Opinion ID: 1212725
Heading Depth: 2
Heading Rank: 2

Heading: Fraud; Intentional and Negligent Misrepresentation

Text: Noble claims that Pandora and Alorica are liable for either their fraudulent and intentional misrepresentations or their negligent misrepresentations. To succeed in a fraudulent misrepresentation claim under Minnesota law, a plaintiff must prove that: (1) there was a false representation by a party of a past or existing material fact susceptible of knowledge; (2) made with knowledge of the falsity of the representation or made as of the party's own knowledge without knowing whether it was true or false; (3) with the intention to induce another to act in reliance thereon; (4) that the representation caused the other party to act in reliance thereon; and (5) that the party suffer[ed] pecuniary damage as a result of the reliance. Hoyt Props., Inc. v. Prod. Res. Group, L.L.C., 736 N.W.2d 313, 318 (Minn.2007) (internal quotation omitted); see M.H. v. Caritas Family Servs., 488 N.W.2d 282, 289 (Minn.1992). The facts necessary to prove each element must be specifically pleaded. Fed.R.Civ.P. 9(b). To succeed in a negligent misrepresentation claim under Minnesota law, a plaintiff must prove that: the defendant, by its failure to use reasonable care, made a false representation or failed to communicate information that it knew or should have discovered; the misrepresentation occurred in the course of the defendant's business or in a transaction in which the defendant had a pecuniary interest; the defendant intended that the plaintiff rely on the misrepresentation in the plaintiff's business transactions; and the plaintiff reasonably relied on the misrepresentation and suffered harm as a result. Florenzano v. Olson, 387 N.W.2d 168, 174 & n. 3 (Minn.1986). In both intentional and negligent misrepresentation claims, the plaintiff must prove some relationship that is sufficient to create a duty owed by the defendant to the plaintiff, that the plaintiff relied on the defendant's misrepresentation, and that it thereby suffered harm. See L & H Airco, Inc. v. Rapistan Corp., 446 N.W.2d 372, 380 (Minn.1989); Flynn v. Am. Home Prods. Corp., 627 N.W.2d 342, 349-50 (Minn.Ct.App.2001). These requirements are all fatal to Noble's misrepresentation claims.
Noble claims that the consent and waiver agreement that Pandora and Alorica prepared for ACI to sign was fraudulent because it falsely represented that Noble did not have a security interest in some of ACI's assets. Assuming, arguendo, that the consent and waiver was a statement made by Pandora and Alorica to Noble and not by ACI to Pandora and Alorica, neither Pandora nor Alorica had a duty to not make false representations to Noble, who was not a party to the agreement. See Flynn, 627 N.W.2d at 350. Additionally, there is no proffered or apparent reason why Pandora or Alorica would intend or expect that Noble would in any way rely on the statement in the consent and waiver that Noble had no security interest in ACI's assets. Moreover, these claims require that the plaintiff actually rely on the misrepresentation to its detriment. Hoyt, 736 N.W.2d at 318. None of Noble's acts or omissions can be construed as having been made in reliance on the statement that Noble did not have a security interest in any of ACI's property. Nor can any fact alleged explain how such reliance, if it existed, could have caused the loss described in the complaint. Noble also claims that Pandora and Alorica fraudulently failed to timely inform Noble that Pandora was foreclosing on its security interest and that Alorica would be purchasing ACI's assets. Nondisclosure is fraudulent only if the defendant had a legal or equitable obligation to disclose to a plaintiff who was entitled to receive the information. The default rule is that one party to a transaction has no duty to disclose facts to another party. L & H Airco, 446 N.W.2d at 380. Minnesota law does not appear to recognize any duty to disclose information to third parties with whom no relationship exists. Flynn, 627 N.W.2d at 350. Noble argues that Minnesota has upheld fraudulent concealment claims as to third parties, but the cases it cites do not support this contention. See Vikse v. Flaby, 316 N.W.2d 276, 278-79, 284 (Minn.1982) (a corporation defrauded its investors when its agents lied to and withheld information from an investment advisor with intention that the advisor would induce investors to invest in the corporation based on the agents' lies and omissions); Richfield Bank & Trust Co. v. Sjogren, 309 Minn. 362, 244 N.W.2d 648, 652 (Minn.1976) (bank liable for nondisclosure to persons borrowing money from the bank). The facts that support Noble's assertion that there was a relationship between Noble and Pandora before the foreclosure boil down to Pandora's knowledge of Noble's unperfected security interest, which was not sufficient to create a duty to disclose. See L & H Airco, 446 N.W.2d at 380. Even if such a duty existed, Noble does not allege that it took or failed to take any action that could be construed as relying on Pandora's failure to communicate that foreclosure proceedings were pending. Further, there is no causative link between Noble's ignorance of the foreclosure and its junior security interest, which is the most direct cause of its loss. Noble has not sufficiently pleaded its fraud claims, and the district court correctly dismissed them.
Noble's complaint alleges that Alorica falsely represented itself as being ACI until ACI publicized the foreclosure and that it falsely promised to purchase a permanent software license at some time in the future. On appeal, Noble concedes that these deceptions by themselves did not constitute fraudulent misrepresentation. Instead, Noble argues only that they are evidence that Alorica conspired with Pandora to defraud Noble. Thus, the fraud claim against Alorica was correctly dismissed.