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ATTORNEYS FOR APPELLANT William Edward Jenner Darrell M. Auxier Madison, Indiana

ATTORNEY FOR APPELLEES Robert C. Price Bloomington, Indiana

______________________________________________________________________________

In the

Indiana Supreme Court
_________________________________ No. 53S01-0711-CV-515 TONDA BETH NICHOLS,

FILED
Apr 29 2008, 9:08 am
of the supreme court, court of appeals and tax court

CLERK

Appellant (Plaintiff below), v. REX DAVID MINNICK & R. DAVID MINNICK, INC., D/B/A COMMERCIAL PROPERTIES, Appellees (Defendants below). _________________________________ Appeal from the Monroe Circuit Court, No. 53C01-0206-PL-01056 The Honorable E. Michael Hoff, Judge _________________________________ On Petition to Transfer from the Indiana Court of Appeals, No. 53A01-0606-CV-268 _________________________________ April 29, 2008 Boehm, Justice. We hold that a broker who breaches his fiduciary duty to disclose material information to his client loses his right to receive a commission for his services. Facts and Procedural History In 1998, Bedford Hideaway Lounge, Inc. ("BHL") owned and operated the Hideaway Lounge, "a gentleman's club and bar" in Bedford, Indiana. In the spring of 1998, Tonda Beth

Nichols, the owner of BHL, encountered some health problems and engaged real estate broker Rex David Minnick to sell BHL. In her initial meeting with Minnick, Nichols stated that she wanted $300,000 for BHL. At a second meeting, Minnick suggested $240,000 to $250,000 as an appropriate price. Nichols signed a preprinted real estate listing agreement giving Minnick the exclusive right to sell BHL for $245,000 and providing for a ten-percent commission to Minnick. Minnick showed the property to only one potential buyer, James Blickensdorf. Minnick reported to Nichols that Blickensdorf would offer $225,000 for BHL, but was unable to pay the full price in cash. Minnick recommended that Nichols accept the offer, and Nichols testified that she relied on Minnick's "judgment" and "expertise" in deciding to agree. Nichols and Blickensdorf entered into a "Stock Purchase Agreement" calling for Nichols to transfer 999 of BHL's 1000 shares to Blickensdorf, and the remaining share to "Charles A. East," whose relationship to this transaction is not clear from the record. The agreement called for Blickensdorf to make a $25,000 cash down payment and execute a five-year installment note for $177,500. The agreement recited that Blickensdorf "is paying the commission owed by [Nichols] to R. David Minnick" and would receive a credit for the remaining $22,500 of the $225,000 purchase price. Nichols agreed to transfer her BHL shares upon payment in full of the installment note. The Stock Purchase Agreement provided that Blickensdorf would assume management of the Hideaway Lounge at closing, which took place on July 16, 1998. Blickensdorf soon experienced problems. He hired underage dancers, failed to pay taxes when due, bounced checks, and eventually failed to make payments due on the installment note. During this time, without Nichols's knowledge, Minnick had advanced money to Blickensdorf for taxes, utilities, and operating expenses. On June 23, 2000, in response to a letter from Nichols's attorney declaring a default on the note, Blickensdorf paid the balance owed on the installment note. Nichols then transferred all her shares of BHL to Blickensdorf. In a second transaction, without Nichols's knowledge, Blickensdorf transferred the BHL shares to Richards Properties, Inc., owned ten percent by Minnick and ninety percent by Richard Evans, Minnick's employee. Minnick testified that

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Richards Properties was formed to purchase BHL and hopefully "turn the business around." In January 2001, Minnick became the owner of ninety-five percent of Richards Properties. At some point along the way, Richards Properties surveyed the real estate held by BHL and learned that the parking lot adjacent to the Hideaway Lounge was owned personally by Nichols, not by BHL. In May 2001, Blickensdorf and Richards Properties sued Nichols, alleging that she had failed to convey the parking lot to the Hideaway Lounge. Nichols, who had continued to allow customers to park on the land without charge, testified that she was "confused" by the lawsuit, and had "no idea" what Richards Properties was. Through discovery in this parking lot litigation, Nichols learned for the first time that Minnick had provided funds for Blickensdorf to operate the business, had funded the payoff of the purchase price, and through Richards Properties now owned BHL and operated the Hideaway. She testified that she also learned that Minnick had lent Blickensdorf $15,000 of the $25,000 down payment for the purchase of BHL, and had agreed to defer payment of Minnick's $22,500 commission. In response to the suit, Nichols began charging rent for use of the parking lot. On February 1, 2002, Blickensdorf and Richards Properties voluntarily dismissed the parking lot complaint without any payment or other consideration from Nichols. On June 12, 2002, Nichols sued Minnick for the $22,500 commission on the sale to Blickensdorf. Nichols's complaint alleged that Minnick used Blickensdorf as a "straw man" to obtain control of BHL and breached his fiduciary duties by failing to disclose his loans to Blickensdorf. Minnick admitted lending funds to Blickensdorf but denied using Blickensdorf to obtain BHL. Minnick explained that only after BHL was failing under Blickensdorf's management had he created Richards Properties in hopes of turning the business around. His motivation was to avoid repossession by Nichols, which would have destroyed the prospect of repayment of his loans to Blickensdorf. At trial, Minnick described Blickensdorf as a "friend" and testified that he and Blickensdorf had been involved in a prior real estate deal in which Blickensdorf wanted to purchase a Blimpie's restaurant in Bloomington. Blickensdorf was "short part of the down payment," and Minnick had provided a loan for the acquisition which Blickensdorf had since repaid in full.

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The trial court found that Minnick breached his fiduciary duty to Nichols by failing to disclose "Blickensdorf's financial weakness." However, the trial court concluded that disgorgement of Minnick's commission was not an appropriate remedy because Nichols did not prove that she suffered monetary damages. The trial court also found that Minnick's breach was not serious because Nichols "had reason to know" of a relationship between Minnick and Blickensdorf. The Court of Appeals affirmed the trial court, concluding that Nichols had not challenged any of the trial court's findings. The Court of Appeals did not consider whether the trial court applied the wrong legal standard to its findings. Nichols v. Minnick, No. 53A01-0606-CV-268, slip op. at 7 (Ind. Ct. App. Apr. 13, 2007). We granted transfer. Nichols v. Minnick, 878 N.E.2d 218 (Ind. 2007) (table). Standard of Review We disturb a trial court's findings and judgment only when they are clearly erroneous. Ind. Trial Rule 52(A). Findings of fact are clearly erroneous when they have no factual support in the record. Yanoff v. Muncy, 688 N.E.2d 1259, 1262 (Ind. 1997) (citations omitted). A judgment is clearly erroneous if it applies the wrong legal standard to properly found facts. Id. I. An Agent's Duty to Disclose Minnick was acting as agent for Nichols. A real estate broker representing a seller has the duty to "[disclose] to the seller . . . adverse material facts or risks actually known by the [broker] concerning the real estate transaction." Ind. Code

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