Jared v. Nisc Holdings
727 S.E.2d 80
Va.2012Background
- Murayama, as trustee/manager, sold Omen to NISC; trust retained 48.78% Class A voting stock, then diluted to 5.41%; settlement in 2009 required sale back of stock for $2,000,000 and released claims; Trust alleged defendants concealed sale plans and misrepresented stock value; trial court sustained demurrers based on lack of reasonable reliance; opinion addresses whether settlement could be rescinded for fraud and whether discovery should proceed.
- NISC/Omen filed a prior substantial suit alleging Murayama breached fiduciary duties and engaged in misconduct; settlement included mutual releases for all claims arising before execution and no money paid by released parties; Trust and Murayama argued they reasonably relied on misrepresentations about stock value and imminent sale.
- Documents indicated adversarial relationship at time of settlement, with explicit no-reliance language in the agreement; Trust alleged defendants hid information about potential IBM sale and high pre-settlement valuations; the court considered the prepackaged nature of the deal and the fact that discovery was suspended during the demurrer.
- Virginia law requires justifiable reliance for fraud in the procurement of a settlement; Metrocall governs that where parties in adversarial settlement negotiations are represented by counsel, reliance is narrowly scrutinized.
- Court affirmed the circuit court, holding the Trust failed to show justifiable reliance as a matter of law; discovery suspension was not abusive in light of the pleadings.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether the Trust can rescind a settlement for fraud in procurement given reasonable reliance. | Trust contends reliance on misrepresentations about stock value. | Defendants argue adversarial context and settlement terms negate reasonable reliance. | Yes, demurrer affirmed for lack of reasonable reliance. |
| Did the Trust have a fiduciary duty to disclose pre-settlement negotiations and valuations? | Trust alleges fiduciary duties required disclosure of stock value and sale negotiations. | Defendants contend no duty to disclose beyond what was in the agreement. | No, limited by settlement terms and no implied disclosure duty found. |
| Was discovery properly suspended pending ruling on the demurrer? | Discovery should continue to develop fraud evidence. | Court acted within discretion given pleadings establishing no justifiable reliance. | No abuse of discretion; discovery suspension upheld. |
Key Cases Cited
- Metrocall of Delaware, Inc. v. Continental Cellular Corp., 246 Va. 365 (1993) (fraud in settlement requires justifiable reliance; settlements may be rescinded for fraud in procurement)
- Metrocall, id., 437 S.E.2d 189 (1993) (discusses standard of reliance in settlement fraud claims)
- Kaltman v. All Am. Pest Control, Inc., 281 Va. 483 (2011) (demurrer standard; review of pleaded facts as true on de novo review)
- Ward's Equip. v. New Holland N. Am., Inc., 254 Va. 379 (1997) (statutory interpretation; admissibility of evidence in judgments; context of contract actions)
- Facebook, Inc. v. Pacific Nw. Software, Inc., 640 F.3d 1034 (9th Cir. 2011) (principles on reliance and information asymmetry in settlements (persuasive external authority))