Court Opinion

ID: 9762948
Source: CourtListenerOpinion
Date Created: 2023-08-29 02:34:16.917423+00
Date Added: 2024-06-11T07:29:38.729233
License: Public Domain

FARRELL, Associate Judge,
concurring in the result.
In my judgment, appellant’s claim failed as a matter of law not because, as I think my colleagues hold, fraud can never be pleaded successfully in the face of a completely integrated commercial contract with an arbitration clause, but rather because— under Prima Paint Corp. v. Flood & Conklin Mfg. Co., 388 U.S. 395, 87 S.Ct. 1801, 18 L.Ed.2d 1270 (1967) — Hercules failed to allege facts that if proven would have established that it actually relied on material misrepresentations in agreeing to the arbitration clause specifically, as opposed to the contract as a whole. Prima Paint thus requires that appellant’s claim be submitted to arbitration.
Hercules alleged that “had [it] known of the true financial arrangements between Shama and ASB [the financing bank], [it] might still have entered into the contract, but would not have agreed to arbitrate its disputes”; and that “[it] was induced by the fraudulent representations made by Shama and Rippeteau to forego [its] desire to modify the arbitration clause in the contract and agree to the arbitration clause as it existed in the contract.” The facts alleged in support of these contentions, how*936ever, belie them completely. According to the complaint:
On or about May 19, 1986, Mr. Tsinto-las, on behalf of Hercules, met with Bernard Baudrand and Rippeteau. At that time, Mr. Tsintolas asked to modify the arbitration clause and other provisions contained in the proposed contract. Mr. Baudrand and Rippeteau denied the request on the basis that ASB would not agree to any changes in the contract’s general condition language and that Hercules had to take the contract as it was. Mr. Tsintolas again asked about the terms of the Shama construction loan. Rippeteau said he personally confirmed the purpose of the loan with Mr. Stefani, which was for the Hercules’ construction contract only. [Emphasis added].
Nowhere does Hercules contend that the financing bank, ASB, would have agreed to changes in the contract’s General Conditions and thus that the italicized representation by Baudrand and Rippeteau was false and fraudulent. Nor does it allege that the contract was anything other than what these men represented it to be — a take it or leave it proposition. Thus, Hercules’ own proof would have shown that it had to take the entire contract with its arbitration clause or no contract at all. Absent an element of overreaching or allegations of fact that relate the alleged misrepresentations directly to the arbitration clause, Hercules could not in these circumstances have been fraudulently induced to agree to the arbitration clause apart from the rest of the contract by the alleged misrepresentations of Shama and its agents. If it relied on their statements, it did not do so specifically in relation to the arbitration clause. At best, its evidence might have shown that it relied on them in agreeing to the arbitration clause and every other clause in the contract.
Thus Hercules’ attempt to plead fraudulent inducement of the arbitration clause fails because the facts alleged would only prove fraudulent inducement of the entire contract — an arbitrable claim already.decided in favor of Shama. As Hercules alleged no facts justifying the conclusion that it relied on any misrepresentation in agreeing to the arbitration clause in particular, under Prima Paint, supra, it cannot avoid its contractual obligation to arbitrate. See Schacht v. Beacon Ins. Co., 742 F.2d 386, 390 (7th Cir.1984) (under Prima Paint, where claim of fraud applies equally to all provisions of a contract containing an arbitration clause, court is precluded from addressing that claim); accord Bitkowski v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 866 F.2d 821 (6th Cir.1987); Bhatia v. Johnston, 818 F.2d 418 (5th Cir.1987); Driscoll v. Smith Barney, Harris, Upham & Co., 815 F.2d 655 (11th Cir.), cert. denied, 484 U.S. 914, 108 S.Ct. 261, 98 L.Ed.2d 218 (1987); Russo v. Simmons, 723 F.Supp. 220 (S.D.N.Y.1989).
My colleagues are unwilling to rest decision on this basis because they apparently find merit in a narrower interpretation of Prima Paint. See ante at 925-926 n. 12. As stated by the court in Rush v. Oppenheimer, 681 F.Supp. 1045 (S.D.N.Y.1988) (twice cited by the majority): “[A] court may order arbitration only when the party opposed to arbitration has not claimed that the arbitration agreement itself was fraudulently procured.” Id. at 1049 (emphasis added). That is, only when the plaintiff has not taken care (through what can only be inadvertence) to ensure that its “allegations of fraud are directed at the contract as a whole and at the arbitration clause in particular,” id. (emphasis added), is judicial consideration of the fraud claim barred in favor of arbitration. This reading of Prima Paint seems to me quite inconsistent with the broad preference for enforcing arbitration clauses under modern law; and it places a premium on artful— even mechanical — pleading. Neither Prima Paint nor Moseley v. Electronic & Missile Facilities, 374 U.S. 167, 83 S.Ct. 1815, 10 L.Ed.2d 818 (1963), requires it. Prima Paint held that “in passing upon [an] application for a stay while the parties arbitrate, a federal court may consider only issues [such as fraud] relating to the making and performance of the agreement to arbitrate,” 388 U.S. at 404, 87 S.Ct. at 1806; it did not imply that when a plaintiff is *937smart enough to direct the same allegation of fraud to both the contract as a whole and the arbitration clause, the court may adjudicate the broader claim as incidental to (or identical with) the narrower. “[T]he statutory language does not permit the federal court to consider claims of fraud in the inducement of the contract generally.” Id. Moseley involved an allegation that the arbitration clause was a distinct means by which the defendant’s fraud was to be effected, 374 U.S. at 171, 83 S.Ct. at 1817; and, as the Sixth Circuit has noted, Moseley had unique facts — “elements of a contract of adhesion or of a gravely difficult and inconvenient forum [created by the arbitration clause].” Arnold v. Arnold Corp., 920 F.2d 1269, 1279 (6th Cir.1990). Read sensibly together, Moseley and Prima Paint will forestall arbitration only when there is “a ‘well-founded claim’ that the arbitration clause itself, standing apart from the agreement as a whole, was induced by fraud.” Id. (emphasis added). The present complaint has no such well-founded claim.
There is irony in the majority’s shying from my reading of Prima Paint (shared by at least four federal courts of appeals) and instead letting the court decide appellant’s claim of fraud, because the majority ends up relying on the same principles favoring enforcement of arbitration agreements that underlie Prima Paint to uphold dismissal here — though by a more circuitous and problematical route. The court engages in lengthy consideration of princi-pies of integration, merger clauses, the parol evidence rule, materiality and reasonable reliance, only to suggest in the end that these principles may not be dispositive outside the particular context of an agreement to arbitrate and the unwillingness of courts to let arbitration “be thwarted at the outset ‘upon the mere cry of fraud in the inducement.’ ” Ante at 924, 925 (citation omitted). My concern about this discussion is that the court’s reliance on the integration clause in this agreement and the parol evidence rule will be cut loose in the future from the narrow arbitration context here and be used to cast doubt on substantial precedent in this jurisdiction regarding claims of fraudulent inducement. It has long been the law that, despite the parol evidence rule, “false and fraudulent representations made to induce a contract, evidenced by a written agreement, may be introduced to defeat its enforcement.” First Nat'l Bank v. Fox, 40 App. D.C. 430, 436, cert. denied, 231 U.S. 751, 34 S.Ct. 322, 58 L.Ed. 466 (1913).1 The fact that a writing contains an integration clause, standing alone, has not generally been held sufficient to bar evidence of fraudulent inducement either in “commercial” contract disputes2 or in cases involving “consumer” fraud.3 The commentators unanimously agree.4 Those courts that have occasionally found an integration clause sufficient to bar evidence of prior fraud have relied on the presence of an express, usually quite explicit contractual term or disclaimer — nowhere to be found in this contract — that would have been directly contradicted by *938evidence of the alleged misrepresentation.5 This court’s decision in Tonn v. Philco Corp., 241 A.2d 442 (D.C.1968), is illustrative for there the written employment contract stating that the employment was for no definite term and could be terminated at any time expressly contradicted prior alleged oral representations that the plaintiff would be guaranteed employment for a fixed term.
I am afraid the majority’s opinion may be read to upset these principles whenever there is a completely integrated contract, even one evidenced by an integration clause as “wimpy” as this one, Astor Chauffeured Limousine Co. v. Runnfeldt Inv. Corp., 910 F.2d 1540, 1545 (7th Cir.1990), entered into by “sophisticated business institutions dealing with each other on a level playing field.” Ante at 932. Since I regard the court's entire analysis of the integration clause and parol evidence principles as unnecessary to decide this case, I respectfully concur in the judgment.

. Accord, King v. Industrial Bank of Washington, 474 A.2d 151, 155 (D.C.1984); Stamenich v. Markovic, 462 A.2d 452, 455 (D.C.1983); Ellis v. Morgan, 65 A.2d 797, 797 (D.C.Mun.App.1949); Smith v. O’Connor, 66 U.S.App.D.C. 367, 369, 88 F.2d 749, 751 (1936).

. Flippo Constr. Co. v. Mike Parks Diving Corp., 531 A.2d 263, 269 (D.C.1987); Scrimgeour v. Magazine, 429 A.2d 187, 188 & n. 1 (D.C.1981); Slater v. Berlin, 94 A.2d 38, 43 (D.C.Mun.App.1953); Robinson v. Carter, 77 A.2d 174, 177 (D.C.Mun.App.1950); Owen v. Schwartz, 85 U.S.App.D.C. 302, 308-09, 177 F.2d 641, 647-48 (1949).

. Rouse v. United States, 94 U.S.App.D.C. 386, 387, 215 F.2d 872, 873-74 (1954); Kraft v. Lowe, 77 A.2d 554, 557 (D.C.Mun.App.1950); Goldsten v. Burka, 43 A.2d 712, 713-14 (D.C.Mun.App.1945); see also Rice v. Rice, 415 A.2d 1378, 1382 (D.C.1980).

. 3 A. Corbin, Corbin on Contracts §§ 578, 580 (1960) (parol evidence admissible to establish that completely integrated contract was fraudulently induced); 2 E. Allan Farnsworth, Farns-worth on Contracts § 7.4 (1990) (integration clause ineffective to bar parol evidence of antecedent fraudulent misrepresentations); 5 S. Wil-liston, A Treatise on the Law of Contracts § 811 (1961) (merger clause ineffectual to preclude evidence of prior fraudulent misrepresentations); see also Restatement (Second) of Contracts § 214(d) & Comment c (1981); Restatement (Second) of Contracts § 238(b) (1932); 32A C.J.S. Evidence § 979 (1964).

. See, e.g., Danann Realty Corp. v. Harris, 5 N.Y.2d 317, 184 N.Y.S.2d 599, 157 N.E.2d 597 (1959).