Truserv Corporation v. Flegles, Inc.

RENDERED : FEBRUARY 19, 2009
TO BE PUBLISHED
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FLECxLES, INC . APPELLANT/ CROSS-APPELLE
ON REVIEW FROM COURT OF APPEALS
V. CASE NOS . 2004-CA-002487-MR AND
2005-CA-000162-MR
CARLISLE CIRCUIT COURT NO . 03-CI-00005
TRUSERV CORPORATION APPELLEE/ CROSS-APPELLANT
OPINION OF THE COURT BY JUSTICE ABRAMSON
AFFIRMING
Following a five-day trial, a Carlisle County jury awarded Flegles, Inc., a
family-owned hardware and lumber business located in Bardwell, Kentucky,
$1 .3 million in damages allegedly arising from the company's 1999-2000
construction of and move to an expanded store. Flegles claimed that the ill-
fated move was induced by fraudulent business projections provided by its
wholesale cooperative, TruServ Corporation,' and further that TruServ's
misrepresentations about its prices and its own operating losses in the late
1990s, induced Flegles to remain a member of the cooperative and to proceed
with its expansion . Holding that as a matter of law none of the alleged
misrepresentations could support a claim for fraud, the Court of Appeals
TruServ Corporation has since changed its name to TruValue Company.
reversed and in effect ordered the dismissal of Flegles' complaint. We granted
Flegles' petition for discretionary review to consider its contention that the
Court of Appeals misapplied controlling precedent . We also granted TruServ's
cross-petition for discretionary review to consider its contention that the trial
was tainted by biased jurors. Agreeing with the Court of Appeals that TruServ
is entitled to judgment as a matter of law, we affirm that Court's ruling and so
need not address TruServ's cross-petition .
RELEVANT FACTS
The Flegles family has operated a hardware and lumber business in
Bardwell since the 1920s. In the 1970s, the company joined the Cotter 8v
Company cooperative, and at that time or soon thereafter began using the True
Value® trade name. In 1997, when Cotter merged with Servistar Coast to
Coast Corporation to form TruServ, Flegles retained its membership in the
merged organization and continued to use the True Value*) name until late
2002, when TruServ terminated Flegles' membership and it joined the Acet
cooperative .
TruServ is a Delaware corporation with its headquarters in Chicago,
Illinois and, as noted, is the wholesaler for, among others, True Value*)
hardware stores . As a cooperative wholesaler, TruServ does not retain the
yearly profits from the sale of merchandise and services to its members, but
after deducting its operating expenses from its revenues it distributes any
remaining profits to the cooperative's members based on the member's share of
the year's purchases . Members thus have use of TruServ's marks and benefit
from the group buying power, group billing procedures, and other services
TruServ offers .
In the early 1990s, Flegles became desirous of expanding, in part at least
to stave off competition in the surrounding area from "box" stores such as
Lowe's and Wal-Mart . It acquired land for a new building and in 1996 availed
itself of business audits which TruServ-then Cotter and Company-provided
free-of-charge to its qualifying members. The audit was to help determine
whether an expansion was feasible and if so what form the expansion should
take . In 1996 and 1997, TruServ representatives used computer programs to
process Flegles' financial and other data and generated a 500-page report with
projections indicating that Flegles' desired expansion to a 32,000 square-foot
facility could be profitable if the new store included a product rental program,
known as "Just Ask" rental (the "1996 Audit") . In 1999, Flegles asked TruServ
to update the 1996 Audit, and again using data supplied by Flegles, a TruServ
representative generated a "guide" which projected profits for both the rental
program and the expanded store (the " 1999 Guide") . At that point Flegles
proceeded with its expansion, and the new store opened in January 2000 .
Unfortunately, Flegles encountered higher than expected building costs, which
necessitated substantial debt . Also, owing largely to a downturn in the local
construction industry, its business during the new store's first three years did
not meet TruServ's projections, particularly the projections regarding rental
profits.
In the meantime, TruServ's house was not entirely in order . Following
the aforementioned 1997 merger with Cotter, inventory accounting problems
led TruServ to overstate its profits for fiscal years 1997-99, with the result that
in 2000 the errors became public and the company was obliged to declare a
131 million loss.
When the parties "fell out" over Flegles' unpaid cooperative debt in early
2003, Flegles brought this action alleging that its expansion had been
fraudulently induced by TruServ's faulty expansion advice as well as its failure
to provide accurate financial reports . The misrepresentations, Flegles alleged,
caused losses of more than $2 million . At a jury trial in July 2004, Flegles was
awarded fraud damages of $1 .3 million . As noted above, the Court of Appeals
reversed, and Flegles now seeks reinstatement of the trial court judgment . It
contends that the Court of Appeals misconstrued the rule that statements of
mere opinion or statements about the future will not support a claim of fraud.
Convinced that the Court of Appeals correctly applied existing law, we affirm .
ANALYSIS
I. TruServ's Forward-Looking Expansion Advice Did Not Amount To An
Actionable Fraudulent Misrepresentation .
In reversing the trial court's judgment and dismissing Flegles' fraud
claim, the Court of Appeals correctly observed that in Kentucky such a claim
requires proof, by clear and convincing evidence, of the following six elements:
(1) that the declarant made a material representation to the plaintiff, (2) that
this representation was false, (3) that the declarant knew the representation
was false or made it recklessly, (4) that the declarant induced the plaintiff to
act upon the misrepresentation, (5) that the plaintiff relied upon the
misrepresentation, and (6) that the misrepresentation caused injury to the
plaintiff. United Parcel Service Company v . Rickert, 996 S .W .2d 464 (Ky.
1999) . The plaintiff's reliance, of course, must be reasonable, McHargue v.
Fayette Coal 8v Feed Company, 283 S .W.2d 170 (Ky. 1955), or, as the
Restatement states, "justifiable ." Restatement (Second) of Torts § 537 (1977) .
The misrepresentation, moreover, must relate to a past or present material
fact. "A mere statement of opinion or prediction may not be the basis of an
action." McHargue , 283 S.W .2d at 172 . This means, as the Court of Appeals
held, that forward-looking opinions about investment prospects or future sales
performance such as those involved in this case generally cannot be the basis
for a fraud claim.
There are, of course, recognized "deception" exceptions to this general
rule where the opinion either incorporates falsified past or present facts or is so
contrary to the true current state of affairs that the purported prediction is an
obvious sham. In Kentucky Electric Development Company's Receiver v . Head ,
252 Ky . 656, 68 S .W.2d 1 (1934), for example, a Depression Era case in which
securities agents bilked a seventy-year-old woman by grossly misrepresenting
the current condition of the company whose stock they were pushing and by
making outlandish promises about its future performance, the former Court of
Appeals held that a declarant who "falsely represents his opinion of a future
happening" could be subject to liability . Id. at 3. In that case, a
misrepresentation about prompt future payment of a dividend was actionable
because the company was not then financially able to pay dividends, there was
no present intention to pay the dividend, and the representation was made to
deceive the buyer . Similarly, in Edward Brockhaus Co . v. Gilson, 263 Ky. 509,
92 S.W.2d 830 (1936), the Court recognized that misrepresentations regarding
the future listing of a company's stock on a stock exchange and the company's
commencement of operations would be actionable if the speaker knew there
was no present intent to do so.
As the Head Court emphasized, however, these narrow exceptions do not
relieve market participants, particularly experienced participants such as
Flegles, of their duty to protect themselves :
It is a settled rule that mere commendation, or even
false representation by the seller of stock as to its
value, when the purchaser has an opportunity to
ascertain for himself such value by ordinary vigilance
or inquiry, has no legal effect on the rights of the
contracting parties, even when made with the
intention to deceive .
68 S .W .2d at 3 (citation omitted) . In short, the law imposes upon recipients of
business representations a duty to exercise common sense . Accordingly, other
courts attempting to delineate the scope of these exceptions have held that
absent misrepresentation of objective data, "forward-looking recommendations
and opinions are not actionable . . . merely because they are misguided,
imprudent or overly optimistic ." In re Salomon Analyst AT&T Litigation, 350
F .Supp .2d 455, 467 (S .D.N.Y. 2004) (citing Stevelman v . Alias Research Inc .,
174 F.3d 79, 85 (2nd Cir. 1999)) .
Confronted with the unavoidable fact that the 1996 Audit and the 1999
Guide are projections about future events, Flegles maintains that TruServ
misrepresented the past or existing facts on which they were based. Flegles
complains that TruServ misrepresented the reliability of its business audits in
several ways: by characterizing them as "customized" when they were based in
part on the average performance of TruServ members ; by referring to the "Just
Ask" rental program as a "cash cow" and estimating the return from that
program on the basis, again, of averages not necessarily reflective of Flegles'
circumstances; and in the 1999 Guide by generating a projection of the rental
program's performance based on optimistic market assumptions but failing to
reveal two projections based on less optimistic assumptions. None of these
allegations constitutes the sort of misrepresentation of objective fact required
by the aforementioned exceptions.
TruServ's audits were customized at least to the extent of being based on
Flegle's financial records and facts about its layout and inventory, data that
Flegles itself provided . Otherwise, the "customized" and "cash cow" references
are nothing but trade talk or "puffing," which is not actionable as fraud.
McHargue, 283 S .W .2d at 172 ("``sales talk' or ``puffing' which is universal and
an expected practice") . Nor does the fact that TruServ's analyses may not have
been particularly sophisticated or precise-employing broad averages where
more focused comparisons might have been more accurate-entitle Flegles to
relief. Although Flegles complains that the TruServ representatives it
questioned could not account for the manner in which a member survey
underlying the 1999 Guide was complied, that fact is hardly clear and
convincing evidence of fraud, inasmuch as there was no evidence that those
representatives had anything to do with producing the survey . More
significantly, there is no claim or evidence that TruServ falsified the averages it
used or based its predictions on objectively false data. The mere lack of
sophistication or precision is not fraud .
Alternatively, Flegles contends that. even if TruServ did not misrepresent
objective facts underlying its opinions, it misrepresented the opinion itself in
the 1999 Guide when it generated a relatively optimistic projection of potential
profits from the "Just Ask" rental program without also disclosing two less
optimistic projections . As noted above, however, mere optimism, even
excessive optimism, is not actionable . Surely Flegles, in business for over
seventy years, did not need TruServ to tell it that market projections are
subject to many variables and that less desirable results are always possible .
TruServ, moreover, did provide warning. Its analyses were accompanied
by disclaimers that they were based upon estimates and averages and were "for
general guidance only and do not represent any guarantee of performance."
Disclaimers, to be sure, as the Court of Appeals recently observed, do not
insulate a party from its fraud, Radioshack Corporation v. Comsmart, Inc . , 222
S .W.3d 256 (Ky. App. 2007), but they do put the opposing party on notice that
projections ought not to be uncritically relied upon. In the face of the
disclaimers in this case, a case in which there is no plausible argument that
the defendant lied about actual facts, but only, if anything, failed to share all of
its opinions (i .e ., all three projections), Flegles' action "boils down to the
hopelessly expansive claim that investors can sue an analyst because there is
some possibility that his ``actual' opinion was slightly less pro and more con
than what he presented." In re Salomon Analyst AT&T Litigation, 350
F. Supp. 2d at 468. This is not Kentucky law. Flegles would make TruServ an
insurer of its expansion merely because it failed to detail for Flegles all of the
obvious risks that the expansion entailed.
Flegles also maintains that its fraud claim is sustainable because
TruServ was its fiduciary. In Johnson v . Lowery, 270 S.W .2d 943 (Ky. 1954),
the former Court of Appeals held that a real estate agent, as a fiduciary, was
subject to liability for asserting a fraudulent opinion overvaluing the house he
had sold to the plaintiff. The court recognized the general rule that "puffing" by
sellers is not actionable, but relying on Section 542 of the Restatement (Second)
of Torts, noted that "when the rule pertaining to false representation
concerning value comes in conflict with the rule requiring utmost good faith by
a fiduciary, the former rule must yield ." Id. at 945 .
Section 542 of the Restatement (Second) of Torts (1977-2008), cited
favorably in Johnson v. Lowery, supra, provides that
[t]he recipient of a fraudulent misrepresentation solely
of the maker's opinion is not justified in relying upon it
in a transaction with the maker, unless the fact to
which the opinion relates is material, and the maker:
(a) purports to have special knowledge of the matter
that the recipient does not have, or
(b) stands in a fiduciary or other similar relation of
trust and confidence to the recipient, or
(c) has successfully endeavored to secure the
confidence of the recipient, or
(d) has some other special reason to expect that the
recipient will rely on his opinion .
Flegles contends that it was justified in relying on TruServ's allegedly
misleading expansion advice not only under the fiduciary provision of clause (b)
but under every clause of this section . However, as the Restatement's
commentary makes clear, this section is not meant to alter the general rule
that
[i]f the subject matter of the transaction is one upon
which both parties have an approximately equal
competence to form a reliable opinion, each must trust
to his own judgment and neither is justified in relying
upon the opinion of the other.
Section 542, Comment d. Flegles not only had "approximately equal
competence" in the hardware business, it had very specific competence and
knowledge about the construction industry and competitors in the Bardwell
area where it was expanding. This general premise aside, none of the four
clauses of Section 542 is applicable to the Flegles/TruServ relationship .
According to the commentary, clause (a) refers to transactions in which
the seller's expertise is in an area about which laymen know nothing and so
must rely on the specialist vendor, transactions such as sales of valuable
jewels, valuable paintings, or legal services . The services at issue in this case,
on the other hand, involved experienced businesses on both sides pooling their
judgment about business prospects . TruServ did not claim expertise in reading
the business future, but merely offered Flegles the collective experience of
TruServ's members . TruServ's knowledge, therefore, was not the sort that
would excuse Flegles from exercising its own judgment about expanding a
business it had operated since the 1920s .
Clause (b) does not apply because TruServ was not Flegles' fiduciary.
TruServ's directors and officers may well have owed fiduciary duties to the
corporation and to its shareholders, TruServ Corporation v. Chaska Building
Center, Inc . , 2003 WL 924509 (N.D .111 2003) ; KRS 2718 .8-300 ; KRS 2718 .8-
420 ; Acree v. E .I .F.C., Inc . , 502 S .W.2d 43 (Ky. 1973), but Flegles has cited no
authority holding that a cooperative wholesaler owes a fiduciary duty to its
members as customers . The relationship between wholesaler and retailer, of
course, is not one of the traditional fiduciary relationships, but is generally an
ordinary, arms-length market arrangement . A fiduciary, moreover, is one who
has expressly undertaken to act for the plaintiff's primary benefit. Steelvest,
Inc . v. Scansteel Service Center, Inc. , 807 S .W.2d 476 (Ky. 1991) . Although
fiduciary relationships can be informal, a fiduciary duty does not arise from the
universal business duty to deal fairly nor is it created by a unilateral decision
to repose trust and confidence; it derives from the conduct or undertaking of
the purported fiduciary. In re Sallee , 286 F.3d 878 (6th Cir. 2002) (discussing
Kentucky fiduciary law and noting that even banks do not typically have a
fiduciary relationship with their customers) .
Flegles contends that TruServ converted itself to a fiduciary by
undertaking to analyze Flegles' expansion prospects, but as the discussion
above makes clear, TruServ did not control any aspect of Flegles' business, it
did nothing to prevent Flegles from obtaining other information and advice
concerning the expansion, and it never undertook to act for Flegles' primary
benefit, but always acted, openly, for the benefit of the cooperative as a whole,
as it had a duty to do. The relationship between the parties, wherein Flegles
was authorized to use trademarks, received business advice, and had access to
standardized products, was much like the relationship between franchisor and
franchisee, which courts have almost universally held not to be a fiduciary one .
See William L. Killion, "Existence of Fiduciary Duty Between Franchisor and
Franchisee," 52 A. L. R.5th 613 (1997) (noting the "great majority of courts" have
refused to hold that the relationship between franchisor and franchisee or
between manufacturer and distributor is a fiduciary one) . That widely accepted
rule is persuasive here, where TruServ did nothing inconsistent with it so as to
suggest that it was assuming a fiduciary role . Flegles' decision to rely
exclusively on TruServ's analyses did not change that fact. Clause (b),
therefore, does not apply.
Clauses (c) and (d), according to the Restatement commentary, refer to
situations in which the party expressing an opinion seeks to induce reliance by
playing upon a non-business relationship with the recipient, such as friendship
or kinship, or in which he takes advantage of some disability in the recipient,
such as his illiteracy or lack of intelligence . Neither clause is pertinent to this
case .
In sum, the general rule remains that mere statements of opinion or
prediction of future performance will not support a claim of fraud . The Court
of Appeals correctly held that Flegles' allegations concerning TruServ's
12
expansion advice failed under this general rule and that no "deception"
exception to the rule applies .
II. TruServ's "Puffery" About its Prices Did Not Defraud Flegles, And Its
Failure To File Accurate Financial Statements Did Not Cause Flegles'
Losses .
Flegles also contends that TruServ defrauded it by claiming to be the
wholesaler with the best prices and by failing to disclose in a timely manner the
losses it suffered in the late 1990s. The "price" contention is meritless, for as
noted above "best price" claims are mere puffing and do not amount to fraud.
Nothing prevented Flegles from shopping for better prices if it so desired .
Otherwise, Flegles argues that had it known of TruServ's compromised
financial health it would, perhaps, have sought another wholesaler or would at
least have been more skeptical about TruServ's advice and so, in either event,
would not have undertaken the expansion. Aside from being utterly
speculative, the argument fails because, as the Court of Appeals correctly
observed, to be actionable the alleged misrepresentation must not only have
induced the recipient's reliance, but must also have caused the recipient's loss .
United Parcel Service Company, supra.
"Cause" here, of course, means legal or proximate cause, which "consists
of a finding of causation in fact, i.e., substantial cause, and the absence of a
public policy rule of law which prohibits the imposition of liability." Deutsch v .
Shein , 597 S .W .2d 141, 144 (Ky. 1980) . In Deutsch, a negligence case, we
borrowed the following discussion of "substantial cause" from the Restatement
of Torts (Second) § 431 Comment a (1965)
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In order to be a legal cause of another's harm, it is not
enough that the harm would not have occurred had
the actor not been negligent. [This] is necessary, but it
is not of itself sufficient . The negligence [here the
misrepresentation] must also be a substantial factor in
bringing about the plaintiff's harm. The word
"substantial" is used to denote the fact that the
defendant's conduct has such an effect in producing
the harm as to lead reasonable men to regard it as a
cause, using that word in the popular sense, in which
there always lurks the idea of responsibility, rather
than in the so-called "philosophic sense," which
includes every one of the great number of events
without which any,happening would not have
occurred. Each of these events is a cause in the so
called "philosophic sense," yet the effect of many of
them is so insignificant that no ordinary mind would
think of them as causes.
597 S .W.2d at 144 . Even if Flegles relied on TruServ's apparent financial
health in remaining a member of the cooperative and going forward with its
plans, the cooperative's accounting problems had absolutely nothing to do with
the viability of Flegles' expansion, and so under Deutsch the failure to reveal
those problems cannot be deemed a substantial cause of Flegles' alleged losses.
See Movitz v. First National Bank of Chicago , 148 F.3d 760 (7th Cir . 1998)
(discussing in the fraud context the distinction between transaction causation,
or reliance, and loss causation, or proximate cause) . Accordingly, the Court of
Appeals correctly ruled that this part of Flegles' claim, like the part concerning
TruServ's projections, failed as a matter of law .
III . Flegles Was Not Entitled To Additional Jury Instructions .
Finally, in addition to its fraud theory, Flegles sought jury instructions
on theories of breach of fiduciary duty and negligent misrepresentation . The
trial court refused to give the additional instructions out of concern that they
14
would confuse the jury and lead to redundant damages . Flegles contends that
the trial court erred and that even if Flegles' fraud theory fails it is entitled to a
new trial on these other claims . The Court of Appeals regarded this argument
as inadequately preserved. We agree with the courts below that Flegles is not
entitled to relief on this ground, for even if preserved the alternative claims fail
for the same reasons the fraud claim fails .
First, as noted above, TruServ did not owe a fiduciary duty with respect
to the projections, but even if it had breached a fiduciary duty with respect to
its own inaccurate financial reports that breach cannot be deemed the cause of
Flegles' alleged losses . Like the cause of action for fraud, moreover, a negligent
misrepresentation claim requires proof of an actionable misrepresentation, i .e .
"false information ." Presnell Construction Managers, Inc . v. EH Construction,
LLC , 134 S .W .3d 575 (Ky. 2004) . Flegles' allegations concerning TruServ's
mere opinions and predictions cannot be deemed to meet that requirement .
CONCLUSION
In sum, although we recognize that jury verdicts are not to be disturbed
lightly, the allegations in this case are simply that TruServ made sales
performance and profitability predictions which failed to materialize . These
allegations do not take the case outside the general rule that forward-looking
projections or opinions, even if ultimately proven incorrect, do not amount to
fraud . A contrary result would mean that anyone, whether an individual or
business entity, who undertook to make business projections in Kentucky
would proceed at great peril, and might be subject to liability to the recipient
15
even though the projections were not realized solely because of factors beyond
the predictor's control . That has not traditionally been Kentucky law, and we
decline to move in that direction . Because the Court of Appeals followed
existing law and correctly determined that Flegles failed to establish its fraud
and other claims as a matter of law, we affirm its ruling.
Minton, C .J . ; Cunningham and Noble, JJ ., concur. Scott, J ., dissents by
separate opinion in which Schroder and Venters, JJ ., join .
COUNSEL FOR APPELLANT/ CROSS-APPELLEE :
Jim L . Flegle
Loewinsohn, Flegle 8v Deary, LLP
12377 Merit Drive
Suite 900
Dallas, TX 75251
Michael Wayne Hogancamp
P.O . Box 514
Bardwell, KY 42023
COUNSEL FOR APPELLEE/CROSS-APPELLANT :
Jean Winfield Bird
Virginia Hamilton Snell
Wyatt, Tarrant 8v Combs, LLP
2800 PNC Plaza
500 W. Jefferson Street
Louisville, KY 40202-2898
RENDERED : FEBRUARY 19, 2009
TO BE PUBLISHED
~*Uyrrmr vwurf of ~Rrufurhv
2006-SC-000471-DG
2007-SC-000155-DG
FLEGLES, INC. APPELLANT/ CROSS-APPELLEE
ON REVIEW FROM COURT OF APPEALS
V. NOS 2004-CA-002487-MR 8v 2005-CA-000162-MR
CARLISLE CIRCUIT COURT NO . 03-CI-00005
TRUSERV CORPORATION APPELLEE/CROSS -APPELLANT
DISSENTING OPINION BY JUSTICE SCOTT
I must respectfully dissent from the majority's holding concerning
Flegles' fraud claim . In determining that Truserv is entitled to judgment
as a matter of law, the majority has usurped the fact-finding function of
the jury. I simply cannot agree with the majority's holding that
misrepresentations about investment prospects and expected sales
performance cannot, as a matter of law, support a fraud claim. In my
view, the jury had ample support in the record to conclude that TruServ
falsely misrepresented the potential for sales and income from the
expanded store. It would seem axiomatic to me that withholding
multiple unfavorable market projections from a client to whom one owes
a fiduciary duty, while instead presenting contrary and misleading
market information, goes to the very heart of a fraud claim. Indeed, it is
well-settled that to establish fraud in Kentucky, one must only show
(1) that defendant made a material representation; (2) that it
was false ; (3) that when he made it he knew it was false, or
made it recklessly, without any knowledge of its truth and as
a positive assertion ; (4) that he made it with intention of
inducing plaintiff to act, or that it should be acted upon by
the plaintiff; (5) that plaintiff acted in reliance upon it, and
(6) that plaintiff thereby suffered injury .
Sanford Const . Co . v . S 8, H Contractors, Inc . , 443 S .W .2d 227, 231 (Ky.
1969) (quoting Cresent Grocery Co . v. Vick, 194 Ky. 727, 240 S .W . 388
(1922)) .
In Kentucky Electric Development Co .'s Receiver v. Head , we
noted, "a misrepresentation, to be [actionable], must concern an existing
or a past fact, and not a future promise, prophecy, or opinion of a future
event, unless declarant falsely represents his opinion of a future
happening." 252 Ky. 656, 68 S .W.2d 1, 3 (1934) (emphasis added) . This
is exactly what Flegles proved TruServ did in this case - falsely
misrepresented its opinion as to the potential for sales and income at the
expanded store - how else can you characterize concealed conflicting
projections?
The majority attempts to distinguish Head by citing it for the
proposition that Flegles had a "common sense" duty to protect itself.
While this general observation may be true, it must not be overlooked
that Head acknowledges a duty upon a market participant of the
obligation to use "ordinary vigilance" in ascertaining the type of
information that would be readily available to that participant, i.e ., in
that instance, ascertaining the value of stock. See Head, 68 S .W.2d at 3
(emphasis added) . In contrast, here, regardless of Flegles' experience in
the industry, or vigilance expended, the type of information that it
required in making the business decision was uniquely in the province
and control of TruServ. No amount of vigilance could have negated
TruServ's active misrepresentation of that information.
Flegles pointed to overstated numbers for the Just Ask Rental
program and undisclosed adverse projections as evidence that TruServ's
opinion was not as it was represented . Thus, a viable case for fraud was
presented to the jury as to a misrepresentation of opinion .
In addition to the misrepresentation of opinion, TruServ
concealed from Flegles $131 million in business losses . The Court of
Appeals, however, determined that Flegles did not establish that it would
have refrained from going forward with the expansion had it known
about TruServ's loss. The Court of Appeals appears to have imposed on
Flegles the burden to establish proximate cause in demonstrating their
store loss arose from TruServ's loss. This is improper . Flegles was
entitled to show a pattern of concealment to buttress the weight of its
evidence of TruServ's intent behind its actions .
In my view, Flegles was not required to show that every grievance
that it had against TruServ was a direct cause of the business losses it
incurred at the new store, just that it related to an ongoing pattern of
concealment . To that end, Flegles presented a comprehensive case
3
revealing numerous facts and statements made by TruServ that were
false. Flegles contends that if it had known the totality of the actual
facts they would not have gone forward with the expansion . TruServ's
losses were merely one of the misrepresentations that Flegles complained
about. Certainly, if that were the entire case for Flegles; it would not be
sufficient to show causation, however, it was only a facet of the whole
case . Thus, Flegles presented a question of fact for the jury to
determine: whether TruServ's misrepresentations caused injury.
Although I agree that some of the statements amounted to "mere
puffing" or "sales talk," since the jury had an adequate and actionable
basis for determining that there was fraud, their verdict should not have
been invalidated due to the fact that some of the statements could be
properly (and maybe wrongfully) characterized as "mere puffing ."
For the foregoing reasons, I must dissent.
Schroder, J ., and Venters, J ., join this dissenting opinion .