Hord v. Environmental Research Institute

• Court: Michigan Supreme Court
• Writing for the Court: PER CURIAM.
• Citation: Hord v. Environmental Research Institute, 463 Mich. 399, 617 N.W.2d 543 (Mich. 2000)
• Decision Date: 10 October 2000
• Docket Number: Docket No. 115369.
• Parties: R. Michael HORD, Plaintiff-Appellee, v. ENVIRONMENTAL RESEARCH INSTITUTE OF MICHIGAN doing business as Erim, Defendant-Appellant.

617 N.W.2d 543

463 Mich. 399

R. Michael HORD, Plaintiff-Appellee, v. ENVIRONMENTAL RESEARCH INSTITUTE OF MICHIGAN doing business as Erim, Defendant-Appellant.

Docket No. 115369.

Supreme Court of Michigan.

October 10, 2000.

Green, Green, Adams, Palmer & Craig, P.C. (Philip Green), Ann Arbor, MI, for the plaintiff-appellee.

Dickinson, Wright, P.L.L.C. (by Elizabeth M. Pezzetti), Detroit, MI, for the defendant-appellant.

Clark Hill, P.L.C. (by Duane L. Tarnacki, J. Walker Henry, Frederick R. Damm), Detroit, MI, amicus curiae for Michigan Manufacturers Association.

Opinion

PER CURIAM.

The plaintiff accepted a job with the defendant and moved to Michigan from New Jersey. He was laid off about a year later. He sued, alleging that the company had misrepresented its financial health and that he would not have accepted the position if he had known the actual situation. There was a jury trial resulting in a verdict in the plaintiff's favor. Following a remand from this Court, the Court of Appeals affirmed.

We conclude that the plaintiff presented insufficient evidence to establish fraud, and that the defendant was entitled to a directed verdict. We therefore reverse the judgments of the Court of Appeals and the circuit court.

I

The plaintiff has an extensive background in high-performance parallel computing. In 1992, he was working for General Electric in its Aerospace Division. On learning of his employer's plans to reorganize its operations and sell off that division, the plaintiff began to look for a new job. He became acquainted with an employee of defendant Environmental Research Institute of Michigan (ERIM) through a professional society, and inquired about the possibility of going to work for ERIM. He was eventually contacted by Claron Swonger, manager of ERIM's image processing systems division, and met Mr. Swonger for an interview in September or October of 1992.

According to the plaintiff, Mr. Swonger spoke at length about ERIM, describing its organization, history, and commitment to research. The conversation included the possibility of establishing a high-performance computer program that would involve the plaintiff. Mr. Swonger gave the plaintiff considerable printed material, including brochures about equipment, technical papers, organizational charts, and an operating summary that contained financial data through the fiscal year that ended September 30, 1991.

In early January 1993, Mr. Swonger offered the plaintiff a position with ERIM, which the plaintiff accepted. He sold his New Jersey home, moved to Ann Arbor, and began his employment with ERIM in March 1993.

Apparently for economic reasons, ERIM reduced plaintiff's duties and compensation by twenty percent effective January 1, 1994, and eventually gave him a lay-off notice in July 1994. He chose, instead, to resign in exchange for a consulting contract.

In July 1995, the plaintiff filed this action, alleging that ERIM had misled him regarding its financial soundness and its ability and willingness to provide longterm funding for the research and development projects on which he would work. The circuit court denied the ERIM's motion for a directed verdict and the case was submitted to the jury on both a standard fraud claim involving fraudulent misrepresentation and a "silent fraud" theory. The jury returned a verdict in the plaintiff's favor in the amount of $175,000. The verdict did not specify the theory on which the award was based.

ERIM appealed, and the Court of Appeals initially affirmed in a two-to-one decision. 228 Mich.App. 638, 579 N.W.2d 133 (1998). ERIM filed an application for leave to appeal to this Court, and on March 23, 1999, we entered an order remanding to the Court of Appeals for reconsideration in light of M & D, Inc. v. McConkey, 231 Mich.App. 22, 585 N.W.2d 33 (1998).¹

On remand, the Court of Appeals issued another two-to-one decision, again affirming the circuit court judgment. 237 Mich.App. 95, 601 N.W.2d 892 (1999).

Defendant ERIM has filed an application for leave to appeal to this Court. For the reasons that follow, we reverse the judgments of the circuit court and the Court of Appeals.

II

The focus of the plaintiff's fraud claim is the "operating summary" that he was given along with other materials about ERIM. The operating summary, which covered the fiscal year that ended September 30, 1991, was a sixteen-page brochure that contained photographs and narrative about ERIM. It described the company's history, listed its seven locations, and presented a letter from ERIM's president about current and future projects. The brochure also contained financial statements, graphs, and notes about company benefits, bonds, leases, etc. The graphs showed steady growth in revenue and equity from 1987 to 1991.

It is the plaintiff's contention that by the time he was interviewed in late 1992 and hired in early 1993, ERIM knew that its financial situation was not so favorable. Although an operating summary had not been prepared for fiscal year 1992, company executives had received a financial statement from its auditors that showed a revenue decrease of $5 million and a twenty-five percent reduction in fee income. Also, there were seventy-three layoffs in 1992.²

III

In its initial decision, the Court of Appeals began by noting the six elements that must be proven to sustain a claim of fraudulent misrepresentation:

1. The defendant made a material representation.

2. The representation was false.

3. When the defendant made the representation, it knew that it was false, or the defendant made the representation recklessly, without any knowledge of its truth, and as a positive assertion.

4. The defendant made the representation with the intention that it should be acted on by the plaintiff.

5. The plaintiff acted in reliance on the representation.

6. The plaintiff suffered injury due to his reliance on the representation. See 228 Mich.App. at 642, 579 N.W.2d 133.

The majority then explained why it believed the plaintiff had made out a case of fraud:

Defendant's contention that it made no affirmative misrepresentations ignores the fact that the jury could have found that defendant's presentation of its 1991 operating summary to plaintiff in September 1992 was a misrepresentation. Defendant repeatedly argues that the 1991 operating summary was clearly labeled "For the Fiscal Year Ending September 30, 1991," and, therefore, that it could not have constituted a misrepresentation regarding defendant's financial position in 1992, and that plaintiff could not have been misled by it. The flaw in this argument is exposed by simply asking: Why did defendant give plaintiff a copy of its 1991 operating summary? Clearly, the act of giving plaintiff the operating summary constituted an endorsement of its contents and a representation that the summary was somehow a reflection of defendant's current financial strength.2 This was obviously a material representation, and the act of giving the operating summary to plaintiff during a job interview allowed the jury to infer that defendant intended that plaintiff act on it. In addition, there was evidence that, at the time defendant gave plaintiff the 1991 operating summary, it had more current financial information that suggested that it was in a much weaker financial position than it was in September 1991. From this evidence, the jury could have concluded that the representation regarding defendant's financial strength was false and that defendant knew that it was false when made. Finally, plaintiff testified that he relied on this representation in making his decision to accept defendant's offer of employment, and there was evidence that plaintiff suffered injury. Consequently, we find no error in the trial court's decision to deny defendant's motions for a directed verdict and for JNOV regarding plaintiff's fraudulent misrepresentation claim.

2Defendant would have us construe its action as no more than a statement of its financial condition as of September 31, 1991. Such a construction defies common sense. When defendant gave plaintiff the operating summary in September or October 1992, it was clearly offering it as some indication ol its current financial strength. Thus, the representation was not "Here is our 1991 operating summary, which is irrelevant in regard to our current financial strength." Rather, it was effectively "Here is our 1991 operating summary which reflects, at least to some degree, our current financial situation." [228 Mich.App. at 642-643, 579 N.W.2d 133.]

Our remand order directed the Court of Appeals to reconsider its decision in light of M & D, Inc. v. McConkey, supra, which principally dealt with the question of silent fraud. The Court of Appeals majority reiterated its view that there was sufficient evidence of fraudulent misrepresentation in the case, and then also concluded that the evidence supported the silent fraud theory. It explained:

Having nonetheless reviewed this matter in light of our Supreme Court's remand, we find that the evidence here also supported plaintiff's silent fraud theory. As this Court stated in M & D, Inc., supra at 29, 585 N.W.2d 33, quoting and adopting Judge Young's opinion in the previous M & D, Inc. v. McConkey, 226 Mich.App. 801, 573 N.W.2d 281 (1997), defendant "also has a duty to disclose `"subsequently acquired information which he recognizes as rendering untrue, or misleading previous representations which, when made, were true or believed to be true."`" 231 Mich.App. at 29, 585 N.W.2d 33 (1997). (Citations and emphasis omitted.)

We remain convinced that the jury in this case could fairly infer that defendant showed plaintiff the 1991 operating summary with the intention that plaintiff would rely on the information it contained. 228 Mich.App. at 642-643, 579 N.W.2d 133. Therefore, in addition to finding that the evidence here supports a claim of simple fraud, we also find that defendant had a duty in this

...