Lynn v. Slang Worldwide, Inc. , 2025 VT 30 [June 13, 2025.]
EATON, J. Plaintiff Shayne Lynn appeals the trial
court's dismissal of plaintiff's complaint for failure to state a claim.
Plaintiff argues that his complaint, which alleges fraud and negligent
misrepresentation by defendants, is sufficient to meet Vermont's pleading
standards and that the trial court erred when it held otherwise. We affirm.
We will uphold a motion to dismiss for failure to
state a claim only if it is beyond doubt that there exist no facts or
circumstances that would entitle the plaintiff to relief. However, the Court is not required to accept
conclusory allegations or legal conclusions masquerading as factual
conclusions.
Fraudulent-Inducement Claim
To maintain a claim for fraudulent inducement, the
plaintiff must show "an intentional misrepresentation of existing fact,
affecting the essence of the transaction," where "the
misrepresentation was false when made and known to be false by the maker, was
not open to the defrauded party's knowledge, and was relied on by the defrauded
party to his damage." Statements of opinion cannot be fraud unless the
misrepresentation of opinion is part of a scheme to defraud. Promises to act in
the future cannot constitute the requisite misrepresentation of existing fact unless
there is a present intention to act contrary to the promise.
Plaintiff alleges that Miller and Driessen
misrepresented that Slang was "financially sound," had a "bright
economic future," and that its finances were "in excellent
shape"; promised Slang would invest $18 million in High Fidelity; and
provided documents to plaintiff that
were "intentionally and materially misleading" and "did not
reflect that the company was about to fail."
Miller and Driessen's opinions about Slang's financial
outlook were not actionable misrepresentations of material fact sufficient to
create a claim of fraudulent inducement.
Miller and Driessen's alleged promise to invest in
High Fidelity cannot support a fraud claim, absent an express allegation of present
intent to renegotiate on the promise. See V.R.C.P. 9(b) (requiring allegations
of fraud to be stated with particularity)
The general assertion that that Plaintiff was provided
with misleading data is not pled with particularity. Sutton
v. Vt. Reg'l Ctr., 2019 VT 71A, ¶ 73, ("Rule 9(b) requires that
plaintiffs identify the particular statements . . . that they claim were
fraudulent.")
Plaintiff argues that opinion and broken promises can be the basis
of a fraud claim if part of a scheme to defraud, citing Winey
v. William E. Dailey,
Inc., 161 Vt. 129, 133, and Fayette
v. Ford Motor Credit Co., 129
Vt. 505, 510 (1971).
In cases where an opinion or a promise was
sufficient to support a fraud claim, there was also a material
misrepresentation of existing facts or a present intent not to follow through
on the promise. See, e.g., Harponola
Co. v. Wilson, 96 Vt. 427, 433-34
(1923 (considering promise in combination with "the original
fraud" of factually misrepresenting product's value); Proctor
Trust Co. v. Upper Valley Press, Inc., 137 Vt. 346, 351, (1979)(considering
opinions "which [plaintiffs] knew were extremely likely to turn out to be
false" combined with income projections based on highly unreliable data
which "closely resemble misrepresentations of existing fact"); Fayette,129 Vt. at 510, (considering
promise combined with steps taken by defendant indicating no intention of
following through on promise). Without such allegations here, plaintiff fails
to state a claim for a fraudulent scheme.
Plaintiff's
complaint is insufficient as a matter of law to support a claim of a scheme to
defraud. None of the statements alleged by plaintiff are fraudulent misrepresentations
of material fact. They are puffery, trade talk, and an unspecified allegation
of misleading data. Plaintiff cannot create a fraudulent scheme by combining an
unsubstantiated promise with puffery and a general allegation of misleading financial
data. Plaintiff has failed to allege fraudulent inducement.
Negligent-Misrepresentation
Claim
Justifiable reliance is a key aspect of a claim of
negligent misrepresentation, and any complaint must plead facts that support
such reliance. In McGee
v. Vermont Federal Bank, FSB, we held that the plaintiffs did not state
a claim for negligent misrepresentation because they failed to adequately
allege justifiable reliance. 169 Vt. 529, 531(1999) (mem.). Specifically,
"[no]owhere in the [plaintiff's] pleadings do they indicate that they
could not verify the information" provided to them. Id. Similarly,
in Burgess
v. Lamoille Hous. P'ship, we held
that the plaintiff failed to demonstrate justifiable reliance where the
evidence showed that there was relevant information readily available that
demonstrated the falsity of the information provided by the defendant. 2016 VT
31, ¶ 23.
Plaintiff argues that he has sufficiently pled
justifiable reliance for the purposes of the notice pleading standards by
alleging that "the financial data made available to him was intentionally
materially misleading," that "he took reasonable steps to determine
the financial status of [Slang]," and that had he "known the true
financial status of [Slang], he would never have agreed to merge with it."
Plaintiff's allegations that the
documents and information were "false," not "true," and
"misleading," and that plaintiff acted "reasonably" to
ascertain their veracity are mere restatements of the legal elements required
for a claim of negligent misrepresentation. Without specific factual
allegations to support these conclusory statements, they are insufficient to
prevent dismissal of his claim.
Furthermore,
justifiable reliance requires both that the plaintiff is unaware of the truth
and that the truth is "not within the knowledge of" the plaintiff. Burgess,
2016 VT 31, ¶ 22 We decline to infer the missing element—that he was
unable to learn Slang's real financial situation—into plaintiff's complaint.
Plaintiff therefore failed to state a claim for negligent misrepresentation.
Affirmed.
SCOVT NOTE: In the view of the drafters of the current Restatement, "justifiable" reliance is no longer an element of a claim of negligent misrepresentation. The Third Restatement replaces the requirement that the plaintiff's reliance be “justifiable” with statement that the conventional rules of comparative responsibility apply. See Reporter's Note, Restatement (Third) of Torts: Liability for Economic Harm § 5 (2020).
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