Opinion ID: 2518331
Heading Depth: 2
Heading Rank: 1

Heading: Did the District Court Err in Granting Summary Judgment Dismissing the Weicks' Claim for Fraud?

Text: The first issue we must address in connection with this assignment of error is whether we have jurisdiction to address it. This Court must address a question as to its jurisdiction even if not raised by the parties. Diamond v. Sandpoint Title Ins., Inc., 132 Idaho 145, 968 P.2d 240 (1998). The Watsons first moved for summary judgment on June 3, 2003. The district court heard the motion, and on July 31, 2003, it entered an order granting partial summary judgment. In that order, the district court held that the Watsons were entitled to a judgment for the sums owing on the promissory notes, to the dismissal of the Weicks' counterclaim for fraud, and to the dismissal of any claim for breach of contract based upon conduct that occurred after November 28, 2001. The order granting partial summary judgment included a provision stating, Defendants' counterclaim for fraud is hereby dismissed with prejudice. At the end of that order, the district court included a Rule 54(b) certificate providing as follows, I expressly find, pursuant to Idaho Rule of Civil Procedure 54(b), that there is no just reason for delay and expressly direct entry of judgment on Plaintiffs' action to enforce the two promissory notes consistent with this order. On October 2, 2003, the court entered a partial judgment in favor of the Watsons for the amounts owing on the promissory notes. That judgment did not include a Rule 54(b) certificate, nor did it mention the Weicks' counterclaim for fraud. The Weicks did not file their appeal until February 11, 2004. Therefore, if the Rule 54(b) certificate created a final partial judgment, we would not have jurisdiction to review that partial judgment. The Rule 54(b) certificate was a nullity with respect to that portion of the order granting partial summary judgment on the Watsons' claim to collect on the promissory notes. Rule 54(b) only applies to a judgment or to an order that constitutes a judgment. An order simply granting a motion for summary judgment does not constitute a judgment. Camp v. East Fork Ditch Co., Ltd., 137 Idaho 850, 55 P.3d 304 (2002). That portion of the order relating to the enforcement of the promissory notes did not purport to be a judgment. It simply granted the Watsons' motion for summary judgment on that claim. Thus, a Rule 54(b) certificate regarding the order granting summary judgment does not comply with Rule 54(b) and is of no effect. The Rule 54(b) certificate at the end of the order granting partial summary judgment does not apply to the partial judgment later entered. Rule 54(b) provides that the certificate shall immediately follow the court's signature on the judgment. Under that provision, a Rule 54(b) certificate in the order granting partial summary judgment cannot apply to the partial judgment later entered by the district court. There is an issue, however, of whether the Rule 54(b) certificate applies to that portion of the partial summary judgment dismissing the Weicks' counterclaim for fraud. That counterclaim was asserted as a defense to the Watsons' action to collect on the promissory notes. An order dismissing a counterclaim can constitute a judgment. Camp v. East Fork Ditch Co., Ltd., 137 Idaho 850, 55 P.3d 304 (2002). It is not clear, however, whether the district court intended that the Rule 54(b) certificate as to the action to enforce the two promissory notes consistent with this order also included the order dismissing the counterclaim for fraud. Regardless of whether or not it did, the order is not a final partial judgment. A district court's determination that there is no just reason for delay in entering a final partial judgment is not binding on this Court when it appears that the district court abused its discretion in so finding. Smith v. Whittier, 107 Idaho 1106, 695 P.2d 1245 (1985). Rule 54(b) of the Idaho Rules of Civil Procedure provides in part, If any parties to an action are entitled to judgments against each other such as on a claim and counterclaim ..., such judgments shall be offset against each other and a single judgment for the difference between the entitlements shall be entered in favor of the party entitled to the larger judgment. Where there is a claim and a counterclaim asserted by opposing parties, a district court should ordinarily await the determination of both parties' claims before seeking to enter a final judgment in favor of one party on its claim. Joyce Livestock Co. v. Hulet, 102 Idaho 129, 627 P.2d 308 (1981). There is nothing in the record indicating any hardship, injustice, or compelling reason why the partial summary judgment granted to the Watsons on their complaint should be final before the Weicks' counterclaims were determined. The district court abused its discretion in determining that there was no just reason for delay and that a final judgment should be entered. We therefore vacate the Rule 54(b) certificate and address the issue of whether the district court erred in dismissing the Weicks' counterclaim for fraud. The primary business that the Weicks purchased from the Watsons was the Watson Agency, Inc. (Watson Agency). The other two corporations had minimal assets. Prior to the sale, the Watsons provided the Weicks with a one-page document summarizing the income and expenses for the Watson Agency during the years 1995 through 2000. For each of those years, the document listed the amounts for gross sales, direct costs, gross profit, total expenses for each of seven categories, and net profit. Over the six-year period, the document showed a net annual profit that averaged over $475,000. Conversely, the income tax return prepared after the Weicks purchased the Agency showed a net loss of $625 in 2001, not including depreciation. In their counterclaim, the Weicks alleged that the Watsons committed fraud by providing financial data that misrepresented the value of the corporation by misrepresenting the actual corporate expenses and that misstated the true financial condition of the company. [2] Relying upon Faw v. Greenwood, 101 Idaho 387, 613 P.2d 1338 (1980), the district court dismissed the fraud claim on the ground that Defendants' due diligence foreclosed any reasonable or actual reliance on any allegedly incorrect or fraudulent statements of the Plaintiffs. The district court erred in its application of Faw v. Greenwood because it failed to consider whether the books and records actually examined by the Weicks contained information that disclosed the inaccuracy of the alleged representations. Faw v. Greenwood was an action for fraud against the sellers of a business that consisted of retail sales, service, and installation of various electrical supplies and appliances. Although the business had been in existence for only six months, the sellers represented that it produced a net annual profit of $26,000. Prior to closing the transaction, the purchasers examined some documents that were supposed to be profit and loss statements for the months of April and May of 1975. They were actually cash flow statements because they did not take into account decreases in inventory. The profit-and-loss statements showed a year-to-date net loss of $547.39 in April and $1,074.21 in May. The purchasers also knew that the business had only been in operation since November 1974. After operating the business for three months, the purchasers closed it down and then sued the sellers contending that they had been induced into purchasing the business based upon the sellers' fraudulent misrepresentation that it had a net annual profit of $26,000. The case was tried to the court, which found that the purchasers had failed to prove that they relied upon the representation as to the business's net annual profit. Because the purchasers knew that the business had been in existence for only six months, they were aware that the net profit figure of $26,000 was only an estimated projection. The purchasers had also examined the books and records, which showed a net loss of $1,074.21 for the last five of the six months the business was in operation. In upholding the decision of the district court, this Court stated, [W]hen a purchaser is given the opportunity to conduct an independent investigation of the records and does so, it is generally held that he is not entitled to rely on an alleged misrepresentation of the seller. 101 Idaho at 389, 613 P.2d at 1340. The evidence in the record shows that prior to the purchase, John Weick made numerous trips to Coeur d'Alene to investigate the Watson Agency. Weick was involved with John Pennington in a security company in Los Angeles, California. In June 2001 they traveled to Coeur d'Alene to investigate purchasing the Watson Agency. During that trip, they reviewed a couple months of the Agency's check register and copies of its contracts, and they talked with the Agency's employees. In July 2001, Weick again returned to Coeur d'Alene, this time with his tax adviser. Although they could have looked at any records they desired, the tax advisor only reviewed a couple months of the check register and some of the Agency's contracts. He also created a spreadsheet using the information he reviewed. He informed Weick that the Watsons paid for a lot of personal items through the Agency and expressed concern that the Watsons used a line of credit on a regular basis to pay business expenses. The tax advisor also told Weick that he had not done a complete audit of the Agency. Over the next several months, Weick returned to Coeur d'Alene numerous times, spending a total of about thirty days at the Agency. During those trips, however, he did not conduct any further examination of the financial records. One of the elements that must be proven in order to establish fraud is justifiable reliance upon a false statement or representation. Lindberg v. Roseth, 137 Idaho 222, 46 P.3d 518 (2002). [W]hen a purchaser is given the opportunity to conduct an independent investigation of the records and does so, ... he is not entitled to rely on alleged misrepresentations of the seller. Faw v. Greenwood, 101 Idaho 387, 389, 613 P.2d 1338, 1340 (1980) (emphasis added). Because the investigation must foreclose actual reliance upon the alleged misrepresentation, the investigation actually made must be of records that would disclose the inaccuracy of the representation. It is not a defense that the party alleging fraud could have ascertained the truth by conducting a more thorough investigation. Id. The issue is not one of contributory negligence; it is whether the party relied upon his own investigation and judgment of records that accurately disclosed the relevant fact rather than upon the alleged misrepresentation. The district court held that the Weicks could not establish justifiable reliance because the undisputed facts establish that [they] conducted significant due diligence by inspecting the books, records and financial information of the Watson corporations before purchasing the companies. The district court did not make any analysis of the records actually reviewed by the Weicks and whether those records would have disclosed the falsity of the alleged misrepresentations. The examination of a couple months of check registers would not necessarily show the actual expenses of the Watson Agency. It would show expenses paid during those months, but it would not show either unpaid expenses or those that are not paid on a monthly basis. The district court erred in holding as a matter of law that the Weicks could not prove justifiable reliance. We therefore reverse the grant of summary judgment on the issue of fraud.