Florida Business Litigation Lawyer Blog
“Fool me once, shame on you. Fool me twice, shame on me,” is common sense. It also is a principle of law recently affirmed by the U.S. Court of Appeals for the Eleventh Circuit. Parties that claim that they were defrauded by another generally cannot claim fraud a second time based upon later misrepresentations. This is because a party generally cannot reasonably rely on representations from another party which had already been accused of fraud. Peter Mavrick is a Miami business litigation lawyer, and also represents clients in business litigation in Fort Lauderdale, Boca Raton, and Palm Beach. The Mavrick Law Firm represents clients in breach of contract litigation, non-compete agreement litigation, trade secret litigation, trademark infringement litigation, and other legal disputes in federal and state courts and in arbitration.
“Reasonable reliance” is a critical element of most, if not all, fraud-like claims. Generally, a plaintiff cannot claim to have been tricked into taking an action by a defendant’s representations if the reliance on those representations was not reasonable. Whether a plaintiff will prevail in litigation involving fraud often depends on whether it is reasonable that a particular representation would be relied upon. For example, representations of opinion and “sales puffery” are types of statements which a plaintiff generally cannot rely on. Puffery is an exaggerated statement to convey a selling point, but which is not a specific factual statement (e.g. a plaintiff would likely be unsuccessful suing Disneyworld for failing to be the “happiest place on earth,” despite that slogan being advertised. Carvelli v. Ocwen Fin. Corp., 934 F.3d 1307, 1318 (11th Cir. 2019) (“Puffery comprises generalized, vague, nonquantifiable statements of corporate optimism”); Puffery, Black’s Law Dictionary 1428 (10th ed. 2014) (an “expression of an exaggerated opinion—as opposed to a factual misrepresentation—with the intent to sell a good or service”).
Importantly, a business litigation defendant in that is able to show that it was unreasonable for a plaintiff to rely on a statement can get fraud claims dismissed or adjudicated early in summary judgment. When a defendant disputes whether its agents actually made a particular representation, that issue is often only determinable at trial through the presentation of testimony. Thus, it will usually be significantly less costly to prevail on an argument that a plaintiff could not have reasonably relied on a statement compared to prevailing on an argument that the statement was never made. Because of this, even completely honest defendants are incentivized to argue that it would be unreasonable to rely on their statements.
Another category of circumstances which one cannot reasonably claim reliance is when crime fraud plaintiffs claim fraud against a party that the plaintiffs had previously claimed defrauded them. “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.” Pettinelli v. Danzig, 722 F.2d 706 (11th Cir. 1984). Thus,“a settlement fraud claimant cannot prove reasonable reliance on a party’s misrepresentations if he settles a dispute involving accusations that the other party was guilty of fraud or other dishonest conduct.” Green Leaf Nursery v. E.I. DuPont De Nemours & Co., 341 F.3d 1292 (11th Cir. 2003).
While this principle may seem obvious when applied to individuals, it may be unexpected when applied to businesses. Because businesses are comprised of various individuals, one might not expect that fraud enacted by one agent would essentially be imputed to other agents of that same business. While this might be a successful argument in future cases, it is not a reliable argument. Courts have concluded that even attorneys in business litigation can qualify for this exception.
Simply because the misrepresentations occurred during litigation does not render reliance upon them reasonable. This is especially so given the extremely adversarial positions of the parties in the Underlying Litigation and the large number of cases around the country, which the Plaintiffs were continually monitoring, in which Dupont was being accused of discovery violations involving the concealment and destruction of evidence.
Green Leaf Nursery v. E.I. DuPont De Nemours & Co., 341 F.3d 1292 (11th Cir. 2003)
Recent case law before the United States Court of Appeals for the Eleventh Circuit clarified the types of circumstances which a party in business litigation could not have reasonably relied on a statement as a matter of law. In Affiliati Network, Inc. v. Wanamaker, 20-10085, 2021 WL 567656 (11th Cir. Feb. 16, 2021), the appellate court was evaluating whether it was reasonable to rely on statements made by the opposing party once that party had already been accused of fraud. The plaintiff in Affiliati was a marketing company which had made a deal with the defendant, a fitness supplement company, to market supplements in exchange for commissions. The plaintiff marketing company sued the defendant supplement company for commissions, while the defendant claimed that the plaintiff had used fraudulent advertising tactics to solicit customers. Allegedly, the plaintiff marketing company falsely stated that its products were endorsed by celebrities, used intellectual property owned by the NFL, and obscured the terms and conditions to increase sales. As a result, defendant supplement company asserted that it had experienced significant losses from chargebacks and returns from dissatisfied customers. The parties eventually entered into a settlement agreement which required the defendant supplement company to pay $1.4 million dollars and the parties agreed not to disparage each other.
Soon after the settlement agreement was entered, the defendant supplement company learned that one of the plaintiff’s affiliates who had been working on the defendant’s ad campaign was charged with conspiracy to commit advertising fraud and money laundering. The defendant supplement company cooperated with the Florida attorney general to help uncover the extent of the advertising fraud. Plaintiff marketing company then sued the defendant for breaching the non-disparagement provision. Defendant supplement company sought to have the settlement agreement voided, claiming that the plaintiff marketing company made misrepresentations in discovery which induced the defendant into settling. The trial court dismissed the supplement company’s counterclaim. Affiliati concluded that, “although discovery misconduct may support a claim of recission under certain circumstances, it does not allow a party to assert independent settlement fraud claims against a dishonest party with whom it has settled prior claims for fraud.” Affiliati Network, Inc. v. Wanamaker, 20-10085, 2021 WL 567656 (11th Cir. Feb. 16, 2021).
A party in litigation should be wary of dealing with adversaries which that party accused of fraud. Courts may bar that party from pursuing fraud against those adversaries. Peter Mavrick is a Miami-Dade business litigation attorney who also practices business litigation in Fort Lauderdale, Boca Raton, and Palm Beach. This article does not serve as a substitute for legal advice tailored to a particular situation.