Question: What Is A “Frivolous” Claim?
Answer: Claims That Are Primarily Made To Harass Or Maliciously Injure Another. See Below.
Julie and Greg Menefee met Alisa and her husband, Lance, in 1992 and became friends. BioConvergence was organized in 2004 by Alisa, Lance, John Brooks, and Jeff Schwegman. Since its inception, Alisa was a majority member of BioConvergence. In 2005, Greg accepted Alisa’s invitation to join BioConvergence’s Board of Advisors. After joining the Board of Advisors, Greg signed a confidentiality agreement. In late 2007, Alisa contacted Greg and asked if he and Julie would be able to loan BioConvergence $400,000. Alisa told them that she had an agreement with Chase for a line of credit that they backed off of and so she needed the money to be able to have operating capital for BioConvergence. In November of 2008, Julie, as the individual “in which Subscription is made,” and Alisa, CEO of BioConvergence, entered into a BIOCONVERGENCE LLC CLASS B–1 UNIT SUBSCRIPTION AGREEMENT. The agreement provided in part that Julie “subscribes for and agrees to purchase 3,333 Class B–1 Units of membership interest of BioConvergence LLC at a price of $120.00 per Unit, for a total purchase price of $400,000.00. However, in July of 2002, Alisa told Greg that the unit value had dropped to $15.50. Thereafter, Julie filed a complaint that included allegations of securities fraud and breach of fiduciary duties.
On appeal, one of the issues was, “whether the trial court clearly erred or abused its discretion in denying the request of BioConvergence and Alisa for attorney fees?” Generally, Indiana has consistently followed the American Rule in which both parties generally pay their own fees. In the absence of statutory authority or an agreement between the parties to the contrary—or an equitable exception—a prevailing party has no right to recover attorney fees from the opposition. This case requires us to examine: (A) statutory authority; and (B) the Subscription Agreement.
Further, the Indiana General Assembly and the Indiana Supreme Court have given the courts of this state tools to deal with abusive litigation practices. Ind. Code § 34–52–1–1 is titled General recovery rule and provides in part: (b) In any civil action, the court may award attorney’s fees as part of the cost to the prevailing party, if the court finds that either party: (1) brought the action or defense on a claim or defense that is frivolous, unreasonable, or groundless; (2) continued to litigate the action or defense after the party’s claim or defense clearly became frivolous, unreasonable, or groundless; or (3) litigated the action in bad faith. In discussing a prior version of the statute, the Indiana Supreme Court stated that the statute “strikes a balance between respect for an attorney’s duty of zealous advocacy and ‘the important policy of discouraging unnecessary and unwarranted litigation. Subsections (b)(1) and (b)(2) of the statute focus on the legal and factual basis of the claim or defense and the arguments supporting the claim or defense. In contrast, subsection (b)(3)—‘litigated the action in bad faith’—by its terms requires scrutiny of the motive or purpose of the non-prevailing party. The Indiana Supreme Court has held: More precisely, bad faith is not simply bad judgment or negligence. Rather, it implies the conscious doing of a wrong because of dishonest purpose or moral obliquity. It is different from the negative idea of negligence in that it contemplates a state of mind affirmatively operating with furtive design or ill will.
Next, I.C. § 34–52–1–1(b) “places an obligation on litigants to investigate the legal and factual basis of the claim when filing and to continuously evaluate the merits of claims and defenses asserted throughout litigation. A claim is ‘frivolous’ if it is made primarily to harass or maliciously injure another; if counsel is unable to make a good faith and rational argument on the merits of the action; or if counsel is unable to support the action by a good faith and rational argument for extension, modification, or reversal of existing law. A claim is ‘unreasonable’ if, based on the totality of the circumstances, including the law and facts known at the time, no reasonable attorney would consider the claim justified or worthy of litigation. A claim is groundless if no facts exist which support the legal claim relied on and presented by the losing party. However, the law is settled that a claim is neither groundless nor frivolous merely because a party loses on the merits. Bad faith is demonstrated where the party presenting the claim is affirmatively operating with furtive design or ill will.
In their brief to the Court, BioConvergence and Alisa argue that: (1) Julie’s claims were frivolous because she abandoned most claims on summary judgment; (2) Julie’s claim of excessive payments by BioConvergence was not recoverable; (3) Julie’s claim related to criminal deception was frivolous because there was no written statement; and (4) Julie’s fraud and securities fraud claims were also frivolous. However, the Court of Appeals found from its review of the record that the trial court’s conclusion that Julie’s claims were not frivolous and did not support an award of attorney fees was correct and it affirmed the trial court’s denial of attorney fees. 103 N.E.3d 1141