ATTORNEYS FOR APPELLANTS|
Michael K. Sutherlin
ATTORNEYS FOR APPELLEES |
Donald L. Dawson
HERB BUDDEN, BONNIE ) BUDDEN and CHRISTINE MULLER, ) Individually, and as Representatives of ) a class of teachers, ) ) Appellants (Plaintiffs below ), ) Supreme Court ) Cause No. 49S05-9804-CV-220 v. ) ) Court of Appeals THE BOARD OF SCHOOL ) Cause No. 49A05-9609-CV-380 COMMISSIONERS OF THE CITY ) OF INDIANAPOLIS, ASH ) FINANCIAL GROUP, INC., SHIRL ) GILBERT, Individually, and BRENT ) W. ASH, Individually. ) ) Appellees (Defendants below ). )
employees.See footnote 1
Pursuant to the agreement, IPS deducted money from participating employees'
paychecks and disbursed the funds to AFG for investment with insurance companies or
mutual funds selected by the participants. At some point IPS became aware that AFG might
be embezzling the funds, as in fact was occurring. In March 1994, IPS terminated its
contract with AFG effective June 30, 1994. In a letter dated September 21, 1994, IPS Interim
Superintendent Duncan N.P. Pritchett Jr. informed potentially affected IPS employees of
We have reason to believe that [AFG] which administered tax sheltered annuities (TSA) accounts for approximately 941 IPS employees from July, 1991 through June 30, 1994, failed to distribute approximately $350,000 in funds deducted from employees' salaries to the insurance/annuity companies selected by the employees.
The letter asserted that IPS was trying to determine the number of employees affected and the total amount of money involved. The letter assured employees that IPS would continue to explore all means for the recovery of the funds and restitution of the TSA accounts of the affected IPS employees.
Herb Budden, Bonnie Budden, and Christine Muller (collectively the plaintiffs) -- all IPS teachers for many years and participants in the investment plans -- eventually retained counsel to consider pursuing claims based on these events. In January 1995, counsel sent a three-page letter to IPS that began as follows:
This is to advise you that our office has been retained by [the plaintiffs] and potentially all teachers who had 403 funds embezzled by [AFG] to represent their
interests in any claims they may have against [IPS] and [AFG]. The purpose of this
correspondence is to officially serve you with a Tort Claim Notice . . . .
The letter outlined the facts underlying the claim -- IPS's decision to retain AFG, the nature of the agreement, and the apparent theft of the funds. The participating teachers' losses were described as individually various funds from their pension plan and collectively approximately $400,000.00. A theory of liability was also offered: Because of the wrongful conduct of [IPS] and its then Superintendent Shirl Gilbert the negligent hiring and supervision of Brent W. Ash and [AFG] contributed to and resulted in the fraudulent and unlawful acts previously described. The letter, which included the plaintiffs' addresses, concluded with the following:
Herb Budden, Bonnie Budden, and Christine Muller, teachers of the Indianapolis Public School system, and potentially all teachers who had 403 funds embezzled by Ash Financial Group, Inc. . . . are holding Indianapolis Public School Corp. liable for the loss and seek to recover all such funds plus reasonable attorney fees. . . . [The plaintiffs] and potentially all teachers who had 403(b) funds embezzled by Ash Financial Group, Inc. . . . seek a total of $500,000.00 in damages under the Tort Claims Act.
In June 1995, the plaintiffs filed a class action complaint for damages against IPS, Shirl Gilbert (IPS Superintendent in July 1991), AFG, and Brent W. Ash, the president of AFG. The plaintiffs purported to act on their own behalf and as representatives of a class of teachers who were defrauded by AFG. The complaint alleged several tort causes of actionSee footnote 2 2 and requested $500,000 in damages under the Tort Claims Act, punitive damages,
and reasonable costs including attorney fees. The defendants' answer denied the substance
of the plaintiffs' allegations and raised a number of affirmative defenses, including
inadequacy of the tort claim notice.
See footnote 3
Asserting that an estimated 900 or more teachers might have an interest in the proceedings, in November 1995 the plaintiffs moved to certify the case as a class action under Trial Rule 23. The class was described as all teachers employed by [IPS] who have an interest in the money embezzled, who participated in and were wrongly deprived of their own funds from a mutual funds pension plan under the Indianapolis Public Schools Teachers' Retirement Fund. The defendants opposed class certification. After a hearing on the motion, the trial court ruled that the plaintiffs have complied with Trial Rule 23. The basic problem with Plaintiffs['] motion is the adequacy of notice under the Indiana Tort Claims Act. Although the court found that in the present posture of the case, the Plaintiffs are entitled to proceed with the class action, a final ruling on class certification was postponed pending the outcome of a hearing on the defendants' motion for partial summary judgment on the notice issue. In seeking summary judgment on that point, the defendants argued that any claims by unnamed class members were barred because (1) the names and number of potential plaintiffs were not provided in the tort claim notice; and (2) the potential
class plaintiffs did not authorize anyone to submit a notice for them. The defendants relied
on Alonso v. City of Hammond, 648 N.E.2d 1221 (Ind. Ct. App. 1995) for the proposition
that these flaws were fatal to the notice and prevented the suit from proceeding as a class
Alonso held that all potential class plaintiffs must satisfy the notice requirement of
the Tort Claims Act, either by submitting their own notices of claims or by authorizing
someone to submit a notice for them. Id. at 1224 (footnote omitted).
In a July 1996 order, the trial court granted the defendants' motion for partial summary judgment, denied the plaintiffs' motion for class certification, and ruled that the case would go forward as a suit by the three named plaintiffs. In so ruling, the court remarked: Perhaps, the stringent notice requirements as set out in [Alonso] should be revisited by the Court of Appeals. However, this Court is bound to follow the ruling of the Court of Appeals. The order was certified for interlocutory appeal pursuant to Indiana Appellate Rule 4(B)(6). See footnote 4 4 The plaintiffs appealed and the Court of Appeals affirmed. Budden v. Board of Sch. Comm'rs, 680 N.E.2d 543 (Ind. Ct. App. 1997), reh'g denied. We granted transfer on April 15, 1998.
a matter of law. Ind. Trial Rule 56(C). The nonmoving party has the burden of
demonstrating that the grant of summary judgment was error, but we nonetheless carefully
assess the trial court's decision to ensure that the nonmovant was not improperly denied its
day in court. Mullin v. Mun. City of South Bend, 639 N.E.2d 278, 280-81 (Ind. 1994).
Although a ruling on class certification is typically reviewed for an abuse of discretion, Hefty
v. All Other Members of the Certified Settlement Class, 680 N.E.2d 843, 848 (Ind. 1997),
resolution of this appeal turns on interpretation of the notice provisions of the Tort Claims
Act. Because this presents a question of law, we review application of the Act's notice
requirements to the facts here de novo.
Indiana State Highway Comm'n v. Morris, 528
N.E.2d 468, 471 (Ind. 1988)
liability within ninety days of the filing, IPS effectively denied the claim and cleared the way
for a lawsuit.
Ind. Code Ann. §§ 34-13-3-11 & -13 (West Supp. 1998)
appeal deals with the Act's notice provision:
The notice required . . . must describe in a short and plain statement the facts on which the claim is based. The statement must include the circumstances which brought about the loss, the extent of the loss, the time and place the loss occurred, the names of all persons involved if known, the amount of the damages sought, and the residence of the person making the claim at the time of the loss and at the time of filing the notice.
Id. § 34-13-3-10. The basic issue is whether members of a prospective class in a class action must either satisfy the requirements of this section or expressly authorize a putative class representative to give notice on their behalf. If so, then this case cannot proceed as a class action and the trial court's rulings were correct.
In broad brush, the parties' contentions are as follows. The plaintiffs argue that their notice to IPS in January 1995 was sufficient to allow this case to go forward as a class claim on behalf of all affected IPS employees. They assert that conditional language in the statute -- the names of all persons involved if known -- contemplates a class action under these circumstances. In the alternative, the plaintiffs contend: (1) this class action is not barred because the notice informed IPS of all it reasonably needed to know to investigate the claim and prepare for the possibility of litigation, thereby satisfying the purposes of the statute (commonly referred to as the substantial compliance doctrine); and (2) the defendants should be estopped from asserting non-compliance with the statute because IPS allegedly made various representations conceding liability or otherwise causing the potential class
members to fail to file individual tort claim notices. We are also urged to declare the Tort
Claims Act to be without effect in this case because it conflicts with the plaintiffs' claimed
right under Trial Rule 23 to bring a class claim.
The defendants counter that Rule 23 does not exempt the plaintiffs or any other claimant from the statutory notice prerequisite. The defendants offer several arguments against judicial invalidation of the statute: (1) the Act is a precondition on the right to sue, not a procedural rule that must yield to Rule 23; and (2) there is no clash between the Act and the Rule because the notice requirement, unlike Rule 23, governs conduct before suit is filed. The defendants assert that each class member is a person making the claim as to whom specific damages and other information are required by the statute. Specifically, they maintain that the notice does not meet the requirements of the statute because it failed to state: (1) the names and number of potential class plaintiffs; (2) the extent, time, and place of the losses of each class member; and (3) the authority of three putative class representatives to submit a notice on behalf of unnamed members. Finally, the defendants dispute the contention that substantial compliance and estoppel save the notice in this case.
A. The plaintiffs' notice satisfied the Act
In our first line of inquiry -- the language of the Act -- we find no prohibition against class actions on behalf of a class including members who were not specifically identified in the tort claim notice. The statute requires that the notice set forth, among other things, the residence of the person making the claim at the time of the loss and at the time of filing the
notice. Ind. Code Ann. § 34-13-3-10 (West Supp. 1998). The person making the claim and the claim are not defined. However, there is nothing in the Act to suggest that the claim cannot be a class action or that unknown class members must be identified by name. This statute permits the persons making the claim to be the named plaintiffs, and only their addresses are required. The absent class members may be persons involved but their identity is required only if known. There is nothing in the statute to support the defendants' contention that the persons involved are only government officials. Indeed, they may be plaintiffs, defendants, third party witnesses, and others depending on the facts.See footnote 6 6 The availability of a claim by a named plaintiff on behalf of a class is consistent with the language of the Act and also supported by provisions that do not appear. Unlike other statutes regulating suits against the government, the Act lacks any language indicating that each class member must file a notice. In this respect it differs from several provisions that explicitly preclude class actions unless each member of the class has met some condition. For example, Indiana Code § 6-8.1-9-7 (1993) provides that a class action for a refund of certain taxes may not be maintained in any court, including the Indiana tax court, on behalf
of any person who did not file a refund claim before the class was certified.See footnote 7 7 In the absence of any such language, the person making the claim can be a putative class representative and the claim can be any claim properly asserted by that person, including a class action if it meets the requirements of Rule 23 and any other relevant considerations. Even assuming for sake of argument that the Act is semantically ambiguous on these points, settled rules of construction require that any ambiguities be resolved in favor of the claimant because the Act is in derogation of the right at common law to sue the government in tort. See, e.g., Polick v. Indiana Dep't of Highways, 668 N.E.2d 682, 685 (Ind. 1996). Moreover, because there is no bar in the Tort Claims Act to a class action, the same considerations that led to Rule 23 as a general proposition are relevant here. One of the privileges our system of justice confers on every citizen is the ability to assert claims in the form of a class action if the requirements of Rule 23 are met. As a practical matter, this is often essential to the assertion of any claim at all. The cost and difficulty of pursuing only an individual claim may render it uneconomic from the point of view of any capable attorney, and financing such an enterprise on a pay as you go basis is often beyond the means of the aggrieved parties, in this case Mr. and Mrs. Budden and Ms. Muller. The class action device has a long and useful
history in this State.See footnote 8
The construction of the Tort Claims Act that IPS urges would render
it impossible in many if not most cases to assert a class claim against a political subdivision.
Class members are usually unknown to each other. Identification of the class members by
name often requires discovery of records that are available to the defendant but not the
plaintiffs. This can be accomplished in most cases only after litigation is instituted and
rarely within the six-month time frame required for a tort claim notice.
The defendants contend that if the statute is read to permit a class action, some class members will in effect be allowed to bypass the notice requirement. That may be correct, but the Act is intended to give the political subdivision notice, not to create barriers to claims. As other courts have observed, the class action by its very nature circumvents the need for individual plaintiffs to file individual claims. Zayas v. Gregg Appliances, Inc., 676 N.E.2d 365, 367 (Ind. Ct. App. 1997), trans. denied, 683 N.E.2d 594 (Ind. 1997) (table). See generally 1 Herbert B. Newberg & Alba Conte, Newberg on Class Actions §§ 1.02-03 (3d ed. 1992) (discussing representative nature of class actions).
recognized that rules of civil procedure would ultimately be adopted by this Court. Id. § 2
at 715. ([T]he General Assembly reaffirms the power given to the Supreme Court to adopt,
amend and rescind rules of Court, including these rules of Court herein adopted).
months after the legislative rules were passed, this Court promulgated the Indiana Rules of
Trial Procedure, including Rule 23 in its current form.
The judicial rules were patterned,
with some changes, on the work of the legislature and the Civil Code Study Commission.See footnote 10
The Trial Rules and their legislative counterpart went into effect on the same day (January
since their inception the Trial Rules have been the subject of both
judicial and legislative blessing.
For almost fifteen years, a concurrent set of the Trial Rules could be found in the Indiana Code. See, e.g., Ind. Code § 34-5-1-1 (1982). In a non-substantive change, the legislative analog was removed from the statute books in 1984. See Pub. L. No. 176-1984, § 2, 1984 Ind. Acts 1477. The following statute was adopted in its place: The general assembly adopts, and incorporates into the Indiana Code, the Indiana rules of trial procedure: (1) as enacted by the general assembly in Acts 1969, c.191, s.1 and amended by P.L.319- 1975, SECTION 1; and (2) as accepted by the Indiana supreme court as being in effect on December 1, 1983. Ind. Code Ann. § 34-8-2-2 (West Supp. 1998). This incorporate by reference provision, taken together with other statutes, evinces a plain intent to retain the
1970 legislative version of the Trial Rules to the extent not in conflict with Rules promulgated by this Court.See footnote 11 11 The legislative analog to Rule 23 is a nearly verbatim copy of the judicial rule; as such, Rule 23 represents both judicial and legislative policy.See footnote 12 12 Because Rule 23 enjoys this dual heritage, this case does not involve a clash between a procedural statute and a Rule of this Court. Rather, as other courts have concluded in construing the Trial Rules, the first level of resolution turns on whether the class action device and the Tort Claims Act may be reconciled. Elliott v. Roach, 409 N.E.2d 661, 668-69 (Ind. Ct. App. 1980) (noting statutory origins of Trial Rule 21(B) and describing issue as whether particular statute and the Rule could both be given effect). Under settled rules of construction, our course is clear: Where two statutes are in apparent conflict they should be construed, if it can be reasonably done, in a manner so as to bring them into harmony. Quakenbush v. Lackey, 622 N.E.2d 1284, 1290 (Ind. 1993) (interpreting immunity provision of the Tort Claims Act) (citation omitted). For reasons already explained, permitting a tort claim notice on behalf of a class achieves this aim. The grant of partial summary judgment
for the defendants must be reversed.
See footnote 13
loss and at the time of filing the notice.
Ind. Code Ann. § 34-13-3-10 (West Supp. 1998). It requires only a short and plain statement of this information. The specific objections that the defendants raise are not fatal. They point out that the notice, by itself, did not permit IPS to quantify its exposure to the class with precision or even to identify the class members without resort to records in the hands of class members or AFG. This risk of unquantifiable damages is often presented in more conventional lawsuits where, for example, the dollar value of a personal injury claim is unknown and may vary over a wide range based on judgment and even on future events -- such as whether the plaintiff survives or not. The plaintiffs here included their best guess of aggregate damages of $500,000. That is good enough. And, as already noted, the identity of the class members is not known at the time the notice is filed and therefore is not required.
questions reflect the court's apparent conclusion that its hands were tied by Alonso. None
of the questions involves application of Rule 23 as such to the facts of this case.See footnote 14
record is clear that the motion to certify the class was denied not based on any Rule 23
considerations but solely due to the statutory notice issue.
Because the Tort Claims Act is no impediment to a class action here, we vacate the order denying the motion for class certification. There are no findings on the substantive requirements of Rule 23. We remand for the trial court to consider what, if any, barriers to certification remain. Hefty v. All Other Members of the Certified Settlement Class, 680 N.E.2d 843, 850-51 (Ind. 1997) (remanding for findings on whether class should be certified); cf. Kuespert v. State, 177 Ind. App. 142, 151, 378 N.E.2d 888, 894 (1978)
(remanding due to lack of findings explaining decision to deny class certification).See footnote 15
SHEPARD, C.J., and DICKSON, SULLIVAN and SELBY, JJ., concur.
duty of care and his alleged misrepresentations to IPS before the contract was made of Ash's competency and the extent of Gilbert's personal ties to Ash. The claims against AFG and Ash focused on recovery of approximately $400,000 in missing employee funds.
Converted by Andrew Scriven