Opinion ID: 1119218
Heading Depth: 3
Heading Rank: 2

Heading: Brown's Liability For Common Law Fraud

Text: The State did not allege that Brown should be held liable on the basis of common law fraud. The focus of the State's case against Brown was on ULSPA. On the first day of the trial, the lower court granted summary judgment in favor of Brown's engineer, Hausam, on the theory that his involvement in the Windsong development ceased prior to the effective date of the ULSPA amendments, which could not be retroactively applied. In response to a question by Brown's counsel, the trial court indicated that this ruling would apply to Brown as well, or in other words that Brown too could not be held liable for acts pre-dating September 1, 1977. During the trial, Brown presented evidence relating only to the defense of innocent misrepresentation provided in AS 34.55.030(a), the civil remedies section of ULSPA. Nevertheless, the trial court sua sponte relied on common law fraud to hold Brown liable for restitution to all Windsong lot purchasers who had elected to participate in the State's action, regardless of when they purchased their lots. We agree with Brown that his right to a fair trial was jeopardized by the trial court's adoption of a new theory of the case. The focus of the pleadings, discovery, preliminary hearings, and earlier motions on ULSPA, coupled with the trial court's dismissal of Hausam from the case and assurance that the basis therefor would apply to Brown, could reasonably have led Brown to believe that his liability, if any, would be predicated on ULSPA, and ULSPA alone. Consequently, in preparing his defense, he had no notice that he was going to have to defend against fifty-three separate restitution claims based on the common law. Under these circumstances, we cannot countenance the trial court's re-engineering of the case to hold Brown liable for common law fraud. Compare Clary Insurance Agency v. Doyle, 620 P.2d 194, 200-01 (Alaska 1980). We conclude, therefore, that as to Brown's liability to pre-September 21, 1977 purchasers, the case must be remanded for supplemental evidentiary hearings. On remand the parties and the lower court should devote particular attention to the issue of reliance, a necessary element to a common law claim for rescission of a land sales contract. Cousineau v. Walker, 613 P.2d 608, 612 (Alaska 1980). Although the lower court here found that all Windsong lot purchasers had relied on the false information supplied them by Brown, the present record does not support this finding. In all, only twelve of the purchasers listed in the court's restitution order testified either at the hearing on the preliminary injunction or at the trial. Of these twelve, only ten bought their lots prior to September 21, 1977. Because of this evidentiary void, we believe that it would be unfair, on the present record, to hold Brown liable to the pre-September 21, 1977 purchasers on the basis of common law fraud. See Landex, Inc. v. State ex rel. List, 582 P.2d 786, 790-92 (Nev. 1978). While Brown may have had the burden of going forward to produce evidence of non-reliance in order to avoid liability, [26] his failure to do so below may have been due to the absence of any notice that he might be held liable for common law fraud. Accordingly, on remand Brown must be afforded the reasonable opportunity to present such evidence, if any, as well as evidence tending to establish any other defenses he may have to the common law claims. [27] We do not agree with our dissenting colleague that the State's case against Brown as to the pre-September 21, 1977 purchasers should simply be dismissed. The trial court had inherent discretionary authority to inject the theory of common law fraud into the case. A trial court's authority to require the presentation of new legal theories is implied in Alaska R.Civ.P. 16(e) authorizing amendment of a pre-trial order without limitation as to time to prevent manifest injustice, and in the penultimate sentence of Alaska R.Civ.P. 15(b) allowing the amendment of pleadings at any time when the presentation of the merits of the action will be subserved thereby and no prejudice will result. The authority to decide a case on an unplead legal theory should be sparingly exercised. In particular it should only be used when the new theory applies to the transaction in issue, is related to the theories presented by the parties, and is necessary for a proper and just disposition of the case. Here, those standards can be reasonably regarded as having been fulfilled. Where prejudice will result a court either should not employ a new theory or should take steps to eliminate the prejudice by giving notice that the new theory will be used and affording an opportunity to the parties to present evidence and arguments relevant to it. The error committed by the trial court in this case was not in invoking the theory of common law fraud, but in failing to give the parties notice that it would do so along with an opportunity to adjust their cases accordingly. In MacCormack v. Robins Construction, 11 Wash. App. 80, 521 P.2d 761 (Wash. App. 1974) the plaintiffs brought suit alleging that the defendants had sold them defective homes in violation of the State's Consumer Protection Act. The lower court concluded that plaintiffs were not entitled to relief under the state act but, on its own initiative, transformed the suit into a claim for damages based on common law breach of warranty. The lower court then granted the defendants' motion to reopen the case to present additional evidence. When the case was later appealed, this action by the trial court was upheld as within its discretion. In the case at bench, it is apparent from the record that the trial court allowed the defendants sufficient additional time and opportunity to present additional evidence and to cure any surprise defendants may have experienced as a result of the trial court's disposition of the case... . Id. 521 P.2d at 763. Here, remand will do what the trial court should have done once the decision to invoke common law fraud was made. It will give Brown an opportunity to present evidence relevant to the common law fraud theory and thus eliminate the possibility of prejudice which would otherwise result from the court's reliance on that theory. That trial of the common law fraud issue may result in Brown being liable to pre-September 1977 purchasers, whereas under the statute he is not, is not the type of prejudice which precludes a remand. See Wright v. Vickaryous, 598 P.2d 490, 496-97 (Alaska 1979).