Michael P. Coakley, The Daily Record Newswire
On August 13, 1992, the Michigan Court of Appeals handed down its decision in Webb v. First of Michigan Corp., 195 Mich. App. 470.
Webb was an appeal of a summary disposition dismissing plaintiffs' securities fraud action which arose out of their purchase of a limited partnership interest in the public oil and gas partnership Damson Oil and Gas.
Plaintiffs claimed the broker who sold them the investment told them that it was risk free and to disregard the prospectus they were given, according to plaintiff, to "throw it in the trash." In connection with the purchase, however, the plaintiffs signed a one page disclosure statement that said in big bold letters "THIS SECURITY INVOLVES A HIGH DEGREE OF RISK" and warned they could lose their entire investment.
Not surprisingly, the trial court held, and the Court of Appeals affirmed, that the claim of fraud could not stand in the face of the plain warnings and disclosures in the documents particularly the one page disclosure document they signed.
Specifically, the court held "there can be no fraud where the means of knowledge regarding the truthfulness of the representation are available to the plaintiff and the degree of their utilization has not been prohibited by the defendant."
What was surprising about the case was that before Webb, there had not been in Michigan jurisprudence so clear an expression of this common sense rule.
Perhaps this is why in the past 20 some years Webb has been cited more thanb 330 times in various opinions, briefs, jury instructions, treatises and law review articles.
This article will explore some of the myriad ways in which Webb has been applied over the years since its publication.
Common law fraud requires a showing by clear and convincing evidence that "(1) defendant made a material representation; (2) it was false; (3) when it was made defendant knew it was false, or made it recklessly, without knowledge of its truth and as a positive assertion; (4) defendant made it with the intent it should be acted upon by plaintiff; (5) plaintiff did act in reliance upon it; and (6) plaintiff thereby suffered injury." Hi-Way Motor v. Int'l Harvester Co., 398 Mich. 330, 336 (1976). Each element is essential, so failure of any one of them is fatal to the fraud claim.
In various contexts courts relied on Webb to determine one or more of the essential elements of fraud failed.
Webb has been cited on every element of common law fraud:
(1) material representation of fact - McLean v. Countrywide, 75 Fed. R. Serv.3d (E.D. Mich. 2009);
(2) representation false - Miller v. Keystone Financial, 2000 WL 33529643 (2000);
(3) defendant knew false when made - Neimer v. Nationwide, 458 Fed. Appx. 420 (6th Cir. 2012);
(4) defendant intended plaintiff act on representation - Ypsilanti v. Meadwestvaco, 678 F.Supp.2d 553 (E.D. Mich. 2009);
(5) plaintiff relied on it - Midwest Aluminum v. General Electric, 1993 WL 725569 (W.D. Mich. 1993); and
(6) plaintiff suffered injury as a result of reliance on the representation - Meeker v. Comerica, 1997 WL 33349403 (Mich. App. 1997). These, of course are merely examples, many more cases cite Webb on the essential elements of common law fraud.
The settings in which Webb has been deployed are nearly boundless. They include: case evaluation sanctions, home refinancing, collection, restaurant purchase, franchise purchase, mortgages, guarantees, quiet title, residential property development, attendant care service benefits, failed business venture, Seller Disclosure Act, injunction, option to purchase, divorce, receivership, professional opinion, mineral rights, at-will employment, class certification, Fair Credit Reporting Act, Equal Credit Reporting Act, bankruptcy nondischargeability, jury instructions and the like.
In all these settings, courts applied Webb's common sense rule that there is no fraud when undertaking an action with one's eyes wide open.
What this demonstrates is that a clear expression of a simple straightforward rule is a gift to the jurisprudence in which it applies that just keeps giving. Try it on in any common law fraud case and it will be a sure guide to the correct and just result.
That is what Webb wove these 20 odd years.
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Michael P. Coakley is a principal at Miller Canfield in Detroit. He represents businesses in complex litigation and securities broker/dealers and stockbrokers in court, in arbitrations and before regulatory authorities.
Published: Tue, Feb 17, 2015
