Opinion ID: 2507782
Heading Depth: 3
Heading Rank: 3

Heading: There Are Genuine Issues of Material Fact About Whether the McLeeses Fraudulently Induced Hannaman To Enter into the Settlement Agreement and Mutual Releases.

Text: Hannaman argues that the superior court erred in granting summary judgment to the McLeeses because he claims that there are genuine issues of material fact about whether the McLeeses made fraudulent statements to induce him to sign the settlement agreement and mutual releases. To support this assertion, Hannaman refers us to his affidavit and to the affidavits of Dean Pratt and Grant Watts. We must first consider whether the affidavits contain admissible evidence for the purposes of satisfying Alaska Civil Rule 56(e). The McLeeses argue that the three affidavits are inadmissible because, they claim, the affidavits contain hearsay and do not demonstrate competency to testify. [16] We reject this argument. The affiants each described events which they witnessed. Most of the conversations they described were with the McLeeses individually or with the McLeeses' attorney. The McLeeses' statements to Hannaman, Watts, or Pratt would be admissible as non-hearsay admissions by party opponents under Alaska Rule of Evidence 801(d)(2). The McLeeses' attorney's statements would also be nonhearsay under that rule if he spoke for the McLeeses, or under Alaska Rule of Evidence 801(d)(1) if he was available to testify to his own prior statements at trial. [17] We have recognized that a party induced by a fraudulent or material misrepresentation to enter into a contract may be able to avoid the contract. [18] Restatement (Second) of Contracts § 164 (1981) states that a contract is voidable [i]f a party's manifestation of assent is induced by either a fraudulent or a material misrepresentation by the other party upon which the recipient is justified in relying. This statement is consistent with what we have said in the past about this ground for avoiding a contract. [19] Per section 164 and our case law, to prove that the McLeeses fraudulently induced him to enter into the releases, Hannaman must show that (1) there was a misrepresentation; (2) the misrepresentation was fraudulent; (3) the misrepresentation induced Hannaman to enter into the contract; and (4) Hannaman's reliance on the misrepresentation was justified. [20] Viewing the evidence in a light most favorable to Hannaman, there are genuine issues of material fact about whether the McLeeses made fraudulent misrepresentations during settlement agreement discussions and thereby induced Hannaman to release all potential claims. Issue of Misrepresentation. Before the parties signed the settlement agreement and releases on November 10, 1998, the McLeeses represented to Hannaman and his attorney that they had returned all of ICE's property, including tools and corporate files, except for a wire cart and a rug, which they promised to return. The McLeeses further represented that they did not have any of ICE's or Hannaman's property in their home, garage, or shed. Hannaman produced evidence, however, permitting an inference that the McLeeses falsely misrepresented that they had returned all of ICE's and Hannaman's property. The affidavit of Dean Pratt suggests that the McLeeses may have been harboring ICE's property as of October 1998. According to Pratt's affidavit, he and Michael Landowski, another crew member on ICE's projects for Tesoro in Fairbanks, took tools and equipment that were designated for those jobs to the McLeeses' Anchorage home on October 2, 1998. Pratt stated that at Rick McLees's request, Pratt and Landowski stash[ed] the tools and equipment at the McLeeses' home. While Pratt was unloading materials, he noticed that the McLeeses' garage and storage shed were filled with electrical tools and equipment. Pratt attested that Rick McLees told me the tools and materials we were unloading would not be needed to complete the Tesoro projects ... [and that Rick McLees] didn't want Mike Hannaman to know that he was taking stuff and hiding it. Pratt further attested that when he, Landowski, and Rick McLees returned to Fairbanks, McLees told Mike Landowski and me that he didn't want Mike Hannaman to know that [McLees] had to reorder materials. In his own affidavit, Hannaman stated that per the October 2 oral agreement he went to the McLeeses' home to divide the tools used for one of the Tesoro projects. Although Hannaman recovered some of ICE's tools from Rick McLees, McLees refused to let Hannaman inspect the company's utility trailer. When Hannaman returned to pick up additional materials from the Tesoro projects, the McLeeses' garage door was closed and their storage shed was padlocked. Rick McLees gave Hannaman a few other tools and materials, representing [that these were] the only materials left over from the Tesoro projects. Although the McLeeses returned some items to Hannaman, there is a factual dispute over whether they still possessed some of ICE's property as of November 10, 1998. For instance, Pratt attested that he unloaded approximately twenty to twenty-five spools of electrical wire, many of which were full spools, at the McLeeses' home. Hannaman attested in his affidavit that as of November 1998, the McLeeses had not returned full spools of electrical wire, among other things. The McLeeses also maintained at the November 10 meeting when the parties signed the releases that they had returned all of ICE's corporate files. Hannaman, however, later attested in his affidavit that he had not received some of ICE's corporate documents that the McLeeses had in their possession, including a contract and change order file for the Sisters Island contract and itemized invoices for tools that Rick McLees had purchased on ICE's account. Therefore, drawing all inferences in favor of Hannaman, there is a genuine issue of material fact about whether the McLeeses' November 10 representation that they had returned all of ICE's corporate property was false. Issue of Fraudulent Misrepresentation. Evidence in the record also permits an inference that the McLeeses' alleged misrepresentation was fraudulent. [21] A misrepresentation is fraudulent if it is consciously false and intended to mislead another. [22] There is evidence permitting an inference that the McLeeses knew that their representation was false and that they intended to induce Hannaman into signing the releases. Rick McLees allegedly personally ordered Pratt and Landowski to store the tools and equipment from the Tesoro jobs at his home in October 1998 without Hannaman's knowledge. Rick McLees's apparent awareness that the property did not belong to him is evidenced by his alleged statement to Pratt that he did not want Hannaman to know that he was taking equipment and hiding it at his home or that he was reordering equipment on ICE's account to replace the tools he had taken. Rick McLees's subsequent refusal to let Hannaman inspect the company's trailer or the McLeeses' garage and storage shed for any ICE property also permits a reasonable inference that he may have been knowingly hiding equipment from Hannaman. There was therefore evidence permitting an inference that as of November 10, Rick McLees knew that his representation that he had returned all property to Hannaman was false. The evidence also permits an inference that the McLeeses intended Hannaman to enter into the contracts in reliance on their representations. Because Hannaman had been trying to recover ICE's property from the McLeeses since approximately July 1998, the McLeeses were on sufficient notice that the return of ICE's property was one of Hannaman's priorities. Rick McLees's alleged concealment of ICE's tools at his house in October also suggests that he intended Hannaman to rely on his representation that he had returned all of ICE's property. Issue of Inducement. To avoid the releases, Hannaman must show that the McLeeses' alleged misrepresentations induced him to enter into the releases. [23] Hannaman maintained in his affidavit that he agreed to settle with the McLeeses in part because they promised to return his property. When the McLeeses represented to Hannaman that they had returned all of ICE's property before Hannaman and ICE signed the releases, Hannaman's attorney told the McLeeses' attorney, Paul Crowley, in the presence of Rick and Janet McLees that ICE and Mr. Hannaman were relying upon the representations on the part of Rick and Janet McLees, in regards to signing the [settlement agreement and mutual releases]. Based on this evidence, we can infer that the McLeeses' representations induced Hannaman to enter into the releases. Issue of Justifiable Reliance. Evidence also permits an inference that Hannaman was justified in relying on the McLeeses' representations. Because Rick McLees refused to let Hannaman search his garage or shed or the company trailer, Hannaman was unable to conduct an independent search of the McLeeses' home for ICE's tools and files. There is evidence that the McLeeses reassured Hannaman in October and again on November 10, in the presence of the parties' attorneys, that they had returned everything belonging to ICE and Hannaman. Before signing the agreement and releases, Hannaman was unable to independently confirm the veracity of their representations. Some courts appear to have held as a matter of law that releasing parties were not justified in relying on representations of the released party made at the time of settlement, at least when the controversy being settled itself alleged fraud or dishonesty. [24] There is authority to the contrary. For example, in Sims v. Tezak , the Illinois Court of Appeals, applying Illinois law, held that justifiable reliance is always a question of fact for the jury, even if the parties who executed a broad release relied on representations of a party it had reason to mistrust. [25] In support, it quoted a federal case applying Illinois law: Illinois law has long held that, where the representation is made as to a fact actually or presumptively within the speaker's knowledge, and contains nothing so improbable as to cause doubt of its truth, the hearer may rely upon it without investigation, even though the means of investigation were within the reach of the injured party and the parties occupied adversary positions toward one another. [T]he fraud-feasor will not be heard to say that he is a person unworthy of belief, and that plaintiff was negligent in trusting him, and was cheated through his own credulity. [ [26] ] We think it better not to hold as a matter of law that a releasing party is never justified in relying on fact representations of a released party during settlement of claims which accused the released party of fraud or dishonesty. Such a rule would effectively encourage misrepresentations during settlement negotiations in such cases and would potentially chill their settlement. It would also potentially fail to distinguish between disputes which exclusively involve claims of fraud and dishonesty, and those in which such claims are ancillary or alternative or are the product of overheated pleading. Whether reliance is justified in a given case seems to us more likely to turn on the course of dealings between the parties before and during the dispute. And in this case, it is relevant that the settlement agreement potentially required Rick McLees to do things following the settlement (such as perform punch-list and remedial work on several projects, provide as-built drawings and other things, and provide certain documentation by December 30, 1998). This implies that, notwithstanding claims of fraud or dishonesty, there was sufficient trust that the parties thought they could rely on McLees's future performance of these undertakings. We conclude that Hannaman is not foreclosed from proving the element of justifiable reliance. We therefore conclude that there are genuine issues of material fact about whether the McLeeses fraudulently misrepresented facts and thereby induced Hannaman to enter into the settlement agreement and mutual releases, and about whether Hannaman's reliance was justified. We consequently reverse the grant of summary judgment. Hannaman also argues that the superior court erred in holding that the McLeeses' alleged misrepresentations were not material. [27] A misrepresentation is material if it would likely induce a reasonable person to manifest his assent. [28] Because we have concluded there are genuine triable issues whether the McLeeses fraudulently induced Hannaman to enter into the releases, we do not need to decide whether the McLeeses' misrepresentations were material or whether there are genuine factual disputes about their materiality. Hannaman alternatively also argues that the release was the product of economic coercion. We conclude that Hannaman did not present sufficient evidence to create a genuine issue of material fact with respect to his economic coercion claim.