Appellate court affirms dismissal of contractor’s counterclaims after use of fraudulent docs

A contractor’s counterclaims against a group of property owners will not move forward after the Court of Appeals of Indiana determined a trial court didn’t err when it granted partial summary judgment to the owners because the contractor tendered fraudulent documents.

In March 2016, R.L. Rynard Development Corporation entered into a series of construction contracts with property owners Martinsville Real Property LLC and Magnolia Health Systems 57 LLC.

The contracts required the contractor to build a nursing home, assisted living facility and several duplex apartments on the property owners’ land in Martinsville and required “progress payments” to be made as work was completed. Any subcontractors utilized by the contractor were to be paid by the contractor, not the property owners.

The contracts further required the contractor to follow certain procedures to receive progress payments. Namely, R.L. Rynard was required to submit applications for payment, accompanied by lien waivers signed by the subcontractors.

The contractor submitted several applications for payment over the course of the construction process and attached lien waivers to each application. In total, the property owners paid upwards of $17 million for construction of the facilities.

But in February 2020, a subcontractor filed a notice of lien and third-party complaint asserting it had not been fully compensated for its work on the facilities. This prompted the property owners to file an amended complaint alleging the contractor’s president, Robert Rynard Jr., had forged subcontractors’ signatures on the lien waivers attached to its applications for payment to induce several million dollars of payments. Rynard Jr. had also notarized each lien waiver.

As a result of these actions, the property owners further alleged that the contractor committed forgery, deception and common law fraud, entitling the owners to treble damages under the Crime Victim’s Relief Act.

The contractor responded with a counterclaim, arguing the property owners breached the parties’ construction contracts when they failed to compensate the contractor for its completion of several tasks that were not originally contemplated under the contracts. More specifically, the contractor alleged that the property owners had submitted change orders and that it was not compensated for completing the additional tasks requested in those change orders.

The property owners asserted in reply that because R.L. Rynard had submitted fraudulent lien waivers, it should be equitably estopped from pursuing its breach of contract counterclaim.

In September 2020, the property owners deposed Rynard Jr. and questioned him at length about the lien waivers. But he invoked his Fifth Amendment privilege against self-incrimination in response to several dozen of those questions.

This past October, the property owners moved for partial summary judgment on the contractor’s breach of contract counterclaim, arguing the Marion Superior Court should equitably estop the contractor from asserting the counterclaim in light of Rynard Jr.’s purportedly fraudulent conduct.

After a hearing, the trial court granted the property owners’ motion and dismissed the contractor’s counterclaims on equitable estoppel grounds.

On appeal, the contractor claimed that the property owners failed to establish two elements of their equitable estoppel defense and that the court therefore erred in dismissing the contractor’s counterclaims on estoppel grounds.

The COA disagreed.

“‘[T]he Fifth Amendment protects an individual from being compelled to answer questions when the answers might be used in a future criminal proceeding,’” Judge Paul Mathias wrote for the unanimous COA panel, quoting Matter of Ma.H., 134 N.E.3d 41, 46 (Ind. 2019). “However, ‘in civil proceedings, a court can draw a negative inference from a claim of Fifth Amendment privilege against self-incrimination.’

“So, while Rynard, Jr. exercised his privilege not to answer questions posed during his deposition, the trial court was permitted to ‘infer what his answer[s] might have been,’” Mathias continued. “Accordingly, the court drew negative inferences from Rynard, Jr.’s Fifth Amendment claim, which the court was permitted to do.

“… The Contractor has not designated any evidence demonstrating a genuine dispute as to any material fact, including the facts drawn from these inferences, and the Property Owners are therefore entitled to partial summary judgment as a matter of law,” the judge concluded. “We find no error in the court’s conclusion that the Contractor, through the acts of its president, Rynard, Jr., fraudulently induced the Property Owners to release several million dollars of payments in reliance on the purported authenticity of the lien waiver.”

The case is R.L. Rynard Development, Corp. and Robert L. Rynard, Jr. v. Martinsville Real Property LLC and Magnolia Health Systems 57, LLC, 21A-CT-1108.

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