Justices hear arguments in ‘fraud’ case stemming from missed diagnosis

The distinction between active and constructive fraud has long been established in Indiana law. But should that distinction be abolished, or an exception carved out?

That’s the issue now before the Indiana Supreme Court after it heard arguments Thursday in the case of Teresa Blackford v. Welborn Clinic, 21S-CT-85.

Originating the in Vanderburgh Circuit Court, the case stems from a missed hepatitis C diagnosis. The Welborn Clinic in Evansville told Teresa Blackford in 2003 that she was hepatitis-negative, but she learned from another doctor in 2014 that she was actually hepatitis-positive.

A medical review panel determined Welborn had committed malpractice, but the trial court granted the clinic’s motion for summary judgment, finding Blackford’s claim was time-barred under the Indiana Business Trust Act. The clinic had dissolved in 2009, and the five-year statute of limitations expired on June 30, 2014. Blackford did not file her action until March 2015.

In July 2020, the Indiana Court of Appeals reversed in Blackford’s favor, finding the clinic “fraudulently concealed — at the least, passively; at the worst, actively — material medical information from Blackford.” Thus, the clinic’s passive fraudulent concealment tolled the five-year limit under the IBTA.

Judge Elaine Brown dissented, arguing that the five-year limit should hold because the patient-physician relationship in this case ended, at the latest, on June 30, 2009. The clinic’s counsel advanced a similar argument to the justices on Thursday.

“The act of negligence is also the act which they rely upon to toll the running of the statute,” said David Jensen, a lawyer with Eichhorn & Eichhorn in Hammond representing Welborn. “… Now we find ourselves in 2021, long after the dissolution of the business trust, trying to make sense of whether or not ‘fraud’ as a slogan serves to revive a claim during that very generous period that the statute provided for.”

Jensen pointed to the case of Hughes v. Glaese, 659 N.E.2d 516 (Ind. 1995), where the court held, “We decline to abolish the distinction between constructive and active fraudulent concealment.”

“If the distinction between active and constructive fraud is bad today, why was it not bad in 1995?” Jensen asked the justices.

If Blackford’s case involved active fraud, then she would be able to overcome the statute of limitations, Jensen said in response to a question from Chief Justice Loretta Rush. But the fraud here was not active, with Justices Geoffrey Slaughter and Mark Massa characterizing the misdiagnosis as a “mistake.”

“Don’t we make an exception for a mere mistake?” Massa asked John Young, the Indianapolis lawyer representing Blackford. In response, Young hit at the heart of his argument: The end result is what matters.

“If it’s a lie or a mistake, it’s still the same result: The victim is deprived of the truth,” Young, of Young & Young, said.

Slaughter pushed Young on that point, questioning where fraud comes into play if the clinic simply made a mistake. Can fraud include something other than the intentional withholding of material evidence?

“Constructive fraud is exactly that, Your Honor,” Young said. “The basis of constructive fraud is … a duty to reveal the truth to the patient — and then the assumption that they will seek out treatment that will reveal this fraud and get them the treatment they need. But that’s just an assumption.

“… I believe that if the untruth that is told blocks the ability to find out the truth, therein lies the substance that we’re talking about,” Young said.

Even if the court declines to draw a distinction between active and constructive fraud, Young said there is another option: creating an exception allowing plaintiffs to move forward when an untruth blocks their discovery of that untruth.

“How are we going to know? Well, the discovery process will bear that out. The records of the people she saw after the fact will bear that out. What they were seeing, they were doing, will bear that out, and a jury can make that decision,” Young said.

The Welborn case attracted two amici: the Indiana Trial Lawyers Association and the Defense Trial Counsel of Indiana. Only the ITLA argued on Thursday, with lawyer Kyle Ring raising a constitutional issue.

Specifically, Ring pointed to the case of Martin v. Richey, 711 N.E.2d 1273 (Ind. 1999), where the court struck down as unconstitutional a statute of limitations requiring a plaintiff to “file a claim before she is able to discover the alleged malpractice and her resulting injury … .” That case examined the Privileges and Immunities Clause and the Open Courts Clause of the Indiana Constitution.

“That same reasoning fits squarely with the Business Trust Act in this case,” Ring, of Doehrman Buba Ring, told the justices. “That goes back to this idea that she had an impossible condition — she couldn’t know she had to file this claim because she didn’t know she had this claim, and we submit that’s unconstitutional.”

But the state, which intervened, pointed to the case of McIntosh v. Melroe Co., a Division of Clark Equipment Co., 729 N.E.2d 972 (Ind. 2000). There, according to deputy attorney general Kian Hudson, the plaintiff couldn’t have filed a timely claim because the claim didn’t exist until the statute of repose had ended.

“This court nevertheless recognized that the Legislature acted reasonably in adopting those statutes and barring those claims in those instances because there are good reasons for statutes of repose and nonclaim statutes, as we have here,” Hudson told the court.

The oral arguments in Welborn can be watched here.

Editor’s note: This article has been corrected.

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