Fountain v. Musick Peeler & Garrett

Filing 24

OPINION AND ORDER GRANTING 8 MOTION TO DISMISS FOR FAILURE TO STATE A CLAIM filed by Musick Peeler & Garrett; DENYING 12 MOTION for Sanctions filed by Musick Peeler & Garrett. ***Civil Case Terminated. Signed by Judge Theresa L Springmann on 10/17/13. (smp)

UNITED STATES DISTRICT COURT
NORTHERN DISTRICT OF INDIANA
RYAN M. FOUNTAIN,
Plaintiff,
v.
MUSICK, PEELER & GARRETT, a
Partnership including JAMES B.
BERTERO,
Defendant.

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CAUSE NO.: 3:13-CV-30-TLS

OPINION AND ORDER
The Plaintiff, Ryan M. Fountain, practices law in the State of Indiana. He, along with the
California law firm of Musick, Peeler & Garrett, defended Indiana corporation Forest River, Inc.,
in litigation in California state court. After a jury trial resulted in Forest River incurring
substantial damages, the company sued Musick Peeler for professional malpractice. In defense of
the malpractice action, Musick Peeler has alleged that Fountain committed professional
negligence that contributed to the damages Forest River sustained in the California litigation. As
a result of these and other similar allegations, Fountain is suing Musick Peeler for trade
defamation and interference with his contractual relations. He seeks a declaration from this Court
that he committed no professional misconduct in the California litigation, and has no liability in
connection with Forest River’s malpractice suit. Fountain also requests that the Court declare
that Musick Peeler has caused trade defamation against him and enjoin Musick Peeler from
further defaming him. Musick Peeler has moved to dismiss the Complaint [Mot. to Dismiss, ECF
No. 8] on grounds that Indiana’s absolute privilege shields it from liability for defamation or any
other tort, and that the Declaratory Judgment Act is not available to declare nonliability for past
actions. Additionally, Musick Peeler has filed a Motion for Rule 11 Sanctions [ECF No. 12] on

grounds that Fountain’s claims are not warranted by existing law, do not present a nonfrivolous
argument for changing existing law, and have been brought for the improper purpose of
disrupting discovery in the malpractice suit and to harass Music Peeler.

BACKGROUND
A.

The California Employment Litigation
In late 2002, Dallen Trealoff sued Forest River and its President and CEO, Peter Liegl, in

California state court for unpaid sales commissions and various torts related to his termination
from Forest River’s employment (the Employment Litigation). Forest River hired Musick Peeler
to defend the Employment Litigation. James Miller, a partner at Musick Peeler, was lead trial
counsel. Fountain also represented Forest River in connection with the Employment Litigation,
and was actively involved with the defense. In 2009, a six week jury trial resulted in a judgment
(after appeal) against Forest River for about $8 million.

B.

The California Malpractice Litigation
In May 2012, Forest River sued Musick Peeler in California state court, alleging legal

malpractice in connection with the Employment Litigation (the Malpractice Litigation). The
complaint alleged seven specific instances of negligence in the handling of the case, but also
noted that the defendants “were negligent in their representation of Forest River and Liegl in . . .
respects other than those specifically described.” (First Amended Complaint ¶ 47, ECF No. 1-1.)
In its answer, Musick Peeler denied the allegations and pled numerous affirmative
defenses, including various defenses alleging that Forest River’s damages were caused by the

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wrongful conduct, comparative fault, or negligence of third parties, concurrent counsel, or Forest
River’s own agents, attorneys, or advisors. In interrogatories, Forest River asked Musick Peeler
to provide the facts upon which it based its affirmative defenses. With regard to certain of these
defenses Musick Peeler wrote:
Several jurors told [Musick Peeler], after the trial, that they perceived Liegl as a
“bully” and a “liar.” Ryan Fountain believed that Mr. Liegl was not a good
witness, based on Liegl’s prior testimony at other trials. Fountain did not tell
James Miller this belief until after Mr. Liegl had testified at the Trealoff trial.
(Resp. to Interrogs. 17, 20, 26, ECF No. 9-1.) Musick Peelers’ fifth affirmative defense was that
Forest River consulted separate attorneys and advisors regarding the matters at issue in the
Malpractice Litigation, and that it could not be held responsible for any injury caused by the
actions or advice of those agents, attorneys, or advisors. Its thirteenth affirmative defense was
that the negligence of predecessor, successor, or concurrent counsel proximately caused or
contributed to the damages sustained by the Plaintiffs, if any, and that the damages should be
attributed and reduced accordingly. Interrogatory responses explaining the basis for these
defenses identified the law firm that represented Forest River on appeal, and stated that Fountain
“also provided legal advice to Plaintiffs which caused or contributed to Plaintiffs’ alleged
damages.” (Resp. to Interrogs. 29, 54.)

DISCUSSION
A.

Standard of Review–Motion to Dismiss
A motion to dismiss pursuant to Federal Rule of Civil Procedure 12(b)(6) tests the

sufficiency of the complaint, not the merits of the case. Requirements for stating a claim under
the federal pleading standards are straight forward. A pleading that states a claim for relief must
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set forth “a short and plain statement of the grounds for the court’s jurisdiction,” “a short and
plain statement of the claim showing that the pleader is entitled to relief,” and “a demand for
relief sought.” Fed. R. Civ. P. 8(a). In considering motions to dismiss for failure to state a claim,
“[courts] construe the complaint in the light most favorable to the plaintiff, accepting as true all
well-pleaded facts alleged, and drawing all possible inferences in her favor.” Tamayo v.
Blagojevich, 526 F.3d 1074, 1081 (7th Cir. 2008). “A plaintiff . . . must provide only enough
detail to give the defendant fair notice of what the claim is and the grounds upon which it rests,
and, through his allegations, show that it is plausible, rather than merely speculative, that he is
entitled to relief.” Id. at 1083 (quotation marks and citations omitted). However, a plaintiff can
plead himself out of court if it would be necessary to contradict the complaint in order to prevail
on the merits. Id. at 1086.

B.

Indiana’s Absolute Litigation Privilege
A federal court sitting in diversity applies state substantive law and federal procedural

law. Erie R.R. Co. v. Tompkins, 304 U.S. 64, 78 (1938); Camp v. TNT Logistics Corp., 553 F.3d
502, 505 (7th Cir. 2009). The parties agree that Indiana supplies the substantive law applicable
to this case. Camp v. TNT Logistics Corp., 553 F.3d 502, 505 (7th Cir. 2009) (because none of
the parties raised a choice of law issue, the substantive law of the forum state applied).1 This
Court is obligated to apply the law of Indiana as it believes the Indiana Supreme Court “would

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Musick Peeler asserts that the law of the forum state should apply because the same outcome is
achieved under both Indiana’s and California’s laws concerning the privilege that attaches to statements
made in judicial proceedings. Although Fountain does not agree that the laws of the two states are
substantially the same, he submits that an Indiana choice of law analysis leads to the application of
Indiana law. Fountain thus accepts the application of Indiana law without further discussion.

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apply it if the issue were presently before that tribunal.” State Farm Mut. Auto. Ins. Co. v. Pate,
275 F.3d 666, 669 (7th Cir. 2001) (citing Erie, 304 U.S. at 80). If the Indiana Supreme Court has
not decided the issue, the rulings of Indiana’s intermediate appellate courts are accorded great
weight, unless “persuasive indications” exist that Indiana’s highest court would decide the case
differently. Id.
“Indiana law has long recognized an absolute privilege that protects all relevant
statements made in the course of a judicial proceeding, regardless of the truth or motive behind
the statements.” Hartman v. Keri, 883 N.E.2d 774, 777 (Ind. 2008) (citing Wilkins v. Hyde, 41
N.E. 536, 536 (Ind. 1895) and Van Eaton v. Fink, 697 N.E.2d 490, 494 (Ind. Ct. App. 1998)).
The privilege is intended to “preserv[e] the due administration of justice by providing actors in
judicial proceedings with the freedom to participate without fear of future defamation claims.”
Id. (citations and internal quotation marks omitted). The privilege recognizes that the “public[’s]
interest in the freedom of expression by participants in judicial proceedings, uninhibited by the
risk of resultant suits for defamation, is so vital and necessary to the integrity of our judicial
system that it must be made paramount to the right of the individual to a legal remedy when he
has been wronged.” Miller v. Reinert, 839 N.E.2d 731, 735 (Ind. Ct. App. 2005) (citation
omitted). “‘Lawsuits are not peace conferences. Feelings are often wounded and reputations are
sometimes maligned.’” Estate of Mayer v. Lax, Inc., — N.E.2d —, 2013 WL 5516465, at *5
(Ind. Ct. App. Oct. 7, 2013) (quoting Briggs v. Clinton Cnty. Bank & Trust Co. of Frankfort,
Ind., 452 N.E.2d 989, 998 (Ind. Ct. App. 1983)). The privilege is only “abrogated when the
statements are not relevant and pertinent to the litigation or do not bear some relation thereto.”
Van Eaton, 697 N.E.2d at 494.

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Fountain lodges two main attacks against application of the privilege in this case. First,
he challenges whether the statements he has identified as defamatory were relevant and pertinent
to the malpractice proceedings. He contends that any belief he held regarding Liegl’s ability as a
witness is irrelevant to the seven specific instances of malpractice Forest River identified in the
Malpractice Litigation complaint, and thus irrelevant to the actual legal and factual issues in that
case. Musick Peeler asserts that its nonparty comparative fault defenses were not an attempt to
allege that Fountain caused any of the specific acts of malpractice Forest River alleged but were,
instead, allegations related to the elements of causation and damages.
In determining whether a statement is relevant and pertinent, such that it is absolutely
privileged, Indiana “courts favor a liberal rule.” Miller, 839 N.E.2d at 735; Briggs, 452 N.E.2d at
997. Only those allegations that are “so palpably irrelevant to the subject matter of the
controversy that no reasonable man can doubt [their] irrelevancy and impropriety” are not
covered by the privilege. Miller, 839 N.E.2d at 735. Statements “need not be in every case
material to the issues presented by the pleadings” as long as they are “legitimately related” to the
litigation “or so pertinent to the subject of the controversy that it may become the source of
inquiry in the course of the trial.” Briggs, 452 N.E.2d at 997 (quotation marks omitted).
The Court agrees with Musick Peeler that statements relevant to the Malpractice
Litigation are not limited to those disproving Forest River’s seven specific allegations of
malpractice. Establishing legal malpractice in California requires a plaintiff to prove a proximate
causal connection between the attorney’s professional breach and the resulting injury, and actual
loss or damage resulting from the negligence. Ambriz v. Kelegian, 53 Cal. Rptr. 3d 700, 708
(Cal. Ct. App. 2007). The method for proving the causation element, likened to a “trial within a

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trial,” is an objective determination of what should have been the result in the underlying
proceeding. Id. at 708–09. Musick Peeler’s allegations concerning Fountain’s possible
contribution to the damages suffered by Forest River in the underlying Employment Litigation
were not “palpably irrelevant to the subject matter of the controversy.” To the contrary, the
allegations at issue—that Fountain provided legal advice during the Employment Litigation and
that Fountain neglected to inform lead counsel of his belief that Liegl was not a credible
witness—are relevant and pertinent to Musick Peeler’s defenses that Forest River’s damages
were caused or contributed to by a third party, and that Musick Peeler cannot be held responsible
for any injury caused by the actions or advice of other counsel.
For his second attack on the privilege, Fountain asks the Court to consider applying a
qualified privilege, meaning that only statements that are material, and made with probable cause
and without malice qualify for the privilege. Fountain acknowledges that Indiana has not
explicitly adopted the standard that he proposes for the parameters of the privilege, and instead
points to a minority line of cases existing in Louisiana and other unspecified “cases in the United
States.” (Resp. 18.) He states that “reasonable minds can differ as to the scope of what public
police should permit in the orderly administration of a judicial system,” (id.) and argues that
because Musick Peeler’s statements were false, made with improper motive, and lacked
substantive merit, they should not be protected.
The Court finds no persuasive basis to deviate from the rule in Indiana that the absolute
privilege protects relevant statements made in the course of a judicial proceeding without regard
to the “motive” behind the statements. Hartman, 883 N.E.2d at 777; Van Eaton, 697 N.E.2d at
494. There is nothing in the case law about the privilege to suggest that malice, which goes to the

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speaker’s intent, is excluded from other motives. Moreover, because malice is an element of
defamation, see Schrader v. Eli Lilly and Co., 639 N.E.2d 258, 261 (Ind. 1994); McQueen v.
Fayette Cnty. Sch. Corp., 711 N.E.2d 62, 65 (Ind. Ct. App. 1999), the law already assumes that
offending statement was made with malice, but protects it nonetheless if it was relevant and
pertinent to the litigation. In the absence of malice, the privilege would not even be necessary.
Indiana courts, in their consideration of the competing interests involved in the due
administration of justice, have adopted a rule that favors protecting litigants who make
statements in the course of judicial proceedings even if those statements otherwise wrong
another person. The only qualification to the privilege is that the statement be relevant and
pertinent to the matter in controversy. See Stahl v. Kincade, 192 N.E.2d 493 (Ind. Ct. App. 1963)
(holding privilege not applicable where the defendant’s counterclaim alleged that the plaintiff
was living in an adulterous relationship with a married man and sought an injunction prohibiting
the plaintiff from doing so in response to her suit for nuisance and trespass); Miller, 839 N.E.2d
at 735.
Because the requirements for applying Indiana’s absolute privilege are satisfied,
Fountain’s defamation claim cannot proceed. The privilege also prevents Fountain from using
Musick Peeler’s statements as a basis for claiming interference with his contractual or business
relations. Estate of Mayer, — N.E.2d —, 2013 WL 5516465, at *7 (“Other torts related to
defamation, or relying upon defamatory statements as proof of wrongdoing, may also be barred
by the absolute privilege”); Watters v. Dinn, 666 N.E.2d 433, 437–38 (Ind. Ct. App. 1996)
(holding that statements made in course of judicial proceedings were privileged and thus could
not give rise to tort liability for intentional infliction of emotional distress).

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C.

The Declaratory Judgment Act
Fountain asks the Court to declare that he is not liable for his past conduct in connection

with the Employment Litigation because he committed no professional misconduct, and thus he
has no liability in connection with the Malpractice Litigation. Fountain also requests that the
Court declare that Musick Peeler has caused trade defamation against him and enjoin Musick
Peeler from further defaming him.
“In a case of actual controversy within its jurisdiction . . . any court of the United States,
upon the filing of an appropriate pleading, may declare the rights and other legal relations of any
interested party seeking such declaration, whether or not further relief is or could be sought.” 28
U.S.C. § 2201(a). Congress promulgated the Act to avoid accrual of avoidable damages to one
not certain of his rights and to afford him an early adjudication without waiting until his
adversary decided to sue him after further damages had accrued. NUCOR Corp. v. Aceros Y
Maquilas de Occidente, 28 F.3d 572, 577 (7th Cir. 1994); Cunningham Bros. v. Bail, 407 F.2d
1165, 1167–68 (7th Cir. 1969).
First, to the extent that Fountain seeks a declaration that Musick Peeler is engaging in
defamation in the Malpractice Litigation, or an injunction preventing future defamation (see Pl.’s
Mem. 23 (asserting that “part of the relief” that “presumably” would be awarded to him in this
action is “an injunction against continued publication of the false allegations anywhere, even in
the Malpractice Litigation”)), his claim is barred by Indiana’s absolute litigation privilege.
Second, with respect to Fountain’s request that this Court declare that it was not his actions or
inaction that contributed to the damages Forest River may have suffered due to legal

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malpractice, the finding is better left to the California tribunal. The purpose of the Act is not
implicated in this case. A ruling by this Court would not help Fountain avoid the accrual of
avoidable damages owing to Forest River. Any damages suffered by Forest River have already
been incurred. See, e.g., Friedman v. Geller, 925 F. Supp. 611, 613–14 (E.D. Wis. 1996)
(dismissing a declaratory judgment action by attorney seeking declaration of nonliability of
malpractice because if the attorney committed malpractice, the harm was done and the damage
was fixed).

D.

Motion for Sanctions
Rule 11 requires that an attorney or party, certify to the best of his “knowledge,

information, and belief, formed after an inquiry reasonable under the circumstances,” that any
pleading presented to the court is not presented for an “improper purpose, such as to harass,
cause unnecessary delay, or needlessly increase the cost of litigation,” and that the claims and
legal contentions “are warranted by existing law or by a nonfrivolous argument for extending,
modifying, or reversing existing law or for establishing new law.” Fed. R. Civ. P. 11(b). “[A]
frivolous argument is simply one that is ‘baseless or made without a reasonable and competent
inquiry.’” Berwick Grain Co. v. Ill. Dep’t of Agric., 217 F.3d 502, 504 (7th Cir. 2000) (quoting
Independent Lift Truck Builders Union v. NACCO Materials Handling Grp., Inc., 202 F.3d 965,
969 (7th Cir. 2000)).
Under Rule 11(c), a district court may impose sanctions on a party, his counsel, or both
for violating Rule 11(b). Fed. R. Civ. P. 11(c). The court undertakes an “objective inquiry into
whether the party or his counsel should have known that his position is groundless.” Cuna Mut.

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Ins. Soc. v. Office and Prof’l Emps. Int’l Union, 443 F.3d 556, 560 (7th Cir. 2006). The inquiry
under Rule 11 is objective; there is no need to find that the plaintiff acted in bad faith. Nat’l
Wrecking Co. v. Int’l Broth. of Teamsters, Local 731, 990 F.2d 957, 963 (7th Cir. 1993). The
Notes of the Advisory Committee for Rule 11 suggest that in deciding whether Rule 11 has been
violated with respect to arguments for extension, modifications, or reversals of existing law or
for creation of new law, the court should take into consideration the extent to which plaintiff
found some support for his theory, even if only in minority opinions.
Fountain’s claims were colorable enough to avoid sanctions for frivolity. Although all of
his arguments are losers, they do not rise to the level of objective groundlessness required for
Rule 11 sanctions. The combination of arguments he set forth relating to public policy, the
pertinence of the statements, the fact that the Indiana case adopting the privilege made note that
there was no actual malice shown in the complaint in that matter,2 and minority views from
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The statement appeared in the context of the following analysis:

It is well settled by many authorities that there are occasions upon which words may be
spoken or written of a person, whereby the implication of malice which ordinarily arises
from the words themselves is destroyed. Among these privileged classes or occasions is a
proceeding in due course of law. No actual malice is shown in the complaint, but it
appears that the words were written and published in a petition expressly authorized by
statute, to be filed in a proceeding in court, and that the alleged libelous words were but
the statutory grounds which, if found to exist, would warrant the court, under this statute,
to award the custody of appellant’s children to said board. It is obvious, therefore, that
appellant’s alleged cause of action arose out of a proceeding in court, in a matter
expressly sanctioned by the statutes of the state, and comes broadly within the rule to
which we have referred. The reason upon which the rule is founded is the necessity of
preserving the due administration of justice. As to whether the charge be true or false, or
whether it be sufficient or not to effect the object in view, if it be made in the due course
of a judicial or legal proceeding, it is privileged, and cannot be made the basis of an
action for defamation of character.
Wilkins v. Hyde, 41 N.E. 536, 536 (Ind. 1895). From this case alone it is clear that the privilege destroys
any implication of malice. It is not clear from Wilkins whether actual malice, since it was not present,
would have any impact on application of the privilege. However, later cases clearly stated that the

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another jurisdiction are sufficient to convince this Court that Fountain’s argument for “revisiting
the original purpose of the absolute privilege rule to clarify” what type of statements qualify as
privileged (Pl.’s Resp. 1) was made after reasonable and competent inquiry.
Musick Peeler’s proof that Fountain filed the defamation suit for the purpose of
disrupting discovery in the Malpractice Litigation and to harass Musick Peeler is Fountain’s
refusal to cooperate in discovery on grounds that it constituted prelitigation discovery related to
his defamation claims, and his assertion that discovery in this cause would include personal
financial and client information and litigation practices. Fountain makes the valid point in
response to Musick Peeler’s contention that the purpose of the filing was to disrupt discovery
when he notes that his ability to respond to certain inquires was blocked by Forest River’s
assertion of privilege. Certainly, the consequences of his refusal to cooperate with discovery in
the Malpractice Litigation is an issue more appropriately determined by the California court,
which is intimately aware of the facts surrounding the discovery disputes. Fountain’s assertions
regarding the potential scope and subject of discovery does not support an inference of
harassment. The statement was followed by a suggestion that the parties request the court to
enter a protective order. A review of all the materials leads the Court to conclude that the more
likely purpose of Fountain’s suit was an attempt to protect his interests as it related to statements
that harmed his business relationship with Forest River.
Having reviewed the submissions in this matter the Court finds that, even if Fountain
committed violations of Rule 11(b), sanctions would not act as a deterrent because Fountain

privilege was absolute, and applied even if they were made with an “improper motive.” Van Eaton, 697
N.E.2d at 494; AAFCO Heating & Air Conditioning Co. v. Nw. Pubs., Inc., 321 N.E.2d 580, 583 (Ind. Ct.
App. 1974).

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himself believed in the merits of his claim. See Fed. R. Civ. P. 11(c) (noting that the court “may”
impose an appropriate sanction). The Court has no basis to believe, either from Fountain’s
conduct in this matter or any other case, that Fountain deliberately ignored or misstated case law,
or filed the suit to harass Musick Peeler or gain leverage in other litigation.

CONCLUSION
For the reasons stated above, the Court GRANTS the Defendant’s Motion to Dismiss
[ECF No. 8] the Plaintiff’s Complaint in its entirety and DENIES the Defendant’s Motion for
Rule 11 Sanctions [ECF No. 12].
SO ORDERED on October 17, 2013.
s/ Theresa L. Springmann
THERESA L. SPRINGMANN
UNITED STATES DISTRICT COURT
FORT WAYNE DIVISION

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