Opinion ID: 2382863
Heading Depth: 1
Heading Rank: 3

Heading: the fraudulent inducement claim

Text: In Count XI of its complaint, Hercules alleged that the arbitration clause itself had been induced by fraud. In dismissing Count XI without leave to amend, Judge Bowers found that Hercules had not pleaded facts sufficient as a matter of law to support that claim. He concluded in substance that even though the complaint adequately alleged that Shama had intentionally misrepresented facts relating specifically to the arbitration clause, Hercules' allegations were inadequate to show that those misrepresentations were material or that its reliance on those representations had been reasonable. Hercules maintains that this ruling was error and that the judge should have held an evidentiary hearing on its fraudulent inducement claim. We do not agree.
Hercules is correct in stating that the threshold question whether an arbitration clause was validly concluded or fraudulently induced is one which the court must initially decide before referring a dispute to arbitration. Haynes v. Kuder, supra note 6, 591 A.2d at 1289-90; American Fed'n of Gov't Employees, Local 3721 v. District of Columbia, 563 A.2d 361, 362 (D.C.1989); Poire v. Kaplan, supra note 6, 491 A.2d at 532-33. We do not agree, however, with Hercules' contention that Judge Bowers failed adequately to consider this threshold question or that he was required to conduct a trial on the merits of Count XI before dismissing it with prejudice. In Haynes, the plaintiff had alleged, in moving to stay arbitration, that the arbitration clause in her retainer agreement with her former attorney, Kuder, had been fraudulently induced. The trial court rejected that allegation and compelled arbitration without holding an evidentiary hearing on the issue of fraudulent inducement. On appeal, Ms. Haynes contended that this was error in that she was entitled to such a hearing. We affirmed, concluding that the procedure to resolve `denials of the existence of [an] agreement to arbitrate' under [D.C.Code § 16-4302(a) (1989)] mirrors the familiar summary judgment procedure. 591 A.2d at 1290. Because the trial court in Haynes had the benefit of affidavits and other material outside the pleadings, we applied the standard for summary judgment under Super.Ct.Civ.R. 56 in evaluating the dismissal of Ms. Haynes' claim. 591 A.2d at 1290. Judge Bowers' decision, on the other hand, was based strictly on the submitted pleadings; our proper analogue on review of his dismissal of Count XI is therefore not Rule 56 but Super.Ct.Civ. Rules 12(b)(6) & 12(c). See Bell v. Jones, 566 A.2d 1059, 1060 (D.C.1989); American Ins. Co. v. Smith, 472 A.2d 872, 873-74 (D.C.1984). Under Rules 12(b)(6) and 12(c), a plaintiff is entitled to a trial of an issue of law or fact including the issue whether an arbitration clause was fraudulently inducedonly if the complaint alleges facts sufficient to support a claim upon which relief may be granted. Vicki Bagley Realty, Inc. v. Laufer, 482 A.2d 359, 362-64 & n. 7 (D.C. 1984); Healey v. Barker Found., 469 A.2d 1244, 1246 (D.C.1983); Cole, Raywid & Braverman v. Quadrangle Dev. Corp., 444 A.2d 969, 972 (D.C.1982). Therefore, in determining whether the trial court erred in granting Shama judgment on Count XI of Hercules' complaint without conducting an evidentiary hearing on that claim, we must consider whether Hercules alleged facts in its complaint sufficient to withstand a motion to dismiss under Rules 12(b)(6) or 12(c). To do that, we first examine the legislative and judicial authority for enforcing agreements to arbitrate. We then consider the elements of common law fraud in the inducement and evaluate the adequacy of Hercules' pleadings against those elements.
The questions presented by Hercules are before us in a legislative and judicial climate in which the judiciary's past parochial prejudice against enforcing arbitration agreements, see Dean Witter Reynolds, Inc. v. Byrd, 470 U.S. 213, 219-20 & n. 6, 105 S.Ct. 1238, 1241-42 & n. 6, 84 L.Ed.2d 158 (1985), has been consigned to well-earned historical oblivion. Following centuries of judicial hostility to arbitration agreements, Scherk v. Alberto-Culver Co., 417 U.S. 506, 510, 94 S.Ct. 2449, 2453, 41 L.Ed.2d 270 (1974), the federal courts have recognized a strong ... policy in favor of voluntary commercial arbitration, as embodied in the United States Arbitration Act. Hanes Corp. v. Millard, 174 U.S.App.D.C. 253, 265, 531 F.2d 585, 597 (1976). This policy is a fundamental and powerful one which favors arbitration of disputes and narrowly constricts the scope of judicial intervention. Id. at 267, 531 F.2d at 599. The District has a statute similar to the United States Arbitration Act, compare D.C.Code §§ 16-4301 et seq. (1989) with 9 U.S.C. §§ 1 et seq. (1988), and we find the federal courts' application of the federal statute instructive as to how we should construe our own. We have held that where there is ambiguity as to whether a matter is within the scope of an arbitrator's authority, any doubts are to be resolved in favor of arbitration. Friend v. Friend, 609 A.2d 1137, 1139 (D.C.1992); Sindler v. Batleman, 416 A.2d 238, 242 (D.C.1980). Indeed, an order to arbitrate the particular [dispute] should not be denied unless it may be said with positive assurance that the arbitration clause is not susceptible of an interpretation that covers the asserted dispute. Doubts should be resolved in favor of coverage. United Steelworkers of Am. v. Warrior & Gulf Navigation Co., 363 U.S. 574, 582-83, 80 S.Ct. 1347, 1352-53, 4 L.Ed.2d 1409 (1960). Where an arbitration clause in a contract, on its face, covers all disputes involving the interpretation or application of a contract, the Court has held that in the absence of any express provision excluding a particular grievance from arbitration, we think only the most forceful evidence of a purpose to exclude the claim from arbitration can prevail.... Id. at 584-85, 80 S.Ct. at 1353-54. Arbitration provides parties with a speedy, private, and relatively inexpensive method of resolving their disputes and consequently helps to decongest the court system. Hanes Corp., supra, 174 U.S.App. D.C. at 265, 531 F.2d at 597; Robert Lawrence Co. v. Devonshire Fabrics, Inc., 271 F.2d 402, 410 (2d Cir.1959), cert. denied, 364 U.S. 801, 81 S.Ct. 27, 5 L.Ed.2d 37 (1960). It is fundamentally a creature of contract, Dean Witter Reynolds, supra, 470 U.S. at 219-20, 105 S.Ct. at 1241-42, and parties to a contract should be held to the terms to which they have agreed. Indeed, arbitration often allows disputes to be resolved by experts in the field who are more familiar than most courts are with industry practices and who can therefore tailor procedures specifically suited to the circumstances of the particular industry. Pearce v. E.F. Hutton Group, Inc., 264 U.S.App.D.C. 246, 249, 828 F.2d 826, 829 (1987). It is true, however, that no party may be compelled to arbitrate a dispute which it has not agreed to arbitrate. Hercules I, supra, 566 A.2d at 43 n. 21; A.T. & T. Technologies, Inc. v. Communications Workers of Am., 475 U.S. 643, 648-49, 106 S.Ct. 1415, 1418-19, 89 L.Ed.2d 648 (1986). Moreover, a party which has been fraudulently induced into agreeing to an arbitration clause has not given its valid consent to this method of resolving disputes. But when the fundamental and powerful ... policy that favors arbitration of disputes and narrowly constricts the scope of judicial intervention, Hanes Corp., supra, 174 U.S.App.D.C. at 267, 531 F.2d at 599, is considered together with the requirement that fraud be pleaded with particularity and proved by clear and convincing evidence, see infra, parties to arbitration agreements should not be readily permitted to avoid them simply by invoking in their pleadings the pejorative cry of fraud.
As we explained in Hercules I, 566 A.2d at 39-40 n. 16, common law fraud is never presumed, and a plaintiff alleging it must do so with particularity and must prove it by clear and convincing evidence. Super.Ct.Civ.R. 9(b); Bennett v. Kiggins, 377 A.2d 57, 59 (D.C.1977), cert. denied, 434 U.S. 1034, 98 S.Ct. 768, 54 L.Ed.2d 782 (1978). To be entitled to a trial on the merits of a fraud claim, a plaintiff must allege such facts as will reveal the existence of all the requisite elements of fraud. Allegations in the form of conclusions on the part of the pleader as to the existence of fraud are insufficient. Bennett, 377 A.2d at 59-60; Higgs v. Higgs, 472 A.2d 875, 876-78 (D.C.1984). At common law, the requisite elements of fraud were (1) a false representation (2) made in reference to a material fact, (3) with knowledge of its falsity, (4) with the intent to deceive, and (5) an action that is taken in reliance upon the representation. Bennett, supra, 377 A.2d at 59. At least in cases involving commercial contracts negotiated at arm's length, there is the further requirement (6) that the defrauded party's reliance be reasonable. Hercules I, 566 A.2d at 39 n. 16; Isen v. Calvert Corp., 126 U.S.App.D.C. 349, 353, 379 F.2d 126, 130 (1967); Day v. Sidley & Austin, 394 F.Supp. 986, 990 (D.D.C.1975). Moreover, in order to obtain an evidentiary hearing on a claim of fraud in the inducement, a party seeking to avoid arbitration must allege in its pleadings facts that establish all the elements of fraud with respect to the arbitration clause in particular. A complaint alleging only that the entire contract was fraudulently induced is insufficient as a matter of law to avoid referral of the issue of fraud to arbitration. Prima Paint Corp. v. Flood & Conklin Mfg. Co., 388 U.S. 395, 402-04, 87 S.Ct. 1801, 1805-06, 18 L.Ed.2d 1270 (1967).
In connection with the judicial policy which favors voluntary commercial arbitration and which seeks to constrain the ability of parties to circumvent arbitration agreements, the Supreme Court has held that a party seeking to avoid arbitration by raising a claim of fraudulent inducement must allege that the arbitration clause itselfrather than the contract as a whole was fraudulently induced. Prima Paint, supra, 388 U.S. at 402-04, 87 S.Ct. at 1805-06. Hercules seems to contest this proposition. It argues, based on Moseley v. Electronic & Missile Facilities, 374 U.S. 167, 171-72, 83 S.Ct. 1815, 1817-18, 10 L.Ed.2d 818 (1963), that an allegation in its complaint that the arbitration clause was part and parcel of a fraudulent scheme perpetrated by Shama and Rippeteau with respect to the contract as a whole is sufficient to avoid referral of the entire case to arbitration. We disagree. In Prima Paint, supra, the Supreme Court construed Moseley and the plain meaning of the United States Arbitration Act, as requiring a party who seeks to avoid arbitration on the grounds of fraudulent inducement to challenge the making of the arbitration clause itself, and not merely the making of the contract in which the arbitration clause is contained or the scheme by which both were allegedly negotiated. Prima Paint thus stands for the proposition that where a party to a contract containing a broad arbitration clause claims fraud in the inducement both of the arbitration clause itself and of the entire contract containing the arbitration clause, the court is to consider only the former claim. If the claim of fraud in the inducement of the arbitration clause proves meritless, then the court is foreclosed from considering the question of fraud in the inducement of the contract as a whole, but must leave that issue to be decided by the arbitrators. See CBS Employees Fed. Credit Union v. Donaldson, Lufkin & Jenrette Sec. Corp., 912 F.2d 1563, 1566-67 (6th Cir.1990); Rush v. Oppenheimer & Co., 681 F.Supp. 1045, 1048, 1050 n. 9 (S.D.N.Y.1988). This point was effectively made in Robert Lawrence Co., supra, 271 F.2d at 410-11: The issue of fraud seems inextricably enmeshed in the other factual issues of the case. Indeed, the difference between fraud in the inducement and mere failure of performance ... depends upon little more than legal verbiage and the formulation of legal conclusions. Once it is settled that arbitration agreements are valid, irrevocable, and enforceable, ... arbitration should not be denied or postponed upon the mere cry of fraud in the inducement, as this would permit the frustration of the very purposes sought to be achieved by the agreement to arbitrate, i.e., a speedy and relatively inexpensive trial before commercial specialists. ... If [an] arbitration clause was induced by fraud, there can be no arbitration; and if the party charging this fraud shows there is substance to his charge, there must be a judicial trial of that question before a stay can issue.... It is not enough that there is substance to the charge that the contract [as a whole] was induced by fraud. (Emphasis added). Similarly, in Haynes v. Kuder, supra note 6, 591 A.2d at 1290 & n. 6, we indicated that such a bifurcated proceeding is both obvious from and inherent in the structure and content of the District's Uniform Arbitration Act, D.C.Code § 16-4302 (1989) (quoted in full, supra note 8). In the present case, Hercules alleged in its complaint that the arbitration clause was a vehicle by which Rippeteau sought to perpetrate his fraud on Hercules and Shama. [10] Rippeteau intended that the arbitration clause ... would virtually preclude Hercules from `walking off the job' once the project was begun. Additionally, Rippeteau knew that under arbitration, he would be more likely to [be able to] conceal his fraud, for, as Shama has intimated, discovery is non-existent or limited in arbitration. [11] Hercules alleged that it was induced by the fraudulent representations to ... agree to the arbitration clause as it existed in the contract. The complaint thus does not contain an allegation that Shama made a misrepresentation to Hercules about the content of the arbitration clause. Hercules did allege, however, that the arbitration clause was a specific subject of its dealings with Shama, that it wanted the clause out, and that but for the fraudulent representations by Shama, it would not have agreed to a contract containing such a clause (even though it might have accepted the same contract if it were judicially enforceable). Hercules further alleged that it opposed the inclusion of an arbitration clause because, by insisting on resolution of disputes through arbitration, Shama could take advantage of the limitations on discovery to negate Hercules' opportunity to prove Shama's unfair dealings. Shama suggests, and Judge FARRELL in his concurring opinion concludes, that under any reasonable construction of Hercules' pleadings, the rule of Prima Paint effectively disposes of the case, because Hercules' only claim of fraud in the inducement applies to the contract as a whole and only incidentally to the arbitration clause itself. Hercules claims, on the other hand, that its complaint not only alleges fraud in the inducement of the entire agreement, but also contains sufficient independent averments focused on the arbitration clause in particular to entitle Hercules to an evidentiary hearing. Indisputably, under Prima Paint, if the claim of fraud in the inducement reaches the arbitration clause only insofar as that clause is alleged to be a part of the contract as a whole, then the entire case, including the issue of fraud, must be referred to arbitration. The question whether Hercules' pleading is sufficiently specific is not dispositive, however, for even if, as Hercules contends, the claim of fraud in the inducement is viewed as sufficiently focused on the arbitration clause, [12] we conclude, for reasons stated below, that the complaint cannot and does not sufficiently allege two essential elements of fraud, namely, materiality and reasonable reliance.
To determine whether the trial court erred in concluding that Hercules had failed to allege facts sufficient to entitle it to an evidentiary hearing on the question of fraudulent inducement, we must further review the details of Hercules' complaint. Hercules alleged that on or about May 19, 1986, in the course of a discussion with Shama and Rippeteau about the terms of the renovation contract, its representative, one Tsintolas, specifically requested that Shama delete or modify the arbitration clause, as well as other provisions of the contract. Hercules claims to have been concerned, based on its experience with a prior project, that Shama would not have adequate financing for this one. Hercules apprehended that if it agreed to the arbitration clause, it might be left out in the cold without a full range of remedies in the event that Shama's financial resources failed. According to Hercules, Shama and Rippeteau refused to delete the arbitration clause, insisting that the bank financing the project would not permit any such changes in the standard form contract. Shama and Rippeteau allegedly attempted to assuage Hercules' fears concerning the arbitration clause by assuring Hercules that Shama had adequate financing for the project. Specifically, Shama and Rippeteau are alleged to have made the following representations: A. Shama had ample money to complete the construction project, with adequate allowance for normal cost overruns of 10 percent or more; B. the Shama construction loan had been approved on or before the bids on the construction contract were accepted, i.e., April, 1986; C. Shama was depositing an additional $200,000 in a money market account at [American Savings Bank] to be used for construction, particularly for cost overruns; D. Shama's construction loan was to be used exclusively for payment on the Hercules construction contract ... Hercules also alleged that these representations were false and that Shama knew they were false when it made them. Hercules averred, for instance, that the construction loan was not approved until August, 1986, some two months after construction began. If this allegation is true, then Shama must have known on May 19, 1986, that it had not yet obtained the loan in question. Hercules also argued that Shama is presumed to know the state of its own finances, and that it therefore knew or should have known that it lacked adequate funds to pay for this project. Moreover, Hercules claimed that Shama knew or should have known that it had not deposited the $200,000 in the money market account and that the money being obtained from the bank could be used for items other than construction. We are satisfied that the allegations in Hercules' complaint were legally sufficient with respect to four of the six requisite elements of fraud in the inducement of the arbitration clause. See page 923, supra. Although, as we have seen, the question is not free of difficulty, we are prepared to assume for present purposes that Hercules has adequately alleged that Shama made misrepresentations going to the `making' of the agreement to arbitrate. Prima Paint, supra, 388 U.S. at 404, 87 S.Ct. at 1806. Hercules has also sufficiently alleged that Shama knew those representations to be false, that Shama made them with the intent to deceive Hercules into signing the contract in spite of the presence of the arbitration clause, [13] and that Hercules actually relied on those representations in deciding to forego its opposition to the arbitration clause. We therefore turn to the two remaining, closely related elements of fraud, namely, materiality and reasonable reliance.
Hercules contends that Shama's alleged oral misrepresentations regarding its financial resources, made during the negotiations which preceded execution of the contract, were material to the agreement between them, even though none of Shama's statements was included in the contract as signed. In order to evaluate this contention, as well as Hercules' related claim that its reliance upon these oral statements was justified, we must first assess the significance of that exclusion. If the contract was not a completely integrated instrument, additional assurances and promises made by one party to another during their negotiations are surely relevant if the trier of fact is to understand the entire arrangement. If, on the other hand, the parties intended the written contract to settle everything, such promises and assurances have far less, if any, significance. We must therefore determine whether or not the contract between the parties was integrated and, if it was, whether it was completely or only partially integrated. [14] To do so, we must ascertain the intent of the parties at the time they entered into the agreement. Howard Univ. v. Good Food Servs., 608 A.2d 116, 126 (D.C.1992); Ozerol v. Howard Univ., 545 A.2d 638, 641 (D.C.1988); Mitchell v. David, 51 A.2d 375, 377-78 (D.C.Mun.App.1947). The first and most important step in ascertaining that intent is examination of the contract itself. We have held that if [a] document is facially unambiguous, its language should be relied upon as providing the best objective manifestation of the parties' intent. 1010 Potomac Assocs. v. Grocery Mfrs. of Am., Inc., 485 A.2d 199, 205 (D.C.1984); Bolling Fed. Credit Union v. Cumis Ins. Soc'y, 475 A.2d 382, 385 (D.C.1984). In the present case, we have no difficulty in ascertaining the parties' intent from the terms of the agreement they executed. First of all, the agreement to arbitrate which Hercules signed was unconditional. Article 13 of the contract provides that all claims or disputes between [Hercules] and [Shama] arising out of or relating to the Contract Documents or the breach thereof shall be decided by arbitration.... This clause does not say that disputes will be sent to arbitration only if Shama is financially sound, or if Shama deposits money into a certain bank account, or if Shama uses its construction loan exclusively to pay Hercules. On its face, the arbitration clause is complete and unambiguous. It specifies how disputes are to be settled (by arbitration) and does not provide for any exceptions or envisage any conditions. The written document also contains a merger clause which states that the parties intended to enter into a single completely integrated agreement regarding the renovation project. Article 6 of the standard AIA contract between Hercules and Shama provides that [t]he Contract Documents, which constitute the entire agreement between the Owner and the Contractor, are listed in Article 7 and, except for Modifications issued after execution of this agreement, are enumerated as follows.... (Emphasis added). After this clause, nine specific documents are enumerated: the Agreement, the General Conditions of the Agreement (which are actually Articles 7-20 of the Agreement), the drawings and specifications relating to the construction site, supplementary general conditions, certain special conditions, and three addenda. Article 7 of the contract further elaborates on the meaning of the term contract documents as it is used in Article 6: The Contract Documents consist of this Agreement with General Conditions, Supplementary and other Conditions, the Drawings, the Specifications, all Addenda issued prior to the execution of this Agreement, and all Modifications issued by the Architect after execution of the Contract.... The intent of the Contract Documents is to include all items necessary for the proper execution and completion of the Work. [ [15] ] (Emphasis added.) When coupled with the specific enumeration of which extrinsic items are part of the contract documents, [16] the italicized words in the two quoted passages establish beyond peradventure that the parties intended their written contract to be an expression not only of the final agreement as to the terms in the contract but also of the entire agreement they reached. [17] In other words, the contract between Hercules and Shama was completely, rather than partially, integrated. [18] A completely integrated contract may not be supplemented with prior representations not ultimately included therein, even if those representations are not expressly contradicted by the contract itself. Ozerol, supra, 545 A.2d at 642. According to the parol evidence rule, when the parties to a contract have reduced their entire agreement to writing, the court will disregard and treat as legally inoperative parol evidence of the prior negotiations and oral agreements. Giotis v. Lampkin, 145 A.2d 779, 781 (D.C.Mun.App.1958). In other words, when a court makes a determination that a contract is completely integrated, one consequence is that no evidence may be introduced of prior (or contemporaneous) agreements or terms, whether consistent or inconsistent, within the scope of the written agreement. Ozerol, supra, 545 A.2d at 642; see also Flippo Constr. Co. v. Mike Parks Diving Corp., 531 A.2d 263, 269 (D.C.1987); Stamenich v. Markovic, 462 A.2d 452, 455 (D.C.1983). As we held in 1010 Potomac Assocs., supra, 485 A.2d at 210, the purpose of the parol evidence rule is to promote the stability of transactions by preventing disgruntled parties from avoiding obligations by alleging oral understandings that conflict with their written agreements when those agreements were reduced to writing in order to forestall just such contentions.
Hercules claims that it considered Shama's representations regarding its financial wherewithal so important that it made them a regular subject of discussion in the contract negotiations and based its agreement to the contract on its reliance on them. None of these assurances of financial soundness made it into the written contract, however, while an integration clause effectively saying that this is all there is was included. As Hercules complains and therefore alleges, Shama and Rippeteau offered the form contract to it on a take it or leave it basis. This court has held that evidence of negotiations conducted prior to the execution of a completely integrated contract is to be excluded because it is immaterial to a decision on the merits. 1010 Potomac Assocs., supra, 485 A.2d at 211. Moreover, we held in Luther Williams, Jr., Inc. v. Johnson, 229 A.2d 163, 165-66 (D.C. 1967), that if a judge concludes that a particular representation was superseded by the writing, he does not decide that the excluded negotiations did not take place, but merely that if they did take place they are nevertheless legally immaterial. (Emphasis in original; citations omitted). In applying the parol evidence rule, we have also held that, by definition, a completely integrated contract contains all the terms which the parties consider material and essential to the agreement. Ozerol, 545 A.2d at 641-42. This court has deemed it well established that such a contract must state all the promises of the parties with sufficient clarity and definiteness as to render the essential terms of the agreement clear without resort to parol testimony. Easter v. Kass-Berger, Inc., 121 A.2d 868, 870 (D.C.Mun.App.1956). [19] Accord, Educational Enterprises v. Greening, 265 A.2d 287, 289 (D.C.1970); Penick v. Frank E. Basil, Inc., 579 F.Supp. 160, 164 (D.D.C.1984). The parol evidence rule does not apply when a party to a contract alleges that parol representations were fraudulently made. Flippo, 531 A.2d at 269; Stamenich, 462 A.2d at 455; Giotis, 145 A.2d at 781; RESTATEMENT (SECOND) OF CONTRACTS § 214(d). Courts have recognized, however, that this fraud exception would swallow up the rule if representations made during negotiations, but not included in the contract as executed, could be characterized as fraud and then used to undo an otherwise complete agreement. There is authority for the proposition that, at least in the absence of a showing that a parol representation made during negotiations by a party to a completely integrated contract was omitted from the contract by fraud, mistake, or accident, see Bardwell v. The Willis Co., Inc., 375 Pa. 503, 506-507, 100 A.2d 102, 104 (1953), the opposing party is barred from relying on such a representation as material to its acceptance of the deal and from claiming that its reliance on it was reasonable. The United States Court of Appeals for this Circuit recently adopted this approach in One-O-One Enters. v. Caruso, 270 U.S.App.D.C. 251, 848 F.2d 1283 (1988). In that case, the parties had executed a contract for the sale of a chain of restaurants. The contract contained an integration clause stating that the written agreement superseded any and all previous understandings and agreements. Id. at 254, 848 F.2d at 1286. One-O-One claimed that, during the contract negotiations, Caruso had made fraudulent and material representations to induce One-O-One to sign, but the parties did not include these representations in the contract. In an opinion by Judge Ruth Ginsburg, the court, applying District of Columbia law relating to common law fraud, [20] held that One-O-One had not alleged a valid claim of fraudulent inducement: Were we to permit plaintiffs' use of the defendants' prior representations ... to defeat the clear words and purpose of the Final Agreement's integration clause, contracts would not be worth the paper on which they are written. Tonn v. Philco Corp., 241 A.2d 442, 445 (D.C. 1968) [quoting Upton v. Tribilcock, 91 U.S. 45, 50, 23 L.Ed. 203 (1875)]. On a matter of such large significance to the parties' bargain, silence in a final agreement containing an integration clause in the face of prior explicit representationsmust be deemed an abandonment or excision of those earlier representations.... Plaintiffs cannot overcome the written instrument here, and, particularly, the integration clause, by invoking the fraud-in-the-inducement exception to the parol evidence rule. The exception for a party who has been induced by a fraudulent misrepresentation to enter the contract, Giotis, [ supra, 145 A.2d at 781], must not be stretched or inflated in a way that would severely undermine the policy of the parol evidence rule, which is grounded in the inherent reliability of a writing as opposed to the memories of contracting parties. Tonn, [ supra, 241 A.2d at 445]. We need not belabor the point. We have here the case of a party with the capacity and opportunity to read a written contract, who has executed it, not under any emergency, and whose signature was not obtained by trick or artifice; such a party, if the parol evidence rule is to retain vitality, cannot later claim fraud in the inducement. Id. See also Tonn v. Philco Corp., 241 A.2d 442, 445 (D.C.1968) (plaintiff who received an oral offer containing certain terms followed by a written offer which did not mention these terms, and who signed the written offer containing an integration clause, was bound by the contract and could not claim fraudulent inducement); Jackvony v. RIHT Fin. Corp., 873 F.2d 411, 415-16 (1st Cir.1989); Robinson v. Cupples Container Co., 513 F.2d 1274, 1277-78 (9th Cir.1975) (when plaintiff asked defendant to include in the written agreement specific representations defendant had made during negotiations, and when defendant refused to do so, the representations were not material for the purposes of plaintiff's fraud claim). In Bardwell, supra, concededly a decision which has generated its fair share of controversy, [21] the Supreme Court of Pennsylvania was confronted with a commercial tenant's claim that the landlord's representative had made fraudulent oral representations regarding the leased property. The tenant contended that the alleged fraud took the case outside Pennsylvania's parol evidence rule. For reasons that seem to us to make some practical sense, the unanimous court would have none of it: There is not the slightest doubt that if plaintiffs had merely averred the falsity of the alleged oral representations, parol evidence thereof would have been inadmissible. Does the fact that plaintiffs further averred that these oral representations were fraudulently made without averring that they were fraudulently or by accident or mistake omitted from the subsequent complete written contract suffice to make the testimony admissible? The answer to this question is no; if it were otherwise the parol evidence rule would become a mockery, because all a party to the written contract would have to do to avoid, modify or nullify it would be to aver (and prove) that the false representations were fraudulently made. ... Fraudulent misrepresentations may be proved to modify or avoid a written contract if it is averred and proved that they were omitted from the (complete) written contract by fraud, accident or mistake. Id. 375 Pa. at 507, 100 A.2d at 104 (emphasis in original). See also Contractor Utility Sales Co. v. Certain-Teed Prods. Corp., 638 F.2d 1061, 1080-81 (7th Cir.1981); Nicolella v. Palmer, 432 Pa. 502, 505-509, 248 A.2d 20, 22-23 (1968). There is no evidence in the present case that assurances regarding Shama's financial condition were omitted from the agreement by fraud, accident, or mistake; rather, they were excluded because, as Hercules alleges and thus acknowledges, it was given a form contract and invited to take it or leave it. It is true that some courts are more permissive vis-a-vis such claims of fraud in the inducement, especially in cases brought pursuant to anti-fraud securities statutes. It has been held that, even when a contract contains a merger clause, a party to it may successfully base a fraudulent inducement claim on prior oral representations not included in the contract. See, e.g., Astor Chauffeured Limousine Co., supra note 17, 910 F.2d at 1546-47; Rowe v. Maremont Corp., 850 F.2d 1226, 1233-36 (7th Cir.1988). [22] Nevertheless, because One-O-One is an opinion of the federal court of appeals for this circuit, and because the relevant portion of the opinion applies District of Columbia contract law rather than federal securities law, we must give it respectful consideration. See Hornstein v. Barry, 560 A.2d 530, 536-37 n. 15 (D.C. 1989) (en banc) (following a decision by our federal colleagues across the street both on the basis of its reasoning and in the interest of harmony between court systems and uniformity of result in the same geographical area). We need not, however, decide whether we should follow cases like One-O-One and Bardwell in the generality of fraud in the inducement disputes. The present controversy presents circumstances in which the policies against circumventing the parol evidence rule are especially compelling. Hercules is seeking to avoid an arbitration clause. If a party to an arbitration agreement, like Shama here, must litigate extensively in order to avail itself of this simplified method of resolving disputes, the purposes of arbitration are substantially undermined. A strict application of the concept of materiality is therefore appropriate, lest arbitration be thwarted at the outset upon the mere cry of fraud in the inducement. Robert Lawrence Co., supra, 271 F.2d at 410. Accordingly, Hercules' invocation of fraud to force an evidentiary trial before arbitration can proceed should be judged against a very high standard. Under that standard, once Hercules signed its name to an instrument which did not contain the assurances which it says it considered critical, it must be precluded (at least in the absence of evidence that the representations were omitted from the agreement by fraud, mistake, or accident) from thereafter claiming that those representations were material in the sense required to support a claim of fraudulent inducement of the arbitration clause. Given the judicial favor accorded to agreements to arbitrate, we think that even those courts which would view One-O-One and similar cases as going too far on their facts might well be more exacting in evaluating the sufficiency of the complaint where, as here, the efficacy of a voluntary arbitration clause is imperiled. This is not a case in which a powerful party forced a helpless supplicant into submission. We have no reason to doubt that Hercules and Shama, like the parties in One-O-One, were sophisticated business institutions dealing with each other on a level playing field. In attempting to explain why it did not see to it that Shama's assurances were included in the contract, however, Hercules told the trial court that it was browbeaten into accepting what it characterizes as the one-sided terms of Shama's proposed contract, and that it was not accorded an opportunity to incorporate any of its desired changes into the form contract. The judge responded to this argument quite appropriately: I don't put [Hercules] Corporation, or any other contractor like [Hercules], in the same situation [as] I would a little old family with ten kids [whose] house just burned down, and [who] are looking for another house, and [whose] real estate agent says, Look, we have got [a house] here, but it [has] got some plaster falling, it [has] got this or that, but this is it, take it or leave it; they have got to have a roof over the head of those kids at night, so they take it. You know the contract is [one of] adhesion in [that its terms are] all in favor of the landlord. Here [Hercules] could have just said, Look, forget it, if I don't get this [in] ironclad writing ..., we are not going to sign the contract. ... I don't think Hercules was in such a limited bargaining position that it had to bow down, knuckle down, and sign this contract....[ [23] ] We agree with the judge's view that, in light of the commercial context in which these two corporations were dealing, Hercules and Shama are presumed to have been negotiating with each other from equal bargaining positions. Hercules' complaint contains no allegation to the contrary. As the trial court held in One-O-One Enters. v. Caruso, 668 F.Supp. 693, 698 (D.D.C.1987), the decision later affirmed by the Court of Appeals in One-O-One, supra, [a]fter eight months of vigorous negotiations, the parties reached a final agreement that was lengthy, detailed, and comprehensive. During these eight months many offers, promises, and representations were made, and several preliminary agreements were drafted. To avoid a misunderstanding and to make clear that the only understanding between the parties was that expressed in the Agreement, the parties agreed that the Agreement supersede[d] any and all previous understandings and agreements.... Therefore, when the representations were superseded by the Agreement there was no representation upon which plaintiffs could base a fraud claim. (Emphasis deleted). As in One-O-One, the parties in the present case, each concededly represented by competent counsel, engaged in arm's length negotiations before reaching agreement. Each side presumably had the opportunity to make a variety of representations, promises, and offers. The parties ended up with a contract which did not include the representations which Hercules now says Shama made. If Hercules considered these assurances important enough to induce it to agree to the contract (including the arbitration clause), it could have conditioned its agreement on the explicit inclusion of those representations in the contract. If Shama or Rippeteau refused to go along, Hercules could have walked away from the deal. Since Hercules did none of these things, but instead signed the contract and got the job, it is bound by the terms of the instrument to which it affixed its name, and cannot now be heard to complain that it was browbeaten or fraudulently induced into agreeing to arbitrate. Hercules concedes that it did not make the unequal bargaining position argument that the subcontractors in Moseley did. It contends, however, that this is not crucial to Hercules' right to a trial on the merits of Hercules' claim of fraud in the inducement of the arbitration clause. We cannot agree. In order to be entitled to an evidentiary hearing on its claim of fraudulent inducement, Hercules must plead facts capable of establishing each of the requisite elements of fraud, including that of materiality. Bennett, supra, 377 A.2d at 59-60. The lack of any allegation that Hercules and Shama were negotiating from unequal bargaining positions effectively disposes of Hercules' claim of materiality, and is therefore crucial to the question whether Hercules has a right to an evidentiary hearing. [24]
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.