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TP Orthodontics, Inc. v. Kesling

Supreme Court of Indiana

September 3, 2014

TP ORTHODONTICS, INC., Appellant/Intervenor
v.
ANDREW KESLING, Individually and as TRUSTEE OF THE ANDREW C. KESLING TRUST DATED MARCH 28, 2001, and THE ANDREW C. KESLING TRUST DATED MARCH 28, 2001, Appellees (Defendants below) CHRISTOPHER KESLING, DDS, MS, ADAM KESLING, and EMILY KESLING, Individually and derivatively on behalf of TP ORTHODONTICS, INC., Appellees (Plaintiffs below),

Page 986

[Copyrighted Material Omitted]

Page 987

Interlocutory Appeal from the LaPorte Superior Court, No. 46D02-1001-MI-15. The Honorable Richard R. Stalbrink, Jr., Judge. On Petition to Transfer from the Indiana Court of Appeals, No. 46A03-1207-MI-324.

FOR APPELLANT/INTERVENOR, TP ORTHODONTICS, INC.: Sean M. Clapp, Elizabeth M. Ellis, Fishers, Indiana.

FOR AMICUS CURIAE, INDIANA LEGAL FOUNDATION: Julia Blackwell Gelinas, David T. Kasper, Maggie L. Smith, Indianapolis, Indiana.

FOR APPELLEES, CHRISTOPHER KESLING, DDS,MS, ADAM KESLING, and EMILY KESLING: Robert W. Wright, Indianapolis, Indiana; Shaw R. Friedman, LaPorte, Indiana; John A. Conway, John A. Drake, South Bend, Indiana.

FOR APPELLEE, ANDREW KESLING: Thomas G. Burroughs, Michael W. Hile, Indianapolis, Indiana.

David, Justice. Rush, C.J., Dickson, Rucker, and Massa, JJ., concur.

OPINION

Page 988

David, Justice.

Following the initiation of a derivative suit by sibling minority shareholders, TP Orthodontics' board of directors formed a special litigation committee (the " SLC" ) to investigate the derivative claims pursuant to Ind. Code § 23-1-32-4 (2007). After a year-long investigation, the SLC produced the report that is at issue here. As a result of the report's recommendations, TPO filed a motion to dismiss certain derivative claims and attached a heavily redacted version of the report in support of its motion. Approximately 120 of the report's 140 pages had been redacted " to prevent disclosure of attorney-client privileged information and attorney-work product prepared in anticipation of litigation." (Appellant's App. at 183.)

Seeking access to the unredacted report in order to challenge the SLC's conclusions on one of only two grounds permitted by Indiana law, the sibling shareholders filed a motion to compel production of the full report. The trial court granted the sibling shareholders' motion, and the Court of Appeals affirmed on interlocutory appeal. After holding oral argument, we granted TPO's petition to transfer and are now faced with resolving two valid but competing interests: the siblings shareholders' desire to access the full SLC report in order to contest the SLC's conclusions, and TPO's desire to protect privileged attorney-client communications and attorney work product potentially contained within the SLC report.

Facts and Procedural History

TP Orthodontics is a closely-held corporation headquartered in Westville, Indiana, and the Kesling family business. Andrew Kesling, President of TPO, owns fifty-one percent of TPO's voting stock. Collectively, Andrew's siblings Christopher (DDS, MS), Adam, and Emily Kesling own eleven percent. In January 2010, the sibling minority shareholders filed, both individually and derivatively on behalf of TPO, a complaint against Andrew in the LaPorte Superior Court alleging wrongdoing causing a significant decrease in shareholder value.[1] The trial court granted TPO's motion

Page 989

to intervene, and pursuant to Ind. Code § 23-1-32-4, TPO's board of directors formed a special litigation committee to investigate the derivative claims. After meeting thirty times and conducting forty interviews, the SLC ultimately recommended that only some derivative claims be pursued and issued the report that is the subject of this appeal.

Based on the report, TPO filed a motion to dismiss--or alternatively a motion for summary judgment--the rejected derivative claims and in support attached the 140-page report and other documents. However, claiming attorney-client privilege and work-product privilege, TPO redacted 120 pages of the report. In response, the sibling shareholders filed a motion to compel production of the full SLC report[2] in order to contest the SLC's conclusions on one of two grounds permitted by Indiana law: the SLC's determination " was not made after an investigation conducted in good faith." Ind. Code § 23-1-32-4(c).

Opposing the sibling shareholders' motion, TPO argued that it should not have to produce the unredacted report because, among other reasons, (1) the business judgment rule prohibited inquiry into the substance of the SLC's report; and (2) the report contained protected attorney-client communications and attorney work product.[3] Though TPO stated it would have no objection to an in camera review by the trial court in order for the court to determine whether the redacted material is privileged, in camera review did not occur.

Following a hearing, the trial court granted the sibling shareholders' motion, ordered TPO to file the full SLC report under seal, and issued a protective order preventing any party from disclosing the report's contents. On interlocutory appeal, the Court of Appeals affirmed and held that (1) under Ind. Evidence Rule 401, the entire unredacted SLC report was relevant to the issue of whether the SLC acted in good faith; and (2) TPO waived its privilege as to the SLC report. In re TP Orthodontics, Inc., 995 N.E.2d 1057 (Ind.Ct.App. 2013).

TPO subsequently petitioned this Court for transfer. Amicus curiae Indiana Legal Foundation filed a brief aligned with TPO. Following oral argument, we granted transfer, thereby vacating the Court of Appeals opinion. Ind. Appellate Rule 58(A).

Standard of Review

Our standard of review in discovery matters is limited to determining whether the trial court abused its discretion. Richey v. Chappell, 594 N.E.2d 443, 447 (Ind. 1992). Furthermore, although TPO filed a motion to dismiss, it designated the SLC report and other documents as evidence. Thus, pursuant to Ind. ...


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