United States Court of Appeals
FOR THE EIGHTH CIRCUIT
___________
No. 09-1605
___________
William Blankenship, Jr., *
*
Appellant, *
* Appeal from the United States
v. * District Court for the
* Western District of Arkansas.
USA Truck, Inc., *
*
Appellee. *
__________
Submitted: December 15, 2009
Filed: April 15, 2010
___________
Before RILEY,1 Chief Judge, WOLLMAN and MELLOY, Circuit Judges.
___________
RILEY, Chief Judge.
William Blankenship, Jr. (Blankenship) alleges USA Truck, Inc. (USA Truck)
owes him more than $1 million in unpaid sales commissions. Blankenship admits he
agreed, in 2006, to settle his dispute with USA Truck over the commissions for
$85,000. Blankenship brought this lawsuit to void the parties’ settlement agreement
and to obtain punitive damages for fraud. Blankenship alleges USA Truck deceived
him about the amount of commissions owed and thereby fraudulently induced him to
sign the settlement agreement. The district court dismissed Blankenship’s lawsuit
1
The Honorable William Jay Riley became Chief Judge of the United States
Court of Appeals for the Eighth Circuit on April 1, 2010.
because the settlement agreement contained a no-reliance clause in which Blankenship
affirmatively stated he had not relied upon any “statement or representation by [USA
Truck] concerning the nature and extent of any . . . commissions.” We reverse.
I. BACKGROUND
A. Standard of Review
“We review ‘de novo the grant of a Rule 12(b)(6) motion to dismiss for failure
to state a claim.’” Crooks v. Lynch, 557 F.3d 846, 848 (8th Cir. 2009) (quoting
Stufflebeam v. Harris, 521 F.3d 884, 886 (8th Cir. 2008)). We accept the allegations
in Blankenship’s complaint as true and afford Blankenship all reasonable inferences
from those allegations. Id. We also consider the four exhibits Blankenship attached
to his complaint. See Fed. R. Civ. P. 10(c) (“A copy of a written instrument that is an
exhibit to a pleading is a part of the pleading for all purposes.”).
B. Blankenship’s Allegations
1. Parties
Blankenship is a salesman and a resident of Texas. USA Truck is a trucking
firm. USA Truck is an Arkansas corporation with its principal place of business in
Crawford County, Arkansas.
2. Agent Agreement
In June 2001, Blankenship and USA Truck entered into an Agent Agreement.
The Agent Agreement granted Blankenship exclusive responsibility for a portfolio of
protected customer accounts (protected customers). The protected customers included
Tuesday Morning Company (Tuesday Morning) and International Truck Company
a/k/a SST Truck (SST).
USA Truck agreed to pay Blankenship a 5% commission on all revenue derived
from the protected customers. USA Truck retained the right to terminate the Agent
Agreement with ninety days notice. In the event of termination, USA Truck promised
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to refrain from hauling loads of freight for the protected customers for eighteen
months after the ninety days passed. If USA Truck failed to refrain from hauling
loads of freight for the protected customers during this eighteen-month cease period,
USA Truck agreed to pay Blankenship “$200.00 for every load hauled . . . until
another 18 month cease period has passed.”
Blankenship worked for USA Truck under the terms of the Agent Agreement
for approximately two years. On July 1, 2003, USA Truck notified Blankenship it
wished to terminate the Agent Agreement on October 1, 2003. On October 1, 2003,
USA Truck terminated the Agent Agreement.
3. Settlement Agreement
In 2006, USA Truck’s Director of Sales, Pat Campbell (Campbell), informed
Blankenship that USA Truck had violated the Agent Agreement. Campbell admitted
USA Truck had hauled loads of freight for Tuesday Morning since October 1, 2003.
When Blankenship asked Campbell how many loads USA Truck hauled for SST,
Campbell falsely “represented . . . [USA Truck] had been hauling an average of two
loads a week.” USA Truck’s president and general counsel later ratified Campbell’s
false representations. USA Truck misled Blankenship to induce Blankenship into
accepting a relatively low settlement offer.
Based upon Campbell’s representations about the number of loads USA Truck
had hauled for the protected customers, including but not limited to SST, Blankenship
agreed to release USA Truck from liability for breaching the Agent Agreement in
exchange for $85,000. On March 6, 2006, Blankenship and USA Truck executed the
Release and Settlement Agreement (Settlement Agreement). The Settlement
Agreement contained the following no-reliance clause:
It is understood and agreed that this is a settlement and compromise of
doubtful and disputed claims . . . [and] that no statement or
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representation by or on behalf of any person, entity or party hereby
released, or their agents or representatives, concerning the nature and
extent of any losses, commissions or damages, or legal liability therefore,
has been made or considered by the undersigned in executing this
[Settlement Agreement].
....
THIS AGREEMENT CONTAINS THE ENTIRE AGREEMENT
BETWEEN THE PARTIES HERETO AND THE TERMS OF THIS
RELEASE ARE CONTRACTUAL AND NOT A MERE RECITAL.
Several months later, “an independent source” told Blankenship the truth: USA
Truck “had been hauling ten to fifteen loads a day [for SST], instead of the two loads
a week as represented by [Campbell].” Blankenship alleges he would not have settled
with USA Truck for only $85,000 if he had known of Campbell’s false
representations. Blankenship estimates USA Truck’s deceit cost Blankenship over $1
million.
C. Prior Proceedings
1. Complaint
In July 2008, Blankenship invoked the district court’s diversity jurisdiction, 28
U.S.C. § 1332(a)(1), and filed a three-count2 complaint against USA Truck under the
Arkansas common law. Count I alleges breach of contract. Blankenship asserts USA
Truck breached the Agent Agreement when USA Truck hauled loads of freight for
protected customers, after October 1, 2003, without paying Blankenship $200 per
load. Count II alleges fraud. Blankenship maintains Campbell’s false representations
about the number of loads USA Truck hauled induced Blankenship to execute the
Settlement Agreement. Blankenship concludes the Settlement Agreement “is void and
invalid and should be [set] aside in that it is a product of intentional false, misleading
2
We ignore Count III, which is a request for punitive damages
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[and] fraudulent information disseminated by [USA Truck] to [Blankenship] designed
to deceive [Blankenship].”
2. Motion to Dismiss
In August 2008, USA Truck moved to dismiss Blankenship’s complaint,
pursuant to Fed. R. Civ. P. 12(b)(6). USA Truck argued the plain and unambiguous
terms of the Settlement Agreement barred the complaint under the doctrines of
release, accord and satisfaction, and waiver. USA Truck characterized Blankenship’s
lawsuit as an impermissible post hoc attempt to undo an unfavorable settlement.
USA Truck conceded the Arkansas Supreme Court’s jurisprudence regarding
the effect of a no-reliance clause was “not well developed” but suggested “courts all
over America have recognized” a no-reliance clause “neutralize[s]” a plaintiff’s
attempt to use allegations of fraud to void a settlement agreement. USA Truck asked
the district court to follow the lead of those other courts and hold, as a matter of law,
that Blankenship was unable to prove the justifiable reliance element of his fraud
claim. USA Truck contended a reasonable jury could not find Blankenship justifiably
relied on Campbell’s false statements, because Blankenship admitted in the Settlement
Agreement that he did not rely on anything USA Truck’s agents had said when he
decided to settle.
Blankenship resisted USA Truck’s motion to dismiss. Blankenship reiterated
the allegations in his complaint and argued the Settlement Agreement was
unenforceable because USA Truck “fraudulently induced” Blankenship to enter into
the Settlement Agreement. Blankenship pointed out that, under Arkansas law, fraud
voids a contract ab initio—because fraud in the inducement precludes mutual
assent—and affords the defrauded party the right to reject the contract.
Blankenship agreed a “slew” of cases from other jurisdictions lent support to
USA Truck’s argument that a no-reliance clause barred a subsequent fraudulent
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inducement claim. Blankenship maintained, however, that the Arkansas Supreme
Court’s steadfast refusal to enforce contracts procured through fraud foreclosed USA
Truck’s reliance upon those other cases. Blankenship asked the court to allow a jury
to decide whether he justifiably relied on Campbell’s false representations when
deciding whether to execute the Settlement Agreement.
3. Order, Judgment, and Appeal
In March 2009, the district court granted USA Truck’s motion and dismissed
Blankenship’s complaint with prejudice. The court focused on the merits of
Blankenship’s fraud claim, because Blankenship’s breach-of-contract claim depended
entirely upon the validity of the Settlement Agreement.
After reciting the five elements of Blankenship’s fraud claim, see, e.g.,
DePriest v. AstraZeneca Pharms., L.P., No. 08-1257, ___ S.W.3d ___, ___, 2009 WL
3681868, *___ (Ark. Nov. 5, 2009), the district court held as a matter of law that
Blankenship could not prove the fourth element, justifiable reliance. At the outset of
its analysis, the court observed Blankenship “face[d] a difficult proposition” because
his complaint contradicted the terms of the no-reliance clause in the Settlement
Agreement. The district court recognized fraud generally voids a contract, but opined
Blankenship “misse[d] the important point that, without proof of justifiable reliance,
there is no actionable fraud.”
The district court appeared to accept USA Truck’s representation “that there is
no case law in Arkansas directly on point on this issue.” Without making any
prediction as to how the Arkansas Supreme Court might rule, the district court found
the cases USA Truck cited from other jurisdictions to be “persuasive” and granted
USA Truck’s motion to dismiss. Blankenship appealed.
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II. DISCUSSION
A. Arguments
On appeal, the parties focus their arguments on a single question: whether,
under Arkansas law, the no-reliance clause in the Settlement Agreement bars
Blankenship’s fraud claim. In other words, the disputed issue is whether the
no-reliance clause precludes a reasonable jury from finding Blankenship justifiably
relied upon Campbell’s false representation about the quantity of freight USA Truck
had hauled before Blankenship executed the Settlement Agreement. The Settlement
Agreement’s no-reliance clause is a complete defense to Blankenship’s claims unless
Blankenship can show the Settlement Agreement is voidable because the agreement
was induced by fraud. See, e.g., Milberg, Weiss, Bershad, Hynes & Lerach, L.L.P.
v. State, 28 S.W.3d 842, 853 (Ark. 2000) (explaining the interrelation between a
fraudulent inducement claim and the validity of a consent decree).
Blankenship complains the district court ignored governing precedent from the
Arkansas Supreme Court when holding the no-reliance clause barred his fraud claim.
See, e.g., Hiatt v. Mazda Motor Corp., 75 F.3d 1252, 1255 (8th Cir. 1996) (“It is . . .
well-settled that in a suit based on diversity of citizenship jurisdiction the federal
courts apply . . . the substantive law of the relevant state.”) (citing Erie R.R. Co. v.
Tompkins, 304 U.S. 64, 78 (1938)). In all other respects the parties’ arguments
largely reflect the arguments they presented to the district court.
B. Arkansas Law
We agree with the parties, Arkansas law controls. See Erie, 304 U.S. at 78.
“Erie mandates that a federal court sitting in diversity apply the substantive law of the
forum State, absent a federal statutory or constitutional directive to the contrary.”
Salve Regina Coll. v. Russell, 499 U.S. 225, 226 (1991) (citing Erie, 304 U.S. at 78,
and 28 U.S.C. § 1652). Arkansas is the forum state, and there are no contrary federal
statutory or constitutional directives here.
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Under Erie, we are obligated to apply governing precedent from the Arkansas
Supreme Court. See, e.g., Robinson v. MFA Mut. Ins. Co., 629 F.2d 497, 500-02 (8th
Cir. 1980) (adhering to an Arkansas Supreme Court case). “‘When there is no state
supreme court case directly on point, our role is to predict how the state supreme court
would rule if faced with the [same issue] before us.’” Northland Cas. Co. v. Meeks,
540 F.3d 869, 874 (8th Cir. 2008) (quoting Cotton v. Commodore Express, Inc., 459
F.3d 862, 864 (8th Cir. 2006)). In other words, we must make an “Erie-educated
guess” when the law of the forum state is not crystal clear. We owe no deference to
a district court’s determination of, or predictions about, state law. See Salve Regina,
499 U.S. at 231 (abrogating Norton v. St. Paul Fire & Marine Ins. Co., 902 F.2d 1355,
1357 (8th Cir. 1990)).
We find no Arkansas Supreme Court cases directly on point.3 Four cases,
however, suggest the Arkansas Supreme Court would hold that the no-reliance clause
in the Settlement Agreement does not bar Blankenship’s fraud claim.
1. Northwestern Rug v. Leftwich
The first case is Northwestern Rug Mfg. Co. v. Leftwich Hardware & Furniture
Co., 2 S.W.2d 1109 (Ark. 1928). In Northwestern Rug, a hardware store agreed in a
written contract to purchase rugs and pillow tops from a rug manufacturer. Id. at
1110. After the hardware store cancelled the order, the rug manufacturer sued the
hardware store for breach of contract. Id.
3
USA Truck advises us of a recent Arkansas Supreme Court case, Provence v.
Nat’l Carriers, Inc., No. 09-636, ___ S.W.3d ___, 2010 WL 199246 (Ark. Jan. 21,
2010), conceding “Provence is not precisely on point.” We agree. Blankenship
alleges USA Truck’s fraud induced him into executing the Settlement Agreement
itself, which makes the entire Settlement Agreement unenforceable. Cf. Provence,
___ S.W.3d at ___, 2010 WL 199246, at *___ (holding a generalized allegation of
fraud in the inducement is not sufficient to invalidate a forum-selection clause).
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The trial court permitted the hardware store to mount a fraudulent inducement
defense to the rug manufacturer’s breach-of-contract claim. Id. Specifically, the trial
court (1) permitted the hardware store to present evidence the rug manufacturer’s
salesman made false statements to induce the hardware store to buy the rugs and
pillow tops, and (2) instructed the jury that, if it found the salesman’s false statements
induced the hardware store to buy the rugs and pillow tops, the parties’ contract was
void. Id. The trial court permitted the hardware store to mount its fraudulent
inducement defense even though the parties’ contract contained the following
no-reliance clause: “Any special terms or agreements with the salesman will not be
binding unless specified above.” Id.
At trial, the hardware store’s witnesses testified (1) the rug manufacturer’s
salesman promised the hardware store “if it would purchase the goods and execute the
order, [the hardware store] would become the exclusive agent in Magazine,
Ark[ansas], for the sale of [the rug manufacturer’s] goods”; (2) the rug manufacturer’s
salesman represented to the hardware store that “he had not sold any other merchant
in Magazine any of said goods, and that he would not do so”; (3) in truth, the rug
manufacturer had already sold the same goods to other merchants in Magazine; and
(4) the hardware store would not have ordered the goods had the salesman told the
truth. Id. The jury returned a verdict in favor of the hardware store. Id.
Notwithstanding the no-reliance clause in the parties’ contract, the Arkansas
Supreme Court affirmed the trial court. The Arkansas Supreme Court reasoned:
The defense relied on did not vary the terms of the written contract, but,
on the contrary, if true, made voidable the whole contract. It related to
the matter of inducement to enter into the written contract, and
constitutes a good defense to the action.
....
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There was therefore no error in the admission of the evidence or the
giving of the instructions in this case.
Id. (citations omitted).
2. Allen v. Overturf (Allen I)
The second case is Allen v. Overturf, 353 S.W.2d 343 (Ark. 1962) (Allen I).
In Allen I, a married couple from California purchased a farm in Arkansas. Id. at 343.
Before signing the real estate contract, the sellers’ broker falsely represented to the
couple “there was a well and three springs on the place that never went dry, that there
was plenty of water.” Id. at 344.
When the couple discovered the farm lacked a steady supply of water, they sued
the broker for fraud notwithstanding the following clause in their escrow agreement:
Purchasers herein agree and state that they have personally viewed and
inspected the above described property and hereby release [the broker]
from any responsibility regarding said sale and property, except as herein
noted.
Id. No exceptions were noted. Id. The trial court directed a verdict for the broker in
part “on the grounds that the escrow agreement contained a release in favor of [the
broker].” Id.
The Arkansas Supreme Court reversed. Id. In relevant part, the Arkansas
Supreme Court observed:
[T]he courts have many times held that such purported releases as the
one contained in the escrow agreement in this case do not relieve the
broker from liability for fraud and have based their holdings
[alternatively] . . . on the ground that a contract obtained by fraud cannot
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be used to relieve the party obtaining the contract of liability for that
fraud . . . .
....
“If a party is guilty of fraud in making a contract, he cannot exculpate
himself from the consequences of his own wrong by a provision in
writing that his fraudulent oral representations shall not be used as
evidence against him in a case in which fraud and deceit is the gist of the
cause.”
Id. at 344, 345 (quoting Carty v. McMenamin, 216 P. 228, 231 (Or. 1923) (en banc)
(holding a plaintiff stated a claim for fraud upon which relief could be granted
notwithstanding a specific no-reliance clause)).
3. Ultracuts v. Wal-Mart
The third case is Ultracuts Ltd. v. Wal-Mart Stores, Inc., 33 S.W.3d 128 (Ark.
2000). In Ultracuts, a chain of hair salons entered into negotiations with Wal-Mart to
place its salons in Western Canada Wal-Mart stores. Id. at 131. While negotiating
with Wal-Mart, the hair salon chain’s president learned one of its competitors was also
negotiating with Wal-Mart to place its own salons in Wal-Mart stores. Id. The hair
salon chain’s president met with Wal-Mart’s executives, who assured the hair salon
chain’s president that Wal-Mart would not, among other things, place any
competitor’s salons in Wal-Mart stores in Western Canada without offering the hair
salon chain a right of first refusal. Id. In reliance upon the executives’ assurances, the
hair salon chain executed a licensing agreement with Wal-Mart. Id. The licensing
agreement did not, however, provide a right of first refusal for the hair salon chain.
Id. at 132. To the contrary, the licensing agreement contained the following clause:
This Agreement constitutes the entire agreement between the parties
regarding this Licensee’s use of the Licensed Premises. It is understood
and agreed that there are no agreements . . . representations, oral or
written, . . . other than those contained herein, and that all prior
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conversations, understandings, agreements, statements, communications
or agreements, oral or written, with respect to this Agreement are hereby
superseded.
Id.
The hair salon chain sued Wal-Mart for breach of contract and fraud. Id. at 130.
Wal-Mart moved for summary judgment. Id. The trial court granted the motion in
part because the above-quoted clause precluded a finding of justifiable reliance as a
matter of law. Id. at 133.
The Arkansas Supreme Court reversed. Id. at 135-36. Without much
elaboration, the court held “fact questions are presented that preclude summary
judgment as to the fraud claim.” Id. at 136. The court remanded for a jury trial on the
issue of justifiable reliance. Id.
4. Wal-Mart v. Coughlin
The fourth and final case is Wal-Mart Stores, Inc. v. Coughlin, 255 S.W.3d 424
(Ark. 2007). In Coughlin, a senior executive entered into a retirement agreement with
his employer, Wal-Mart. Id. at 426. The agreement contained a clause that “bar[red]
any ‘known or unknown’ claim” Wal-Mart had against the executive. Id. at 427.
After executing the agreement, Wal-Mart discovered the executive had stolen
hundreds of thousands of dollars from Wal-Mart. Id. at 426. Wal-Mart sued the
executive for fraud and sought rescission of the retirement agreement. Id. The trial
court dismissed Wal-Mart’s fraud claim for failure to state a claim upon which relief
could be granted. Id. at 427.
On appeal, the executive argued the retirement agreement’s “known or
unknown claim” clause barred the fraud claim and justified the trial court’s order of
dismissal. Id. Among other things, the executive argued Arkansas “strongly supports
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freedom of contract between two sophisticated parties and that the general principles
of contract law must apply.” Id.
The Arkansas Supreme Court reversed. Id. at 431-35. Citing Allen I, the
Arkansas Supreme Court reiterated “that releases contained in contracts do not relieve
a party of liability for fraud if that party obtained the contract by fraud.” Id. at 432
(citing Allen I, 353 S.W.2d at 344-45). The court then quoted the following passage
from Allen I at length:
“Fraud cannot be an agreement. It is an imposture practiced by one upon
another. It may be used as an inducement to enter into an agreement.
Defendant does not claim that he entered into an agreement that affects
the validity of the contract, but that he was induced by false
representations to enter into the contract. If that be true the validity of
the contract is not assailed, but its very existence is destroyed. To
constitute fraud by false representation there must be a representation of
alleged existing fact; that representation must be false in fact; it must be
made with intent to deceive, and the person to whom it is made must
believe it.”
Id. (quoting Allen I, 353 S.W.2d at 345). The Arkansas Supreme Court concluded the
issue of justifiable reliance was a “critical issue[] . . . for the jury to decide”
notwithstanding the “known or unknown claim” clause in the retirement agreement.
Id. at 434. The court held, “Arkansas law is clear that a release induced by fraud is
invalid.” Id. at 435.
C. Analysis
Taken together, the foregoing four cases suggest the Arkansas Supreme Court
would hold the no-reliance clause in the Settlement Agreement is not an absolute bar
to Blankenship’s fraud claim. There are few material differences between the facts
of the foregoing cases and the case at hand. A leading treatise agrees with our
conclusion. See Corbin on Contracts § 578 & n.45 (Interim ed. 2002) (including
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Arkansas among those jurisdictions in which a party may “not keep the benefits of a
contract induced by his agent’s fraud without being held responsible therefor, even
though there is an express provision in the writing declaring that there have been no
representations that are not contained therein”) (citing Nw. Rug, 2 S.W.2d at 1109).
USA Truck attempts to distinguish Allen I, Ultracuts, and Coughlin (but not
Northwestern Rug) on the facts of each case. USA Truck’s arguments are
unpersuasive and miss the larger theme running through the Arkansas Supreme
Court’s cases. For example, USA Truck argues Allen I is distinguishable partly
because it arises in the context of the sale of real estate, yet the Arkansas Supreme
Court recently quoted and cited Allen I with approval in Coughlin, an employment
case. See Coughlin, 255 S.W.3d at 432. And while it is true the Arkansas Supreme
Court favors settlement, see, e.g., Douglas v. Adams Trucking Co., 46 S.W.3d 512,
517 (Ark. 2001), values freedom of contract, see, e.g., McMillan v. Palmer, 131
S.W.2d 943, 946 (Ark. 1939), and presumes parties have read their contracts, see, e.g.,
Dodson v. Abercrombie, 208 S.W.2d 433, 435 (Ark. 1948), it is equally true the
Arkansas Supreme Court abhors fraud, see, e.g., Coughlin, 255 S.W.3d at 432.
USA Truck complains reversal will severely jeopardize the finality of
settlement agreements throughout this circuit, implicitly encouraging the unhappy and
the greedy to prevaricate in order to take a proverbial second bite at the settlement
apple. See, e.g., Rissman v. Rissman, 213 F.3d 381, 384 (7th Cir. 2000) (upholding
a no-reliance clause under the federal securities laws, because such a clause “ensures
that both the transaction and any subsequent litigation proceed on the basis of the
parties’ writings, which are less subject to the vagaries of memory and the risks of
fabrication”). While there may be good public policy reasons to enforce no-reliance
clauses, see, e.g., MBIA Ins. Co. v. Royal Indem. Co., 426 F.3d 204, 214-19 (3d Cir.
2005) (Alito, J.) (predicting the Delaware Supreme Court would enforce a no-reliance
clause between sophisticated parties, “likely indulg[ing] the assumption that they said
what they meant and meant what they said”), we need not express any view as to the
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wisdom of our holding. Our sole task under Erie is to ascertain and apply Arkansas
law. The district court ran afoul of Erie when, instead of grappling with Arkansas
Supreme Court precedent, the district court relied on “persuasive” cases from other
jurisdictions. Cf. Erie, 304 U.S. at 78.
Based upon governing Arkansas Supreme Court precedent, we predict the
Arkansas Supreme Court would determine Blankenship stated claims upon which
relief may be granted.4 We must, therefore, reverse. See Erie, 304 U.S. at 78.
III. CONCLUSION
We reverse and remand for further proceedings not inconsistent with this
opinion.
______________________________
4
We will continue to enforce no-reliance clauses as appropriate under the
applicable governing state law. Compare First Fin. Fed. Sav. & Loan Ass’n v. E.F.
Hutton Mortgage Corp., 834 F.2d 685, 686-88 (8th Cir. 1987) (applying New York
law and enforcing a no-reliance clause), with Nw. Bank & Trust Co. v. First Ill. Nat’l
Bank, 354 F.3d 721, 725-26 (8th Cir. 2003) (applying Iowa law and declining to
enforce a no-reliance clause). Of course, a jury may yet find Blankenship’s
acquiescence to the no-reliance clause in the Settlement Agreement betrays a lack of
justifiable reliance on his part. See Allen v. Overturf, 366 S.W.2d 189, 190 (Ark.
1963) (indicating the jury rejected the couple’s fraud claim after reversal in Allen I).
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