Can omission of an intent to terminate a line of business be actionable?
Oliver v. Ford Motor Credit Co., 2013 WL 3971057 (Mo. Ct. App. W.D.), examines alleged omission of a plan to terminate wholesale financing for Mazda dealers, in connection with the purchase of a Mazda dealership. The buyer of the dealership alleges the finance arm sought to facilitate another firm’s sale of a Mazda dealership in connection with addressing financial difficulties of the dealership to be sold and another dealership. The buyer’s brief further references an allegation concerning what the brief describes as a “promise of permanent, captive financing”.
The brief further references allegations that the purchase of the dealership was consummated in late 2007 and that, less than a year later, the dealership received notice indicating the financing would be terminated. The brief makes reference to allegations the financing arm had plans, in some stage of formulation and development, at the time the dealership was purchased, as to terminating financing at some time in the future.
Of course, this author cannot express a view as to the actual facts. So, no view on the actual facts is presented here. Rather, let us focus on an aspect of the way the brief discusses claims and the lower court’s treatment of some claims.
More after the break …
Here’s part of what the brief (at page 21) has to say as to a claim of an improper omission:
… [T]he court refused, over Plaintiffs’ objection, to submit any verdict-directing instruction on fraud by silence or omission, and specifically refused the following instruction offered by Plaintiffs:
Your verdict must be for Plaintiffs if you believe:
First, FMCC had superior knowledge, at the time Plaintiffs signed documents to purchase the Mazda dealership, that FMCC planned to terminate wholesale financing for Mazda dealers including Plaintiffs, and such knowledge was not reasonably available to Plaintiffs, and
Second, FMCC was silent about such knowledge, and
Third, FMCC intended that Plaintiffs rely on such silence in purchasing and taking over the operations of Rob Sight Mazda and in paying for the dealership building, real estate, and equipment of Rob Sight Mazda, and
Fourth, the representation was false, and
Fifth, FMCC knew it was false at the time the representation was made, and
Sixth, the representation was material to Plaintiffs’ purchasing and taking over the operations of Rob Sight Mazda and paying for the dealership building, real estate, and equipment of Rob Sight Mazda, and
Seventh, Plaintiffs relied on the representation in purchasing and taking over the operations of Rob Sight Mazda and paying for the dealership building, real estate, and equipment of Rob Sight Mazda, and such reliance was reasonable under the circumstances, and
Eighth, such representation directly caused or directly contributed to cause damage to the Plaintiffs.
(Tr. 1583:15-1584:16; LF 1560-61; App. at A8) The court also refused to submit a similar instruction on negligent misrepresentation by omission ….
Detour–Stray Reference to “Representation” in the Instruction
Let us note an anomaly that caused this author to pause, understanding that it is not really at the heart of the analysis. The proposed instructions in paragraph fourth makes reference to “the representation”. The reference to “the representation” is awkward, because there has not been an actual representation (at least in the ordinary meaning of the phrase). Of course, Restatement (Second) of Torts § 551 (1) addresses this linguistic problem by treating the actionable omission as if the alleged wrongdoer “as though he had represented the nonexistence of the matter that he has failed to disclose”.
Non-Disclosure of Business Plans–Authority Supporting Actionability
However, putting aside this quibble as to the language of the proposed jury instruction, the brief properly cites Hess v. Chase Manhattan Bank, USA,, 220 S.W.3d 758 (Mo. banc 2007), recent Missouri authority governing non-disclosure (in that case, if your author’s recollection is not failing him, as to environmental conditions on property the bank sold).
Of course, there is a variety of authority addressing non-disclosure of information in connection with ongoing relationships such as distributorships. See, for example, Bak-A-Lum Corp. v. Alcoa Building Prods., 69 N.J. 123 (1976), discussing allegations of a withholding of plans to terminate an exclusive distributorship.
Special [?] Kaloti
In teaching the law, one has the opportunity to encounter recent developments throughout the United States. One of the cases that caught this author’s attention a few years ago (in connection with teaching Business Torts in 2009) is Kaloti Enterprises, Inc. v. Kellogg Sales Co., 699 N.W.2d 205 (Wisc. 2005). The case involves allegations concerning a manufacturer’s change in its marketing strategy, in which it would thereafter sell directly to customers formerly serviced by wholesalers, like Kaloti. The allegations further include that an agent of the manufacturer failed to disclose the change in strategy in connection with negotiation of a quarterly order, the issue being whether the alleged omission was actionable. Here’s part of what the court there said:
¶ 19 However, it is another matter entirely when one party exclusively holds knowledge of facts material to the transaction that the other party has no means of acquiring. As we said in Ollerman, “where the [material] facts are peculiarly and exclusively within the knowledge of one party to the transaction and the other party is not in a position to discover the facts for himself [or herself],” disclosure is required. Ollerman, 94 Wis.2d at 31, 288 N.W.2d 95. We similarly noted prominent legal commentator Dean Prosser’s observation that courts have tended to find a duty to disclose in cases “where the defendant has special knowledge or means of knowledge not open to the plaintiff and is aware that the plaintiff is acting under a misapprehension as to facts which could be of importance to him, and would probably affect his decision.” Id. at 31-32, 288 N.W.2d 95 (quoting William L. Prosser, The Law of Torts 697 (1971) (emphasis added)).
¶ 20 Drawing on the above-stated principles from our case law, we conclude that a party to a business transaction has a duty to disclose a fact where: (1) the fact is material to the transaction; (2) the party with knowledge of that fact knows that the other party is about to enter into the transaction under a mistake as to the fact; (3) the fact is peculiarly and exclusively within the knowledge of one party, and the mistaken party could not reasonably be expected to discover it; and (4) on account of the objective circumstances, the mistaken party would reasonably expect disclosure of the fact.
After some discussion of pleading, the opinion continues:
¶ 22 We conclude that the allegations Kaloti made in its amended complaint satisfy the statutory pleading requirements and are sufficient, if proved at trial, to establish that Kellogg and Geraci each had a duty of disclosure.
Further discussion then follows.
Before reading Kaloti, this author would have thought allegations as to an omission concerning strategic business plans for the future, short of matters involved in terminating a distributorship, to have a dim prospect of success. We shall see whether the prospect is now brighter in Missouri.