No Reasonable Reliance in Money Washing Scheme

In a 40-plus page opinion that reads like a prince-handing-out-gold email scam, the Tennessee Supreme Court affirmed a trial court’s judgment that a plaintiff had not proven intentional misrepresentation because his reliance on the statements made could not possibly have been reasonable.

In Estate of Lambert v. Fitzgerald, No. E2015-00905-COA-R3-CV (Tenn. Ct. App. April 28, 2016), plaintiff had known defendant attorney for over forty years. Defendant somehow became involved with an “investment” scheme wherein he was promised astronomical returns on his money. Defendant was giving large sums of cash to a “diplomat” in London, who had obtained possession of six crates containing a total of $150,000,000 in U.S. currency from a man in South Africa. The money, though, allegedly had to be washed and go through various other procedures to be released. Upon its release, defendant said he had been promised $25,000,000. At some point, defendant got plaintiff involved with the promise that plaintiff too would receive $25,000,000, and plaintiff began writing large checks to defendant when asked to do so for the investment. The head of this investment scheme, Brindley, kept giving reasons it failed to close when promised—an additional license was needed, the money had to be moved to a mint in Scotland, he had to get an anti-terrorism certificate from the government—and asking for more money to help accomplish the eventual release of the cash. All information plaintiff received about the investment came from defendant, and plaintiff only spoke to Brindley two times on the phone. Even after multiple promised payout dates fell through, plaintiff continued to give more money to the scheme. Plaintiff ultimately “invested” more than $500,000 in the scheme through defendant, and defendant alleged that he invested $517,000 of his own money as well.

After being warned by his sons that this situation sounded fishy, plaintiff eventually filed suit, listing several claims in his complaint, including a claim for intentional misrepresentation. Regarding the misrepresentation claim, the trial court found for defendant, holding that plaintiff could not show reasonable reliance on the promises made by defendant. The trial court ruled:

At trial, [plaintiff’s] case was built on the premise that [defendant] must be committing fraud because no one could believe the promises made by Mr. Brindley. The Court agrees. The promises of fantastic returns for the investments, the use of cash only, the consistent and long term failure to keep any promises made by Brindley and the very idea that someone named Ebenezer Bonaparte would, for unexplained reasons, ship $150,000,000.00 of literally dirty cash from South Africa to London and then agree to turn that over to Mr. Brindley all scream fraud. …The same reasoning that applies to [defendant] applies also to [plaintiff]. During his business career, [plaintiff] successfully ran several large businesses for several years. At trial, …[h]e appeared perfectly competent. In addition, it was uncontradicted that two of [plaintiff’s] sons warned him that the deal made no sense. …All of this is to say that this Court cannot find that [plaintiff] was reasonable in his reliance on the representations made to him by [defendant] or Brindley.

The trial court ultimately only found for plaintiff on a promissory note claim, awarding him $18,000 plus $6,000 in attorneys’ fees.

On appeal, the Court of Appeals affirmed the intentional misrepresentation ruling. The Court noted that one of the elements of a misrepresentation claim is that the plaintiff was “justified in relying on the truth of the representation.” (internal citations omitted). Based on the facts here, the Court found:

[Plaintiff’s] claimed reliance upon what [defendant] was telling his as to truly unbelievable guaranteed returns and numerous other bizarre ‘facts’ as found by the Trial Court clearly was not reasonable, particularly after Brindley broke promise after promise after promise. Despite all this, [plaintiff] continued to give [defendant] money for the Investment knowing that none of the outlandish promises made by Brindley had been kept. Such behavior in light of what [plaintiff] knew could not be considered reasonable.

Interestingly, the Court of Appeals reversed the trial court’s ruling on plaintiff’s unjust enrichment claim. The Court ruled that the evidence showed that defendant had given Brindley the amount of money defendant claimed to have personally put into the investment, but that there was no evidence that defendant had actually passed the money plaintiff gave him on to Brindley. Accordingly, the Court of Appeals awarded plaintiff over $500,000.

The moral of this case for tort lawyers is that at some point reliance is simply not reasonable and will not support a misrepresentation case. Here, plaintiff’s own argument killed his case—you cannot argue that defendant could not possibly have believed certain representations, but that when defendant made those same absurd promises to you your reliance on them was reasonable. While defendant’s actions here may have fit the commonly held definition of fraud, the scheme was just too crazy to result in justifiable reliance.