August 15, 2019

Telling Someone What You Want to Do Is Not Fraud; Jones v. Oakland City University Founded by General Baptists

Category: Indianapolis Law Club | Author: | Share:

When negotiating a contract, an opposing party can tell you what they intend to do once you enter into the contract. This can feel like a promise, and if the other side fails to follow through, you may feel aggrieved. But this case reminds us of the lesson that if you don’t make that promise part of the contract, it may not be enforceable.

Jones was contacted by OCU to be its Vice President of Advancement. Jones discussed terms with OCU’s representatives. During those discussions, he was told that his employment would be contingent on his agreement to serve as VPA for a period of five years, during which time his duties would include preparing his prospective successor to accede to VPA upon his retirement. But the employment agreement Jones signed included neither a five-year term nor preparing his successor; it was an at-will contract.

A similar series of events occurred with another employee, Lockwood.

While working at OCU, Jones and Lockwood discovered that endowment funds may have been misappropriated. They reported these concerns to the Board of Trustees, and were fired without cause shortly thereafter.

Jones and Lockwood brought claims for fraudulent inducement and retaliatory discharge. OCU moved for judgment on the pleadings pursuant to Trial Rule 12(C), and the trial court granted that motion.

On appeal, the Court first dealt with the fraudulent inducement claims. The trial court dismissed these claims because the contracts’ integration clauses prevented a claim for fraudulent inducement. The Court said this was incorrect.

[W]hether a written contract represents the parties’ complete and integrated agreement is a question of fact that may turn on parol evidence despite what the written contract itself may say. Moreover, “[p]arol evidence is admissible when fraud is at issue” and the purported written agreement is alleged to be void. Thus, the Integration Clauses did not preclude Jones and Lockwood from introducing parol evidence to a fact finder on their claims that they were fraudulently induced to execute the Employment Agreements and, as such, that those agreements do not in fact represent the parties’ intended agreements.

But this was cold comfort to the plaintiffs, as there was another reason their claim failed. The Court noted that fraud cannot be based on “broken promises, unfulfilled predictions, or statements of intent which are not executed.” Rather, there must be “a material misrepresentation of past or existing fact.” And the plaintiffs were unable to point to such a misrepresentation.

“Indiana law has not recognized a claim for fraud based on misrepresentation of the speaker’s current intentions.” … Jones and Lockwood’s fraud in the inducement counts are premised on statements of current intentions by OCU’s officers. Specifically, the alleged misrepresentations were with respect to the durations of employment OCU’s officers had offered to Jones and Lockwood during their respective hiring processes and prior to the execution of their Employment Agreements.

Thus, the fraudulent inducement claims were properly dismissed.

The plaintiffs also failed on their retaliatory discharge claims because they reported the misuse of OCU’s funds orally, rather than in writing. The relevant statute, IC § 22-5-3-3, only protects those making written reports, so their retaliatory discharge claims were also properly dismissed.

This seems to be an unfortunate result for two people who were trying to do right by their new employer. But it shows how important it is for whistleblowers to obtain good legal advice before blowing that whistle.

Lessons:

  1. The existence of an integration clause does not preclude a fraudulent inducement claim.
  2. A fraudulent inducement claim cannot be based on broken promises, unfulfilled predictions, or statements of intent which are not executed.
  3. Indiana’s whistleblower statute only protects those who have made complaints in writing.