Birch|Rea Partners, Inc. v. Regent Bank

27 F.4th 1245

BIRCH|REA PARTNERS, INC., Plaintiff-Appellant, Cross-Appellee,

v.REGENT BANK, Stonegate Bank, and Home BancShares, Inc., Defendants-Appellees, Cross-Appellants.

Nos. 21-2118 & 21-2307

United States Court of Appeals, Seventh Circuit.

Argued January 7, 2022

Decided March 2, 2022

Brett A. Datto, Esq., Patrick T. Krenicky, Attorneys, Weir Greenblatt Pierce LLP, Philadelphia, PA, Robert O. Vegeler, Attorney, Vegeler Law Office, Fort Wayne, IN, for Plaintiff-Appellant.

Anne L. Cowgur, Attorney, Taft Stettinius & Hollister LLP, Indianapolis, IN, Randolph M. Brombacher, Glen M. Lindsay, Attorneys, Saavedra Goodwin, Fort Lauderdale, FL, for Defendants-Appellees.

Before Easterbrook, St. Eve, and Kirsch, Circuit Judges.

St. Eve, Circuit Judge.

Almost fifteen years ago, Birch|Rea Partners, Inc. ("Birch|Rea") prepared an appraisal report on a property in Indiana. Regent Bank later acquired the property and started to doubt the report prepared by Birch|Rea. After consulting with independent appraisal experts, Regent Bank hired a law firm, and together they employed a certified appraiser, John Potter, to prepare a new report evaluating the original Birch|Rea report. Potter's report detailed several deficiencies in Birch|Rea's 2007 appraisal of the property.

After reviewing the Potter report, Regent Bank filed a complaint in federal court against Birch|Rea for various state law claims, but soon reconsidered and moved to dismiss the complaint. Birch|Rea then filed its own lawsuit against Regent Bank for malicious prosecution. Regent Bank, in turn, counterclaimed for attorney's fees under the Indiana frivolous litigation statute. The district court dismissed both claims at summary judgment, and each side appealed. We conclude that Birch|Rea cannot establish the elements of a successful malicious-prosecution claim, but its lawsuit was not frivolous under Indiana law. We therefore affirm.

I. Background

On May 16, 2007, SunTrust Bank ("Sun Trust") hired Birch|Rea Partners, Inc. to perform a portfolio valuation on a property located in Indiana. Birch|Rea prepared the report ("the Birch report") and valued the property at $3.23 million. PNC Bank ("PNC") provided the financing for the mortgage loan, and both PNC and Sun Trust accepted the report. On October 19, 2007, the owner sold the property to a Sun Trust affiliate subject to a $2.3 million loan PNC extended to Sun Trust. A few years later, PNC assigned the loan to American Capital Group, LLC, which would later sell the loan to Regent Bank.¹

In February 2016, Regent Bank began questioning the property's valuation. Regent Bank consulted with independent appraisal experts and reviewed appraisal authorities and regulations. The appraisers determined that the "go-dark" value of the property was only $200,000. Regent Bank employed a law firm to investigate the situation further. The law firm and the bank together hired a certified appraiser, John Potter, to examine the Birch report. Potter prepared a report of his findings ("the Potter report"), which detailed nine deficiencies in the original Birch report. The report concluded, "Overall, the appraiser finds this report in non-compliance with USPAP [Uniform Standards of Professional Appraisal Practice] and [Birch|Rea] breached their duty of care by failing to apply proper methods used to appraise the subject property as set forth herein."

Based on the Potter report, Regent Bank sued Birch|Rea for professional negligence, negligent misrepresentation, constructive fraud, and breach of contract in connection to its preparation of the Birch report ("the underlying action"). The complaint filed by Regent Bank specifically cited the Potter report as justification for the underlying claims. Soon after initiating the lawsuit though, Regent Bank reconsidered and moved to voluntarily dismiss the case. The district court dismissed the suit with prejudice.

Believing that the underlying action was frivolous, Birch|Rea filed a complaint against Regent Bank for malicious prosecution. Thereafter, Regent Bank counterclaimed for damages under the Indiana frivolous litigation statute. During discovery, Regent Bank failed to disclose the names of two potential individuals, Doug Green and Andrew Wyman, who had relevant information pursuant to Federal Rule of Civil Procedure 26(a), then later relied on affidavits submitted by Green and Wyman. Regent Bank moved for summary judgment on its malicious-prosecution claim, and Birch|Rea moved to strike Green and Wyman's affidavits and moved for summary judgment on attorney's fees under Indiana law. The district court granted both motions for summary judgment and denied the motion to strike. Both parties appealed.

II. Discussion

Birch|Rea argues that the district court erred by granting summary judgment for Regent Bank on its malicious-prosecution claim and that the district court abused its discretion by denying the motion to strike Green and Wyman's affidavits. Regent Bank submits that the district court erred by granting summary judgment for Birch|Rea on its claim under the Indiana frivolous litigation statute.

A. Motions for Summary Judgment

We review a grant of summary judgment de novo. Driveline Sys., LLC v. Arctic Cat, Inc. , 936 F.3d 576, 579 (7th Cir. 2019). On cross-motions for summary judgment, all facts and inferences are drawn "in the light most favorable to the nonmoving party on each motion." Lalowski v. City of Des Plaines , 789 F.3d 784, 787 (7th Cir. 2015) (quoting Wis. Alumni Research Found. v. Xenon Pharm., Inc. , 591 F.3d 876, 882 (7th Cir. 2010) ). "Summary judgment is appropriate if there is no genuine dispute as to any material fact, and the moving party is entitled to judgment as a matter of law." Dunderdale v. United Airlines, Inc. , 807 F.3d 849, 853 (7th Cir. 2015) (citing Fed. R. Civ. P. 56(a) ). A genuine issue of material fact exists only if "there is sufficient evidence favoring the nonmoving party for a jury to return a verdict for that party." Anderson v. Liberty Lobby, Inc. , 477 U.S. 242, 249, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986) ; see also Aregood v. Givaudan Flavors Corp. , 904 F.3d 475, 482 (7th Cir. 2018).

1. Malicious Prosecution

The "essence of a malicious prosecution rests" on the idea that the plaintiff "has been improperly subjected to legal process." City of New Haven v. Reichhart , 748 N.E.2d 374, 378 (Ind. 2001). Under Indiana law, a malicious-prosecution claim has four elements: "(1) the defendant instituted or caused to be instituted an action against the plaintiff; (2) the defendant acted with malice in doing so; (3) the defendant had no probable cause to institute the action; and (4) the original action was terminated in the plaintiff's favor." Ingram v. Diamond Equip., Inc. , 118 N.E.3d 1, 7 (Ind. Ct. App. 2018) ; see also Reichhart , 748 N.E.2d at 378. The tort, however, is "not generally favored," and its requirements "are construed strictly against the party bringing the action." Wong v. Tabor , 422 N.E.2d 1279, 1283 (Ind. Ct. App. 1981). Here, the parties only dispute the second and third elements. Regent Bank maintains that it had probable cause to bring the underlying action and never acted with malice, each of which independently defeats Birch|Rea's claim. We agree with both points.

Probable cause exists when "a reasonably intelligent and prudent person would be induced to act as did the person who is charged with the burden of having probable cause." Ingram , 118 N.E.3d at 8 (quoting Reichhart , 748 N.E.2d at 379 ). In other words, "the inquiry is whether the defendant acted reasonably in believing the plaintiff was somehow responsible for the tortious actions." Id. (citing Satz v. Koplow , 397 N.E.2d 1082, 1085 (Ind. Ct. App. 1979) ).

Regent Bank had probable cause to initiate the underlying action against Birch|Rea. Regent Bank consulted with independent appraisers, who determined that the Indiana property at issue declined in value by several million dollars. In response, Regent Bank retained counsel to investigate any possible legal action. The law firm, together with Regent Bank, hired a certified appraiser, Potter, with extensive experience. Potter prepared a lengthy report, which opined that Birch|Rea over-relied on a nonmarket sale, did not make the appropriate adjustments, misused the gross income multiplier, failed to properly segment size under the right approaches, drew upon a bad description, lacked the necessary verification and reporting, disregarded market conditions, and misrepresented a sale. The uncontradicted evidence shows that Regent Bank relied on the Potter report to sue Birch|Rea for professional negligence, negligent misrepresentation, common law or constructive fraud, and breach of contract as a third-party beneficiary. Indeed, Regent Bank specifically referred to the report in its complaint for the underlying action. Although Regent Bank withdrew its complaint, "the fact that a party is ultimately" unsuccessful in litigation "does not lead to the conclusion [that] the party had no probable cause to file suit." Id. ; see also Trotter v. Ind. Waste Sys., Inc. , 632 N.E.2d 1159, 1164 (Ind. Ct. App. 1994) (holding that a malicious-prosecution claim failed because one party "had probable cause to believe that it had an enforceable purchase agreement" even without a contract between the two parties). Regent Bank needed only to be reasonably induced to act, which it was.

Birch|Rea contends that the Potter report itself lacks accuracy and, moreover, that the evidence in the record confirms Birch|Rea "valued the leased fee interest of the Property accurately." The inquiry, however, is not whether Birch|Rea was correct in 2007 or whether Potter was accurate in 2016. See Ingram , 118 N.E.3d at 8. Rather, it is whether Regent Bank had probable cause to commence the underlying action. For this question, the Potter report provides the necessary answer, and Birch|Rea has failed to identify any glaring error that would discredit the...