Opinion ID: 1643072
Heading Depth: 2
Heading Rank: 5

Heading: Did the Arbitrators Manifestly Disregard the Law Regarding the Fraud Claim?

Text: The only laws relating to fraud the News argues that the arbitration panel disregarded are (1) the law of promissory fraud; (2) application of the two-year statute of limitations prescribed for fraud claims by § 6-2-3, Ala.Code 1975; and, (3) in relation to the fraud claim asserted by Teresa McLendon, the elements of misrepresentation and detrimental reliance. Additionally, the News contends: The Panel also failed to even consider how the actions of the News in these cases were in any way inconsistent with the representations allegedly made. The News offered to renew the dealer agreements of the four appellees, Horn, Glass, Jay, and Teresa McLendon, who were performing satisfactorily. Nothing in the record suggests that the News ever said anything that could be rationally construed to promise that not one word of the agreement originally signed would ever be changed as part of a renewal offer. We cannot discern from this latter argument exactly what law of fraud the News argues the panel manifestly disregarded. No citation to statutory or case authority is provided. This failure detracts from a focused appellate review. See Crutcher v. Wendy's of North Alabama, Inc., 857 So.2d 82 (Ala.2003). Horn, Glass, James McLendon, and Teresa McLendon declined to renew their agreements by executing revised agreements, because the News insisted in the revised agreements that the first sentence of paragraph 8 be changed to eliminate any possibility of an automatic renewal. The News does not take the position that it had at one time intended to honor the right of a dealer to an automatic renewal in the absence of the failure of the dealer to perform satisfactorily, but later changed its mind; rather, it insists that at no time did it intend for a dealer to have a right to an automatic renewal. A claim of promissory fraud is based upon a promise to act or not to act in the future. Padgett v. Hughes, 535 So.2d 140, 142 (Ala.1988). We agree with the News that the plaintiffs' fraud claims arising from the News's alleged misrepresentation that their dealer agreements would be automatically renewed from year to year if they fully performed their dealer obligations constitute allegations of promissory fraud. In its decision, the arbitration panel addressed the fraud claims in this manner: Under Alabama law, a cause of action for fraud based upon a misrepresentation arises where a party reasonably relies upon a misrepresentation of a material fact and suffers damage because of his or her reliance. Ex parte ERA Marie McConnell Realty, Inc., 774 So.2d 588, 591 (Ala.2000). The News consistently represented to dealers, including plaintiffs, that the Dealer Agreements would be maintained so long as the dealer performed satisfactorily. The News'[s] practice concerning renewals was consistent with that representation. That representation was false. The News knew that this representation was false when it was made at the commencement of each plaintiffs' dealership relationship and when it was consistently reaffirmed by The News during the so-called annual renewal meetings with The News'[s] circulation department managers. Plaintiffs relied on those representations in going forward with the purchase of their branches and in entering into the Dealer Agreements. Plaintiffs also relied on those representations by devoting their lives and fortunes to build their businesses, acting in reliance on the News'[s] repeated assurances that the contractual relationship was a lasting one and was not subject to unilateral termination without cause. The plaintiffs gave The News the highest form of loyalty  blood, sweat and tears in the service of their businesses. Their reward in exchange for this loyalty was a discovery during Toby Pearson and Jim Keeble's reign that they had been duped. These false representations were intended by The News to allow it to `have its cake and eat it too.' The Panel concludes that The News committed actionable fraud against the plaintiffs. As such, having established that The News is guilty of fraud, then the plaintiffs are entitled to recover for such actual damages that they suffered. These damages include plaintiffs' loss of investments and loss of income streams, as well as plaintiffs' mental anguish. In addition to actual damages, punitive damages are available in a fraud action where the plaintiff proves by clear and convincing evidence that the wrongdoer's conduct is malicious, oppressive, or gross, and that the misrepresentation that is the basis of the fraud is made with the knowledge of falsity and with the purpose of injuring the party. Ala.Code 1975 § 6-11-20. Plaintiffs would not have gone forward with the purchases of their branches had the truth been disclosed. Likewise, they would have attempted to sell their dealerships in the open marketplace had they known that the market value for these dealerships was about to be abruptly destroyed by the changes in the automatic renewable term provision as explained to them by News employees clearly enhances the values of their franchises [sic]. It was only after investing large sums of money into businesses plaintiffs considered to be lifelong that The News chose to disclaim any significance of the automatic renewable provision. The News insists that it has always been its practice to emphasize the one-year aspect of the Dealer Agreement to prospective dealers. The Panel heard no credible evidence supporting this contention. Thus, the Panel concludes that The News'[s] misrepresentations regarding the Dealer Agreement were made knowingly, and that punitive damages are recoverable by plaintiffs for such conscious misrepresentations. In order to prove a claim for promissory fraud, the plaintiff must prove: `(1) [T]hat the defendant made a false representation of a material fact; (2) that the false representation was relied upon by the plaintiff; (3) that the plaintiff was damaged as a proximate result of the reliance; (4) that the representation was made with a present intent to deceive; and (5) that when the representation was made the defendant intended not to perform in accordance with it.'  Howard v. Wolff Broadcasting Corp., 611 So.2d 307, 311 (Ala.1992) (emphasis omitted), cert. denied, 507 U.S. 1031, 113 S.Ct. 1849, 123 L.Ed.2d 473 (1993), cert. denied sub nom. I.M.T.C., Inc. v. N.L.R.B., 507 U.S. 1032, 113 S.Ct. 1851, 123 L.Ed.2d 474 (1993). Arthur Rutenberg Homes, Inc. v. Norris, 804 So.2d 180, 184 (Ala.2001). All in all, it is clear that the panel found that at the time of the misrepresentations the News had the intention not to be bound by its promise of automatic renewal in the absence of cause not to renew and that it intended to deceive the plaintiffs in that regard. We must accord great weight to the arbitration panel's factual findings. Some courts have concluded that an arbitrator's findings of fact are virtually unassailable. Under the manifest disregard standard ... the governing law must clearly apply to the facts of the case, as those facts have been determined by the arbitrator. See Wonderland Greyhound Park, Inc. v. Autotote Sys., Inc., 274 F.3d 34, 36-37 (1st Cir.2001) (`An arbitrator's factual findings are generally not open to judicial challenge, and we accept the facts as the arbitrator found them.'). Westerbeke Corp. v. Daihatsu Motor Co., 304 F.3d 200, 213 (2d Cir.2002). We accept the facts as the arbitrator found them. Boston Med. Ctr. v. Service Employees Int'l Union, Local 285, 260 F.3d 16, 18 (1st Cir.2001). In the consolidated hearing of the six arbitration cases, the arbitration panel heard ore tenus testimony from all witnesses except Horn, who testified by deposition. At the very least, we would accord the panel's factual findings derived from the testimony of the live witnesses the deferential review such findings are owed under the ore tenus standard. SouthTrust Bank v. Copeland One, L.L.C., 886 So.2d 38 (Ala.2003); Aetna Life Ins. Co. v. Character, 873 So.2d 1075 (Ala.2003); and Ex parte Lamar Adver. Co., 849 So.2d 928 (Ala.2002). Of course, we have no occasion to evaluate the evidence in any way unless that issue is properly before us as a legitimate component of a legally cognizable ground of arbitral review. The only attack the News makes on the panel's findings relating to the elements of promissory fraud is by way of the following paragraph in its initial brief to this Court: The Panel's findings with regard to present intent, if it can be called a finding, make no sense whatsoever. The Panel found that The News had represented to the appellees that the dealer agreements would be maintained so long as the dealer performs satisfactorily. The Panel then found that The News'[s] practice was consistent with that representation. The Panel does not explain, nor could it, how The News having acted in a manner consistent with the representation it allegedly made could somehow show an intent to deceive or not to perform. If anything, The News having acted in such a manner would show an absence of an intent to deceive. The appellees themselves testified that they did not believe any employee of The News was out to deceive them when they first signed a dealer agreement. We again note the absence of any citation to authority. The News does not acknowledge the fact that when Keeble was given the responsibility for continuing the dealers' contracts he took the position on behalf of the News that the plaintiffs had never had any right to an automatic renewal and had never had any property interest in their branches other than in the unexpired portion of the one-year term. With respect to the argument that the plaintiffs themselves testified that they did not believe any employee of the News was out to deceive them when they first signed a dealer agreement, the evidence to which the parties' briefs draw our attention involves different statements by different employees of the News to different plaintiffs at different times and places, and the various plaintiffs testified that they either had no reason to believe that the particular employee did not believe what he or she was saying at the time, or they simply did not know what that employee's belief was. At any rate, the following legal principles are pertinent to a situation where a plaintiff alleging promissory fraud against a corporation has received an innocent misrepresentation by one of the corporation's employees: This court has, as most others, repeatedly held that a corporation cannot escape liability in fraud cases by showing that the agent through whom it acted was without knowledge of the true facts. The issue in those cases is whether the corporation had knowledge of the true facts. Shelter Modular Corp. v. Cardinal Enters., Inc., 347 So.2d 1334, 1338 (Ala.1977). [W]e emphasize that the only two defendants against whom the plaintiffs have asserted claims were Leisure American and Alpine Bay [both corporations]; no individuals were named as defendants. . . . [T]he beginning point of our analysis focuses on the conduct, particularly the intent, of Alpine Bay, a corporate entity, as made known through the conduct of its agent and not the intent of individual agents themselves who are not defendants. . . . . It is axiomatic that a corporate employee's individual defense of lack of intent does not of itself end the inquiry with respect to the corporation's requisite intent to defraud. The corporation is acting as a legal entity and, if an individual corporate agent's conduct, though not fraudulent of itself, combines with the conduct of other corporate agents so as to amount to corporate fraud, the corporation may not escape liability simply by pointing to one innocent link in the chain. . . . .... Alpine Bay mistakenly sets forth the promissory fraud issue as whether there is sufficient evidence to support the finding that [its two agents], acting for Alpine Bay, intended to deceive [the plaintiffs] and intended not to perform the repurchase agreement at the time it was made. The correct question is whether Alpine Bay had the requisite intent to defraud the plaintiffs. Leisure American Resorts, Inc. v. Knutilla, 547 So.2d 424, 425-26 (Ala.1989). This Court accepted the fact in Leisure American that the corporation's left hand did not know what its right hand was doing, 547 So.2d at 427, but concluded that that circumstance did not insulate the corporation from liability. In the final analysis, the News makes no real argument concerning the sufficiency of the fraud evidence presented at the arbitration hearing. Although its above-quoted argument portrays the two specified findings by the panel as logically incompatible, that criticism does not in any way serve to present a claim that the evidence presented at the hearing was insufficient to prove the elements of promissory fraud. Without suggesting that such an evidentiary insufficiency would in fact constitute a manifest disregard of the law with respect to the panel's holdings on the fraud claims, we simply point out that the question of the sufficiency of the evidence to support those holdings (except as to Teresa McLendon) is not a matter we are called upon to consider. It is important to note another issue not raised in these appeals. The News does not refer to, or in any way rely on, the legal proposition that fraud or misrepresentation cannot be predicated upon a verbal statement made before execution of a written contract when a provision in that contract contradicts the verbal statement. Tyler v. Equitable Life Assurance Soc. of the United States, 512 So.2d 55, 57 (Ala.1987). It has been generally held that, when a person signs a writing containing language that is clearly contrary to pre-execution parol representation, reliance is unjustified. Ramsay Health Care, Inc. v. Follmer, 560 So.2d 746, 749 (Ala.1990). (The justifiable reliance standard for evaluating reliance in fraud cases was supplanted by the reasonable reliance standard in Foremost Insurance Co. v. Parham, 693 So.2d 409 (Ala.1997).) If, as a matter of contract law, as the News contends, paragraph 8 unambiguously granted either party the right to terminate the agreement as of any annual renewal date by the simple expedient of timely notice, and because it is undisputed that each of the plaintiffs read paragraph 8 before they signed their respective agreements, some even initialing that paragraph, significant questions of reasonable reliance would have been at issue. As previously noted, our disposition of the fraud claim makes it unnecessary to reach the contract claim because the same compensatory damages are recoverable under either claim. We make this observation concerning the absence of any issue about reasonable reliance (except, incidentally, as to Teresa McLendon), to head off any possible misapprehension by the bench and bar that we are somehow implicitly recognizing an exception to reasonable-reliance requirement in fraud cases. Rather, because we are addressing on the merits only the specific contentions the News makes relating to alleged instances of manifest disregard of the law as to the fraud claim, we have no occasion to consider generally the doctrine of reasonable reliance.