Materiality, Reliance and Causation All Intertwined Elements of Fraud

Jury instructions that cause a jury to answer questions indicating that a defendant has made a negligent misrepresentation, that the plaintiff reasonably relied on this statement, but that this did not cause harm to plaintiff are not so “hopelessly irreconcilable” as to be inconsistent under at least California law.

In a breach of contracts case with a cross-complaint, the jury answered “yes” to whether a cross-defendant had negligently misled cross-plaintiff, further found that the misrepresentation was indeed material and that the cross-plaintiff had reasonably relied on the statements pertaining to incentive agreements and construction permits inducing the cross-plaintiff to enter into a gas station purchase and related agreements. However, the jury also found that the misrepresentation did not “substantially” influence the buyer to buy the gas station in the first place. Cross-defendant seller appealed, seeing to have the jury verdict set aside for inconsistency.

The court did not agree that the jury verdict was inconsistent to the point of being hopelessly irreconcilable. “Reliance and causation are intertwined concepts … Reliance must be thought of as the mechanism of causation in an action for breach.” However, by answering “no” to the question of whether the representations were “substantial factors” in causing harm to the cross-defendant, the jury “clearly must not have believed this to be the case,” said the court. Thus, no causation was found in spite of reliance on a fraud. In other words, the jury must have thought that the buyers would enter into the agreement anyway despite the misrepresentations.

Of course, clearer jury instructions would resolve a matter such as this in a more satisfactory way for clients than having courts of appeals second-guess what the jury must have thought. This case again shows the importance of careful linguistic drafting in the contracts context. Easier said than done, apparently…

The case also shows that contracts for pre-specified amounts of gas still exist.

The case is Anabi Oil Corporation v. fry’s 57 Freeway Investment LLC, 2016 WL 1749459.