Until recently, Indiana courts had not addressed the viability of some counterclaims filed in response to residential mortgage foreclosure actions, or the impact of joint defense agreements on adversarial disputes between the parties to the agreement. Two cases provide guidance to Indiana practitioners and litigants in both areas of law.

Jaffiri v. JPMorgan Chase Bank, N.A., 26 N.E.3d 635 (Ind. Ct. App. 2015) arose from a mortgage foreclosure case filed after unsuccessful discussions between the bank and borrower about possible modification of mortgage terms under the federal Home Affordable Modification Program (HAMP). The borrower filed counterclaims alleging negligence, breach of fiduciary duty, constructive fraud and intentional infliction of emotional distress. The borrower alleged that the bank did not properly respond to multiple HAMP requests, causing her emotional distress. After the parties agreed to a non-HAMP modification, the foreclosure action was dismissed but the borrower pursued her counterclaims. The trial court granted the bank’s motion to dismiss all four counterclaims, and the result was affirmed on appeal.

The borrower’s negligence claim was based on the assertion that the bank had a duty to address her HAMP applications with reasonable care. But the relationship between the parties was based on a contract, and in Indiana tort law will not interfere with a contractual allocation of rights. No damages for emotional distress could be recovered because the borrower did not allege that she sustained emotional trauma from a direct physical impact or from witnessing a traumatic event. The constructive fraud and breach of fiduciary duty claims failed because the borrower relied on alleged contractual obligations of the bank, but in the absence of special circumstances such obligations do not transform a debtor-creditor relationship into a fiduciary relationship of the type necessary to support the borrower’s claims. Finally, the borrower could not satisfy the “rigorous” requirements of a claim for intentional infliction of emotional distress (IIED), an essential element of which is a party engaging in extreme and outrageous conduct. Even if the bank intentionally mishandled HAMP applications - which was not the situation before the Court - such conduct would not constitute the “type of beyond-the-pale, ‘outrageous’ conduct that may be covered by an IIED claim.”

In Price v. Charles Brown Charitable Remainder Unitrust Trust, 27 N.E.3d 1168 (Ind. Ct. App. 2015), the court addressed what happens when parties to a joint defense agreement sue each other. Brown hired Price, a lawyer, to draft a trust agreement. Brown hired Price, a lawyer, to draft a trust agreement. Five years after the Trust was created, Price was named trustee, succeeding two prior trustees. Six years later a federal criminal case was initiated against Brown, the indictment was later amended to add charges against Price. In March 2008, Brown and Price signed a joint defense agreement (the JDA), dated to be effective September 2007. Under the JDA, Brown and Price shared information and documents in pursuit of a common interest in defending criminal charges. The JDA provided that shared information could not be used for other purposes.

In April 2009, Brown removed Price as the trustee of the Trust. Brown and his wife then sued Price under several theories of recovery, while the criminal charges were still pending. In May 2009, a separate action for trust accounting was filed, and the two actions were consolidated. In October 2009, Brown terminated the JDA. Brown and Price were later acquitted of all criminal charges. Price filed a motion for summary judgment in the civil action, urging that the claims asserted by Brown and the Trust could not go forward because information shared under the JDA “could never be separated from matters relevant to prosecution of the civil claims.” The trial court denied the motion, and the Court of Appeals affirmed.

No prior Indiana case discussed joint defense agreements, so the court looked to other jurisdiction for guidance as to the scope of the common interest privilege on which the JDA was based. The privilege allows for the sharing of information by parties whose legal interests coincide. But the privilege is limited to communications made to further an ongoing joint enterprise with respect to a common interest. The court reviewed the terms of the JDA under long standing principles of contract interpretation. The JDA did not include a waiver of the parties’ rights to sue each other. To the contrary, the JDA contemplated that the joint defense privilege would not be impaired even if it later became inapplicable due to the emergence of adversarial claims. “Thus, according to the plain and ordinary meaning of the JDA’s terms, the contract does not bar … the claims against Price.” Price asserted that protecting privileged communications would prove too difficult. The court disagreed, finding a case relied on by Price factually distinguishable. The court also observed that specific claims of privilege would need to be resolved as they arise.