Opinion ID: 2382863
Heading Depth: 2
Heading Rank: 8

Heading: The Reasonableness of Hercules' Reliance on Shama's Alleged Statements.

Text: We likewise conclude that the trial court properly ruled that Count XI of Hercules' complaint insufficiently alleged the final element of fraud, that of reasonable reliance. As Hercules concedes in its brief to this court, a party alleging that it was defrauded, at least in the context of commercial dealings at arm's length, [25] must establish not only that it actually relied on a false representation, but also that its reliance was objectively reasonable. [26] One-O-One, supra, 270 U.S.App. D.C. at 254, 848 F.2d at 1286; see also Isen, supra, 126 U.S.App.D.C. at 353, 379 F.2d at 130; Democratic Nat'l Comm. v. McCord, 416 F.Supp. 505, 508 (D.D.C.1976); 1 FARNSWORTH, supra note 14, § 4.14 at 418. In dismissing Count XI, Judge Bowers ruled that Hercules had failed sufficiently to allege that its reliance on Shama's alleged misrepresentations had been reasonable. As he pithily stated, the one that really hangs me up is the reasonable reliance. Hercules, in alleging that it had actually relied on Shama's representations, stated only that if it had known of the true financial arrangements between Shama and [American Savings Bank], Hercules might still have entered into the contract, but would not have agreed to arbitrate its disputes. In fact, Hercules might have agreed to do the contract in phases, depending on the availability of money. We agree with the trial court that neither this statement nor any other averment in Hercules' pleadings was sufficient as a matter of law to satisfy the requirement that Hercules' reliance on Shama's alleged misrepresentations must be reasonable. Reasonableness of reliance is closely related to materiality. As Professor Williston has succinctly put it, reliance is only justifiable if the fact misrepresented is material. 12 WILLISTON, supra note 26, § 1515C at 493. [27] Hence, the reasons for holding that Hercules' complaint was deficient as to the element of materiality apply equally to the question whether Hercules' reliance was reasonable. See One-O-One, supra, 668 F.Supp. at 699. We find especially persuasive, with respect to this issue, the court's opinion in Management Assistance, Inc. v. Computer Dimensions, Inc., 546 F.Supp. 666, 672 (N.D.Ga.1982) (applying Georgia common law and quoting Invest Air, Inc. v. Swearingen Aviation Corp., No. C77-1841A (N.D.Ga. Apr. 11, 1979)), aff'd mem. sub nom. Computer Dimensions, Inc. v. Basic Four Corp., 747 F.2d 708 (11th Cir. 1984): [E]ven if the parol evidence rule did not act to bar admission of statements which directly contradict the ... written terms of the contract, this Court would have to find that the plaintiff did not reasonably rely upon the defendant's prior oral assurances. Absent this element, fraud, in the legal sense, cannot exist.... One cannot close his eyes and blindly rely upon the assurances of another absent some fiduciary relationship or emergency.... In the case at bar, the evidence... clearly establishes that both [plaintiffs] read the written agreement and understood that it contained terms materially different from the purported oral assurances. In such a situation, any continued reliance on the purported oral assurances was clearly unreasonable. (Emphasis added). [28] Similarly, in a case in which the court decided that the plaintiff could not have reasonably relied on oral assurances which were not included in the final written contract, it was held that if the text of an agreement could be undermined on the basis of allegations of what took place during negotiations, [c]ontracts would become no more than presumptive statements of the parties' intentions, instead of legally enforceable agreements. And the give-and-take of negotiations would become meaningless if, after making concessions in order to obtain other contractual protections, a knowledgeable party is later able to reclaim what it had given away by alleging that it had, in fact, relied not on the writing but on the prior oral statements. Turner v. Johnson & Johnson, 809 F.2d 90, 96 (1st Cir.1986); accord, Rosenberg v. Pillsbury Co., 718 F.Supp. 1146, 1152-53 (S.D.N.Y.1989). In light of these authorities, we agree with Judge Bowers' conclusion, based on the pleadings before him, that Hercules had failed adequately to allege the reasonableness of its continued reliance on Shama's parol representations after those representations were not included in the terms of the completely integrated contract. Moreover, Hercules is seeking to set aside an arbitration clause on the grounds of fraudulent inducement. Given the readiness of modern courts to enforce arbitration agreements, and their vigilance against maneuvers designed to circumvent them, a strict application of the concept of reasonable reliance is appropriate in evaluating Hercules' claim of fraud.