In this interesting case, the parties’ PSA was reached after an agreement and was based upon Husband’s representations as to the value of his car dealership. The mediator valued it at $1.7 million. Husband had prevented any meaningful appraisal by Wife’s expert. Wife accepted the mediator’s recommendations, and the parties' PSA was incorporated but not merged in the judgment of divorce.
When, prior to entry of judgment, Wife learned that Husband was selling the dealership, she sought to avoid the PSA. Husband testified at a hearing that its value was no more than $1.1 million and that he intended to operate it for at least 11 years until he retired. A few months after the judgment was entered in July 2000, he sold the dealership for $6.6 million.
The parties’ Indian River property was appraised at $1.25 million. Husband falsely represented that he just loved “every nook and cranny” of the place and induced Wife to sell him her one-half interest. He listed it only weeks later and sold it for $1.775 million.
Greed getting the better of Husband, he then sought to reduce his alimony. Of course, discovery was taken, which revealed the true facts of the sales. Wife filed suit for fraud in December 2002--about 18 months after the judgment was entered. The jury verdict was $1,417,000. Husband appealed.
In a published case decided May 3, 2005, the Michigan Court of Appeals upheld a jury verdict of $1,417,000 where a wife sued her former husband for fraud in inducing her to enter into a property settlement agreement ["PSA"] that was incorporated, but not merged, in their judgment of divorce. Foreman v Foreman, ___ Mich App ___ (2005) [Docket No. 250412] This case is a fine illustration of the importance of non-merger of a PSA, depending, as explained below, upon your point of view.
The Michigan Court of Appeals affirmed, saying that prior case law has established that, when not merged into the judgment, the underlying settlement agreement retains its separate identity as a contract, enforceable by resort to the “usual contract remedies.” Grace v Grace, 253 Mich App 357, 364-365 (2002); Marshall v Marshall, 135 Mich App 702, 712-713 (1984)
Thus, in this interesting case, the former wife benefited from the fact that the parties' property settlement agreement was not merged in the judgment of divorce. This gave her a much larger period of time (6 years) within which to challenge the property settlement. Under Michigan's Court Rules, had the PSA been merged, then she could only have challenged the judgment if she proceeded within one year of its entry. From the perspective of the ex-husband, his interests would have been better served had he insisted upon merger, thus having the small 1 year window in time.
As to the fraud issue, one of the former husband’s appellate arguments was that his testimony about the value of the dealership was merely an opinion, which is not actionable in fraud. The Court of Appeals said, however, that the individual facts of each case would control and that while expressions of opinion in good faith are not actionable, statements of opinion made in bad faith “by one who is possessed of superior knowledge respecting such matters, with a design to deceive and mislead” can be the basis of a fraud claim. Here, the former husband made a representation based upon his personal knowledge of the value or condition of property. His testimony was not opinion, but a statement of fact. The Court said that his representations regarding what property will sell for in market conditions at a given price were a representation of fact.
The former husband also sought to avoid the fraud claim on the grounds that a fraud claim must relate to past or existing facts, not future events. The Court of Appeals rejected this argument, stating that “the mere fact that statements relate to the future will not preclude liability for fraud if the statements were intended to be, and were accepted as, representations of fact, and involved matters peculiarly within the knowledge of the speaker.”
Read Foreman v Foreman, 266 Mich App 132 (2005); lv den 475 Mich 863 (2006); reconsideration den 476 Mich 861 (2006).
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