Court Opinion

ID: 9781361
Source: CourtListenerOpinion
Date Created: 2023-08-30 16:33:12.782088+00
Date Added: 2024-06-11T07:34:25.146610
License: Public Domain

BRYNER, Justice,
with whom CARPENETI Justice, joins, dissenting.
The erux of Hannaman's attempt to avoid his settlement is his assertion that the McLeeses fraudulently misrepresented their compliance with the settlement's requirements and induced him to sign through their fraud. In rejecting this claim on summary judgment, the superior court found that the record failed to support it. I would affirm the superior court's ruling.
As today's opinion acknowledges, Hanna-man's claim of fraudulent inducement required him to prove four separate elements: misrepresentation, fraud (or at least materiality), inducement, and justified reliance.1 To withstand the McLeeses' motion for summary judgment, then, Hannaman needed to offer at least some evidence supporting each of these elements. Although the record in this case might be construed to meet Hanuna-man's threshold burden as to the first three elements, I fail to see how it provides any glimmer of hope on the final element: justified reliance.
The undisputed facts before the superior court establish that over the summer of 1998 Hannaman became embroiled in a dispute in which he accused the McLeeses of participating in an ongoing course of fraudulent conduct by concealing and converting his corporate assets-ICE's records, its equipment, and its work. The McLeeses adamantly denied any wrongdoing, repeatedly asserted that they had no significant corporate property, and consistently refused to cooperate with Hannaman's demands for information. Frustrated by the McLeeses' denial and resistance, Hannaman eventually negotiated an oral agreement to settle his claims on condition that the McLeeses return whatever corporate records and property they had in their possession. The following month, after Hannaman had an opportunity to ensure that the McLeeses met these conditions, the parties formalized their arrangement by signing a detailed settlement contract that mutually released all past and future foreseeable claims. As part of the written settlement contract, Hannaman expressly acknowledged that the MclLeeses had performed all their obligations under the agreement. Beyond that, the contract disavowed Hannaman's reliance on representations by the McLeeses and stated that Hannaman had been given ample time to confirm the McLeeses' compliance. Moreover, the contract sought to avert any future allegations that the McLees-es had misrepresented their compliance with the agreement, unequivocally requiring Han-naman to bear the risk of noncompliance: "[Tlo the extent that Rick L. McLees has not tendered full and satisfactory performance of all such obligations [under the settlement agreement], Michael Hannaman ... hereby waive[s] and release{s] Rick L. McLees from any further obligation."
Hannaman now seeks to avoid the consequences of this agreement by offering the affidavit of Grant Watts, the attorney who represented him at the time of the settlement. Watts avers that just before the settlement was signed, he asked the McLeeses a series of questions designed to elicit assurances that they had fully complied with the agreement; then, according to Watts, he told the McLeeses' attorney "that ICE and Mr. Hannaman were relying upon the representations on the part of Rick and Janet McLees in regards to signing the [agreement]." Hannaman then signed the settlement contract, whose express terms disclaimed reli*603ance on any representations by the MclLees-es.
Surely a prima facie case of justified reliance requires something more than this. As a matter of law, the terms of the parties' fully integrated written agreement could not have been modified by Watts's unilateral and self-serving oral assertion of Hannaman's intent to rely on the McLeeses' assurances. Nor, as a matter of fact, could Watts's nudge-nudge, wink-wink assertion of intended reliance support a reasonable inference that Hannaman's reliance would be justified given the undisputed language of the settlement contract-particularly its express diss-vowal of any reliance on the McLeesesg' representations.
In fact, it seems hard to imagine any weaker evidence purporting to show that the McelLeeses' last-minute assurances caused Hannaman to be justifiably-that is, reasonably-misled into surrendering all future claims against them (including claims for misrepresentation). For if Hannaman genuinely believed the allegations he had himself repeatedly leveled against the McLeeses-over their constant assurances of innocence-during the months preceding the settlement, then it seems fair to wonder how another round of the same assurances moments before signing the settlement agreement could have reasonably induced him to settle. Would any reasonably prudent person in Hannaman's shoes have been misled by the McLeeses' statements? The obvious answer is no. It defies common sense to think that a fair-minded person could infer, on this evidence alone, that Hannaman's reliance was justified.
The basic proposition is simple: Hanna-man cannot wilfully blind himself to the telltale presence of potential fraud in settling with the McLeeses, and then plausibly blame the McLeeses for his failure to see it.
Abundant case law joins common sense to support this conclusion. The Virginia Supreme Court, Eleventh Cireuit, Florida Supreme Court, Second Circuit, and Indiana appellate courts have all held that justified reliance generally cannot be found when a party who has settled a dispute over alleged dishonesty later claims to have been misled by false assurances of honesty on the part of the allegedly dishonest party.
In Metrocall of Delaware, Inc. v. Continental Cellular Corp.,2 a group of minority shareholders sued a majority shareholder, alleging self-dealing, failure to disclose information, and other fraudulent and dishonest acts. The litigation settled, with all parties executing a general release. The minority shareholders later discovered that at the time of the settlement the majority shareholder did not disclose that it was in negotiations to sell the company. The minority shareholders filed a second lawsuit, alleging that the majority shareholder had fraudulently induced them to settle. But the Supreme Court of Virginia rejected this claim, holding that the minority shareholders' fraudulent-inducement claim failed because they could not justifiably have relied on the majority shareholder's representations at the time of settlement3 Observing that the fraud alleged in the second lawsuit was within the seope of the broad release contained in the settlement,4 the court ruled as a matter of law that "when negotiating or attempting to compromise an existing controversy over fraud, dishonesty, and self-dealing, it is unreasonable to rely on the representations of the allegedly dishonest party." 5
Two federal cases interpreting Florida law have upheld the same proposition. In Pettinelli v. Danzig,6 the Eleventh Cireuit considered a Florida case in which the plaintiff-appellants were investors who settled an unl-itigated dispute with a company's officers in which the investors alleged that the officers had fraudulently induced them to invest. The settlement agreement included a release of all claims arising out of actions up to the date of the settlement. The investors later sought to rescind the settlement as fraudu*604lently induced. But the Eleventh Cireuit ruled that even if the officers had made material misrepresentations, the investors could not justifiably rely on them. The court emphasized that one of the investors was an attorney who should have understood the consequences of the release and that the investors had not insisted on examining the company's books before signing the release. The court therefore affirmed summary judgment for the defendants, holding, just as the Virginia Supreme Court did in Metrocall, that in settling a claim of dishonesty or fraud the accusing party may not justifiably rely on the allegedly fraudulent party's representations.7
Another Eleventh Cireuit decision, Mergens v. Dreyfoos,8 considered a case in which former minority shareholders executed a stock repurchase agreement with the majority; the agreement included a general release clause applicable to all claims accrued as of the day of the agreement. The shareholders claimed that they had been told by the company that it did not contemplate any sales of its assets. The former shareholders then learned the very next day that the company had made a very profitable sale of an asset. The former shareholders sued for fraud. The court noted that before executing the agreement, the plaintiffs had complained that the defendants were mismanaging the corporation and wasting its assets, and had threatened to sue the majority shareholders if they refused to buy back the minority's shares. The parties thus had a pre-existing adversarial relationship before signing the release, and they signed the release in light of the threatened legal action. Observing that in these cireumstances "[a] more untrusting relationship is difficult to imagine," the court concluded that reliance by the plaintiffs was unjustified as a matter of law.9
In Bellefonte Re Insurance Co. v. Argonaut Insurance Co.,10 the Second Circuit, applying New York law, considered an analogous claim and reached the same conclusion, holding that "Plaintiffs cannot freely, and for consideration, promise not to sue for failure to disclose material facts and then claim that the promise was fraudulently induced because material information was, in fact, not disclosed."11
Indiana follows the same rule. In Prall v. Indiana National Bank, for example, the Indiana Court of Appeals found a claim of fraudulent inducement barred in a case arising out of a previously settled claim of fraud, noting that, even if the plaintiff had not disclaimed reliance on the defendant's representations in settling the prior claim, reliance on those representations would not have been justified in an arm's-length settlement negotiated by a represented plaintiff.12
A few seattered cases point in the opposite direction, resting their rulings on the proposition that the reasonableness of a plaintiff's reliance always presents a question of fact *605for the jury.13 The court today implicitly follows this minority position, effectively holding that, once the plaintiff produces some evidence of actual reliance, the issue of justification can never be decided on summary judgment. Yet we have declined to follow this categorical view in analogous cases and have generally recognized that issues of fact such as this may properly be resolved on summary judgment if the undisputed evidence would allow a fair-minded person to draw only one reasonable inference.14
Moreover, the minority view squarely conflicts with the Restatement. Restatement § 164 describes justified reliance as a factual element that the claimant must prove to avoid a contract on the ground of inducement by fraud. I see no reason to conclude that this issue of fact is immune from being decided on summary judgment when the claimant's own evidence of justified reliance categorically rules out the existence of justification.
Sound policy, too, supports the conclusion that no reasonable inference of justification can arise under the cireumstances at issue here. Parties accused of fraud would rarely if ever be encouraged to settle their claims out of court if they knew that the law routinely allowed accusers to set these settlements aside merely by advancing conclusory assertions of unfair inducement by the allegedly fraudulent party's purportedly fraudulent denials of fraud. It might be argued, of course, that the minority view reflected in today's opinion advances the competing goal of protecting the rights of all settling parties to rely on the good faith of their opponents in settlement negotiations. Yet this otherwise laudable goal has anomalous consequences and ultimately proves self-defeating if the presumption of good faith is applied too rigidly to settlements involving accusations of bad faith and fraud; for in this unique setting it inherently tends to operate one-sidedly, and so to preclude settlements, by exposing accused parties, at their accusérs' option, to ever-renewable claims of misrepresentation. Because it seems to me that Hanna-man has failed to produce any material evidence raising an inference that he justifiably relied on the McLeeses' purportedly fraudulent pre-settlement statements, I would affirm the superior court's order granting the MclLeeses' motion for summary judgment.

. Restatement (Seconp) or Contracts § 164 (1981).

. 246 Va. 365, 437 S.E.2d 189 (1993).

. Id. at 194.

. Id.

. Id. at 195.

. 722 F.2d 706 (11th Cir.1984).

. Id. at 710; see also Mergens v. Dreyfoos, 166 F.3d 1114 (11th Cir.1999); Florida Evergreen Foliage v. E.I. DuPont De Nemours Co., 135 F.Supp.2d 1271 (S.D.Fla.2001); Somerset Pharmaceuticals, Inc. Gunster, Yoakley, Valdes-Fault & Stewart, v. Kimball, 49 F.Supp.2d 1335 (M.D.Fla.1999); Hall v. Burger King Corp., 912 F.Supp. 1509 (S.D.Fla.1995).

. 166 F.3d 1114 (11th Cir.1999).

. Id. at 1118; see also Florida Evergreen Foliage, 135 F.Supp.2d at 1289-90; Somerset Pharmaceuticals, Inc., 49 F.Supp.2d ai 1340; Hall, 912 F.Supp. at 1524-25.

. 757 F.2d 523 (2d Cir.1985).

. Id. at 526 (citing Bellefonte Re Ins. Co. v. Argonaut Ins. Co., 581 F.Supp. 241, 244 (S.D.N.Y.1984)).

. 627 N.E.2d 1374, 1378-79 (Ind.App.1994); see also Circle Centre Dev. Co. v. Y/G Indiana, L.P., 762 N.E.2d 176 (Ind.App.2002). Courts in other states have reached similar conclusions. See, e.g., Wender & Roberts, Inc. v. Wender, 238 Ga.App. 355, 360, 518 S.E.2d 154 (1999) (claim of reliance in dispute involving fraud unjustified as a matter of law because, "[in order for a genuine issue of material fact to exist as to justifiable reliance, there must be some evidence that the president and the company exercised their duty of due diligence to ascertain the truth of the maiter"); Davis v. Davis, 422 Pa.Super. 410, 417-18, 619 A.2d 743 (1993) (rejecting fraudulent inducement claim as a matter of law given adversarial nature of the parties' relationship and fact that claimant was represented by counsel).

. See, e.g., Chase v. Dow Chemical Co., 875 F.2d 278, 283 (10th Cir.1989); Sims v. Tezak, 296 Ill.App.3d 503, 230 Ill.Dec. 737, 694 N.E.2d 1015, 1020-21 (1998); see also Matsuura v. E.I. Du Pont De Nemours & Co., 102 Hawai'i 149, 73 P.3d 687, 701-02 (2003).

. For instance, in Arctic Tug & Barge, Inc. v. Raleigh, Schwarz & Powell, 956 P.2d 1199, 1203-04 (Alaska 1998), we affirmed the summary dismissal of a claim for negligent misrepresentation when undisputed evidence showed conduct falling outside the scope of the duty allegedly breached; we observed that dismissal on summary judgment was proper on this issue because the undisputed record permitted only one reasonable inference. Hannaman's claim is closely analogous: In Arctic Tug the plaintiff alleged negligent breach of a duty when no reasonable inference of the duty's existence arose under the circumstances alleged by the plaintiff; here, similarly, Hannaman claims justifiable reliance when no reasonable inference of justification arises under his asserted facts. See also Dinsmore-Poff v. Alvord, 972 P.2d 978, 987 (Alaska 1999).