Opinion ID: 2823203
Heading Depth: 2
Heading Rank: 2

Heading: Fraud Claim: Count 1

Text: The plaintiffs’ next argument on appeal is that genuine issues of material fact preclude summary judgment from entering on their claim for fraudulent misrepresentation. The defendants, on the other hand, aver that count 1 was properly dismissed because the disclaimer clause in the purchase and sales agreement was sufficiently specific to demonstrate that plaintiffs could not have justifiably relied on any alleged misrepresentation as a matter of law. Chip argues that count 1 fails because the record is bare of any evidence that she had knowledge of previous flooding or water penetration at the property. In addition, Pinelli and RPZ argue that, as to them, plaintiffs’ reliance on any alleged misrepresentations was not justifiable as a matter of law; therefore, the claims for fraudulent misrepresentation were properly dismissed. “To establish a prima facie fraud claim, ‘the plaintiff must prove that the defendant made a false representation intending thereby to induce [the] plaintiff to rely thereon and that the plaintiff justifiably relied thereon to his or her damage.’” Parker v. Byrne, 996 A.2d 627, 634 (R.I. 2010) (quoting Bitting v. Gray, 897 A.2d 25, 34 (R.I. 2006)). “‘[A] party who has been induced by fraud to enter into a contract’ may elect either to rescind the contract, or ‘to affirm the contract and sue for damages in an action for intentional deceit or misrepresentation.’” 8 The plaintiffs also argue that the statute of limitations should be tolled, pursuant to § 9-1-20, because defendants fraudulently concealed their alleged misconduct. We have explained that “[t]he key consideration is whether or not the defendant fraudulently misrepresented material facts, thereby misleading the plaintiff into believing that no cause of action existed.” Ryan v. Roman Catholic Bishop of Providence, 941 A.2d 174, 183 (R.I. 2008). In sum, the record is devoid of any evidence that defendants affirmatively “conceal[ed] from [plaintiffs] the existence of the cause of action[;]” therefore, plaintiffs are not entitled to the protections afforded by § 9-1- 20. - 14 - Stebbins v. Wells, 766 A.2d 369, 372 (R.I. 2001) (quoting Travers v. Spidell, 682 A.2d 471, 472 (R.I. 1996)). In LaFazia v. Howe, 575 A.2d 182, 183 (R.I. 1990), the parties discussed, at length, the profitability of a delicatessen before it was sold to the plaintiff-buyers. The buyers sought tax returns, accounts receivable, accounts payable, and other records so that they could intelligently assess the profitability of the business. Id. The sellers indicated to them that they were always paid in cash and, as a result, they “did not keep very good books,” but they nonetheless provided their tax returns for buyers’ inspection. Id. When they reviewed the documents provided to them, the buyers at first decided that the business was not viable. Id. However, after further reassuring representations were made by the sellers as to the profitability of the enterprise, the buyers entered into an agreement to purchase the business. Id. Significantly, the agreement included a merger and disclaimer clause that went to the heart of the matter at issue during trial, providing that “[t]he Buyers rely on their own judgment as to the past, present or prospective volume of business or profits of the business of the Seller and does [sic] not rely on any representations of the Seller with respect to the same.” Id. Shortly after the sale was finalized, the buyers realized that the business was not as profitable as they claimed that they had been led to believe and, as a result, they failed to pay the balance due on the promissory note. LaFazia, 575 A.2d at 183-84. The sellers initiated suit for breach of contract, seeking to collect the remainder of the promissory note, and the buyers filed a counterclaim seeking to recover for fraudulent misrepresentation. Id. at 184. The Superior Court granted summary judgment to the sellers on the buyers’ fraud claim, and that judgment was appealed to this Court. Id. We affirmed the grant of summary judgment, holding that “the merger and disclaimer clauses preclude [the buyers] from asserting that [the sellers] made - 15 - material misrepresentations regarding the profitability of the business    prevent[ing the buyers] from successfully claiming reliance on prior representations.” Id. at 185. The Court explained that it was significant that the merger and disclaimer at issue was “not a general but a specific disclaimer” that contained “specific language regarding the very matter concerning which [the buyers] now claim they were defrauded.” Id. at 185, 186. In Travers, 682 A.2d at 472, this Court was tasked with determining whether a general merger and disclaimer clause contained in a purchase and sales agreement barred the buyers’ fraud claim based on the sellers’ alleged misrepresentations. The buyers alleged that the sellers misrepresented that a home’s well was located within the boundaries of the conveyed property when, in actuality, the well was on a neighbor’s property. Id. The purchase and sales agreement in that case also contained a merger and disclaimer clause, which provided that “[w]e, the parties hereto, each declare that this instrument contains the entire agreement between the parties, and that it is subject to no understandings, conditions or representations other than those expressly stated therein.” Id. On appeal, we explained that, unlike LaFazia, the disclaimer clause at issue was general in nature and was not specific because it “specifically addresses neither the well’s location nor the boundaries of the property.” Travers, 682 A.2d at 473. For that reason, we held that the general merger and disclaimer language did not bar the buyers’ fraud claim as a matter of law. Id. Here, defendants aver that the “as is” disclaimer clause in the purchase and sales agreement was sufficiently specific to the extent that, as a matter of law, plaintiffs could not have justifiably relied on any alleged misrepresentation. The merger and disclaimer clause at issue in this case provides, in pertinent part, that “[t]he Property is being sold in ‘AS IS’ condition and Buyer represents that it has not relied on the oral representations of the Seller, or the Broker(s) or - 16 - their agents as to the character or quality of the Property.” With respect to inspections, the parties added a provision that provided that “Buyers have already completed thier [sic] inspection of the property and are buying it in as in [sic] condition all other conditions stated in this contract remain in force.” The defendants contend that the above-referenced portions of the purchase and sales agreement, when combined with the fact that plaintiffs had previously had a professional inspection performed on their behalf, obviates any claim of reasonable reliance. However, unlike the disclaimer in LaFazia, 575 A.2d at 183, which explicitly stated that buyers were relying on their own knowledge concerning the very issue at trial, profitability of the business, the instant disclaimer provides only that plaintiffs have not relied on oral representations “as to the character or quality of the Property.” In our opinion, the disclaimer more closely resembles the more general disclaimer addressed in Travers, 682 A.2d at 472, which provided that the purchase and sales agreement embodied the entire agreement and was “subject to no understandings, conditions or representations other than those expressly stated therein.” Id. The defendants contend, however, that, when combined with the waiver of the right to inspect, as well as the inspection report that was issued prior to entering into the agreement, the disclaimer is sufficiently specific as to the very nature of plaintiffs’ fraud claim. But, it is significant to us that neither the disclaimer clause nor the provisions concerning plaintiffs’ waiver of their right to inspect, contains any reference to the issues of flooding and water penetration. Because the disclaimer clause was general, as opposed to specific, with respect to the nature of the claim at issue, it is our opinion that the first hearing justice’s grant of summary judgment as to count 1 was improper. Notwithstanding the absence of an effective disclaimer, Chip argues that the claims for fraud still must fail as to her because there is no evidence that she had any knowledge of - 17 - previous flooding at the property. However, Chip’s father testified at a deposition that, even though he was unsure if he told Chip about the 1998 flood, “I’m sure she knew about it,” and that “[i]t’s just common sense that the discussion [about the 1998 flood] had to have taken place at some point.” Therefore, and in the context of a summary judgment proceeding, genuine issues of material fact exist with respect to Chip’s knowledge, or lack thereof, of the 1998 flood. Lastly, Pinelli and RPZ argue that plaintiffs’ claim for fraudulent inducement fails as a matter of law as to them because plaintiffs cannot demonstrate that they reasonably relied on any statement Pinelli may have made or that Pinelli intended to induce them to purchase the property. However, in light of the allegation that Pinelli said that “maybe an inch or so” of water entered the basement previously and the fact that he was financially interested in finalizing the sale as an agent for both plaintiffs and Chip, it is our opinion that issues of fact exist as to the fraud claim against Pinelli and RPZ. Moreover, because the dismissal of the fraud claim against RE/MAX was based upon the first motion justice’s ruling that the purchase and sales agreement’s disclaimer clause was effective to bar the fraud claim, a ruling that we have reversed, and because of the existence of an agency relationship sufficient to allow vicarious liability to attach to RE/MAX is an issue of fact, count 1 also survives as to RE/MAX.