UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT
_____________________
No. 92-2613
_____________________
JAMES C. THOMAS, Individually, and
as Trustee of the SLT TRUST #1,
Plaintiff-Appellant,
VERSUS
N.A. CHASE MANHATTAN BANK,
Defendant-Appellee.
____________________________________________________
Appeal from the United States District Court
for the Southern District of Texas
_____________________________________________________
(August 27, 1993)
Before POLITZ, Chief Judge, REAVLEY, and BARKSDALE, Circuit Judges.
BARKSDALE, Circuit Judge:
In issue is the summary judgment awarded N.A. Chase Manhattan
Bank in this action by James C. Thomas, individually and as trustee
of the SLT Trust #1 (SLT), arising out of Chase's referral of an
investment partner, E. Lawrence Price. Previously, we held that
Thomas lacked standing on certain claims, and as a result, affirmed
the judgment as to them; remanded for factual findings on a
standing issue; and deferred ruling on the remaining claims pending
remand. Thomas v. N.A. Chase Manhattan Bank, 994 F.2d 236 (5th
Cir. 1993). The district court having promptly entered the
requested findings, we now turn to the remaining claims. Finding
genuine issues of material fact regarding the claims by both Thomas
and SLT for fraud, negligent misrepresentation, and breach of
fiduciary duty, we REVERSE and REMAND; on the conspiracy to defraud
claims, we AFFIRM.
I.
The complex factual background to this case is set out at
length in our prior opinion, 994 F.2d at 238-41; we need not repeat
it here.1 Briefly, the claims arise from Chase's referral of Price
as an investment partner for Thomas in a Texas private banking
franchise. Thomas and Price entered their respective family
trusts, SLT and the Elaine Price Trust (EPT) (of which Price is
trustee) into a partnership (the Price-Thomas partnership), which
in turn purchased the franchise from another partnership in which
Thomas and SLT had been involved with the Cha family (the Chas).
Additionally, Thomas in his individual capacity executed a
management contract with the newly formed Price-Thomas partnership
to continue to manage the bank following the sale. Price
subsequently breached both the partnership agreement and the
management contract and used the bank to commit a massive
government securities tax fraud, driving it into insolvency. After
the relationship with Price proved ruinous, Thomas learned that
Chase allegedly knew of Price's history of bank fraud problems,
including a serious incident involving Chase, yet Chase represented
1
Our statement of the facts in that opinion, and here, is based
on the summary judgment record viewed in the light most favorable
to Thomas, the nonmovant. See Thomas, 994 F.2d at 238 n.1; Harbor
Ins. Co. v. Urban Constr. Co., 990 F.2d 195, 199 (5th Cir. 1993).
- 2 -
Price to Thomas as a valued Chase customer and misrepresented
Price's troublesome history.
Thomas, individually and on behalf of SLT, sued Chase for
fraud, negligent misrepresentation, breach of fiduciary duty,
breach of contract, and conspiracy to defraud, alleging basically
that Chase had "foisted" Price onto him pursuant to a cover-up of
Price's fraudulent activities at Chase. The district court granted
summary judgment for Chase on all claims. In our prior opinion, we
upheld summary judgment for lack of standing on the breach of
contract claim, and on the other claims to the extent that they
related to the Stanhope indemnity agreements. Id. at 244. We
remanded for the limited purpose of determining whether Thomas, as
trustee, had the capacity to sue on behalf of SLT. Id.
On remand, Thomas submitted an affidavit and a copy of the SLT
trust instrument. The district court found that the trust
instrument "explicitly adopts the powers conferred by Missouri law
allowing the trustee to bring suit". Accordingly, we now address
the remaining claims: SLT's claims for damages resulting from its
entering into partnership with EPT (fraud, conspiracy to defraud,
negligent misrepresentation, and breach of fiduciary duty); and
Thomas's claims for damages resulting from his entering into the
management contract with the Price-Thomas partnership (same).
Because the claims asserted by Thomas individually and on behalf of
SLT arise from the same allegations, we address them together.2
2
Thomas stated in his affidavit that, pursuant to the
partnership formation and subsequent franchise sale, Chase also
structured the Stanhope indemnity agreements by Price and Newcomb,
- 3 -
II.
As stated in our prior opinion, we review a summary judgment
de novo, applying the same criteria as would a district court.
Hanks v. Transcontinental Gas Pipe Line Corp., 953 F.2d 996, 997
(5th Cir. 1992). "Summary judgment is proper only if `there is no
genuine issue as to any material fact and ... the moving party is
entitled to judgment as a matter of law'". Harbor Ins. Co. v.
Trammell Crow Co., 854 F.2d 94, 98 (5th Cir. 1988), cert. denied,
489 U.S. 1054 (1989) (quoting Fed. R. Civ. P. 56(c)). "We consider
all of the facts contained in the pleadings, depositions,
admissions, answers to interrogatories, affidavits, and the
inferences to be drawn therefrom in the light most favorable to the
non-moving party". Harbor Ins. Co. v. Urban Constr. Co., 990 F.2d
195, 199 (5th Cir. 1993). "Our review is not limited to the
district court's analysis"; we may affirm on any basis presented to
the district court. Id.
We previously held that New York law governs the claims by
Thomas and SLT. Thomas, 994 F.2d at 241-42. The summary judgment
record is described in our prior opinion, 994 F.2d at 238 n.1.
the consideration for which was Thomas's agreement to enter into
the management contract with the Price-Thomas partnership. This
evidence supports the allegation that Chase was involved in the
execution of Thomas's management contract. Even absent evidence of
direct involvement, however, a genuine issue of material fact on
whether the partnership formation and the management contract were
intended to be interdependent casts doubt on the summary judgment.
Cf. National Union Fire Ins. Co. v. Turtur, 892 F.2d 199, 203-05
(2d Cir. 1989) ("there would appear to be no reason in principle
why, if two contracts are part of the same exchange, a fraudulent
inducement as to one of the contracts might not, in at least some
situations, excuse performance by the defrauded party of the other
contract").
- 4 -
Most revealing about the record is the scant evidence submitted by
Chase.
A.
The fraud claims relate to Chase's alleged misrepresentations
that Price was a long-time, highly valued Chase client, when in
fact Chase had terminated Price's accounts and was trying to rid
itself of him; that, based on Chase's long-term dealings with and
extensive due diligence on Price, Chase knew him to be an
appropriate investment partner for Thomas; and that Price's banking
problem in Chicago was mere "unpleasantness" -- "simply a routine
banking relationship that didn't work out", when in fact Price had
perpetrated a massive government securities tax fraud there for
which he later suffered a tax court judgment. Additionally, when
Thomas inquired of Chase regarding information ("second-hand
rumors") he had learned from William Wu (his former partner's (the
Chas) agent who had investigated Price), Chase allegedly encouraged
Thomas to rely on its superior knowledge regarding Price and urged
him not to listen to rumors. The district court granted summary
judgment on these claims, based on its determination that Thomas
could not justifiably rely on the alleged misrepresentations.
"New York requires proof of the traditional five elements of
fraud: misrepresentation of a material fact, falsity of that
representation, scienter, reliance and damages". Mallis v. Bankers
Trust Co. (Mallis I), 615 F.2d 68, 80 (2d Cir. 1980) (emphasis
omitted), cert. denied, 449 U.S. 1123 (1981). Justifiable reliance
- 5 -
is the only element in issue; it is not disputed that material fact
issues exist regarding the other four elements.
To satisfy the requirement of justifiable reliance, a
plaintiff must establish that his reliance on the defendant's
misrepresentations was justifiable "both in the sense that [he] was
justified in believing the representation, and that he was
justified in acting upon it". Compania Sud-Americana de Vapores,
S.A. v. IBJ Schroder Bank & Trust Co., 785 F. Supp. 411, 419
(S.D.N.Y. 1992). When the matters represented are "peculiarly
within the [defendant's] knowledge", the plaintiff is not required
to investigate them, "as he has no independent means of
ascertaining the truth". Mallis I, 615 F.2d at 80 (internal
quotations omitted). When the plaintiff "has the means of knowing,
by the exercise of ordinary intelligence, the truth", however, he
will be barred as a matter of law from asserting justifiable
reliance. Id. at 80-81 (emphasis added); Danann Realty Corp. v.
Harris, 157 N.E.2d 597, 600 (N.Y. 1959). Apart from this
principle, the question of justifiable reliance is one of fact.
See Country World, Inc. v. Imperial Frozen Foods Co., 589 N.Y.S.2d
81, 82 (N.Y. App. 1992); Freschi v. Grand Coal Venture, 583 F.
Supp. 780, 785 (S.D.N.Y. 1984). Accordingly, it bears repeating
that it is a summary judgment we are reviewing; we determine
whether there are material fact issues.
Chase's representations regarding its dealings with Price were
"peculiarly within its knowledge". Thomas would have no means of
ascertaining independently (certainly not "by the exercise of
- 6 -
ordinary intelligence", see infra) whether Price was a long-time,
highly valued Chase customer, or whether Chase believed Price to be
a worthy investment partner for Thomas. Therefore, at least with
respect to those representations, Thomas is not barred as a matter
of law from establishing justifiable reliance.
With respect to its alleged representations about Price's bank
fraud in Chicago, Chase contends that Thomas had independent access
to that information and therefore cannot assert justifiable
reliance on Chase. It emphasizes that Thomas was alerted to a
problem by Wu, and should have pursued further investigation.
Citing Most v. Monti, 456 N.Y.S.2d 427, 428 (N.Y. App. 1982);
Marine Midland Bank v. Palm Beach Moorings, Inc., 403 N.Y.S.2d 15
(N.Y. App. 1978); and Grumman Allied Indus., Inc. v. Rohr Indus.,
Inc., 748 F.2d 729 (2d Cir. 1984), Chase asserts that a
sophisticated businessman like Thomas could not, as a matter of
law, justifiably rely on Chase's verbal assurances in entering into
a business deal of the magnitude involved here.
For several reasons, we conclude that the cases cited do not
support the summary judgment. First, each of them involved
representations made by the opposing party to a transaction. Most
involved the seller of a health club who allegedly misrepresented
to the buyer that the property was fully assessed for tax purposes.
See 456 N.Y.S.2d at 428. Marine Midland involved a bank that
allegedly misrepresented the status of corporate loans to a
potential guarantor in order to obtain the guaranty obligation.
See 403 N.Y.S.2d at 16. Grumman involved the seller of a
- 7 -
subsidiary who allegedly misrepresented to the buyer material facts
relating to certain assets purchased. See 748 F.2d at 730-33.
In contrast, Chase was not directly opposite Thomas in the
transactions; instead, it acted as a sort of intermediary. Thomas
admittedly knew that Chase served as Price's broker; but, Chase
allegedly approached Thomas for its broker's fee prior to the
partnership formation, Thomas agreed to the fee, and the Price-
Thomas partnership, not Price or EPT, actually paid it.
Additionally, Chase and Thomas allegedly were involved together in
other projects, including Columbia Investors and Acquisition
Ventures. See 994 F.2d at 238-39. In these circumstances, Thomas
had less reason to question Chase's representations than did the
plaintiffs in the cases cited by Chase.
Moreover, each of the cases cited also turns on the fact that
the parties claiming justifiable reliance had independent access to
the information in issue. In Most, it was "readily available to
plaintiffs upon their making reasonable inquiry". 456 N.Y.S.2d at
428. Similarly, in Marine Midland, the guarantor had "unlimited
access to the relevant financial records ... before he became a
personal guarantor on the note". 403 N.Y.S.2d at 17. Finally, in
Grumman, there was "undisputed evidence demonstrating that [the
buyer] enjoyed unfettered access to [the seller's] plants,
personnel and documents ...". 748 F.2d at 737.
Here, Chase failed to submit any evidence that Thomas could
have independently obtained additional information about Price.
Chase stated at oral argument in our court that a simple inquiry by
- 8 -
Thomas would have revealed the entire matter, but no evidence was
presented to that effect. To the contrary, Wu allegedly told
Thomas that his sources were confidential, and refused to reveal
them, indicating that perhaps the information was not publicly
available.
Finally, and of great importance, Thomas did seek further
information about Price when he telephoned Chase vice president
Mary Small to inquire about the Chicago incident. The evidence
presented by Thomas, through his affidavit, was that Small not only
assured him that Chase had thoroughly investigated all aspects of
the Chicago incident, but affirmatively attempted to block any
further investigation by urging Thomas to rely on Chase's superior
knowledge and not to pursue rumors. Chase did not present any
evidence to rebut Thomas's affidavit regarding this telephone call.
In light of the unrebutted evidence of this active concealment,
absent in the cases cited, we cannot hold, as a matter of law, that
Thomas was not justified in relying on Chase's assurances.
Citing agency principles, Chase finally contends that Wu's
additional knowledge regarding Price's fraud is imputed to Thomas,
barring justifiable reliance. Evidence submitted by Chase does
indicate that Wu may have known more about Price's problems than he
conveyed to Thomas; specifically, handwritten notes by Wu in 1983
mention yet another Chicago bank with which Price had problems.
Relying on the rule of law that principals are imputed with the
knowledge of their agents, Chase reasons that Wu's knowledge is
- 9 -
imputed to his principals, the Chas, and that their knowledge is in
turn imputed to their partner, Thomas.3
"It is a basic tenet of the law of agency that the knowledge
of an agent, or for that matter a partner or joint venturer is
imputed to the principal". Mallis v. Bankers Trust Co. (Mallis
II), 717 F.2d 683, 689 n.9 (2d Cir. 1983). A corollary to that
tenet, however, is that "[k]nowledge of an agent, even of a general
agent, to be imputed to his principal, must be actual knowledge".
Hare & Chase, Inc. v. National Surety Co., 49 F.2d 447, 458
(S.D.N.Y. 1931) (emphasis added), aff'd, 60 F.2d 909 (2d Cir.),
cert. denied, 287 U.S. 662 (1932); e.g., Nolan v. Sam Fox
Publishing Co., 499 F.2d 1394, 1398 (2d Cir. 1974); Ferrara v.
Scharf, 466 F. Supp. 125, 131 (S.D.N.Y. 1979). The principle of
imputed knowledge "rests upon the duty of the agent to disclose to
his principal all material facts coming to his knowledge with
reference to the scope of the agency and upon the presumption that
the agent has discharged his duty". Otsego Mut. Fire Ins. Co. v.
Darby, 358 N.Y.S.2d 314, 318 (N.Y. Sup. Ct. 1974). It follows,
3
Chase also contends that because Wu served on the management
committee of the Church & Thomas bank, he also acted as agent to
the Cha-Thomas partnership in conducting his investigation.
Thomas's affidavit, however, contradicts this assertion:
At no time did William Wu become the agent or
partner to the Thomas family, the SLT Trust or me
regarding the proposed Chase-sponsored Price-Thomas
partnership. At no time did William Wu assume
responsibility beyond the scope of his assignment
by the Cha family concerning Newcomb's financial
capacity.
This disputed fact cannot support a summary judgment.
- 10 -
therefore, that "[t]here can be no presumption that [an agent]
communicated to the [principal] knowledge which it did not have".
Wheatland v. Pryor, 30 N.E. 652 (N.Y. 1892) (rejecting contention
that the imputed knowledge of a principal could be "reimputed" to
its principal); see also In re Agent Orange Prod. Liab. Litig., 597
F. Supp. 740, 796 (E.D.N.Y. 1984) (citing the Restatement of Agency
§ 277, that a principal is not affected by knowledge that agent
should have, but did not, acquire), aff'd, 818 F.2d 145 (2d Cir.
1987), cert. denied, 484 U.S. 1004 (1988).
Even assuming, therefore, that Wu had sufficient information
to bar justifiable reliance, Chase must prove that the information
was actually communicated to his principal, the Chas, in order for
it to even be arguably imputed to Thomas. Chase does not make this
contention, and we see no evidence to support it. Accordingly, the
summary judgment cannot be upheld on this basis.
In sum, Thomas is not barred as a matter of law from
establishing that he justifiably relied on any of Chase's alleged
misrepresentations. Because the remaining questions regarding
justifiable reliance, as well as the other elements of fraud,
present material fact issues, we reverse the summary judgment as to
fraud.
B.
The claims for conspiracy to defraud rest on the same
allegations as the fraud claims -- Chase's alleged
misrepresentations in attempting to rid itself of Price and thereby
conceal its role in Price's fraud. In the district court, Thomas
- 11 -
asserted that civil conspiracy is an independent cause of action
under Texas law. On appeal, however, Thomas does not brief this
issue under either Texas or New York law.
"Under New York State law, `it is well settled that a mere
conspiracy to commit a [tort] is never itself a cause of action'".
Conrad v. Perales, 818 F. Supp. 559, 565 (W.D.N.Y. 1993) (quoting
Jan Sparka Travel, Inc. v. Hamza, 587 N.Y.S.2d 958, 960 (N.Y. App.
1992); see also Alexander & Alexander of New York, Inc. v. Fritzen,
510 N.Y.S.2d 546, 547 (N.Y. 1986). "Allegations of conspiracy are
permitted only to connect the actions of separate defendants with
an otherwise actionable tort". Fritzen, 510 N.Y.S.2d at 547.
Thomas does not attempt to connect Chase with the actions of
another defendant; indeed, there is no other defendant. Instead,
Thomas's allegations involve Chase's fraudulent actions, as
discussed above. In any event, issues not briefed are waived.
Zeno v. Great Atlantic & Pacific Tea Co., 803 F.2d 178, 180-81 (5th
Cir. 1986); Fed. R. Civ. P. 28(a)(5). Accordingly, the summary
judgment on the conspiracy to defraud claims is affirmed.
C.
The negligent misrepresentation claims also rest on the
allegations discussed in relation to fraud. The district court
granted summary judgment for these claims on the same basis as for
fraud -- its conclusion that Thomas could not justifiably rely on
the alleged misrepresentations.
Regarding negligent misrepresentation, the New York Court of
Appeals has stated:
- 12 -
As to duty imposed, generally a negligent statement
may be the basis for recovery of damages, where
there is carelessness in imparting words upon which
others were expected to rely and upon which they
did act or failed to act to their damage ..., but
such information is not actionable unless expressed
directly, with knowledge or notice that it will be
acted upon, to one whom the author is bound by some
relation of duty, arising out of contract or
otherwise, to act with care if he acts at all ....
White v. Guarente, 372 N.E.2d 315, 319 (N.Y. 1977); Enzo Biochem,
Inc. v. Johnson & Johnson, 1992 WL 309613 (S.D.N.Y. 1992) (quoting
White). Contrary to the district court's assumption, justifiable
reliance per se does not appear to be an element of the tort under
New York law.4 Instead, as discussed below, New York courts appear
to focus on the relationship between the parties in determining
whether a cause of action will lie; where the relationship is
sufficiently close, a party will be allowed to recover damages
caused by the negligent misrepresentations of another. But, in any
event, the above holding with respect to justifiable reliance would
apply to the negligent misrepresentation claims as well as to those
for fraud.
In the keystone case of Credit Alliance Corp. v. Arthur
Andersen & Co., 483 N.E.2d 110 (N.Y.), amended, 489 N.E.2d 249
(N.Y. 1985), the New York Court of Appeals focused on the
relationship required to sustain a cause of action for negligent
misrepresentation absent privity of contract. After reconsidering
its holdings in Ultramares Corp. v. Touche, 174 N.E. 441 (N.Y.
1931), and Glanzer v. Shepard, 135 N.E. 275 (N.Y. 1922), the court
4
As noted in our prior opinion, the district court did not
address the choice of law issue; it is unclear what law it applied.
- 13 -
reaffirmed the principle that "a relationship `so close as to
approach that of privity' remains valid as the predicate for
imposing liability" for negligent misrepresentation. Credit
Alliance, 483 N.E.2d at 115. The court then expanded this
principle into three prerequisites for recovery: (1) awareness that
the information is to be used for a particular purpose; (2)
reliance by a known party in furtherance of that purpose; and (3)
some conduct by the defendant linking it to that party and evincing
defendant's understanding of that party's reliance. Id. at 118.
"As a shorthand rule encapsulating those requirements, it has been
noted that, for defendants to be liable, reliance by plaintiff upon
the representation must be `the end aim of the transaction', rather
than an `indirect or collateral' consequence of it". Kidd v.
Havens, 577 N.Y.S.2d 989, 991 (N.Y. App. 1991) (discussing Credit
Alliance and quoting Glanzer).
Credit Alliance addressed the liability of an accountant to a
third party, but the principles articulated have been applied
subsequently in other contexts. E.g., Ossining Union Free School
Dist. v. Anderson LaRocca Anderson, 539 N.E.2d 91 (N.Y. 1989)
(school district sued consulting engineers hired by school
district's architect); Kidd, 577 N.Y.S.2d 989 (purchaser of
property sued title company). Most relevant to the present case is
Banque Indosuez v. Barclays Bank PLC, 580 N.Y.S.2d 765 (N.Y. App.
1992), in which the defendant bank induced the plaintiff to extend
a loan to a bank client by negligently misrepresenting the status
of an overdraft in a letter of reference requested by the
- 14 -
plaintiff. Noting that the plaintiff had not "hired" the bank to
provide it with the credit information, the court nonetheless
affirmed the denial of summary judgment, holding that a
sufficiently close relationship existed between the parties to
sustain the claim. Id. at 766-67.
Under this precedent, the negligent misrepresentation claims
surely survive summary judgment. Thomas's evidence provides the
three predicates to recovery: (1) that Chase knew the information
was to be used for a particular purpose (i.e., the formation of the
Price-Thomas partnership and the execution of Thomas's management
contract with it); (2) that Thomas, a known party, relied on the
information in furtherance of that purpose; and (3) that Chase
dealt extensively with Thomas, evincing its understanding of his
reliance. These circumstances indicate the existence of a
relationship "so close as to approach that of privity";
particularly significant is Thomas's affidavit evidence that Chase
approached him for the broker's fee. Accordingly, the summary
judgment on the negligent misrepresentation claims is also
reversed.
D.
The final claims are for breach of a fiduciary duty. The
district court held that there was no fiduciary relationship
between Thomas and Chase, because the Price-Thomas partnership, not
Thomas or SLT, paid the broker's fee. Thomas contends that there
was a fiduciary relationship, asserting that Chase acted as his
broker in structuring both the Price-Thomas partnership and his
- 15 -
management contract with it. The only dispute for purposes of
summary judgment is the existence of a fiduciary relationship.
To establish a claim for breach of fiduciary duty, a plaintiff
must prove "(1) a breach by a fiduciary of obligations to another,
(2) that the defendant knowingly induced or participated in the
breach, and (3) that the plaintiff suffered damages as a result of
the breach". Whitney v. Citibank, N.A., 782 F.2d 1106, 1115 (2d
Cir. 1986) (applying New York law). "New York state courts, as
well as others, have recognized that whether a fiduciary
relationship exists is a question of fact." Niagara Mohawk Power
Corp. v. Stone & Webster Eng'g Corp., 1992 WL 121726, at *21
(N.D.N.Y. 1992) (footnotes omitted) (emphasis added); see United
States v. Reed, 601 F. Supp. 685, 705 (S.D.N.Y.), rev'd on other
grounds, 773 F.2d 477 (2d Cir. 1985). In Reed, the court
explained:
In the final analysis, the assessment of the
existence or absence of such a relationship
invariably requires a series of factual findings
and generally rests with the finder of fact, i.e.,
the jury, at trial. Judges, charged with making
the determinations of law by which to structure and
evaluate those findings, may undertake this
assessment only in those cases in which it is
possible and proper to conclude that, as a matter
of law, such a relationship does or does not exist.
The very nature of the subject matter, however,
reveals that such occasions will be scarce ....
601 F. Supp. at 705.
Although the exact limits of the term "fiduciary relationship"
are impossible to define, Compania Sud-Americana de Vapores v. IBJ
Schroder, 785 F. Supp. 411, 425-26 (S.D.N.Y. 1992), the following
explanation has been offered:
- 16 -
A fiduciary relationship is one founded on trust or
confidence reposed by one person in the integrity
and fidelity of another. The term is a very broad
one. It is said that the relation exists, and that
relief is granted in all cases in which influence
has been acquired and abused, in which confidence
has been reposed and betrayed. The origin of the
confidence and the source of the influence are
immaterial. The rule embraces both technical
fiduciary relations and those informal relations
which exist whenever one man trusts in and relies
upon another. Out of such a relation, the laws
raise the rule that neither party may exert
influence or pressure upon the other, take selfish
advantage of his trust or deal with the subject
matter of the trust in such a way as to benefit
himself or prejudice the other except in the
exercise of utmost good faith.... A fiduciary
relation exists when confidence is reposed on one
side and there is resulting superiority and
influence on the other.
Mobil Oil Corp. v. Rubenfeld, 339 N.Y.S.2d 623, 632 (N.Y. Civ. Ct.
1972), aff'd, 357 N.Y.S.2d 589 (N.Y. Sup. Ct. 1974), rev'd on other
grounds, 370 N.Y.S.2d 943 (N.Y. App. 1975), aff'd, 358 N.E.2d 882
(N.Y. 1976); Reed, 601 F. Supp. at 707 (quoting Mobil Oil).
In the business context, "[a] fiduciary relationship is not
created by an arm's length contract", Deem v. Lockheed Corp., 1991
WL 196171, at *7 (S.D.N.Y. 1991); see Beneficial Commercial Corp.
v. Murray Glick Datsun, Inc., 601 F. Supp. 770, 772 (S.D.N.Y.
1985); and "`a conventional business relationship, without more,
does not become a fiduciary relationship by mere allegation'",
Compania Sud-America, 785 F. Supp. at 426 (quoting Oursler v.
Women's Interart Center, Inc., 566 N.Y.S.2d 295 (N.Y. App. 1991)).
A fiduciary relationship may arise, however, "where confidence is
based upon prior business dealings". Beneficial, 601 F. Supp. at
772. In order to recover for breach of fiduciary duty in a purely
- 17 -
business transaction, a plaintiff must show that the defendant has
superior and accurate knowledge, and the defendant "must have
misled the plaintiff by false representations concerning the
subject of his superior knowledge or expertise". Citytrust v.
Atlas Capital Corp., 570 N.Y.S.2d 275, 279 (N.Y. App. 1991)
(internal quotations omitted). "Such claims are rarely sustained
in New York." Id.
Thomas's evidence precludes summary judgment on these claims.
Chase's alleged misrepresentations relate to Price's client
relationship with Chase and banking history elsewhere -- subjects
about which Chase at least arguably had superior knowledge.
According to Thomas, Chase encouraged him to rely on its superior
knowledge regarding Price, which it obtained pursuant to an
extensive investigation. This indicates the requisite confidence
reposed by Thomas, with resulting superiority and influence by
Chase.
Moreover, the complexity of the relationships involved
counsels against a determination that Chase, as a matter of law,
did not owe a fiduciary duty to Thomas. See Crewnick Fund v.
Castle, 1993 WL 88243, at *11 (S.D.N.Y. 1993). In Crewnick, the
defendant allegedly failed to disclose material adverse financial
information when the plaintiff purchased stock in a now-defunct
savings and loan. The defendant had previously served as an
investment advisor to the plaintiff, and in the subsequent
transaction, played multiple roles. Not only did the defendant
structure the stock purchase transaction between the plaintiff and
- 18 -
a co-defendant, but it was an insider in the thrift, and was
involved in the transaction for which the co-defendant needed the
funds. The court denied summary judgment, because the complexity
of the relationships created a genuine issue of material fact about
whether a fiduciary duty was owed. Id.
Similarly, as discussed in our earlier opinion, 994 F.2d at
238-39, Chase and Thomas had extensive prior dealings involving
Columbia Investors and Acquisition Ventures, in which they
allegedly shared substantial financial interests. Additionally,
Chase held accounts for the Church & Thomas Bank during the years
preceding the events in issue. Finally, as noted, the summary
judgment evidence is that Chase encouraged Thomas to rely on its
recommendation of Price, and even sought a broker's fee from
Thomas. As in Crewnick, the complexities of the relationship
between Thomas and Chase present a genuine issue of material fact
as to whether a fiduciary relationship existed. Accordingly, the
summary judgment on those claims is reversed.
III.
For the foregoing reasons, we REVERSE the summary judgment on
the claims (both Thomas's and SLT's) for fraud, negligent
misrepresentation, and breach of fiduciary duty; and AFFIRM on the
claims for conspiracy to defraud. We emphasize again, as held in
our prior opinion, that Thomas has standing, individually and on
behalf of SLT, only to the extent that the claims relate to the
- 19 -
formation of the Price-Thomas partnership and the execution of
Thomas's management contract with it.
AFFIRMED in part, REVERSED in part, and REMANDED.
- 20 -
Thomas v. N.A. Chase Manhattan Bank
Court: Court of Appeals for the Fifth Circuit
Date filed: 1993-08-26
Citations: 1 F.3d 320
Copy CitationsCombined Opinion