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fraud

A General Release is Not Absolute

Posted by David Adelstein on May 27, 2019
Trial Perspectives / Comments Off on A General Release is Not Absolute

General releases, unfortunately, are not absoluteA recent ruling from the Third District Court of Appeal in Falsetto v. Liss, 44 Fla. L. Weekly D1340d (Fla. 3d DCA 2019) confirms this point, although, candidly, I have mixed feelings regarding this ruling.   

In this case, the Court held that the term “unknown” in a general release is not synonymous with the term “unaccrued;” thus, a release of an unknown claim does not mean a release of an unaccrued claim.  In theory, this makes sense since a future claim should not be barred.  It is one thing if the facts giving rise to the claim occurred AFTER the execution of the release such that the release does not cover circumstances arising from these facts.  It is another if the facts giving rise to the claim occurred BEFORE the execution of the release.  In the latter case, such claims should be included by virtue of the general release which is the reason why the word “unknown” is included, at least in my opinion.  The Court, however, found differently.

In Falsetto, parties entered into a release that included the release of past and present claims, “known and unknown.”  This is common language in a general release. 

A subsequent dispute arose between the parties and one of the parties counter-sued for fraud based on facts that occurred prior to the date in the release. The party, however, claimed it did not learn about the facts surrounding the fraud until the subsequent lawsuit. The Court held that because a fraud claim “accrues” when the last element occurs or “when the plaintiff knew, or through the exercise of due diligence should have known, of the facts constituting the fraud,” there was a factual issue as to when the fraud claim accrued.  Falsetto, supra (internal citation and quotation omitted).   Accordingly, the party asserting the fraud argued that while the facts may have taken place before the date in the general release, it did not know or learn about the fraud until after-the-fact–the fraud did not accrue until the party learned of the fraud.  The other party is now forced to argue that the party “knew or should have known” about the fraud, which in my opinion, results in a watering down effect of a general release. With a general release, the parties are looking for closure through the date of the release. This closure becomes difficult if the word “unknown” is going to be cast aside if a claim, such as fraud, did not accrue until after-the-fact based on a party learning of the fraud, even though the facts predate the release.

The safe play now is to add the phrase “known or unknown and accrued or unaccrued” in the general release to avoid this issue.   But, in fairness, this language also creates problems because a release through a set date should not operate to bar claims that occur after the release and no party should realistically want a release to be broadly construed to release a future claim that did not arise until after the release. 

 

 

 

Please contact David Adelstein at dadelstein@gmail.com or (954) 361-4720 if you have questions or would like more information regarding this article. You can follow David Adelstein on Twitter @DavidAdelstein1.

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Proving ALL of the Elements of a Fraudulent or Negligent Misrepresentation Claim

Posted by David Adelstein on November 24, 2017
Trial Perspectives / Comments Off on Proving ALL of the Elements of a Fraudulent or Negligent Misrepresentation Claim

Fraud claims are hard to prove. Any fraud claim or claim predicated on a misrepresentation is an intentional tort; therefore, it requires proof that the defendant had the intent to induce the plaintiff to act on a misrepresentation and the plaintiff actually relied on and acted on the misrepresentation. While fraud-type claims are perhaps commonly pled, pleading a fraud-type claim and proving a fraud-type claim are two different things. A party can plead a fraud-type claim to get passed a motion to dismiss. Proving the fraud-type claim, however, is a different story. Plaintiffs need to understand the elements they are required to prove so they know the evidence they need to introduce at trial to satisfy the elements and, hence, their required burden of proof. Likewise, defendants also need to understand the elements so that they can move for a directed verdict and preserve any appellate issue. 

An example of the difficulty in proving a fraud claim can be found in Arlington Pebble Creek, LLC v. Campus Edge Condominium Association, Inc., 42 Fla. L. Weekly D2370a (Fla. 1st DCA 2017).   Here, the defendants converted an apartment complex into a condominium and sold the condominium units. The unit owners took control of the condominium association from the defendants. The association then sued the defendants claiming that they knew of water intrusion problems, failed to fully remedy the problems, and turned over the association to the unit owners knowing the association would incur huge expense in upkeep and preserving common areas.

The association sued the defendants for both fraudulent misrepresentation and negligent misrepresentation.

A claim for fraudulent misrepresentation requires the association to prove the following four elements: 1) the defendants committed a false statement of a material fact (a misrepresentation); 2) the defendants knew the representation was false; 3) the defendants intended that the misrepresentation would induce the association to act on it; and 4) the association was injured acting in reliance on the misrepresentation. Arlington Pebble Creek, supra.

A claim for negligent misrepresentation requires the association to prove the following four elements: 1) the defendants committed a false statement of material fact that they believed to be true but was in fact false (a misrepresentation); 2) the defendants should have known the representation was false; 3) the defendants intended to induce the association to act on the misrepresentation; and 4) the association acted in justifiable reliance on the misrepresentation causing injury to the association. Arlington Pebble Creek, supra.

During trial, the defendants moved for a directed verdict arguing the plaintiff failed to prove all of the elements of a fraudulent or negligent misrepresentation claim. “‘A direct verdict is proper when the evidence and all inferences from the evidence, considered in the light most favorable to the non-moving party, support the movant’s case as a matter of law and there is no evidence to rebut it.’” Arlington Pebble Creek, supra, quoting Wald v. Grainger, 64 So.3d 1201, 1205 (Fla. 2011).  The trial court denied the defendants’ motion for a directed verdict and ultimately a jury verdict and final judgment was entered against the defendants. The defendants appealed the trial court’s denial of their motion for directed verdict.  

The appellate court reversed the final judgment directing the trial court to enter judgment in favor of the defendants because the association did not prove all of the required elements of either a fraudulent misrepresentation or negligent misrepresentation claim. Specifically, the association failed to prove the third and fourth elements of the claims.   The association failed to prove any evidence of intent by the defendants or that the defendants induced reliance by the association—there was also no evidence that the association actually relied on any misrepresentation.

Please contact David Adelstein at dadelstein@gmail.com or (954) 361-4720 if you have questions or would like more information regarding this article. You can follow David Adelstein on Twitter @DavidAdelstein1.

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Fraud in the Performance of a Contract

Posted by David Adelstein on May 14, 2017
Trial Perspectives / Comments Off on Fraud in the Performance of a Contract

Claims for fraudulent inducement and fraudulent misrepresentation are claims that are oftentimes pled despite there being a contract being the parties. Besides these claims being fact-based and challenging to prove in certain instances, they are harder when there is a contract between the parties. Fraud is only actionable if it is separate and distinct from the contract. In other words, fraud needs to give rise to a tort claim independent of the contract; a breach of contract is not fraud because the fraud is not independent of the contractual breach. See Peebles v. Puig, 42 Fla.L.Weekly D1080a (Fla. 3d DCA 2017).

The Peebles case illustrates this situation.   Here, a real estate agent was under contract with a developer to sell high-end condominium units; in exchange she would get a commission. Her employment contract was later assigned to an exclusive brokerage firm for the developer. Purchasers of these high-end units wanted to re-sell their units to other buyers. The real estate agent understood and was told by the principal of the brokerage firm (who was also a principal of the developer) that she would get commission on the re-sale of such units. As such, she helped re-sell more than 20 of these units. The brokerage firm later argued she was not entitled to such commission on the re-sale of units, which resulted in this lawsuit for unpaid commissions. One of the claims asserted was a fraudulent representation claim against the principal of the brokerage firm / developer based on what he represented to the agent that induced her to re-sell units. (Notably, the brokerage firm filed for bankruptcy at some point making the fraud claim against the principal the likely only avenue of actual monetary recovery.)

A jury returned a verdict in favor of the real estate agent on her fraud claim against the principal. However, this was reversed on appeal because the agent’s damages (lost commission) were not independent of the breach of her employment contract.   The Third District explained: “As reprehensible as the jury may have found Peebles’s [principal] actions to be, those actions neither converted Puig’s [real estate agent] claim for contract damages into a claim for tort damages, nor imposed on Peebles personal liability for PADC’s [brokerage firm] contractual obligations.” See Peebles, supra.  Stated differently, the real estate agent’s claim was based on alleged fraud during the performance of her contractual duties. However, her damages were not independent of the contract; her damages were predicated on lost commission. Thus, her damages were based on a contractual breach and not separate and distinct conduct giving rise to independent damages.

This appears to be a case of lawyers doing a good job trying to maximize the collection of payment for their client through the pursuit of a fraud claim.  While the facts where there to support the terrible conduct of the principal, the facts simply bolstered a contractual breach, but not an avenue to pursue independent personal liability.   

 

Please contact David Adelstein at dadelstein@gmail.com or (954) 361-4720 if you have questions or would like more information regarding this article. You can follow David Adelstein on Twitter @DavidAdelstein1.

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