Court Opinion

ID: 4203367
Source: CourtListenerOpinion
Date Created: 2017-09-14 15:07:38.142226+00
Date Added: 2024-06-11T13:58:50.313393
License: Public Domain

FILED
                                                                   Sep 14 2017, 6:05 am

                                                                        CLERK
                                                                    Indiana Supreme Court
                                                                       Court of Appeals
                                                                         and Tax Court

ATTORNEYS FOR APPELLANT                                    ATTORNEYS FOR APPELLEES
Robert Madison Oakley                                      Anthony L. Holton
Daniel Kyle Dilley                                         Reminger Co., LPA
Carmel, Indiana                                            Indianapolis, Indiana

                                            IN THE
    COURT OF APPEALS OF INDIANA

Evelyn Messmer,                                            September 14, 2017
Appellant-Plaintiff,                                       Court of Appeals Case No.
                                                           53A01-1701-PL-139
        v.                                                 Appeal from the Monroe Circuit
                                                           Court
KDK Financial Services, Inc., et                           The Honorable E. Michael Hoff,
al.,                                                       Judge
Appellees-Defendants.                                      Trial Court Cause No.
                                                           53C01-1508-PL-1598

Riley, Judge.

Court of Appeals of Indiana | Opinion 53A01-1701-PL-139 | September 14, 2017                Page 1 of 15
                                 STATEMENT OF THE CASE
[1]   Appellant-Plaintiff, Evelyn Messmer (Messmer), appeals the trial court’s

      summary judgment in favor of Appellees-Defendants, KDK Financial Services,

      Inc. (KDK Financial) and Fred Kern (Kern), Individually (collectively,

      Appellees). 1

[2]   We affirm.

                                                     ISSUES
[3]   Messmer raises two issues for our review, which we restate as:

          (1) Whether the continuing representation doctrine tolled the statute of

               limitations on Messmer’s fraud allegations; and

          (2) Whether a genuine issue of material fact exists establishing that

               Appellees fraudulently misrepresented the surrender of an insurance

               annuity.

                       FACTS AND PROCEDURAL HISTORY
[4]   At the time of the trial court proceedings, Messmer was eighty-eight years old

      and resided in an assisted living community. She began using the services of

      KDK Financial in 2002, shortly after her husband died. KDK Financial is in

      1
        A third defendant, Dwight Wade, did not file a motion for summary judgment before the trial court or join
      in the proceedings.

      Court of Appeals of Indiana | Opinion 53A01-1701-PL-139 | September 14, 2017                    Page 2 of 15
      the business of selling fixed annuities, 2 an insurance product which is not

      considered a security under Indiana law. Throughout the entire time Messmer

      used KDK Financial’s services, Messmer primarily interacted with Dwight

      Wade (Wade), and occasionally spoke with Kern. By 2007, Messmer had

      purchased six fixed annuities through KDK Financial: five of the annuities

      were issued by Allianz Insurance (Allianz), with the remaining annuity issued

      by Washington National Insurance Company (Washington National).

[5]   As of January 10, 2007, the policy details for the Allianz annuities included

      both the account value, as well as the value of the accounts upon surrender.

      Between December 28, 2007, and April 15, 2008, Messmer surrendered her

      Allianz annuities and purchased five new fixed annuities issued by Athene. On

      November 19, 2008, Messmer mailed a signed grievance to Allianz, requesting

      a reduction in the surrender charges incurred due to the early surrender of her

      five Allianz annuities. Mesmer’s letter to Allianz stated, in pertinent part, as

      follows:

              The manner in which I was notified by Allianz as to the amount
              of surrender charges which I would incur was deceiving. For
              example, regarding policy number 70456119; I received a letter
              stating the amount of money being sent to the new company was
              $33,070.76. It did not state nor specify that I was losing

      2
        An annuity is defined by the Securities and Exchange Commission as “a contract between you and an
      insurance company that is designed to meet retirement and other long-range goals, under which you make a
      lump-sum payment or series of payments. In return, the insurer agrees to make periodic payments to you
      beginning immediately or at some future date.” https://www.sec.gov/answers/annuity.htm (last visited
      Aug. 15, 2017).

      Court of Appeals of Indiana | Opinion 53A01-1701-PL-139 | September 14, 2017                 Page 3 of 15
              $15,621.30. The same procedure was used for the other four
              policies. I was not told that I was losing the bonus nor was I told
              what the surrender charge actually was.

              I believe you should have been straight forward with our
              transactions and advised me in clear and comprehensible terms
              which I could understand. If I had known what the actual
              surrender charges were, I would not have proceeded with the
              new deal. The manner in which Allianz sends notification of
              surrender charges is devious, confusing and wrong. I expected a
              reasonable charge. My hope is after reviewing my complaint
              Allianz will refund some of my surrender charges. A 10%
              surrender charge is reasonable.

      (Appellees’ App. p. 244).

[6]   On January 14, 2007, Messmer purchased, through KDK Financial, a

      Washington National fixed annuity. The policy was sent to Messmer on

      January 25, 2007, and included a “Table of Surrender Charge Percentages,”

      setting forth the applicable surrender charges to be incurred upon early

      surrender. (Appellees’ App. p. 215). On November 7, 2011, Messmer executed

      a Washington National Surrender/Withdrawal Form to surrender her

      Washington National annuity. Immediately preceding Messmer’s signature,

      the form contained the following acknowledgments:

              • I understand there may be contractual surrender charges
              associated with this transaction.

              ....

      Court of Appeals of Indiana | Opinion 53A01-1701-PL-139 | September 14, 2017   Page 4 of 15
        • [Washington National] and its representatives do not give legal
        or tax advice. This information simply reflects our
        understanding of the tax rules and regulations in effect at the
        time of publication. Please consult your personal tax advisor
        regarding annuity taxation as it applies to you.

(Appellees’ App. p. 241). Prior to effecting the surrender, Washington National

mailed Messmer a Confirmation Request, advising her of the surrender charges

and potential tax consequences as follows:

        Because an annuity is intended as a long-term financial vehicle,
        policyholders who surrender or transfer their annuity in the
        beginning years may incur losses that could take years to recoup.
        If your annuity were surrendered today, $191,635.22 would be
        paid, which includes a surrender charge of $30,441.92, in
        addition to other penalties and/or adjustments. Also, please
        remember that your annuity grows tax-deferred until you access
        your values, unlike back CDs, money markets and most bonds.

        ....

        If, once you have had an opportunity to consider this
        information, you still want to surrender your contract, please sign
        and return the Surrender/Transfer Confirmation Request below
        to our administrative office. Once received, we will complete
        your request.

(Appellees’ App. p. 242). On November 23, 2011, Messmer executed an

application for an Aviva annuity as a gift to her son, Ronald Messmer (Ronald).

Thereafter, on March 20, 2014, the policy purchased in Ronald’s name, was

transferred to Messmer, effectively replacing the Washington National annuity

with the Aviva annuity.
Court of Appeals of Indiana | Opinion 53A01-1701-PL-139 | September 14, 2017   Page 5 of 15
[7]   In addition to providing financial services, Appellees also aided Messmer with

      her estate planning, including the creation of a trust. While Messmer

      complains that she never met an attorney during the process, she also admits

      that she has no knowledge about who actually drafted the documents. The

      creation of the trust disqualified Messmer to receive Veteran Affairs’ (VA)

      benefits.

[8]   On August 24, 2015, Messmer filed her Complaint against KDK Financial,

      Kern, and Wade for the unauthorized practice of law and two Counts of fraud.

      Messmer’s allegation of unauthorized practice of law was dismissed by the trial

      court on November 17, 2015, because no private right of action exists with

      respect to this charge. On August 5, 2016, KDK Financial and Kern filed a

      motion for summary judgment, to which Messmer responded on September 12,

      2016. On November 30, 2016, the trial court conducted a hearing on the

      motion for summary judgment. Thereafter, on December 19, 2016, the trial

      court entered summary judgment in favor of KDK Financial and Kern. In its

      summary judgment, the trial court concluded that “the six year statute of

      limitation has passed with respect to the five Allianz transactions.”

      (Appellant’s App. p. 7). With respect to the Washington National policy, the

      trial court found that “the evidence establishe[d] without a dispute that

      [Messmer] was informed of the surrender charges she would incur before she

      chose to surrender the Washington National [p]olicy, and [Appellees] are not

      therefore liable for fraud or misrepresentation.” (Appellant’s App. p. 7).

[9]   Messmer now appeals. Additional facts will be provided as necessary.

      Court of Appeals of Indiana | Opinion 53A01-1701-PL-139 | September 14, 2017   Page 6 of 15
                                DISCUSSION AND DECISION
                                              I. Standard of Review

[10]   Summary judgment is appropriate only when there are no genuine issues of

       material fact and the moving party is entitled to a judgment as a matter of law.

       Ind. Trial Rule 56(C). “A fact is material if its resolution would affect the

       outcome of the case, and an issue is genuine if a trier of fact is required to

       resolve the parties’ differing accounts of the truth . . . , or if the undisputed facts

       support conflicting reasonable inferences.” Williams v. Tharp, 914 N.E.2d 756,

       761 (Ind. 2009).

[11]   In reviewing a trial court’s ruling on summary judgment, this court stands in the

       shoes of the trial court, applying the same standards in deciding whether to

       affirm or reverse summary judgment. First Farmers Bank & Trust Co. v. Whorley,

       891 N.E.2d 604, 607 (Ind. Ct. App. 2008), trans. denied. Thus, on appeal, we

       must determine whether there is a genuine issue of material fact and whether

       the trial court has correctly applied the law. Id. at 607-08. In doing so, we

       consider all of the designated evidence in the light most favorable to the non-

       moving party. Id. at 608. The party appealing the grant of summary judgment

       has the burden of persuading this court that the trial court’s ruling was

       improper. Id. When the defendant is the moving party, the defendant must

       show that the undisputed facts negate at least one element of the plaintiff’s

       cause of action or that the defendant has a factually unchallenged affirmative

       defense that bars the plaintiff’s claim. Id. Accordingly, the grant of summary

       Court of Appeals of Indiana | Opinion 53A01-1701-PL-139 | September 14, 2017   Page 7 of 15
       judgment must be reversed if the record discloses an incorrect application of the

       law to the facts. Id.

[12]   We observe that, in the present case, the trial court entered findings of fact and

       conclusions of law in support of its judgment. Special findings are not required

       in summary judgment proceedings and are not binding on appeal.

       AutoXchange.com. Inc. v. Dreyer and Reinbold, Inc., 816 N.E.2d 40, 48 (Ind. Ct.

       App. 2004). However, such findings offer this court valuable insight into the

       trial court’s rationale for its review and facilitate appellate review. Id.

                                    II. Continuing Representation Doctrine

[13]   Not disputing the application of the six-year statute of limitations on fraud

       allegations, Messmer nevertheless contends that its application was tolled by

       the continuing representation doctrine. Although Indiana has not yet applied

       the doctrine to the financial services realm or allegations sounding in fraud,

       Messmer advocates for the extension of the theory to KDK Financial and Kern,

       “who while acting in a fiduciary capacity” “provided advise [sic] and direction

       to [Messmer] with respect to her investments which resulted in tax liability and

       losses to [Messmer] while resulting in economic gain to [KDK Financial and

       Kern].” (Appellant’s Br. p. 11).

[14]   Actions for relief against fraud “must be commenced within six years after the

       cause of action accrues.” Ind. Code § 34-11-2-7. Under Indiana’s discovery

       rule, a cause of action accrues, and the statute of limitations begins to run,

       when the plaintiff knew or, in the exercise of ordinary diligence, could have

       Court of Appeals of Indiana | Opinion 53A01-1701-PL-139 | September 14, 2017   Page 8 of 15
       discovered that an injury has been sustained as a result of the tortious act of

       another. Doe v. United Methodist Church, 673 N.E.2d 839, 842 (Ind. Ct. App.

       1996), trans. denied. For a cause of action to accrue, it is not necessary that the

       full extent of the damage be known or even ascertainable but only that some

       ascertainable damage has occurred. Id. It is undisputed that Messmer was

       aware of the surrender charges on the Allianz policies on November 2008, as

       evidenced by her letter to the insurance company. As such, she was required to

       file her fraud allegations by November 2014; instead, she filed her Complaint

       on August 24, 2015, and therefore, any fraud claim with regard to the Allianz

       policies is barred. However, the statute of limitations did not bar a fraud

       allegation with respect to Messmer’s surrender of the Washington National

       policy on November 7, 2011, which was filed within four years of the

       discovery.

[15]   Messmer now attempts to circumvent the statute of limitations on the Allianz

       policies by contending that its application was tolled by the continuous

       representation theory. Originally developed in the realm of legal malpractice

       and negligence, the continuous representation doctrine provides that the

       applicable statute of limitations does not commence until the end of an

       attorney’s representation of a client in the same matter in which the alleged

       malpractice occurred. Biomet, Inc. v. Barnes & Thornburg, 791 N.E.2d 760, 765

       (Ind. Ct. App. 2003), trans. denied. In Bambi’s Roofing Inc. v. Moriarty, 859

       N.E.2d 347, 357 (Ind. Ct. App. 2006), we expanded the continuous

       representation rule to the accounting profession, limiting its application to the

       Court of Appeals of Indiana | Opinion 53A01-1701-PL-139 | September 14, 2017   Page 9 of 15
       accountant’s representation in the same, specific matter. The purpose of the

       rule is to give accountants an opportunity to remedy their errors, establish that

       there was no error, or attempt to mitigate the damage caused by their errors,

       while still allowing the aggrieved client the right to later bring a malpractice

       action, and not to circumvent the statute altogether by continuously

       representing the client. Id. at 358. Without citing to any precedents, Messmer

       now advocates to expand the doctrine to the financial services sector in general

       and to allegations based in fraud.

[16]   This court received a similar expansion request in our very recent case of

       Landmark Legacy, L.P. et al. v. Runkle, et al., 2017 WL 3429076 (Ind. Ct. App.

       Aug. 10, 2017), in which we declined to extend the continuous representation

       doctrine to a negligence claim against financial advisors. In fact, we noted that:

               Most importantly, Runkle [the financial planner] is neither an
               attorney nor a certified public accountant. Appellants cannot
               point to any precedents that would suggest the continuous
               representation doctrine applies to the provision of financial
               services, nor can they proffer a rational argument for extending
               the continuous representation theory to include financial
               advisors.

       Id.

[17]   Similarly here, Messmer fails to cite any case law persuading us to expand the

       continuous representation doctrine not only to brokers of financial services and

       fixed annuities, but also, most importantly, to the realm of fraud allegations. In

       Court of Appeals of Indiana | Opinion 53A01-1701-PL-139 | September 14, 2017   Page 10 of 15
       the more than fifty years of the doctrine’s existence, 3 no single state has

       extended the doctrine as Messmer advocates. The rationale of the application

       of the continuous representation doctrine in negligence claims—where a client

       allows an attorney or accountant to correct a good faith mistake without losing

       the client’s confidence—is simply incompatible with fraud allegations.

       “Certainly, once the client discovers the attorney’s fraud, it is not reasonable to

       expect the client to continue to maintain confidence in the professional’s good

       faith and the client should be, as are all other victims of fraud, required to

       investigate and access the facts.” Endervelt v. Slade, 618 N.Y.S.2d 520, 525

       (N.Y. Sup. Ct. 1994). Under the circumstances of this case, we decline

       Messmer’s request to expand the continuous representation doctrine.

                                       III. Washington National Annuity

[18]   With respect to the Washington National annuity, Messmer contends for the

       first time on appeal that KDK Financial and Kern breached their fiduciary duty

       to her and are thus liable for constructive fraud with regard to Messmer’s

       surrender of the Washington National policy. In her Complaint and response

       to the motion for summary judgment, Messmer claimed actual fraud due to

       perceived false statements, not constructive fraud based on a breach of fiduciary

       duty. 4 Indiana Trial Rule 9(B) expressly requires that “all averments of fraud”

       3
        New York pioneered the continuous representation doctrine in Borgia v. New York, 187 N.E.2d 777 (N.Y.
       Ct. App. 1962).
       4
        Actual fraud and constructive fraud are two separate and distinctive causes of action, each requiring a
       showing of different elements. See Heyser v. Noble Roman’s Inc., 933 N.E.2d 16, 19-20 (Ind. Ct. App. 2010),

       Court of Appeals of Indiana | Opinion 53A01-1701-PL-139 | September 14, 2017                    Page 11 of 15
       be specifically pled. At no point during the proceedings before the trial court

       did Messmer claim constructive fraud or even make a start to raise constructive

       fraud allegations; rather, all her allegations were based on misrepresentations

       and fraudulent inducement. “Issues not raised before the trial court on

       summary judgment cannot be argued for the first time on appeal[.]” Dunaway

       v. Allstate Ins. Co., 813 N.E.2d 376, 388(Ind. Ct. App. 2004). Accordingly,

       Messmer waived her claim on appeal. See id.

[19]   Waiver notwithstanding, we will address Messmer’s claim on its merits. A

       claim for constructive fraud succeeds if the following five elements are

       established: 1) a duty owed by the party to be charged to the complaining party

       due to their relationship; 2) violation of that duty by the making of deceptive

       material misrepresentations of past or existing facts or remaining silent when a

       duty to speak exists; 3) reliance thereon by the complaining party; 4) injury to

       the complaining party as a proximate result thereof; and 5) the gaining of an

       advantage by the party to be charged at the expense of the complaining party.

       Heyser v. Noble Roman’s Inc., 933 N.E.2d 16, 19-20 (Ind. Ct. App. 2010), trans.

       denied. Constructive fraud requires the misrepresentation of a past or existing

       fact; statements of opinion and representations as to the future are not

       (outlining the different elements between the two causes), trans. denied. Actual fraud is an intentional tort,
       requiring knowledge or reckless disregard of falsity, whereas constructive fraud is an unintentional tort,
       which arises by operation of law from a course of conduct that, if sanctioned by law, would secure an
       unconscionable advantage. See id.

       Court of Appeals of Indiana | Opinion 53A01-1701-PL-139 | September 14, 2017                       Page 12 of 15
       actionable. Shriner v. Sheehan, 773 N.E.2d 833, 849 (Ind. Ct. App. 2002), trans.

       denied.

[20]   Messmer argues that she “had been instructed that she could temporarily add

       her son’s name to her policy due to her age, trusted the individuals giving her

       said advise [sic], and signed the documents which were presented to her.”

       (Appellant’s Br. p. 12). Specifically, Messmer contends to have “lacked

       understanding of the effect of the surrender at the time it was made.”

       (Appellant’s Br. p. 12). The designated evidence reflects that during her

       deposition, Messmer was unable to articulate details concerning the

       transaction, including what she was told, by whom, and when, which would

       have established the groundwork for a fraud contention. Furthermore, the

       evidence establishes that Messmer had actual knowledge about the surrender

       charges of the Washington National policy and its tax consequences. Prior to

       effecting the surrender, Washington National mailed Messmer a Confirmation

       Request, advising her of the surrender charges and potential tax consequences.

       Then, on November 7, 2011, Messmer executed a Washington National

       Surrender/Withdrawal Form to surrender her Washington National annuity.

       Immediately preceding Messmer’s signature, the form contained the

       acknowledgement that she understood “there may be contractual surrender

       charges associated with this transaction.” (Appellees’ App. p. 241). Moreover,

       representations of prospective tax liability are representations of future

       consequences which cannot predicate a constructive fraud claim. See id.

       Court of Appeals of Indiana | Opinion 53A01-1701-PL-139 | September 14, 2017   Page 13 of 15
[21]   In addition, Messmer asserts that she did not complete substantive portions of

       the documents which established the Aviva annuity in Ronald’s name, but that

       these documents were completed for her by Kern. The designated evidence

       indicates that Messmer simply could not “remember anything” about Kern’s

       involvement in purchasing the Aviva annuity. (Appellant’s App. p. 104).

       Accordingly, we affirm the trial court’s summary judgment in favor of

       Appellees. 5

                                                CONCLUSION
[22]   Based on the foregoing, we conclude that the continuing representation

       doctrine is not applicable to financial advisors or fraud allegations; and no

       genuine issue of material fact exists establishing that Appellees fraudulently

       misrepresented the surrender of an insurance annuity.

       5
         Messmer also argues, in addition to the fraudulent purchase and sale of fixed annuities, that Appellees
       fraudulently advised her with her estate planning. She asserts that Appellees prepared estate planning
       documents without the aid of an attorney, which resulted in a failure to properly shelter her assets in a trust,
       causing her to lose VA benefits due to her asset level. Our review of the trial court’s summary judgment
       discloses that the Order did not address this claim. Rather, it appears the trial court included this argument
       within Messmer’s overarching claim of “unauthorized practice of law by preparing a trust and other legal
       documents,” which the court had “previously ordered dismissed.” (Appellant’s App. p. 6). In addition, the
       trial court concluded that it “decline[d] to extend the continuing representation doctrine to financial advisors
       such as Defendants even if they engaged in the unauthorized practice of law.” (Appellant’s App. p. 7). Even
       if we were to address Messmer’s fraud claim in the preparation of estate planning documents, she would not
       be successful. Actionable fraud requires a showing that Appellees were compensated or gained some other
       advantage. See Heyser, 933 N.E.2d at 19. In this regard, the designated evidence indicates that during her
       deposition, Messmer could not recall that Appellees “told [her] that they personally drafted the estate
       planning documents” and she could not remember paying Appellees “any money relating to the preparation
       of estate planning documents.” (Appellant’s App. pp. 261, 262). Accordingly, Messmer cannot point to any
       issue of material fact indicating that Appellees committed constructive fraud during the preparation of estate
       planning documents. Her claim fails.

       Court of Appeals of Indiana | Opinion 53A01-1701-PL-139 | September 14, 2017                      Page 14 of 15
[23]   Affirmed.

[24]   Robb, J. and Pyle, J. concur

       Court of Appeals of Indiana | Opinion 53A01-1701-PL-139 | September 14, 2017   Page 15 of 15