ALERDING CASTOR HEWITT LLP v. FLETCHER et al

Filing 211

ORDER ON AFFIRMATIVE DEFENSES: Defendants may present evidence in support of their affirmative defenses for fraudulent inducement and breach of fiduciary duty at trial. They will be entitled to jury instructions on those defenses, however, only if they are supported by sufficient evidence. Defendants may not present their promissory estoppel affirmative defense at trial as it is duplicative and they may present evidence that Alerding Castor did not perform its part of the contract. Defendants SHALL FILE by March 6, 2020 updated final jury instructions on their affirmative defenses, in light of this ruling and the Court's ruling on their motion to correct error, dkt. 208. *** SEE ORDER FOR ADDITIONAL DETAILS *** Copy mailed to Carole Wockner and Paul Fletcher via US Mail. Signed by Judge James Patrick Hanlon on 2/21/2020.(PKP) Modified on 2/21/2020 (PKP).

UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF INDIANA
INDIANAPOLIS DIVISION
ALERDING CASTOR HEWITT LLP,

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Plaintiff,
v.
PAUL FLETCHER,
CAROLE WOCKNER,
Defendants.

No. 1:16-cv-02453-JPH-MJD

ORDER ON AFFIRMATIVE DEFENSES
This Order addresses which affirmative defenses Defendants may present
at trial.
I.
Facts and Background
Alerding Castor asserts that Defendants breached a contract by not
paying legal fees. Dkt. 1–2. Defendants raised several defenses and affirmative
defenses. See dkt. 13 at 6–10; dkt. 127 at 4. As set forth in their tendered jury
instructions, their defenses include breach of contract, fraud-based defenses,
breach of fiduciary duty, and promissory estoppel. Dkt. 205-1.
A defense—unlike an affirmative defense—asserts that the plaintiff has
not met its burden of proof. See Leonard v. Trs. of Ind. Univ., No. 1:19-cv-963JRS-MJD, 2019 WL 3306181 at *2 (S.D. Ind. July 23, 2019). An affirmative
defense, by contrast, “raises additional facts or legal arguments that defeat
liability” even if the plaintiff meets its burden of proof. Jones v. Knox Cty. Ass’n

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for Retarded Citizens, Inc., No. 2:15-cv-257-WTL-DKL, 2016 WL 1627628 at *1
(S.D. Ind. Apr. 19, 2016).
In this case, Alerding Castor has the burden to prove, among other
things, that it performed its part of the contract. See dkt. 202 at 6; Leonard,
2019 WL 3306181 at *2. Defendants’ breach-of-contract argument would
negate that element by showing that Alerding Castor has not met its burden of
proof. See id. Defendants’ breach-of-contract argument is therefore a defense
rather than an affirmative defense.
That leaves three categories of affirmative defenses: fraud-based
defenses, promissory estoppel, and breach of fiduciary duty.
II.
Applicable Law
“In a diversity case, the legal and factual sufficiency of an affirmative
defense” is determined under state law. Williams v. Jader Fuel Co., 944 F.2d
1388, 1400 (7th Cir. 1991).
III.
Analysis
A. Fraud-based defenses
Defendants assert fraud-based defenses, including fraud, fraud in the
inducement, and fraudulent misrepresentation. See dkt. 127 at 4. The
elements of fraudulent inducement “are no different” than for the others.
Massey v. Conseco Servs., LLC, 879 N.E.2d 605, 611 (Ind. Ct. App. 2008). The
elements are: “(1) a material misrepresentation of past or existing facts; (2)

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made with knowledge or reckless ignorance of falsity; (3) which caused the
claimant to rely upon the misrepresentation to the claimant’s detriment.” Id.
Since the elements are the same for each fraud-based defense and
because factually this affirmative defense relates to inducement into a contract,
dkt. 13 at 8–9, the parties shall refer to this affirmative defense at trial—
including in tendered jury instructions and verdict forms—as “fraudulent
inducement.” Defendants may present evidence in support of this defense of
fraudulent inducement at trial. As the Court explained at the February 19,
2020 status conference, expressions of opinion or promises of future
performance will not be enough to entitle Defendants to a jury instruction on
this affirmative defense. See Am. United Life Ins. v. Douglas, 808 N.E.2d 690,
703 (Ind. Ct. App. 2004); First Nat’l Bank v. Acra, 462 N.E.2d 1345, 1348 (Ind.
Ct. App. 1984).
Alerding Castor objects to this affirmative defense on the basis that
Defendants did not plead fraud with sufficient particularity. Fraud must be
pleaded with particularity, Pirelli Armstrong Tire Corp. Retiree Med. Benefits Tr.
v. Walgreen Co., 631 F.3d 436, 441–42 (7th Cir. 2011), and affirmative defenses
not pleaded are forfeited, Herremans v. Carrera Designs, Inc., 157 F.3d 1118,
1123 (7th Cir. 1998). But the forfeiture rule is “not to be applied rigidly,” id.,
and a defense should be forfeited “only . . . if the other party is prejudiced,”
Schmidt v. Eagle Waste & Recycling, Inc., 599 F.3d 626, 632 (7th Cir. 2010);
-accord Reed v. Columbia St. Mary’s Hosp., 915 F.3d 473, 478–79 (7th Cir.
2019). Alerding Castor has not demonstrated prejudice. To the contrary, it
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has “long been aware” of Defendants’ argument that they “had been induced to
sign the contract by . . . misrepresentations.” Olympia Hotels Corp. v. Johnson
Was Dev. Corp., 908 F.2d 1363 (7th Cir. 1990).
B. Promissory Estoppel
Defendants allege for their estoppel affirmative defense that:
41. [Mr. Alerding] entered into an agreement with [Defendants]
knowing he was impaired by substance abuse and was unable to
adequately perform his duties.
42. [Mr. Alerding] immediately assigned two inexperienced attorneys
to [Defendants’] case and never engaged himself as the lead attorney
he promised in pre-engagement negotiations and in accordance with
[Alerding Castor’s] Engagement Letter. [Mr. Alerding] failed to learn
the facts and evidence of the case, failed to re-depose Mrs. Taylor as
he stated to [Defendants] in pre-engagement discussions, failed to
certify critical evidence for admission at trial, failed to pursue
discovery when such opportunities arose, and failed to prepare and
submit-PreTrial order on behalf of [Defendants].
43. [Mr. Alerding’s] failure to execute in preparing for and presenting
[Defendants’] trial, as originally promised in pre-engagement
negotiations with [Defendant], resulted in [Defendants’] loss at trial.
44. [Alerding Castor] should be estopped from recovery of fees for
services not provided or performed consistent with their
Engagement letter and pre-engagement negotiations with
[Defendants].
Dkt. 13 at 9–10.
As these allegations from Defendants’ answer show, Defendants want to
argue that promissory estoppel bars Alerding Castor from collecting fees for
services that were not provided or were provided inconsistently with their
agreement with Alerding Castor. Id.
As explained above, however, Alerding Castor bears the burden as part of
its breach of contract claim to show that it performed its part of the contract
and will not be able to recover fees for any services that were provided in
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breach of the contract. Since Defendants’ argument is already covered in a
defense that would negate an element of Alerding Castor’s claim, an affirmative
defense on the same ground would be duplicative and would risk confusing the
jury.
Moreover, estoppel would not be the proper ground for this argument
even if it weren’t unnecessary. “Promissory estoppel is based on the underlying
principle that ‘one who by deed or conduct has induced another to act in a
particular manner will not be permitted to adopt an inconsistent position,
attitude, or course of conduct that causes injury to such other.’” SWL, L.L.C. v.
NextGear Capital, Inc., 131 N.E.3d 746, 754 (Ind. Ct. App. 2019) (quoting
Brown v. Branch, 758 N.E.2d 48, 52 (Ind. 2001)). To prove estoppel, a party
must show: “(1) a promise by the promisor; (2) made with the expectation that
the promisee will rely thereon; (3) which induces reasonable reliance by the
promisee; (4) of a definite and substantial nature; and (5) injustice can be
avoided only by enforcement of the promise. Id. Defendants have not
identified a promise—a “voluntary commitment or undertaking by the
[promisor] . . . that the promisor will perform some action or refrain from some
action in the future,” Sterling Comm. Credit v. Hammert’s Iron Works, Inc., 998
N.E.2d 752, 757 (Ind. Ct. App. 2013)—to support their affirmative defense. Nor
have they demonstrated “definite and substantial” reliance in response to such
a promise. See SWL, 131 N.E.3d at 754.
In the end, at trial Defendants will be able to introduce the evidence
identified in support of this argument as part of their defense to Alerding
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Castor’s breach of contract claim. They may therefore present evidence that
Alerding Castor did not perform its part of the contract, but the jury will not be
instructed on the affirmative defense of promissory estoppel.
C. Breach of fiduciary duty
For their breach of fiduciary duty affirmative defense, Defendants allege
that Alerding Castor performed superfluous work, had inexperienced attorneys
act as lead attorneys, and failed to learn the facts of the case or prepare for
trial. Dkt. 13 at 7–8. They also allege that Mr. Alerding made material
misrepresentations about his courtroom experience and “was unable to
adequately perform his duties” because he was impaired by substance abuse.
Id. at 8.
A breach of fiduciary duty can reduce the fees that an attorney is entitled
to receive. Four Winds, LLC v. Smith & DeBonis, LLC, 854 N.E.2d 70, 75–76
(Ind. Ct. App. 2006). For example, “gross abuse” or “other serious violations of
the law of lawyering” can disallow attorney fees. Id. at 76 n.6. Those violations
must be “clear” and “serious” and can include, for example, lack of competence
and disobeying the client. Restatement (Third) of the Law Governing Lawyers §
37. This conduct is not necessarily the same as conduct constituting
malpractice, and fee forfeiture can be different than malpractice damages. Four
Winds, 854 N.E.2d at 76 n.6 (citing Restatement § 37).
An argument for fee forfeiture can be an affirmative defense to a claim for
fees. See id. at 76. “Ordinarily, forfeiture extends to all fees for the matter for
which the lawyer was retained.” Restatement § 37(e). But sometimes “forfeiture
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for the entire matter is inappropriate, for example when a lawyer performed
valuable services before the misconduct began, and the misconduct was not so
grave as to require forfeiture of the fee for all services.” Id.; id. cmt. a.
Defendants may present evidence in support of their breach of fiduciary
duty affirmative defense at trial.
IV.
Conclusion
Defendants may present evidence in support of their affirmative
defenses for fraudulent inducement and breach of fiduciary duty at trial. They
will be entitled to jury instructions on those defenses, however, only if they are
supported by sufficient evidence. Defendants may not present their
promissory estoppel affirmative defense at trial as it is duplicative and they
may present evidence that Alerding Castor did not perform its part of the
contract.
Defendants SHALL FILE by March 6, 2020 updated final jury
instructions on their affirmative defenses, in light of this ruling and the Court’s
ruling on their motion to correct error, dkt. 208.
SO ORDERED.
Date: 2/21/2020

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Distribution:
PAUL FLETCHER
1203 E. Cota Street
Santa Barbara, CA 93103
CAROLE WOCKNER
1203 E. Cota Street
Santa Barbara, CA 93103
Michael J. Alerding
ALERDING CASTOR LLP
[e-mail]
Michael E. Brown
KIGHTLINGER & GRAY, LLP (Indianapolis)
[e-mail]
Abraham Murphy
[e-mail]
Anthony Roach
ALERDING CASTOR HEWITT LLP
[e-mail]

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