Frank J. Pettinelli v. Edmund R. Danzig, 722 F.2d 706, 11th Cir. (1984)
Frank J. Pettinelli v. Edmund R. Danzig, 722 F.2d 706, 11th Cir. (1984)
2d 706
This stockholder's derivative suit arises out of the formation and capitalization
in the early 1970s of Skyway Development Corporation, a Florida land
development corporation. The appellants are investors in Skyway who allege
that the officers and directors of Skyway violated securities law (15 U.S.C.
Secs. 77a-77aa), and breached their fiduciary duties as corporate officials
causing dilution of appellants' stock. The appellants also allege that the
appellees fraudulently induced them to invest in Skyway. The defendants
moved for summary judgment which was granted for all actions or inactions
occurring before March 20, 1974. This is the date of a written "Agreement and
Release" that settled all claims between these parties prior to that date. The
district court denied summary judgment for issues surrounding events after that
date because factual issues may still exist for that period of time. We agree with
the district court that the 1974 Release conclusively resolves all claims prior to
Appellants raise two issues: (1) whether they were fraudulently induced to
execute the 1974 Release under Florida law; and (2) whether the district court
properly applied Federal Rule of Civil Procedure 56 in assessing the existence
or nonexistence of factual disputes.
After appellants invested their money and services no stock issued. As early as
1970, appellants made demand for the stock issuance and in 1972 they also
requested to examine the corporate by-laws and books. In May of 1972,
unannounced to the appellants, the Skyway board of directors met and decided
to offer the appellants a refund of their investment in lieu of stock or to offer
them a total of 375 shares. The Board also authorized issuance of one thousand
shares of Skyway stock. Appellants thereafter demanded stock issuance, an
accounting, and asked the board to institute a derivative action against the
appellees.
Since its inception, Skyway has had financial difficulties. In 1974 when
appellants were requesting a derivative action be brought, the Board, which is
substantially the appellees, indicated that a derivative suit could have an
adverse impact upon pending local government permit applications, mortgage
applications, and could cause cancellation of existing mortgages. Appellees and
appellants therefore negotiated a settlement on March 20, 1974 that was
Number of Shares
---------------25
25
10
10
50
10
R. Vol. 2 at 353 (emphasis added). The district court based its partial summary
judgment order on this Release.
10
11
The common law remedy for fraud requires that the plaintiff show that the
defendant (1) made a false representation of fact, (2) that the defendant knew
was false when made, and (3) that the representation was made for the purpose
of inducing the plaintiff to act in reliance of it. Cavic v. Grand Bahama Devel.
Co., Ltd., 701 F.2d 879 (11th Cir.1983), citing Hudak v. Economic Research
Analysts, Inc., 499 F.2d 996, 1000 (5th Cir.1974) quoting Poliakoff v. National
Emblem Ins. Co., 249 So.2d 477, 478 (Fla. 3d DCA 1971). The
misrepresentation must be about a present or past fact rather than a future fact.
Cameron v. Outdoor Resorts of America, Inc., 608 F.2d 187, 195 modified in
part on rehearing, 611 F.2d 105 (5th Cir.1979). Another element of common
law fraud was enunciated in Columbus Hotel Corp. v. Hotel Management Co.,
116 Fla. 464, 156 So. 893 (1934). In Columbus Hotel, the court ruled that
plaintiffs were not entitled to relief from a fraudulently procured contract
because the plaintiffs had no right to rely on the misrepresentations. Thus, in
addition to the enumerated three criteria, fraud requires a showing that the
plaintiffs had a right to rely on the representations.
13
clauses that address the same terms or representation.1 See, Jacksonville Paper
Co. v. Smith & Winchester Mfg. Co., 147 Fla. 311, 2 So.2d 890 (1941). If one
or both of these terms has not been performed then a breach of contract action
may be appropriate. Such an action would survive the partial summary
judgment as it would be based on events after the Release date.
14
Even if representations were made that were false and did induce the appellants
to enter into the Release in reliance thereon, such reliance was unjustified. In
Columbus Hotel, supra, the court prefaced its conclusion that reliance was
unjustified with a discussion of the parties involved in the contract. The parties
were both represented by counsel and were specifically advised not to rely on
any representations. 156 So. at 900. From the beginning of the negotiations it
was clear that the parties were in an adversarial relationship. Id. at 899.
15
In the instant case, the appellants include Anthony Del Rosso, a New York
attorney. He was involved in the negotiations and presumably had enough legal
acumen to understand and protect his own and other appellants' interests.
Throughout this negotiation period appellants knew from their own dealings
that they should not rely on any representations made by defendants.
Appellants also knew that by the Release terms, they would not know the
condition of Skyway until they inspected the books. Appellants did not insist
upon examining the books prior to the execution of the Release and did not
insist upon the insertion of any specific written representations as to the
financial condition of Skyway. As to action against Albershardt, appellants
granted all authority to Skyway in its exclusive discretion. When negotiating or
attempting to compromise an existing controversy over fraud and dishonesty it
is unreasonable to rely on representations made by the allegedly dishonest
parties. See Sutton v. Crane, 101 So.2d 823 (Fla. 2d DCA 1958). Thus, the
appellants have failed to make a prima facie case of fraud because they had no
legal right to rely on any representations under these circumstances. Further,
because the Release itself contains a merger clause appellants have not raised
any misrepresentation not covered by the Release upon which they were
fraudulently induced to enter the Release. We agree with the district court that
under Columbus Hotel, the appellants have not raised a genuine issue as to
fraud.
16
Florida law favors the finality of settlements. DeWitt v. Miami Transit Co., 95
So.2d 898 (Fla.1957); Lotspeich Co. v. Neogard Corp., 416 So.2d 1163 (Fla.
3d DCA 1982). In this case appellants contractually waived any right to
complain of events prior to March 20, 1974. Partial summary judgment was
correct because as a matter of law the appellants have failed to present any issue
which would support a prima facie case of fraud in the inducement. We agree
with the district court that no facts were introduced that involve the
corporations after the Release date, therefore, full summary judgment as to
them was proper. We emphasize that performance under or breach of the terms
of the Release, and any fraud after the Release date, may still be litigated.
17
AFFIRMED.
In Bleemer v. Keenan Motors, Inc., 367 So.2d 1036 (Fla. 3d DCA 1979) an
exception to the merger rule was made. The court first announced the general
rule that "representations and negotiations which precede and accompany the
making of contracts are presumed to have merged into the written contract,"
however, the merger rule "has no application where the legal existence or
binding force of the instrument is in question." Id. at 1038. In the instant case,
appellants have not contested the legal existence of the 1974 Release, therefore,
the Bleemer exception does not apply