Fraud: Failure to Disclose (Part III)

The second part of the court’s ruling in Hoffman v. 162 North Wolfe, LLC dealt with justifiable reliance in a failure to disclose lawsuit.

“A plaintiff establishes reliance ‘when the misrepresentation or nondisclosure was an immediate cause of the plaintiff’s conduct which altered his or her legal relations, and when without such misrepresentation or nondisclosure he or she would not, in all reasonable probability, have entered into the contract or other transaction.”

A plaintiff must then show that the reliance was reasonable “by showing that (1) the matter was material in the sense that a reasonable person would find it important in determining how he or she would act, and (2) it was reasonable for the plaintiff to have relied on the misrepresentation. Although a plaintiff’s negligence in failing to discovery the falsity of the statement or the suppressed information is not a defense to fraud, a plaintiff’s particular knowledge and experience should be considered in determining whether the reliance upon the misrepresentation or nondisclosure was justified.” The court cites to an example where an attorney signs a release before horseback riding, is injured and then claims that the defendant told her the release was meaningless. An attorney could not justifiably rely on such a statement.

Generally whether reliance is justifiable is a question of fact but it may be one of law “if reasonable minds can come to only one conclusion based on the facts.” Summary judgment or summary adjudication is appropriate in those situations.

In the Hoffman case the plaintiff contends that he told the neighboring property owner that he didn’t want vehicles crossing the property line and traversing his property. The neighbor allegedly said, “No problem. We’ll take care of it.” However, it was undisputed that the vehicles continued passing over the Hoffman’s land and that is was a ‘common occurrence’. The court held that the statement was ‘arguably insufficient, of itself, for the Hoffmans to have justifably relied’ but, assuming that it was, it was unreasonable for the Hoffmans to rely on it.

Hoffman was an experienced real estate agent who had owned several businesses and owned several pieces of real property. His failure to make further inquiry was unreasonable. “Thus, even assuming there was a legal duty of disclosure on the part of 162 LLC due to the existence of a relationship with the Hoffmans, summary adjudication of the second cause of action was appropriate because of the failure of the Hoffmans to present evidence of justifiable reliance.”

Real estate litigation attorneys who handle failure to disclose lawsuits will tell you that the justifiable reliance element of the case can often be the most difficult to prove.