Opinion ID: 2382863
Heading Depth: 2
Heading Rank: 5

Heading: Hercules' Pleadings.

Text: To determine whether the trial court erred in concluding that Hercules had failed to allege facts sufficient to entitle it to an evidentiary hearing on the question of fraudulent inducement, we must further review the details of Hercules' complaint. Hercules alleged that on or about May 19, 1986, in the course of a discussion with Shama and Rippeteau about the terms of the renovation contract, its representative, one Tsintolas, specifically requested that Shama delete or modify the arbitration clause, as well as other provisions of the contract. Hercules claims to have been concerned, based on its experience with a prior project, that Shama would not have adequate financing for this one. Hercules apprehended that if it agreed to the arbitration clause, it might be left out in the cold without a full range of remedies in the event that Shama's financial resources failed. According to Hercules, Shama and Rippeteau refused to delete the arbitration clause, insisting that the bank financing the project would not permit any such changes in the standard form contract. Shama and Rippeteau allegedly attempted to assuage Hercules' fears concerning the arbitration clause by assuring Hercules that Shama had adequate financing for the project. Specifically, Shama and Rippeteau are alleged to have made the following representations: A. Shama had ample money to complete the construction project, with adequate allowance for normal cost overruns of 10 percent or more; B. the Shama construction loan had been approved on or before the bids on the construction contract were accepted, i.e., April, 1986; C. Shama was depositing an additional $200,000 in a money market account at [American Savings Bank] to be used for construction, particularly for cost overruns; D. Shama's construction loan was to be used exclusively for payment on the Hercules construction contract ... Hercules also alleged that these representations were false and that Shama knew they were false when it made them. Hercules averred, for instance, that the construction loan was not approved until August, 1986, some two months after construction began. If this allegation is true, then Shama must have known on May 19, 1986, that it had not yet obtained the loan in question. Hercules also argued that Shama is presumed to know the state of its own finances, and that it therefore knew or should have known that it lacked adequate funds to pay for this project. Moreover, Hercules claimed that Shama knew or should have known that it had not deposited the $200,000 in the money market account and that the money being obtained from the bank could be used for items other than construction. We are satisfied that the allegations in Hercules' complaint were legally sufficient with respect to four of the six requisite elements of fraud in the inducement of the arbitration clause. See page 923, supra. Although, as we have seen, the question is not free of difficulty, we are prepared to assume for present purposes that Hercules has adequately alleged that Shama made misrepresentations going to the `making' of the agreement to arbitrate. Prima Paint, supra, 388 U.S. at 404, 87 S.Ct. at 1806. Hercules has also sufficiently alleged that Shama knew those representations to be false, that Shama made them with the intent to deceive Hercules into signing the contract in spite of the presence of the arbitration clause, [13] and that Hercules actually relied on those representations in deciding to forego its opposition to the arbitration clause. We therefore turn to the two remaining, closely related elements of fraud, namely, materiality and reasonable reliance.