In a recent unpublished opinion issued by the Minnesota Court of Appeals, Provell v. Jet Choice I, LLC et al., the Court affirmed the district court’s grant of summary judgment dismissing a customer’s claims of fraud and negligent misrepresentation for failure to establish reasonable reliance on the alleged misrepresentations of now-defunct jet membership and charter companies. The case arose out of the customer’s investigation into, and ultimate purchase of a membership interest in a company that was selling charter flights provided by another company that held a FAR Part 135 on-demand charter certificate. A few months after the customer paid a lump sum of $1.25 million and financed the additional $1 million purchase price, both of the companies ceased operations and filed for bankruptcy.
The customer sued the companies and their officers for a variety of fraud claims alleging that the companies and their officers made numerous misrepresentations about the financial stability of the companies leading up to the customer’s membership purchase. However, the district court dismissed the claims on summary judgment based upon the customer’s failure to establish reasonable reliance on the alleged misrepresentations in light of the customer’s sophistication and independent investigation of the finances of the companies before he purchase his membership.
On appeal, the Court initially observed that a fraud claim requires proof of: “(1) a false representation of a past or existing material fact susceptible of knowledge; (2) made with knowledge of the falsity of the representation or made without knowing whether it was true or false; (3) with the intention to induce the plaintiff to act in reliance thereon; (4) that the representation caused plaintiff to act in reliance thereon; and (5) that plaintiff suffered pecuniary damages as a result of the reliance.” The plaintiff must also prove that he or she both actually and reasonably relied upon the misrepresentations.
The Court then observed that the information provided to the customer, together with information omitted or withheld, indicated that the companies were not financially stable and the due diligence revealed glaring problems that should have, and did, prompt concerns by the customer about the companies’ ability to perform under the proposed contract. The Court determined that the customer’s knowledge that the financial situation was less than sound, and his decision to purchase a membership anyway, did not raise a factual issue as to the reasonableness of any reliance upon the alleged misrepresentations by the companies and their officers. As a result, the Court affirmed the district court’s finding that the customer did not provide sufficient proof that he reasonably relied upon the alleged misrepresentations.
This case is unusual in that the issue of reasonable reliance is usually a question for the jury to decide, rather than a court disposing of the issue on summary judgment. However, the facts probably support the courts’ decisions. It doesn’t seem reasonable that someone would agree to spend $2.25 million dollars based upon verbal statements, especially when the financial and other documentation available contradicted those verbal statements. Although it is unfortunate that the customer lost his money, given the facts, he probably knew, or at least should have known, the risks of the transaction. Another example of “buyer beware.”