Sage v. Broadcasting Publications, Inc., Civil Action No. 86-1362 SSH.

• Decision Date: 10 March 1998
• Docket Number: Civil Action No. 86-1362 SSH.
• Parties: Richard W. SAGE, Plaintiff, v. BROADCASTING PUBLICATIONS, INC., and Kirlin Enterprises, Inc., Defendants.
• Court: U.S. District Court — District of Columbia

Page 49

997 F.Supp. 49

Richard W. SAGE, Plaintiff, v. BROADCASTING PUBLICATIONS, INC., and Kirlin Enterprises, Inc., Defendants.

Civil Action No. 86-1362 SSH.

United States District Court, District of Columbia.

March 10, 1998.

Richard W. Sage, New York City, plaintiff pro se.

Leslie Angus Nicholson, Jr., Shaw, Pittman, Potts & Trowbridge, Washington, DC, Ralph Arthur Simons, Keller & Heckman, Washington, DC, for Defendants.

OPINION

STANLEY S. HARRIS, District Judge.

Before the Court are defendants' motion for summary judgment, plaintiff's opposition thereto, and defendants' reply. Upon careful consideration of the entire record, defendants' motion for summary judgment is granted in part and denied in part. Although findings of fact and conclusions of law are unnecessary in ruling on a summary judgment motion, the Court nonetheless sets forth its analysis. See Fed.R.Civ.P. 52(a).

Background

In 1981, defendants Broadcasting Publications, Inc. ("Broadcasting"), and Kirlin Enterprises, Inc. ("Kirlin"), along with five other companies (collectively, the "equipment lessors"), invested in petroleum services equipment. The companies leased the equipment to OTI, Inc. ("OTI"), a Texas corporation engaged in the inspection of oilfield tubular and pipeline products.

In late 1982, OTI began to experience financial difficulties. By early 1993, OTI was delinquent on its monthly equipment lease payments. The equipment lessors appointed Broadcasting as their agent with regard to their dealings with OTI.

Plaintiff purchased OTI in February 1984. OTI's business continued to decline. By the fall of 1984, OTI was behind in lease payments to the equipment lessors, in its medical insurance premium payments, and in its payment of local and state property taxes in addition to federal taxes.

On January 24 and 25, 1985, plaintiff met with Broadcasting to determine what course of action would be in the best interest of OTI and the equipment lessors. Prior to the execution of any written agreement, plaintiff requested that Broadcasting reimburse him for expenses he had incurred while running OTI. On January 25, 1985, plaintiff and Broadcasting executed a written agreement (the "1985 Agreement"). Under the 1985 Agreement, plaintiff agreed to assist Broadcasting in exercising the equipment lessors' rights under certain security documents, including possibly winding down OTI.¹ In exchange, Broadcasting agreed to pay a number of things, including plaintiff's monthly $6,000 salary, a $36,000 severance pay if plaintiff were dismissed for any reason other than good cause, OTI's liability for certain federal withholding taxes, and plaintiff's personal liability on an insurance policy purchased by OTI for the personal property in its custody and control. No discussion of plaintiff's oral agreement for reimbursement of personal expenses appears in the written contract. The 1985 Agreement also contains a merger clause that expressly precludes any prior agreements.

In February 1985, Broadcasting sent three representatives to OTI's headquarters in New Mexico to review OTI's affairs. During their visit, the representatives discovered a number of facts that defendants allege plaintiff had failed to disclose prior to the execution of the 1985 Agreement, including OTI's state and local property tax arrearages and OTI's continued deduction of health insurance premiums from its employees' paychecks after cancellation of its health insurance policy.

While Broadcasting's representatives were still at OTI's headquarters, plaintiff approached OTI's client, Armco Steel Company ("Armco") in Ambridge, Pennsylvania. OTI had a lucrative contract with Armco that was up for renewal. Defendants contend that when Armco expressed concern about OTI's ability to perform the new contract, plaintiff made no attempt to negotiate on behalf of OTI; instead, he proposed that he would form a new company, Pennsylvania Tubular Inspections ("PTI"), that would replace OTI as the pipe inspector at Armco's Ambridge plant.²

Thereafter, Broadcasting informed plaintiff orally of its decision to rescind the 1985 Agreement because he had made fraudulent misrepresentations before execution of the agreement. On February 26, 1985, Broadcasting gave plaintiff written notice of rescission. Following the rescission, the equipment lessors acted to protect and foreclose upon their collateral.

On May 19, 1986, plaintiff filed suit alleging breach of the written 1985 contract (Count I) and breach of the alleged prior oral contract (Count II). Defendants filed a counterclaim for breach of the 1985 written contract (Count I), fraud/negligent misrepresentation of OTI's status (Count II), and intentional interference with the business expectancy concerning Armco (Count III). Defendants seek summary judgment on both counts of plaintiff's complaint and on counts II and III of their counterclaim on the grounds that (1) they did not breach a written contract, (2) plaintiff made fraudulent misrepresentations in the inducement of a contract, (3) they did not breach an oral contract, and (4) plaintiff intentionally interfered with a business expectancy.

Standard of Review

Summary judgment may be granted only if the pleadings and evidence "show that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law." Fed.R.Civ.P. 56(c); Celotex Corp. v. Catrett, 477 U.S. 317, 322, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986). In considering a motion for summary judgment, all evidence and inferences must be viewed in a light most favorable to the nonmoving party. See Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587, 106 S.Ct. 1348, 89 L.Ed.2d 538 (1986). Summary judgment cannot be granted "if the evidence is such that a reasonable jury could return a verdict for the non-moving party." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986).

Discussion

I. Breach of the Written Contract

Count I of plaintiff's complaint and Count I of defendants' counterclaim allege breach of the written contract. Defendants, in Count II of their counterclaim, assert that they did not breach the written agreement because plaintiff's fraudulent and negligent misrepresentations allowed them lawfully to rescind it.

Under District of Columbia law, a party may rescind a contract that has been induced by fraud or misrepresentation.³ Goldman v. Bequai, 19 F.3d 666, 672 (D.C.Cir.1994). Mutual assent or agreement is an essential element of a contract and a party has the right to rescind a contract "by showing that assent was obtained by fraud or even by misrepresentation falling short of fraud," Hollywood Credit Clothing Co. v. Gibson, 188 A.2d 348, 349 (D.C.1963). Therefore, a central issue in this case is whether plaintiff induced the 1985 Agreement through fraudulent or negligent misrepresentations.

To establish a prima facie case of fraudulent misrepresentation, defendants must show that plaintiff made (1) a false representation, (2) in reference to a material fact, (3) with the knowledge of its falsity, (4) with the intent to deceive, and (5) that action was taken in reliance on that representation. Dresser v. Sunderland Apartments Tenants Ass'n, Inc., 465 A.2d 835, 839 (D.C.1983); Remeikis v. Boss & Phelps, Inc., 419 A.2d 986, 988 (D.C.1980).

A false representation is "an assertion not in accord with the facts." Restatement (Second) of Contracts § 159 (1971). The concealment of a fact that should have been disclosed is also a misrepresentation. Feltman v. Sarbov, 366 A.2d 137, 140-41 (D.C.1976). Where a court finds that a party had the duty to disclose material information, and failed to do so, there is an even greater likelihood that the nondisclosure will constitute fraud. Pyne v. Jamaica Nutrition Holdings, Ltd., 497 A.2d 118, 131 (D.C.1985); see also Remeikis, 419 A.2d at 989 (holding that defendants' failure to disclose their knowledge that their home had termites was a false representation). Here, defendants allege that plaintiff misrepresented or concealed many material facts throughout the negotiation of the 1985 Agreement. Thus, they contend they lawfully rescinded the contract on the basis of fraud. Plaintiff contends that defendants mischaracterize the alleged false representations.

Defendants allege that plaintiff failed to disclose material facts relating to OTI's continued viability. First, they contend that plaintiff failed to mention that OTI owed $90,000 in unpaid personal property taxes to state and local governments. Plaintiff contends that defendants' allegation is wrong because at one point they asserted that the amount in arrears was only $80,000. Plaintiff also contends that defendants could have negotiated a settlement for substantially less than the amount owed. Whether the amount was $80,000 or $90,000, however, is not a material fact. Similarly, whether the amount could have been negotiated downward is not of consequence. Plaintiff concedes that he did not inform the defendants that OTI was in arrears for state taxes before executing the 1985 Agreement. Sage Deposition at 363 (Ex. 15 to Defs.' Mot. for Summ. J.). This nondisclosure is a sufficient basis for defendants to rescind the contract.

Second, defendants allege that plaintiff failed to disclose that OTI had deducted medical insurance premiums from its employees' paychecks after its policy had been canceled for nonpayment of premiums. Defendants further assert that plaintiff purposefully concealed this fact from the employees and defendants by instructing an OTI employee not to tell other employees that they were no longer insured. Plaintiff does not dispute these facts. He simply alleges that he obtained new insurance, after the execution of the 1985 agreement, with a retroactive plan. Even if plaintiff's assertion is true, however, it does not alter the fact that he let the OTI employees' medical insurance lapse, that the...