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Lutheran Health Network of Indiana, LLC v. Bauer

Court of Appeals of Indiana

December 30, 2019

Lutheran Health Network of Indiana, LLC, Lutheran Health Network Investors, LLC, and CHSPSC, LLC, Appellants-Plaintiffs,
v.
Brian Bauer, John Doe #1, and John Doe #2-5, Defendants, and Thomas Kelley, Charles Surack, Sweetwater Sound, Inc., Kyle Witwer, Witwer Construction, Inc., Andrea Schenkel, William P. Schenkel, IV, Darrick Hoopingarner, Aaron Garofola, and Joseph Oscar Mitson, Non-Parties-Appellees, and Indiana University Health, Non-Party Intervenor-Appellee

          Appeal from the Allen Superior Court The Honorable Nancy Eshcoff Boyer, Judge Trial Court Cause No. 02D01-1711-MI-1018

          ATTORNEYS FOR APPELLANTS Paul L. Jefferson Bradley J. Buchheit McNeely Stephenson Indianapolis, Indiana James P. Buchholz Tourkow, Crell, Rosenblatt & Johnston, LLP Fort Wayne, Indiana

          ATTORNEYS FOR APPELLANTS Paul L. Jefferson Bradley J. Buchheit McNeely Stephenson Indianapolis, Indiana James P. Buchholz Tourkow, Crell, Rosenblatt & Johnston, LLP Fort Wayne, Indiana

          ATTORNEYS FOR APPELLEE JOSEPH OSCAR MITSON Stephen J. Peters David I. Rubin Kroger Gardis & Regas, LLP Indianapolis, Indiana ATTORNEYS FOR APPELLEE INDIANA UNIVERSITY HEALTH Norris Cunningham Kimberly E. Schroder Katz Korin Cunningham, PC Indianapolis, Indiana

          CRONE, JUDGE.

         Case Summary

         [¶1] Lutheran Health Network of Indiana, LLC, Lutheran Health Network Investors, LLC, and CHSPSC, LLC (collectively "Lutheran"), filed a complaint in Tennessee state court against former CEO of Lutheran Health Network ("LHN") Brian Bauer and five John Does. Pursuant to Indiana Trial Rule 28(E), Lutheran initiated an ancillary proceeding in Allen Superior Court in Indiana ("the trial court") to assist its discovery in the Tennessee lawsuit. Lutheran asked the trial court to authorize service of subpoenas for testimony and documents on various non-parties domiciled in Indiana, which the court did. Indiana University Health ("IU Health") was allowed to intervene in the ancillary proceeding to protect its interests with respect to confidential and proprietary documents and information that Lutheran requested from non-parties who were IU Health employees. Lutheran, the non-parties, and IU Health repeatedly requested either enforcement of or relief from the discovery requests. The Tennessee lawsuit was dismissed while discovery matters were still pending in the trial court. Pursuant to Indiana Trial Rule 34(C)(3), some of the non-parties and IU Health (collectively "Appellees") requested damages resulting from Lutheran's discovery requests, including attorneys' fees and costs. The trial court granted the requests over Lutheran's objection and awarded fees to the non-parties and fees and costs to IU Health.

         [¶2] Lutheran now appeals, arguing that the trial court lacked jurisdiction to award fees and costs; that the trial court erred in ruling that Appellees are entitled to fees under Trial Rule 34(C)(3); that the trial court erred in ruling that IU Health has standing to seek fees and costs under that rule; and that the trial court never afforded it an opportunity to challenge the reasonableness of the requested fees. We hold that the trial court did not lack jurisdiction to award fees and costs; that the trial court did not err in ruling that Appellees are entitled to fees under Trial Rule 34(C)(3); that the trial court did not err in ruling that IU Health has standing to seek fees and costs under that rule; and that Lutheran must be given an opportunity to challenge the reasonableness of the requested fees. Accordingly, we affirm in part and remand for further proceedings.

         Facts and Procedural History[1]

         [¶3] The relevant facts are undisputed. Bauer is a resident of Fort Wayne, Indiana, and was the CEO of LHN and Lutheran Hospital of Indiana. In 2016, Bauer and a group of Fort Wayne physicians unsuccessfully attempted a buyout of Lutheran. LHN terminated Bauer, who then consulted with IU Health about entering the Fort Wayne hospital market. On November 2, 2017, Lutheran filed a complaint in Tennessee state court against Bauer and five John Does. The complaint alleged that the John Does were "a singular or group of anonymous online commenters that post on the social media network Facebook under the pseudonym 'Sajin Young'" and that the Facebook profile "was created for the purposes of: (1) falsely portraying Lutheran and LHN; and (2) intimidating and harassing Lutheran's employees and creating a hostile work environment to drive away qualified employees from Lutheran's businesses in Fort Wayne[, ]" which is in Allen County. Lutheran's App. Vol. 2 at 50, 64. The complaint asserted claims for breach of contract, defamation, trade and commercial disparagement, unfair and deceptive business practices, and tortious interference with existing and prospective business relationships. The complaint also asserted that Bauer consented to personal jurisdiction in Tennessee pursuant to a stock option agreement that was the basis for the breach of contract claim. The complaint included a prayer for injunctive relief and damages.

         [¶4] Lutheran filed a motion to expedite discovery, which the Tennessee court granted. Lutheran petitioned the trial court to open an ancillary proceeding in Allen County pursuant to Indiana Trial Rule 28(E), which provides in pertinent part,

Assistance to Tribunals and Litigants Outside this State. A court of this state may order a person who is domiciled or is found within this state to give his testimony or statement or to produce documents or other things, allow inspections and copies and permit physical and mental examinations for use in a proceeding in a tribunal outside this state. The order may be made upon the application of any interested person or in response to a letter rogatory and may prescribe the practice and procedure, which may be wholly or in part the practice and procedure of the tribunal outside this state, for taking the testimony or statement or producing the documents or other things. To the extent that the order does not prescribe otherwise, the practice and procedure shall be in accordance with that of the court of this state issuing the order.

         [¶5] On November 8, the trial court granted Lutheran's petition and issued an order authorizing Lutheran to serve subpoenas issued by the Tennessee court for testimony and production of documents on non-parties Dr. William Cast and Northeast Indiana Citizens for Healthcare Excellence, Inc. ("NICHE").[2] Those subpoenas, and the other subpoenas issued in this proceeding, contain references to the Tennessee Rules of Civil Procedure, but the trial court's discovery orders do not prescribe the practice or procedure for taking testimony or producing documents otherwise than in accordance with the Indiana Trial Rules. The subpoenas ordered Dr. Cast to appear with specified documents for a deposition on specified topics in Fort Wayne on November 21. The requested documents and deposition topics primarily involved communications or information regarding Sajin Young, NICHE, Bauer, and IU Health. Dr. Cast and NICHE moved to quash the subpoena due to scheduling conflicts, and the parties rescheduled the deposition for December 19.

         [¶6] Meanwhile, on November 29, the trial court authorized the service of additional subpoenas on non-parties Aaron Garofola and Ozzie Mitson, who were ordered to produce similar documents and appear for depositions on similar topics on December 20. Both Garofola and Mitson had been employed by Lutheran, and Mitson was now employed by IU Health.

         [¶7] On December 6, Bauer moved to dismiss the Tennessee lawsuit. NICHE, Dr. Cast, Garofola, and Mitson moved to quash their subpoenas, arguing that the ancillary proceeding would be rendered moot if Bauer's motion was successful. On December 14, the trial court granted the motions to quash over Lutheran's objection.

         [¶8] Also on December 14, the trial court granted IU Health's motion to intervene in the ancillary proceeding; at a hearing on that date, Lutheran stated that it had no objection to the motion. 12/14/17 Tr. Vol. 2 at 6. In its motion to intervene, IU Health noted that it had been subpoenaed by Lutheran in a related ancillary proceeding in Marion Superior Court and that it had filed a motion to quash the subpoena, which ultimately was partially successful, on the basis that Lutheran was "seeking confidential and proprietary information from IU Health that is not relevant to the Tennessee Lawsuit." Lutheran's App. Vol. 2 at 120. IU Health learned that Lutheran had subpoenaed Mitson and made discovery requests "that would potentially implicate documents or information Mr. Mitson created, sent or received while an employee of IU Health." Id. IU Health requested, and was granted, "a protective order requiring that any documents or information to be produced by Mr. Mitson related to IU Health be approved by IU Health prior to its production to the parties in this action, so that IU Health has an opportunity to assert relevant objections or privileges that may apply." Id. at 122.

         [¶9] On December 27, Lutheran amended its complaint to add a breach of loyalty claim against Bauer. On February 14, 2018, the Tennessee court granted Bauer's motion to dismiss as to the disparagement, deceptive business practices, and breach of loyalty claims, but denied the motion as to the remaining claims and issued a temporary injunction against Bauer as to certain activities.

         [¶10] On April 10, Lutheran filed a motion for authorization to serve subpoenas for testimony and documents on Dr. Cast, NICHE, and Mitson, as well as on the following additional non-parties: former Lutheran (and subsequent IU Health) employees Jennifer Ann Garver and Dr. Geoff Randolph, former LHN board members Thomas Kelley and Charles Surack, and Surack's company Sweetwater Sound, Inc.[3] The trial court granted the motion on April 18. Also on that date, Mitson filed a motion to quash or limit his subpoena, which was withdrawn pending negotiations regarding its timing and scope.

         [¶11] On May 11, Lutheran filed a motion for authorization to serve subpoenas for testimony and documents on non-parties Witwer and Witwer Construction, Inc., which the trial court granted.[4] Witwer moved to quash the subpoenas or limit the scope of document production and deposition length. On July 2, the trial court issued an order limiting the deposition time and scope of document production for Witwer, Kelley, Garver, Mitson, and Dr. Randolph. On July 24, Lutheran filed a motion for rule to show cause regarding Dr. Randolph's failure to comply with his subpoena. On August 17, after a hearing, the trial court ordered Dr. Randolph to provide responsive documents.

         [¶12] On September 21, Lutheran filed a motion for authorization to serve subpoenas for testimony and documents on non-parties Andrea Schenkel and her son William Schenkel IV, former Lutheran employees whom Bauer had recruited to join him at IU Health. IU Health moved for a protective order on the basis that the scope of document production for the Schenkels should have limits similar to those for Dr. Randolph. The trial court issued a protective order on October 18 and authorized the issuance of the subpoenas on October 31.

         [¶13] On November 2, Lutheran filed a motion for authorization to serve a subpoena for testimony and documents on non-party Darrick Hoopingarner, who allegedly had information regarding Sajin Young's identity and activities; the trial court granted the motion on November 9. On November 13, the Schenkels filed a motion to quash their depositions and asked that Lutheran "be ordered to pay all fees associated with the subpoenas upon their presentment to this court." Lutheran's App. Vol. 7 at 147. No specific basis was cited for this request. On November 14, Hoopingarner filed a motion to quash his subpoena and deposition, which the trial court granted that same day.

         [¶14] On November 23, a Fort Wayne newspaper published a letter to the editor from former LHN hospital employee Craig Sorg; pursuant to a settlement agreement with Lutheran, Sorg admitted in the letter to creating and posting statements under the Sajin Young Facebook profile. Sorg was represented by attorney Mark GiaQuinta, who has also represented Kelley, Surack, Sweetwater Sound, Witwer, Witwer Construction, the Schenkels, Hoopingarner, and Garofola (collectively "the Non-Parties"), as well as Dr. Cast and NICHE.

         [¶15] On November 27, Lutheran and Bauer filed a proposed agreed order of voluntary dismissal in the Tennessee court. On November 29, Dr. Cast, NICHE, Kelley, Surack, Sweetwater Sound, Witwer, Witwer Construction, and the Schenkels filed in the trial court a petition for attorneys' fees that cites Himsel v. Indiana Pork Producers Ass'n, 95 N.E.3d 101 (Ind.Ct.App. 2018), which contains an extensive discussion of Indiana Trial Rule 34(C)(3); we address that rule more fully below. Counsel attached designated evidence and a fee affidavit to the motion; some of the fees are for deposition preparation and attendance. See, e.g., Lutheran's App. Vol. 8 at 27 (Kelley's fee statement).

         [¶16] On November 30, the Tennessee court entered an agreed order of voluntary dismissal, pursuant to which Lutheran's breach of contract and tortious interference claims against Bauer were dismissed with prejudice and the defamation claim was dismissed without prejudice. That same day, Lutheran filed in the trial court a notice of dismissal requesting the termination of the ancillary proceeding.

         [¶17] On December 3, Mitson filed a petition for attorneys' fees that specifically cites Trial Rule 34(C)(3); counsel attached a fee affidavit and a billing statement to the petition. On December 6, the Non-Parties filed an amended petition for attorneys' fees that specifically mentions Trial Rule 34(C)(3). Dr. Cast and NICHE moved to withdraw their fee petition based on their stated "desire to maintain journalistic neutrality in this matter." Lutheran's App. Vol. 8 at 75. On December 12, IU Health filed a motion for attorneys' fees and costs pursuant to Trial Rule 34(C)(3), seeking compensation for the time spent reviewing and responding to subpoenas served on its employees, who had retained separate counsel; counsel attached a fee affidavit and a billing statement to the motion.

         [¶18] On December 14, Lutheran filed an objection to the fee petitions, asserting that the trial court lacked jurisdiction to hear the petitions due to the termination of the Tennessee lawsuit; that Appellees waived their opportunity to seek fees because their petitions were untimely; that Trial Rule 34(C)(3) does not apply to subpoenas from out-of-state courts or allow recovery of deposition-related fees; that IU Health lacked standing to seek fees and costs; and that Appellees had failed to establish that the requested fees are reasonable. Lutheran's objection states, "Should the Court find that it has jurisdiction, and that [Appellees] have a basis for relief, [Lutheran requests] an opportunity to more fully address the numerous deficiencies and issues raised by the lengthy time submissions appended to each of the Petitions." Lutheran's App. Vol. 9 at 22-23.

         [¶19] On December 17, the trial court held a hearing on the fee petitions. Lutheran requested an opportunity to review Appellees' billing statements and "highlight" their purported unreasonableness for the court. 12/17/18 Tr. Vol. 2 at 37. The court stated that it would allow counsel to file briefs on the issues of jurisdiction, waiver, and standing. On February 5, 2019, Lutheran filed a motion to dismiss the fee petitions in which it stated, "If the Court determines that it has jurisdiction to grant [Appellees'] Petitions, Lutheran respectfully request[s] discovery and briefing to address the time entries submitted in support of [Appellees'] applications." Lutheran's App. Vol. 10 at 173. On February 13, the trial court held another hearing at which it stated, "What [Lutheran] said is I don't have jurisdiction to hear this. Well, we're going to hear that argument today. I'm not going to rule on that [i.e., jurisdiction] today and then bring everybody back if I decide that I do have jurisdiction. So I'm going to hear that argument, take that under advisement, and then we're going to talk about the balance of the case." 2/13/19 Tr. Vol. 2 at 9-10. The reasonableness of the requested fees was not discussed at the hearing.

         [¶20] On February 18, the trial court issued a twenty-page order granting the fee requests. The court observed that it had "issued no less than thirty-six (36) Orders arising out of the ancillary proceeding." First Appealed Order at 2. The court set forth much of the foregoing procedural history and further stated, [5]

Lutheran and Bauer were involved in a lawsuit for well over a year. Lutheran's claims against Bauer ranged from allegations of Bauer's breach of contract, breach of non-solicitation agreement, and a request for injunctive relief to an obsessive search for a cyber blogging individual or individuals by the name of "Sajin Young." The Indiana Non-Parties, as demonstrated above, were required to endlessly search for information, communication, documents and emails with respect to the identity of the elusive "Sajin Young," who Lutheran believed was singlehandedly bringing about the demise of Lutheran. The Non-Parties were subjected to hours-long depositions and multiple repetitive subpoenas.
The Non-Parties selected by Lutheran included not only individuals who were previous employees of the Lutheran Health Network, but also members of Lutheran's own volunteer Board of Directors. Lutheran sought out corporations and individuals who constructed buildings for Lutheran and/or I.U. Health.
Once evidence was presented to the Court that Lutheran was conducting depositions that exceeded eight (8) hours, the Court limited future depositions to two (2) or three (3) hours. This Court was asked to intercede during the deposition of Witwer, who had constructed a building for one of Lutheran's competitors. William Schenkel and his mother Andrea Schenkel were required to conduct searches through a year of personal emails. Their Motions to Quash and Request for Protective Order were still pending when Lutheran dismissed the Tennessee lawsuit. The amount of time and effort the Non-Parties expended on Lutheran's relentless search for "Sajin Young" was immense. Allen County was not the only venue where ancillary proceedings were initiated. Seeking the same type of information, Lutheran initiated ancillary proceedings in Wisconsin and in Marion County, Indiana. The Non-Parties could never have navigated Lutheran's discovery demands of voluminous documents and other information on their own.
Issues of relevance, confidentiality and privilege existed. As a result, substantial attorneys' fees were incurred.

Id. at 8-10.

         [¶21] The trial court determined that it had jurisdiction to rule on the fee petitions; that Appellees are entitled to fees under Trial Rule 34(C)(3); and that IU Health has standing to request fees and costs under that rule. The order granted the Non-Parties' requests for fees and IU Health's request for fees and costs and also granted Appellees seven days to file supplemental fee petitions, which they did. On March 8, the trial court issued a second order granting the supplemental fee petitions and ordering Lutheran to pay the following amounts:

Joseph Oscar Mitson $51, ...

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