LLC v. WIJG LLC SMT LLC (2025)

MEMORANDUM DECISION

[1] Ryan A. Haskin (“Ryan”) and Little Business, LLC, appeal the order granting summary judgment to Justin R. Haskin (“Justin”), WIJG, LLC, and SMT Holdings, LLC (“Holdings”), on claims and counterclaims stemming from Ryan's sale of his interest in Holdings, a business Ryan once managed with Justin. We affirm in part, reverse in part, and remand for further proceedings.

Facts and Procedural History

[2] Ryan and Justin are brothers. Ryan wholly owns Little Business, LLC,¹ and Justin wholly owns WIJG, LLC.² Together through their entities, Ryan and Justin collectively held the majority interest in a mobile trash-compaction business known as Smash My Trash. The business was structured so that Holdings—a Delaware limited liability company—managed several wholly owned subsidiaries, among them, the operating entity Smash My Trash, LLC (“Operating”). Smash My Trash began operations in 2016. Under the initial Operating Agreement, Holdings was structured as a manager-managed entity with Ryan and Justin as its managers. The initial Operating Agreement established two classes of Units—Common and Preferred—however, as of 2016, only Common Units had been issued.

[3] Smash My Trash originally served the Houston market. By 2018, Smash My Trash had opened satellite locations in Austin and San Antonio. Justin—who lived in Indiana—was responsible for the administrative aspects of the business, drawing on his background in finance. Ryan—who lived in Texas—handled the operational aspects of the business, drawing on his background in operating a warehousing and logistics business in the Houston area. Ryan's role required frequent travel, which led to strain in his marriage. Eventually, Ryan was a party to proceedings to dissolve his marriage. The brothers’ relationship deteriorated and in November 2017, Ryan contacted Justin via email and told Justin he wanted to be a “passive investor” in the business without any responsibility for running the business. Appellants’ App. Vol. IV p. 164.

[4] The brothers stopped speaking, and by early 2018, Ryan was no longer involved in day-to-day operations. Around that time, Justin began transitioning Smash My Trash toward a franchise model. In June 2018, a wholly owned subsidiary was organized to operate the franchise business, Smash Franchise Partners, LLC (“Franchise Partners”). Franchise Partners signed its first franchisee in April 2019. By mid-July 2019, Franchise Partners had signed three additional franchisees. In September 2019, Franchise Partners contracted with a franchise sales organization to accelerate growth of the franchise business.

[5] At the end of June 2019, Justin and Ryan each held about 47.32% of the Common Units of Holdings while their brother and sister each held about 2.5% and friends of Justin held the remaining membership interest. Around the time Franchise Partners was starting to grow, the members agreed to restructure Holdings so that the Common Units held the voting rights. The plan was for Justin to retain his Common Units—and, thereby, control—and be appointed sole manager, with the other members’ interest converted to Preferred Units. Holdings was restructured in this way in July 2019, resulting in an Amended and Restated Operating Agreement (“the Amended Operating Agreement”).

[6] In August 2019, Justin hired a bookkeeper who was eventually promoted to controller. The previous controller had resigned in the spring of 2019. As the business received franchise payments, there were questions about how to account for those revenues. In its first few years of business, Smash My Trash recognized revenues on a cash accounting basis. Smash My Trash would ultimately transition to an accrual basis for the 2019 tax return, such that it recognized franchise fees only when a franchise was operational. In other words, when a franchisee paid a franchise fee or other payments—such as a downpayment on Smash My Trash equipment—those payments would be treated as deferred liabilities until the corresponding franchise opened.

[7] By the end of 2019, there were four operating franchises while more than ten others were under contract. Meanwhile, around the time Holdings was restructured, Ryan was nearing the conclusion of marital dissolution proceedings. In those proceedings, Ryan's interest in Holdings was valued at $627,000.00. Ryan faced financial obligations under the dissolution decree and contacted Justin in August 2019, expressing interest in selling his Preferred Units to Justin. Ryan sought an offer and sent over the valuation of his interest that was used in the dissolution proceedings. On September 12, 2019, Ryan emailed Justin and requested a balance sheet and “P&L reports from [the] inception of business through 8/31/2019,” adding: “Ideally, a summary sheet ․ showing annual data.” Appellants’ App. Vol. V p. 6. On September 14, 2019, Ryan sent another email to Justin asking “where [things were] at with franchising.” Id. at 12. On that date, Justin sent Ryan a summary document that purported to aggregate the profit and loss statements from Holdings's subsidiaries from the inception of business through the end of August 2019 (“the September 2019 Report”). See Appellants’ Supp. App. Vol. VIII pp. 138, 141–50. Before sending the September 2019 Report, Justin obtained particular financial information from his new controller, who expressed uncertainty about the accuracy of the data. The new controller's email to Justin read as follows:

Attached are the results through 08/31/2019.

LOTs of reconciliation items. Some are washes. Some are inconsistencies. Quite a few transfers and transactions up through 08/31/2019 [n]ot recorded in this Franchise Partners [b]ut are reflected in the bank statements. I recorded them so bank statement[s] and QBO are reconciled through 08[/]31/2019. Some items I simply recorded so we could compare numbers. Things like legal fees[,] I know. Transfers to other account/Owner draw type items/ATM and Bank Withdraws. Wasn't real[ly] sure. So they are mainly in suspense with my notes in front of me. But when I run through 9/12/2019[,] [t]he numbers go in a crazy direction. I[ ] [have] some stuff recorded but never cleared. Most of the same things as with the other entities I'm finding. Could be recorded in wrong entity stuff. Not sure. Let me know what you think and I can dig in and look deeper and [sic] things that look unreasonable.

Appellants’ App. Vol. V p. 7. When Justin emailed Ryan the September 2019 Report, he included the following message: “Attached are financials. These are not audited. We just hired a ․ professional controller. I expect these to change as records are cleaned up. I have no idea to what extent.” Id. at 19.

[8] On December 3, 2019, Justin emailed an independent accounting firm he hired, stating that he was “bordering on panic due to our months long efforts to clean our books.” Id. at 25. Justin noted that he was not copying his controller on the email “as this [was] a private note.” Id. Justin stated that “consolidated reports ․ for all companies for 2019” were “massively off” and there were issues in how to account for equipment orders and “$15 million of sales in [the] consolidated report” with “a massive and inaccurate profit.” Id. Justin said the accounting issues “must be resolved as soon as humanly possible,” even if the independent accounting firm needed to “come out” and “run a full audit.” Id.

[9] On December 16, 2019, Justin emailed one of the independent accountants and stated that “preliminary numbers” for Holdings were showing a $1.4 million net profit for 2019. Id. at 31. Justin asked to speak “about reducing tax burden[.]” Id. The independent accountant responded to set up a call, noting that they needed to “make sure whether the $1.4M of net profit is on a cash basis or on an accrual basis.” Id. In the ensuing months, Justin would eventually contract with a different outside accountant to conduct an audit of Franchise Partners. Correspondence with the different outside accountant indicated that the entity had “some 2 million dollars” in expenses that needed to be “moved from [the] accrual P&L” to “properly reflect those transactions for franchisees that ha[d] not yet begun operations according to generally accepted accounting principles” applicable in franchise-related accounting. Appellants’ Supp. App. V p. 157.

[10] Meanwhile, Ryan hired counsel to represent him in the transaction with Justin. On December 6, 2019, Ryan's counsel emailed Justin's counsel and proposed a buyout of $1.2 million that included “a customary mutual release,” subject to “reviewing updated financials.” Appellants’ App. Vol. V p. 30. On January 20, 2020, Justin's counsel sent Ryan's counsel a financial document, asserting that the document reflected “full year financials” for 2019. Id. at 34. After reviewing the updated financials, Ryan's counsel e-mailed Justin's counsel, noting that the “updated financial statements show[ed] improved performance[.]” Appellants’ Supp. App. Vol. VIII p. 157. Ryan's counsel suggested a purchase price in the range of $1.5 to $1.7 million with “a customary mutual release.” Id. Justin's counsel countered at $1.4 million, and on February 5, 2020, Ryan's counsel indicated they could “get a deal done” at that price. Id. at 158. At that point, the attorneys began preparing documents, including a release provision.

[11] Justin's counsel sent a draft of a release provision to Ryan's counsel, who responded that it “should be mutual” and “should exclude obligations arising under the purchase agreement, note, noncompete[,] and other transaction documents (both ways).” Id. at 167. A revision was circulated making the release mutual. Whereas, the previous draft excluded only those claims “relating to rights and obligations preserved by, created by[,] or otherwise arising out of th[e] [r]elease,” id. at 162, the revised version excluded “any [c]laims relating to rights and obligations preserved by, created by[,] or otherwise arising out of (i) th[e] [r]elease, and (ii) each and every document executed in connection with the purchase of the Preferred Units as contemplated by the Unit Purchase Agreement (collectively, ‘Transaction Documents’).” Id. at 170.

[12] Ryan and Justin executed the revised documents on April 17, 2020, executing a Unit Purchase Agreement (“the UPA”), a mutual release (“the Mutual Release”), a Restrictive Covenant Agreement (“the RCA”), and related documents. See Appellants’ App. Vol. IV pp. 112–160. The parties later referred to the Mutual Release as containing three clauses—the General Release Clause, the Carve-Out Clause (which was the clause substantially revised in negotiations), and the Later Discoveries Clause. First, the General Release Clause stated that the parties released one another “of and from any and all ․ ‘Claims.’ ” Id. at 146. Second, the Carve-Out Clause created an exception for “any Claims relating to rights and obligations preserved by, created by[,] or otherwise arising out of (i) th[e] [Mutual] Release, and (ii) each and every document executed in connection with the purchase of the Preferred Units as contemplated by the [UPA] (collectively, ‘Transaction Documents’).” Id. Third, the Later Discoveries Clause stated that the parties “intend[ed] to fully, finally and forever settle and release all Claims that now exist, may exist[,] or previously existed, as set forth in the release contained in th[e] [Mutual] Release, whether known or unknown, foreseen or unforeseen, or suspected or unsuspected[.]” Id. at 147.

[13] As for the UPA, Section 8.2 contained an indemnification clause that stated in pertinent part as follows:

[Ryan] shall defend, indemnify[,] and hold harmless [Justin] ․ from and against all claims ․ , judgments, damages, liabilities, settlements, losses, costs[,] and expenses, including attorney's fees and disbursements ․, arising from or relating to ․ any breach or non-fulfillment of any covenant, agreement[,] or obligation to be performed by [Ryan] pursuant to th[e] [UPA] or any document to be delivered.

Id. at 119–20. Section 7.2 listed Ryan's deliverables. See id. at 119. Several documents were listed, among them, the RCA and the Mutual Release. Id. The UPA also contained procedures for seeking indemnification, specifying: “Whenever any claim shall arise for indemnification under [the UPA], the indemnified party ․ shall promptly provide written notice of [a] claim to the indemnifying party[.]” Id. at 120.

[14] On April 14, 2022—which was after Ryan had been paid the $1.4 million due under the Transaction Documents—Ryan sued Justin, alleging he concealed or misrepresented Smash My Trash's financial condition and franchise prospects. As ultimately amended, Ryan's complaint contained the following four counts: Count I – Constructive Fraud; Count II – Fraudulent Inducement; Count III – Violation of Indiana Securities Act; and Count IV – Unjust Enrichment. See Appellants’ App. Vol. III pp. 13–19. Justin filed his answer and affirmative defenses, ultimately bringing the following six counterclaims: Counterclaim I – Breach of the Mutual Release; Counterclaim II – Unjust Enrichment; Counterclaim III – Breach of the RCA; Counterclaim IV – Abuse of Process; Counterclaim V – Indemnification; and Counterclaim VI – Frivolous Claims. See id. at 65–73. Counterclaim V alleged that Justin was entitled to damages because Ryan was obligated to indemnify certain parties due to breach of contract. Counterclaim VI alleged that Justin was entitled to attorney's fees under the General Recovery Rule in Indiana Code section 34-52-1-1(b) because Ryan's claims were “frivolous, unreasonable, and groundless.” Id. at 72.

[15] Before amendments to the pleadings, the parties filed competing motions to dismiss, asking the trial court to decide whether the Mutual Release precluded Ryan's fraud claims. The trial court denied the motions to dismiss, determining that the language of the Mutual Release precluded Ryan's fraud claims, but that evidence outside the pleadings was necessary to determine whether the Mutual Release was enforceable. See Appellants’ App. Vol. II pp. 63–67. On January 16, 2024, Justin moved for partial summary judgment, designated certain evidence, and claimed he was entitled to summary judgment as to “the entirety of Ryan's amended complaint” and to three counterclaims: Counterclaim I: Breach of the Mutual Release; Counterclaim III: Breach of the RCA; and Counterclaim IV - Abuse of Process. Appellants’ App. Vol. III p. 122. Ryan opposed Justin's motion for partial summary judgment, designated his own evidence, and filed a cross-motion for partial summary judgment as to three claims: Count I - Constructive Fraud, Count II - Fraudulent Inducement, and Count III - Violation of Indiana Securities Act. See id. at 169–222. In support of the motions, the parties submitted detailed briefing on summary judgment.

[16] The trial court held a summary judgment hearing on May 23, 2024. See Tr. Vol. 2 pp. 45–108. The next day, the trial court entered an order granting summary judgment to Justin as to (a) Counterclaim I – Breach of the Mutual Release and (b) Counterclaim III – Breach of the RCA. See Appellants’ App. Vol. II p. 68. The trial court granted Ryan summary judgment as to Counterclaim IV – Abuse of Process and otherwise denied Ryan's motion for partial summary judgment as moot. See id. at 68–69. Ryan filed a motion to correct error on July 21, 2024, alleging that Justin's counterclaim for Breach of the Mutual Release was not a valid cause of action. See Appellants’ App. Vol. IV pp. 109–11. The trial court held a damages hearing on July 23 and 24, 2024.

[17] On July 30, 2024, the trial court issued an order denying Ryan's motion to correct error. On that date, the trial court also issued an order awarding Justin $879,658.33 in damages on Counterclaim I and Counterclaim III, which consisted of attorney's fees and litigation expenses incurred through June 2024; and invited submission of evidence of Justin's attorney's fees and litigation expenses incurred in July 2024. The court determined that the amounts incurred in the matter were reasonable and that Justin was entitled to recover them “under any of [Justin's] three proposed theories: (1) indemnification for breach of the [Mutual R]elease; (2) prevailing-party status on the breach of [the RCA]; or (3) frivolous or bad-faith litigation pursuant to I.C. § 34-52-1-1(b),” i.e., the General Recovery Rule. Appellants’ App. Vol. II p. 71.

[18] Justin later filed a declaration regarding his attorney's fees and litigation expenses in July 2024, and the trial court added $131,369.57 to the judgment. Thereafter, Ryan filed a motion asking the trial court to clarify whether it had entered a final judgment. On August 30, 2024, the court issued its Amended Final Order and Judgment, clarifying that it had disposed of all claims by entering judgment for Justin on all of Ryan's claims; entering judgment for Justin on Counterclaim I - Breach of the Mutual Release, Counterclaim III - Breach of the RCA, Counterclaim V - Indemnification, and Counterclaim VI - Frivolous Claims; dismissing Counterclaim II - Unjust Enrichment; entering judgment for Ryan on Counterclaim IV - Abuse of Process; and awarding $1,011,027.90 to Justin as damages on Counterclaim I – Breach of the Mutual Release and Counterclaim III – Breach of the RCA. Ryan now appeals.

Discussion and Decision

[19] Ryan appeals following the denial of his motion to correct error, which challenged aspects of the order on summary judgment. In general, we review a ruling on a motion to correct error for an abuse of discretion; however, if the motion presented a pure question of law, our review is de novo. See City of Indianapolis v. Hicks, 932 N.E.2d 227, 230 (Ind. Ct. App. 2010), trans. denied.

[20] We review a ruling on summary judgment de novo, applying the same standard as the trial court. See Goodwin v. Yeakle's Sports Bar & Grill, Inc., 62 N.E.3d 384, 386 (Ind. 2016). Summary judgment is appropriate only “if the designated evidentiary matter shows that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law.” Ind. Trial Rule 56(C). To the extent the issues on summary judgment necessitate contract interpretation—which we conduct de novo—we review a contract “as a whole, seeking to determine the parties’ intent while ‘making every attempt to construe the contract's language so as not to render any words, phrases, or terms ineffective or meaningless.’ ” Thomas v. Valpo Motors, Inc., 258 N.E.3d 236, 241 (Ind. 2025) (quoting Performance Servs., Inc. v. Hanover Ins. Co., 85 N.E.3d 655, 659 (Ind. Ct. App. 2017)). So long as the terms of the contract are clear and unambiguous, we will “apply the plain and ordinary meaning of the terms and enforce the contract according to its terms.” Id. (quoting Performance Servs., Inc., 85 N.E.3d at 660). Furthermore, if a written contract “refers to another instrument and makes the terms and conditions of such other instrument a part of it, the two will be construed together as the agreement of the parties.” Id. (quoting Performance Servs., Inc., 85 N.E.3d at 660).

I. Counterclaim for Breach of the Mutual Release

[21] We begin by addressing whether Justin was entitled to summary judgment on his first counterclaim, which was that Ryan breached the Mutual Release by filing the action. Ryan argues that the Carve-Out Clause applied to his claims because the claims related to rights created by the UPA, and therefore, the claims were not released under the Mutual Release. We agree with Ryan.³

[22] Ryan brought the following claims in his amended complaint: Count I – Constructive Fraud; Count II – Fraudulent Inducement; Count III – Violation of Indiana Securities Act; and Count IV – Unjust Enrichment. All claims involved Ryan's sale of his Preferred Units under the UPA, with Ryan claiming his consent to the UPA was procured by fraud or other misconduct because Justin allegedly failed to disclose adequate or accurate financial information regarding Smash My Trash. The Mutual Release contained the Carve-Out Clause, which excluded “any Claims relating to rights and obligations preserved by, created by[,] or otherwise arising out of (i) th[e] [Mutual] Release, and (ii) each and every document executed in connection with the purchase of the Preferred Units as contemplated by the [UPA] (collectively, ‘Transaction Documents’).” Appellants’ App. Vol. IV at 146.

[23] Ryan argues that his claims related to rights and obligations preserved by, created by, or otherwise arising out of the UPA transaction. Specifically, Ryan claims the Transaction Documents failed to create enforceable rights and obligations because his consent to enter into the contracts was vitiated by fraud. Justin responds that Ryan's reading of the Carve-Out Clause “does not harmonize all provisions of the [Mutual] Release.” Appellees’ Br. p. 32.

[24] In pertinent part, the Mutual Release provides as follows:

(a) In consideration of the covenants, agreements[,] and undertakings of the [p]arties ․ and other good and valuable consideration, each [p]arty ․ (collectively, “Releasors”) hereby releases, waives[,] and forever discharges the other [p]arty ․ (collectively, “Releasees”) of and from any and all actions, causes of action, suits, losses, liabilities, rights, debts, dues, sums of money, accounts, reckonings, obligations, costs, expenses, liens, bonds, bills, specialties, covenants, contracts, controversies, agreements, promises, variances, trespasses, damages, judgments, extents, executions, claims, and demands, of every kind and nature whatsoever, whether now known or unknown, foreseen or unforeseen, matured or unmatured, suspected or unsuspected, in law, admiralty[,] or equity (collectively, “Claims”), which any of such Releasors ever had, now have, or hereafter can, shall, or may have against any of such Releasees for, upon, or by reason of any matter, cause, or thing whatsoever from the beginning of time through the date of this Release, except for any Claims relating to rights and obligations preserved by, created by[,] or otherwise arising out of (i) this [Mutual] Release, and (ii) each and every document executed in connection with the purchase of the Preferred Units as contemplated by the [UPA] (collectively, “Transaction Documents”).

(b) Each [p]arty ․ understands that it may later discover Claims or facts that may be different than, or in addition to, those that it or any other Releasor now knows or believes to exist regarding the subject matter of the release contained in this [Mutual] Release, and which, if known at the time of signing this [Mutual] Release, may have materially affected this [Mutual] Release[,] and such [p]arty's decision to enter into it and grant the release contained in this [Mutual] Release. Nevertheless, the Releasors intend to fully, finally[,] and forever settle and release all Claims that now exist, may exist[,] or previously existed, as set forth in the release contained in this [Release], whether known or unknown, foreseen or unforeseen, or suspected or unsuspected, and the release given herein is and will remain in effect as a complete release, notwithstanding the discovery or existence of such additional or different facts. The Releasors hereby waive any right or Claim that might arise as a result of such different or additional Claims or facts.

Appellants’ App. Vol. IV pp. 146–47 (emphases added).

[25] Justin focuses on the Later Discoveries Clause, pointing out that “Ryan acknowledged his release was effective even if he later learned of claims he did not foresee or suspect, and he waived any claim that could arise if he later learned different or additional facts.” Appellees’ Br. p. 29. Justin argues that the Later Discoveries Clause “tracks the gravamen of a fraud claim” and that Ryan's claims specifically involved allegations that, after entering into the Transaction Documents, Ryan discovered information that led him to believe he had a claim for fraud. Id. According to Justin, “Ryan tries to avoid the Later Discoveries Clause by nearly ignoring it and giving it an interpretation that makes it ineffective and meaningless.” Id. at 30. Justin asserts that the Later Discoveries Clause “serves a valuable purpose of emphasizing the breadth of the General Release and clarifying that ․ the Carve-Out Clause is limited to claims that relate to rights and obligations that arise from the express terms of the UPA.” Id. (emphasis added). Justin gives examples of “a failure to pay the purchase price under the UPA, a breach of confidentiality, or a breach of the non-compete.” Id. In short, Justin argues that the Carve-Out Clause did not apply to claims premised on fraud because those types of claims are not based on the express terms of the Transaction Documents, rather, those types of claims have roots outside the four corners of the Transaction Documents.

[26] We agree with Ryan that the Carve-Out Clause speaks for itself, identifying a class of claims that are excluded from the Mutual Release. Such claims are preserved, and therefore, not subject to the Later Discoveries Clause, which emphasizes that released claims remain released regardless of later-discovered information.⁴ The Carve-Out Clause broadly applies to claims “relating to rights and obligations preserved by, created by[,] or otherwise arising out of ․ each and every document executed in connection with the purchase of the Preferred Units as contemplated by the [UPA] (collectively, ‘Transaction Documents’).” Appellants’ App. Vol. IV p. 146 (emphasis added). The broad language used allows for consideration of claims that “relate to” or “arise out of” the rights and obligations set forth in the Transaction Documents, thereby allowing for consideration of claims outside the four corners of the Transaction Documents.

[27] As we explained in the context of insurance contracts, “the term ‘arising out of’ ” contemplates a “causal connection or relationship[.]” Global Caravan Techs., Inc. v. Cincinnati Ins. Co.,135 N.E.3d 584, 595 (Ind. Ct. App. 2019), trans. denied. Here, Ryan's fraud claims bore such a relationship to the Transaction Documents. Indeed, Ryan's fraud claims necessarily depend on the existence of the transaction (i.e., an agreement to transfer the Preferred Shares for a specific price) in that, absent the transaction, there would be no claim of fraud. Therefore, because Ryan's fraud claims necessarily depend on the transaction—which was carried out through the Transaction Documents—we conclude that Ryan's fraud claims “arise out of” or “relate to” the Transaction Documents as contemplated by the Carve-Out Clause. In other words, Ryan's claims—which were essentially that there were no enforceable rights under the Transaction Documents because his consent to contract was procured by fraud—were claims “relating to rights and obligations preserved by, created by[,] or otherwise arising out of” the Transaction Documents. Appellants’ App. Vol. IV p. 146 (emphasis added).

[28] Because Ryan's claims fell within the Carve-Out Clause—and were therefore not released—we conclude that Justin failed to establish he was entitled to summary judgment on his counterclaim that Ryan breached the Mutual Release in filing the action.⁵ We turn next to Ryan's claims against Justin.

II. Fraud Claims (Counts I and II)

A. Count I – Constructive Fraud

[29] Ryan argues that he was entitled to summary judgment on his claim of Constructive Fraud in Count I. See Appellants’ Br. p. 39 (arguing that “the designated evidence establishes a prima facie case for actual and constructive fraud”). “Constructive fraud arises by operation of law when there is a course of conduct which, if sanctioned by law, would secure an unconscionable advantage, irrespective of the actual intent to defraud.” Mullen v. Cogdell, 643 N.E.2d 390, 401 (Ind. Ct. App. 1994), trans. denied. The elements of constructive fraud are: (1) “a duty existing by virtue of the relationship between the parties”; (2) “representations or omissions made in violation of that duty”; (3) “reliance thereon by the complaining party”; (4) “injury to the complaining party as a proximate result thereof”; and (5) “the gaining of an advantage by the party to be charged at the expense of the complaining party.” Id. In general, “the law infers fraud from the relationship of the parties and the circumstances which surround them.” Id. Moreover, a claim “may ․ arise where the relationship between the parties is that of buyer and seller.” Id. Indeed, “[t]he law recognizes that in a buyer-seller relationship one party may be in the unique possession of knowledge not possessed by the other and may thereby enjoy a position of superiority over the other” and “[t]he relationship is therefore one which invokes a duty of good faith and fair dealing.” Id.

[30] The essence of Ryan's constructive fraud claim is that Justin misrepresented the financials of Smash My Trash, procuring Ryan's consent to sell his shares at a lower value than Ryan would have—if he would have sold them at all—had Ryan been accurately informed of the full extent of growth in the franchise side of the business; Ryan claims the growth in the franchise business was concealed due to allegedly negligent or intentional bookkeeping, including a change in accounting practices around the same time as negotiations. We conclude that the allegations support a claim of constructive fraud so long as Ryan can demonstrate the element of reliance. In general, “[a] person relying upon the representations of another is bound to exercise ordinary care and diligence to guard against fraud.” Wright v. Pennamped, 657 N.E.2d 1223, 1231 (Ind. Ct. App. 1995), trans. denied. In other words, a party can establish constructive fraud only by demonstrating their reliance was reasonable. See id. “Where the evidence is conflicting, the issue of whether a particular person has exercised reasonable prudence and whether the reliance was justified is for a jury's determination.” Id. On the other hand, “[w]here the evidence is susceptible to only one interpretation, ․ ‘it is for the court to determine as a matter of law whether [the] plaintiff was justified in relying on the representation and whether he was negligent in doing so.’ ” Id. (quoting Plymale v. Upright, 419 N.E.2d 756, 763 n.6 (Ind. Ct. App. 1981)).

[31] On appeal, Ryan asserts that “[t]he only way [he] could obtain information about [Smash My Trash's] finances and business operations was through Justin.” Appellants’ Br. p. 44. The designated evidence discloses specific communications from Justin to Ryan regarding Smash My Trash's finances and value. It is worth pointing out, however, that the designated evidence also indicates that because Ryan was a member of Holdings, he had the right under the Amended Operating Agreement to access the financial information directly rather than rely on the allegedly inaccurate summary information provided by Justin. Indeed, as Justin pointed out below, Section 10.01 of the Amended Operating Agreement gave Ryan the right, “[u]pon reasonable notice,” to access “the corporate, financial[,] and similar records, reports[,] and documents of [Holdings] and [its] [s]ubsidiaries, including, without limitation, all books and records, minutes of proceedings, internal management documents, reports of operations, reports of adverse developments, copies of any management letters[,] and communications with Members or Managers,” including the right to have his representative “examine such documents and make copies thereof[.]” Appellants’ App. Vol. II p. 226. Section 10.01 further conferred access to Holdings's and its subsidiaries’ “[o]fficers, senior employees[,] and public accountants,” including “the opportunity to discuss and advise on the affairs, finances[,] and accounts of” Holdings and its subsidiaries “with their [o]fficers, senior employees[,] and public accountants,” specifically providing that Holdings “hereby authorize[d] said accountants to discuss with such Member and its [r]epresentatives such affairs, finances[,] and accounts.” Id.

[32] To prevail on a claim of constructive fraud, Ryan must demonstrate that the designated evidence is susceptible only to the interpretation that he reasonably relied on Justin's representations about Smash My Trash's financials. Yet, under the circumstances—where Ryan could have exercised rights to directly access financial information and speak directly with Smash My Trash's accountants about the records and accounting practices—we cannot say the designated evidence is susceptible only to the interpretation that Ryan reasonably relied on Justin's representations. Although that is one potential interpretation of the designated evidence, such evidence also supports the conflicting interpretation that Ryan's reliance on Justin's representations was unreasonable in light of Ryan's access to Smash My Trash's finances. Because the designated evidence is not susceptible to a single interpretation on the issue of reliance, the issue is not appropriate for resolution on summary judgment. In other words, based on the foregoing, we conclude that there remains a genuine issue of material fact precluding summary judgment on Ryan's claim of constructive fraud in Count I.

B. Count II – Fraudulent Inducement

[33] In Count II, Ryan alleged that Justin was liable for Fraudulent Inducement, which “occurs when a party is induced through fraudulent misrepresentations to enter into a contract.” Am.’s Directories, Inc. v. Stellhorn One Hour Photo, Inc., 833 N.E.2d 1059, 1068 (Ind. Ct. App. 2005), trans. denied. To prevail on this type of a claim, a party must establish (1) “a material misrepresentation of [a] past or existing fact” that (2) “was untrue,” (3) “was made with knowledge of or in reckless ignorance of its falsity,” (4) “was made with the intent to deceive,” (5) “was rightfully relied upon by the complaining party,” and (6) that “proximately caused the injury or damage complained of.” Lawyers Title Ins. Corp. v. Pokraka, 595 N.E.2d 244, 249 (Ind. 1992).

[34] Here, the Fraudulent Inducement claim could not be decided as a matter of law for the same reason the Constructive Fraud could not be decided as a matter of law; that is, there are genuine issues of material fact as to whether Ryan reasonably relied on Justin's representations regarding Smash My Trash's financial information when Ryan, as a member of Holdings, had certain rights to directly access financial information. We therefore conclude no party is entitled to summary judgment on the fraud claim in Count II of Ryan's complaint.

III. Count III - Indiana Securities Act

[35] Ryan alleged that Justin violated the Indiana Securities Act (“ISA”) by providing materially false and misleading information in connection with the sale and purchase of a security. The trial court resolved this claim in favor of Justin, concluding the ISA claim was waived pursuant to the Mutual Release. However, as earlier discussed, claims were not waived so long as they “relat[ed] to rights and obligations preserved by, created by[,] or otherwise arising out of ․ document[s] executed in connection with the purchase of the Preferred Units as contemplated by the [UPA].” Appellants’ App. Vol. IV p. 146. Here, the claim was that Justin engaged in fraud “in order to induce [Ryan] to sell [his] membership interest in ․ Holdings to [Justin] for substantially less than its actual value.” Appellants’ App. Vol. II p. 90. Because this claim related to the rights and obligations created by the UPA, the Mutual Release did not apply, and therefore—just as with the claims related to fraud—Justin was not entitled to summary judgment on the ISA claim due to the Mutual Release.⁶

[36] Irrespective of the Mutual Release, Justin argues he is entitled to summary judgment on the basis that the ISA applies only to a “security” and the Preferred Units do not fit within the statutory definition of a “security.” Justin directs us to Indiana Code section 23-19-1-2(28), which defines the term “security.” The pertinent definition in the ISA provides as follows:

“Security” means a note; stock; treasury stock; security future; bond; debenture; evidence of indebtedness; certificate of interest or participation in a profit-sharing agreement; collateral trust certificate; preorganization certificate or subscription; transferable share; investment contract; voting trust certificate; certificate of deposit for a security; fractional undivided interest in oil, gas, or other mineral rights; put, call, straddle, option, or privilege on a security, certificate of deposit, or group or index of securities, including an interest therein or based on the value thereof; put, call, straddle, option, or privilege entered into on a national securities exchange relating to foreign currency; or, in general, an interest or instrument commonly known as a “security”; or a certificate of interest or participation in, temporary or interim certificate for, receipt for, guarantee of, or warrant or right to subscribe to or purchase, any of the foregoing. The term:

(A) includes both a certificated and an uncertificated security;

(B) does not include an insurance or endowment policy or annuity contract under which an insurance company promises to pay a fixed or variable sum of money either in a lump sum or periodically for life or another specified period;

(C) does not include an interest in a contributory or noncontributory pension or welfare plan subject to the Employee Retirement Income Security Act of 1974;

(D) includes as an “investment contract” an investment in a common enterprise with the expectation of profits to be derived primarily from the efforts of a person other than the investor and a “common enterprise” means an enterprise in which the fortunes of the investor are interwoven with those of either the person offering the investment, a third party, or other investors; and

(E) includes as an “investment contract”, among other contracts, an interest in a limited partnership and a limited liability company and an investment in a viatical settlement or similar agreement.

I.C. § 23-19-1-2(28). Justin points out that “the definition contemplates dozens of possibilities, including notes, bonds, certificates of deposit, and fractional interests in mineral rights,” and that “[m]embership in an LLC is not included.” Appellees’ Br. p. 55. Justin focuses on subsection (E), which explains that an “investment contract” can include an interest in a limited liability company. Id. Justin argues that Ryan's interest in Holdings was not an investment contract because that term properly encompasses only “passive, investment-based membership in limited liability companies.” Id. at 56. Justin ultimately directs us to federal securities law, including caselaw from the United States Supreme Court that looks to the “economic realit[ies]” to determine whether an investment contract exists. S.E.C. v. W.J. Howey Co. 328 U.S. 293, 298 (1946). Ryan agrees that the United States Supreme Court's approach in Howey applies, asserting that this approach was “codified in the [ISA].” Appellants’ Br. p. 56. Howey defines an investment contract in this context as “a contract, transaction[,] or scheme whereby a person invests his money in a common enterprise and is led to expect profits solely from the efforts of the promoter or a third party[.]” 328 U.S. at 298–99. Rephrasing the analysis, Ryan agrees the ISA would apply to a transaction involving “(1) an investment; (2) in a common enterprise; (3) premised upon a reasonable expectation of profits; (4) derived from the efforts of another.” Appellants’ Br. p. 56.

[37] Justin asserts that, because Ryan's interest in Smash My Trash arose when Ryan was an active manager and ran the day-to-day operations of Smash My Trash, that interest could not later be converted to a “security” when Ryan became a passive investor. See Appellees’ Br. pp. 55–58. We agree with Justin in that, based on the designated evidence, Ryan was at no point “led to expect profits solely from the efforts of [a] promoter or a third party[.]” W.J. Howey Co., 328 U.S. at 298 (emphasis added). Rather, Ryan was initially an active manager and, although he subsequently agreed to a passive role, there is no indication his involvement in Smash My Trash was premised upon an expectation of profits derived solely from another's efforts. Notably, when Ryan came to hold Preferred Units—which carried economic rights only—Ryan had already invested his money and efforts into the business. Indeed, it is not as though Ryan made an additional capital contribution to obtain his interest in the Preferred Units.

[38] In sum, the undisputed economic realities of the scenario were such that Ryan's Preferred Units did not constitute a security under the ISA. Because the Preferred Units did not constitute a security, we conclude that the trial court properly granted summary judgment to Justin on Count V of Ryan's complaint.

IV. RCA Counterclaim (Counterclaim III)

[39] One of Justin's counterclaims was that Ryan withheld records that constituted Confidential Information under the RCA, and that Ryan violated a provision of the RCA by disclosing that information to a third party without first obtaining Justin's written consent. The trial court granted summary judgment to Justin on this counterclaim and, in awarding the $1,011,027.90 in attorney fees in damages to Justin, referred to Section 7.3 of the RCA, which authorizes the award of attorney fees in limited scenarios. Section 7.3 provides: “In the event of any litigation regarding the construction or validity of [the RCA], in addition to any other relief[,] the prevailing party shall be entitled to recover its reasonable costs incurred, including attorneys’ fees.” Appellants’ App. Vol. IV p. 134.

[40] On appeal, Ryan does not dispute his breach of the RCA. See Appellants’ Br. p. 72 (acknowledging that he “largely admitted his technical breaches of the RCA”). Rather, Ryan argues the trial court erred to the extent it relied on the fee-shifting provision to justify its award of $1,011,027.90 in attorney fees. Ryan argues the fee-shifting provision “is not implicated by this litigation,” id. at 71, because it “applies only to actions concerning the scope, meaning, or validity of the RCA—none of which were challenged in this lawsuit,” id. at 72. We agree with Ryan. The instant lawsuit consists of Ryan's allegations of fraud and constructive fraud and his request for rescission and not litigation “regarding the construction or validity” of the RCA. Appellants’ App. Vol. IV p. 134. Thus, the fee-shifting provision did not apply and the RCA did not authorize the type of damages awarded to Justin, which consisted entirely of litigation expenses.

V. Grounds for Attorney's Fees and Litigation Expenses

[41] Putting aside the fee-shifting provisions of the RCA, Justin argues the award of $1,011,027.90 in attorney's fees and litigation expenses was justified under the indemnification provisions of the UPA (which was the essence of his Counterclaim IV). The UPA stated in pertinent part as follows:

[Ryan] shall defend, indemnify[,] and hold harmless [Justin] ․ from and against all claims ․ , judgments, damages, liabilities, settlements, losses, costs[,] and expenses, including attorney's fees and disbursements ․, arising from or relating to ․ any breach or non-fulfillment of any covenant, agreement[,] or obligation to be performed by [Ryan] pursuant to th[e] [UPA] or any document to be delivered.

Appellants’ App. Vol. IV p. 119–20. Section 7.2 listed Ryan's deliverables, specifically requiring that he deliver the RCA. Thus, it appears that the UPA's indemnification provisions contemplate recovery for breach of the RCA.

[42] Ryan argues Justin is not entitled to indemnification under the UPA because he failed to comply with the UPA's indemnification procedures. Those procedures include that “[w]henever any claim shall arise for indemnification under [the UPA], the indemnified party ․ shall promptly provide written notice of [a] claim to the indemnifying party[.]” Id. at 120. Ryan argues that Justin failed to provide reasonably prompt notice, pointing out that he “testified he was completely unaware that Justin intended to seek indemnification until Justin filed a counterclaim for indemnification in October 2023—a full eighteen months into the lawsuit.” Appellants’ Br. p. 70. Ryan further asserts that any notice Justin sent was not compliant with the UPA, in that all notices were to be sent to his personal address, in accordance with Section 10.3 of the UPA. See Appellants’ App. Vol. IV p. 122. Justin essentially argues Ryan cannot insist on strict compliance with the notice provisions. See Appellees’ Br. pp. 67–68.

[43] Our Supreme Court recently explained that “insofar as the contracting parties agree on what constitutes effective notice, their agreement controls.” Land v. IU Credit Union, 218 N.E.3d 1282, 1287 (Ind. 2023). Indeed, the Court explained that it “will ‘defend the freedom of contract by enforcing parties’ agreed terms,’ whether those terms call for notice by email, regular U.S. mail, or other means.” Land, 218 N.E.3d at 1287 (quoting Care Grp. Heart Hosp., LLC v. Sawyer, 93 N.E.3d 745, 758 (Ind. 2018)). Because there is no indication that Justin gave Ryan notice in accordance with the UPA, we adhere to our Supreme Court's precedent and conclude that Justin cannot rely on indemnification provisions in the UPA premised upon giving proper notice.⁷ We therefore reject Justin's contentions that noncompliance with the UPA's indemnification provisions should be excused or otherwise did not operate as a bar to seeking indemnification thereunder. See Appellees’ Br. pp. 66–69.

[44] Having concluded Justin was not entitled to recover for any claim of damages under the UPA, we turn to the trial court's determination that the damages were independently justified under section 34-52-1-1(b) of the General Recovery Rule for frivolous or bad faith litigation. We review an award of attorney's fees for an abuse of discretion. River Ridge Dev. Authority v. Outfront Media, LLC, 146 N.E.3d 906, 912 (Ind. 2020). The trial court abuses its discretion when its decision is clearly against the logic and effect of the facts and circumstances or when it misinterprets the law. See id.

[45] In pertinent part, the General Recovery Rule provides as follows:

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.

Ind. Code § 34-52-1-1(b) (emphasis added). A party is a prevailing party if they receive a judgment in their favor. River Ridge, 146 N.E.3d at 913–14.

[46] Based on our appellate disposition—where we are reversing and remanding with surviving claims—the litigation is simply not over, therefore, it is premature to determine whether either party was the prevailing party, let alone engaged in actions or tactics that constituted frivolous or bad faith litigation. Thus, the award of damages cannot be supported by the General Recovery Rule. Moreover, the record discloses no other viable theory for affirming the attorney's fees awarded at this early juncture. We therefore reverse the damages award.

Conclusion

[47] The trial court erred in granting summary judgment to Justin on Counterclaim I – Breach of Release and all counts in the complaint except Count III – Violation of Indiana Securities Act. Moreover, there remain genuine issues of material fact precluding the entry of summary judgment on Count I – Constructive Fraud and Count II – Fraudulent Inducement. Finally, although we affirm the order granting summary judgment to Justin on Count III – Violation of Indiana Securities Act and Counterclaim III – Breach of Contract due to breach of the RCA, we find no basis to affirm the damages award of $1,011,027.90 as to those counts alone. Thus, we reverse the damages award and remand for further proceedings on the remaining claims and counterclaims.

[48] Affirmed in part, reversed in part, and remanded.

FOOTNOTES

1.   We at times use the term “Ryan” to refer to (1) Little Business, LLC, or (2) Ryan personally and Little Business, LLC.

2.   We at times use the term “Justin” to refer to (1) WIJG, LLC, or (2) Justin personally and WIJG, LLC.

3.   Resolving the issue on this basis, we do not address Ryan's argument, in the alternative, that Justin did not establish a viable claim for breach because the Mutual Release did not contain a covenant not to sue.

4.   In light of our interpretation that the Later Discoveries Clause applies only to released claims, we do not address Justin's contention that language in that clause extended to claims of fraud in the inducement.

5.   At times, Justin argues that, as a matter of law, there is no way Ryan could prevail on any fraud claim because he did not return the $1.4 million he received for the Preferred Shares “or tr[y] to do so.” Appellees’ Br. p. 50. For this proposition, Justin directs us to Prall v. Ind. Nat. Bank, where this court stated:[A] party wishing to avoid the effect of his release must restore the status quo by restoring or tendering the consideration received by him. Full restoration of the consideration received for a release is a condition precedent to the maintenance of an action for the rescission of a contract or the avoidance of the bar raised by the pleading of the release.627 N.E.2d 1374, 1379 (Ind. Ct. App. 1994) (emphasis added). For the reasons discussed, Ryan's fraud claims are consistent with the Mutual Release because they fit within the Carve-Out Clause. Because Ryan is not attempting to avoid a release, we find the cited caselaw distinguishable, but do not need to further address this argument to resolve this appeal.

6.   Having resolved the issue on this basis, we do not address Ryan's arguments in the alternative, among them, that the ISA claim was “not releasable as a matter of Indiana statute.” Appellants’ Br. p. 54.

7.   Resolving the issue on this basis, we do not address Ryan's argument that Justin is seeking indemnification for an entity not covered by the UPA's indemnification provisions.

Foley, Judge.

Mathias, J. and Bradford, J., concur.