Indiana Court Decisions: Feb. 24-March 9, 2022

7th Circuit Court of Appeals

Feb. 25

USA Gymnastics v. Liberty Insurance Underwriters, Inc.

20-1245

Insurance co. has to defend USA Gymnastics against Nassar-related claims

A split 7th Circuit Court of Appeals panel has affirmed Liberty Insurance Underwriters Inc. must defend USA Gymnastics against the lawsuits filed by the athletes and affiliated gyms arising from Larry Nassar sexually assaulting hundreds of girls and young women over decades.

The 69-page per curiam decision in USA Gymnastics v. Liberty Insurance Underwriters, Inc., 20-1245, is the result of an interlocutory appeal from the U.S. District Court for the Southern District of Indiana. Chief Judge Diane Sykes and Judges David Hamilton and Michael Brennan comprised the 7th Circuit panel.

Splitting over the application of the insurance policy’s “wrongful conduct exclusion,” Brennan dissented from the majority’s finding that the exclusion only absolves the insurance company from covering USAG for the 10 claims for which Nassar was found guilty.

USAG purchased coverage from Liberty for a one-year period of May 16, 2016, through May 16, 2017. In 2018, USAG sued seven insurers, including Liberty, seeking coverage on various claims including what are termed the “Nassar-related claims.” These claims include the lawsuits brought by the hundreds of gymnasts wanting USAG held responsible for allowing the abuse to take place, and the lawsuits brought by the coaches and owners of gyms affiliated with USAG.

Before a bankruptcy court, Liberty countered that none of the Nassar-related claims were covered under its policy. Also, the insurance company maintained the conduct exclusion provision barred coverage for all claims because Nassar engaged in wrongful conduct finally adjudicated in his criminal cases, or the claims were at least related to that conduct.

The bankruptcy court rejected Liberty’s interpretation of its own policy as too broad. In particular, the bankruptcy court found the wrongful conduct exclusion barred coverage for only those suits seeking damages for the 10 counts of sexual abuse for which Nassar was convicted.

Reviewing the bankruptcy court’s proposed findings and conclusions, the Southern Indiana District Court overruled Liberty’s objections and adopted the findings and conclusions in a Jan. 13, 2020, written order.

On appeal, Liberty argued Nassar committed a willful violation of the law and the bankruptcy court injected ambiguity where no reasonable person would find it. Moreover, Nassar pleaded guilty, so his wrongful conduct has been finally adjudicated. Also, the company asserted all the Nassar-related claims are “in any way related to” the 10 cases of abuse for which he was criminally convicted.

USAG reiterated the bankruptcy court’s reasoning that “any insured” is ambiguous, only 10 acts of sexual abuse were finally adjudicated as criminal convictions in Michigan state court and the anti-imputation clause precludes applying the wrongful conduct exclusion to the Nassar-related claims.

The majority appellate panel closely examined the language of the policy and found the phrase “in any way related to” was quite broad. Citing Gregory v. Home Ins. Co., 876 F.2d 602, 606 (7th Cir. 1989), the majority offered that when a phrase is so broad that it should not be taken literally, a restrictive reading would come into play.

Noting the similarities among the claims that all the victims accuse Nassar of sexually assaulting them, the majority also acknowledged there are several important differences between the claims. The assaults are each separate and independent crimes, with many of the young women recounting abuse that occurred dozens of times over several years.

“This case is in the grey territory where the policy’s broad language becomes ambiguous as applied to these unique facts,” the per curiam decision stated. “While the insurer has a reasonable argument for excluding coverage of the other victims’ claims, the insured also has a reasonable argument for not excluding them. Accordingly, under the general principles of Indiana insurance law — including that ambiguous policy language is construed against the insurer, especially when it comes to policy exclusions — the insured, USAG, prevails on this point.”

Brennan dissented, arguing the wrongful conduct exclusion applied to all the Nassar-related claims.

The judge explained his “limited disagreement” centered on how close the local connection must be for claims to be “in any way related to” one another. He bolstered his argument by citing to Gregory as well as RLI Ins. Co. v. Conseco, Inc., 543 F.3d 384, 391 (7th Cir. 2008), and Bay Cities Paving & Grading, Inc. v. Lawyers’ Mut. Ins. Co., 855 P.2d 1263 (Cal. 1993).

“All the Nassar-related conduct included precisely the same method and modus operandi — abuse of young, vulnerable, female gymnasts under the guise of medical treatment — for the ten crimes acts (sic) of which he was convicted as well as for all his other sexual abuse,” Brennan wrote.

“‘Related to’ under Indiana law, therefore, includes not just the ten counts in the two Michigan state criminal cases, but all the claims logically connected to them, which comprise Nassar’s sexually abusive conduct,” Brennan continued. “Given the tight similarities involved in all this sexual abuse, there is no reasonable interpretation of the insurance contract under which the Nassar-related claims would not be ‘in any way related to’ the ten criminal counts for which Nassar was finally adjudicated guilty.”

Addressing Brennan’s dissent and his citing to multiple cases, the majority found those precedents were “more straightforward” than those that represent multiple claims which arose from one financial transaction.

“Multiple sexual assaults are a different category entirely, especially on this scale over so many years,” the per curiam decision stated. “A relative handful of cases applying such a vague standard to quite different financial wrongs does not persuade us that the insured’s view here is unreasonable. ‘In any way related’ is too ambiguous — as applied to these very different facts — to exclude coverage of the non-guilty-plea claims.”

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March 2

Valerie Cortez v. Cook Incorporated, et al. 

20-3434

Product liability claims against Cook Medical untimely

An Oregon woman who brought product liability claims in a short-form complaint against Indiana-based Cook Medical could not succeed on appeal because her claims were untimely, the 7th Circuit Court of Appeals has affirmed.

Valerie Cortez of Oregon brought a number of claims against Cook Incorporated, Cook Medical LLC and William Cook Europe APS, alleging that an inferior vena cava filter implanted in her body in December 2006 injured her. The vein filter was designed and manufactured by the defendants for the prevention of pulmonary embolisms.

Cortez’s action was part of the consolidated proceedings in In re: Cook Medical, Inc. Filters Marketing, Sales Practices and Product Liability Litigation, MDL No. 2570.

Cortez filed a short‐form complaint that incorporated counts from the master consolidated complaint for individual claims and alleged causes of action for product liability, negligence, breach of express and implied warranty and violations of Oregon’s Unlawful Trade Practices Act.

For its part, Cook moved for judgment on the pleadings pursuant to Federal Rule of Civil Procedure 12(c) as to the product liability claims, arguing Cortez’s claims were filed beyond the time period in the statute of repose of Oregon. Cortez countered that the Oregon statute incorporates Indiana law and that the complaint sufficiently alleged a right to such tolling under the doctrine of fraudulent concealment.

She also alleged that Cook knew its product was defective, that it actively concealed the significant risks associated with the filter and that the conduct constituted fraudulent concealment. Additionally, Cortez alleged the defendants continued to promote the filter as safe and effective even though inadequate clinical trials had been performed to support that safety or efficacy.

However, the U.S. District Court for the Southern District of Indiana held that Cortez’s complaint failed to sufficiently allege fraudulent concealment. It specifically pointed out that the complaint did not allege affirmative actions to prevent the discovery of a cause of action, did not allege that the filters were ever recalled, and did not allege that Cook communicated directly to Cortez in a misleading way about the risks associated with the filters or knew that she was injured and took steps to prevent the timely filing of an action.

Cortez appealed, arguing the court erred in its assessment of what constitutes fraudulent concealment.

In affirming in Valerie Cortez v. Cook Incorporated, et al., 20‐3434, the 7th Circuit noted that the Indiana Supreme Court had not yet addressed whether fraudulent concealment applied to statutes of repose at the time of oral argument in the case at hand.

“Since the supplemental briefing, however, the Indiana Supreme Court in (Blackford v. Welborn Clinic, 172 N.E.3d 1219 (Ind. 2021)) weighed in on the matter, and its holding is dispositive of this appeal,” Circuit Judge Ilana Rovner wrote. “It held that for a statute of repose, as opposed to a general statute of limitation, ‘fraudulent concealment may not extend the time in which to file a claim.’

“… The Indiana Supreme Court’s holding that the statute of repose is not subject to equitable tolling claims of fraudulent concealment is unequivocal. The court holds as much at four different points in its opinion,” Rovner wrote. “Its discussion regarding the possibility of tolling in rare cases presenting exceptions is hypothetical. Our task is to identify how the Indiana courts would interpret the law, and that means that we will take the Indiana Supreme Court at its word and give effect to its unequivocal holding.

“Because the product liability claims in this case are subject to a statute of repose, and fraudulent concealment cannot extend the time to file claims for such a statute, the claims in this case are untimely.”

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March 7

James Burkhart v. United States of America

21-2009

Convicted CEO Burkhart doomed by evidence, not Barnes & Thornburg’s conflict of interest

Although the 7th Circuit Court of Appeals agreed the legal counsel had a conflict of interest when defending James Burkhart against federal fraud charges, the disgraced CEO of American Senior Communities failed to show he suffered as a result.

Burkhart was arrested and ultimately had a 32-count indictment returned against him. He was accused of participating in a scheme that caused the nursing home’s vendors to inflate their invoices then kick back the profits to Burkhart and other company officials.

When federal agents executed a search warrant on Burkhart’s Carmel home, he contacted what is now Faegre Drinker Biddle & Reath. However, the firm declined to provide representation because of a conflict it had with the Health & Hospital Corp. of Marion County.

HHC was one of the victims of the scheme, incurring financial losses.

On Faegre’s recommendation, Burkhart contacted Larry Mackey at Barnes & Thornburg and ended up signing an engagement letter with the firm in September 2015. Apparently undisclosed and unknown to Burkhart at the time was that HHC was a client of Barnes & Thornburg.

Burkhart pleaded guilty in January 2018 to three counts: conspiracy to commit mail, wire and health care fraud (18 U.S.C. § 1349); conspiracy to violate the Anti-Kickback Statute (18 U.S.C. § 371); and money laundering (18 U.S.C. § 1956(a)(1)(B)(i). In exchange, the government dismissed the remaining 17 counts, and he was sentenced to 9½ years.

After his sentencing, Burkhart learned of Barnes & Thornburg’s conflict of interest and filed a lawsuit in December 2018. He challenged his conviction and alleged the law firm’s conflict violated his Sixth Amendment right to effective counsel.

Since 2003, Barnes & Thornburg had represented HHC on a range of matters including lobbying, white collar investigations and civil litigation. Mackey and other attorneys on Burkhart’s defense team had defended HHC in a False Claims Act case involving allegations that HHC and its CEO, Matthew Gutwein, made misrepresentations to the federal government for increased payouts.

Also, while representing Burkhart, Barnes & Thornburg began representing HHC in a whistleblower retaliation suit brought by an employee who alleged she was terminated for reporting the submission of false bills.

The 7th Circuit affirmed the Southern Indiana District Court in James Burkhart v. United States of America, 21-2009, agreeing that the conflict of interest did not “adversely affect Burkhart’s representation.”

On the conflict of interest, the appellate panel was clear.

“Nobody disputes that Barnes & Thornburg was conflicted in its representation of Burkhart,” Judge Michael Scudder wrote for the court. “The question is not close.”

However, the panel noted Burkhart had to go a step further by establishing that the conflict impaired his lawyer’s performance. In addition, because he resolved his case by a plea agreement, Burkhart must show that his counsel’s conflict affected both the attorney’s actions and the defendant’s decision to plead guilty.

In reviewing the case, the 7th Circuit found the conflict did not impair Burkhart’s defense.

Notably, the government had strong evidence, and just months before Burkhart was scheduled for trial, his three co-defendants, including his younger brother, Joshua, all pleaded guilty and agreed to testify against Burkhart. As a result, Mackey advised Burkhart to plead guilty.

“The district court was right to conclude that nothing in the record shows that Barnes & Thornburg improperly shaded its advice to induce Burkhart to plead guilty,” Scudder wrote. “To the contrary, the advice reflected a reasonable response to the dire circumstances facing Burkhart. Perhaps above all else, Barnes & Thornburg clearly saw the insurmountable hurdle Burkhart faced in the prosecution — the strength of the government’s case.”

The 7th Circuit reviewed Barnes & Thornburg’s actions and did not see any indication the firm acted contrary to Burkhart’s interests. During the 2½ years the firm represented Burkhart, the firm moved to dismiss the charges, hired multiple experts, explored multiple defenses, developed trial exhibits and issued trial subpoenas. Also, it conducted three mock jury exercises, which all ended with unanimous votes to convict and the jurors describing Burkhart as manipulative and greedy as well as being a crook.

Even two weeks before Burkhart signed the plea agreement, Barnes & Thornburg was still working diligently on his defense. The 7th Circuit agreed with the district court’s conclusion that the firm would not have done such extensive trial preparation if it had always planned to coax Burkhart to take an 11th-hour plea.

Moreover, the 7th Circuit continued, that same diligence manifested itself in the plea negotiations. Barnes & Thornburg took care to ensure that Burkhart would receive a sentence that was below the advisory range of 10 to 12 years.

“Barnes & Thornburg’s efforts yielded tangible benefits for Burkhart,” Scudder wrote. “By pleading guilty, he was able to receive acceptance of responsibility credit and, in turn, a lower advisory Guidelines range. He also was able to present himself in a more favorable light at sentencing by emphasizing his remorse and underscoring his good works in the community. The district court committed no error in rejecting the contention that Barnes & Thornburg’s conflict of interest — and not the overall strength of the government’s case and the weakness of possible defenses — is what came to shape the firm’s advice that Burkhart avoid trial.”

Indiana Supreme Court

March 8

Lake Imaging, LLC v. Franciscan Alliance, Inc., et al.

21S-CT-478

Justices decline to expand med-mal act to indemnity claims filed by one care provider against another

The Indiana Medical Malpractice Act does not apply to claims for indemnification filed by one medical provider against another, the Indiana Supreme Court has ruled. The court’s decision means a breach-of-contract claim filed against a radiology services provider can proceed, because the MMA’s statute of limitations did not preclude the claim.

Justice Christopher Goff wrote for the unanimous court in Lake Imaging, LLC v. Franciscan Alliance, Inc., et al., 21S-CT-478.

The case centers on Joseph Shaughnessy, a patient at Franciscan Alliance in April 2011. At that time, Lake Imaging LLC provided radiology services to Franciscan and interpreted two CT scans performed on Shaughnessy.

Shaughnessy died on April 25, 2011, prompting his sons to file a proposed medical malpractice complaint against Franciscan, but not Lake Imaging. Franciscan settled with the Shaughnessys in September 2016, then sought indemnity from Lake Imaging on the theory that its alleged negligence in interpreting the CT scans had led to Joseph’s death.

Franciscan filed suit in July 2018, alleging breach of contract from Lake Imaging’s failure to provide “competent medical care” and for failure to indemnify Franciscan. Additionally, Franciscan sought declaratory judgment against ProAssurance Indemnity Co., Lake Imaging’s insurer, for payment of any judgment against Lake Imaging.

Lake Imaging responded with a motion for summary judgment, arguing that because Franciscan’s claim was premised on alleged malpractice, the Medical Malpractice Act’s two-year statute of limitations had lapsed.

The Johnson Superior Court, however, determined it lacked subject-matter jurisdiction over the complaint because the MMA required Franciscan to first take its claim to the Department of Insurance for an opinion from a medical-review panel, which it had not done. Thus, the breach of contract claim was dismissed without prejudice, and the parties cross-appealed.

The Court of Appeals of Indiana affirmed in May 2021, finding that because Franciscan’s claim was based on Lake Imaging’s alleged medical negligence, the MMA applied. The lower appellate panel interpreted the MMA as covering any “claimant,” not just an “injured patient,” and as encompassing any “contract” claim “against a health care provider” based on “professional services or health care that was provided or that should have been provided.”

The Supreme Court, however, disagreed.

“Today, we’re asked to extend the reach of the Medical Malpractice Act … to include a claim for indemnification by one medical provider against another,” Goff wrote. “We decline that invitation because indemnification sounds in contract, and because neither the text of the MMA nor precedent interpreting the Act support categorizing such a claim as one for medical malpractice. We therefore hold that a breach-of-contract claim for failure to indemnify need not follow the procedures contained within the Act.”

The high court agreed with Franciscan’s argument that the MMA only applies to “‘a patient or the representative of a patient who has a claim for bodily injury or death on account of malpractice.’” It also agreed that Franciscan does not meet the act’s definition of a “patient” under Indiana Code § 34-18-2-22 or § 34-18-8-1. The latter statute, Goff wrote, “expressly provides that the MMA is intended to cover only claims for bodily injury or death, not claims for breach of contract.”

Further, the justices rejected Lake Imaging’s argument that I.C. 34-18-7-1 allows the MMA to apply to Franciscan’s claim because the act applies to “any” claim, “whether in contract or tort.”

“… (T)here is nothing in the MMA to suggest that it extends beyond the physician-patient relationship to encompass commercial contracts between healthcare providers,” Goff wrote. “Instead, the inclusion of ‘whether in contract or tort’ ensures that claims by patients for medical malpractice resulting in bodily injury or death, including those framed as breach-of-contract claims, are brought within the procedural requirements, under the same limitations, established by the Act.”

In reaching its decision, the high court distinguished the case of Cutchin v. Beard, 171 N.E.3d 991 (Ind. 2021), noting Cutchin involved a malpractice claim resulting from bodily injury or death, while the instant case involved a breach of contract claim.

Additionally, the court noted that expanding the MMA’s application to the type of claim at issue here would conflict with the purpose of the act by forcing a provider seeking to enforce indemnification rights to preemptively sue for declaratory judgment before a contractual claim accrues. Here, that would mean Franciscan would’ve had to sue Lake Imaging for a contractual claim before it knew that the Shaughnessys would file a malpractice claim.

“Such an arrangement would effectively transform the collaborative role of independent healthcare providers into an adversarial one — an arrangement that runs contrary to the MMA’s purpose of ‘curtailin[ing] liability for medical malpractice,’” Goff wrote, citing Chamberlain v. Walpole, 822 N.E.2d 959, 963 (Ind. 2005).

Further, expanding the MMA would conflict with the purpose of a medical review panel and possibly draw out the litigation process, the court said.

Thus, because the MMA did not apply to Franciscan’s claim, the trial court did have subject-matter jurisdiction and the two-year statute of limitations did not apply, the justices concluded. Although there was “no clear answer” in caselaw as to whether a six- or 10-year statute of limitations should apply, the justices noted Franciscan’s claim, filed in September 2016, falls within both.

Finally, the high court rejected Lake Imaging’s argument that because its agreement with Franciscan expired on April 30, 2011, any obligation to indemnify Franciscan expired before Franciscan demanded payment in May 2018.

“Nothing in the Agreement indicates that the obligation to indemnify for past services would end when the contract terminated,” Goff wrote. “The services provided to Mr. Shaughnessy were provided under the Agreement, so, as long as the act of professional negligence upon which the indemnity claim is based took place while the contract was in effect, the timing of the Shaughnessys’ suit does not prevent Franciscan’s recovery.”

The case was remanded for further proceedings, including the consideration of one specific question: whether ProAssurance has an obligation to indemnify Lake Imaging for any adverse judgment.

Court of Appeals of Indiana

Feb. 28

Espedicto Padilla Carranza v. State of Indiana

21A-CR-1742

COA: Child molester’s multiple felony convictions pass Wadle test

A man’s convictions of two felony counts of child molesting don’t violate double jeopardy principles, according to the Court of Appeals of Indiana.

In reaching its decision, the COA denied the defendant’s request to use the test in Powell v State, 151 N.E.3d 256 (Ind. 2020), determining the test in Wadle v. State, 151 N.E.3 227 (Ind. 2020), was appropriate.

The case of Espedicto Padilla Carranza v. State of Indiana 21A-CR-1742, started in 2019, when Carranza molested his 8-year-old daughter.

The state charged Carranza with two counts of child molesting under Indiana Code § 35-42-4-3. Count I alleged a Level 1 felony for “other sexual conduct” under subsection (a) and Count II alleged a Level 4 felony for “fondling or touching” under subsection (b).

After a jury trial, Carranza was convicted on both counts. The Hamilton Superior Court sentenced him to 35 years on Count I and eight years on Count II, to be served consecutively.

In explaining the enhanced sentence, the court identified the following factors: Carranza’s lack of remorse, nonacceptance of responsibility and betrayal of his daughter’s trust; the emotional trauma caused to his daughter; and the commission of the offenses in the presence of his 11-year-old son, who was asleep in the same room when the molesting occurred.

Asserting his right to maintain his innocence, Carranza objected to the trial court considering lack of remorse and nonacceptance of responsibility as aggravating factors. The court, however, assured Carranza that the remaining factors supported imposition of the same 43-year sentence.

On appeal, Carranza argued his two child molesting convictions constituted double jeopardy.

While Carranza asked that the Powell test be applied, the Court of Appeals determined the case actually fell under the Wadle test, citing Koziski v. State, 172 N.E.3d 338, 342 (Ind. Ct. App. 2021), trans. denied.

“… Carranza’s convictions were based on separate subsections of the primary charging statute rather than a statutory definition incorporated by reference therein,” Judge Leanna Weissmann opined for the COA. “… Though both fall under the Child Molesting Statute, ‘[w]e don’t believe the legislature’s decision to delineate separate crimes in one statute as opposed to two should control which double-jeopardy test is applicable.’ We conclude Wadle applies to Carranza’s claim.

“… Because neither of Carranza’s offenses is included in the other, his dual convictions do not constitute double jeopardy under Wadle,” Weissmann continued. “We therefore affirm both of Carranza’s child molesting convictions.”

The appellate court also concluded the Hamilton Superior Court didn’t abuse its discretion in handing down a 43-year sentence.

“After Carranza objected to the trial court considering lack of remorse and non-acceptance of responsibility as aggravating factors, the court expressly stated that the remaining aggravating factors still supported the 43-year sentence,” Weismann wrote.•

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