this whole issue that's going on, a stressor in this family that affects how they're relating to each other and stress and anxiety that [Cheryl] is experiencing," that "having your husband arrested and charged in a criminal court is a highly stressful ordeal," and that therefore "there is this purpose that's beyond impeaching him as having been convicted of a crime of dishonesty." Id. (emphasis added). The record reveals that GEICO intended at the outset to use the Florida Information to impeach Dr. O'Mailia's credibility under Ind. Evidence Rule 609(A), and therefore Finding 39 is clearly erroneous.
Also, the fact that GEICO intended to use the Florida Information for impeachment purposes belies a finding of bad faith. Ind. Evidence Rule 609(b) requires that an adverse party be notified of a party's intent to use evidence of a criminal conviction for impeachment under the rule only if "more than ten (10) years have passed since the witness's conviction or release from confinement for it, whichever is later," and the parties agree that the convictions at issue here were less than ten
Further, to the extent the O'Mailias suggest that Smith v. Johnston controls the outcome of this case, we find Smith to be distinguishable. In Smith, plaintiff Johnston filed a medical malpractice claim against Dr. Smith with the Indiana Department of Insurance in which Dr. Smith was represented by the law firm Locke Reynolds Boyd & Weissell ("Locke Reynolds"). 711 N.E.2d at 1261. The medical review panel unanimously found that Dr. Smith failed to comply with the appropriate standards of care, and soon after counsel for Johnston, Karen Neiswinger, sent a letter to Locke Reynolds demanding the policy limits in settlement. Id. After a month passed without response, Johnston filed suit in court, and later that day Neiswinger found a letter in her mail from Locke Reynolds rejecting her settlement demand. Dr. Smith and his practice were served with the complaint by certified mail, and a scrub nurse signed for the summonses. Id. Locke Reynolds did not file an appearance on Dr. Smith's behalf, and approximately six weeks after filing the complaint Johnston moved for default judgment. Id. Neiswinger did not communicate with Locke Reynolds following sending the settlement letter and did not alert Locke Reynolds of a pending default judgment motion. Id. Neiswinger also submitted a sworn affidavit to the trial court in which she stated:
Id. The court granted a default judgment the next day, a damages hearing was set, and following the damages hearing the judgment was served on Dr. Smith. Id. Locke Reynolds filed an appearance six days later, as well as a notice of intent to petition to set aside the default judgment under Ind. Trial Rules 60(B)(1) and 60(B)(3). Id.
The Indiana Supreme Court held that although Neiswinger technically complied with the applicable Trial Rules, she committed misconduct under Ind. Trial Rule 60(B)(3) when she obtained a default judgment without notifying Locke Reynolds, specifically noting that "overriding considerations of confidence in our judicial system and the interest of resolving disputes on their merits preclude an attorney from inviting a default judgment without notice to an opposing attorney where the opposing party has advised the attorney in writing of the representation in the matter." Id. at 1261-1262 (emphases added). The Court held specifically that "knowledge gives rise to a corresponding duty under the Rules of Professional Conduct to provide notice before seeking any relief from the court." Id. at 1263.
In so holding, the Court observed that there was "no doubt" that Neiswinger was on notice that Locke Reynolds was representing Smith and specifically noted that Neiswinger, following the panel proceeding before the medical review board, sent Locke Reynolds a settlement demand and received a response the same day she filed suit in the trial court. Id. The Court observed that Ind. Professional Conduct Rule 8.4(d) "explicitly states that it is professional misconduct for a lawyer to engage
The attorney in Smith attempted to capitalize on a failure by Dr. Smith's scrub nurse to pass along the summons and obtain an "extreme remedy" of default judgment meant only for parties who fail to defend or prosecute a suit. In so doing, she misled the trial court as to her level of contact with Locke Reynolds and perhaps led the court to believe that Dr. Smith was not being represented by counsel. The Indiana Supreme Court labeled such conduct as prejudicial to the administration of justice. The Court noted in doing so that Neiswinger was on notice Dr. Smith was being represented and even corresponded with his counsel regarding settlement, yet she attempted to take advantage of our trial rules and obtain judgment by default rather than on the merits of her case. The other cases cited by the court in its March 21, 2013 Order similarly concern instances in which a litigant sought to set aside a default judgment. See Allstate v. Watson, 747 N.E.2d 545, 546-547, 549 (Ind.2001) (reversing the trial court's denial of Allstate's motion for relief from default judgment where during negotiations plaintiff's counsel assured Allstate it would not seek a default judgment "while negotiations [were] still proceeding," but subsequently sought a default judgment prior to the expiration of plaintiff's offer of settlement); Sears Roebuck and Co. v. Soja, 932 N.E.2d 245, 252 (Ind.Ct.App.2010) (affirming trial court's grant of default judgment and distinguishing Smith because Ind. Professional Conduct Rule 8.4(d) did not require plaintiff's counsel to notify a claims adjuster of his intent to pursue a default judgment, and noting that "the origin of the default action is [the claims adjuster's] inattention to monitor this cause ..."), trans. denied.
By contrast, GEICO never made representations to the trial court which were misleading. GEICO did not attempt to obtain the extreme remedy of default judgment, and indeed the court presided over a jury trial on the merits. GEICO discovered information on the Internet which was publically available and which it intended to use at trial to cross-examine Dr. O'Mailia. The O'Mailias do not challenge GEICO's argument that Dr. O'Mailia knew the substance of the Florida Information, and again GEICO was under no duty to disclose under the Indiana Trial Rules or Rules of Evidence. Thus, rather than setting a trap to ensnare the O'Mailias and avoid having a trial on the merits, GEICO came across certain publically-available information
Finally, we find the instant circumstances distinguishable from those present in Outback Steakhouse of Fla. v. Markley, 856 N.E.2d 65 (Ind.2006). In Outback, William Whitaker attended a grand opening event at an Outback Steakhouse in Muncie, Indiana, in which alcoholic drinks were provided either free of charge or at a rate of ten cents per drink. 856 N.E.2d at 70, 71 n. 4. Whitaker left the event, went to a bar, and later severely injured David and Lisa Markley when he crashed into a motorcycle they were riding. Id. at 70. Patrice Roysdon, a waitress working the event that evening, visited the counsel for the Markleys, Michael Alexander, at Alexander's request, and she told Alexander that Whitaker was visibly intoxicated when she served him that evening. Id. The Markleys sued Outback, and during discovery Outback served the Markleys with interrogatories including Interrogatory 12 asking the Markleys to "[s]tate specifically each and every fact upon which you rely to support your allegation ... that [Outback]... provided alcoholic beverages to ... Whitaker with actual knowledge that he was visibly intoxicated...." Id. The Markleys' response identified several individuals but did not mention Roysdon. Id. Outback deposed Roysdon in which she testified that "Whitaker was not visibly intoxicated at Outback." Id. at 71. She did not indicate that she had ever spoken with the Markleys' counsel, and only the Markleys' co-counsel, Donald McClellan, was present at the deposition. Id. Trial commenced in which Roysdon was identified as a witness by Outback but not by the Markleys, but the trial ended in a mistrial due to circumstances unrelated to Roysdon. Id.
A second trial began in which Outback subpoenaed Roysdon to testify, and during Outback's opening statement it "told the jury Roysdon would testify that Whitaker was not visibly intoxicated and that no witness would be produced who would testify to the contrary." Id. On the Friday of the first week of trial, still in the presentation of the Markleys' case-in-chief, Roysdon called Alexander's office and arranged an appointment for Sunday, and at the appointment she "told him she had lied in her [] deposition and that she planned to testify at trial that Whitaker was visibly intoxicated when she served him." Id. Roysdon did not communicate this to Outback or its counsel, and Alexander "did not inform the trial court or Outback of this meeting or seek to supplement the plaintiffs' answer to Interrogatory 12." Id. Roysdon was called by Outback and testified "that Whitaker was visibly intoxicated at Outback, that she continued to serve him after she realized he was intoxicated, and that she felt guilty and responsible for the collision." Id. at 71-72. The jury ultimately returned a verdict in the Markleys' favor with damages totaling $60 million. Id. at 72. Outback moved for a new trial and post-trial discovery was conducted related to Roysdon's shift in testimony, but the trial court denied all post-trial relief. Id.
On transfer, the Indiana Supreme Court, citing to Smith and Allstate, observed that "`misconduct' under Indiana's Rule 60(B)(3) can be based on a violation of the Code of Professional Responsibility, even if the conduct at issue does not violate the rules of civil procedure," and noted that both intentional or unintentional violations of the discovery rules could constitute misconduct. Id. at 73. Outback argued that the Markleys' "failure to disclose
Id.
Here the parties agree that GEICO did not violate the rules of discovery. There was no interrogatory or other tool of discovery related to the Florida Information, and accordingly GEICO was under no duty to supplement its discovery under Ind. Trial Rule 26(E). Under the circumstances, in which GEICO was not under a duty to disclose the Florida Information and it researched the scope of its duty to disclose before deciding not to do so, we conclude that GEICO did not litigate in bad faith. Accordingly, we reverse the trial court's attorney fee award under Ind. Code § 34-52-1-1(b)(3).
For the foregoing reasons, we reverse the court's award of attorney fees under Ind.Code § 34-52-1-1 and deny the O'Mailias' request for appellate attorney fees.
Reversed.
ROBB, J., concurs.
BARNES, J., concurs with separate opinion.
BARNES, Judge, concurring.
I concur with the majority that the award of attorney fees be reversed. I do so with some hesitation, though, because I believe that trial by ambush and rabbit-out-of-the-hat moments are not to be favored in our courtrooms.
Whether or not I am put off by the conduct here is not the question. Was this conduct over the ethical line? I come to the conclusion that it was not. The information here was publically available to anyone who would search it out. Most crucially, it was well-known to the O'Mailias themselves, but they apparently failed to tell their own attorneys about James's legal troubles near the time of the accident. James's responses to the cross-examination questions were ones that legitimately triggered the impeaching question based on that information. Given these facts, I reluctantly vote to concur.
