Frank J. Pettinelli v. Edmund R. Danzig, 722 F.2d 706, 11th Cir. (1984)

722 F.
2d 706
Frank J. PETTINELLI, et al., Plaintiffs-Appellants,

v.
Edmund R. DANZIG, et al., Defendants-Appellees.
No. 82-3122.
United States Court of Appeals,

Eleventh Circuit.
Jan. 12, 1984.
Anthony N. Del Rosso, P.C., Mineola, N.Y., for plaintiffs-appellants.

Antinori & Thury, P.A., Paul Antinori, Jr., Tampa, Fla., Rives, Strohauer
& Teevan, P.A., Ronald P. Teevan, Clearwater, Fla., for defendantsappellees.
Appeal from the United States District Court for the Middle District of
Florida.
Before FAY and HENDERSON, Circuit Judges, and TUTTLE, Senior
Circuit Judge.
FAY, Circuit Judge:
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
that date and, therefore, affirm.

2
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.
Our presentation of the facts is gleaned from appellants' pleadings, affidavits

and memorandum in opposition to summary judgment. By drawing our facts
from these documents we will be considering the facts in the light most
favorable to the opponents of the motion. Adickes v. Kress & Co., 398 U.S.
144, 157, 90 S.Ct. 1598, 1608, 26 L.Ed.2d 142 (1970).
The appellees formed Skyway to develop property at Terra Ceia in Manatee

County, Florida. Between 1970 and 1972 some of the appellees convinced each
appellant to invest money or services in Skyway in exchange for yet to be
issued stock shares. To persuade appellants to invest in Skyway, appellees
represented that they owned the land which was appraised at twenty-six million
dollars and that they had already accumulated substantial revenues from other
investors. A development plan, including projections for local government
permit approval, was part of the presentation to appellants. The appellees
further represented that only five hundred shares of Skyway stock would be
issued and that each share would have one vote. Appellees would own 52% of
the stock, the appellants 29%, and 19% would be retained as treasury shares.
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
embodied in a written Agreement and Release. The Release provides in part:

7
That
in consideration of the issuance nunc pro tunc, as of the respective dates of the
aforesaid Purchase Agreements, by Skyway to the Purchasers of the following
shares of Skyway common capital stock, the Purchasers individually and
collectively for themselves, their heirs, personal representatives, successors and
assigns do hereby release, settle, cancel, discharge, remise and acknowledge to be
fully satisfied any and all claims, demands, rights, actions and cause of action of
every kind, nature and description whatsoever, known or unknown, which the
Purchasers, jointly or severally, may now have or hereafter have or assert against
Skyway, its present and past officers, directors, stockholders, employees and agents
arising out of actions or inactions of Skyway and of said persons which have
occurred to date; except any claims which they or any one or more of them may
have by way of derivative claim against John R. Albershardt, and as to this claim
they and each of them agree not to bring or cause to be brought any action thereon
without the written agreement of Skyway, and they hereby agree that no action shall
be brought on said claim other than by and on the decision of Skyway:
Name
-------------------Harry Skiadas
George Skiadas
Andre B. Buehler
Frank J. Pettinelli
Eugene F. Pettinelli
Anthony N. Del Rosso
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
Appellants also complain of misconduct and fraud subsequent to the Release;

specifically, failure to promptly allow inspection of the books according to the
Release provision. Any issues based on facts after the March 20, 1974 Release
are not relevant to our decision. The district court's partial summary judgment
order only limited the appellants' suit to events occurring after the Release,
therefore, all causes of action arising after the Release date may still be
litigated. Because the district court found that no facts were suggested that
showed the two corporate appellees were involved in any events after the
Release, full summary judgment was granted as to them.
11
Summary judgment is appropriate only "if the pleadings, depositions, answers

to interrogatories, and admissions on file, together with the affidavits, if any,
show that there is no genuine issue as to any material fact and that the moving
party is entitled to a judgment as a matter of law." Fed.R.Civ.P. 56(c). In this
case, the propriety of the summary judgment is determined by the substantive

ruling on the effect of the Release under Florida law. If the Release is such that
it precludes any inquiry into fraud in the inducement, then there can be no
factual dispute. If so, the only issue before the trial court was a legal one,
susceptible of summary judgment. Appellants' argument that the trial judge did
not consider the existence of questions of material fact in the light most
favorable to them would be moot for that rule only applies "when the parties'
dispute is factual." Federal Deposit Ins. Corp. v. Dye, 642 F.2d 837, 841 (5th
Cir.1981) (Unit B). Accordingly, we examine Florida law on fraud to determine
if the legal issue of fraud resolves any potential factual questions.
12
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
In attempting to prove fraud in the inducement in the instant case, the

appellants encounter two difficulties: first, showing that a material
misrepresentation was made; and second, demonstrating that they were in a
position to justifiably rely on any such representation. The Release agreement
states that this "Agreement and Release contains the understanding of the
parties." R. Vol. 2 at 355. Appellants argued in the district court and argue here
that notwithstanding this clause other representations not embodied in the
Release were made. Specifically, appellants assert that it was represented that
Skyway would pursue legal remedies against John Albershardt to recover stock
and would open its books for prompt inspection. Both of these matters were
fully addressed in the written agreement and cannot be altered with parol
evidence. No other examples or allegations of misrepresentation are offered by
the appellants. For purposes of showing fraud, it is sufficient to note that any
alleged representations made prior to the Release merge into the Release
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

Frank J. Pettinelli v. Edmund R. Danzig, 722 F.2d 706, 11th Cir. (1984)

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Frank J. Pettinelli v. Edmund R. Danzig, 722 F.2d 706, 11th Cir. (1984)

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722 F.

Frank J. PETTINELLI, et al., Plaintiffs-Appellants,

United States Court of Appeals,

Anthony N. Del Rosso, P.C., Mineola, N.Y., for plaintiffs-appellants.

that date and, therefore, affirm.

Our presentation of the facts is gleaned from appellants' pleadings, affidavits

The appellees formed Skyway to develop property at Terra Ceia in Manatee

embodied in a written Agreement and Release. The Release provides in part:

Appellants also complain of misconduct and fraud subsequent to the Release;

Summary judgment is appropriate only "if the pleadings, depositions, answers

case, the propriety of the summary judgment is determined by the substantive

In attempting to prove fraud in the inducement in the instant case, the

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