GOLARS, LLC et al v. INDIANA DEPARTMENT OF ENVIRONMENTAL MANAGEMENT et al

Filing 67

ORDER DENYING DEFENDANTS' MOTIONS TO DISMISS - Fraud Plaintiffs' motion for leave to file a surreply is GRANTED, dkt. 57 , to the extent that the Court has considered the surreply, dkt. 57-1, and Defendants' response in opposition, dkt. 61, to clarify the scope of these arguments. Defendants' motions to dismiss are DENIED. Dkt. 30 ; dkt. 33 (SEE ORDER FOR ADDITIONAL INFORMATION). Signed by Judge James Patrick Hanlon on 3/31/2021. (DWH)

UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF INDIANA
INDIANAPOLIS DIVISION
GOLARS, LLC,
DALEEN1, INC.,
SAIL CAPITAL INVESTMENTS, LLC,
WARREN TRAVEL PLAZA, INC.,
UNITED STATES SMALL BUSINESS
OWNERS ASSOCIATION, LLC on behalf
of themselves, and all others similarly
situated,
Plaintiffs,
v.
INDIANA DEPARTMENT OF
ENVIRONMENTAL MANAGEMENT,
DOUGLAS R. LOUKS individually and in
his official capacity as IDEM ASSISTANT
COMMISSIONER,
Defendants.

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No. 1:20-cv-01625-JPH-TAB

ORDER DENYING DEFENDANTS' MOTIONS TO DISMISS
The Indiana Department of Environmental Management ("IDEM") is the
state agency that oversees environmental concerns related to Indiana's
underground storage tanks at gas stations. That includes managing the
Excess Liability Trust Fund ("ELTF"), which allows reimbursement of some
expenses associated with remediation of contamination from underground
storage tanks. Plaintiffs allege, in part, that Defendants fraudulently induced
them to assume personal liability for contamination from underground storage
tanks in order to be eligible for ELTF reimbursement. Defendants have filed
motions to dismiss that claim. Dkt. [30]; dkt. [33]. For the reasons below,
those motions are DENIED.
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I.
Facts and Background
Defendants have moved for dismissal of one of Plaintiffs' nine counts
under Rule 12(b)(6). The Court accepts and recites the relevant "well-pleaded
facts in the complaint as true." McCauley v. City of Chicago, 671 F.3d 611, 616
(7th Cir. 2011). Allegations relevant only to the other claims are generally
omitted.
Plaintiff Warren Travel Plaza is a business that owns a gas station on
property that needs environmental remediation, and Plaintiff United States
Small Business Owners Association ("USSBOA") is a membership organization
that "advocates for the professional growth of gas station and convenience store
owner-operators." Id. at 6, 11–12. Many gas stations, including those owned
by some Plaintiff Warren and USSBOA members, use underground storage
tanks to store gasoline. Id. at 5–6, 14. If these tanks are not properly
installed, operated, and maintained, they can contaminate soil, surface water,
groundwater, and overhead buildings. Id.
Defendant IDEM, through its Office of Land Quality, "enforces Indiana's
[underground storage tank] regulations, and is supposed to ensure adequate
cleanup of contamination from leaks and spills." Id. at 15. IDEM thus
manages the ELTF, which "provides a mechanism for the cost reimbursement
of emergency measures, investigations, corrective action, and [ ] indemnity
claims" related to underground storage tanks. Id. at 16.

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In early 2018, Defendant Louks—IDEM's Office of Land Quality Deputy
Assistant Commissioner—began to "twist[ ] existing law to unlawfully cut off
ELTF claims." Id. at 19. 1 He "unilaterally redefined the qualifications for
[ELTF] reimbursement" and, after Golars objected, published an "ELTF
Reimbursement Suspension Policy" ("the Policy") on IDEM's website. Id. "The
[P]olicy states that 'a Party applying for ELTF reimbursement must be the
[Responsible Party] or someone assigned the rights to ELTF reimbursement
from [a Responsible Party].'" Id. at 20 (emphasis in original). But that
statement was not true under Indiana law. Id.
For properties where underground storage tanks had been removed, Mr.
Louks "demanded that subsequent property owners enter into an Agreed Order
with IDEM, in which they assumed personal liability, to be eligible for cost
reimbursement from ELTF." Id. at 21. Mr. Louks promised that once an
Agreed Order was signed, "all costs and claims submitted for ELTF
reimbursement would be processed in accordance with applicable rules and
guidance." Id. USSBOA members and Plaintiff Warren entered into Agreed
Orders after Defendants said that "they had to do so under existing law." Id. at
19, 52.
IDEM and Mr. Louks intended "to unlawfully impose personal liability on
a transferee for the remaining corrective action until IDEM determined that the

1 Defendants do not contest the complaint's legal allegations recited in this section, at
least for purposes of their motion to dismiss. See dkt. 31 at 2–4 (explaining that the
motion "is directed solely to" Plaintiffs' fraudulent inducement claim because "IDEM's
alleged representations of law are not actionable ").

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corrective action was completed." Id. at 23. And "IDEM continued to
improperly deny . . . ELTF claims." Id. at 19.
Plaintiffs filed their complaint in state court, dkt. 1-2, and Defendants
removed the action to this Court based on federal question jurisdiction with
supplemental jurisdiction over Plaintiffs' state law claims, dkt. 1. The
complaint raises nine counts; Count VI is brought by Warren Travel Plaza and
the USSBOA ("Fraud Plaintiffs") alleging an Indiana-law claim for fraudulent
inducement. Dkt. 1-2 at 51–53. Defendants have moved to dismiss that
count. Dkt. 30; dkt. 33.
II.
Applicable Law
Defendants may move under Federal Rule of Civil Procedure 12(b)(6) to
dismiss claims for "failure to state a claim upon which relief may be granted."
Fed. R. Civ. P. 12(b)(6). To survive a Rule 12(b)(6) motion to dismiss, a
complaint must "contain sufficient factual matter, accepted as true, to 'state a
claim to relief that is plausible on its face.'" Ashcroft v. Iqbal, 556 U.S. 662,
678 (2009) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007)). A
facially plausible claim is one that allows "the court to draw the reasonable
inference that the defendant is liable for the misconduct alleged." Id.
When ruling on a 12(b)(6) motion, the Court will "accept the well-pleaded
facts in the complaint as true," but will not defer to "legal conclusions and
conclusory allegations merely reciting the elements of the claim." McCauley v.
City of Chicago, 671 F.3d 611, 616 (7th Cir. 2011). Indiana substantive law

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governs the fraudulent inducement claim, so the Court must apply Indiana law
by doing its "best to predict how the Indiana Supreme Court would decide" the
issues. See Webber v. Butner, 923 F.3d 479, 480–81 (7th Cir. 2019).
III.
Analysis
Count VI alleges that Defendants fraudulently induced Fraud Plaintiffs to
enter into certain orders by stating they had to do so under existing law. Dkt.
1-2 at 51–52. Defendants argue that Count VI must be dismissed because
Indiana law precludes fraud liability based on a misrepresentation of law,
except in limited circumstances not presented or pleaded in this case. Dkt. 31
at 9. Fraud Plaintiffs respond that Count VI fits within exceptions that allow a
fraudulent inducement claim based on misrepresentations of law. Dkt. 38 at
9.
Ordinarily, the elements of fraudulent inducement are "(1) a material
misrepresentation of past or existing fact which (2) was untrue, (3) was made
with knowledge of or in reckless ignorance of its falsity, (4) was made with the
intent to deceive, (5) was rightfully relied upon by the complaining party, and
(6) which proximately caused the injury or damage complained of." Kesling v.
Hubler Nissan, Inc., 997 N.E.2d 327, 335 (Ind. 2013).
A. Misrepresentations of Law
"In general, a misstatement of the law cannot form the basis of fraud
because everyone is presumed to know the law." Precision Homes of Ind., Inc. v.

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Pickford, 844 N.E.2d 126, 132 (Ind. Ct. App. 2006). However, there are four
exceptions—a misstatement of law may qualify when:
(1) It "include[s] express or implied misrepresentations of
fact," Bowman v. City of Indianapolis, 133 F.3d 513, 519
(7th Cir. 1998);
(2) It is "made by an attorney or someone professing
knowledge in legal matters," including "whenever a
party claims a special knowledge or expertise in the
law," Am. United Life Ins. Co. v. Douglas, 808 N.E.2d
690, 704 (Ind. Ct. App. 2004);
(3) It "relates to the law of a foreign jurisdiction," Bowman,
133 F.3d at 519; or
(4) "[T]here is a special relationship of trust and confidence
between the parties," id.
While Fraud Plaintiffs argue that each of these exceptions apply except the one
involving "the law of a foreign jurisdiction," see dkt. 38 at 8, the Court finds
that the exception based on statements made by someone professing expertise
in legal matters is dispositive and accordingly limits its analysis to that
exception. Defendants argue that the complaint does not allege "that IDEM
possesses some specialized knowledge or expertise in the law, or particularly in
the field of statutory interpretation." Dkt. 31 at 8–9. Fraud Plaintiffs respond
that the exception applies because IDEM—as an environmental agency—has
expertise about the environmental statutes and regulations it enforces. Dkt.
38 at 9–11.
This exception applies when the defendant "claims a special knowledge
or expertise in the law." Scott v. Bodor, Inc., 571 N.E.2d 313, 320 (Ind. Ct. App.
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1991). For example, attorneys are experts on domestic law, id. at 319; tax
planners are experts on tax deductions, id. at 320; and annuity companies are
experts on the retirement plans they support, Douglas, 808 N.E.2d at 704.
Here, Defendants argue that Count VI fails to state a claim because it
does not expressly allege "that anyone at IDEM claimed to have any special
knowledge or expertise—much less expertise in statutory interpretation." Dkt.
52 at 5. But IDEM didn't have to make such a claim for the "special knowledge
or expertise in the law" exception to apply to Defendants' conduct. That's
because IDEM is the Indiana agency tasked with enforcing federal and state
environmental laws and regulations—including regulations that it promulgates.
See Ind. Dep't of Environ. Mgmt. v. Twin Eagle LLC, 798 N.E.2d 839, 845–46
(Ind. 2003); Ind. Dep't of Environ. Mgmt. v. Construction Mgmt. Assocs., L.L.C.,
890 N.E.2d 107, 113 (Ind. Ct. App. 2008); Ind. Code § 13-14-1-12. IDEM
therefore implicitly claimed expertise when it included legal standards in the
Policy: "If a party wishes to access the ELTF and that party is not the
[responsible party], that party must have entered into an Agreed Order with
IDEM, assuming corrective action liability for the release." Dkt. 1-2 at 134.
That is a statement of legal eligibility for funding that IDEM oversees, see id. at
6–10, in a field where IDEM "has expertise," Moriarity v. Ind. Dept. of Nat.
Resources, 113 N.E.3d 614, 619 (Ind. 2019). Indeed, because of that expertise,
"the public relies on its authority to govern in that area." Id.
Moreover, the lack of an explicit claim is not dispositive under Indiana
law when the party making the claim has inherent expertise in the area. Cf.
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Scott, 571 N.E.2d at 320 (explaining that the exception applies when an
attorney makes legal representations) (citing Kinney v. Dodge, 101 Ind. 573
(1885)). Here, IDEM has that expertise, which is implicitly recognized in the
Policy that it placed on its website and in the position of authority it enjoys
under Indiana law. Dkt. 1-2 at 19–23 (allegations about the Policy's content,
IDEM's representations about the Policy, and efforts to have applicants sign
Agreed Orders); see Moriarity, 113 N.E.3d at 619 (noting the "authority to
govern" in the agency's area of expertise). 2 For that reason, this case is not like
Bowman, which Defendants rely on. Dkt. 52 at 5 (citing 133 F.3d 513). There,
the defendant City of Indianapolis did not have inherent expertise on the
federal Fair Labor Standards Act and did not "claim[ ] superior knowledge of
the" statute. Bowman, 133 F.3d at 519.
Finally, Defendants argue that the expertise exception has not been
applied "beyond the private transaction context." Dkt. 52 at 4. But they cite
no authority exempting state agencies from the exception. See id. And the
reason for the exception—that legal statements based on superior legal
knowledge can induce reliance—squarely applies when the agency makes
statements about its own regulations. See Bales v. Hunt, 77 Ind. 355, 359–60
(1881); Douglas, 808 N.E.2d at 702–03. Fraud Plaintiffs allege that's what
happened here and, at least at this stage, Defendants do not contest those

The same is true of Mr. Louks, even if he were not a licensed attorney. Plaintiffs
allege that he "unilaterally redefined the qualifications for [ELTF] reimbursement" and
published the Policy as Deputy Assistant Commissioner for IDEM's Office of Land
Quality. Dkt. 1-2 at 10, 19. Mr. Louks did not raise separate arguments for
dismissal, instead joining IDEM's briefs. Dkt. 33; dkt. 53.
2

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allegations. See dkt. 31 at 2–4 ("The . . . allegation[ ] . . . that IDEM has
continued to apply the Policy in a manner inconsistent with the statutory
definition . . . . is not the subject of the present motion."). 3
B. Reliance
Defendants also argue that Fraud Plaintiffs failed to plead that they
reasonably relied on a misrepresentation. Dkt. 31 at 9–10. Fraud Plaintiffs
respond that IDEM's statements induced them to enter "extralegal Agreed
Orders." Dkt. 38 at 14–15.
Reliance requires "that the complaining party took some kind of action in
response to the misstatement." BSA Constr. LLC v. Johnson, 54 N.E.3d 1026,
1032 (Ind. Ct. App. 2016). The complaint alleges that IDEM "demanded that
subsequent property owners enter into an Agreed Order with IDEM, in which
they assumed personal liability, to be eligible for cost reimbursement from
ELTF." Dkt. 1-2 at 21. And that IDEM "induced [Plaintiff] Warren and
USSBOA members to enter into Agreed Orders by stating they had to do so
under existing law." Id. at 52. The Policy did not inform Fraud Plaintiffs that
under the Agreed Orders, Plaintiff Warren and USSBOA members "would bear
The parties dispute whether judicial deference to agencies affects potential liability for
fraudulent inducement, see dkt. 38 at 8, and whether the Policy can be challenged
only through Indiana's Administrative Orders and Procedures Act ("AOPA"), see dkt.
52 at 9 (citing Ind. Code § 4-21.5-5-1 et seq.). The Court does not address deference
because Defendants' motions are denied on other grounds, as explained above. The
Court also does not address AOPA because, at this stage, Defendants raised that
argument only to respond to Fraud Plaintiffs' argument that Indiana courts' deference
to agencies bolstered their claim. See dkt. 61 at 4–5, 4 n.2 ("IDEM does not contend
that the AOPA 'governs the outcome of its 12(b)(6) motion.'"). Fraud Plaintiffs' motion
for leave to file a surreply is GRANTED, dkt. [57], to the extent that the Court has
considered the surreply, dkt. 57-1, and Defendants' response in opposition, dkt. 61, to
clarify the scope of these arguments.
3

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liability for all corrective action costs exceeding the ELTF cap until IDEM
decides to issue a No Further Action order." Id. That is enough to plausibly
plead that they "actually relied on the misrepresentation." Waterfield v.
Waterfield, 61 N.E.3d 314, 323 (Ind. Ct. App. 2016).
*

*

*

Indiana law ordinarily requires a plaintiff to plead misrepresentations of
fact to state a claim for fraudulent inducement. But there is an exception for
misrepresentations of law made by someone professing expertise in legal
matters. While Defendants note that Indiana courts have not expanded that
exception "beyond the private transaction context," at this stage in this case
they have not presented as a principal argument or otherwise developed an
argument for a broad rule immunizing state agencies. Dkt. 31 at 5, 9 (lead
brief arguing only that Indiana law generally precludes liability for
misrepresentations of law and that no recognized exception applies); dkt. 52 at
4. The Court therefore holds only that the facts alleged in Count VI of the
complaint are sufficient to state a claim for fraudulent inducement based on
reliance on misstatements of law, without expanding Indiana law.
IV.
Conclusion
Defendants' motions to dismiss are DENIED. Dkt. [30]; dkt. [33].
SO ORDERED.

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Date: 3/31/2021

Distribution:
Thomas A. Barnard
TAFT STETTINIUS & HOLLISTER LLP (Indianapolis)
[e-mail]
Kyle Thomas Finnegan
ICE MILLER, LLP
[e-mail]
Helen K. Geib
HOOVER HULL TURNER LLP
[e-mail]
Vivek Randle Hadley
TAFT STETTINIUS & HOLLISTER LLP (Indianapolis)
[e-mail]
Derek R. Molter
ICE MILLER LLP (Indianapolis)
[e-mail]
Kenneth J. Munson
HOOVER HULL TURNER LLP
[e-mail]
Judith S. Okenfuss
ICE MILLER LLP (Indianapolis)
[e-mail]
Seth Michael Smoker
TAFT STETTINIUS & HOLLISTER LLP (Indianapolis)
[e-mail]
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Donald M. Snemis
ICE MILLER LLP (Indianapolis)
[e-mail]
Wayne C. Turner
HOOVER HULL TURNER LLP
[e-mail]
Christopher D. Wagner
HOOVER HULL TURNER LLP
[e-mail]
William C. Wagner
TAFT STETTINIUS & HOLLISTER LLP (Indianapolis)
[e-mail]
Gregory F. Zoeller
GOLARS ENVIRONMENTAL ENGINEERING
[e-mail]

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