Frazier v. Mellowitz
804 N.E.2d 796 (2004)
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Rule of Law:
Under the Restatement (Second) of Contracts, a party's breach of contract does not discharge the other party's duty to perform unless the breach is material and it is too late for the breaching party to cure it. Whether a breach is material is a question of fact that depends on a multi-factor analysis, making it generally unsuitable for summary judgment when the evidence supports conflicting inferences.
Facts:
- In 1989, Patrick and Lorrie Skaggs' family suffered injuries and a fatality in a mobile home fire.
- The Skaggs hired attorney Ronald W. Frazier to pursue their legal claims.
- In July 1996, Frazier entered into a litigation referral agreement with attorney James A. Mellowitz due to lacking the time and finances to pursue the cases alone.
- The agreement required Mellowitz to handle the litigation, Frazier to receive 25% of any recovered attorney's fees, and Frazier to pay 25% of all costs and expenses 'as they are incurred.'
- Between May and December 1997, Mellowitz sent Frazier four letters requesting payment for his share of expenses, which Frazier did not pay, citing financial hardship.
- In one letter, Mellowitz warned that he might need to 'consider the referral agreement void' if Frazier did not pay.
- In December 1998, Mellowitz settled the Skaggs' case, generating $240,000 in attorney's fees.
- Upon learning of the settlement from the client, Frazier contacted Mellowitz, congratulated him, and offered to pay his share of the expenses. Mellowitz refused payment and asserted that Frazier's prior failure to pay had voided the agreement.
Procedural Posture:
- James A. Mellowitz filed a Complaint for Declaratory Relief against Ronald W. Frazier in the trial court.
- Mellowitz moved for summary judgment, arguing Frazier's breach of their agreement discharged Mellowitz's duty to pay.
- The trial court granted summary judgment in favor of Mellowitz.
- Frazier, as the appellant, appealed the trial court's grant of summary judgment to the Indiana Court of Appeals.
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Issue:
Does an attorney's failure to pay his share of litigation costs 'as they are incurred' under a referral agreement constitute a material breach as a matter of law, thereby discharging the other attorney's duty to pay the agreed-upon referral fee?
Opinions:
Majority - Najam, Judge
No. An attorney's failure to pay his share of litigation costs as they are incurred does not constitute a material breach as a matter of law; rather, it presents a question of fact for a jury. The court adopted the framework of the Restatement (Second) of Contracts §§ 241 and 242, which holds that a material breach only suspends, but does not immediately discharge, the non-breaching party's duties. A discharge only occurs if the breach is material and the time for curing the breach has passed. Here, the undisputed facts support conflicting inferences as to whether Frazier's breach was material. For instance, a jury could find the breach was not material because Mellowitz received the primary benefit he expected (the successful case), and he could be adequately compensated for the delayed payment with interest. Conversely, a jury could find the failure to pay was material because it meant Frazier avoided sharing the financial risk of the litigation, which was a key part of the bargain. Because these conflicting inferences exist, the issue must be decided by a trier of fact, making summary judgment inappropriate.
Analysis:
This decision formally adopts the modern approach of the Restatement (Second) of Contracts for material breach analysis in Indiana, shifting from an automatic discharge of duties to a suspension pending a chance to cure. It reinforces that the question of materiality is a highly fact-sensitive inquiry, making it difficult for a party to win on summary judgment by claiming the other side's breach was material. This precedent protects parties from suffering a complete forfeiture of their contractual rights due to what a jury might later determine to be a minor or curable breach, promoting fairness over rigid enforcement of contract terms.
