Brown v. Woolf - 554 F. Supp. 1206 (S.D. Ind. 1983)

Rule:

Indiana courts would not adopt a per se rule prohibiting punitive damages in a constructive fraud action, but would rather consider the facts and circumstances of each case. If elements of recklessness, or oppressive conduct are demonstrated, punitive damages could be awarded.

Facts:

Plaintiff, a professional hockey player, engaged the professional services of the defendant, a sports attorney and agent, to negotiate a contract with a hockey team. Plaintiff alleged that he relied upon the defendant’s material misrepresentations and signed on with a different team, which began having financial difficulties that caused the plaintiff to suffer monetary losses. Plaintiff contended that the defendant’s failure to investigate the financial stability of the team, failure to determine the possible consequences of deferred compensation, and failure to obtain guarantees or collateral constituted a prima facie case of constructive fraud. Consequently, plaintiff filed an action against defendant, seeking compensatory and punitive damages for alleged constructive fraud and breach of fiduciary duty. The defendant filed motions for partial summary judgment and for summary judgment, arguing that the plaintiff had no basis for a punitive damages claim and that they were unavailable as a matter of law. Moreover, defendant argued that he was acting merely as an agent of the plaintiff, that his conduct did not amount to constructive fraud, that there was no evidence he deceived the plaintiff, and that there was no showing of harm to the public interest.

Issue:

Under the circumstances, should the court grant defendant’s motion for summary judgment?

Answer:

No.

Conclusion:

The court noted that Indiana cases contain several formulizations of the tort of constructive fraud. Generally it could be characterized as acts or a course of conduct from which an unconscionable advantage was or may be derived, or a breach of confidence coupled with an unjust enrichment which may shock the conscience, or a breach of duty, including mistake, duress or undue influence, which the law declared fraudulent because of a tendency to deceive, injure the public interest or violate the public or private confidence. It could also involve the making of a false statement, by the dominant party in a confidential or fiduciary relationship. According to the court, both formulizations were rife with questions of fact, i.e., the existence or nonexistence of a confidential or fiduciary relationship, and the question of reliance on false representations, as well as questions of credibility. In this case, the court held that summary judgment would not be appropriate because factual questions remained unresolved. According to the court, that Indiana courts would not adopt a per se rule prohibiting punitive damages in an action based upon the theory of constructive fraud, but would rather consider the facts and circumstances of each case, and if elements of recklessness, or oppressive conduct were demonstrated, punitive damages could be awarded. The court concluded that defendant failed to demonstrate the absence of any genuine issue of a material fact.