Jeff West v. J. Greg Allen Builder, Inc., and Princeton Homes, and Greg Allen

FILED

Dec 28 2017, 9:11 am

CLERK

Indiana Supreme Court

Court of Appeals

and Tax Court

ATTORNEYS FOR ATTORNEYS FOR APPELLEES/CROSS-

APPELLANT/CROSS-APPELLEE APPELLANTS

Thomas W. Vander Luitgaren Timothy H. Button

Emily M. Gettum Laura S. Reed

Greenwood, Indiana Justin O. Sorrell

Riley Bennett Egloff LLP

Indianapolis, Indiana

IN THE

COURT OF APPEALS OF INDIANA

Jeff West, December 28, 2017

Appellant/Defendant/Cross- Court of Appeals Case No.

41A01-1701-CT-182

Appellee/Counterclaim Plaintiff,

Appeal from the Johnson Superior

Court

v.

The Honorable Marla Clark, Judge

J. Greg Allen Builder, Inc., and Trial Court Cause No.

Princeton Homes, 41D04-1102-CT-14

Appellees/Plaintiffs/Cross-

Appellants/Counterclaim Defendants,

and

Greg Allen,

Cross-Appellant/Counterclaim

Defendant.

Bradford, Judge.

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Case Summary

[1] Appellant/Defendant/Cross-Appellee/Counterclaim Plaintiff Jeff West served

as president of J. Greg Allen Builder, Inc. (“GABI”), beginning in 2002 and

Princeton Homes (“Princeton”) beginning in 2008. Appellees/Plaintiffs/Cross-

Appellants/Counterclaim Defendants GABI and Princeton were founded and

owned by Cross-Appellant/Counterclaim Defendant Greg Allen (collectively,

“Cross-Appellants”). While president of GABI and Princeton, West, with the

assistance in some cases of Kim Hutchinson, directed multiple unauthorized

payments to himself and others, oversaw multiple unauthorized transfers of

funds from Princeton to GABI, borrowed money from GABI that he did not

repay, failed to maintain proper records, and caused GABI to fail to fulfill

certain contractual obligations. After discovering West’s activities, Allen sent a

letter to GABI’s and Princeton’s subcontractors, suppliers, and certain

customers indicating that West and Hutchinson had withdrawn company funds

for their own use and disguised the withdrawals as payments to a lumber

company.

[2] In February of 2011, Princeton and GABI sued Hutchinson and West, making

claims against West for violating GABI’s employee manual, conversion, theft,

unfair competition, negligence, tortious interference with a business

relationship, usurpation of corporate opportunity, misappropriation of trade

secrets, unjust enrichment, and fraud. West filed a countersuit against Cross-

Appellants for, inter alia, defamation. Following trial, a jury found in favor of

GABI and against West on the theft claim in the amount of $4000.00 and on

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the breach of fiduciary duty claim in the amount of $220,000.00. The jury also

found in favor of West on his defamation counterclaim, awarding him

presumed damages of $50,000.00 against each Cross-Appellant and punitive

damages in the amount of $300,000.00 against Allen, which the trial court later

reduced to $150,000.00. West contends that there is insufficient evidence to

sustain the jury’s verdict against him for breach of fiduciary duty or the amount

of damages awarded on that claim. Cross-Appellants contend that there is

insufficient evidence to sustain the jury’s verdict against them for defamation or

the award of punitive damages against Allen. While we disagree with the first

three contentions, we agree that there is insufficient evidence to sustain the

award of punitive damages against Allen.

Facts and Procedural History

[3] Allen founded GABI in 1986 and Princeton in the late 1990s. GABI built

custom homes, and Princeton built semi-custom homes. Allen was president of

GABI until West became president in 2002. West also became president of

Princeton in December 2008. West hired Kim Hutchinson to be his assistant,

type contracts and specifications, perform basic accounting and data entry,

issue checks, and keep the books for GABI and Princeton.

[4] As president of GABI and Princeton, West’s responsibilities included

supervising employees (including Hutchinson) meeting with customers, making

sales, managing customer relationships, creating budgets, controlling budgets

and costs, overseeing the construction process, bidding on construction projects,

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obtaining bids from subcontractors and suppliers, forecasting annual overhead,

reviewing reports of income and expenses, approving bills, and providing

monthly financial reports to Allen. West received compensation from GABI of

$338,367.80 during that time period.

[5] During West’s presidency, GABI and Princeton both used an accounting

software system called “Timberline.” Hutchinson was the primary employee

who input data into Timberline for both GABI and Princeton. West prepared

financial statements, such as balance sheets, which Hutchinson then typed into

the computer system. With some regularity, Allen received reports generated

by the Timberline system, and his knowledge of the condition of GABI was

limited to what West reported. Bills that came in for GABI and Princeton were

separated by company and job and sent to Hutchinson, who provided them to

West for approval. It was West’s responsibility to direct Hutchinson which bills

to pay, after which Hutchinson would issue the checks.

[6] West resigned from GABI and Princeton on June 3, 2010. Brent Glover

resigned a couple weeks later. Hutchinson resigned on August 27, 2010. After

West left, an internal investigation began in June of 2010. This investigation

uncovered numerous accounting discrepancies and financial irregularities.

[7] For example, before the end of December 2009, Allen sent an email to all

company employees stating that there would be no bonuses that year.

However, on December 29, 2009, Hutchinson, at West’s direction, issued

bonus checks, including a $2000.00 check to West, a $1000.00 check to

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Hutchinson, and a $1000.00 check to Glover. At West’s direction, these bonus

checks were posted from the construction account (not payroll) and were posted

in Timberline as if they had been written to Carter Lee Lumber Company.

Furthermore, approximately twenty additional unauthorized checks worth

approximately $80,000.00 or $90,000.00 were written to West from the

construction account. All of the checks were concealed by having been falsely

posted in the Timberline system. While Hutchinson was under West’s

supervision, similar checks were issued to Hutchinson totaling over $400,000.00

and were also concealed by being falsely posted as payments to Carter Lee.

[8] It was discovered that files were missing numerous documents and records,

including purged checks. Almost all of the checks that were missing were

posted in the Timberline system as being paid to Carter Lee. It also was

discovered that health insurance costs had been paid out of GABI’s

construction account as direct costs when they should have been paid and

characterized as indirect costs. Numerous unauthorized inter-company

transfers were uncovered, namely fifteen to sixteen unauthorized transfers from

Princeton to GABI between December 2008 and June 2010, totaling

approximately $655,000.00, for which the proper procedures were not followed.

All of these funds were transferred directly from Princeton to GABI, in

contravention of established company policy.

[9] Accounting discrepancies were discovered relating to homes which had been

built for West and his son, Evan. The investigation revealed that a promissory

note related to West’s house existed which had not repaid, and about which

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Allen had been unaware. Further, in August 2009, Allen discovered that West,

without Allen’s knowledge or approval, had begun building a home in

downtown Indianapolis for West’s son, Evan. When Allen asked West about

the home, West admitted it was for his son, and asked for an employee

discount, which Allen granted on the condition that West get accounting

personnel from another division to watch the books to avoid preferential

treatment. West built the home, but never obtained the required oversight from

another accounting division. West also made numerous improvements to

Evan’s home, which were not indicated in the budget presented to Allen and

were not charged to Evan. As of West’s resignation from GABI on in June

2010, GABI still was owed approximately $58,000.00 for Evan’s home and

approximately $54,000.00 for West’s home.

[10] Serious accounting discrepancies were uncovered regarding amounts due to

subcontractors and suppliers. Soon after West’s resignation, GABI began

receiving phone calls from subcontractors and suppliers, asking for the money

they were owed. Further investigation revealed that many of GABI and

Princeton’s records were inaccurate, including balance sheets, records of

outstanding debt, and accounts payable. For example, the accounts-payable

records consistently under-reported the amounts owed to subcontractors and

suppliers, in some cases by as much as ninety percent. The amount owed to

Carter Lee Lumber was under-reported by approximately $300,000.00, the

amount owed to Collins Drywall approximately $160,000.00, and the amounts

owed to several other subcontractors were under-reported as well. Allen ended

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up using $803,000.00 of his personal funds to cover the shortfall. As of West’s

resignation, GABI owed its subcontractors and suppliers approximately $2.4

million, all of which debt had been incurred before West’s resignation.

Moreover, on December 15, 2009, when Allen met with West to discuss cash

flow, West informed Allen that he projected $465,000.00 of gross profit. As it

happened, there was no meaningful profit.

[11] On October 1, 2009, Mark and Alicia Fujihara entered into a contract to buy

their first home from GABI. At closing in June of 2010, the Fujiharas asked

whether they would receive documentation proving they owned their home,

and West informed them that Hutchinson was working on the deed and would

send it to them later. The Fujiharas did not receive a deed at closing, or even

shortly after. Instead, after closing, the Fujiharas received demand letters from

contractors who had not been paid by GABI under West’s watch, which forced

GABI to retroactively pay the contractors. Further, in breach of its contract

with the Fujiharas (again under West’s watch), GABI failed to provide the

Fujiharas with title insurance. Allen himself was forced to provide personal

funds of approximately $65,000.00 to pay for the lot on which the Fujiharas’

home had been built so that GABI could give a deed to the Fujiharas.

[12] After West’s departure, Allen and other staff discussed with Hutchinson the

unpaid promissory note and the unpaid vendor invoices, at which point

Hutchinson responded that she was just doing what West told her to do. On

June 30, 2010, Hutchinson prepared and signed a statement (“the Statement”).

In the Statement, Hutchinson admits that West directed her in late 2009 to

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write checks to herself, Glover, and West as bonuses and to book those

payments as payments to Carter Lee Lumber to conceal the payments from

Allen. Hutchinson also admits West directed her to make draws of

approximately $625,000.00 on Princeton’s line of credit, and rather than use

those funds for Princeton jobs as they were drawn, to transfer those funds to

GABI to pay its expenses, and to conceal the payments. West also instructed

Hutchinson not to tell Allen that GABI was operating at a substantial loss and

had incurred and accumulated substantial unpaid bills. Hutchinson later

testified that she signed the Statement despite believing it to contain falsehoods.

[13] Following these discussions with Hutchinson, Allen confronted West about

what he had done. Allen presented West with a document showing what Allen

knew about as of that date, and substantiating amounts West should pay back

to Allen and GABI. In total, Allen asked him to pay back $196,546.00. When

Allen showed West the Statement, he agreed that he would pay the amounts

back.

[14] Following that interaction, Allen discovered that West owed GABI and/or

Allen approximately $303,862.61, including: $56,765.00 for the promissory

note on West’s personal home; $82,448.76 for interest on the promissory note

through September 10, 2010; $55,000.00 which was underpaid on West’s son’s

home; and $2199.00 in interest due for using company money for an extra five

months after closing on West’s son’s home without Allen’s knowledge. On

January 18, 2011, Allen issued a letter through GABI and Princeton (“the

Letter”) to those entities’ subcontractors, suppliers, and certain customers in

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Marion and Johnson Counties, indicating that West and Hutchinson had

engaged in a mismanagement scheme, including financial misreporting and

unauthorized withdrawal of company funds.

[15] On February 8, 2011, Princeton and GABI filed suit, asserting four claims

against Hutchinson and eleven claims against West, namely, for violating

GABI’s employee manual, conversion, theft, unfair competition, negligence,

tortious interference with a business relationship, usurpation of corporate

opportunity, misappropriation of trade secrets, unjust enrichment, and fraud.

On April 1, 2011, West filed a counterclaim against GABI and Princeton for

breach of settlement agreement and contribution and filed a wage claim. West

also asserted a claim for defamation against all Cross-Appellants. On

September 8, 2011, West moved to dismiss the fraud and unjust enrichment

claims, which motion was granted as to the unjust enrichment claim and denied

as to fraud.

[16] On October 13, 2015, West moved for summary judgment on all remaining

claims against him. On November 30, 2015, GABI and Princeton voluntarily

dismissed the following claims against West: violation of GABI’s employee

manual, unfair competition, tortious interference with a business relationship,

usurpation of corporate opportunity, and misappropriation of trade secrets. On

February 10, 2016, the Court granted summary judgment in favor of West on

the negligence claim and denied summary judgment as to the claims for breach

of fiduciary duty, theft, conversion, and fraud.

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[17] Jury trial began on October 31, 2016, and concluded on November 10, 2016.

The jury found in favor of West on fraud, conversion, and his counterclaim of

contribution, awarding him $9135.35 against Princeton. The jury also found in

favor of West on his defamation counterclaim, awarding him presumed

damages of $50,000.00 against each Cross-Appellant and punitive damages in

the amount of $300,000.00 against Allen, which the trial court later reduced to

$150,000.00. Finally, the jury found in favor of GABI and against West on the

theft claim in the amount of $4000.00 and on the breach of fiduciary duty claim

in the amount of $220,000.00.1

Discussion and Decision

Appeal Issues

[18] West appeals from the trial court’s denial of his motion to correct error.

In general, we review a trial court’s ruling on a motion to correct

error for an abuse of discretion. Hawkins v. Cannon, 826 N.E.2d

658, 661 (Ind. Ct. App. 2005), trans. denied. However, to the

extent the issues raised by the City are purely questions of law,

our review is de novo. See Ind. BMV v. Charles, 919 N.E.2d 114,

116 (Ind. Ct. App. 2009) (“Although rulings on motions to

correct error are usually reviewable under an abuse of discretion

standard, we review a case de novo when the issue … is purely a

question of law.”)[.]

1

The jury also found in favor of GABI and Princeton and against Hutchinson for breach of fiduciary duty,

awarding GABI and Princeton $500,000.00 and $100,000.00 in damages, respectively. Hutchinson does not

participate in this appeal.

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City of Indpls. v. Hicks, 932 N.E.2d 227, 230 (Ind. Ct. App. 2010), trans. denied.

So, to the extent that West’s claims present questions of law, we will review

them de novo.

I. Whether Sufficient Evidence Supports

the Jury’s Verdict Against West for

Breach of Fiduciary Duty to GABI

[19] The jury found that West breached his fiduciary duty to GABI and awarded it

$220,000.00 in damages. West argues that GABI introduced insufficient

evidence to sustain the verdict. “Upon appellate review the standard by which

the sufficiency of the evidence is measured is that such evidence must have the

fitness to induce conviction; it must be adequate to support a conclusion in the

mind of reasonable persons.” Beaman v. Hedrick, 146 Ind. App. 404, 405, 255

N.E.2d 828, 829 (1970). “When a party seeks to reverse an adverse judgment

on the basis of insufficient evidence,” the court will not weigh the evidence or

assess witness credibility. Beck v. Mason, 580 N.E.2d 290, 291(Ind. Ct. App.

1991) (citing In re Paternity of Tompkins, 542 N.E.2d 1009, 1013 (Ind. Ct. App.

1991)). Rather, the court “will look to the evidence most favorable to the

judgment and all reasonable inferences to be drawn therefrom, and will affirm if

there is substantial evidence of probative value to support the judgment.” Id.

[20] “Substantial evidence” is defined as “[a]dequate to support a conclusion[.]”

Haney v. Meyer, 139 Ind. App. 663, 668, 215 N.E.2d 886, 889 (1966). When the

court uses the term “probative value” it has been said that it means “evidence

having quality of proof and having fitness to induce conviction.” Id. (citing

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McCague v. N.Y., Chicago & St. Louis R.R. Co., 225 Ind. 83, 89, 71 N.E.2d 569,

571 (1947)). Where there is no evidence to support the verdict of the jury on a

material point, it is well-settled that the judgment will not be allowed to prevail.

Michalik v. Pazdur, 105 Ind. App. 325, 328, 13 N.E.2d 870, 872 (1938).

[21] “A claim for breach of fiduciary duty requires proof of three elements: (1) the

existence of a fiduciary relationship; (2) a breach of the duty owed by the

fiduciary to the beneficiary; and (3) harm to the beneficiary.” Farmers Elevator

Co. of Oakville v. Hamilton, 926 N.E.2d 68, 79 (Ind. Ct. App. 2010), trans. denied.

“The standard imposed by a fiduciary duty is the same whether it arises from

the capacity of a director, officer, or shareholder in a close corporation.” G & N

Aircraft, Inc. v. Boehm, 743 N.E.2d 227, 240 (Ind. 2001) (citing Hartung v.

Architects Hartung/Odle/Burke, Inc., 157 Ind. App. 546, 552, 301 N.E.2d 240,

243 (1973)). “‘The fiduciary must deal fairly, honestly, and openly with his

corporation and fellow stockholders. He must not be distracted from the

performance of his official duties by personal interests.’” Id. (quoting Hartung,

157 Ind. App. at 552, 301 N.E.2d at 243).

[22] We have little trouble concluding that the jury heard sufficient evidence to

sustain its verdict that West breached his fiduciary duty to GABI. The record

contains evidence that, at West’s direction, unauthorized bonus checks were

issued to himself, Hutchinson, and another employee, despite Allen’s previous

instruction that none of his entities were to issue bonuses. Also at West’s

direction, the true nature of these bonus checks was concealed in GABI’s

accounting software, with the checks made to look as if they had been issued to

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a lumber supplier. All told, twenty additional unauthorized checks, totaling

$80,000.00 to $90,000.00, were written to West, and were similarly concealed.

Unauthorized health insurance costs were also paid out of GABI’s construction

account and had been improperly accounted for.

[23] The record also contains evidence tending to show that despite Allen allowing

West essentially interest-free credit to build his own home, and in allowing

West to build his son a home for a discounted rate, West did not pay back the

more than $100,000.00 he owed to GABI and/or Allen. In fact, when asked by

Allen whether he had paid the more than $50,000.00 balance on his home,

West falsely replied that he had, when he had not. West even exceeded the

budget which had been authorized, causing additional expense and damage to

GABI.

[24] The jury heard evidence that West consistently and severely under-reported the

amounts owed by GABI. As of West’s resignation from GABI and Princeton,

subcontractors and suppliers were owed approximately $2.4 million by GABI,

of which debt Allen personally paid approximately $803,000.00. West

specifically had instructed Hutchinson to not inform Allen that GABI was

operating at a substantial loss and had substantial unpaid bills.

[25] Finally, the jury heard evidence that West failed to fulfill his duties as president

by allowing GABI to breach its contracts. For example, although contractually-

bound to provide a deed and title insurance to the Fujiharas for their newly-

built home, West participated in the closing and allowed it to proceed without

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the deed, title insurance, or land having been procured. Further, West allowed

closing to proceed without having fully paid all subcontractors and suppliers,

leaving GABI to make up the shortfall. This evidence provides ample support

for the jury’s finding that West breached his duty to deal fairly, honestly, and

openly with GABI. The jury’s verdict that West breached his fiduciary duty to

GABI is supported by more than sufficient evidence.

II. Whether Sufficient Evidence Supports the

Jury’s Award of $220,000.00 to GABI

[26] West also challenges the sufficiency of the evidence to sustain the jury’s award

of $220,000.00 to GABI.

We apply a “strict standard” when we review an appellate claim

that a jury’s damages award was excessive. Id. “A jury’s

determination of damages is entitled to great deference when

challenged on appeal.” Sears Roebuck and Co. v. Manuilov, 742

N.E.2d 453, 462 (Ind. 2001).

Damages are particularly a jury determination. Appellate

courts will not substitute their idea of a proper damage

award for that of the jury. Instead, the court will look only

to the evidence and inferences therefrom which support

the jury’s verdict. We will not deem a verdict to be the

result of improper considerations unless it cannot be

explained on any other reasonable ground. Thus, if there

is any evidence in the record which supports the amount of

the award, even if it is variable or conflicting, the award

will not be disturbed.

Id. (quoting Prange v. Martin, 629 N.E.2d 915, 922 (Ind. Ct. App.

1994), reh’g denied, trans. denied). When considering a claim of an

excessive jury verdict, we [do not] reweigh the evidence, and we

“look only to the evidence and the reasonable inferences

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therefrom which uphold the verdict.” Lutheran Hosp. of Indiana,

Inc. v. Blaser, 634 N.E.2d 864, 873 (Ind. Ct. App. 1994), reh’g

denied. “To warrant reversal, the award ‘must appear to be so

outrageous as to impress the Court at “first blush” with its

enormity.’” Ritter, 745 N.E.2d at 844 (quoting Kimberlin v.

DeLong, 637 N.E.2d 121, 129 (Ind. 1994) (quoting New York Cent.

R.R. Co. v. Johnson, 234 Ind. 457, 127 N.E.2d 603 (1955)), reh’g

denied, cert. denied).

Reed v. Bethel, 2 N.E.3d 98, 113–14 (Ind. Ct. App. 2014).

[27] We also have little trouble concluding that the jury’s award of damages is

amply supported by the record. At the very least, the jury heard evidence that

West was breaching his fiduciary duties from 2008 to 2010, a period for which

he received approximately $339,000.00 in compensation. Because an

appropriate remedy for breach of fiduciary duty can include return of

compensation for the period of breach, the return of West’s compensation

supports the jury’s award by itself. See SJS Refractory Co., LLC v. Empire

Refractory Sales, Inc., 952 N.E.2d 758, 768 (Ind. Ct. App. 2011) (“The remedy

for the breach of a fiduciary duty is requiring the agent to disgorge all

compensation received during the period of employment in which the agent

was also breaching his fiduciary duty.”).

[28] In any event, the jury also heard evidence that West directed as much as

$90,000.00 in unauthorized payments to himself and others from GABI funds.

The record contains evidence that GABI owed subcontractors and suppliers

$2.4 million when West left GABI, a situation caused by West providing false

accounts-payable reports. It is reasonable to conclude that at least some of this

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debt would not have been incurred without West’s breach of his fiduciary duty.

The jury heard evidence that West owed approximately $300,000.00 to GABI,

only some of which was paid back. Although we do not have a detailed

accounting of the jury’s calculations, we conclude that the award of

$220,000.00 to GABI is amply supported by the record.

Cross-Appeal Issues

III. Whether Sufficient Evidence Supports the Jury’s

Verdict Against Cross-Appellants for Defamation

[29] A defamatory communication is one that “tend[s] to harm a person’s reputation

by lowering the person in the community’s estimation or deterring third persons

from dealing or associating with the person.” Rambo v. Cohen, 587 N.E.2d 140,

145 (Ind. Ct. App. 1992), trans. denied. “Whether [a communication] is

defamatory ‘depends, among other factors, upon the temper of the times, the

current of contemporary public opinion, with the result that words, harmless in

one age, in one community, may be highly damaging to reputation at another

time or in a different place.’” Journal-Gazette Co., Inc. v. Bandido’s, Inc., 712

N.E.2d 446, 451 n.6 (Ind. 1999) (citations omitted). In order to maintain an

action for defamation, the plaintiff must demonstrate (1) a communication with

defamatory imputation, (2) malice, (3) publication, and (4) damages. Id.

“Whether a communication is defamatory or not is a question of law for the

court, unless the communication is susceptible to either a defamatory or

nondefamatory interpretation—in which case the matter may be submitted to

the jury.” Kelley v. Tanoos, 865 N.E.2d 593, 596 (Ind. 2007) (citation omitted).

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[30] West’s defamation counterclaim against Cross-Appellants was based entirely

upon the Letter, which Allen wrote and sent through GABI and Princeton on

January 18, 2011 to customers, subcontractors, and suppliers in Marion and

Johnson Counties. The Letter contains the following allegation, which the

parties seem to agree is the most serious against West:

After [West’s and Hutchinson’s] departure[s], I learned that both

homebuilding companies they managed were in substantial

arrears to several of their suppliers and subcontractors.… We

discovered through a recent and on-going audit that [West and

Hutchinson] collectively made over 100 unauthorized

withdrawals from company funds which total in excess of One

Million Dollars. Most of these unauthorized withdrawals were

check payments posted in the accounting system as if those check

payments were being made to suppliers or subcontractors when

in fact the corresponding checks were being written by

[Hutchinson] to herself and [West].

Plaintiff’s Exs. 68, 69. West’s counterclaim alleged, inter alia, that Cross-

Appellants published the Letter “with the intent to charge West with the offense

of embezzlement and/or theft of money.” Appellee’s App. p. 19.

[31] Cross-Appellants contend that the jury’s verdict against them for defamation

cannot stand because the jury’s verdict on the breach of fiduciary duty and theft

claims conclusively establish that the statements in the Letter are true. Article I,

section 10, of the Indiana Constitution provides that “[i]n all prosecutions for

libel, the truth of the matters alleged to be libellous, may be given in

justification.” We have recognized that

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as a general proposition, proof of the truth of an alleged

defamation has been held to be a complete defense to a civil

action for libel. Palmer v. Adams, (1894) 137 Ind. 72, 36 N.E. 695,

citing Ind. Const., art. 1, s 10. See also 18 I.L.E. Libel and

Slander s 62 (1959). We also observe, however, that whenever

the question arises, the defamer bears the burden of proof on this

issue of fact, since ‘truth’ is an affirmative defense to a claim for

libel. Weenig v. Wood, [169 Ind. App. 413, 440, 349 N.E.2d 235,

251 (1976)]. Moreover, when an alleged defamer … appeals a

negative judgment on the issue of truth, a Court on appeal may

hold in his favor only if it determines no reasonable trier of fact

could have decided his accusations were untrue. Id.

Elliott v. Roach, 409 N.E.2d 661, 681 (Ind. Ct. App. 1980) (footnote omitted).

[32] Cross-Appellants’ argument is, essentially, that the jury rendered inconsistent

verdicts that must be reconciled.2 Specifically, Cross-Appellants point to the

jury’s verdicts of breach of fiduciary duty and theft in favor of GABI and

against West as proof that the allegations in the Letter are all “true.” “The Law

indulges every reasonable presumption in favor of the legality of jury verdicts,

and corrective action should only be taken when the verdict or verdicts are

‘inconsistent because [of] a logical or legal impossibility.’” Tincher v. Davidson,

2

Cross-Appellants do not argue that West’s defamation claim must fail because he failed to show malice,

even though they argue in the next section that the award of punitive damages against Allen must be reversed

for that reason. This is, perhaps, because the allegations against West seem to clearly qualify as libel per se.

As Judge Faulconer of this court explained, the law presumes damages in cases of defamation per se, which

includes “[w]ords in the form of libel which, on their face, without resort to extrinsic facts or circumstances,

that is to say, ‘per se,’ tend to degrade another person, impeach his honesty, integrity, or reputation, or bring

him into contempt, hatred, ridicule, or causes him to be shunned or avoided.” Gibson v. Kincaid, 140 Ind.

App. 186, 201, 221 N.E.2d 834, 843 (1966) (Faulconer, J., concurring in result). While a communication

that contains libel per se would seem to relive a plaintiff of the burden of proving malice, it does not

necessarily follow that malice is automatically presumed for purposes of punitive damages in such a case. In

any event, we address Cross-Appellants’ arguments as stated.

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762 N.E.2d 1221, 1226 (Ind. 2002) (quoting Indpls. Newspapers, Inc. v. Fields, 259

N.E.2d 651, 668 (Ind. 1970)).3

[33] The most damning accusation against West in the Letter is that he and

Hutchinson collectively made over 100 unauthorized withdrawals of over one

million dollars disguised as payments to suppliers or subcontractors. The only

fair reading of this is that Cross-Appellants were essentially accusing West (and

Hutchinson) of stealing over one million dollars from GABI and Princeton.

Cross-Appellants’ argument that the jury’s verdicts are fatally inconsistent must

fail, however. The jury found that West’s breach of fiduciary duty caused

GABI $220,000.00 in damages, which is far less than the over one million

dollars that he was alleged to have stolen. Similarly, the jury found that West’s

theft from GABI was $4000.00, again falling far short of rendering the

accusation against him “true,” even if added to the damages for breach of

fiduciary duty. Put another way, the jury could have found that West “stole”

$224,000.00 from GABI but that Cross-Appellants defamed him by alleging

that he stole far more. Because the jury’s verdicts are not inconsistent based on

logical or legal impossibility, Cross-Appellants have failed to establish that the

jury’s verdict that they defamed West must be overturned on that basis.

3

This proposition is still good law in a civil context. We note, however, that in a somewhat recent criminal

case, the Indiana Supreme Court held that “inconsistent jury verdicts are not subject to appellate review[.]”

Beattie v. State, 924 N.E.2d 643, 649 (Ind. 2010).

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IV. Whether Sufficient Evidence Supports the

Jury’s Award of Punitive Damages to

West from Allen for Defamation

[34] The jury awarded $50,000.00 in presumed damages to West for Allen’s

defamation and $300,000.00 in punitive damages, later reduced to $150,000.00.

The standard for review of a verdict on an award of punitive damages is

whether a reasonable trier of fact could find by clear and convincing evidence

that the defendant acted with malice, fraud, gross negligence, or oppressiveness

that was not the result of a mistake of fact or law, honest error of judgment,

overzealousness, mere negligence, or other human failing. Budget Car Sales v.

Stott, 662 N.E.2d 638, 639 (Ind. 1996). Punitive damages are awarded upon a

showing of intentional conduct which focuses on the defendant’s state of mind.

Peterson v. Culver Educ. Found., 402 N.E.2d 448, 458 (Ind. Ct. App. 1980).

[35] Allen contends that the record contains insufficient evidence to sustain the

jury’s finding that he acted with actual malice4 in publishing the Letter.

Actual malice must be shown by clear and convincing evidence.

Actual malice exists when the defendant publishes a defamatory

statement with knowledge that it was false or with reckless

disregard of whether it was false or not. Reckless conduct is not

measured by whether a reasonably prudent man would have

published, or would have investigated before publishing. To

demonstrate reckless disregard, there must be sufficient evidence

to permit the conclusion that the defendant in fact entertained

4

West argues only that the jury properly found actual malice on Allen’s part and does not allege that the

record would support findings of fraud, gross negligence, or oppressiveness.

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serious doubts as to the truth of his publication or proof that the

false publication was made with a high degree of awareness of

their probable falsity. Hence, a defendant’s actual state of mind

is a critical factor in the analysis. A defendant’s state of mind is a

subjective fact and may be shown by indirect or circumstantial

evidence.

The question of whether there is sufficient evidence to support a

finding of actual malice is a question of law to be determined by

the court. This rule is premised on two important considerations:

(1) the national commitment to the free exchange of ideas, as

enshrined in the First Amendment and (2) the recognition that

judges as expositors of the Constitution have a duty to

independently decide whether the evidence in the record is

sufficient to cross the constitutional threshold that bars the entry

of any judgment that is not supported by clear and convincing

proof of actual malice. We [have already] discussed … the need

to conduct an examination of the factual record in full. In an

independent review, each piece of evidence may be considered

cumulatively.

Journal-Gazette Co. v. Bandido’s, Inc., 712 N.E.2d 446, 456 (Ind. 1999) (citations

and quotation marks omitted).

[36] We conclude that there is insufficient evidence to sustain a finding, by clear and

convincing evidence, that Allen had actual malice when defaming West. The

only evidence West points to relates to a June 30, 2010, encounter between

Allen and Hutchinson, during which Hutchinson signed the Statement, which

indicated that she had acted under West’s direction. See Defendant’s Ex. K.

West first argues that Hutchinson’s testimony that she believed the Statement to

contain falsehoods is evidence of Allen’s actual malice. Hutchinson’s belief

that the statement was false—even if this is true—has nothing to do with

whether Allen believed it to be false, and so does not support a finding of actual

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malice. West also points to Hutchinson’s testimony that Allen hugged her after

she signed the Statement and told her, “I’m not going to do anything to you,

this is all about [West], I’m going to get [West,]” and claims that this is clear

proof of Allen’s malicious intent. We conclude that this testimony is no more

probative of actual malice than Hutchinson’s uncommunicated beliefs

regarding the falsity of the Statement. Allen’s stated desire to “get” West in no

way indicates a belief that the Statement was false or that Allen harbored a

reckless disregard for its truth. On the whole, Allen’s behavior during the

meeting with Hutchinson (and throughout the rest of the case) was entirely

consistent with a firm belief that the allegations against West were true, leaving

no impression of a belief that they were false. Because we conclude that there is

insufficient evidence to sustain the jury’s finding that Allen acted with actual

malice, we reverse its award of punitive damages to West.5

Conclusion

[37] We conclude that sufficient evidence supports (1) the jury’s finding that West

breached his fiduciary duty to GABI, (2) the jury’s award to GABI of

$220,000.00 for West’s breach of his fiduciary duty, and (3) the jury’s finding

that Cross-Appellants defamed West in the Letter. We also conclude, however,

5

Because we conclude that the jury’s award of punitive damages was unsupported by sufficient evidence, we

need not reach Allen’s argument that presumed damages do not qualify as compensatory damages for

purposes calculating the maximum award of punitive damages.

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that the jury’s award of $150,000.00 in punitive damages to West based on

Allen’s defamation is not supported by sufficient evidence.

[38] We affirm the judgment of the trial court in part and reverse in part.

Robb, J., and Crone, J., concur.

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