MEMORANDUM DECISION Pursuant to Ind. Appellate Rule 65(D), this Memorandum Decision shall not be FILED regarded as precedent or cited before any May 06 2019, 8:57 am
court except for the purpose of establishing CLERK Indiana Supreme Court the defense of res judicata, collateral Court of Appeals and Tax Court estoppel, or the law of the case.
ATTORNEY FOR APPELLANT ATTORNEY FOR APPELLEES R. Brian Woodward Schuyler D. Geller Merrillville, Indiana Burke Costanza & Carberry, LLP Merrillville, Indiana
IN THE COURT OF APPEALS OF INDIANA
Kristie L. Stepanovich, May 6, 2019 Appellant-Plaintiff, Court of Appeals Case No. 18A-PL-2788 v. Appeal from the Lake Superior Court Susan Houchin, Individually, The Honorable Elizabeth F. and Susan Houchin, O.D., P.C., Tavitas, Special Judge Appellees-Defendants. Trial Court Cause No. 45D03-1708-PL-4
Riley, Judge.
Court of Appeals of Indiana | Memorandum Decision 18A-PL-2788 | May 6, 2019 Page 1 of 21 STATEMENT OF THE CASE
[1] Appellant-Plaintiff, Kristie L. Stepanovich (Stepanovich), appeals the trial
court’s Order dismissing her claims against Appellees-Defendants, Susan
Houchin (Houchin) and Susan Houchin, O.D., P.C. (the P.C.) (collectively,
Defendants).
[2] We affirm in part, reverse in part, and remand for further proceedings.
ISSUE [3] Stepanovich presents three issues on appeal, which we consolidate and restate
as: Whether the trial court improperly dismissed her contract and tort claims
against Defendants because she had failed to state claims upon which relief
could be granted.
FACTS AND PROCEDURAL HISTORY [4] Houchin was a licensed optometrist practicing in Crown Point, Indiana, whose
professional practice was organized under the P.C. Houchin and Stepanovich
were the equal co-owners of Envision Optical, Inc. (Envision Optical), 1 which
provided non-medical services. Stepanovich was an employee of the P.C. as
well as the registered agent and manager for Envision Optical. Stepanovich
1 This business was alleged to have been organized previously as a limited liability company or corporation under the names Family Optical Center, LLC, and Envision Optical Center, LLC. For simplicity’s sake we will refer to its final, corporate name of Envision Optical, Inc. (Envision Optical).
Court of Appeals of Indiana | Memorandum Decision 18A-PL-2788 | May 6, 2019 Page 2 of 21 was separated from her employment with the P.C. in 2016. On February 24,
2017, Stepanovich filed her Complaint, which she sought leave to amend once,
raising contract, tort, and statutory wage claims against Defendants. On
August 11, 2017, Defendants filed motions to dismiss those claims. On
December 21, 2017, the trial court granted Defendants’ motions to dismiss.
[5] On January 9, 2018, Stepanovich filed her Second Amended Complaint, raising
claims of fraud, constructive fraud, Wage Payment Statute violations, breach of
fiduciary duty, breach of contract, and quantum meruit. Stepanovich made the
following relevant allegations in her Second Amended Complaint:
7. On September 4, 2002, [Stepanovich and Houchin] executed an Operating Agreement.
8. The Operating Agreement stated [Stepanovich and Houchin] would share in profits and losses equally.
9. [Stepanovich and Houchin] agreed that all of the income and expenses would be allocated between [the] P.C. and [Envision Optical] so that the net profit would all be generated by [Envision Optical] and be split equally between them; and that all income and proceeds from any source would be divided among them equally.
****
14. At all relevant times, [Stepanovich] was managing Envision Optical and certain non-medical profits were being split equally.
Court of Appeals of Indiana | Memorandum Decision 18A-PL-2788 | May 6, 2019 Page 3 of 21 (Appellant’s App. Vol. II, p. 20). Stepanovich also alleged that in September
2016, Houchin informed her that Houchin was selling all of her patient files to
another optometrist for an unspecified sum and that Houchin began to
unilaterally liquidate and commandeer the assets of Envision Optical.
[6] On February 5, 2018, Defendants filed motions to dismiss Stepanovich’s
Second Amended Complaint, arguing that the trial court lacked jurisdiction
over Stepanovich’s wage claims due to her failure to exhaust administrative
remedies. Defendants appended an affidavit executed by Houchin (Houchin
Affidavit) to their motion to dismiss the wage claims. On February 23, 2018,
Stepanovich filed her Response to Defendants’ dismissal motions, including her
own Verified Supplemental Affidavit. On May 3, 2018, the trial court held oral
argument on Defendants’ motions to dismiss but accepted no new, substantive
evidence. On August 2, 2018, the trial court issued its Order granting
Defendants’ motions to dismiss. The trial court treated Defendants’ motions to
dismiss as motions for summary judgment and entered the following relevant
findings and conclusions:
4. As to the Motion to Dismiss the Tort and Contract Claims, the [c]ourt finds as a matter of law (and as admitted by [Stepanovich]) that [Stepanovich] “was not a medical professional entitled to share in the P.C.’s profits.”
5. As to the respective shareholders’ right to receive profits and proceeds of Envision Optical, Inc., the [c]ourt finds that Indiana statutes require liquidating corporations to distribute “remaining property among its shareholders according to their interests.” I.C. § 23-1-45-5 (emphasis added). By her averment that she was a 50%
Court of Appeals of Indiana | Memorandum Decision 18A-PL-2788 | May 6, 2019 Page 4 of 21 shareholder in Envision Optical, Inc., [Stepanovich] establishes as a matter of law that she was only entitled to 50% of the profits, assets, and proceeds of Envision Optical, Inc., upon its liquidation and winding up. To the extent that the [Second Amended Complaint] seeks a different distribution, it fails, as a matter of law, to state a claim on which relief can be granted.
(Appellant’s App. Vol. II, pp. 16-17) (emphasis in original, footnote omitted).
The trial court found that no genuine issues of material fact existed and that
Defendants were entitled to summary judgment as a matter of law.
[7] Stepanovich now appeals. Additional facts will be provided as necessary.
DISCUSSION AND DECISION I. Procedural Posture
[8] As a threshold issue, we must address the procedural posture of this case
because it impacts the nature of our review. As noted by Stepanovich, “[t]he
trial court’s order purported to grant [Defendants’] Motion to Dismiss pursuant
to T.R. 56 because the parties considered materials outside the pleadings.”
(Appellant’s Br. p. 10). Indiana Trial Rule 12 provides that a party who seeks
to defend against a complaint with a 12(B)(6) motion to dismiss for failure to
state a claim must file that motion “before pleading if a further pleading is
permitted or within twenty [20] days after service of the prior pleading if none is
required.” If a party asserting a 12(B)(6) defense presents matters outside the
pleadings which are not excluded by the trial court, “the motion shall be treated
as one for summary judgment and disposed of as provided in Rule 56.” T.R.
12(B). Thus, a 12(B)(6) motion is only converted to a summary judgment
Court of Appeals of Indiana | Memorandum Decision 18A-PL-2788 | May 6, 2019 Page 5 of 21 motion if the defendant presents the trial court with matters outside the
pleadings. See, e.g., Thomas v. Blackford Cty. Area Bd. of Zoning Appeals, 907
N.E.2d 988, 990 (Ind. 2009) (noting that defendant’s 12(B)(6) motion which
lacked supporting affidavits or other materials would not be treated as a motion
for summary judgment). A motion made pursuant to Rule 12(B)(1) is not
converted to a summary judgment motion when matters outside the pleadings
are attached to it. Hill v. Beghin, 644 N.E.2d 893, 895 (Ind. Ct. App. 1994),
trans. denied.
[9] Stepanovich presented claims of fraud, constructive fraud, statutory wage
violations, breach of fiduciary duty, breach of contract, and quantum meruit in
her Second Amended Complaint. 2 Before filing an answer, Defendants moved
the trial court pursuant to Rule 12(B)(1) to dismiss Stepanovich’s statutory
wage claim for lack of subject matter jurisdiction. Attached to the 12(B)(1)
motion were the Houchin Affidavit, Indiana Department of Workforce
Development documents, and the Purchase Agreement for the sale of Envision
Optical. In response to the 12(B)(1) motion, Stepanovich filed her Verified
Supplemental Affidavit. Although this was styled as a supplemental affidavit,
Stepanovich filed only one affidavit in the pleadings which followed the filing
of her Second Amended Complaint.
2 Stepanovich does not appeal the trial court’s grant of summary judgment in favor of Defendants on her wage and quantum meruit claims.
Court of Appeals of Indiana | Memorandum Decision 18A-PL-2788 | May 6, 2019 Page 6 of 21 [10] Contemporaneously with their 12(B)(1) motion, Defendants filed a motion
pursuant to Rule 12(B)(6) seeking dismissal of Stepanovich’s fraud, constructive
fraud, breach of fiduciary duty, breach of contract, and quantum meruit claims
for failure to state a claim. Defendants did not attach any affidavits or other
supporting materials to the 12(B)(6) motion, and Stepanovich filed none in
response. Neither party produced a copy of the 12(B)(6) motion in its
appendix, so there is no basis in the record for us to conclude that Defendants
incorporated the affidavits filed in the 12(B)(1) pleadings into their 12(B)(6)
motion. Defendants referred to the Houchin Affidavit once in their Reply in
Support of their 12(B)(6) motion to dismiss, but this was to point out that “Dr.
Houchin’s Rule 12(B)(1) affidavit is the exact same affidavit that she filed
previously to challenge subject matter jurisdiction over [Stepanovich’s] wage
claim . . .” and was not an express incorporation of the Houchin Affidavit into
the 12(B)(6) motion. The trial court did not accept any substantive evidence at
the hearing on the motions to dismiss, and, at the hearing, both parties treated
the 12(B)(6) motion as a challenge to the sufficiency of the Second Amended
Complaint, not a summary judgment motion.
[11] Based upon Rule 12(B) and Defendants’ failure to support their 12(B)(6) motion
with matters outside the pleadings, we conclude that the trial court erred when
it treated Defendants’ 12(B)(6) motion as one for summary judgment. The
improper conversion of a motion to dismiss to a motion for summary judgment
is harmless where our review of the errors alleged is not altered, such as where
the defense raised does not implicate the merits of the case. See Blair v. Blair,
Court of Appeals of Indiana | Memorandum Decision 18A-PL-2788 | May 6, 2019 Page 7 of 21 643 N.E.2d 933, 935 (Ind. Ct. App. 1994) (finding improper conversion to
summary judgment of motion to dismiss for lack of subject matter and personal
jurisdictions harmless). However, a motion to dismiss for failure to state a
claim tests the legal sufficiency of the complaint, and the issue is whether the
complaint establishes any set of circumstances under which the non-movant
would be entitled to relief. Doe v. Adams, 53 N.E.3d 483, 491 (Ind. Ct. App.
2016), trans. denied. Resolution of this issue does not entail going beyond an
examination of the complaint at issue. Without deciding whether a plaintiff in
like circumstances is always prejudiced, we conclude that Stepanovich was
prejudiced here because, in reaching its decision, the trial court relied on her
statement in her Memorandum in Reply to Defendants’ Motion to Dismiss 3
that she “‘was not a medical professional entitled to share in the P.C.’s
profits.’” (Appellant’s App. Vol. II, p. 16). This was not an allegation
contained within the four corners of the Second Amended Complaint. We
conclude, therefore, that the trial court’s error was not harmless.
[12] We review de novo a trial court’s dismissal for failure to state a claim. Bellwether
Props., LLC v. Duke Energy Ind., Inc., 87 N.E.3d 462, 466 (Ind. 2017). We also
review a trial court’s grant of summary judgment de novo. Kerr v. City of South
Bend, 48 N.E.3d 348, 352 (Ind. Ct. App. 2015). Given that our standards of
review for motions to dismiss and for summary judgment provide for no
3 In its Order, the trial court referred to this as “Pl.’s Br. in Resp. to Mot. To Dismiss”. (Appellant’s App. Vol. II, p. 16).
Court of Appeals of Indiana | Memorandum Decision 18A-PL-2788 | May 6, 2019 Page 8 of 21 deference to the trial court’s decision, and in the interests of judicial economy,
we will determine whether Stepanovich’s Second Amended Complaint was
subject to dismissal for failure to state a claim.
II. Failure to State a Claim
[13] As noted above, a dismissal motion for failure to state a claim tests the legal
sufficiency of a plaintiff’s claim, not the adequacy of the facts supporting it.
EngineAir, Inc. v. Centra Credit Union, 107 N.E.3d 1061, 1065 (Ind. Ct. App.
2018). Dismissal motions are not favored by the law, and, as such, they are
properly granted only when the allegations of the complaint present no possible
set of facts upon which the plaintiff can recover. Id. Indiana is a notice
pleading state that requires only that a complaint recite a short and plain
statement of the claim and a demand for relief. BloomBank v. United Fid. Bank,
F.S.B., 113 N.E.3d 708, 720 (Ind. Ct. App. 2018), trans. denied. When
conducting a 12(B)(6) analysis, the facts alleged in the complaint are taken as
true and are considered in the light most favorable to the nonmoving party,
indulging every reasonable inference in the nonmoving party’s favor. Id. The
pertinent inquiry is whether the opposing party has been adequately notified of
the operative facts concerning the claim so as to be able to defend against it. Id.
at 720-21. Put another way, the allegations contained in a complaint are
sufficient if they would put a reasonable person on notice as to why they are
being sued by the plaintiff. Id.
[14] Although Indiana is a notice pleading state, claims of fraud are treated
differently and are subjected to more stringent pleading requirements. Indiana
Court of Appeals of Indiana | Memorandum Decision 18A-PL-2788 | May 6, 2019 Page 9 of 21 Trial Rule 9(B) provides that “[i]n all averments of fraud or mistake, the
circumstances constituting fraud or mistake shall be specifically averred.” To
meet the heightened pleading requirements, the party raising the fraud claim
must specifically allege the elements of fraud, the time, place and substance of
false reports or facts that were misrepresented, and the identity of what was
procured by the alleged fraud. Kapoor v. Dybwad, 49 N.E.3d 108, 132 (Ind. Ct.
App. 2015), trans. denied. The exact level of particularity that is required will
necessarily differ based on the facts of the case. Id. A plaintiff’s failure to plead
her fraud complaint with specificity constitutes a failure to state a claim upon
which relief may be granted. Id.
A. Fraud
[15] The elements of fraud are: (i) material misrepresentations of past or existing
facts by the party to be charged; (ii) which were false; (iii) which were made
with knowledge or reckless ignorance of the falseness; (iv) were relied upon by
the complaining party; and (v) proximately caused injury to the complaining
party. CRIT Corp. v. Wilkinson, 92 N.E.3d 662, 670 (Ind. Ct. App. 2018). The
presence or absence of the intent to deceive is the element that differentiates
actual fraud from constructive fraud. Kapoor, 49 N.E.3d at 124.
[16] Stepanovich alleged actual fraud as follows:
22. [Stepanovich] incorporate[s] by reference paragraphs 1 through 21 as stated herein[.]
Court of Appeals of Indiana | Memorandum Decision 18A-PL-2788 | May 6, 2019 Page 10 of 21 23. [Houchin] represented that [the] P.C. and Envision Optical were structured so that all profits, past, present and future, were split equally and so that valuations were equivalent.
24. [Houchin] also represented that [Stepanovich] would be paid for the work completed on behalf of [the] P.C.
25. [Houchin] made such statements knowing them to be false or recklessly without knowledge as to their truth or falsity.
26. [Houchin’s] concealments, omissions, false statements of material information, and affirmative representations made to [Stepanovich] regarding the financial condition of Envision Optical were at all relevant times materially incomplete, misleading, and fraudulent misrepresentations.
27. [Houchin] made such statements to induce [Stepanovich] to act upon them.
28. [Houchin] made the foregoing misrepresentations, and omitted information intentionally, willfully, maliciously, with knowledge of or with the [sic] recklessness as to the materially incomplete, misleading, and fraudulent nature of the misrepresentations.
29. [Stepanovich] justifiably relied upon [Houchin’s] representations.
30. As a direct and proximate result of [Houchin’s] conduct, [Stepanovich] has suffered monetary damages.
(Appellant’s App. Vol. II, pp. 21-22).
Court of Appeals of Indiana | Memorandum Decision 18A-PL-2788 | May 6, 2019 Page 11 of 21 [17] Thus, Stepanovich alleged that Houchin made concealments, omissions, false
statements of material information, and affirmative representations regarding
the financial condition of Envision Optical. As an example, Stepanovich
alleged that Houchin represented to her that the P.C. and Envision Optical
were structured so that all profits, past, present, and future, were split equally
and so that the valuations of the two entities were equivalent. In the recitals of
her Second Amended Complaint, Stepanovich alleged that she and Houchin
had agreed to allocate all income and expenses between the P.C. and Envision
Optical “so that the net profit would all be generated by [Envision Optical] and
be split equally between them; and that all income and proceeds from any
source would be divided among them equally.” (Appellant’s App. Vol. II, p.
20).
[18] Although Stepanovich argues that she only pleaded fraud as to Envision
Optical, we agree with Defendants that at the root of Stepanovich’s allegation is
a claim that the parties agreed that Stepanovich would share in the profits of the
P.C. by funneling them into Envision Optical. In essence, Stepanovich would
be participating in the P.C. as a shareholder. However, a professional
corporation may issue shares to individuals only if that individual is authorized
by Indiana or another state’s law to render a professional service. See Ind. Code
§ 23-1.5-3-1(a)(1). Stepanovich would only be able to enforce a profit-sharing
agreement with the P.C. if she were professionally licensed to practice
optometry. Stepanovich did not allege in her Second Amended Complaint that
she was licensed to practice optometry in Indiana or any other state, and,
Court of Appeals of Indiana | Memorandum Decision 18A-PL-2788 | May 6, 2019 Page 12 of 21 therefore, she failed to state a claim for fraud upon which relief could be
granted.
[19] We also conclude that Stepanovich’s fraud allegations were not specifically
pleaded, in that they do not allege when Houchin was alleged to have made
these representations or how Houchin communicated these alleged
representations to Stepanovich, either the method used to make the
representations or the exact nature of what was represented. Although
Stepanovich incorporated her previous recitations into her fraud claim, she did
not attempt to tie those previous recitations to those contained in her fraud
claim, and, in any event, those previous recitations themselves do not supply
the required detail.
[20] This court has recognized that some facts pertinent to a fraud claim may not be
known to a plaintiff prior to filing her complaint. See Kapoor, 49 N.E.3d at 132
(“we remain sensitive to information asymmetries that may prevent a plaintiff
from offering more detail.”) (quotation omitted). However, these
representations were alleged to have been made by Houchin directly to
Stepanovich, and, thus, the details about when and how these representations
were made were ostensibly known to Stepanovich when she filed her Second
Amended Complaint. On appeal, Stepanovich addresses the adequacy of the
allegations of her Second Amended Complain but does not acknowledge that a
heightened pleading standard applied to her fraud claims. Due to this failure to
specifically plead her allegations, Stepanovich also failed to state a claim for
fraud. Kapoor, 49 N.E.3d at 132.
Court of Appeals of Indiana | Memorandum Decision 18A-PL-2788 | May 6, 2019 Page 13 of 21 [21] In addition, Stepanovich’s allegation that Houchin represented that she “would
be paid” for work for the P.C. was subject to dismissal because it was not an
alleged misrepresentation of past or existing fact. A fraud allegation may not be
premised on a representation of future action or future conduct. See Kopis v.
Savage, 498 N.E.2d 1266, 1272 (Ind. Ct. App. 1986) (holding that fraud “cannot
be based on broken promises, unfulfilled predictions, or statements of existing
intent which are not executed.”). Stepanovich’s claim that Houchin
represented that she would be paid was at most a promise of future action that
was also subject to dismissal for failure to state a claim.
B. Constructive Fraud
[22] The elements of constructive fraud are: “(i) a duty owing by the party to be
charged to the complaining party due to their relationship; (ii) violation of that
duty by the making of deceptive material misrepresentations of past or existing
facts or remaining silent when a duty to speak exists; (iii) reliance thereon by
the complaining party; (iv) injury to the complaining party as a proximate result
thereof; and (v) the gaining of an advantage by the party to be charged at the
expense of the complaining party.” Earl v. State Farm Mut. Auto. Ins. Co., 91
N.E.3d 1066, 1073 (Ind. Ct. App. 2018), trans. denied.
[23] Stepanovich alleged constructive fraud as follows:
31. [Stepanovich] incorporate[s] by reference paragraphs 1 through 21 as stated herein.
Court of Appeals of Indiana | Memorandum Decision 18A-PL-2788 | May 6, 2019 Page 14 of 21 32. Because of their relationship as shareholders in a closely held corporation, [Houchin] had a fiduciary duty to [Stepanovich].
33. [Houchin] violated that duty by making deceptive material representations of past or existing facts or remaining silent when [Houchin] had a duty to speak.
34. [Houchin] committed numerous acts of constructive fraud, including but not limited to, the following:
a. Selling entity assets without [Stepanovich’s] permission.
b. Failing to split non-medical profits from entities equally.
c. Failing to split any debts owed on behalf entities equally.
d. Other ways not yet identified.
35. While committing these acts of fraud, [Stepanovich] had a reasonable right to rely on the representations made to her by [Houchin].
36. [Stepanovich] reasonably relied on the acts of [Houchin].
37. As a proximate cause of [Houchin’s] actions, [Stepanovich] has suffered damages in the form of lost profits, wages, her time, and in other ways.
38. As a proximate cause of [Houchin’s] actions, [Houchin] has gained an advantage at the expense of [Stepanovich].
Court of Appeals of Indiana | Memorandum Decision 18A-PL-2788 | May 6, 2019 Page 15 of 21 39. [Stepanovich] has suffered and will continue to suffer severe irreparable damages as a result of [Stepanovich’s] reliance on the acts of fraud committed by [Houchin].
(Appellant’s App. Vol. II, pp. 22-23).
[24] Stepanovich alleged in her constructive fraud claim that Houchin had a
fiduciary duty towards her and that “[Houchin] violated that duty by making
deceptive material representations of past or existing facts or remaining silent
when [Houchin] had a duty to speak.” (Appellant’s App. Vol. II, p. 22).
Stepanovich then alleged three acts that she claimed constituted constructive
fraud. As set forth above, inasmuch as the acts alleged consisted of an
agreement to share in the profits of the P.C., Stepanovich failed to state a claim
upon relief could be granted.
[25] While the language of the constructive fraud claim tracks the language of this
court’s decisions on constructive fraud, like Stepanovich’s fraud claim, this
claim is not specifically pleaded in that it does not allege when Houchin made
the deceptive material representations or remained silent when Houchin had a
duty to speak or how she did so, either in manner or substance. This court has
held that, where a failure to disclose information is the heart of a claim for
constructive fraud, the non-disclosure is not an event that can be pleaded with
specificity, and it is enough to simply plead that the disclosure did not occur.
BloomBank, 113 N.E.3d at 721. However, Stepanovich pleaded non-disclosure
in the alternative, and so we cannot say that it is the heart of the complaint.
Court of Appeals of Indiana | Memorandum Decision 18A-PL-2788 | May 6, 2019 Page 16 of 21 [26] Stepanovich further alleged that Houchin committed numerous acts of
constructive fraud such as selling “entity” assets, failing to split non-medical
profits from “entities” equally, and failing to split debts owed on behalf of
“entities” equally. (Appellant’s App. Vol. II, p. 22). However, these
allegations do not provide any detail about Houchin’s alleged deceptive
material representations or silence, as they are not representations or omissions
of speech. The acts alleged to have constituted constructive fraud are
themselves not specifically pleaded, as Stepanovich does not specify to what
entity or entities she is referring. Because of these defects and omissions,
Stepanovich’s claim of constructive fraud was likewise subject to dismissal for
its failure to state a claim.
C. Breach of Fiduciary Duty
[27] The elements of the tort of breach of fiduciary duty are: (i) the existence of a
fiduciary relationship; (ii) a breach of the duty owed by the fiduciary to the
beneficiary; and (iii) harm to the beneficiary. Jaffri v. JPMorgan Chase Bank,
N.A., 26 N.E.3d 635, 639 (Ind. Ct. App. 2015). Shareholders in a closely-held
corporation stand in a fiduciary relationship to each other. Barth v. Barth, 659
N.E.2d 559, 561 (Ind. 1995). As such, they must deal fairly, honestly, and
openly with the corporation and their fellow shareholders. McLinden v. Coco,
765 N.E.2d 606, 615 (Ind. Ct. App. 2002).
[28] Stepanovich alleged breach of fiduciary duty in relevant part as follows:
Court of Appeals of Indiana | Memorandum Decision 18A-PL-2788 | May 6, 2019 Page 17 of 21 49. As shareholders in a closely held corporation, [Stepanovich and Houchin] owed each other the utmost duty of good faith and fair dealing.
50. As shareholders in a closely held corporation, a fiduciary relationship existed between [Stepanovich and Houchin].
51. Houchin represented to [Stepanovich] that [the PC.] would pay all debts owed to Envision Optical.
52. Houchin represented to [Stepanovich] that the profits and debts of Envision Optical would be shared equally upon dissolution.
53. [Houchin’s] misrepresentation and failure to disclose information to [Stepanovich] constitutes breach of fiduciary duty to her partner.
54. [Stepanovich] has been harmed by [Houchin’s] breach of her fiduciary duties.
(Appellant’s App. Vol. II, p. 24).
[29] Stepanovich alleged that (i) she and Houchin were in a fiduciary relationship
because they were shareholders in a closely-held corporation; (ii) Houchin
owed her a duty of good faith and fair dealing which she breached with
misrepresentations and failure to disclose information; and (iii) she was
damaged as a result of that breach. Although Houchin alleged a breach of
misrepresentation and failure to disclose, our research uncovered no cases
where this court applied the heightened pleading requirements applicable to
Court of Appeals of Indiana | Memorandum Decision 18A-PL-2788 | May 6, 2019 Page 18 of 21 fraud to a claim for breach of fiduciary duty, and so we find that these
allegations recited the operative facts of a claim for breach of fiduciary duty and
were not subject to dismissal for failure to state a claim.
[30] As to the allegation of Paragraph 51 that Houchin represented that the P.C.
would pay all debts owed to Envision Optical, we conclude that was an
allegation of an agreement that could not be enforced, as set forth above. As
such, that allegation did not state a claim upon which relief could be granted.
However, Stepanovich’s allegation that Houchin represented to her that the
profits and debts of Envision Optical would be shared equally upon dissolution
was adequately pleaded, and she may proceed on that claim.
D. Breach of Contract
[31] The elements of a breach of contract claim are: (i) the existence of a contract;
(ii) the defendant’s breach thereof; and (iii) damages. Murat Temple Ass’n, Inc. v.
Live Nation Worldwide, Inc., 953 N.E.2d 1125, 1128-29 (Ind. Ct. App. 2011),
trans. denied. Stepanovich made the following relevant allegations in her breach
of contract claim:
56. As shareholders in a closely held corporation, [Stepanovich and Houchin] agreed to share in the profits and losses of Envision Optical equally.
57. [Houchin] and [the] P.C. breached this agreement by not paying Envision Optical the indebtedness owed by [the] P.C., and by converting funds from Envision Optical for her own personal use.
Court of Appeals of Indiana | Memorandum Decision 18A-PL-2788 | May 6, 2019 Page 19 of 21 58. [Houchin] breached their agreement regarding the sharing in the profits and losses with Envision Optical upon dissolution, and by failing to allocate the proceeds of the sale of [the] P.C. and Envision [Optical] so that each received equal amounts.
59. As a proximate result of [Houchin’s] breach, [Stepanovich] suffered and will continue to suffer irreparable damages as a result of the breaches of contract committed by [Houchin] and [the] P.C.
60. [Stepanovich] is entitled to recover compensatory damages in an amount sufficient to compensate her for the damages and injuries caused by [Houchin’s] and [the] P.C.’s breach.
(Appellant’s App. Vol. II, p. 25).
[32] Thus, Stepanovich claimed that (i) an agreement to share profits and losses in
Envision Optical existed between the two shareholders; (ii) Houchin breached
this agreement in four ways: not paying Envision Optical the debt owed to it by
the P.C., converting funds from Envision Optical, failing to share the profits
and losses of Envision Optical upon dissolution, and failing to equally allocate
the proceeds of the sales of the P.C. and Envision Optical; and (iii) damages
were proximately caused by those breaches. We conclude that, under the
regular notice pleading standard applicable to non-fraud claims, these
allegations were adequately pleaded, except for the allegations based upon the
alleged agreement to share the profits of the P.C. Thus, Stepanovich may
proceed on her breach of contract claims based upon her allegations that
Houchin converted funds from Envision Optical and failed to share the profits
Court of Appeals of Indiana | Memorandum Decision 18A-PL-2788 | May 6, 2019 Page 20 of 21 and losses equally from Envision Optical upon dissolution, inasmuch as they do
not rely upon the alleged agreement to share in the profits of the P.C.
CONCLUSION [33] Based on the foregoing, we conclude that the trial court erred when it treated
Defendants’ dismissal motion as a motion for summary judgment and that
Houchin may proceed on her breach of fiduciary duty and contract claims that
are not based upon the alleged agreement to share in the profits of the P.C.
[34] Affirmed in part, reversed in part, and remanded for further proceedings.
[35] Bailey, J. and Pyle, J. concur
Court of Appeals of Indiana | Memorandum Decision 18A-PL-2788 | May 6, 2019 Page 21 of 21