Opinion ID: 2995224
Heading Depth: 2
Heading Rank: 1

Heading: I. Credit’s conspiracy claim is based

Text: 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 Monon’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 involved 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, 196 N.E.2d 422, 435 (Ind. Ct. App. 1964), and thus hold Franklin and McPherson responsible for Peterson’s acts (and statements in furtherance of the conspiracy), see, e.g., Baker v. State Bank of Akron, 44 N.E.2d 257, 260 (Ind. App. 1942), as well as each other’s. A.I. Credit premises its actual fraud claim against Franklin and McPherson on statements made to Rago and Carroll. To prove actual fraud under Indiana law, the defrauded party must establish that it was injured as a result of its justifiable reliance on a material misrepresentation of fact and that the misrepresentation was made with knowledge of its falsity and in an effort to induce reliance. See, e.g., Baxter v. I.S.T.A. Ins. Trust, 749 N.E.2d 47, 52 (Ind. Ct. App. 2001); Darst v. Ill. Farmers Ins. Co., 716 N.E.2d 579, 581-82 (Ind. Ct. App. 1999). Here, a reasonable jury might find actual fraud by concluding that A.I. Credit’s Rago relied on two separate mis representations 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, reasoning 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 interest 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 cancelled 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, 657 N.E.2d 1223, 1231 (Ind. Ct. App. 1995), and Franklin does not explain how Rago’s reliance on his representation that the collateral was unencumbered was anything other than reasonable. No evidence suggests that Rago deliberately ignored facts known to him, or even that Rago could have discovered Anthem’s superior security interest had he tried. On the contrary, A.I. Credit asserted at oral argument that the nature of the security interest in question was such that it was forced to rely on Monon’s assertions, and nothing in the record contradicts this assertion. Cf. Plymale v. Upright, 419 N.E.2d 756, 761 (Ind. Ct. App. 1981) (reliance not reasonable where facts are equally available to both parties). The reasonableness of reliance is generally, and in this case, a question for the jury. See McWaters v. Parker, 995 F.2d 1366, 1374 (7th Cir. 1993) (collecting Indiana cases). A.I. Credit’s constructive fraud claim 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, 691 N.E.2d 1246, 1250-51 (Ind. Ct. App. 1998); Wright, 657 N.E.2d at 1232-33. A reasonable jury might find this claim supported by concluding that both Monon’s Franklin and the insurers’ McPherson possessed knowledge not available to A.I. Credit--namely that another finance company had already financed the premiums and obtained a security interest in the reserve fund--and that they both gained an unjust advantage when they induced A.I. Credit to make the loan by concealing the Anthem financing: Franklin obtained money his cash-strapped company desperately needed, and McPherson ingratiated himself with one of his most profitable clients. A jury could further find that this conduct violated a duty that arose out of the parties’ borrower- lender relationship. See, e.g., Wells, 691 N.E.2d at 1251 (constructive fraud may arise from buyer-seller relationship). 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., 665 N.E.2d 933, 938 (Ind. Ct. App. 1996). But A.I. Credit’s damages are in no way the result of product failure; its loss thus is not economic in the sense of the rule. Indiana courts have specifically explained that the rule does not apply outside the product failure context. See Runde v. Vigus Realty, Inc., 617 N.E.2d 572, 575 (Ind. Ct. App. 1993) ([The economic loss rule] appears to pertain to a negligence action for economic loss to a product caused by a defect in the product . . . . We fail to see any justification for expanding the rule to preclude the recovery of economic loss in other actions for negligence.). See also Bamberger & Feibleman, 665 N.E.2d at 938 (noting reluctance to extend economic loss rule to all negligence actions). Thus, the economic loss rule is inapplicable to this case. 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 pro fessional knows will rely on the information he provides. See Webb v. Jarvis, 575 N.E.2d 992, 996-97 (Ind. 1991); Essex v. Ryan, 446 N.E.2d 368, 372 (Ind. Ct. App. 1983). Contrary to McPherson’s assertions, the Indiana Supreme Court has refused to limit this exception to the privity requirement to situations where the relying third party risks physical injury. See Webb, 575 N.E.2d at 996 (The imposition of a duty should not be dependent upon the nature of damages which flow as a result of its breach.). We make no comment on the merits of A.I. Credit’s negligence claim other than to note that a duty may have existed in these circumstances if Monon’s insurance contract with Legion obligated Legion to provide accurate policy information to third-party finance companies like A.I. Credit and McPherson breached that duty by providing Rago or Carroll with incorrect information. See Essex, 446 N.E.2d at 370-71 (recognizing claim for professional negligence based on failure to skillfully discharge contractual obligation). The district court will be free to reexamine this issue on remand. Although we have discussed A.I. Credit’s four theories of liability, we are mindful that findings supporting one theory may moot others. 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, 673 N.E.2d 825, 827 (Ind. Ct. App. 1996), and any actions by a corporate agent within the scope of his employment are attributable to the corporation, see Mid-Continent Paper Converters, Inc. v. Brady, Ware & Schoenfeld, Inc., 715 N.E.2d 906, 909 (Ind. Ct. App. 1999). Here, a reasonable jury could conclude that Commonwealth, Legion, and Mutual consented to have McPherson act on their behalf: Commonwealth was McPherson’s employer, Legion’s treasurer testified that McPherson dealt with premium finance companies, and Mutual’s president confirmed that McPherson was Monon’s account executive. A reasonable jury could further conclude that McPherson acquiesced to the agency relationship and that Legion and Mutual exerted control over McPherson’s activities by retaining the authority to reject any insurance programs he structured using their policies. Based on these facts, a jury could find Commonwealth, Legion, and Mutual liable for any torts McPherson committed in the scope of his dealings with A.I. Credit. 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 sentence, McPherson apparently construes the Rule as absolutely binding a corporate party to its designee’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., 26 F. Supp. 2d 82, 94 (D. D.C. 1998), in support, but two other district courts have reached different conclusions and we think theirs is the sounder view. See Indus. Hard Chrome, Ltd. v. Hetran, Inc., 92 F. Supp. 2d 786, 791 (N.D. Ill. 2000) (testimony given at a Rule 30(b)(6) deposition is evidence which, like any other deposition testimony, can be contradicted and used for impeachment purposes); United States v. Taylor, 166 F.R.D. 356, 362 n.6 (M.D. N.C. 1996) (testimony of Rule 30(b)(6) designee does not bind corporation in sense of judicial admission). Because Holsworth’s testimony can be construed to mean that McPherson did participate in a conference call with Rago, the issue is one for the jury. McPherson also suggests that Holsworth’s testimony about the conference call is inadmissible because Holsworth did not testify to a foundation, which McPherson insists entails specific testimony regarding the names of the par ticipants 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). At trial, it is sometimes considered an orderly procedure to produce testimony that a conversation occurred at a particular time and place and between the witness and someone else before the witness is permitted to testify to the conversation’s content. The Federal Rules of Evidence provide that relevant evidence is generally admissible, see Fed. R. Evid. 402, and McPherson does not contend that Holsworth’s testimony is irrelevant. We find no reason--relevance or otherwise--why the testimony should be excluded. Though Holsworth’s testimony regarding the identity of the A.I. Credit representative and the date of the conversation was inexact, it was specific enough to demonstrate the conversation’s occurrence and relevance. See Fed. R. Evid. 401 (evidence is relevant if it bears on the existence of any fact of consequence to the determination of the action). 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 sentences 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 complaint 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., 151 F.3d 661, 663 (7th Cir. 1998); Walton v. Jennings Cmty. Hosp., Inc., 875 F.2d 1317, 1320 n.3 (7th Cir. 1989). For the foregoing reasons, the judgment of the district court is Reversed and the case REMANDED for further proceedings. FOOTNOTE /1 Jurisdiction is founded on diversity. The parties agree that Indiana law controls all substantive issues.